Completion Report

Project Numbers: 32234-013 and 32234-053 MFF Number: 0004 Loan Number: 3097 November 2019

Bangladesh: Railway Sector Investment Program (Multitranche Financing Facility and Tranche 3)

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – taka (Tk)

At Appraisal At Project Completion (17 August 2006) (31 December 2015)

Tk1.00 = $0.0144 $0.0128 $1.00 = Tk69.69 Tk78.43

ABBREVIATIONS

ADB – Asian Development Bank DMF – design and monitoring framework EIRR – economic internal rate of return EMP – environmental management plan FFA – Financing Framework Agreement FIRR – financial internal rate of return FY – fiscal year GDP – gross domestic product GRC – grievances redress committee IEE – initial environment examination LIBOR – London interbank offered rate LOB – line of business MFF – multitranche financing facility NGO – nongovernment organization O&M – operation and maintenance PFR – periodic financing request TA – technical assistance WACC – weighted average cost of capital

NOTES

(i) The fiscal year (FY) of the Government of Bangladesh ends on 30 June. “FY”

before a calendar year denotes the year in which the fiscal year ends, e.g., FY2019 ends on 30 June 2019.

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

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Vice-President Shixin Chen, Operations 1 Director General Hun Kim, South Asia Department (SARD) Country Director Manmohan Parkash, Bangladesh Resident Mission, SARD Team leader Jyotsana Varma, Principal Country Specialist, SARD Team members Faiza Ahad, Associate Project Officer (Education), SARD

Kazi Akhmila, Associate Safeguard Officer (Resettlement), SARD Farhat Jahan Chowdhury, Senior Project Officer (Environment), SARD Nusrat Chowdhury, Associate Project Analyst, SARD

Md. Humayun Kabir, Associate Project Officer (Transport), SARD Tika Limbu, Senior Portfolio Management Specialist, SARD

CONTENTS Page

BASIC DATA i MAP vi I. PROGRAM DESCRIPTION 1 II. DESIGN AND IMPLEMENTATION 3

Program Design and Formulation 3 Program Outputs 5 Program Costs and Financing 6 Disbursement 7 Program Schedule 7 Implementation Arrangements 8 Technical Assistance 8 Consultant Recruitment and Procurement 8

Safeguards 9 Monitoring and Reporting 10

III. EVALUATION OF PERFORMANCE 11 Relevance 11 Effectiveness 12 Efficiency 13 Sustainability 14 Development Impact 15 Performance of the Borrower and the Executing Agency 15 Performance of the Asian Development Bank 16 Overall Assessment 16

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 17 Issues and Lessons 17 Recommendations 17

APPENDIXES 1. Design and Monitoring Framework 19 2. Summary of Implemented Railway Reform Actions 22 3. Program Cost and Financing Plan 24 4. Disbursement of ADB Loan and Grant Proceeds 26 5. Actual Investment Program Implementation Schedule 28 6. Chronology of Main Events 29 7. Organizational Chart for Project Processing and Implementation 32 8. Technical Assistance Completion Report 33 9. Assessment of Environmental Safeguards and Management 35 10. Assessment of Social Safeguards Planning and Implementation 38 11. Status of Compliance with Loan Covenants 44 12. Economic and Financial Reevaluation 60 13. Financial Performance of Bangladesh Railway and Key Indicators 85 14. Contribution to the ADB Results Framework 88

BASIC DATA A. Facility Identification

1. Country People’s Republic of Bangladesh 2. MFF number and financing source 0004-BAN 3. Facility title Railway Sector Investment Program 4. Borrower Government of Bangladesh 5. Executing agency Bangladesh Railway 6. Amount of facility $430 million 7. Financing modality Multitranche Financing Facility

B. Facility Data

1. Appraisal – Date started – Date completed

21 May 2006 25 May 2006

2. Framework financing agreement negotiations

– Date started – Date completed

14 August 2006 16 August 2006

3. Date of Board approval

10 October 2006

4. Date of framework financing agreement

7 September 2006

5. Number of amendments of financing framework agreement

1

6. Multitranche financing availability

period – In framework financing agreement – Actual

31 December 2013 6 May 2016

Disbursements

a. Dates

Initial Disbursement Final Disbursement Time Interval PFR 1 (L2316) 19 September 2007 30 June 2016 105 months, 12 days PFR 1 (L2317) 17 October 2007 1 February 2017 111 months, 16 days PFR 2 (L2845) 12 August 2013 23 June 2016 34 months, 13 days PFR 3 (L3097) 7 April 2016 11 October 2016 6 months, 15 days PFR 4 (L3376) 23 June 2016 14 December 2016 5 months, 22 days

Effective Date Actual Closing Date Time Interval PFR 1 (L2316) 24 April 2007 4 May 2017 120 months, 11 days PFR 1 (L2317) 24 April 2007 4 May 2017 120 months, 11 days PFR 2 (L2845) 5 November 2012 28 December 2016 49 months, 24 days PFR 3 (L3097) 17 September 2014 4 May 2017 31 months, 18 days PFR 4 (L3376) 30 May 2016 4 May 2017 11 months, 6 days

PFR = periodic financing request.

ii

b. Amount ($ million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

Tranche 1, Loan 2316 100.000 0.000 0.069 99.931 99.931 0.000 Tranche 1, Loan 2317 30.000* 0.000 5.384 23.986 23.986 0.000 Tranche 2, Loan 2845 150.000 0.000 0.703 149.929 149.929 0.000 Tranche 3, Loan 3097 100.000 0.000 27.351 72.648 72.648 0.000

Tranche 4, Loan 3376 50.000 0.000 27.294 22.706 22.706 0.000 Total 430.000* 0.000 60.169 369.201 369.201 0.000

*Due to currency fluctuation, L2317 was $29.37, with total $429.37

C. Multitranche Financing Facility Investment Plan ($ million) Multitranche Financing Facility Projects Financed under Tranches

Item Tranche 1 Tranche 2 Tranche 3 Tranche 4 Investment Project Subproject 1 Subproject 1

Subproject 2 Subproject 3

Subproject 4 Subproject 1 Subproject 2 Subproject 3

Reform Project Reform project Subproject 1: 64 km meter gauge track, 22 km of meter gauge loops and sidings between Tongi and Bhairab Bazar. Subproject 2: Rehabilitation of yards and extension of loops between Dhaka and Darsana and at Sirajganj Bazar. Subproject 3: Upgrading of signaling at 11 stations between Dhaka and Darsana. Subproject 4: Procurement of 50 broad gauge and 100 meter gauge passenger carriages.

1. Program cost ($ million)

Item Appraisal Estimate Actual

Investment project 352.85 387.83 Reform project 34.06 27.20 Contingencies 92.77 Financing charges 57.82 8.80

Total 537.50 423.83

2. Financing plan ($ million) Source Appraisal Estimate Actual A. ADB Loan Tranche 1 130.00 123.91 Tranche 2 150.00 149.93 Tranche 3 100.00 72.64 Tranche 4 50.00 22.71 Subtotal (A) 430.00 369.20 B. Government Tranche 1 32.50 28.93 Tranche 2 37.50 10.26 Tranche 3 25.00 12.07 Tranche 4 12.50 3.37 Subtotal (B) 107.50 54.63

Total (A+B) 537.50 423.83

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II. Tranche 3 (Loan 3097) A. Loan Identification 1. Country People’s Republic of Bangladesh 2. Loan number and financing source Loan 3097 (Tranche 3) 3. Project title Railway Sector Investment Program 4. Borrower Government of Bangladesh 5. Executing agency Bangladesh Railway 6. Amount of loan $100 million 7. Financing modality Multitranche financing facility tranche

B. Loan Data 1. Appraisal

– Date started – Date completed

9 June 2013 9 June 2013

2. Loan negotiations – Date started – Date completed

25 November 2013 25 November 2013

3. Date of approval

9 December 2013

4. Date of loan agreement

6 August 2014

5. Date of loan effectiveness – In loan agreement

– Actual – Number of extensions

4 November 2014 17 September 2014 0

6. Project completion date – Appraisal – Actual

31 July 2016 4 May 2017

7. Loan closing date – In loan agreement – Actual – Number of extensions

9 October 2016 4 May 2017 0

8. Financial closing date – Actual

4 May 2017

9. Terms of loan – Interest rate – Commitment charges – Maturity (number of years) – Grace period (number of years)

LIBOR plus 0.60% per annum 0.75% 25 5

10. Terms of relending (if any) – Interest rate

Not applicable

– Maturity (number of years) – Grace period (number of years) – Second-step borrower

iv

Disbursements a. Dates

Initial Disbursement Final Disbursement Time Interval 7 April 2016 11 October 2016 6 months, 15 days

Effective Date Actual Closing Date Time Interval 17 September 2014 4 May 2017 31 months, 18 days

b. Amount ($ million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

Goods 89.250 0.000 16.858 72.392 72.392 0.000 Interest and commitment charges

2.520 0.000 2.263 0.256 0.256 0.000

Unallocated 8.230 0.000 8.230 0.000 0.000 0.000 Total 100.000 0.000 27.351 72.648 72.648 0.000

1. Project cost ($ million) Cost Appraisal Estimate Actual ADB financing 72.10 74.43 Government financing 41.61 17.17

Total 113.71 91.60

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 41.21 16.77 ADB financed 72.10 74.43 Total implementation cost 113.31 91.20 Interest during construction costs Borrower financed 1.10 1.10 ADB financed Total interest during construction cost 1.10 1.10

3. Cost breakdown by project component ($ million) Component Appraisal Estimate Actual

A. Goods 100 meter gauge carriages (including spare parts) 50 broad gauge carriages (including spare parts) B. Equipment C. Training D. Contingencies

1. Physical contingencies 2. Price contingencies

E. Total Interest during construction F. Commitment charges

48.00 22.00

0.50 0.10

0.70 0.40 1.10 0.40

44.39 28.00 0.60 0.14

1.30

Total 72.10 74.43

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4. Project schedule

Item Appraisal Estimate Actual

Goods contracts, date of award Meter gauge passenger carriages Broad gauge passenger carriages

Q1 2007 Q1 2007

27 November 2014 27 November 2014

Completion of tests and commissioning Meter gauge passenger carriages Broad gauge passenger carriages

Q2 2008 Q2 2008

23 January 2017 24 January 2017

5. Project performance report ratings Implementation Period Ratings From 1 July 2013 to 31 May 2015 On track From 1 June 2015 to 30 June 2017 On track

D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Members

Inception 24–30 September 2014 3 14 a, o, t Review 9–20 October 2014 2 5 a, t Review 21–23 May 2015 2 6 a, t Review 24–27 March 2016 2 6 a, t Consultation 2–3 May 2016 2 6 a, o, t

a = analyst, c = consultant, d = director, e = environment specialist, f = financial specialist, h = economist, i = project implementation specialist, j = counsel, k = control officer, o = project officer, p = procurement specialist, s = social and/or resettlement specialist, t = transport specialist.

B a y o f B e n g a l

Ganges R.

Madhum

ati R.

Padma R.

Meghna R

.

Brahmaputra R.

Jamuna R

.

Teesta R

.

Hari

ngh

ala

R.

Puss

ur

R.

Kushiyara R.

Laksam

Darshana

Tongi

Bhairab Bazar

Khulna

Akhaura

Dohazari

Patiya

Chapai Nawabganj

DinajpurParbatipur

Syedpur

Joypurhat

Gaibandha

Panchagarh

ThakurgaonNilphamari

Lalmonirhat Kurigram

Bogura Jamalpur

Bahadurabad

Sherpur

Naogaon

Natore

Bonpara

Nalka

Tangail

Madhupur

Bhuapur

Sirajganj

Meherpur

Chuadanga

Jhenaidah

Magura

Faridpur

Rajbari

ManikganjPabna

Ishwardi

Jashore

Narail

KushtiaGazipur

Shahji Bazar

Brahmanbaria

Bandarban

Rangamati

Khagrachhari

Cox's Bazar

Bhola

Patuakhali

BargunaKhepupara

Mongla Port

St. Martin's Island

Bagerhat

PirojpurJhalakathi

Satkhira

Noakhali

FeniLakshmipur

Chandpur

Cumilla

Laksam

Daudkandi

Narsingdi

Akhaura

Shariatpur

Madaripur

Gopalganj

Chhatak Tamabil

Moulvibazar

Kulaura

Habiganj

Netrokona

Mohanganj

Sunamganj

Kishoreganj

Narayanganj

Munshiganj

Trimohoni

Bonarpara

Balashi Ghat

Phulchari Ghat

Jamuna

Darshana

Tongi

Bhairab Bazar

DHAKA

Chattogram

DHAKA

Rangpur

Rajshahi

Chattogram

KhulnaBarishal

SylhetMymensingh

D H A K A

K H U L N A

CHATTOGRAM

S Y L H E TR A J S H A H I

R A N G P U R

BARISHAL

M Y M E N S I N G H

Dhaka Metropolitan Area

National Capital

Divisional Headquarters

District Headquarters

Towns

National Highway

Regional Highway

Zilla/Other Road

Project Railway

Railway

River

District Boundary

Divisional Boundary

International Boundary

Boundaries are not necessarily authoritative.

BANGLADESH

RAILWAY SECTOR INVESTMENT PROGRAM

(as completed)

Kilometers

0 25 50 75

N

89 00'Eo

89 00'Eo

91 45'Eo

91 45'Eo

22 00'No22 00'No

25 30'No

25 30'No

19-1659b 18BAN AV

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

I. PROGRAM DESCRIPTION 1. Roads dominate the transport sector in Bangladesh, carrying over 70% of passengers and 60% of freight.1 The transport sector was the largest recipient of the Government of Bangladesh’s investments, accounting for about 20% of total annual development budget expenditures from 1999 to 2017. Three-fourths of these investments went to road transport, which expanded significantly at the expense of rail transport, whose market share declined steadily from 1973 to 2005, from 30% to 4%.2 A vicious cycle set in: limited investments led to declining quality and efficiency, which in turn led to poor traffic and high operating ratios. Bangladesh Railway's poor financial performance has led to ever-increasing dependence on government budget support (para. 62). Improving railways can increase the efficiency of the transport sector by relieving pressure on congested, unsafe roads.3 Railways are environment-friendly and require less land per unit of operation. Improving railways would improve passenger comfort and safety and reduce freight transport costs. 2. Bangladesh Railway has been a department directly under the Ministry of Railways since November 2011, when the new ministry was formed. Previously, it was under the Ministry of Communications. Bangladesh Railway operates a mix of passenger and freight services on a network of 2,956 route-kilometers.4 Separated into two zones—east and west—by the Jamuna River, the network comprises 1,846 kilometers (km) of meter gauge track largely in the east zone, 677 km of broad gauge track in the west zone, and 433 km dual gauge track.5 The two zones are connected through the Jamuna Bridge, currently the only east–west rail connection, essentially limited to broad gauge passenger operations because of load restrictions.6 3. On 10 October 2006, the Asian Development Bank (ADB) approved a multitranche financing facility (MFF) for the Railway Sector Investment Program for $430 million to improve rail sector performance by (i) supporting policy, organizational, and legal reforms to restructure Bangladesh Railway as a market-oriented business organization with improved financial governance, human resource, and operational systems, eventually to be transformed into a new government-owned corporate entity; and (ii) financing economically and financially viable investments in key rail corridors.7

4. The estimated cost for the MFF was $537.5 million, of which ADB was to contribute $430 million and the Government of Bangladesh $107.5 million. Collaborative cofinancing was provided by the Japan International Cooperation Agency for $116.7 million and the Export–Import Bank of Korea for $22 million.8 MFF implementation was completed on 9 October 2016, the last loan account for tranche 4 was closed on 4 May 2017, and project completion review missions were fielded in December 2018 and February 2019.

1 Planning Commission, Government of Bangladesh. 2015. Seventh Five-Year Plan, FY2016–FY2020. Dhaka. 2 Ministry of Finance, Government of Bangladesh. 2018. Bangladesh Economic Review, Appendix 38.1–38.3. Dhaka. 3 According to the Roads and Highways Department, Bangladesh, 2,088 persons died and 2,542 were injured in 1,828

road accidents in 2018. 4 Passenger services dominate and account for 85% of all traffic. 5 Broad gauge track has 1,676 mm spacing between rails while meter gauge track has 1,000 mm. Dual gauge design

uses three guard rails instead of two and allows both broad gauge and meter gauge operations. The current meter gauge system comprises 1,114 km (68%) in the east zone and 535 km (32%) in the west zone.

6 ADB. 1997. Jamuna Bridge Railway Link Project. Manila 7 ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility and Technical Assistance Grant to the People’s Republic of Bangladesh for the Railway Sector Investment Program. Manila. 8 The Japan International Cooperation Agency financed 61 km meter gauge double tracking between Chinkiastana and

Chattogram. The Export–Import Bank of Korea financed signaling between Chinkiastana and Chattogram.

2

5. The expected impact of the MFF was to promote sustainable national economic growth and poverty reduction by improving rail transport efficiency and the capacity of Bangladesh Railway. It expected far reaching reforms and critical investments to unleash transformational forces in the economy, and improved competitiveness of railways to result in foreign direct investment of $5 billion within 6 years and an increase in gross domestic product (GDP) of $60 billion over 30 years. The expected outcome was to improve the performance of the railways sector through enhanced efficiency, indicated through increased train frequency, volume of freight traffic, modal share of container traffic, and improvement in Bangladesh Railway’s operating ratios. The expected outputs were that Bangladesh Railway would become a commercially-focused service provider with improved governance and safety. 6. Investment projects under the MFF were to be financed to overcome critical rail capacity bottlenecks and replace obsolete, worn-out assets on selected rail corridors. The Dhaka–Chattogram and Dhaka–Darsana–Khulna rail corridors (Map), which cater to Bangladesh’s imports and exports, were identified with serious operational problems despite being the busiest routes.9 7. The reform and investment projects under the MFF were integrated: approval of investment subprojects depended on the implementation of specific reform actions. Five loans were made in four tranches to finance one investment and one reform project:

(i) The first tranche for $130 million, approved in February 2007, comprised two loans: (a) The first loan for $100 million financed Tongi–Bhairab Bazar meter gauge

double tracking, as subproject 1, and consulting services for design, procurement, and construction supervision as well as preparation of other subprojects.

(b) The second loan for $30 million supported the reforms project and financed an integrated information technology (IT) system for accounting, financial, and human resource management; safety and operational equipment; and related consulting services.

(ii) The second tranche for $150 million, approved in December 2011, financed (a) the cost overrun under tranche 1, (b) the Dhaka–Darsana investment subproject for yard improvements and

extension of station loops in the west zone (subproject 2), (c) the Dhaka–Darsana investment subproject for modernization of signaling

in the west zone (subproject 3), and (d) consulting services for construction supervision for items (b) and (c).

(iii) The third tranche for $100 million, approved in December 2013, financed passenger carriages.

(iv) The fourth tranche for $50 million was approved in March 2016, in the lat year of MFF availability, as additional financing for tranche 2 to meet financing shortfalls.

8. This completion report covers the MFF and tranche 3. A separate completion report was prepared for tranches 1, 2, and 4.10

9 On 2 April 2018, the Government of Bangladesh changed the spelling of Chittagong to Chattogram. 10 The expected impact of tranches 1, 2, and 4 was improved efficiency and safety of railway transport, and the expected

outcomes were improved railway connectivity, safety, and capacity on the Dhaka–Chattogram and Ihsurdi–Darshana–Khulna corridors. ADB. Forthcoming. Completion Report for Bangladesh: Railway Sector Investment Program (Tranches 1, 2 and 4). Manila.

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II. DESIGN AND IMPLEMENTATION

Program Design and Formulation 9. The MFF modality was used for the first time in Bangladesh because a performance audit of the previous Railway Recovery Program found that a program loan as a lending modality, solely pursuing policy and institutional reforms, was inadequate to achieve and sustain the objective of Bangladesh Railway overcoming constraints of inadequate infrastructure and aging rolling stock.11 Lessons learned pointed to adopting a holistic approach and addressing institutional capacity and operational weaknesses. These lessons informed the design of the MFF to integrate capacity building and modernization of Bangladesh Railway as part of the reform agenda rather than investments alone. Program preparation drew on sector work, studies, and assessments under past ADB assistance and benefitted from ADB’s long-time engagement in the sector. Program design included medium- to long-term investments with sector reforms and continued government engagement. 10. At appraisal, the investment and reform projects under the facility were fully aligned with the government’s sector investment plan 2007–2013 and railway sector road map. In fact, of the $883 million worth of projects to be implemented over 7 years under this plan, $500 million was to be financed from investment projects under this MFF. Projects under the MFF were also consistent with the government’s National Land Transport Policy 2004, ADB’s country partnership strategy, 2006–2010, and ADB’s transport sector strategy for Bangladesh. All of these emphasized increased investments and support for railways. During implementation, the subprojects were consistent with ADB’s Sustainable Transport Initiative Operational Plan 2010, which emphasized support to environment-friendly transport like railways. At completion, the program remained aligned with government priorities and ADB’s country operations. 11. The use of the MFF modality was considered sound at appraisal because it addressed Bangladesh Railway’s medium- and long-term capital-intensive investment requirements and facilitated a long-term partnership with the government to strengthen sector policies. However, since this was the first MFF in Bangladesh, and one of the first generation of MFFs in ADB, there was limited experience and guidance available on MFFs at appraisal.

12. The project design’s main deficiency was that it envisaged that the ambitious reform agenda and investment projects would be mutually reinforcing. Accordingly, numerous reform conditions for each subsequent tranche release were covenanted in the facility framework agreement and loan agreements, with 31 loan covenants related to reform actions. Because achieving these reform conditions within their time frame was unrealistic, the delay in meeting reform actions led to 2 year delays in approving investment subprojects under tranches 2, 3, and 4, adversely affecting their implementation performance. At the time of approval, the reform project was expected to be completed by 31 December 2010, and the investment project by 31 December 2013. However, both projects suffered substantial delays (paras. 30–32). 13. For the investment project, the design adopted a sector loan approach to finance a number of high priority subprojects, including (i) construction of a double line between Tongi and Bhairab Bazar ($108 million, the design also mentions a 2013-based cost of about $90 million), (ii) partial financing of construction of a chord line from Dhaka to Laksam ($119 million), (iii) strengthening of Jamuna Bridge for higher axle load ($25 million), (iv) signaling line capacity

11 ADB. 1994. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s

Republic of Bangladesh for the Railway Recovery Program. Manila.

4

improvement between Dhaka and Tongi ($5 million), (v) procurement of 50 broad gauge and 100 meter gauge carriages ($70 million), (vi) upgrade signaling in 14 stations between Dhaka and Darsana ($18 million), (vii) rehabilitation of yards and extension loops at different stations between Khulna and Parbatipur ($40 million), and (viii) construction of a new meter gauge line from Bogra to Jamtail ($80 million). Of these, only four subprojects were financed (one of them partially) under the MFF under the investment project, because the huge cost and time overruns in the Tongi–Bhairab Bazar subproject used up most of the resources and time available (para. 20).12

14. Designs for the subprojects under the MFF drew on assessments from the feasibility study prepared under technical assistance (TA) for the project.13 Procurement of passenger carriages was needed to address the high unmet demand. The design of tranche 3 was accordingly aligned with the MFF and straightforward. 15. The meter gauge (MG) design for the main investment under the MFF for the Tongi–Bhairab Bazar subproject did not plan for future gauge integration. At the time, MG was seen as an interim measure and broad gauge (BG) load standards for the track bed and bridges were built for future BG conversion.14 MG track cannot support higher speed trains and double-stacked containers with greater capacity, and is not aligned for higher freight traffic with neighboring India, which has a BG network. However, there was no approved government policy on gauge unification at the time of appraisal; the policy came later in 2013, with the approval of the Railway Master Plan, 2010–2030.15 16. Although the projects under the tranches achieved their defined targets, even if late, they did not lead to the envisaged transformation of Bangladesh Railway. However, the reform project put in place the basic building blocks for railway reform that Bangladesh Railway and ADB continue to pursue. Moreover, train frequency and safety improved significantly, even as operating ratios did not.16 The absolute volume of freight carried by Bangladesh Railway doubled from 2.19 million tons in 2012 to 4.55 million tons in 2018 and passenger traffic increased by 89% (paras. 52–53). 17. The design and monitoring framework (DMF) for the facility lacked clear logic, coherent results chain, and suitable targets (para. 52). Most output indicators were not appropriate measures for the output statements. While output statements focused on reforms for institutional development of Bangladesh Railway, most output indicators related to physical improvements. Further, the targeted outcomes were unrealistic, like the dramatic shift in modal share of container transport and increase in operating ratios. The average annual development budget of Bangladesh Railway was about $400 million in 2006 and this MFF invested $400 million over ten years, thus this expectation did not have a very sound basis. The first DMF for tranche 1 was

12 Its cost increased by 146% from $108 million at appraisal to $266 million at tranche 4 completion (para.25). Rebidding

of the main works contract led to a 24% cost increase. This cost increase necessitated a minor change of project scope and reallocations of loan proceeds under tranche 1 and 2 (Basic Data) to secure subproject financing.

13 ADB. 2000. Technical Assistance to the People’s Republic of Bangladesh for Preparing the Regional Rail Traffic Enhancement Project. Manila.

14 The counter argument against adopting meter gauge—low loading capacity and speeds, no double-stacking of containers, and insufficient maintenance facilities—was available in the final report of the project preparatory TA in

2004 (footnote 13). 15 Subsequently, ADB financed railway projects have adopted dual gauge track design standard, which is again only

an interim solution. Ultimately, Bangladesh Railway will need to create a broad gauge network on its main rail corridors to increase capacity and quality of rail services and to better integrate its rail operations with the subregional network.

16 A key financial indicator, the operating ratio is revenue divided by costs including depreciation.

5

updated for tranches 2 and 4. The DMF for tranche 3 had clear targets and aligned with the first outcome of the MFF of increased train frequency. Details in Appendix 1.

18. Collaborative cofinancing from Japan and the Republic of Korea was complementary and used to finance double tracking and signaling on other sections of the Dhaka–Chattogram rail corridor (footnote 8). At their completion review, the subprojects complied with environmental and social safeguards, including resettlement (paras. 39–42).

Program Outputs 19. At appraisal, it was anticipated that the MFF would deliver (i) the investment project comprising eight subprojects (para. 13) and (ii) the reform project (paras. 21–23). At completion, the MFF delivered four subprojects under the investment project; one of them partially. Under the reform project, Bangladesh Railway accomplished many of the targeted reform actions, while other actions by the government lay the groundwork for future railway reform, which is ongoing (footnote 21). 20. Investment project. The key outputs achieved were (i) for subproject 1, laying of 64 km of meter gauge track, including modernization of signaling, and 22 km of meter gauge loops and sidings between Tongi and Bhairab Bazar, (ii) for subproject 2, rehabilitation of yards and extension of loops at 8 stations for 18.3 km between Dhaka and Darsana and at Sirajganj Bazar, (iii) for subproject 3, upgrading signaling at 11 stations covering 78 km between Dhaka and Darsana, and (iv) for subproject 4, procurement of 50 broad gauge passenger carriages and 100 meter gauge passenger carriages. At completion, subproject 1 was delivered in three tranches instead of one (tranches 1, 2, and 4). Subprojects 2 and 3 were small in comparison, totaling about $22 million, and were delivered under tranches 2 and 4. Subproject 3 was substantially delivered, with unfinished works (30% by cost or $3.6 million) taken up under another ongoing railway project.17 Subproject 4 for procurement of passenger carriages was straightforward and successfully delivered under tranche 3 (table on page iv of Basic Data).

21. Reform project. Targeted outputs were (i) Bangladesh Railway transformed into a commercially focused rail service provider, (ii) Bangladesh Railway corporate governance improved, and (iii) Bangladesh Railway safety record improved. Reform conditions related to restructuring Bangladesh Railway into lines of business included: preparing an asset register; improving financial governance, management, and accounting systems; improving human resource governance and utilization; and transforming Bangladesh Railway into a government-owned corporate entity while enhancing the rail safety regulatory framework. 22. Though progress was slow, Bangladesh Railway ultimately met most of the reform conditions. Railway safety improved with the adoption of improved operational and maintenance standards, use of updated manuals for train operations (developed under the attached TA, para. 35), maintenance of track and permanent way, and signaling. The full implementation of the project also required procurement of IT equipment which is yet to be fully operationalized, but all

17 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Loans and Technical

Assistance Grant to the People’s Republic of Bangladesh: South Asia Subregional Economic Cooperation Railway Connectivity: Akhaura–Laksam Double Track Project. Manila. Some 174 km of dual gauge track is under construction (by 2020) under this project which also absorbed the unfinished work under the investment subproject for signaling.

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other outputs are operational and contributing to Bangladesh Railway’s improved safety performance.18 23. During program implementation, Bangladesh Railway staff decreased by 36%, from 34,168 regular employees in 2006 to 25,400 in 2018, which improved staff productivity.19 While a new tariff structure was introduced in February 2016, the challenging conditions of tranche 4—transforming Bangladesh Railway into a government-owned corporate entity with its own assets and liabilities—were only partially achieved at completion.20 Human resources reform actions for market-based recruitment and rationalized management of public service obligations were not achieved (Appendix 11). The government established a company for Bangladesh Railway’s container operations in February 2016 and appointed some staff; this remained an initial step because the company is not yet operational. However, subsequent ADB assistance continued to support and sustain reforms and develop Bangladesh Railway capacities.21 Details on the achievements under the covenanted railway reform actions are in Appendix 2.

Program Costs and Financing 24. At appraisal, the MFF financing plan was estimated at $537.5 million of ADB financing, including $400 million from ADB ordinary capital resources, $30 million from ADB’s special fund resources, and $107.5 million from the Government of Bangladesh. The MFF was completed at a total cost of $433 million, with an ADB share of $369 million (87.10%) and government financing of $54 million (12.90%). ADB financing at completion included $345 million from ADB ordinary capital resources and $24 million from ADB’s special fund resources. 25. The MFF financing plan changed because the cost of subproject 1 (Tongi–Bhairab Bazar) increased by 146%, from $108 million at appraisal (based on 2006 cost data) to $266 million at tranche 4 completion.22 At appraisal, it was envisaged that tranche 1 would finance the subproject 1 and the reform project. However, significant cost overruns in subproject 1 led to tranches 2 and 4 financing the large shortfall. Only two other small investment subprojects could be taken up from tranches 2 and 4.

26. At appraisal, the cost for passenger carriages financed under tranche 3 was estimated at $113.71 million, including $72.10 million (63.41%) financed by ADB and $41.61 million (36.59%) from the government. The actual subproject cost at loan closing because of competitive bid prices was $91.60 million, with ADB financing equivalent to $74.43 million (81.25%) and the government share $17.17 million (18.75%).

18 Key physical outputs delivered were (i) IT systems and equipment and (ii) safety and operational equipment. 19 However, a contrary view is held by some policymakers in government, and within Bangladesh Railway, that the loss

of key, highly trained staff (e.g. train drivers) in this exercise has led to a sharp decline in productivity. Bangladesh Railway has not been able to recruit the required manpower over the last decade due to government constraints on recruitment.

20 Tariffs were revised 50% on average for both passenger and freight in October 2012 for the first time since 1992. And in February 2016 (average 7%) along with approval for a new tariff structure as an index for future tariff adjustments.

21 Covenants for ongoing Bangladesh Railway projects (Akhaura–Laksam Double Track Project and SASEC Chittagong–Cox’s Bazar Railway Project) include operationalization of container corporation and ERP.

22 One reason for the cost increase was underestimation and reliance on 2006 costing data. Rebidding of the main works contract on 22 April 2010 led to a 24% cost increase. Significant cost increases became necessary because of the settlement of a contractor’s claim of price escalation. It may be noted that the report and recommendation of the President also indicates a different cost estimate of about $90 million based on 2003 data.

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27. The reform project was $30 million at appraisal and used $24.26 million at completion, mainly for procuring IT and other equipment. Details on costs and financing are in Appendix 3.

Disbursement 28. Disbursement followed ADB’s Loan Disbursement Handbook (2001, as amended from time to time). The executing agency, Bangladesh Railway, applied the appropriate disbursement procedures and ADB’s disbursement process was fairly efficient. Total disbursements under the five ADB loans totaled $369.20 million or 85.86% of the total loan amount of $430 million. Direct payment and reimbursement procedures were used.23 The MFF had an unutilized amount of $60.17 million that was canceled at completion. Surplus funds had to be canceled to keep within the MFF availability period. Loan amount categories under the five loans were reallocated as required to meet the emerging project requirements. 29. Disbursement for tranches 1, 2, and 4 was $296.55 million; tranche 3 was $72.60 million. Under tranche 3, $27.35 million was canceled (Appendix 4). Tranche 3 had savings because of competitive bid prices for passenger carriages.

Program Schedule 30. At appraisal, the reform project was expected to be completed by 31 December 2010. However, reform actions under the project continued for 10 years, until the end of the MFF availability period, which delayed the investment projects. Subproject 1, expected to be completed by 31 December 2013, took over 4 years for design and procurement, plus more than 4 years to complete construction (on 31 December 2015). The new section opened to traffic in early 2016.24 subprojects 2 and 3 took 4.5 to 5 years to complete. 31. Initial delays under tranche 1 are attributed to lack of project readiness (including lack of detailed design) and low procurement readiness at tranche approval. Subsequent delays resulted from weak procurement and prolonged procurement activities, such as reviews and approvals on both the lender and borrower side.25 In all, procurement for the Tongi–Bhairab Bazar works contract took almost 3 years, from 2008 to 2011. The tender was rebid after a misrepresentation by the lowest bidder. Bangladesh Railway took about 20 months to prepare tender documentation and another 16 months were needed for evaluations and approvals by the government and ADB. ADB took 6 months to review and decide on rebidding of works, causing a delay of one and a half years. Subprojects 2 and 3, included in tranche 2 for extension of loop lines and signaling, were appraised in early 2010, but tranche 2 effectiveness was delayed until November 2012 to meet tranche 2 reform conditions, substantially delaying implementation (Appendix 2). The signaling investment subproject also faced significant delays because of poor preparatory work, slow procurement, and slow responsiveness of Bangladesh Railway. Subprojects faced delays because strikes before the 2014 general elections hampered work. Slow progress in meeting

23 Disbursement followed ADB’s Loan Disbursement Handbook 20017, as amended from time to time. 24 The end of the liability period was 31 December 2016. 25 Expressions of interest for project implementation consultants were invited in May 2006 and the contract with the consultant was signed in August 2007. This recruitment took 16 months, while it should normally take no more than 8 to 9 months. Detailed design for the construction of Tongi–Bhairab subproject was completed in July 2008 and the bid was invited in August 2008. However, it was canceled in September 2009 and the revised bid issued in April 2010, a loss of almost two years. Finally, the contract for civil works was signed on 27 July 2011. The entire process took 36 months, which points to weak procurement capacity.

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tranche-linked reform actions delayed tranche 3 implementation (Appendix 2). Thus other four priority subprojects could not be financed under the MFF, as envisaged (para. 13). 32. In the reform project, development and design of the new integrated IT system experienced substantial delays because of weak preparation, underestimation of required resources and time, use of three separate contracts which led to lack of coordination amongst contractors, and insufficient financing and staff provided by the government and Bangladesh Railway. A comparison of the implementation schedule at appraisal and actual achievement is in Appendix 5. A chronology of events is in Appendix 6.

Implementation Arrangements 33. Implementation arrangements were appropriate and adequate. As envisaged, Bangladesh Railway was the executing agency responsible for overall project implementation. It established two units: (i) the reform implementation unit headed by a reform project director, a senior Bangladesh Railway officer at the additional director level, and (ii) the project implementation unit, headed by the general manager (projects) as project director for the investment project. An organogram is in Appendix 7. 34. An inter-ministerial committee was co-chaired by (i) the Secretary, Ministry of Communications initially, and later by the Secretary of the Ministry of Railways once it was established in November 2011 (para. 2), and (ii) the Secretary, Finance Division, Ministry of Finance. The committee provided oversight and guidance to both project directors. Other members were the Economic Relations Division, Ministry of Establishment, Prime Minister’s Office, Bangladesh Railway, and other agencies.

Technical Assistance 35. ADB-financed project preparatory TA of $900,000 equivalent was provided on a grant basis from the Japan Special Fund at ADB to help the government carry out full due diligence and prepare the project (footnote 13). In addition, a TA attached to the MFF from ADB’s Technical Assistance Special Fund of $2 million was included to provide institutional support for railway reforms.26 This TA had three components: the first was to engage an international and a national advisor to help implement the railway reform program. The second component sought to improve the operational efficiency of Bangladesh Railway and to help improve its maintenance standards and practices for infrastructure, rolling stock, signaling, and telecommunications; and improve railway safety. The third component aimed to conduct performance and procurement audits. The components were largely implemented as envisaged at appraisal, with some delay, and the expected TA outputs were delivered with appropriate quality. The TA is rated successful, and its completion report is in Appendix 8.

Consultant Recruitment and Procurement 36. Consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants (February 2006, as amended from time to time). Recruitment followed the quality- and cost-based selection procedure and was largely carried out as envisaged at appraisal. Bangladesh Resident Mission staff facilitated and supported recruitment of consultants under the MFF.

26 ADB. 2006. Capacity Development Technical Assistance for Institutional Support for Railway Reforms. Manila.

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37. Procurement of civil works and goods followed ADB’s Procurement Guidelines (February 2006, as amended from time to time) and the procurement plan. The performance of the construction supervision consultant for subproject 1 was satisfactory. (With this support, ADB undertook contract performance reviews and field visits to address implementation challenges). Another consultant provided on-the-job training and technical support that strengthened contract management of Bangladesh Railway. These actions supported improved project performance and mitigated potential further delays. Procurement for subprojects 2 and 3 was under separate works contracts in accordance with plan. Performance of the contractor for subproject 2 was satisfactory. The contractor for subproject 3 performed below par and contributed to delays in implementation. The performance of some consultants and suppliers under the reform project was not entirely satisfactory. The consultants under the TA attached to the MFF performed satisfactorily. Details are in the project completion report (footnote 10).

38. Procurement for subproject 4 under tranche 3 was satisfactory Safeguards

39. Environment. At their completion review, the subprojects complied with environmental safeguards in all aspects: design and pre-construction, natural environment, ecological environment, and environmental pollution. Subproject 1 (Tongi–Bhairab Bazar) was categorized B in accordance with ADB’s Environment Policy 2002. Mitigation measures were undertaken during preconstruction and construction phases. These included management of ballast waste; safety and cleanliness at construction site; tree planting and revegetation; and mitigating adverse effects of air pollution, solid waste and waste water. 40. Subproject 2 under tranche 2 was categorized B per ADB’s Safeguard Policy Statement 2009. Subproject 3 under tranches 2 and 4 was categorized C as its impact was assessed to be insignificant. Mitigation measures including monitoring plans for air and dust pollution, noise pollution, drinking water quality, surface water pollution, tree planting, and occupational health and safety. Subproject 4 under tranche 3 did not have any safeguards considerations as it only procured rolling stock. An assessment of environmental safeguards is in Appendix 9. 41. Land acquisition and social safeguards. At their completion review, the subprojects complied with social safeguards, including resettlement. During processing, due diligence was undertaken and resettlement frameworks prepared for subproject 1, the only subproject under the MFF to be categorized A for involuntary resettlement because it was anticipated to impact 1,956 households. It was categorized C for impact on indigenous people. During implementation, construction of the rail track required acquiring 102.43 hectares of land (including 86.52 hectares of Bangladesh Railway land and 15.91 hectares of private land), affecting 2,914 households from Narsingdi and Gazipur districts. A 2004 resettlement plan had to be updated (approved in 2011) to incorporate the increased number of impacted households. The revised land acquisition and resettlement cost increased from Tk831.73 million to Tk1,892.82 million, which was addressed through a revision of the government’s project proposal. The affected people were adequately consulted through 180 consultation meetings. All 1,164 non-titled households received due compensation. Among the 1,750 titled households, 1,672 (95.54%) received compensation by June 2016.27 Income and livelihood restoration training was provided to 278 affected persons (179 men and 99 women) and the project employed 55 other affected people in suitable positions to

27 Source: 8th Semiannual Social Safeguards Monitoring Report, June 2016.

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restore livelihoods.28 The grievance redressal committee settled all 587 issues with 374 recommendations and 213 rejections. The overall objective of the resettlement plan was fulfilled (Appendix 10). 42. Subprojects 2 and 3 had no land acquisition or resettlement, with project activities confined to the existing right of way. Subproject 4 under tranche 3 did not have any safeguards considerations as it only procured rolling stock. An assessment of social safeguards is in Appendix 10.

Monitoring and Reporting 43. Monitoring. Bangladesh Railway established a dedicated project implementation unit to monitor the investment subprojects and a consultant-supported reform implementation unit for the reform project. Construction supervision consultants monitored progress of the works contracts at the site level and reported monthly to the project implementation unit. TA consultants monitored and supported implementation of reforms. A project performance management system was established to monitor progress for all tranches with the assistance of consultants. A database was also established to monitor the progress of land acquisition and resettlement. 44. Compliance with covenants. Of 74 total covenants for the facility, 31 related to reform actions and the remaining 43 to physical investments, implementation arrangements, and safeguards. Bangladesh Railway generally complied with 40 covenants, complied late with 19, partially complied with 4, and did not comply with 11. Of 31 covenants on reform actions, it did not comply with 9; for 22 compliance was late, partial, or ongoing. Covenant implementation was slow, especially for those on railway reform actions. Covenants not complied with relate to corporatization and human resource development in Bangladesh Railway. Out of 14 covenants under tranche 3, 12 were complied with, one relating to information disclosure was partially complied, and one reform covenant was only complied with after it was reformulated. (para. 46)

45. Government complied with covenants on commercializing Bangladesh Railway after significant delays of 2–5 years. Delayed key covenants include (i) reorganizing Bangladesh Railway by lines-of-business; (ii) preparing five-year business plans; (iii) developing and implementing a new IT system for accounting, financial, and human resource management including asset registry; and (iv) introducing a new tariff structure for Bangladesh Railway core services. 46. It partially complied with covenants on restructuring Bangladesh Railway to establish it as a government-owned corporate entity four years after tranche 1 loan effectiveness. Although covenants relating to corporatization—fourth periodic financing request (PFR) conditions—were not met, new covenants to establish a government-owned corporate entity for Bangladesh Railway container operations were introduced as fourth PFR conditions.29 Changes reflected in the revised loan agreement read as additions to covenants to include the container corporation. The status of compliance of covenants in the framework financing agreement and in the loan agreements is in Appendix 11.

28 Resettlement Plan Due Diligence Report, February 2016. The resettlement plan due diligence report confirms that

livelihoods were restored to 72% affected and 28% were better off than before. Vulnerable households received full compensation in addition to allowances as per entitlement. Livelihood training was provided based on needs-assessment and to interest vulnerable households.

29 The periodic financing request report (2016) says that it was agreed in policy dialogue with government that the focus will be on the corporatization of the container business as a pilot case because corporatization of Bangladesh Railway was not immediately implementable.

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47. Reporting. During the entire facility implementation, Bangladesh Railway provided quarterly progress reports to ADB consistent with the project performance reporting system. They also prepared and updated project administration manuals during implementation and prepared and submitted audit reports annually in accordance with requirements. Audited project financial statement reports were of acceptable quality and submitted in a timely fashion, except for FY2017–2018. Under the program, an external independent audit firm under the attached TA carried out a performance audit.30

III. EVALUATION OF PERFORMANCE Relevance

48. Overall the MFF is rated less than relevant. It was aligned with government priorities and plans, ADB’s country strategy, and the relevant country business plan for Bangladesh at appraisal and completion. It also packaged together a comprehensive set of interventions for Bangladesh Railway: it offered far-reaching sector reforms and investments to decongest critical sections, enhance safety and increase traffic on existing lines, and replace ageing coaches to increase the number of trains and provide more comfort to passengers. Although it put in place the building blocks for Bangladesh Railway’s modernization and the ongoing reform agenda, in hindsight, MFF was not the best modality at completion because separate investment projects could have been financed more effectively along with a parallel policy-based loan for reform. Main deficiencies in project design were: ambitious reform agenda linked to investments, and poor estimation of project cost and time. Moreover opportunities for course correction during implementation were not taken up. Another design flaw was the overreaching ambition to expect full corporatization of Bangladesh Railway and achieve the attendant reform conditions in a short timeframe (para.12). The design linking numerous unrealistic reform conditions with progress on investments under the MFF dragged down the performance of the investment project, and was the main cause of process inefficiencies. 49. Time and cost overruns of investment subproject 1 (para. 31) led to the non-implementation of other envisaged investments subprojects like Dhaka–Laksam chord line and Bogra–Jamtail line (para. 13). The first would have reduced distance on the Dhaka–Chattogram corridor by about 100 km, and the second would have reduced distance on the northwest lines by roughly 80 km. Strengthening the Jamuna bridge would have allowed container traffic to India on the western side. Had they been financed, these projects would have significantly increased passenger and container traffic and revenues. 50. Tranche 3 is rated relevant.31 It was relevant to the government’s and ADB’s sector strategies and plans. It was aligned with ADB’s country strategy and country operations business plan for Bangladesh. Bangladesh Railway needed new passenger carriages to replace mostly old, worn out, and outdated rolling stock and meet the increasing demand for passenger traffic. The tranche design was straightforward, and scope was implemented as planned, but tranche approval was delayed because it was linked with reform conditions that were delayed.

30 Specific audit observations included (i) delay in release of government portion of mobilization advance resulted in

additional financing charges of Tk3.03 million, (ii) a variation order for Tk449 million for soft ground treatment reflected deficient BOQ estimation, and (iii) late addressing of non-conformity reports increased project costs.

31 The forthcoming project completion report for tranches 1, 2, and 4 (footnote 10) has an overall rating of successful, i.e. less than relevant, efficient, effective, and likely sustainable (Table 1).

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Effectiveness 51. Although tranches 1, 2, and 4, as well as tranche 3, are separately rated effective, the MFF is rated less than effective because it achieved only one of the three intended outcomes. The ratings of the constituent tranches do not add up to the rating for the facility because there is a disconnect in the DMFs between the targeted outcomes for the subprojects and those for the facility. This inconsistency exists because the investment subprojects had clearer targets: for example, subproject 4 under tranche 3 targeted and achieved a 10% increase in the number of trains and passengers over the baseline. (Train frequency increased from 289 in 2011 to 352 in 2017, an increase of 22%. Number of annual passengers increased from 66 million in 2011 to 90.5 million in 2018, an increase of 37%). However, the facility DMF targeted that—apart from increase in train frequency on the main Dhaka–Chattogram corridor (achieved at completion)—the MFF would lead to significant increase in freight traffic and improvement in Bangladesh Railway’s working ratio. It did not achieve these two DMF targets, partly because (i) the targets were ambitious given the short time for far-reaching reform and the relatively small size of investments under the MFF and (ii) critical projects envisaged under the MFF that could have led to greater revenues and freight traffic were not taken up because of process inefficiencies in financed subprojects (para. 49). 52. The Tongi–Bhairab Bazar subproject undeniably decongested the most critical section of the Dhaka–Chattogram corridor. The number of trains on the Tongi–Bhairab Bazar new track increased from 44 trains per day in 2009 to 52 trains per day (target 55) in 2018. It lowered travel time, increased Bangladesh Railway revenues, and provided a more environment-friendly, safer option to passengers. Freight traffic handled by Bangladesh Railway decreased steadily from the 2006 baseline (3.06 million tons) due to shortage of locomotives (30% decline to 2.01 million tons in 2012). It started picking up after 2016-2017 as new rolling stock was deployed. It doubled from 2.19 million tons in 2012 to 4.55 million tons in 2018. Container traffic grew by 15% from 73,500 twenty-foot equivalent units in 2009 to 84,500 in 2019, improving from 2018 as new locomotives are procured and deployed. The target outcome of increase in modal share of container transport from 12% at baseline to 26% was not achieved—on the contrary, modal share declined to 3-4% in 2015. Total container traffic doubled on the Dhaka-Chattogram corridor from less than one million twenty-foot equivalent units (TEU) to over 2 million TEU from 2009–2015 but over 90% of these containers were transported by roads. Container traffic carried by railway is set to improve in coming years but improvements in modal share would need a longer time to become evident. 53. Similarly, the targeted outcome for Bangladesh Railway’s operating ratio to improve to 96% in 2013 and 85% in 2018 was not achieved. Bangladesh Railway’s operating ratio did improve from 216% in 2006 to 194% in 2013 after a tariff increase in October 2012, the first since 1992. However, the operating ratio was 196% in 2018 because tariff adjustments in February 2016 were offset with wage hikes.32 Another factor impacting operating ratios is the government’s passenger service obligations to service routes that are not remunerative.33 On the positive side, passenger traffic significantly increased by 83.9%, from 42.3 million in 2005 to 77.8 million in 2017

32 Under the tariff reform of 2016, a tariff adjustment formula was approved to compensate for increased cost, such as

fuel prices and staff, repair, and maintenance expenses, to ensure that the operating ratio would remain at least at the current level without further deteriorating the financial performance of Bangladesh Railway because of inflation.

33 Government compensation for unremunerative services under the passenger service obligation scheme was kept flat without inflation adjustment, while Bangladesh Railway was directed to continue operating local train services on unremunerative routes. Best performing small to medium-size railways with a similar role as Bangladesh Railway carry a larger number of passengers both at shorter and longer distances and move freight over medium to longer distances. While such railways may carry some passenger categories, such as commuters, below financial cost, they are duly compensated and receive special targeted subsidies as public service obligation.

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during the program period, with the bulk of this traffic increase on the Dhaka–Chattogram section, according to Bangladesh Railway statistics. Passenger traffic jumped within one year to 90.05 million in 2018 as Bangladesh Railway deployed new rolling stock. Revenue per passenger nearly doubled from about Tk53 in 2012 to Tk100 in 2018. Moreover, Bangladesh Railway proposes to increase passenger fares in 2019. Freight revenue per ton grew from Tk438 in 2012 to Tk628 in 2017. With higher revenues, Bangladesh Railway could improve its financial performance and operating ratios. 54. Tranche 3 is rated effective. The procured broad gauge and meter gauge carriages were delivered and commissioned in accordance with established plans. They were successfully put into operation by Bangladesh Railway on its key rail corridors. The project completion review mission traveled in the new meter gauge passenger carriages and found them to be in good order and fully utilized in Bangladesh Railway operations. 55. Safeguards implementation is assessed as satisfactory for the entire MFF. The relevant environmental and social safeguard policies and established good practices from previous projects were applied to the investment subprojects financed under the tranches. The grievance redressal mechanism was effective in addressing safeguard issues. While tranche 1 initially experience non-compliance, Bangladesh Railway took substantive corrective action to address critical issues, which resulted in full compliance. The program did not affect indigenous people and had no specific gender elements (paras. 39–42). The subprojects did not overlap with other development partners’ activities (para. 4).

Efficiency 56. Economic reevaluation. The overall rating of efficiency for all four tranches is efficient. The economic internal rate of return (EIRR) calculated for all investment projects at project completion is 18.7%. Sensitivity analysis shows all four MFF investment subprojects remain economically viable with a 10% increase in operation and maintenance (O&M) costs (18.6%) or 10% decrease in benefits (17.4%). The efficiency rating may have been higher if all project components had been completed and project process efficiency had not been poor, i.e. more than 5 year delay and 146% cost overrun. A detailed economic and financial reevaluation is in Appendix 12. 57. For subproject 1 (Tongi–Bhairab Bazar) the EIRR at appraisal in 2006 was 16% and at reappraisal in 2016 was estimated at 20.5%.35 At project completion the reevaluated EIRR of subproject 1 was 19.9%.34 The two smaller subprojects (2 and 3) for signaling and loop lining of a selected section on the Darsana–Dhaka line had EIRRs at appraisal in 2011 of 12.9% and 28.2% respectively. At completion the three subprojects together had reevaluated EIRR of 27.07%. Sensitivity analysis indicates subproject 1 will remain economically viable with a 10% increase in O&M costs (19.8%) or 10% decrease in benefits (18.7%). Subprojects 2 and 3 remain economically viable under similar changes in benefits and costs. Combined EIRR for them is 27.07%. 58. The overall rating of efficiency for tranche 3 is efficient. At appraisal in 2016, before approval of tranche 4, the EIRR was 31.9% for the procurement of passenger coaches. At completion the reevaluated EIRR was 26.2% (footnote 35). Sensitivity analysis indicates the

34 ADB Guidelines for Economic (2017) and Financial (2005) Analysis.

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project will remain economically viable with a 10% increase in O&M costs (25.5%) or 10% decrease in benefits (22.6%).

Sustainability 59. Financial reevaluation. Investment subprojects 1 and 4 under the MFF are revenue generating, and financial sustainability is assessed by calculating the financial internal rate of return (FIRR) and comparing it to the weighted average cost of capital (WACC) at appraisal. The FIRR for all investment subprojects combined was reevaluated at 4.2% and the WACC at 3.58%. However, the combined sensitivity analysis of all investment subprojects is lower than the WACC only if O&M continues to be supported through the government budget. 60. The FIRR for the Tongi–Bhairab Bazar section was 14% at appraisal in 2006 and revised downwards to 8.5% at reappraisal in 2016 (footnote 35). The reevaluated FIRR is 5.2% for the Tongi–Bhairab Bazar section. The WACC was recalculated at 3.59%, higher than 2.8% at appraisal in 2016 at tranche 4 submission. A sensitivity analysis tested the impact of variations in project revenue and O&M costs. Because the recalculated FIRR for subproject 1 is marginally higher than the WACC, the adverse changes tested all yielded marginally higher or equal to WACC. According to Bangladesh Railway, there is room for an appropriate increase in tariffs, as proposed by the government in 2019. 61. No FIRR is calculated for the signaling and loop line subprojects, because they are not revenue generating projects but improve safety and punctuality. Financial analysis for subproject 4 for procurement of passenger coaches considered two scenarios: with support and without support. The FIRR with support is calculated to be about 6.8%, and without support is about 3.5%, indicating that the revenue from passengers alone does not cover the O&M expenses. The FIRR for the with-support scenario in the sensitivity analysis is higher than WACC of 3.59%. A detailed economic and financial reevaluation is in Appendix 12. 62. The financing gap is met by government budget support, which increased over five times from less than Tk27,000 million in 2010 to more than Tk140,000 million in 2018. Strong government commitment and budget support will ensure sustainability of all MFF subprojects. The government recognizes the importance of rail transport and is keen to modernize and expand the railway system, improve rail operations, and expand both freight and passenger services.35 It supports strengthening Bangladesh Railway institutional capacity and sector reforms. The government has continued to receive ADB support for track expansion, procurement of rolling stock, policy reform, and capacity development.

63. Adequate staff and O&M resources are available for this project from Bangladesh Railway and government support.36 The subprojects are technically sustainable because they were designed using proven technologies with appropriate construction quality and support environmentally sustainable growth. Tranche 3 investment is likely sustainable for the same reasons. On balance, investments under the MFF are likely sustainable. Financial projections for Bangladesh Railway are in Appendix 13.

35 Linked document 13, para. 11 (Financial Performance of Bangladesh Railway). Periodic Financing Request for

SASEC Chittagong – Cox’s Bazar Railway Project, Phase 1, tranche 2. October 2018. 36 According to Bangladesh Railway, 276 staff are deployed and an annual O&M budget of Tk130 million is available.

Separately mentioned without figures in Project Completion Report. MFF 0004: Bangladesh Railway Sector Investment Program. Bangladesh Railway. June 2016.

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Development Impact 64. Based on the impact statement in the original DMF for tranche 1, updated DMF for tranches 2 and 4, and assessed performance, the development impact for the facility is rated satisfactory. The MFF had expected that GDP would grow and attract additional foreign direct investment of $5 billion by 2012, increasing GDP by $60 billion over 30 years. While GDP grew an average of 6.5% over the last ten years and foreign direct investment increased during program implementation, neither of these can be solely attributed to the MFF. That said, investments and reforms under the MFF improved local mobility and contributed to economic growth. Although difficult to quantify, access to improved railway facilities and rail transport services generated jobs and supported medium- to long-term socioeconomic development. 65. Investments under the MFF made travel affordable, faster, and safer for people.37 Train journey time between Dhaka and Chattogram decreased by at least 1 hour on average, taking about 6–7 hours, while the same journey by road takes at least 7–8 hours.38 The upgraded services improved local mobility. Container trains on the same route have a time saving of 4.5 to 5 hours on an average. Access to improved railway facilities and rail transport services contributed to increased opportunities for private sector services, e.g. train operations and catering. 66. Reforms under the project created the foundation framework for ongoing reform (footnote 20). Rail safety increased, with fewer derailments. Overall institutional impact is assessed satisfactory, especially considering ongoing reform.

67. The development impact of tranche 3 is assessed satisfactory because it contributed to the stated impact, based on records and reported data. In 2016, 50 broad gauge and 100 meter gauge passenger carriages were commissioned. Total passenger-kilometers increased from 8,787 million in 2011 to 12,933 million in 2018; the number of annual passengers increased from 66 million in 2012 to 90 million in 2018.39

Performance of the Borrower and the Executing Agency 68. Overall, the performance of the borrower and Bangladesh Railway is rated less than satisfactory for the facility including tranche 3. On the positive side, the borrower and Bangladesh Railway established a steering committee and two project implementation units to support tranche implementation. Bangladesh Railway coordinated closely with ADB, including the Bangladesh Resident Mission, on physical aspects of tranche implementation and dealt with any implementation concerns in a satisfactory manner. 69. The borrower’s performance was below expectation in reform implementation. Most reform actions were taken late, some not at all, and a few covenants were not met. Bangladesh Railway could have done a lot more to commercialize its operations in line with the covenanted reform program. The significant delays in procuring the main civil works and installing the integrated IT system were partly because of long government procedures. The borrower’s

37 The fare between Dhaka and Chattogram during daytime on the new passenger carriages for first class intercity

passenger services is Tk1,000. The corresponding fare for traveling in old carriages is Tk645. 38 According to Bangladesh Railway’s working timetables number 51 and 49, the Suvarna Express 701 between Dhaka

and Chattogram takes 70 minutes less in 2017 than in 2012, and the Mahanagar Godhuli Express 703 on the same route takes 60 minutes less in 2017 than in 2012.

39 Tranche 3 contributed specifically to ADB’s results framework and the reported indicator: use of railways built or upgraded.

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performance for tranche 3, which only included procurement of rolling stock, was satisfactory. (Appendix 11).

Performance of the Asian Development Bank 70. Overall, ADB’s performance is rated less than satisfactory. The MFF and the four tranches were processed by ADB headquarters in close coordination with Bangladesh Railway with assistance from ADB’s Bangladesh Resident Mission. During implementation, ADB provided guidance and support to the government and fielded loan review, special loan administration, and consultation missions that followed up on implementation matters on physical investments and the challenging railway reforms (although missions were few). ADB also monitored the financial performance of Bangladesh Railway. 71. ADB could have considered changing the overly complex and ambitious MFF design during implementation. Insufficient project preparatory work, and funds available for it, led to major delays. ADB responsiveness to some procurement submissions by the government was slow. ADB could have also convinced the government to reduce fragmentation of the railway network in different gauges. Performance for tranche 3, which was straightforward procurement of rolling stock, was satisfactory.

Overall Assessment 72. The overall rating for the MFF is less than successful. The facility is less than relevant because while the subprojects were aligned with the government’s development objectives and ADB policies, the complex MFF design and unrealistic reform expectations dragged down implementation performance. For effectiveness, the overall rating for the facility is less than effective because it did not achieve two of three envisaged outcomes. Also, four of the eight envisaged investment subprojects could not be taken up because of process inefficiencies. However, the MFF was overall efficient because the benefits from the financed subprojects were greater than if the money were invested in competing projects. The EIRR for the subprojects is above the hurdle rate and the economic opportunity cost of 12% despite cost overruns and significant delays. The overall rating for sustainability is likely sustainable based on strong government commitment and available O&M support for the subprojects. Also pertinent is the government’s continued financial support to Bangladesh Railway, tariff increases undertaken and planned, Bangladesh Railway capacity to operate and maintain railway assets, and continued reforms. Details are in Appendix 13. 73. Tranche 3 is rated successful based on its assessed relevance, effectiveness, efficiency, and sustainability. It was relevant and rated effective because it met planned outcome and output targets. Tranche 3 is rated efficient in achieving its outcome and outputs, because the EIRR for the project is above the hurdle rate and the economic opportunity cost of 12% and the FIRR in the with-support scenario exceeds the WACC in light of strong government budget support to Bangladesh Railway. With the support provided under the MFF and observed capacity to operate and maintain the rolling stock, tranche 3 is rated sustainable.

17

Table 1 Overall Ratings

Rating Criteria Tranche 1, 2, and 4 Tranche 3 MFF Relevance Less than relevant Relevant Less than relevant Effectiveness Effective Effective Less than Effective Efficiency Efficient Efficient Efficient Sustainability Likely Sustainable Likely Sustainable Likely Sustainable Overall Assessment Successful Successful Less than Successful Development Impact Satisfactory Satisfactory Satisfactory Borrower or BR Less than satisfactory Satisfactory Less than satisfactory Performance of ADB Less than satisfactory Satisfactory Less than satisfactory

ADB = Asian Development Bank, BR = Bangladesh Railway, MFF = multitranche financing facility. Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

Issues and Lessons

74. Quality of design. There were too many covenants (74 in all), and many of those related to reform actions were overambitious and unrealistic. The DMFs prepared under the MFF were weak, lacked good targets, and were not quantifiable (para. 17). Realistic targeting and sound estimation would have led to a better design. 75. Limited follow-through for railway reform. Continued high-level discussions with the government on substantive issues may have shown better results. Champions at high levels within the government could have been identified to push the reform agenda.

76. Weak monitoring and reporting. Available records point to weak implementation with few review missions. There is no record of any midterm review. The possibility for course correction was missed. Major delays in the reform program and financed subprojects indicate shortcomings in the project management system, which was not well-resourced during subproject preparation or implementation phases. The project completion review mission struggled to find aide-mémoire and other records of discussion.

Recommendations

1. Project-Related

77. Reformulation of railway reform. Renewed government commitment and action should be sought for (i) operationalizing the corporate entity for Bangladesh Railway’s container business; (ii) operationalizing the IT system for financial, accounting, and human resource management; (iii) strengthening the functioning of lines of business; (iv) adopting business and operations improvement plans; and (v) further outsourcing Bangladesh Railway’s core and noncore business activities. 78. Covenants. Covenants related to fully corporatizing Bangladesh Railway and operationalizing the container corporation need to be taken up in policy dialogue with the government.

79. Timing of the project performance evaluation report. The project performance evaluation report should be prepared after completion of the facility completion report.

18

2. General

80. Reforming Bangladesh Railway operations. The government needs to create enabling conditions for Bangladesh Railway to improve its operating ratios and decrease its annual deficit by increasing revenues and reducing expenditures. Revenues should be increased by adjusting annual tariffs to cover price escalation and salary bills, prioritizing lucrative passenger and freight operations through route analysis, and increasing the share of higher-class services. Bangladesh Railway needs to increase efficiencies in operations by increasing engine and coach kilometers per day, shortening maintenance idle times, managing inventory, increasing capacity by modernizing signaling, and optimizing O&M expenditures. Bangladesh Railway should run frequent short distance trains to relieve road traffic congestion, optimize engine and coach kilometers per day, increase comfort for passengers and increase revenues. These measures will also help optimize the newly purchased rolling stock. 81. Priority investment areas. Investments in railways in Bangladesh should be prioritized to eliminate railway network fragmentation to allow running trains at higher than 80 km/hour. The government should consider progressing to broad gauge rather than dual gauge, especially on sections that can be directly converted. For the Dhaka–Tongi–Bhairab Bazar–Akahura–Laksam–Chattogram section, this may mean creating dual or broad gauge tracks from Tongi to Akhaura (which includes the Tongi–Bhairab Bazar section) and from Laksam to Chattogram. The dual gauge section from Akhaura to Laksam supported by ADB is expected to be completed in 2020. Another priority should be to boost container traffic from the main port in Chattogram to an inland container depot outside the current location in Kamlapur in the congested capital. The planned project to build another depot at Dhirasram should be speeded up. Similarly, the planned project for another rail bridge on the Jamuna River should be speeded up to allow container traffic to directly access India on the western side. Bangladesh Railway should run several diesel electric multiple unit trains at very small intervals over short distances like Dhaka–Tongi, Dhaka–Narayanganj, and even from within the city (Motijheel, Kamlapur) to the airport and beyond, which will relieve traffic congestion on roads and increase comfort for passengers and revenue for Bangladesh Railway.

Appendix 1 19

DESIGN AND MONITORING FRAMEWORK — FACILITY

Design Summary Performance Targets/Indicators

Achievements Source

Impact Promote sustainable national economic growth and poverty reduction in Bangladesh. It will achieve this by improving rail transport efficiency and capacity.

Increase in GDP and attract additional foreign direct investment. Improved competitiveness of railway expected to result in foreign direct investment of $5 billion by 2012 resulting in GDP increase of $60 billion over 30 years

Achieved. GDP increased from $62 billion in FY2006 to $274.1 billion in FY2018, much more than the envisaged $60 billion increase over 30 years. Stock of foreign direct investment increased from $3.8 billion in FY2006 to $15.8 billion in FY2018, exceeding the envisaged $5 billion

increase.

National economic data and statistics.

Outcome Improve the performance of the railways sector through enhanced efficiency

(i) Train frequency in Dhaka-Chittagong corridor increased by 10% by 2008 (ii) Absolute volume railways for freight traffic increased by 115% for Dhaka-Chittagong corridor, 115% for Dhaka-Darsana-Corridor by 2015 and increase modal share of container transport from 12% currently to 26% by 2015 (iii) Working ratio improved to 0.96 by 2013 and 0.85 by 2018

(i) Achieved at completion. Train frequency increased more than 10% by end of program completion in 2016. (ii) Not achieved. Absolute volume of freight carried decreased from 3.06 million tons to 2.55 million tons in 2015, and increased to 4.55 million tons in 2018. In 2009, container traffic carried by railway on the Dhaka-Chattogram corridor was 73,500 TEU which declined to about 67,000 TEU in 2015, modal share was about 3-4%. (iii) Not achieved. BR’s operating (working) ratio improved from 2.16 in 2006 to 1.68 in 2013, but was lower than target. 1.78 in 2018.

BR annual information booklet BR operational data and statistics BR project completion reports Consultancy reports

Outputs BR becomes a commercially focused rail service provider

(i) New BR organizational structure complemented by new financial management and accounting systems

(i) Substantially achieved. New lines-of-business organizational structure

BR annual information booklet

20 Appendix 1

BR corporate governance is improved BR safety record is improved

as well as human resource systems implemented (ii) Dhaka-Chittagong railway line is completely doubletracked (iii)Tracks, and signaling systems in other key corridors improved (iv) Sufficient numbers of rolling stock is procured (v) Number of derailments is reduced by 20% in 2009 compared to baseline figure in 2005

introduced at BR. New integrated financial management and accounting and human resource system installed. Yet to be fully operational. New integrated financial management and accounting and human resource system support improved corporate governance. (ii) Partially Achieved. Final double tracking for Akhauara-Laksam section is currently ongoing through another ADB-assisted project, to be completed in 2020. (iii) Achieved. Yards at stations and loop lines and signaling were improved on the Dhaka -Khulna rail corridor. (iv) Achieved. Envisaged rolling stock was procured under the MFF. (v) Achieved. Derailments declined from 790 in 2006 to 408 in 2009, 48%. 64 in 2018.

BR operational data and statistics BR project completion reports Consultancy reports

Appendix 1 21

DESIGN AND MONITORING FRAMEWORK — TRANCHE 3

Design Summary Performance Targets/Indicators

Achievements Source

Impact Efficient and safe railway transport in Bangladesh

Bangladesh Railway will operate additional 916 million passenger- kilometers per year (2011 baseline 8,787 million passenger-kilometer) Number of passenger casualties remains zero (2011 baseline: zero)

Partially achieved. Total passenger-kilometers increased to 12,933 million passenger-kilometers in 2018. Achieved. 8 reported casualties in 2017, which is 0.1 per million passengers.

Bangladesh Railway Annual Information Book BR operational data and statistics

Outcome Improved railway transport capacity in the main line network of Bangladesh Railway

Number of daily passenger trains increased by 10% (2011 baseline: 289) Number of annual passengers increased by 10% (2011 baseline: 66 million)

Achieved. Daily passenger trains increased by 22% to 352 in 2017. Achieved. Annual passengers increased by 17% to 77 million in 2017 and by 37% to 90.5 million in 2018

Bangladesh Railway Annual Information Book

Output New passenger carriages commissioned

Commissioned for Bangladesh Railway's main line network: - 50 broad gauge passenger carriages; - 100 meter gauge passenger carriages

Achieved. 50 broad gauge and 100 meter gauge passenger carriages commissioned in 2016

BR project completion report BR records

22 Appendix 2

SUMMARY OF IMPLEMENTED RAILWAY REFORM ACTIONS An ambitious reform agenda was to be implemented by the Government of Bangladesh and Bangladesh Railway under the multitranche financing facility for the Railway Sector Investment. Implementation was slow, especially on actions relating to corporatization of BR. Below is a summary of implemented railway reform actions. A. Reform Action 1: Restructure Bangladesh Railway (BR) by line of business Second PFR conditions (1 year from loan effectiveness):

(i) Completed reorganization of BR by line of business (LOB) (ii) Developed an agreed 5-year business plan for each LOB and for BR as a whole

including key operational and financial targets (iii) Developed key performance indicators for each LOB for each LOB to achieve

business plan target Third PFR conditions (2 years from loan effectiveness):

(i) Completed BR asset registry (ii) Identified non-core services and approved outsourcing/divestiture plan (iii) Reviewed performance of LOBs and reported on performance

Fourth PFR conditions (4 years from loan effectiveness): (i) Completed partial divestiture or outsourcing of non-core services B. Reform Action 2: Improve Financial Governance System Second PFR conditions (1 year from loan effectiveness):

(i) Developed an architecture for a new accounting and financial management system that will produce financial statement in conformity with international accounting standards and enable restatement to conform to Government reporting requirements

Third PFR conditions (2 years from loan effectiveness):

(i) Implemented a new accounting and financial management system on pilot basis with agreed architecture

(ii) Identified passenger services that need public service obligation and mechanism to calculate and pay public service obligation compensation

(iii) Identified an internal pricing structure for LOB services Fourth PFR conditions (4 years from loan effectiveness):

(i) Implemented a tariff structure for freight services that was adopted in 2016 C. Reform Action 3: Improve Human Resource Governance System Second PFR conditions (1 year from loan effectiveness):

(i) Set up a personnel database as part of new integrated information technology (IT) system

(ii) Identified personnel requirements, skills for each LOB and skills shortages and surplus and training and retraining needs and new positions

Appendix 2 23

Third PFR conditions (2 years from loan effectiveness):

(i) Initiated limited work on redefined job descriptions, and career advancement processes needed to optimize LOB structure

(ii) BR did not recruit and appoint any managers from outside BR

Fourth PFR conditions (4 years from loan effectiveness): (i) BR was not transformed into a corporate entity. No actions were taken to

examine financial remuneration structure for BR employees or formulate performance-based incentive structure.

D. Reform Action 4: Transform BR into a Government-owned Corporate Entity Fourth PFR conditions (4 years from loan effectiveness):

(i) Instead of transforming BR into a corporate entity, the Government established and enacted in 2014 a corporate entity for BR’s container operations. However, it is not yet operational even as few staff have been posted as a token measure.

E. Reform Action 5: Improve BR Operation and Maintenance Practices and Performance Second PFR conditions (1 year from loan effectiveness):

(i) A basic monitoring system was implemented to collect and analyze LOB performance.

Third PFR conditions (2 years from loan effectiveness):

(i) New standards for maintenance of track and permanent way and rolling stock maintenance were adopted by BR.

(ii) An operational improvement program and action plan was adopted which reduced journey times on the Dhaka–Chattogram corridor.

(iii) Relevant train operations and maintenance manuals were updated and formally adopted and used by BR.

24 Appendix 3

PROGRAM COST AND FINANCING PLAN

Table A3.1: Project Cost at Appraisal by Financier ($ million)

Item At Appraisal Actual A. Investment Project

Subproject 1 – Tongi-Bhairab Bazar Double Track 108.0 276.87 Subproject 2 – Rehabilitation of Loop Line Darsana-Khulna 8.5 12.5 Subproject 3 – Upgrading of Signaling Darsana-Khulna 22.0 9.26 Subproject 4 – Procurement of Carriages 78.0 89.2 Other investment subprojects 135.4 -

Subtotal (A) 351.9 387.83 B. Reform Project 34.1 27.2 Subtotal (A+B) 386.9 415.0*

C. Contingencies 92.8 - D. Financial charges 57.8 8.8

Total (A+B+C+D) 537.5 423.8 *Cost included contingencies

Table A3.2: Investment Program Financing

($ million) At Appraisal Actual

Source Total Cost % of Cost Total Cost % of Cost ADB OCR 400.0 74.4 345.2 81.5

ADF 30.0 5.6 24.26 5.6

Government 107.5 20.0 54.8 12.9 Total 537.5 100.0 423.8 100

Table A3.3: Project Achievement

Component

Project Cost

Physical achievement

Weights

(actual cost /

total cost)

Achievement (weight x physical

achievement)

At Appraisal Actual % % % A. Investment Project

Subproject 1 – Tongi-Bhairab Double Track

108.0 276.87 100 0.67 67.0

Subproject 2 – Rehabilitation of Loop Line

8.5 12.50 100 0.03 3.0

Subproject 3 – Upgrading of Signaling*

22.0 9.26 65 0.02 1.3

Subproject 4 – Procurement of Carriages

78.0 89.20 100 0.21 21.0

B. Reform Project 34.1 27.20 82 0.07 7.0 Total 386.9 415.0 100 99.3

Note:* Remaining works were completed under Loan 3169

Appendix 3 25

Table A3.4 Tranche 3 Costs ($ million)

Component At Appraisal

(1) Actual

(2)

Cost Difference

(3=1-2)

Variance

(%) A. Goods

100 meter gauge carriages (including spare parts) 50 broad gauge carriages (including spare parts) B. Equipment

C. Training D. Contingencies

3. Physical Contingencies 4. Price Contingencies

E. Interest during Construction

F. Commitment Charges

48.00 22.00

0.50

0.10

0.70 0.40

1.10

0.40

44.39 28.00

0.60

0.14

- -

1.3

3.61

(6.00)

(0.10)

(0.04)

0.7 0.4

(0.2)

0.4

7.52 27.27

20.00

40.00

0.00 0.00

18.18

0.00

Total 72.10 74.43 (1.23)

Table A3.5 Tranche 3 Financing ($ million)

At Appraisal Actual Source Total Cost % of Cost Total Cost % of Cost

ADB 72.10 63.41 74.43 81.25 Government 41.61 36.59 17.17 18.75

Total 113.71 100.0 91.60 100.0

26 Appendix 4

DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS Table 4.1: Annual and Cumulative Disbursement of ADB Loan Proceeds

($ million)

Annual Disbursement Cumulative Disbursement

Amount ($ million)

Amount ($ million)

% of total amount

Year L2316 L2317-COLa L2845 L3097 L3376 Total

% of Total

2007 0.99 0.38 1.37 0.00 0.92 0.00

2008 2.12 0.45 2.57 0.01 3.49 0.01

2009 1.05 0.83 1.88 0.01 5.37 0.01

2010 1.06 0.32 1.38 0.00 6.75 0.02

2011 20.08 1.39 21.47 0.06 28.22 0.08

2012 18.82 1.86 0.02 20.70 0.06 48.92 0.13

2013 47.74 4.76 40.39 92.89 0.25 141.81 0.38

2014 2.56 6.34 68.40 0.02 77.32 0.21 219.14 0.59

2015 1.62 1.41 39.67 0.15 42.85 0.12 261.99 0.71

2016 3.90 5.71 1.45 72.47 22.71 106.24 0.29 368.23 1.00

2017 0.53 0.53 0.00 368.76 1.00

Total 99.93 23.98 149.93 72.64 22.71 369.20 1.00 a in SDR 16,119,556.17;ADB = Asian Development Bank. Source: Asian Development Bank.

Table A4.2: Annual and Cumulative Disbursement under Tranche 3 ($ million)

Annual Disbursement Cumulative Disbursement

Amount ($ million) Amount

($ million) % of

total amount Year L3097 Total % of Total 2014 0.02 0.02 0.000 0.02 0.000 2015 0.15 0.15 0.002 0.17 0.002 2016 72.47 72.47 0.997 72.64 1.000 Total 72.64 72.64 1.000

Appendix 4 27

Figure 4.1: S-Curve for MFF 0004- Projections Vs Actual

0

50

100

150

200

250

300

350

400

450

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2010 2011 2012 2013 2014 2015 2016 2017

$ m

illi

on

Contract Awards (Actual ) Disbursements (Actual )

Contract Award (Original Projection) Disbursement (Original Projection)

28 Appendix 5

ACTUAL INVESTMENT PROGRAM IMPLEMENTATION SCHEDULE

Appendix 6 29

CHRONOLOGY OF MAIN EVENTS Dates Activity

2000 - 2003

29 August 2000 Approval of PPTA 3490-BAN: Regional Rail Traffic Enhancement

Feasibility study

Policy dialogue on railway reform

2004

30 May-10 June ADB Fact Finding Mission 15 July ADB Management Review Meeting 2005 27 Feb-07 Mar ADB Consultation Mission

13-14 March ADB Consultation Mission

2006

21-25 May ADB Appraisal Mission for MFF

10 October Multi Tranche Financing Facility (MFF) approved by ADB

07 September Periodic Financing Request (PFR) #1 submitted by GOB to ADB

27 September Development Project Proforma (DPP) approved by GOB

17 December Umbrella Project DPP approved by ECNEC

2007

13 February Tranche 1 approved by ADB 15 February Loan Agreements for Tranche 1 signed

24 April Loans 2316-BAN and 2317-BAN became effective

06 August Consultancy contract signed with design and construction supervision consultants

24-30 September ADB Inception Mission for Loans 2316-BAN and 2317-BAN, and TA4847

2008

10-13 March ADB Loan Review Mission of Loans 2316-BAN and 2317-BAN, and TA4847

31 Jul 2008 Detailed Design for Tongi-Bhairab Bazaar line completed

04 August Bid documents for works contract issued

19-23 October ADB Loan Review Mission of Loans 2316-BAN and 2317-BAN, and TA4847

2009

29 September Works contract bidding cancelled by ADB.

20 December Bid Cancellation approved by GOB

24 December Revised bid documents submitted for ADB concurrence

2010

22 February ADB concurrence on revised bid documents

22-25 February ADB Loan Review Mission of Bangladesh Railway Investment Program (MFF)

22 April Revised bid documents for works contract issued (single stage, two envelope)

2011

27 July Construction works contract signed

21 June Revised DPP approved by GOB

02 August Reallocation of Loan 2316 proceeds and loan extension approved by ADB

26 August Revised RP submitted for ADB concurrence

31 August Construction supervision activities commenced by consultant

09 September Extension of FFA to 10 Oct 2016 approved by ADB

14-22 September ADB Consultation Mission on PFR 2

12 October NGO engaged for RP implementation

30 Appendix 6

Dates Activity

02 November Notice to commence issued to works contractor

17 November Revised RP approved by GOB and issued

17 November ADB Management Review Meeting for Tranche 2 22 December Tranche 2 approved by ADB

2012

27 August Loan 2045-BAN was signed 5 November Loan 2845-BAN became effective

2013

13-16 March ADB Loan Review Mission of Bangladesh Railway Investment Program (MFF)

27-30 March ADB Consultation Mission on project preparation of PFR 3

28-30 April ADB Consultation Mission on project preparation of PFR 3

21-23 May ADB Loan Review Mission for Loans 2316-BAN and 2845-BAN

1 July NGO engaged for 24 months for external monitoring for resettlement activities

9 December Tranche 3 approved by ADB

2014

24-27 March ADB Loan Review Mission for Loans 2316-BAN and 2845-BAN

6 August Loan agreement for Loan 3097-BAN under tranche 3 signed

17 September Loan 3097-BAN under tranche 3 became effective

24-30 September Inception mission for Loan 3097-BAN

9-20 October ADB Loan Review Mission for Loan 3097 under tranche 3

02 December Second revised DPP approved by GOB

18 November-11 December

Income & Livelihood Restoration Program (ILRP) carried out

2015

21-23 May ADB Loan Review Mission for Loan 3097-BAN

24-26 August ADB Consultation Mission on approval of tranche 4

19 September First container freight train trial run on new line

30 December GIBR Certification of the new line for ”Public Carriage of Passengers” issued

31 December Taking-Over Certificate issued to works contractor on significantly substantial completion of Works.

2016

07 January Newly constructed line opened for operation on trial basis

19 February ADB Management Review Meeting for Tranche 4 25 February Inaguration by Hon’ble Prime Minister of the People’s Republic of Bangladesh

18 March Approval of Tranche 4 by ADB 24-27 March ADB Loan Review Mission for Loan 3097-BAN 10 April Signing of Loan 3376-BAN 12 April Reallocation of Loan 2316 proceeds approved by ADB

2-3 May ADB Consultation Mission on Loan 3376-BAN

30 May Loan 3376-BAN became effective 09 October Revised Closing Date for Loans

9-20 October ADB Loan Review Mission for Loans 2316-BAN and 2845-BAN

31 December End of defects notification period

2017

09 April Revised End of Loan Utilization Period after Loan Closing

03 June Performance Certificate issued to works contractor

Appendix 6 31

Dates Activity

13 June Discharge issued by works contractor

15 June Final payment certificate issued

Source: Asian Development Bank.

32 Appendix 7

ORGANIZATIONAL CHART FOR PROJECT PROCESSING AND IMPLEMENTATION

Inter-ministerial Committee

Deputy Director(Site Officer)

Representative• Ministry of Finance• BR (Executing Agency)

Reform Implementation Unit

Project Director

Reform Team

Reform Implementation Consultant(Engineer)

Executing AgencyDirector General, BR Sub project Evaluation Team

Project Implementation Unit

Project Director(General Manager from BR) Deputy Director (HQ)

Financial Advisor & Chief Accounts Officer

Chief Engineer

Addl. Chief Addl Chief Engineer Addl Chief Signal & Controller of Stores

Deputy Director Deputy Director Deputy Director Deputy Director

Assistant Director

Supervision Consultant(Engineer)

Chaired bySecretary, Ministry of Communications /

Appendix 8 33

TECHNICAL ASSISTANCE COMPLETION REPORT TA Number, Country, and Name: Amount Approved: $2,000,000

TA 4847-BAN: Institutional Support for Railway Reforms Revised Amount: NA

Executing Agency: Bangladesh Railway

Source of Funding: TA Special Fund-Other

Amount Undisbursed: $45,215.03

Amount Utilized: $1,954,785

TA Approval Date:

TA Signing Date:

Fielding of First Consultants:

TA Completion Date Original: 30 November 2010

Actual: 31 December 2017

10 October 2006 2 June 2007 1 September 2007 Account Closing Date Original: 30 November 2010

Actual: 31 January 2018

Description The technical assistance (TA) was piggy-backed to the multitranche financing facility (MFF) for the Railway Sector Investment Program in Bangladesh. The TA aimed to provide institutional support for railway reforms and had three components. The first component was to engage one international advisor and one national advisor to support implementation of the railway reform program. The second component was to help Bangladesh Railway improve its operational efficiency by improving maintenance standards and practices for infrastructure, rolling stock, signaling, and telecommunications. This component also aimed to improve railway safety. The third component was to conduct performance and procurement audits to assess sector and procurement governance, performance, and performance results. Expected Impact, Outcome, and Outputs The expected impact of the TA was improved operational efficiency and operational effectiveness of Bangladesh Railway. The expected outcome was strengthened capacity of Bangladesh Railway in (i) railway reforms, (ii) train operations, (iii) railway safety, (iv) maintenance of track and permanent way, signaling systems, and rolling stock, and (v) governance and auditing. The expected TA outputs were to produce (i) railway reform proposals with recommendations, (ii) operational improvement program and updated operational procedures, (iii) improved maintenance practices and updated manuals for maintenance of track and permanent way, signaling systems, and rolling stock and (iv) performance and procurement audits. Delivery of Inputs and Conduct of Activities The TA was formulated as part of the MFF documentation, its terms of reference were sound, albeit lacking details on scope and activities. The TA was administered by ADB headquarters and regular TA review missions were conducted to guide TA implementation. Two individual consultants supported the implementation of the railway reform program under the first component in a satisfactory manner. One consulting firm each was engaged for the second and third components. The performance of both firms was satisfactory. The TA was expected to run for 3 years till 2010 after it was signed in 2007. However, it took more than 10 years to close because the MFF to which it was piggy-backed experienced delays in implementation. The MFF had two distinct projects: one for railway reform and the other for investments in key railway corridors and replacing aging rolling stock. The two projects were designed to be mutually reinforcing and the tranches for the investment project were dependent on specific reform actions being achieved. As it turned out, this was one of the reasons for delays in implementation. TA budget was appropriate. However, delays in TA implementation led to slower utilization of TA funds than originally anticipated. Nevertheless, at TA closing, 97% of allocated TA funds had been utilized. The delivery of the second component under the TA was delayed by 2.5 years due to slow response and delays by Bangladesh Railway in commenting on the draft final report submitted in November 2009. The delay occurred partly because of the large volume of prepared documents (over 1,000 pages) that specifically included updated train operations and maintenance manuals. Because of the delays, the TA was extended four times. There were six minor changes of scope and implementation arrangements mainly to adjust outputs and activities. The most significant adjustment was addition of maintenance manuals, specifically for mechanized track maintenance. The performance of Bangladesh Railway is rated satisfactory. While Bangladesh Railway was slow in responding to TA outputs, comments were ultimately provided which helped improve relevance and quality of TA outputs. Bangladesh Railway demonstrated TA ownership by implementing most TA outputs, especially those aimed at improved operations and maintenance. ADB’s performance is rated satisfactory. TA design was relevant and sound and addressed critical areas of railway operations. While the TA experienced delays, TA administration was conducted in accordance with relevant guidelines and project administration instructions and regular reviews were held to assess TA performance and determine necessary remedial actions.

34 Appendix 8

Evaluation of Outputs and Achievement of Outcome The TA generated several key reports and manuals. These were (i) reform proposals with recommendations, (ii) five-year actions plans to improve operations, (iii) operations manual, (iv) way and works manual, (v) signal engineering manual, (vi) long welded rail manual,(vii) rolling stock manual, (viii) six working papers on improved operational efficiency and strengthened maintenance practices and (ix) a procurement and performance audit report. In addition, inception, implementation progress, draft final and final reports were produced in accordance with TA contracts. The reports were generally of adequate quality, relevant to the TA outcomes and contributed to the expected TA impact. Under the second TA component, eight workshops were organized 2008-2010 for around 110 officials that included training and transfer of knowledge and information. The workshops varied in structure depending on their purpose and content. The workshops were well received by Bangladesh Railway and contributed to new learnings, staff development and institution building. The TA achieved the outcome of strengthened capacity of Bangladesh Railway in (i) railway reforms, (ii) train operations, (iii) railway safety, (iv) maintenance of track and permanent way, signaling systems, and rolling stock and (v) governance and auditing. While TA outputs were successfully delivered, comprehensive but long review and approval of manuals by Bangladesh Railway caused significant overall delay in delivery of outputs. Overall Assessment and Rating Overall the TA was successful. TA design was sound and aligned with country needs, ADB’s country partnership strategy and transport sector strategy. TA outputs were relevant. Notable amongst these are the reform proposals, updated operations and maintenance manuals and prepared actions plans. The TA was particularly useful in supporting implementation of the MFF. The TA was effective as it delivered all planned outputs and achieved its expected outcomes. The TA was less than efficient because it required 85 months extension. The TA is likely to be sustainable because major TA outputs, such as operations and maintenance manuals were handed over to Bangladesh Railway and are now utilized in train operations and maintenance. Major Lessons Although the TA experienced delays, it was important in supporting implementation of the MFF and it delivered key outputs that were utilized in improving railway management and day-to-day operations. In hindsight, more workshops and dedicated training sessions could have been organized to facilitate further learnings and transfer of knowledge and information. The TA financed a team to support railway reforms that was engaged on full-time basis for a limited time frame. However, there was no initial TA provision or later change of TA scope to provide continued intermittent consultant support to monitor and assist in implementing challenging railway reforms that faced significant delays. Recommendations and Follow-Up Actions ADB should continue to support Bangladesh Railway in improving operational efficiency and further institutional reforms. With large ongoing investments in the rail sector, Bangladesh Railway needs to continue enhancing its capacity in key areas of rail operations and introduce modern railway management practices. Bangladesh Railway also needs to develop further capacity in modern maintenance management including mechanized track and rolling stock maintenance.

TA = technical assistance. Prepared by: Jyotsana Varma Designation and Division: Principal Country Specialist, Bangladesh Resident Mission

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area

Appendix 9 35

ASSESSMENT OF ENVIRONMENTAL SAFEGUARDS AND MANAGEMENT

A. Introduction The MFF implemented five loans under four tranches. Among the MFF’s four tranches (para. 7 of main text), tranche 3 was for purchase of rolling stock, and tranche 4 only added funds to complete projects under tranche 2 (refer to table under Project Costs in Basic Data). Thus environment impacts come only from tranches 1 and 2. The activities of MFF that were expected to have minor to moderate adverse impacts on the environment due to some civil works are: (i) expansion of railway embankment width from 7 meters to about 14 meters, (ii) construction of 11 bridges and several minor bridges and culverts, and (iii) loops extension. Subproject 1 (Tongi-Bhairab Bazar Double Track) was categorized B in accordance with ADB’s Environment Policy 2002 as the adverse impacts were expected to be localized in spatial extent, short-term and manageable by implementing mitigation measures. An Initial Environmental Examination (IEE) was prepared and the summary IEE (SIEE) was disclosed per Public Communication Policy 2005. An Environmental Assessment and Review Framework (EARF) was prepared to guide the impact assessment procedure of the follow-up tranches and subprojects. Subproject 2 under tranche 2 (Yards rehabilitation and loops extension in Darsana-Dhaka) was categorized B per Safeguard Policy Statement 2009 as the adverse impacts were expected to be minor, short-term, and mitigatable. An IEE was prepared and disclosed to identify and minimize the impacts. Subproject 3 under tranche 2 (modernization of signaling in the west zone) and subproject 4 under tranche 3 (passenger carriages) were categorized C as the impacts were insignificant. As mandated by Environmental Conservation Act 1995, Environmental Clearance Certificate (ECC) was required for subproject 1 only and that was obtained by Bangladesh Railway accordingly. B. Environmental Safeguard Measures Environmental Management Plans (EMPs) prepared for the subprojects 1 and 2 were successfully included in the bidding documents and implemented by the contractors. A total of 34 environmental mitigation measures were identified (in revised plan) for subproject 1, of these 27 pertained to pre-construction and construction phase. Measures included management of ballast waste cleaning, local fish movement and migration, tree planting and re-vegetation, management of carried earth collection process, construction related plan, improvement of safety crossings and upgrading stations, to mitigate the adverse effects of air pollution, solid waste, wastewater, and occupational health and safety. An environmental due diligence (EDD) report was prepared which confirmed that (i) there was no encroachment of protected areas or other forms of environmentally sensitive areas by implementation of subproject 1, (ii) EMPs were included with the bidding documents, (iii) continuous improvement noted in implementation of EMPs, and (iv) partial compliance recorded for solid waste management and construction related health and safety. The MFF projects are expected to bring significant positive impact as rail projects will contribute significantly to reducing air pollution from vehicle emissions. For subproject 2, 29 mitigation measures were included. Monitoring plans for the environment, health, and safety for the loop for Darsana, Chaudanga, Alamdanga, Halsha, Mirpur, Bheramara, Ishurdi, and Sirajganj railway stations was prepared. These monitoring plans covered air and dust pollution, noise pollution, drinking water quality, community safety, surface water pollution, tree

36 Appendix 9

planting, occupational health and safety, stocking of materials, and erosion and siltation, as applicable. For subproject 3, monitoring parameters were limited to occupational health and safety, tree planting, clearing and demolition of old structures, and drinking water quality. C. Implementation of Environmental Safeguards The environmental monitoring framework adopted by the MFF was rigorous and provided useful guidance to the PMO. A safeguard cell was created at BR with two officers for environmental and social safeguards monitoring. Environmental monitoring was conducted through: (i) 150 surface water samples collected and 900 laboratory analysis results monitored; (ii) 321 groundwater samples from 6 locations were collected and analyzed; (iii) 1,592 air samples were collected from 10 stations and analyzed for TPM, SO2, NO2 and CO; (iv) noise monitoring conducted at two major bridge construction sites for 14 months. In addition, fish survey was carried out at Old Brahmaputra, Arial Khal, Sitalakhya, and Balu rivers to understand movement of species of fish at major river crossings. The poor water quality of water was evident with 393 of the 900 analysis results indicating the applicable ambient standard to be 44%. All upstream fecal coliform and oil and grease ambient concentrations exceeded admissible standards. Contaminants from upstream industrial discharges resulted in higher downstream readings. For air quality, 30% data exceeded the admissible standard, particularly at Tongi and Methikanda stations, the two major hubs. The deteriorated air quality indicated increase in induced traffic from the construction work. Some positive changes took place as a result of continuous environmental monitoring, such as groundwater sources used by construction workers was discontinued due to contamination by fecal coliform and arsenic, and a safe potable source was provided as an alternative. Fish survey indicated no blockade of fish movement during bridge construction. A total of 6 semi-annual environmental monitoring reports were prepared and disclosed for subproject 1 and one annual environmental monitoring report covering the period of Jan – Dec 2015 was prepared and disclosed for subproject 2. D. Compliance with Loan Covenants and EMP The project achieved full compliance against the loan covenants and Bangladesh environmental rules and regulations, notably the Bangladesh Environment Conservation Act 1995, and the Environment Conservation Rules 1997. While incidents of some noncompliance with the EMP were initially experienced under tranche 1 in environmental monitoring, mainly due to delayed fielding of environmental specialist by the contractor, and less-than-perfect sampling and analysis protocols. However, corrective actions were taken with the mobilization of said specialist. As a result, the project demonstrated continuous improvement with full compliance on EMP requirements for tranche 1. Full compliance was achieved on design and pre-construction, natural environment, ecological environment, and environmental pollution aspects. Partial compliances were noted for occupational health and safety and construction waste management with the lack of waste bins in the station facilities, and dirty work and camp sites. Of the 29 mitigation measures for subproject 2, 10 non-compliant measures were recorded pertaining to camp and construction waste management. However, given the small scale of works scattered in different locations, no significant adverse environmental impacts were observed due to partial or non-compliance associated with construction waste at the project sites. Bangladesh Railway introduced an environmental management implementation work schedule (EMWS) for timely implementation of the mitigation measures schedule by the contractor which ensured the EMP was responsive to ground conditions.

Appendix 9 37

One clear recommendation is to ensure that environment specialists are on board timely so there are no gaps in data monitoring. Another is to improve sampling and analysis protocols so there are no counterintuitive errors (e.g. large number of surface water samples indicated lower pollution level downstream indicating cleaner water as it passes the project site which is counterintuitive).

38 Appendix 10

ASSESSMENT OF SOCIAL SAFEGUARDS PLANNING AND IMPLEMENTATION

I. INTRODUCTION 1. Investment subprojects under tranche 1, 2 and 4 included (i) design and construction of 64 km meter gauge track including 22 km of meter gauge loops and sidings between Tongi and Bhairab Bazaar, (ii) rehabilitation of yards and extension of broad gauge loops at 8 stations for 18.3 km in total between Dhaka and Darsana and at Sirajganj Bazaar and (iii) upgrading of signaling at 11 stations covering 78 km between Dhaka and Darsana. Among these, only the first subproject brought significant resettlement impacts through additional private land acquisition and relocation of households, community property and commercial entities from railway land. The other two subprojects had only minor resettlement impacts. Subproject 2 designs were modified to avoid potential negative impacts at 3 stations (i) Sirajgonj Bazar, (ii) Alamdanga and (iii) Bheramara). This assessment focus on subproject one that had significant impacts. II. RESETTLEMENT AND LEGAL FRAMEWORK 2. A Resettlement Framework was prepared along with the approval of the Multi-tranche Financing Facility and disclosed on ADB’s website in 2006. A resettlement plan (RP) was prepared based on topographical and census surveys conducted in 2008. It was submitted to ADB and the executing agency, Bangladesh Railway (BR) in August 2009. A resettlement plan (RP) was prepared and subsequently updated due to changes in design and increased land rates over time. RPs were disclosed on ADB website during project preparation and monitoring reports during implementation. Overall, the RP was well implemented and helped ensure that construction activities were in line with the ADB Safeguard Policy 1995 and that relevant country’s legal framework, rules and regulations were adhered. 3. The project was abided by Acquisition and Requisition of Immovable Property Ordinance 1982 (Ordinance II of 1982) and subsequent amendments during 1993 – 1994, which was the principal land acquisition act at the period. The Ordinance requires that compensation be paid for (i) land and assets permanently acquired (including standing crops, trees, houses); and (ii) any other damages caused by such acquisition. The Deputy Commissioner (DC) determines the market price of assets based on the approved procedure and in addition to that pays an additional 50 percent on the assessed value as the market price established by Land Acquisition Officer (LAO) which remains much below the replacement value. The 1994 amendment made provisions for payment of crop compensation to tenant cultivators. The Ordinance, however, does not cover project-affected persons without titles or ownership record, such as informal settler/squatters, occupiers, and informal tenants and lease-holders (without document) and does not ensure replacement value of the property acquired. The act has no provision of resettlement assistance and transitional allowances for restoration of livelihoods of the non-titled affected persons. The Acquisition and Requisition of Immovable Property Ordinance (1982).1 will be applied for this project including its subsequent amendments. As per the loan agreement, ADB policy has been also applied through the RP guidance. 4. Subproject 1 encountered significant implementation delays and cost overrun. As a result, the RP was updated based on census conducted in 2008 according to the revised DPP and approved by the Ministry of Communication on 28 April 2011.2 with a budget of Tk1,892.82 million. The updated RP was posted on ADB’s website in August 2011. This RP was implemented by BR

1 The Ordinance was subsequently enacted in 2017. 2 RP Due diligence report; February 2016-paragraph 17–18.

Appendix 10 39

with the support of a non-governmental organization (NGO), which was recruited in October 2011. An external monitoring consulting firm was also engaged throughout implementation period (2013–2015) as per ADB safeguard policy 1995. III. RESETTLEMENT IMPACTS A. Affected People 5. The 2008 updated census survey.3 identified that about 14,512 persons will be affected by the subproject. Of the affected persons (APs), 509 affected households (AHs) owned 971 residential structures and 1,099 AHs owned 1,318 commercial structures. In addition, 66 Common Property Resources (CPR) would be adversely affected due to undertaking of the subproject. 348 households would lose narrow strips of agricultural land, 183 licensees would lose access to agricultural and 384 from commercial plots licensed from BR. In addition, 504 structures owned by legal owners, 44 structures owned by occupiers, 1260 structures owned by squatters, 547 structures owned by lessees and 820 tenants in existing affected structures would be affected. The impacts identified in the period February-April and August 2008 census survey were higher than those identified in 2004 due to reasons of revised right-of-way (RoW) boundaries and the time gap. According to estimate from census survey, 1,130 households were extreme poor, 160 female headed, 217 elderly headed households and 219 households were going to lose more than 10% of their agricultural land holding. According to census (February–April and August 2008) no people from indigenous or ethnic minority groups are affected by subproject 1.4 As for resettlement assistance, most of the affected persons opted for cash compensation and the second highest option is credit. Job and Skill training support are opted equally. Only one third of the APs opted for Job and Skill training support. B. Mitigation Measures

6. Mitigation measures for resettlement followed national framework and ADB policies. According national legislation, only legally land owners were eligible to receive Cash Compensation by Law (CCL) for their lost assets from the respective DC offices. This include their land, structure, trees and crops only. Construction of the double line railway affected 1,750 titled households, among them 1,672 (95.54%) received compensation from DC office. In addition to the CCL, the title holder entitled persons (EP) also received additional grants from the project to adjust Property Evaluation and Advisory Team (PVAT) rates with CCL value for both land and structures. Compensation was paid based on the replacement cost as per ADB policy and was paid prior physical and economic displacements.

7. ADB policy requires that non-title holders to be eligible to receive compensation for their lost assets as well as income and access. This includes informal settlers on railway land, business tenants in the area, CPRs, etc. In total, 1,164 non-titled households were affected by the subproject. They received the compensation they were eligible for. In addition, 278 vulnerable households received Tk14,500 each after completion of Income Livelihood Restoration Plan (ILRP) trainings in their preferred area.

3 The census survey was undertaken February–March and April in 2008. 4 RP 2011; page 10, paragraph 30.

40 Appendix 10

Table A10.1: Entitlement Matrix Type of loss Affected People Entitlements Loss of agricultural, commercial and

homestead land

Legal land owners Replacement value of land at market price to be

determined by PVAT. Refund of registration cost incurred for replacement land purchase at the replacement value.

Loss of residential /commercial structure

Legal owner(s) of structures and non-titled

owners including renters

and informal settlers/ squatters identified by the

Census for each

household/shop/ community Unit

Replacement value of structure to legal owner(s) as

determined by PVAT

Transfer grant of Tk6,500 to legal owner(s), Transfer grant of Tk5,200 to non-titled owner(s) including renters and informal settlers,

Reconstruction grant of Tk7,800 to both legal owner(s) and non-titled owner(s)

For the homestead failures a plot in BR land for temporary relocation.

Salvaged materials free of cost Loss of trees, crops, Perennials

Legal land owners Compensation at rate estimated by the Forest Department and the Agriculture Extension Department fixed by DCs

Salvaged materials free of cost Loss of access to

agricultural and

commercial land by

sharecroppers/ tenants

Legal tenants of land

identified by DCs and

non-titled tenants

/licensees/lea sees of land identified by Census

Crop compensation to titled sharecroppers or lessees.

Cash grant of Tk3,900 for non-titled sharecroppers and licensees of agricultural land;

Cash grant of Tk5,200 for non-titled commercial lessees.

Loss of income and

work days due to

displacement

Head of poor households

/employees identified by

Census

Cash grant of Tk6,500 per household as subsistence for lost income/workdays

Cash grant of Tk7,800 for loss of business income

by affected traders

Cash grant of Tk3,900 to the affected employees/wage earners equivalent to 2 months income.

Poor and vulnerable

Poor and vulnerable

households identified by

Census

Additional cash grant of Tk6,500 for affected women headed households and poor households.

Training and cash grant for income generation program (IGP);

Employment in the project construction work, if available

Appendix 10 41

Type of loss Affected People Entitlements Displacement of community structure

Community

representative as

identified by Census

Cash compensation for structure to legal owner(s) as determined by DC

Tk13,000 as transfer grant for relocation of the structure

Dismantling and reconstruction cash assistance as per assessed value by PVAT.

Access to

community/civic

facilities at relocated

sites

Households identified by

Census/Joint verification

Community infrastructure facilities, access roads, plantation, tube-wells, sanitary latrines and drainage.

Temporary impact during construction

Community/ Individual

The contractor shall bear the cost of any impact on structure or land due to movement of machinery and in connection with collection and transportation of burrow materials. All temporary use of lands outside proposed RoW to be through written approval of the landowner and contractor.

Land will be returned to owner rehabilitated to original preferably better standard.

8. The initial entitlement matrix in the subproject RP did not cover the cost for replacement value of the non-titled structures. The allowance of transfer grants for titled structure owners were greater than that for non-titled structures, Tk6,500 versus Tk5,200 respectively. In addition, the transfer and reconstruction grants also included at a lump-sum rate with no reference to the structure size or material. Necessary changes were made to the entitlement matrix and reflected in the budget and implementation of the RP. 9. Approval for the cost for payment of the replacement value of structures to Non-Titled EPs was issued on 19th October 2014 for a value of Tk52,060,497.19. Involving a total of 855 structures and 6 CPR units. A proposal prepared by BR for payment of Lump Sum grants as Replacement value for structures of Non-Tilted EPs was approved on 17 June 2015 under Office Order no. 54.00.0000.006.002.08.2011-733. Notices for Titled and Non-Titled EPs were published in local newspapers on 23 Jun 2015 informing these entitlements must be claimed before 31 July 2015. C. Institutional Arrangements 10. BR project implementation unit headed by a Project Director (PD) established a resettlement unit (RU) for planning and implementation of land acquisition and resettlement. A resettlement NGO was recruited to assist in implementation of the RP guided by the supervision consultant. The RU had one HQ Deputy Director as Chief Resettlement Officer (CRO) for field level implementation of the resettlement plan with assistance from Resettlement Officers (ROs) and other staff. The PD oversaw the land acquisition process with assistance from Land Acquisition Offices (LAOs) of respective districts and the CRO. The CRO through the field office, managed coordination between the relevant departments-INGO, the Grievance Redress Committee (GRC), Resettlement Advisory Committee (RAC), Property Valuation Advisory Team (PVAT) and the affected people (APs). Among them, Joint Verification Team (JVT) for

42 Appendix 10

quantification of affected properties and (PVAT) for valuation of assets were formed by the Ministry of Communications (MoC).

11. A Grievance Redress Committee (GRC) was established with representation from BR as convener, designated representative of DC, designated representative of PWD, people's representatives from local government, representatives of APs and INGO representatives. The Resettlement Officer field chaired the GRCs. Other than disputes relating to ownership right under the court of law, GRC reviewed grievances involving all resettlement benefits, relocation and other assistance. The GRC for this project attended 587 cases of grievances. Among them, 100 were from Gazipur and 487 from Narsigndi. The key reasons for the grievances were entitlement mistakes, EPs being out of SES, succession claims, name corrections, etc. Majority of them- 374 were recommended for payment and remaining 213 applications were rejected. Lack of documentary and other supporting evidences led to the rejection of these grievance applications. D. Monitoring Implementation

12. The BR Resettlement Unit, and Supervision Consultants carried out formative monitoring and evaluation (internal) on a regular basis throughout the RP implementation period from 2013 to 2015. INGO report analysis, progress meetings and field verification visits, consultation with the EPs have been the main monitoring tools applied to the process. In addition to distribution of 7,178 brochures and 6,998 leaflets, 180 consultation meetings have been carried out in the project. Among them, 156 meetings have been conducted during implementation and 24 during closing. The final external monitoring report also affirms through their SES findings that all APs affirmed to be consulted. In addition to distribution of 7,178 brochures and 6,998 leaflets, 180 consultation meetings have been carried out in the project. Among them, 156 meetings have been conducted during implementation and 24 during closing. The final external monitoring report also affirms through their SES findings that all APs affirmed to be consulted. In addition to internal monitoring, an external Independent Monitoring consulting firm- Knowledge Management Consultants Ltd was engaged by BR from July 2013 to carry out the Independent External Monitoring for Implementation of the RP. The EM has submitted four biannual monitoring reports till June 2015. The main purpose of such monitoring and evaluation is to detect where and at what point the implementation being conducted is off the track and not in compliance with the ADB Safeguard requirements. The BR Resettlement focal persons of the project attended three capacity building workshops in the Bangladesh Resident Mission. All the missions addressed the land acquisition and resettlement issues. Safeguards specialist joined in three review missions. The railway had a focal team including DD for resettlement. INGO was engaged in implementation and PIC, external monitor was engaged in monitoring RP implementation. The disclosed reports in addition to assessments by RP implementation monitors reflect adequacy of monitoring in social safeguards. E. Assessment of Performance of RP Implementation

13. The implementation of the TBDLP resettlement plan has been completed. 1,671 out of an estimated 1,750 titled holders (95.49%) have been compensated and 1,164 non-title holders (100%) have received resettlement assistance. There are 137 award cases for titled-holders still pending with the deputy commissioner’s offices concerned by the project. The NGO has demobilized in December 2014 and the BR resettlement team followed-up with pending award payments and producing monitoring reports since then. Finally, there were 79 TAH eligible to 137 awards of which 40 awards have been approved and were under process for payments. Moreover, the 64 awards that could not be processed because of the failure of claimants to produce the required document to get the awards. It is estimated that the payment ratio is likely

Appendix 10 43

to be above 97% of estimated TAH as per the final safeguard due diligence report from February 2016. For non-titled APs, all 1,164 EPs received payments as per entitlements. Among them, 711 lost structures and 609 APs applied and received replacement cost for structures. As per the RP DDR, the remaining did not come forward to claim compensation.

Table A10.2: 2011 RP Estimates vs. Revised Estimates 2011 RP

Estimates

Revised Estimates

Actual delivery as of Jan. 2016

Total no. of TAH paid CCL 852 1750 1671 Total no. of TAH paid RB n/a 1671 1637 Total no. of NAH paid RB 1851 1164 1164 No. of AH losing land 348 1744 1587 No. of TAH losing structures 504 522 342 No. of NAH losing structures 1260 711 609 No. of CPR 66 6 6

No. of WWHH 160 129 129

No. of businesses 1318 845 845

No. AH paid ILRP Grant n/a 278 278

Source: RP Due Diligence Report, (February 2016; page 3)

F. Assessment of Income Livelihood Restoration Program 14. Assessment of the ILRP have been conducted in two stages; the first one in 2017 through one to one telephone conversation with 20% of the training participants. In addition, case study interviews have been conducted for selected beneficiaries of the ILRP in 2019-during preparation of PCR. Some positive features have been revealed from the assessments: 278 people (52 female and 136 male) were trained

• Training topic: • Tailoring 48 • Cattle rearing 4+136

• Tk14,500/$180 one-time cash assistance have been provided to 278 participants • 90% stated their income level improved to pre-project level • Women were happier to be able to contribute in family, previously they had no income • For 70% NGO selected participants according to APs choice • 30% wanted another training but sits were limited. • 90% purchased relevant materials poultry/sewing machines • 10% spent on home renovation

15. Recommendations from participants

• Training with project relevance and jobs in project next time • To add new opportunities through training • Access to micro credit/ loan/ financial support would have been beneficial • Long term training and more seed money would be more sustainable for livelihood

restoration.

16. It is worth mentioning that the ILRP training participants were mostly from vulnerable households with income level below national poverty line.

44 Appendix 11

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in

Agreement

Status of Compliance

Facility Terms and Conditions Each loan will be used to finance (i) a range of reform actions under the Reform project or (ii) a range of Investment Subprojects defined by the Executing Agency under the Investment Project.

FFA Complied with. Five loans were approved under the MFF that financed a range reform actions under the Reform Project or a range of Investment Subprojects defined by the Executing Agency under the Investment Project.

Investment Subprojects will meet the pre-agreed eligibility criteria described in Schedule 4 to this FFA, as supplemented in each legal agreement. The Reform Project and the Investment Subprojects will adhere at all time to a set of agreed terms and conditions in the areas of procurement, disbursement, administration, governance, safeguards, technical and commercial terms, financial and fiduciary oversight, and management arrangements. The specific details applicable to individual loans will be documented in the relevant loan agreements.

FFA Complied with. Pre-agreed eligibility criteria in Schedule 4 to the FFA and loan agreements were followed. Agreed terms and conditions in the areas of procurement, disbursement, administration, governance, safeguards, technical and commercial terms, financial and fiduciary oversight, and management arrangements were followed.

The Borrower will cause the proceeds of each loan to be applied to the financing of expenditures of the Roadmap and Investment Program in accordance with conditions set forth in this FFA and the legal agreements for each loan.

FFA Complied with. Each of the five loans financed expenditures of the Roadmap and Investment Program in accordance with provisions of FFA and loan agreements.

Execution The Executing Agency for the Roadmap and Investment Program will be the Bangladesh Railways (BR). BR will implement the Roadmap and Investment Program in accordance with the principles set forth in Schedule 1 to this FFA, as supplemented with more details in the legal agreements for each loan.

FFA Complied with. BR was the executing agency and was responsible for implementing the Roadmap and Investment Program.

Procedure Loans to be provided under the Facility will be subject to the following procedures and undertakings: (a) The Borrower will have notified ADB of a forthcoming PFR at least 15 days in advance of the submission of a PFR. (b) The Borrower will have submitted a PFR in the format as agreed with ADB. (‘c) ADB may, in its sole discretion, and after consultations with the Borrower, decline to approve any PFR, or authorize the negotiation of any legal document for a loan, provided any decision to so decline is communicated to the Borrower by ADB within 30 days from receipt of the second and subsequent PFRs.

FFA Complied with. Four periodic financing requests submitted by the Borrower were received by ADB in accordance with Facility procedures and undertakings.

Appendix 11 45

Covenant Reference in

Agreement

Status of Compliance

(d) If no such decline is communicated to the Borrower, the legal documents will be negotiated and executed no later than 30 days from ADB’s receipt of the second and subsequent PFRs. Safeguards All ADB safeguard policies, will apply to both the Projects and all Investment Subprojects financed under the Facility. Schedule 5 to this FFA sets forth the safeguard frameworks required under ADB’s safeguard policies and which the borrower will comply with and implement.

FFA Complied with. All ADB safeguard policies were applied to the Reform Project and all Investment Subprojects financed under the Facility.

Procurement All goods and services to be financed under the Facility will be procured in accordance with ADB’s Procurement Guidelines (April 2006), as amended from time to time.

FFA Complied with. All goods and services financed under the Facility were procured in accordance with ADB’s Procurement Guidelines (April 2006), as amended from time to time.

Consulting Services All consulting services to be financed under the Facility will be procured in accordance with ADB’s Guidelines on Use of Consultants by Asian Development Bank and its Borrowers (April 2006), as amended from time to time

FFA Complied with. All consulting services financed under the Facility were procured in accordance with ADB’s Guidelines on Use of Consultants by Asian Development Bank and its Borrowers (April 2006), as amended from time to time

Disbursements Disbursements will be made in accordance with ADB’s Loan Disbursement Handbook, 2001 and ADB’s Interim Guidelines for Disbursement Operations, LIBOR-based Loan Products, 2002, each as amended from time to time.

FFA Complied with. Disbursements were made in accordance with ADB’s Loan Disbursement Handbook, 2001 and ADB’s Interim Guidelines for Disbursement Operations, LIBOR-based Loan Products, 2002, each as amended from time to time.

Monitoring, Evaluation and Reporting Arrangements

BR will, within six (6) months of the effective date of the first Loan Agreement under the Facility: (i) develop a systematic Investment Program performance monitoring and analysis for use throughout the life of the Investment Program, and (ii) develop and conduct “quick and easy” rapid sample surveys to establish a baseline for subsequent performance monitoring, with monitoring on a gender-disaggregated basis, where appropriate. Thereafter, evaluation surveys will be conducted annually. The Borrower and ADB will agree on the key indicators and assumptions that determine the required data for rapid assessment.

FFA Partially complied with. Surveys were done by BR with help of consultants. Evaluation surveys were not annually done by BR.

46 Appendix 11

Covenant Reference in

Agreement

Status of Compliance

BR will prepare Investment Program monthly and quarterly progress reports, including site reports, and technical and financial reports, for submission to ADB, a mid-term evaluation report for each Project and an overall completion report for each Project. Quarterly reports will include updated implementation, financial and procurement-related information. Monthly and quarterly reports will be submitted to ADB within 15 days of the end of each month or quarter, as applicable.

FFA Complied with. Program and quarterly reports including site reports and technical and financial reports were prepared and submitted to ADB.

Implementation Framework The Executing Agency for the Investment Program will be BR. Two implementation units will be established: (i) the Reform Implementation Unit (RIU) will be headed by a senior BR officer, preferably at the Additional Director General level, who will be the Project Director for the Reform Project, and staffed by suitably qualified officers from the BR and Ministry of Communications (MOC), and (ii) Project Implementation Unit (PIU) will be headed by a General Manager from BR who will act as Project Director for the Investment Project. Each Project Director shall report to the Director General, BR, on a regular basis.

FFA, sch. 3, para. 1

Complied with. BR was the executing agency and two implementation units were established and staffed in accordance with the provisions of the FFA.

An inter-ministerial committee co-chaired by the Secretary, MOC and the Secretary, Finance Division, Ministry of Finance (MOF), and consisting of representatives from the Economic Relations Division, MOF, the Ministry of Establishment, the Prime Minister’s Office, BR, and other agencies as determined by the Borrower.

FFA, sch. 3, para. 2

Complied with. An inter-ministerial committee was initially co-chaired by the Secretary, MOC and the Secretary, Finance Division. After establishment of Ministry of Railways in 2011, it was co-chaired by the Secretary of Ministry of Railways and Ministry of Finance (MOF). It had representatives from the Economic Relations Division, MOF, the Ministry of Establishment, the Prime Minister’s Office, and BR.

BR’s Financial Adviser and Chief Accounts Officer will be responsible for coordinating all accounting procedures under the Investment Program and ensuring compliance with ADB’s auditing and accounting requirements.

FFA, sch. 3, para. 3

Complied with.

The Government will consult with ADB on matters related to Investment Program management. All matters relating to selection or appointment, of any officer-in-charge or a line of business (LOB) or a sub-unit of a LOB, Project Director, or Deputy Project Director will be promptly notified to ADB.

FFA, sch. 3, para. 4

Complied with.

Appendix 11 47

Covenant Reference in

Agreement

Status of Compliance

Without limiting the generality of the requirements in the legal documents, the Borrower shall ensure that: (a) the Borrower’s Office of Comptroller and Auditor General (OCAG) performs the audits required under the Borrower’s laws and regulations and these audits include an assessment of the Reform Project’s and Investment Project’s financial accounts as well as an audit of effectiveness of financial control mechanisms established by each project. OCAG shall make recommendations on strengthening financial controls, if appropriate, and such recommendations shall be submitted to ADB as part of the next quarterly report after such recommendations are made. OCAG’s full annual report shall be submitted to ADB within 30 days of completion, but in no event later than six (6) months subsequent to the year being audited; (b) all procurement activities are subject to an independent performance audit by international private sector auditors. The performance audit shall be performed on two occasions during the Reform Project’s and Implementation Project’s implementation. The auditor shall also perform random and spot checks for contract implementation activities under the Project’s contracts, and (c) a separate accounting system for each Project’s expenditure is maintained in accordance with sound accounting principles. All accounts for the Reform Project and the Investment Project, including financial statements, statements of expenditures and account records, shall be audited annually as part of the regular audit of expenses and financial statements by a single auditing firm. The consolidated audit reports (in English) shall be submitted to ADB in accordance with the requirements and within the deadlines stated in the applicable Loan Regulations. The audit opinion shall include (i) a detailed description of the source of fund and expenditures made; (ii) an assessment of the adequacy of accounting and internal controls systems with respect to each Project’s expenditures and other financial transactions, and to ensure safe custody of each Project’s-financed assets; (iii) a determination as to whether the Borrower and the Project’s Executing Agency have maintained adequate documentation for all financial transactions, specifically including the statement of expenditures (SOE) and imprest account

FFA, sch. 3, para. 5

Complied with. OCAG performed audits required under the Borrower’s and regulations. Audit reports prepared by OCAG were regularly submitted to ADB albeit late. Independent performance audits that included procurement were done by international private sector auditors. A separate accounting system for each project was maintained. The consolidated audits including audit opinion were submitted annually to ADB.

48 Appendix 11

Covenant Reference in

Agreement

Status of Compliance

procedures; and (iv) confirmation of compliance with this Agreements financial covenants. The Borrower shall ensure that: BR, in its bidding documents for each project, and in all contracts financed by ADB in connection with each Project, includes provisions specifying the right of ADB to audit and examine the records and accounts for BR and all contracts, suppliers, consultants and other service provider as they relate to each Project.

FFA, sch. 3, para. 6

Complied with. Issued bidding documents by BR for each project included provisions for ADB to audit and examine.

Safeguard Framework BR shall ensure that the Investment Project, each Investment Subproject and all Investment Project facilities are developed, conducted, implemented and maintained in accordance with all applicable laws and regulations, including the Borrower’s Environmental Conversation Act 1995, and ADB’s Environment Policy (2002). If there is any discrepancy between the Government’s laws and regulations, and ADB’s Environmental Policy, the Initial Environmental Examination (IEE), including preparing an Environmental Management Plan (EMP) for the Investment Project and each Investment Subproject. All civil works and consultant contracts shall contain provisions that reflect these requirements. For the follow up Investment Subprojects, the BR shall ensure that an IRR or Environmental Impact Assessment (EIA), as applicable, is prepare in accordance with the Borrower’s requirements and ADB’s Environment Policy. BR shall ensure that all IEEs or EIAs, as applicable, are approved by the Borrower following its approval procedures.

FFA, sch. 5, para. 1

Complied with.

Initial Environmental examination (IEE) including Environmental Management Plan (EMP) have been prepared for the Investment Project (subproject 1) and each Investment Subproject in accordance with all applicable laws and regulations, including the Borrower’s Environmental Conservation Act 1995, and ADB’s Environment Policy (2002).

The recommendations of IEE & EMP have been incorporated in the construction contract of subproject 1 and same will be done in other subprojects. IEE for subproject 1 is already approved by the DOE and the Environmental Clearance has already been issued with a renewal to 2015 issued and applied for to 2016 and subsequently issued on 13 Jul 2015.

For each Investment Subproject for which an IEE has not been prepared, BR shall prepare an IEE or EIA, as applicable, which includes an EMP specific to that Investment Subproject. Prior to civil works contracts being awarded for the Investment Subproject, BR shall ensure that IEEs or EIAs, as applicable: (a) are based on the Investment Project IEE prepared during Investment Project preparation and follow the Environmental Assessment and Review Procedures set forth in the IEE; (b) meet ADB’s Environment Policy requirements; (c) include details of local consultation carried out before and during IEE or EIA, as applicable, preparations; and (d) are approved by the appropriate authority of the Borrower for environmental compliance before being submitted to ADB for approval. For Investment Subprojects confirmed by ASB as

FFA, sch. 5, para. 2

Complied with. Initial Environmental examination (IEE) including Environmental Management Plan (EMP) have been prepared for subproject 1 and each Investment Subproject in accordance with all applicable laws and regulations, including the Borrower’s Environmental Conservation Act 1995, and ADB’s Environment Policy (2002). Both the IEE and EMP prepared for the Investment Subprojects has been approved by BR, DOE and ADB.

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Status of Compliance

environmentally sensitive (i.e., Category A or B sensitive under ADB’s Environment Policy), the Investment Subproject proposal and the IEE or EIA, as applicable, shall be forwarded to ADB for review as well as environmental impact assessment if it is determined that there will be a significant environmental impact) and the Summary Environmental Impact Assessment (SEIA) or shall be made available to the general public at least 120 days before each Investment Subproject is approved. The Borrower and BR shall ensure that the contract documents for all civil works under the Investment Project include specific measures as indicated in the IEE and Summary Initial Environmental Examination (SIEE) or EIA and SEIA, as applicable, and in accordance with ADB’s Environment Policy to mitigate negative environmental impacts caused by the construction and to give due consideration to prevention of damage to the natural environment in the design, construction, operation and maintenance of Investment Project facilities. If there are any changes in the specific locations or alignments or infrastructure or Investment Project facilities under the IEE or EIA, as applicable, is completed, for either already approved Investment Subprojects or for proposed Investment Subprojects, as additional environmental assessment shall be completed and a process similar to that used for an IEE or SIEE, as applicable, and acceptable to ADB, shall be undertaken.

FFA, sch. 5, para. 3

Complied with. The recommendations of IEE & EMP including EMP budget have been incorporated in the construction contract of other subprojects.

BR shall: (a) prepare an Investment Project Environmental Management Plan to monitor the contractors’ implementation of the EMPs; (b) ensure that specific provisions are included the preparation, implementation, and monitoring of EMPs in civil works and consulting services contracts; (c) ensure that the environmental mitigation measures in the IEE or EIA, as applicable, are adequately implemented by the contractors; and (d) provide adequate budgetary allocation for this activity.

FFA, sch. 5, para. 4

(a) Complied with (b) Complied with (c) Complied with (d) Complied with

The Borrower and BR shall ensure that the contract documents for all civil works under the Investment Project include specific measures as indicated in the SIEE and IEE or EIA and SEIA, as applicable, and in accordance with ADB’s Environment Policy to mitigate negative environmental impacts caused by the construction and to give due to consideration to prevention of damage to the natural environment

FFA, sch. 5, para. 5

Complied with The recommendations of IEE & EMP have been incorporated in the construction contract of subproject 1 and same will be done in other subprojects. Mitigative measures will be taken during construction work

50 Appendix 11

Covenant Reference in

Agreement

Status of Compliance

in the design, construction, operation and maintenance of Investment Project facilities. Such mitigation measures may include, but not be limited to, rerouting traffic, maintaining moisture content during soil handling, controlling noise and vibration during construction, pumping stagnant water and providing adequate drainage, restricting placement of construction materials and equipment, stabilizing embankment side slopes, and rehabilitating/reclaiming the temporary access road when construction work in completed. If there are any changes in the specific location or alignments or infrastructure or Investment Project facilities after the IEE or EIA, as applicable, is completed, for either already approved Investment Subprojects or for proposed Investment Subprojects, as additional environmental assessment shall be completed and a process similar to that used for an IEE or EIA, as applicable, as acceptable to ADB, shall be undertaken. The Borrower shall cause (i) the contractors engaged under the civil works contracts to comply strictly with all environmental impact mitigation requirements set out in the contract documents, and (ii) the consultants engaged for construction supervision to monitor closely the compliance by the contractors with the environmental impact mitigation requirements. BR shall submit to ADB semi-annual reports on implementation of the EMP as stated in the IEE or EIA, as applicable.

FFA, sch. 5, para. 6

Complied with. The implementation of EMP was carried out by CREC against construction contract. The recommendations of IEE & EMP were incorporated in the construction contract of Project-1. Close monitoring was done by BR and supervision consultants to ensure implementation of EMP during construction work. Bi-Annual Reports were submitted to ADB.

The Borrower shall ensure that BR carries out all activities related to resettlement, including, but not limited to, land acquisition, valuation of property, compensation, relocation, grievance redress, establishment of a Resettlement Framework (attached as Annex 1 to this Schedule 5 and incorporated herein by reference) agreed upon between the Borrower and ADB, the Borrowers, laws, regulation, and procedures, and ADB’s requirements as described in ADB’s Policy of Involuntary Resettlement. In case of discrepancies between the Borrower’s laws, regulation, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail.

FFA, sch. 5, para. 7

Complied with.

The Borrower shall ensure that BR carried out all activities related to resettlement, including, but not limited to, land acquisition, valuation of property, compensation, relocation, grievance redress, establishment of a Resettlement Unit

FFA, sch. 5, para. 8

Complied with.

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Status of Compliance

within the PIU, external monitoring, and reporting, in accordance with the Resettlement Plan for the Sample Subproject agreed upon between the Borrower and ADB and the Borrower’s laws, regulation, and procedures, and ADB’s requirements as described in ADB’s Policy on Involuntary Resettlement. In case of discrepancies between the Borrower’s laws, regulations, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail. The Borrower shall ensure that BR prepares resettlement plans for Investment Subprojects in accordance with the Resettlement Framework attached as Annex 1 to this Schedule 5, the Borrower’s laws, regulations, and procedures, and ADB’s requirements as described in ADB’s Policy on Involuntary Resettlement. In case of discrepancies between the Borrower’s laws, regulations, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail.

FFA, sch. 5, para. 9

Complied with.

The Borrower shall ensure that BR does not issue a notice of possession of site to any civil contractor for any section of construction works unless BR has satisfactorily completed all resettlement activities in a geographic area, ensured that the required rehabilitation assistance is in place, and the area required for civil works is free of all encumbrances.

FFA, sch. 5, para. 10

Complied with.

To the extent that any indigenous peoples are likely to be affected under any Investment Subproject, such Investment Subproject shall be conducted in accordance with the measures set forth in the applicable laws and regulation for the Borrower, and ADB’s Policy on Indigenous People (1998). In the event there is a discrepancy between the Borrower’s laws, regulations, and procedures and ADB’s requirements, ADB’s Policy and requirements shall prevail.

FFA, sch. 5, para. 11

Not applicable.

BR shall ensure that all civil works contractors (i) comply with all applicable labor laws, (ii) use their best efforts to employ women and local people living in the vicinity of the Investment Subproject and (iii) disseminate information at worksites on the risks of sexually transmitted diseases and HIV/AIDS for those employed during construction. BR shall require contractors not to differentiate between men and women’s wages or benefits for work of equal value. Contracts for all Investment Subprojects shall include specific clauses on these undertakings,

FFA, sch. 5, para. 12

Not applicable. As the MFF was NGE, gender was not tracked.

52 Appendix 11

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Agreement

Status of Compliance

and compliance shall be strictly monitored by BR during Investment Project implementation. Reform Project One year from loan effectiveness of first PFR Complete reorganization of BR by LOB and assignment of all BR staff to positions in the approved structure.

FFA, Annex 1

Complied with late. BR was reorganized by LOB and BR staff assigned in the approved structure.

Develop an agreed 5-year business plan for each LOB and BR as a whole identifying the LOB operational and financial targets, the service quality it will offer, and the expenditure necessary for each LOB and BR as a whole.

FFA, Annex 1

Complied with late. Agreed 5-year business plan was developed for each LOB and BR with operational and financial targets.

Develop key performance indicators for each LOB to achieve business plan targets.

FFA, Annex 1

Complied with late. Key performance indicators to achieve business plan targets were developed.

Develop an architecture/model for a new accounting and financial management system that will produce BR’s financial statements in conformity with commercial accounting standards internationally accepted in the railway industry, and enable restatement of these financial statements to ones that conform to Government reporting requirements.

FFA, Annex 1

Complied with late. Architecture for a new accounting and financial management system was developed to produce BR’s financial statements in conformity with internationally accepted accounting standards. ERP IT system has been rolled out in the Bangladesh Railway’s headquarters in Dhaka and Chattogram (formerly Chittagong) and the Pahartali rolling stock workshop in Chattogram. But the system is yet to be fully utilized due to the delay in basic data collection and inputs into the system, which are prerequisites to system operations. Bangladesh Railway lacks consolidated data and equipment such as computers/desktops, and staff capacity is not sufficient to use the system effectively. Bangladesh Railway has tried to prepare the first financial statements for Bangladesh Railway based on the lines of business structure and in accordance with international accounting standards for fiscal year (FY) 2017. But this has not materialized due to the incomplete basic data migration, allowing only partial use of the ERP IT system. While the government is processing the proposal of Bangladesh Railway

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to set up an IT cell for the sustainable operations and maintenance of the ERP IT system, Bangladesh Railway recruited the consulting services of IT experts in September 2018 to bridge the gap period before the full setup of the IT cell in its organizational structure.

Set up a personnel database with completed data for all BR personnel and procedures for maintaining the database in place.

FFA, Annex 1

Complied with late. Personnel database was set up and procedures adopted for maintaining database.

Identify personnel requirements showing skills needed at each LOB, skills existing at BR, skills shortages and surplus to requirements, training and retraining needs, and positions that need to be filled by recruitment from outside BR for successful implementation of LOB business plans.

FFA, Annex 1

Complied with late. Personnel requirements for LOB, skills and needs and positions were identified.

Implement monitoring system to collect and analyze data needed to monitor operational aspects of key performance indicators for each LOB

FFA, Annex 1

Complied with late. Monitoring system to collect and analyze operational aspects and data was implemented.

Two years from loan effectiveness of first PFR

Complete the BR asset registry with all BR assets identified, revalued, and recorded in a new asset register that shows which LOB owns which asset.

FFA, Annex 1

Complied with late. An asset registry with BR assets was completed. It became part of the new installed integrated information technology (IT) system.

Identify noncore services, develop and approve an outsourcing/divesture plan for noncore services.

FFA, Annex 1

Complied with late. Noncore services were identified and an outsourcing plan approved. has started outsourcing computerized railway reservation and ticketing systems for selected routes and trains to the private sector on contractual basis. This has improved the efficiency of the seat reservation system and the number of tickets sold. Catering of food and beverages in trains has also been outsourced on contractual basis, along with the installation, operation, and maintenance of fiber-optic cables along major railway lines.

Review performance of LOBs and report on LOB performance submitted.

FFA, Annex 1

Complied with late. Performance of LOBs was reviewed and reported.

54 Appendix 11

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Agreement

Status of Compliance

Fully implement new accounting and financial management system with the production of financial management and accounting statements as agreed in the accepted architecture.

FFA, Annex 1

Complied with late. A new integrated accounting, financial and human resource management system based on agreed accepted architecture was installed.

Identify passenger services that need public service obligation subsidies and implement a mechanism to calculate and pay public service obligation subsidies.

FFA, Annex 1

Complied with late. Services for public service obligation subsidies were identified and a mechanism implemented.

Implement a new internal pricing structure for the services provided by an individual LOB to another LOB.

FFA, Annex 1

Complied with late. A new internal pricing structure for LOBs were developed and implemented.

Redefine job description, and career advancement processes of the different staff grades and professions needed to optimize LOB structure and corporatization.

FFA, Annex 1

Complied with late. Work was done to redefine job description and career advancement processes.

Recruit managers with needed skills from outside BR as and where necessary with the successful candidates appointed and in service with BR.

FFA, Annex 1

Not complied. BR did not recruit any managers from outside.

Formulate and accept improved standards for maintenance of permanent way and rolling stock.

FFA, Annex 1

Complied with late. New maintenance standards for track and permanent way and rolling stock were formulated and adopted by BR.

Improve timetabling, rake links, locomotive links, and terminal operating practices to reduce journey times in the Dhaka–Chittagong corridor by 10% compared with the situation existing in December 2005.

FFA, Annex 1

Complied with. With support of consultants, actions plan were prepared and operational improvements implemented that reduced the journey times in the Dhaka-Chittagong corridor more than 10% compared with December 2005.

Formulate standards for maintenance of permanent way and rolling stock.

FFA, Annex 1

Complied with late. New maintenance standards for track and permanent way and rolling stock were formulated.

Update all relevant BR operation and maintenance manuals and formally adopt these new manuals.

FFA, Annex 1

Complied with. All relevant BR operation and maintenance manuals were updated with support of consultants and formally adopted by BR.

Four years from loan effectiveness of first PFR

Complete the divestiture/outsourcing of all noncore services in accordance with the approved outsourcing/divesture plan.

FFA, Annex 1

Complied with late. Outsourcing of non-core services were done by BR in in accordance with approved plan.

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Implement a new tariff structure for all BR core services and revise tariff book according to the approved tariff structure.

FFA, Annex 1

Complied with late. A new tariff structure was adopted in 2016.

Formulate a new market-based financial remuneration structure for BR employees to be implemented after transformation of BR into a corporate entity.

FFA, Annex 1

Not complied with. Covenant became less relevant while no corporate entity was established for BR.

Formulate a performance-based incentive structure and accountability measures for key BR management personnel to be implemented after the transformation of BR into a government-owned corporate entity is approved.

FFA, Annex 1

Not complied with. Covenant became less relevant while no corporate entity was established for BR.

Prepare options based on the principle that staff will be no worse off when BR personnel transfer to the government-owned corporate entity and prepare the necessary documentation for the various accepted options.

FFA, Annex 1

Not complied with. Covenant became less relevant while no corporate entity was established for BR.

Prepare and approve social safety net for BR staff, if any, who when BR is transformed into a government-owned corporate entity become redundant

FFA, Annex 1

Not complied with. Covenant became less relevant while no corporate entity was established for BR.

Decide on and approve option for the form and legal status of BR after it is transformed into a government-owned corporate entity, taking into account the experience gained in restructuring BR by LOB.

FFA, Annex 1

Not complied with. Covenant became less relevant while no corporate entity was established for BR.

Finalize and approve the division and transfer of assets and liabilities after BR is transformed into a government-owned corporate entity.

FFA, Annex 1

Not complied with. Covenant became less relevant while no corporate entity was established for BR.

Finalize and approve a technical and safety regulatory framework for the railway sector after BR is transformed into a government-owned corporate entity including roles, reporting arrangements, and institutional strengthening for a safety and technical regulatory body.

FFA, Annex 1

Not complied with. Covenant became less relevant while no corporate entity was established for BR.

Enact and promulgate legislation transforming BR into a government-owned corporate entity with its own assets and liabilities, and provides for a regulatory framework for safety and technical regulations.

FFA, Annex 1

Partially complied with. Corporate entity established and enacted for BR container operations.

Formally establish BR as a transformed government-owned corporate entity with its own assets and liabilities in line with provisions of the bill as approved by Parliament.

FFA, Annex 1

Partially complied with. Corporate entity established and enacted for BR container operations

Formally establish a safety and technical regulatory body for the railway sector in line with provisions of the legislation as approved by Parliament.

FFA, Annex 1

Not complied with. Became less relevant applicable while no corporate entity was established for BR.

56 Appendix 11

STATUS OF COMPLIANCE WITH LOAN COVENANTS OF THE INVESTMENT PROJECT Covenant Reference

in Agreement

Status of Compliance

Particular Covenants (a) The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices. (b) In carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement.

LA, Article IV, Section 4.01

Complied with. The Project was carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices. The Project and operation of the Project facilities, followed all obligations set forth in Schedule 5 to this Loan Agreement (Schedule 4 to the Loan Agreement of Loan 2845).

The Borrower shall make available, promptly as needed and on terms and conditions acceptable to ADB, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for the carrying out of the Project and for the operation and maintenance of the Project facilities.

LA, Article IV, Section 4.02

Complied with. The Borrower made available to BR the funds, facilities, services, land and other resources in addition to the proceeds of the Loan, for the carrying out of the Project and for the operation and maintenance of the Project facilities.

(a) Whenever applicable, in carrying out of the Project, the Borrower shall cause competent and qualified consultants and contractors, acceptable to ADB to be employed to an extend and upon terms and conditions satisfactory to the Borrower and ADB. (b) The Borrower shall cause the Project to be carried out in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to the Borrower and ADB, as applicable. The Borrower shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

LA, Article IV, Section 4.03

Complied with. (a) Competent and qualified consultants and contractors, acceptable to ADB were employed satisfactory to the Borrower and ADB. (b) The Project was be carried out in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to the Borrower and ADB.

The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA, Article IV, Section 4.04

Complied with. The activities of BR with respect to the carrying out of the Project and operation of the Project facilities were conducted and coordinated in accordance with sound administrative policies and procedures

a) The Borrower shall (i) maintain separate accounts and records for the Project; (ii) prepare annual financial statements for the Project in accordance with accounting principles acceptable to ADB; (iii) have such financial statements audited annually by

LA, Article IV, Section 4.05

Complied with. The Borrower maintained separate accounts and records for the Project; (ii) prepared annual financial statements for the Project in accordance with accounting

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independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; (iv) as part of each such audit, have the auditors prepare a report (which includes the auditors’ opinion on the financial statements, use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement) and a management letter (which sets out the deficiencies in the internal control of the Project that were identified in the course of the audit, if any); and (v) furnish to ADB, no later than 6 months after the end of each related fiscal year, copies of such audited financial statements, audit report and management letter, all in the English language, and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request. (b) ADB shall disclose the annual audited financial statements for the Project and the opinion of the auditors on the financial statements within 30 days of the date of their receipt by posting them on ADB’s website. I The Borrower shall enable ADB, upon ADB’s request, to discuss the financial statements for the Project and the Borrower’s financial affairs where they relate to the Project with the auditors appointed pursuant to subsection (a) (iii) hereinabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB. This is provided that such discussions shall be conducted only in the presence of an authorized officer of the Borrower, unless the Borrower shall otherwise agree.

principles acceptable to ADB; (iii) had such financial statements audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB; (iv) as part of each such audits, had the auditors prepare a report (which includes the auditors’ opinion on the financial statements, use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement) and a management letter (which sets out the deficiencies in the internal control of the Project that were identified in the course of the audit, if any); and (v) furnished albeit late to ADB after the end of each related fiscal year, copies of such audited financial statements, audit report and management letter, all in the English language, and such other information concerning these documents and the audit thereof as ADB shall from time to time reasonably request. (b) ADB disclosed the annual audited financial statements for the Project and the opinion of the auditors on the financial statements within 30 days of the date of their receipt by posting them on ADB’s website. The Borrower and BR enabled ADB to discuss the financial statements for the Project and the Borrower’s financial affairs related to the Project with the auditors appointed and supported authorized representatives of auditors to participate

Project Execution The Borrower and BR shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Borrower and ADB. In the event of any discrepancy between the PAM and this Loan

LA 3097, sch. 5, para.1

Complied with. The Project was implemented in accordance with the detailed arrangements set forth in the PAM.

58 Appendix 11

Covenant Reference in

Agreement

Status of Compliance

Agreement, the provisions of this Loan Agreement shall prevail. The Borrower shall remain committed to the reform program under the Reform Project throughout the Investment Program period and thereafter, and shall, together with BR, ensure (a) continued compliance with the actions and measures taken pursuant to paragraphs 13 to 15 of Schedule 1 to the FFA, and (b) completion of the reform actions set out in paragraph 16 thereof in a manner acceptable to ADB before submission of the PFR for tranche 4.

LA 3097, sch. 5, para. 2

Substantially complied with late. Reform program was substantially complied with except for establishment of a corporate entity for BR. While this was difficult to achieve, the covenant was waived and reformulated to establish a corporate entity for container operations that was achieved.

The Borrower shall ensure that sufficient counterpart funds are made available through budgetary allocations or other means for timely and effective implementation of the Project, including without limitation, any funds required: (a) towards operation and maintenance of the Project facilities, (b) to mitigate any unforeseen environmental and social impacts, and (c) to meet additional costs, including those arising from design changes, price escalation in costs and/or unforeseen circumstances.

LA 3097, sch. 5, para. 3

Complied with.

The Borrower shall ensure that the Project does not have any small ethnic community peoples impacts within the meaning of the Small Ethnic Community Peoples Safeguards, or any environmental or involuntary resettlement impacts within the meaning of the SPS. In the event that the Project does have any such impact, the Borrower shall ensure compliance with: (a) all applicable laws and regulations of the Borrower relating to environment, land acquisition, involuntary resettlement, and small ethnic community peoples; (b) the SPS; and (c) any plans and measures to be developed and implemented in accordance with the EARF, RF, and/or any small ethnic community peoples planning framework.

LA 3097, sch. 5, para. 4

Complied with.

The Borrower shall ensure that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

LA 3097, sch. 5, para. 5

Complied with. No proceeds of the Loan were used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

The Borrower shall ensure that BR maintain the Project facilities and that proper technical supervision and adequate routine funds for this purpose are provided to ensure safe railway operation. Maintenance shall be carried out in accordance with BR’s operations manual and the recommendations from manufacturer(s) and supplier(s). The funds for the O&M shall be allocated annually and released on a timely

LA 3097, sch. 5, para. 6

Complied with. BR maintain the Project facilities and provide proper technical supervision and adequate routine funds for this purpose to ensure safe railway operation. Maintenance is carried out in accordance with BR’s operations manual and the recommendations from manufacturer and supplier. The

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basis. Furthermore, the Borrower shall cause BR to ensure that all equipment and spare parts financed under the Project shall be used for the maintenance and operation of the Project.

funds for the O&M are allocated annually and released on a timely basis. All equipment and spare parts financed under the Project are used for the maintenance and operation of the Project.

The Borrower and BR shall (i) comply with ADB’s Anticorruption Policy (1998, as amended to date) and acknowledge that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Project; and (ii) cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.

LA 3097, sch. 5, para. 7

Complied with. The Borrower and BR complied with ADB’s Anticorruption Policy (1998, as amended to date) and cooperated well with ADB.

The Borrower and BR shall ensure that the anticorruption provisions acceptable to ADB are included in all bidding documents and contracts, including provisions specifying the right of ADB to audit and examine the records and accounts of the executing and implementing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

LA 3097, sch. 5, para. 8

Complied with. Anticorruption provisions acceptable to ADB were included in all bidding documents and contracts,

Within 6 months after the Effective Date, BR shall, through its website or a project-specific website, disclose key project-related information, including costs, safeguards (if any), procurement matters such as basic details on bidding procedures adopted, the list of participating bidders, name of the winning bidders, amount of contract awarded, and the list of goods/services procured. The website shall also include general information on Project progress, as well as contact details for the Project Executing Agency’s counterpart staff in Bangla and English languages, and shall provide a link to ADB’s Integrity Unit website http://www.adb.org/Integrity/complaint.asp for reporting to ADB any grievances or allegations of corrupt practices arising out of the Project and/or Project activities. The Borrower shall cause BR to ensure that all Project staff are fully aware of ADB’s procedures, including, but not limited to, procedures for implementation, procurement, use of consultants, disbursements, reporting, monitoring, and prevention of fraud and corruption.

LA 3097, sch. 5, para. 9

Partially complied. BR established a project website which provided basic project-related information.

60 Appendix 12

ECONOMIC AND FINANCIAL REEVALUATION 12.1 FOR TRANCHES 1, 2 AND 4 A. Introduction 1. Tranches 1, 2 and 4 of Bangladesh Railway Sector Investment Program financed three investment subprojects. The major subproject under the multi-tranche financing facility was construction of a 64 km second rail track including modernization of signaling between Tongi and Bhairab Bazar section on the Dhaka-Chittagong railway corridor (subproject 1). The other two subprojects financed (i) improvement of yards at 11 stations and modernization of signaling and communication system at 11 stations, and (ii) extension, rehabilitation and reconstruction of loop-lines between Darsana and Ishurdi on the Dhaka-Darsana-Khulna line. 2. The subproject for Tongi-Bhairab Bazar (cost $266 million) is analyzed separately. The other two subprojects for the Dhaka-Darsana-Khulna line (with a total cost of $10.56 million) for are considered together since they are closely linked for appropriately assessing the impact on safety and time savings. B. Methodology 3. This economic and financial reevaluation closely follows the methodology used in the economic and financial analysis at appraisal and subsequent analysis at tranche 4 submission.1,2 For calculation of economic benefits, traffic projections have been made using existing container freight, additional container freight with project, existing other freight, additional other freight with project, existing intercity train passengers, and additional intercity train passengers with project have been used. To assess traffic benefits, data and projections for rail cost savings from existing container and other freight traffic, cost savings from diverted container and other traffic, capital loss and total cost savings have been used. 4. For calculation of financial benefits, actual costs of construction, actual and projected operations and maintenance (O&M) cost, additional revenue from container and other freight sources, additional revenue from intercity passenger trains and net cash flows have been used. Project O&M cost is assumed at 3% of capital cost. The baseline data and calculation of growth rates are based on the documents at appraisal for Multi-tranche Financing Facility and Technical Assistance Grant Railway Sector Investment (Bangladesh), 2006. Sources of data are as below:

• Information on (a) Sections and Class of Trains, (b) Routes distance, (c) Sectional Capacity and Double Tracking, (d) Interlocking standard and loop number, (e) Sectional speed of train are from Bangladesh Railway Working Time Tables (East and West);3

• Information on (a) Traffic density by Section, (b) Passenger and freight revenue, (c) average passenger number by train, (d) average wagon number and average weight, (e) speed of freight train, (f) container service and its revenue, (g) Passenger train-km by class of trains are from Information Book of Bangladesh Railway published in different years;4

1 ADB, Manila; Guidelines for the Economic Analysis of Projects, 2017. 2 ADB, Manila; Financial Management and Analysis of Projects, 2005. 3 BR, Chittagong & Rajshahi, Working Time Table No. – 49 & 51, 2013 & 2017. 4 BR, Dhaka, Information Book, 2017 & 2018.

Appendix 12 61

• Road transport Vehicle Operating Cost (VOC), Travel Time Cost (TTC), Vehicle Purchase cost (large bus and truck) are from Road User Cost, 2016-2017, Bangladesh Road Research Laboratory, Road and Highways Department (RHD);5

• Reduction of travel time cost (30 minutes) is assumed based on the Government PCR, June 2016.

5. While the original excel sheets and calculation formulae were not available, the following assumptions have been made in the economic and financial reevaluation:

(i) Analysis uses the currency as Tk. $ to Tk annual average exchange rates have been used and converted the historic price data in to 2017 constant price level.

(ii) Economic values are estimated based on the world price numeraire. (iii) An standard conversion factor (SCF) of 0.80 was applied to adjust the financial cost

and benefit in to the economic value. The same SCF value was used during the appraisal.

(iv) The economic cost of capital was assumed to be 12%, the same as at appraisal. Inflation rate of 6% was assumed in the financial analysis.

(v) The weighted average cost of capital (WACC) is reevaluated to be 3.59% based on actual project cost share between ADB and the government. At appraisal the WACC was 5.0% which was revised at the time of tranche 4 submission to 2.8%.

(vi) Economic life of capital was assumed 20 years after the project completion, from 2015 to 2035. This is similar at appraisal, where the economic life was assumed to be 20 years from project commencement. Given the delays in project implementation, 20 years after completion is more realistic. To the extent that project benefits continue after 2035, i.e. have a residual value at the end of assumed project economic life, the analysis used 30% salvage value since the life of railway track is usually 50 years.

(vii) Full economic benefit of the project could be realized if the proposed Inland Container Depot (ICD) at Dhirasram is built to relieve the pressure on the present congested ICD at Kamlapur in the capital city of Dhaka. This would enable freight traffic to make use of the Dhaka-Chittagong rail corridor relieving pressure of the traffic and accident-prone road corridor. Fuller benefit could also be realized if Bangladesh Railway (BR) introduces more intercity trains, makes tariff adjustment to at least cover domestic Consumer Price Index (CPI), and Wage Index (WI) of BR. Higher financial benefits could be achieved if the productivity of BR increases reflecting in lower operating ratios, greater timeliness and safety in its operations.

(viii) This analysis assumes each container train is equivalent to 60 truckloads. It is also assumed that one intercity (IC) train is equivalent to 25 large buses.

(ix) This analysis assumes passenger time savings are valued at Tk67.72 per passenger per hour.6

C. Project Costs 6. The financial costs of the double-tracking of the Tongi-Bhairab Bazar section consist of all construction costs and O&M costs. The economic costs include resource costs for construction including the costs of environment management plan, O&M costs, and social costs arising from land acquisition and resettlement compensation. A standard conversion factor of 0.80 was applied to financial costs of non-traded inputs to calculate economic costs. Subproject facilities are expected to have an average economic life 20 years. In addition, the economic and financial costs

5 Bangladesh Road Research Laboratory (BRRL), RHD, Dhaka, Road User Cost during 2016–2017, 2017 6 TSC Wing, Planning Commission, Dhaka, Draft Appraisal Framework, Railway Sector Manual, 2011

62 Appendix 12

are undertaken constant prices to 2016 prices7. Conversion of historic costs from $ to Tk8 is based on the actual exchange rate by year to year. 7. This reevaluation has been done using comparable data and projections for the entire Dhaka-Chittagong corridor, while the Tongi-Bhairab Bazar section also has been analyzed separately. The Dhaka-Chittagong rail corridor has a length of 321 km and consists of seven main sections (see table 12.1). At the beginning of the project, three sections were already double tracked while the remaining four sections had only a single track. At the time of appraisal, double tracking of Tongi-Bharab Bazar section was the core subproject of the MFF while other sections were non-core. It was assumed that all three single track sections would be double-tracked within the project time frame, so economic and financial analysis was done for the whole corridor. It may be noted that double track (dual gauge) from Akhaura to Laksam is ongoing through another ADB supported project which is expected to be completed in 2020.9 Benefits will increase once the entire corridor is double tracked.

Table A12.1.1: Dhaka-Chittagong Corridor

Year Track Dhaka-Tongi

Tongi-Bhairab Bazar

Meghna Bridge

Ashuganj-Akhaura

Akhaura-Laksham

Laksham-Chinkiastana

Chinkiastana-Chittagong

Baseline Length km

23 64 4 29 71 61 69

Baseline Double/ Single Track

Double Single Single Double Single Single Double

2018 Length km

23 64 4 29 71 61 69

2018 Double/ Singe Track

Double Double Double Double Single Double Double

D. Project Benefits and Revenues 8. The main economic benefits are generated by the project were quantified in terms of (i) railway operating cost savings arising from faster travel times for both goods and passenger services; (ii) savings in operating costs for both freight and passenger traffic arising from traffic diverted from road to rail made possible with the increase in rail capacity; (iii) savings in working capital loss for freight traffic arising from time savings including elimination of waiting times to get slots on railways for the goods being transported; and (iv) time savings for passengers arising from faster train travel times. 9. Railway operating costs were calculated for each ton-km for both, without and with the project cases. Factors included in the operating costs calculation include cost of documentation and other terminal services, marshalling yards, traction, track and signaling, general overhead expenses and central charges as allocated by BR. The operating cost savings resulted from faster travel times in the case of variable cost components as well as allocation of fixed overhead cost over a larger traffic volume in the case of overhead fixed costs. Rail operating costs savings were

7 BBS, Dhaka, Statistical Pocket Book, 2018 8 Ministry of Finance, Bangladesh Economic Review, 2018 9 ADB, Manila; Report and Recommendation of the President to the Board of Directors - South Asia Sub-regional Economic Cooperation Railway Connectivity: Akhaura–Laksam Double Track Project, Sept. 2014.

Appendix 12 63

calculated for the current traffic taking into account the difference in the two operating costs, Table 12.2 below shows the rail operating costs for both the cases with and without the project.

Table A12.1.2: Rail Operating Costs Estimates for BR (in traffic-unit km)

Service Without Project Operating Costs

(Baseline)

With Project Operating Costs

(Baseline)

Without Project Operating Costs

(2018)

With Project Operating Costs

(2018) Container Tk3.6 ton-km Tk2.1 ton-km Tk3.88 ton-km Tk2.66 ton-km Other Freight Tk3.2 ton-km Tk2.2 ton-km Tk3.45 ton-km Tk2.37 ton-km

IC Passenger Tk0.44/pass-km Tk0.35/pass-km Tk0.42/pass-km Tk0.30/pass-km

10. The average operating speed at appraisal for freight trains was 12 kmph and for IC passenger trains 55 kmph. It was assumed that the average operating speed with the project will increase to 50 kmph for freight trains and 80 kmph for passenger trains. Now the average operating speed with the project has reached to 45 kmph for freight trains and 80 kmph for passenger trains. This means that there is a time saving of about 1 to 2 hours for existing passengers. It is assumed that the new passengers save an average of 1 to 2 hours if they undertake the journey by rail instead of road. 11. Vehicle operating cost (VOC) data, expressed in Tk/km, for medium truck and large bus (the two road vehicles directly competing with trains) were obtained from Road and Highways Department (RHD). At appraisal, it was assumed that each truck carries 14 tons and each bus carries 42 passengers to convert them to ton-km and passenger-km for freight and passenger road operating cost data. This analysis uses the same assumption, that each truck carries 14 tons and each bus carries 42 passengers. The value of passenger time was also obtained from RHD data. It is assumed that these are same for rail traffic. The road operating cost figures are shown in Table 12.3 below:

Table A12.1.3: Road Operating Costs

Vehicle Type

VOC (Tk/km) Assumed Load Road operating cost Value of time (per hr.)

Truck 8.58 10 tons Tk0.858/ton-km Tk15.58

Large Bus 9.13 40 passengers Tk0.23/pass-km Tk14.00 per passenger Vehicle Type

VOC (Tk/km) 2018

Actual Load (2018)

Road operating cost (2018)

Value of time (per hr.) 2018

Truck 23.81 14 tons Tk1.7/ton-km Tk10.9

Large Bus 31.13 42 passengers Tk0.74/pass-km Tk51.0 per passenger

Source: Roads and Highways Department (RHD)

12. In the financial reevaluation, the incremental revenue was based on the passenger and freight revenue with and without the project. The tariff used for calculation of the FIRR is Tk 2.37/ ton-km for container freight, Tk3.45/ton-km for other freight and Tk0.30/pass-km for IC passengers. At appraisal these figures were Tk2.80/ton-km, Tk1.91/ton-km and Tk0.56/pass-km respectively. For the forward projection, it is assumed that there is no change in the tariff structure for either freight or passenger after February 2016. Thus, the financial reevaluation is on the conservative side. 13. At appraisal, growth rate of containers was assumed at 8% per annum and Tk514 million was calculated as the loss from demurrage based on 2009 figures. In this reevaluation, container growth rate was assumed based on the calculated growth rate for the years of 2015–2018 and

64 Appendix 12

same growth rate was used for the projection up to 2035. The projection of other freight traffic also used the same method. 10% growth rate is used for the purpose of projection. The Intercity Trains (IC) km for different years was used for the calculation of growth rate. It was seen that the historical growth rate of Intercity Train km is stagnant and decreasing from 6% to 5% for the years 1996–2018, because of limited track capacity and shortage of rolling stock. Therefore, this reevaluation used only 4% growth rate, conservatively, up to year 2035. Freight and passenger traffic projections. Freight and passenger traffic projections and benefits calculations are in Table 12.4, 12.5 and 12.6. Sub-Project 1: Construction of Double Line Track from Tongi to Bhairab Bazar

Table A12.1.4 Freight and Passenger Traffic Projections

Year

Container Freight

Additional Con

Freight

Other Freight Mil

ton-km

Additional other

Freight mil ton-km

IC Passenger

Additional IC Passenger

mil pass-km

mill ton-km mill ton-km mill ton-km mill ton-km mil pass-km mil pass-km

2008 154 - 108 - 1,422

2009 157 - 178 - 1,479

2010 160 - 292 - 1,538

2011 186 - 342 - 1,600

2012 188 - 362 - 1,664

2013 190 - 384 - 1,713

2014 174 - 407 - 1,765

2015 178 - 431 - 1,818

2016 193 - 457 - 1,872

2017 185 - 485 - 1,928

2018 186 61 485 87 1,928 283

2019 205 66 534 96 2,024 297

2020 225 71 587 105 2,126 312

2021 248 77 646 116 2,211 324

2022 272 83 710 127 2,299 337

2023 300 90 781 140 2,391 351

2024 330 97 859 154 2,487 365

2025 362 105 945 170 2,586 380

2026 399 113 1,040 186 2,690 395

2027 439 122 1,144 205 2,797 411

2028 482 132 1,258 226 2,909 427

2029 521 142 1,384 248 3,025 444

2030 563 154 1,522 273 3,146 462

2031 608 166 1,674 300 3,272 480

2032 656 179 1,842 330 3,403 500

2033 709 194 2,026 363 3,539 520

2034 766 209 2,229 400 3,681 540

2035 827 226 2,451 440 3,828 562

Appendix 12 65

Table A12.1.5. With Project Freight Traffic Benefits

Year

Rail cost savings existing

Container Traffic

Rail cost savings existing

other freight traffic

Cost savings Diverted

Container Traffic

Cost savings Diverted

other freight Traffic

Capital loss (Tk

million)

Total cost savings freight traffic

(Tk million) 2008

2009

2010

2011

2012

2013 61 83 - - - 144

2014 56 88 - - - 144

2015 57 93 - - - 150

2016 62 98 - - - 161

2017 60 104 - - - 164

2018 60 104 1,239 1,768 186 3,357

2019 66 115 1,339 1,944 203 3,666

2020 73 126 1,446 2,139 221 4,005

2021 80 139 1,561 2,353 242 4,374

2022 88 153 1,686 2,588 264 4,779

2023 97 168 1,821 2,847 288 5,221

2024 106 185 1,967 3,132 315 5,704

2025 117 204 2,124 3,445 344 6,233

2026 129 224 2,294 3,789 375 6,811

2027 142 246 2,478 4,168 410 7,444

2028 156 271 2,676 4,585 448 8,135

2029 168 298 2,890 5,043 489 8,889

2030 182 328 3,121 5,548 535 9,713

2031 196 361 3,371 6,102 585 10,614

2032 212 397 3,640 6,713 639 11,600

2033 229 436 1,504 2,825 10,672 15,668

2034 247 480 1,625 3,108 11,666 17,126

2035 267 528 1,755 3,419 12,752 18,721

66 Appendix 12

Table A12.1.6. With Project Passenger Traffic Savings

Year

Rail cost savings existing

Passenger Traffic

Cost savings Diverted

Passenger Traffic

Time Cost Savings Existing

Passenger Traffic

Time Cost Savings Diverted

Passenger Traffic

Total savings passenger

Traffic (Tk million)

2008

-

2009

-

2010

-

2011

-

2012

-

2013 206 - 394 0 599

2014 212 - 405 0 617

2015 218 - 418 0 636

2016 225 - 430 0 655

2017 231 - 443 0 674

2018 231 210 443 65 949

2019 243 220 465 68 996

2020 255 231 488 72 1,046

2021 265 241 508 75 1,088

2022 276 250 528 78 1,132

2023 287 260 549 81 1,177

2024 298 271 571 84 1,224

2025 310 281 594 87 1,273

2026 323 293 618 91 1,324

2027 336 304 642 94 1,377

2028 349 316 668 98 1,432

2029 363 329 695 102 1,489

2030 378 342 723 106 1,549

2031 393 356 752 110 1,611

2032 408 370 782 115 1,675

2033 425 77 276 41 818

2034 442 80 287 42 851

2035 459 83 299 44 885

E. Results of Economic Reevaluation 14. An economic reevaluation was carried out by comparing with and without the project options. Results for the Tongi-Bhairab Bazar subproject are in Tables A12.7 and A12.8 and the summary of economic analysis is in Table A12.9. For subproject 1, the EIRR is reevaluated at 20.6% and NPV at Tk16,559 million. This compares favorably with EIRR calculated for all subprojects together and found to be 16% at appraisal in 2006 and 20.5% at tranche 4 submission in 2016. The original appraisal document does not indicate NPV but the appraisal in 2016 indicated NPV at 12% discounted rate being Tk24,548 million. The reevaluation shows the investment was economically viable.

Appendix 12 67

Table A12.1.7: Base Case EIRR Calculations Year Construction

Cost Operation & Maintenance

Cost

Total cost savings passenger traffic

(Tk million)

Total cost savings freight traffic (Tk million)

Net Cash Flow

2008 236.14

(236.14)

2009 42.47

(42.47)

2010 29.53

(29.53)

2011 1,651.32

(1,651.32)

2012 2,092.34

(2,092.34)

2013 6,983.81

(6,983.81)

2014 5,265.27

(5,265.27)

2015 2,469.06

(2,469.06)

2016 1,612.03

(1,612.03)

2017

102 382 164 444

2018

105 446 4,151 4,492

2019

108 468 4,534 4,893

2020

111 491 4,951 5,331

2021

115 511 5,408 5,805

2022

118 532 5,908 6,281

2023

122 553 6,454 6,817

2024

125 575 7,051 7,462

2025

129 598 7,704 8,172

2026

133 622 8,418 8,759

2027

137 647 9,199 9,708

2028

141 673 10,053 10,583

2029

145 699 10,984 11,537

2030

150 727 12,003 12,576

2031

154 757 13,117 13,713

2032

159 787 14,335 14,962

2033

164 818 15,668 16,320

2034

169 851 17,126 17,807

2035

174 885 18,721 19,416

NPV = Tk15, 729 million EIRR = 19.9% 15. Results for other two subprojects on the Dhaka-Darsana-Ishurdi line for (i) upgrading signaling at 11 stations, and (ii) extension, rehabilitation and reconstruction of loop lines, considered together in Table 12.8 shows, the EIRR for the combined (subprojects 1 and 2) is 27.07% and NPV at Tk1,513 million.

68 Appendix 12

Table A12.1.8: Sub-Project 2 & 3: Upgrading of Signaling at 11 Stations between Ishurdi and Darsana and Extension, Rehabilitation and Reconstruction of Loops Line (Tk million)

Year Capital Cost Annual O&M Cost

Total Cost

ROC Saved

TTC of Train Passenger Saved

Total Benefit

Cash Flow

2012

2013

2014

2015 1040.2 1040.2 (1040.16)

2016 36.41 36.41 121.65 177.61 299.26 262.86

2017 37.13 37.13 124.08 181.17 305.25 268.12

2018 37.88 37.88 126.56 184.79 311.35 273.48

2019 38.63 38.63 129.10 188.49 317.58 278.95

2020 39.41 39.41 131.68 192.26 323.93 284.53

2021 40.19 40.19 134.31 196.10 330.41 290.22

2022 41.00 41.00 137.00 200.02 337.02 296.02

2023 41.82 41.82 139.74 204.02 343.76 301.94

2024 42.65 42.65 142.53 208.10 350.64 307.98

2025 43.51 43.51 145.38 212.27 357.65 314.14

2026 44.38 44.38 148.29 216.51 364.80 320.42

2027 45.27 45.27 151.26 220.84 372.10 326.83

2028 46.17 46.17 154.28 225.26 379.54 333.37

2029 47.09 47.09 157.37 229.76 387.13 340.04

2030 48.04 48.04 160.51 234.36 394.87 346.84

2031 49.00 49.00 163.72 239.05 402.77 353.77

2032 49.98 49.98 167.00 243.83 410.83 360.85

2033 50.98 50.98 170.34 248.70 419.04 368.07

2034 52.00 52.00 173.75 253.68 427.42 375.43

2035 53.04 53.04 177.22 258.75 435.97 382.94

2036 54.10 54.10 180.77 263.93 444.69 390.59

2037 0.00 55.18 55.18 184.38 269.20 453.58 398.41

NPV = Tk1,513 million EIRR = 27.07%

Table A12.1.9 Summary of Economic Benefits

Appraisal 2006/2011 Reappraisal 2016 of

subproject 1

Completion 2018

NPV EIRR NPV EIRR NPV EIRR

(Tk million) (%) (Tk

million) (%)

(Tk million)

(%)

Investment subproject 1 4,476 16.0 24,548 20.5 15,729 19.9 Investment subproject 2 and 3 1,641 12.9/28.2* __ __ 1,513 27.07

*EIRR for loop lines and signaling subprojects (from 2011 subproject appraisal reports)

Appendix 12 69

16. A sensitivity analysis was carried out to test the impacts of (i) an increase in construction costs, (ii) a decrease in benefits and (iii) increase in O&M costs are presented in Table A12.10. According to this analysis, subproject 1 will remain economically viable with a 10% increase in costs (18.8%) and 10% decrease in benefits (18.7%). The other two subprojects remain economically viable.

Table A12.1.10: EIRR Values for Base Case and Sensitivity Analysis Cases

Scenarios EIRR

a. Base Case 19.9%

b. Sensitivity Tests

1. Construction Costs increased by 10% 18.8%

2. Benefits decreases by 10% 18.7%

3. O&M Costs increases by 10% 19.8%

F. Results of Financial Reevaluation 17. A financial reevaluation was carried out by comparing with and without the project. Results for Tongi-Bhairab Bazar subproject are summarized in Table A12.11. The reevaluated FIRR is 5.2% and NPV of Tk3,705 million. The financial reevaluation was done for a period of 20 years from the project completion (Table A12.12). The WACC of the project is calculated at 3.59% (Table A12.13). The recalculated FIRR is lower than at the appraisal of 14.0%. The FIRR at reappraisal and tranche 4 was 8.5% and WACC was 2.8%. The FIRR of 5.2% at completion, higher than the WACC of 3.59% confirms the investment was financially viable.

Table A12.1.11. Summary of Financial Benefits

Appraisal 2006/2011 Reappraisal 2016 of subproject 1

Completion

NPV FIRR NPV FIRR NPV FIRR (Tk million) (%) (Tk

million) (%) (Tk

million) (%)

Investment subproject 1 - 14.0 10,357 8.5 3,705 5.2 Investment subprojects 2 and 3 880.6 11.2/5.3* - - -

*FIRR for loop lines and signaling subprojects (from 2011 subproject appraisal reports)

18. A sensitivity analysis was carried out to test the impact of variations in project revenues, O&M costs and capital investment. The tests with adverse changes all yielded FIRR higher or equal to WACC. FIRR for the signaling and loop line subprojects were not calculated. These subprojects improved the safety and punctuality. As such, it is not possible to attribute their benefits in monetary terms.

70 Appendix 12

Table A12.1.12: FIRR Base Case for Tongi - Bhairab Bazar Subprojects (Tk million)

Year Construction Cost

O&M Cost Additional Con Freight

Revenue

Additional other Freight

Revenue

Additional IC

Passenger Revenue

Net Cash Flow

2008 295.17

(295)

2009 53.09

(53)

2010 36.92

(37)

2011 2,064.15

(2,064)

2012 2,615.42

(2,615)

2013 8,729.76

(8,730)

2014 6,581.59

(6,582)

2015 3,086.32

(3,086)

2016 1,952.66

(1,953)

2017

127.54 363.50 461.10 340.84 1,038

2018

131.37 392.58 507.21 354.48 1,123

2019

135.31 423.98 557.94 368.65 1,215

2020

139.37 457.90 613.73 383.40 1,316

2021

143.55 494.53 675.10 398.74 1,425

2022

147.85 534.09 742.61 414.69 1,544

2023

152.29 576.82 816.87 431.27 1,673

2024

156.86 622.97 898.56 448.52 1,813

2025

161.56 672.80 988.42 466.47 1,966

2026

166.41 726.63 1087.26 485.12 2,133

2027

171.40 799.29 1195.98 504.53 2,328

2028

176.55 879.22 1315.58 554.98 2,561

2029

181.84 967.14 1447.14 610.48 2,817

2030

187.30 1063.86 1591.85 671.53 3,099

2031

192.92 1170.24 1751.04 738.68 3,409

2032

198.70 1287.27 1926.14 812.55 3,750

2033

204.66 1415.99 2118.76 893.80 4,125

2034

210.80 1557.59 2330.63 983.19 4,537

2035

217.13 1713.35 2563.70 1081.50 4,991

Net Present Value at WACC = Tk3,705 million FIRR = 5.2%

Table A12.1.13: Weight Average Cost of Capital (WACC)

ADB Loan Government Funds Total

A. Amount ($ million) 245.3 28.7 274.0 B. Weighting 90% 10% 100% C. Nominal Cost 5.5% 12.2% D. Tax rate 0 0 E. Tax-adjusted nominal cost (Cx(1-D)) 5.5% 12.2% F. Inflation rate 1.9% 7.80% G. Real Cost [(1+E)/(1+F)-1 3.5% 4.1% H. Weighted WACC component 3.16% 0.43% 3.59% Weight Average Cost of Capital (Real) 3.59%

Appendix 12 71

12. 2 FOR TRANCHE 3 A. Introduction 1. Bangladesh Railway (BR) has procured 50 broad gauge and 100 meter gauge Carriages under Tranche 3 (Loan 3097-BAN) of Bangladesh Railway Sector Investment Program in 2016, which is one of the subprojects under the MFF. With the new carriages, the subproject has contributed to the overall program objective to improve the efficiency of the BR system, by providing modern, safe and improved quality passenger carriages. BR has increased Intercity Trains, for instance, Sonarbangla Express (Dhaka-Chittagong), Bijoy Express (Chittagong-Mymensingh), Kishoreganj Express (Dhaka-Kishoreganj) and replacement of old coaches in the broad gauge section. 2. The appraisal of the subproject (2016) assumed that the deployment of new carriages would mainly be allocated to critical corridor such as Dhaka-Chittagong IC trains on a preferential basis, in addition to the existing carriages operated on the system. Once the new carriages are put into operation, some of the existing carriages may be transferred to the other parts of the system, provided that its bogies are compatible with the track gauge. In general, BR performs first overhaul of passenger carriages after 12 years and after second overhaul, the carriages transfer to the branch lines, where train speed is equal or less than 50km/hour.10 3. Bangladesh Railway (BR) is serving both as a commercial enterprise and as a public utility service provider. As a public utility service provider, BR has special responsibility to operate specific services which are not commercially viable but socially necessary. For instance, BR has to bear certain cost burdens namely ‘Social Cost’ including i) carrying essential commodities and rendering transport facilities to passengers at lower prices than cost of services, ii) operation of un-economic branch lines, iii) carrying relief materials at concessional rates, and iv) carrying military traffic at less than normal tariff. BR is compensated under “Public Service Obligation” system and has been able to cover its operating expenses by government support. B. Methodology 4. The economic and financial reevaluation closely follows the methodology used in the economic and financial analysis at appraisal but takes actual cost. The economic analyses compare the benefits and costs of with- and without-project situations to estimate the economic internal rate of return (EIRR) and net present value (NPV) at a discount rate of 12%. Bangladesh taka (Tk) is used as the currency unit of such analyses. The Standard Conversion Factor (SCF) of 0.80 is applied to adjust the financial cost and benefit into corresponding economic values at world price numeraire of all goods in the economy. The analysis period is 20 years for this subproject. The economic and financial analysis both are undertaken in constant 2017 price levels. 5. The financial analysis has taken the actual cost incurred and benefits streams which obtained from intercity (IC) trains’ fare per km/passenger from Information Book.11 The analysis considers the criterion rate of return is the weighted average cost of capital (WACC). The analysis is conducted for two cases; wit-support and without-support scenarios. Bangladesh taka is used as currency unit of the analyses. The analysis period is 20 years. The followings are the basis data, assumptions and sources for the calculation.

10 BR, Chittagong, Working Time Table No.-51, 2017 11 BR, Dhaka, Information Book, 2017

72 Appendix 12

• Average number of passenger per vehicle for meter gauge is 35 and broad gauge is 42.3 (source: BR, Information Book, 2017, Table 51 & 52)

• Average number of vehicle per train for meter gauge is 30.5 and broad gauge is 22.3 (source: BR, Information Book, 2017, Table 42)

• Train occupancy for meter gauge is 1068 and for broad gauge is 942 • Train operation days 330 in a year (source: appraisal report, 2016) • Average lead of a passenger km for intercity (IC) train is 267.9 • 100 meter gauge carriages and 50 broad gauge carriages is equivalent to 6 meter gauge

and 4 broad gauge train respectively (calculation made from number of carriages per IC train)

• Train speed with new carriages is more than 80 km/hr and after second overhauling i.e. after 20 years, restriction of train speed up to 50 km/hr and transfer to branch lines, which made passenger saving is 0.38 minutes per passenger

• Train km for meter gauge is 260 and for broad gauge is 272 (source: BR, Dhaka, Information Book, 2017, Table 33 & 34)

• Running cost of provision & maintenance of carrying unit per engine km excluding overhead is Tk80.41 and running cost of provision & maintenance of carrying unit per vehicle km is Tk3.80 for meter gauge, Page-23, and Running cost of provision & maintenance of carrying unit per engine km excluding overhead is Tk158.64 and running cost of provision & maintenance of carrying unit per vehicle km is Tk8.20 for broad gauge, Page-33,. (source: BR, Dhaka, Railway Costing Profile, 2016–2017)

• Large Bus Vehicle Operating Cost (VOC) per km is Tk32.51 and Bus occupancy is 42 passengers, which is 1 train equivalent to 25 large buses (source: Bangladesh Road Research Laboratory (BRRL), RHD, Dhaka, Road User Cost during the year 2016–2017)

• Travel Time Cost (TTC) of IC passenger is Tk67.72/hr (Bangladesh Road Research Laboratory (BRRL), RHD, Dhaka, Road User Cost during the year 2016–2017 and TSC Wing, Planning Commission, Dhaka, Draft Appraisal Framework, Railway Sector Manual, 2011)

• Total passenger km is 10,041 million (source: BR, Information Mirror-2017) and project carriages passenger km 888 million (calculated).

• Total support is Tk1,414 million (public service obligation compensation is Tk860 million and welfare grant is Tk554 million), of which share for the new carriages is Tk125.05 million (calculated based on passenger km)

• Diesel price Tk49.85/liter (source: source: BR, Information Book, 2017, Table 59) C. Evaluation of Project Costs 6. The financial costs of procurement of 50 broad gauge and 100 meter gauge carriage is $72.39 million (Tk6,073.52 million) including import and testing. In addition, operation and maintenance costs include coach operation & maintenance, locomotive fuel and maintenance of PW, which is a total of Tk210.56 per year with the increase of 1.5% yearly. In addition, the economic and financial costs are undertaken constant prices to 2017 prices12. Conversion of historic costs from $ to Tk13 is based on the actual exchange rate by year to year.

D. Evaluation of Project Benefits and Revenues

12 BBS, Dhaka, Statistical Pocket Book, 2018 13 Ministry of Finance, Dhaka, Bangladesh Economic Review, 2018

Appendix 12 73

7. Benefits14 and Revenues. By comparing the with-project and without-project situations, the economic analysis has estimated the following categories of benefits related to the subproject as appraisal in 2016.

1) Generalized cost. A passenger’s perceived cost of travel, or the generalized cost affects. The generalized cost includes the fare, travel time, accident risk, level of service such as comfort, and ability to travel at passenger’s preferred time. By the addition of modern and safe carriages, generalized cost of rail travel for normal passengers, those who are already traveling or would travel in the future in the without-project case, have decreased. However, the analysis considers only time savings from the difference between running speed of old carriage, 50 km/hr. and new carriage, 80 km/hr.

2) Saving in bus operating costs. It is calculated that the 250 large buses passenger are switched from bus to train because of present road congestion. Therefore, only large bus operating costs are added in the benefits stream along with time savings of passengers.

3) The revenue earning has considered only ticket sales from additional carriages. E. Results and Economic Reevaluation 8. Economic Analysis. The results of economic analysis are in Table 1. It is estimated the EIRR is 26.2%, and the NPV of the subproject at 12% discount rate is Tk3,874 million.

Table A12.2.1: Summary of Economic Results

Results NPV (Tk in million)

EIRR (%)

Appraisal 2016 10,105 31.9 Completion 2018 3,874 26.2

9. Sensitivity Analysis. The results of sensitivity analysis are in Table 2. The EIRRs of all scenarios are higher than 12%, which indicates that the procurement of carriages is well described and benefited to the railway sub-sector and BR can procure more carriages to increase revenues and reduction of road congestions.

Table A12.2.2: EIRR Values for Base Case and Sensitivity Analysis Cases Scenario EIRR

Base Case 26.2%

Sensitivity Tests

1. Construction Costs 10% Higher 23.6%

2. Benefits 10% Lower 22.6%

3. O&M Costs 10% Higher 25.5%

F. Results and Financial Reevaluation 10. Financial analysis is conducted for two cases; with-support and without-support scenarios. It is estimated the FIRR with-support is about 6.8%, and the Financial Net Present Value (FNPV) of the subproject at 3.59% discount rate is Tk1,558.00 million. FIRR without-support is about 3.5%, indicating that the revenue from passenger does not cover the operation and maintenance expense. The results of financial analysis are in Table 3.

14 Incremental benefit is based on the additional passenger travel generated by the project. Additional passenger travel is calculated as the sum product of train occupancies and number of days in operation, and km per day.

74 Appendix 12

Table A12.2.3: Summary of Financial Results

Results Without Support With Support NPV

(Tk in million) FIRR (%)

NPV (Tk in million)

FIRR (%)

Appraisal 2016 - - 9.5 3,525.0 3.9 Completion 2018 (22.44) 3.5 1,558.0 6.8

11. Sensitivity Analysis. The results of sensitivity analysis are in Table 4. The FIRRs for with-support scenario of all cases are higher than WACC (3.59%).

Table A12.2.4: EIRR Values for Base Case and Sensitivity Analysis Cases

Scenario FIRR

Base Case 6.8%

Sensitivity Tests

1. Construction Costs 10% Higher 5.5%

2. Benefits 10% Lower 4.5%

3. O&M Costs 10% Higher 5.7%

12. Tables of Economic Analysis

Table A12.2.5: Investment and Maintenance Cost (Tk in million) of Meter Gauge Carriage Year Capital Cost of

Carriages Coach O&M

Loco O&M

Locomotive Fuel

Maintenance of PW

Total

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 3,169.8

3,169.80

2018

26.10 33.12 10.27 79.04 148.53

2019

26.50 33.62 10.42 80.23 150.76

2020

26.89 34.12 10.58 81.43 153.02

2021

27.30 34.63 10.73 82.65 155.31

2022

27.71 35.15 10.90 83.89 157.64

2023

28.12 35.68 11.06 85.15 160.01

2024

28.54 36.21 11.22 86.43 162.41

2025

28.97 36.76 11.39 87.72 164.84

2026

29.41 37.31 11.56 89.04 167.31

2027

29.85 37.87 11.74 90.37 169.82

2028

30.29 38.44 11.91 91.73 172.37

Appendix 12 75

Year Capital Cost of Carriages

Coach O&M

Loco O&M

Locomotive Fuel

Maintenance of PW

Total

2029

30.75 39.01 12.09 93.11 174.96

2030

31.21 39.60 12.27 94.50 177.58

2031

31.68 40.19 12.46 95.92 180.25

2032

32.15 40.79 12.64 97.36 182.95

2033

32.64 41.41 12.83 98.82 185.69

2034

33.13 42.03 13.03 100.30 188.48

2035

33.62 42.66 13.22 101.81 191.31

Table A12.2.6: Investment and Maintenance Cost (Tk in million) of Broad Gauge Carriage

Year Capital Cost of Carriage

Coach O&M Loco O&M Locomotive Fuel

Maintenance of PW

Total

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 1,584.9

1,584.90

2018

29.45 45.57 10.74 82.69 168.45

2019

29.90 46.25 10.90 83.93 170.97

2020

30.34 46.94 11.06 85.19 173.54

2021

30.80 47.65 11.23 86.47 176.14

2022

31.26 48.36 11.40 87.76 178.78

2023

31.73 49.09 11.57 89.08 181.47

2024

32.21 49.83 11.74 90.41 184.19

2025

32.69 50.57 11.92 91.77 186.95

2026

33.18 51.33 12.10 93.15 189.76

2027

33.68 52.10 12.28 94.54 192.60

2028

34.18 52.88 12.46 95.96 195.49

2029

34.69 53.68 12.65 97.40 198.42

2030

35.22 54.48 12.84 98.86 201.40

2031

35.74 55.30 13.03 100.35 204.42

2032

36.28 56.13 13.23 101.85 207.49

2033

36.82 56.97 13.43 103.38 210.60

2034

37.38 57.82 13.63 104.93 213.76

2035

37.94 58.69 13.83 106.50 216.96

Table A12.2.7: Cost Savings (Tk in million) of Meter Gauge Carriage

76 Appendix 12

Year Generalized Cost Saving Bus O&M Cost Saving Total Cost Saving

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 716.02 334.72 1,050.74

2019 716.02 334.72 1,050.74

2020 716.02 334.72 1,050.74

2021 716.02 334.72 1,050.74

2022 716.02 334.72 1,050.74

2023 716.02 334.72 1,050.74

2024 716.02 334.72 1,050.74

2025 716.02 334.72 1,050.74

2026 716.02 334.72 1,050.74

2027 716.02 334.72 1,050.74

2028 716.02 334.72 1,050.74

2029 716.02 334.72 1,050.74

2030 716.02 334.72 1,050.74

2031 716.02 334.72 1,050.74

2032 716.02 334.72 1,050.74

2033 716.02 334.72 1,050.74

2034 716.02 334.72 1,050.74

2035 716.02 334.72 1,050.74

Table A12.2.8: Cost Savings (Tk in million) of Broad Gauge Carriage Year Generalized Cost Saving Bus O&M Cost Saving Total Cost Saving

2008

2009

2010

2011

2012

2013

2014

2015

2016

Appendix 12 77

2017

2018 315.77 233.45 549.22

2019 315.77 233.45 549.22

2020 315.77 233.45 549.22

2021 315.77 233.45 549.22

2022 315.77 233.45 549.22

2023 315.77 233.45 549.22

2024 315.77 233.45 549.22

2025 315.77 233.45 549.22

2026 315.77 233.45 549.22

2027 315.77 233.45 549.22

2028 315.77 233.45 549.22

2029 315.77 233.45 549.22

2030 315.77 233.45 549.22

2031 315.77 233.45 549.22

2032 315.77 233.45 549.22

2033 315.77 233.45 549.22

2034 315.77 233.45 549.22

2035 315.77 233.45 549.22

Table A12.2.9: Economic Analysis Results

Year Investment, O&M Costs Total Cost Savings Cash Flow

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 4,754.63

(4,754.63)

2018 316.98 1,599.96 1,282.98

2019 321.73 1,599.96 1,278.23

2020 326.56 1,599.96 1,273.40

2021 331.45 1,599.96 1,268.51

2022 336.43 1,599.96 1,263.53

2023 341.47 1,599.96 1,258.49

2024 346.59 1,599.96 1,253.36

2025 351.79 1,599.96 1,248.17

2026 357.07 1,599.96 1,242.89

78 Appendix 12

2027 362.43 1,599.96 1,237.53

2028 367.86 1,599.96 1,232.10

2029 373.38 1,599.96 1,226.58

2030 378.98 1,599.96 1,220.98

2031 384.67 1,599.96 1,215.29

2032 390.44 1,599.96 1,209.52

2033 396.29 1,599.96 1,203.67

2034 402.24 1,599.96 1,197.72

2035 408.27 1,599.96 1,191.69

NPV = Tk3,874 million

EIRR = 26.2%

B. Tables of Financial Analysis

Table A12.2.10: Investment and Maintenance Cost (Tk in million) of Meter Gauge

Year Capital Cost of Carriage

Coach O&M Loco O&M Locomotive Fuel

Maintenance of PW

Total

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 3,962.19

3,962.19

2018

32.63 41.40 12.83 98.80 185.66

2019

33.12 42.02 13.02 100.28 188.44

2020

33.62 42.65 13.22 101.79 191.27

2021

34.12 43.29 13.42 103.31 194.14

2022

34.63 43.94 13.62 104.86 197.05

2023

35.15 44.60 13.82 106.44 200.01

2024

35.68 45.27 14.03 108.03 203.01

2025

36.21 45.95 14.24 109.65 206.05

2026

36.76 46.63 14.45 111.30 209.14

2027

37.31 47.33 14.67 112.97 212.28

2028

37.87 48.04 14.89 114.66 215.46

2029

38.44 48.76 15.11 116.38 218.70

2030

39.01 49.50 15.34 118.13 221.98

2031

39.60 50.24 15.57 119.90 225.31

Appendix 12 79

2032

40.19 50.99 15.81 121.70 228.69

2033

40.79 51.76 16.04 123.52 232.12

2034

41.41 52.53 16.28 125.38 235.60

2035

42.03 53.32 16.53 127.26 239.13

Table A12.2.11: Investment and Maintenance Cost (Tk in million) of Broad Gauge

Year Capital Cost of Carriage

Coach O&M Loco O&M Locomotive Fuel

Maintenance of PW

Total

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 1,981.09

1,981.09

2018

36.82 56.96 13.42 103.36 210.56

2019

37.37 57.81 13.62 104.91 213.72

2020

37.93 58.68 13.83 106.48 216.92

2021

38.50 59.56 14.04 108.08 220.18

2022

39.08 60.45 14.25 109.70 223.48

2023

39.66 61.36 14.46 111.35 226.83

2024

40.26 62.28 14.68 113.02 230.24

2025

40.86 63.22 14.90 114.71 233.69

2026

41.47 64.16 15.12 116.43 237.19

2027

42.10 65.13 15.35 118.18 240.75

2028

42.73 66.10 15.58 119.95 244.36

2029

43.37 67.10 15.81 121.75 248.03

2030

44.02 68.10 16.05 123.58 251.75

2031

44.68 69.12 16.29 125.43 255.53

2032

45.35 70.16 16.53 127.31 259.36

2033

46.03 71.21 16.78 129.22 263.25

2034

46.72 72.28 17.03 131.16 267.20

2035

47.42 73.37 17.29 133.13 271.21

80 Appendix 12

Table A12.2.12: Revenue from New Passenger (Tk in million) of Meter Gauge & Broad Gauge

Year Capital, O&M Cost

Revenue from MG

Revenue from BG

Total Ticket Sale Revenue

Cash Flow without Support

Cash Flow with Support

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 5,943.28

(5,943.28) (5,943.28)

2018 396.22 555.30 341.60 896.90 500.68 625.74

2019 402.16 555.30 341.60 896.90 494.74 619.79

2020 408.19 555.30 341.60 896.90 488.71 613.76

2021 414.32 555.30 341.60 896.90 482.58 607.64

2022 420.53 555.30 341.60 896.90 476.37 601.42

2023 426.84 555.30 341.60 896.90 470.06 595.12

2024 433.24 555.30 341.60 896.90 463.66 588.71

2025 439.74 555.30 341.60 896.90 457.16 582.21

2026 446.34 555.30 341.60 896.90 450.56 575.62

2027 453.03 555.30 341.60 896.90 443.87 568.92

2028 459.83 555.30 341.60 896.90 437.07 562.13

2029 466.73 555.30 341.60 896.90 430.18 555.23

2030 473.73 555.30 341.60 896.90 423.18 548.23

2031 480.83 555.30 341.60 896.90 416.07 541.12

2032 488.05 555.30 341.60 896.90 408.86 533.91

2033 495.37 555.30 341.60 896.90 401.54 526.59

2034 502.80 555.30 341.60 896.90 394.11 519.16

2035 510.34 555.30 341.60 896.90 386.56 511.62

Without Support

With Support

NPV= (Tk22.44) Tk1,558.00

FIRR= 3.5% 6.8%

Appendix 12 81

12.3 FOR ALL TRANCHES A. Introduction

1. This economic and financial reevaluation has been undertaken for all tranches investment combined following the ADB’s guidelines on economic analysis of investment projects and financial management and analysis.15,16.The Multi-Tranche Financing Facility (MFF) for the Bangladesh Railway Sector Investment Program was designed to have a combination of reforms and investment (civil works). It is composed of 5 loans, spread over 4 tranches (Tranche 1 - Loan 2316 and Loan 2317, Tranche 2 - Loan 2845, Tranche 3 - Loan 3097 and Tranche 4 - Loan 3376). Loan approvals were linked to achievement of specific reform actions. The components of the MFF were: i) Tranche 1 - Construction of double line between Tongi-Bhairab Bazar section, ii) Tranche 2 - Construction of Tongi-Bhairab Bazar double track (90% of the Tranche amount) and upgrading of Signaling at 11 stations between Ishurdi and Darsana, iii) Tranche 3 - Procurement of 50 nos of broad gauge and 100 nos of meter gauge passenger carriages, and iv) Tranche 4 - Construction of Tongi- Bhairab Bazar double track and extension, rehabilitation and reconstruction of loop lines and Darsana-Ishurdi-Sirajganj Bazar broad gauge section. It could be noted that the economic reevaluation has been undertaken for Tranche 1, Tranche 2 and Tranche 4 investments combined, as all these investments complement each other. Economic and Financial analyses of Tranche 3 have been undertaken separately. These analyses have been made all four tranches combined. B. Methodology 2. The assumption for i) duration of analysis period, ii) capital and maintenance costs, iii) benefits, and iv) revenues forecasts, in this economic and financial analyses for all four tranches combined are made based on the forecasts operation cost, demand for passenger and freights, and benefits from the investments of Tranches 1, 2 and 4 combined, and the Tranche 3. C. Results of Economic Reevaluation 3. The results of economic analysis of Multi-Tranche Financing Facility (MFF) are in Table 1 and the sensitivity analysis is in Table 2. It is found that the EIRR is 18.7%, and the NPV at 12% discount rate is Tk10,565.58 million. The EIRRs of all scenarios are higher than 12%, which indicates the MFF is well designed to tolerate uncertainties during operation. The investment was economically robust.

15 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila 16 ADB. 2005. Financial Management and Analysis of Projects. Manila

82 Appendix 12

Table A12.3.1: Combined Economic Analysis of All Tranches combined

Year Capital Cost of all Tranches

O&M of all Tranches

Benefits of All Tranches

Cash Flow Analysis

2008 236 0 - (236)

2009 42 0 - (42)

2010 30 0 - (30)

2011 1,651 0 - (1,651)

2012 2,092 0 - (2,092)

2013 6,984 0 - (6,984)

2014 5,265 0 - (5,265)

2015 3,509 0 - (3,509)

2016 1,612 36 299 (1,349)

2017 4,859 139 851 (4,147)

2018 - 460 6,508 6,049

2019 - 469 6,919 6,451

2020 - 477 7,367 6,889

2021 - 486 7,850 7,363

2022 - 496 8,376 7,881

2023 - 505 8,950 8,445

2024 - 515 9,576 9,062

2025 - 525 10,259 9,735

2026 - 535 11,004 10,470

2027 - 545 11,818 11,273

2028 - 555 12,705 12,150

2029 - 566 13,671 13,105

2030 - 577 14,725 14,148

2031 - 588 15,876 15,288

2032 - 599 17,133 16,533

2033 - 611 18,505 17,894

2034 - 623 20,004 19,381

2035 - 635 21,642 21,007

NPV = Tk10,565.58

EIRR = 18.7% Table A12.3.2: EIRR for Base Case and Sensitivity Analysis for all Tranches combined

Scenario EIRR

Base Case 18.7%

Sensitivity Tests

1. Construction Costs 10% Higher 17.6%

2. Benefits 10% Lower 17.4%

3. O&M Costs 10% Higher 18.6%

Appendix 12 83

D. Results of Financial Reevaluation 4. The financial analysis of the MFF combined shows that the FIRR is 4.2%, and the WACC at 3.58%. The Net Present Value at Net at the discount rate of 3.58% is Tk2,058.70. The results of FIRR, NPV, Sensitivity, and WACC are shown in the following tables Table 3, Table 4 and Table 5. The MFF investment was robust and sustainable as the FIRR is higher than the WACC. However, the sensitivity analysis shows, the MFF is sensitive to the variation in the construction cost and project benefits. At 10% higher construction cost and 10% lower benefits, the FIRR become lower than the WACC. Whereas, 10% additional O&M the FIRR remains higher than the WACC, and hence no adverse effect on the project financial returns.

Table A12.3.3: Combined Financial Analysis of All Tranches combined

Year Capital Cost of all Tranches

O&M of all Tranches

Revenue of All Tranches

Cash Flow Analysis

2008 295 0 - (295)

2009 53 0 - (53)

2010 37 0 - (37)

2011 2,064 0 - (2,064)

2012 2,615 0 - (2,615)

2013 8,730 0 - (8,730)

2014 6,582 0 - (6,582)

2015 4,126 0 - (4,126)

2016 1,953 36 - (1,989)

2017 6,074 165 1,165 (5,073)

2018 - 565 2,276 1,711

2019 - 576 2,373 1,796

2020 - 587 2,477 1,890

2021 - 598 2,590 1,992

2022 - 609 2,713 2,104

2023 - 621 2,847 2,226

2024 - 633 2,992 2,359

2025 - 645 3,150 2,505

2026 - 657 3,321 2,664

2027 - 670 3,522 2,852

2028 - 683 3,772 3,089

2029 - 696 4,047 3,351

2030 - 709 4,349 3,640

2031 - 723 4,682 3,959

2032 - 737 5,048 4,311

2033 - 751 5,451 4,700

2034 - 766 5,893 5,128

2035 - 781 6,381 5,600

NPV = Tk2,058.70 FIRR = 4.2%

84 Appendix 12

Table A12.3.4: FIRR for Base Case and Sensitivity Analysis for all Tranches combined Scenario FIRR

Base Case 4.2%

Sensitivity Tests

1. Construction Costs 10% Higher 3.4%

2. Benefits 10% Lower 3.2%

3. O&M Costs 10% Higher 4.0%

Table A12.3.5: Weight Average Cost of Capital (WACC) for all tranches combined

ADB Loan Government

Funds Total

A. Amount ($ million) 331.2 28.7 359.9 B. Weighting 92% 8% 100% C. Nominal Cost 5.5% 12.2% D. Tax rate 0 0 E. Tax-adjusted nominal cost (Cx(1-D)) 5.5% 12.2% F. Inflation rate 1.9% 7.80% G. Real Cost [(1+E)/(1+F)-1 3.5% 4.1% H. Weighted WACC component 3.25% 0.33% 3.58% Weight Average Cost of Capital (Real) 3.58%

Appendix 13 85

FINANCIAL PERFORMANCE OF BANGLADESH RAILWAY AND KEY INDICATORS1 1. Operating ratio. The operating ratio (operation expenses divided by operation revenues) has not improved in parallel mainly due to (i) the freezing of passenger and freight tariffs by the government since 1992 until 2012, and (ii) the fact that Bangladesh Railway has been operating beyond the theoretical operating capacity especially in the Dhaka–Chattogram corridor, where additional revenue can be earned through increased freight train operation. As shown in Table 1, the operating ratio with support reached 196% in FY2017. This has recovered from a weaker operating ratio in FY2016, which was due to increase in remuneration of all government officials.2 The drastic improvement in operating ratio was observed in FY2013, from 216% in FY2012 to 168% in FY2013, after an increase in tariff was approved by the government in October 2012. This adjustment of passenger and freight tariffs was the first since 1992. Furthermore, under the tariff reform approved in February 2016, a tariff adjustment formula was approved by the Prime Minister to compensate for increased cost, such as fuel prices and staff, repair, and maintenance expenses. This was to ensure that the operating ratio would remain at least at the current level without further deteriorating the financial performance of Bangladesh Railway due to inflation. 2. Steady improvement of the operating ratio is expected from investments in lucrative business opportunities such as luxury passenger train services and container transportation. Once the ongoing double tracking in the Dhaka–Chattogram corridor and the new lines in the Chattogram–Cox’s Bazar corridor are completed, additional passenger and freight trains with more reliable schedules can be introduced in the Dhaka–Chattogram–Cox’s Bazar and Dhaka–Khulna corridors with required new rolling stock. These additional services will generate increased revenue and improve the operating ratio. It has been assessed that container trains and intercity trains are operating with a net profit. 3. Financial performance. Bangladesh Railway is financed by budgetary support. The government has provided adequate budgetary support to sustain operations in light of the systemic importance of the railway network. The budgetary support to cover the full operating expenditures of Bangladesh Railway is provided as a separate budget item (non-development budget), in addition to budgetary support for development projects (development budget) financed by the Government of Bangladesh and the partial financial support from development partners. The budgetary support provided to the Ministry of Railways covered 113% of the operating expenditure for Bangladesh Railway in FY2014, 109% in FY2015, and 123% in FY2016.

1 Source: LD 13 of PFR for SASEC Chittagong – Cox’s Bazar Railway Project, Tranche 2. 2 If there had been no salary increase, the operating ratio without subsidy in FY2017 would be 1.89, which is the lowest

in the last 6 years.

86 Appendix 13

Table A13.1: Key Ratios for Bangladesh Railway

Bangladesh Railway Summary Sheet Unit 2012 2013 2014 2015 2016 2017 2018

Financial Performance

Revenue without PSO compensation Tk million 6,034 8,043 8,002 9,354 9,040 13,037 14,8861.59

Revenue with PSO and welfare grant Tk million 7,264 9,293 9,221 10,608 10,273 14,452 16,378.50

Operating expenses Tk million (15,571) (15,524) 16,017 18,083 22,292 28,355 29,180.27

Net operating deficit Tk million (8,406) (7,581) (8,015) (8,728) (13,252) (15,317) (14318.68)

Ministry of Railways Budget

Non-development budget Tk million

n.a.

15,900

18,158

19,773 27,474 29,378

31,654 Ratio of nondevelopment budget to operating expenses %

n.a. 102

113

109 123 103

102

Development budget Tk million n.a. 33,100 35,487

34,500 46,296 91,150

20,616

Total budget of Ministry of Railways Tk million n.a. 49,000 53,645 54,273 73,770 120,528 Financial Ratios

Operating ratio – without support

260 194 200 193 246 217 196.30

Operating ratio – with support

216 168 174 170 217 196 178.20

Performance Ratios

Services:

Passengers carried million 66.14 62.6 65 67.34 70.83 77.8 90.0 Passenger-kilometers million 8,787 8,253 8,135 8,711 9,167 10,041 12933.91

Tons carried million 2.19 2.01 2.52 2.55 2.48 3.87 4.55 Ton-kilometers million 582 525 677 694 675 1,053 1236.50

Casualties of passenger per million passenger originating 0 0 0 0.1 0.5 0.1 .52

Coaching vehicles:

Broad-gauge passenger coaches

312 312 312 312 335 425 416

Meter-gauge passenger coaches

1,144 1,160 1,164 1164 883 883 1129 Total system passenger coaches

1,456 1,472 1,476 1476 1,218 1,308 1545

Rates and lead:

Revenue per passenger Tk 53.06 79.11 75.14 77.5 75.6 91.9 100.50 Revenue per passenger-kilometer Poisha 38.55 57.91 57.84 57.9 59.4 79.3 69.67

Revenue per ton Tk 438.47 543.84 565 680.7 691.2 681.3 627.90 Revenue per ton-kilometer Poisha 158.8 200.3 202.5 238.3 242.1 362.0 237.97

Average number of kilometers a passenger travelled km 132.9 131.8 125.2 129.4 129.4 129.0

144.30

Appendix 13 87

Bangladesh Railway Summary Sheet Unit 2012 2013 2014 2015 2016 2017 2018

Average number of kilometers a ton of goods travelled km 265.6 261.3 268.4 271.6 271.6 271.5

271.50

Container services:

Chattogram Port to Dhaka Inland Container Depot Tons thousand 360 352 350 355 372 356

473

Dhaka Inland Container Depot to Chattogram Port Tons thousand 224 219 217 225 231 221

293

Total container services Tons thousand 584 571 567 580 603 577 766

Employees:

Number of employees

26,458 25,939 25,535 27,620 25,782 25,226 25,823

Cost of employees Tk million 5,559.2 6,442.30 5,472.00 5,694.00 6,119.00 9,786.13 10,727.88 ( ) = negative, Tk = taka, n.a. = not applicable, PSO = public service obligation. Notes: 1. Operating ratio equals operating expenses divided by revenues. Poisha is equivalent to 1/100 of a Bangladesh taka. 2. Prior to fiscal year 2013, Bangladesh Railway was a department under the Ministry of Communications. Sources: Government of Bangladesh, Bangladesh Railway, and Ministry of Finance.

Table A13.2: Bangladesh Railway’s Financial Performance

Item Unit FY2014 FY2015 FY2016 FY2017

Financial Performance

Total operating revenues Tk million 8,002 9,354 9,040 12,038

Total operating expenses Tk million 16,017 18,083 22,292 28,355

Net operating deficit Tk million (8,015) (8,728) (13,252) (15,317)

Budget allocation from GOB

Non-development Budget Tk million 18,158 19,773 27,474 29,378

Actual expenditure Tk million 16,017 18,083 22,292 28,355

Budget ratio to operating expenses % 113 109 123 103

Development Budget Tk million 36,687 34,500 46,296 91,150

Actual expenditure Tk million 35,338 34,323 42,203 60,800

Total Ministry Budget Tk million 53,645 54,273 73,770 120,528

FY = financial year, GOB = Government of Bangladesh, Tk = taka. Sources: Government of Bangladesh, Bangladesh Railway, and Ministry of Finance.

88 Appendix 14

CONTRIBUTION TO THE ADB RESULTS FRAMEWORK Sl No.

Results Framework Indicators

Targets Methods/comments

1 Railways constructed and/or upgraded (kilometers)

64 kilometers of double track and 22 kilometers of loop line meter gauge railway constructed

2 Use of railways built or upgraded

50 broad gauge and 100 meter gauge passenger carriages added to Bangladesh Railway’s fleet to provide additional passenger train services

Source: Asian Development Bank estimates.