Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 61615-PK

EMERGENCY PROJECT PAPER

ON A

PROPOSED GRANT

IN THE AMOUNT OF US$ 8.0 MILLION

UNDER THE KP/FATA/BALOCHISTAN MULTI DONOR TRUST FUND

TO THE

ISLAMIC REPUBLIC OF PAKISTAN

FOR A

KHYBER-PAKHTUNKHWA EMERGENCY ROADS RECOVERY PROJECT (KP ERRP)

July 21, 2011

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective May 23, 2011)

Currency Unit = Pakistan Rupees (Rs.)85.5731 = US$ 1.00

US$ 0.011686 = Rs. 1.00

FISCAL YEARJuly 31 – June 30

ABBREVIATIONS AND ACRONYMS

AADT Average Annual Daily TrafficACS Additional Chief SecretaryADB Asian Development BankB/C Benefit Cost RatioBP Bank ProcedureC&WD Communications and Works DepartmentCPS Country Partnership StrategyCQS Selection Based on Consultants’ QualificationsDA Designated AccountDFID Department For International DevelopmentDNA Damage Needs AssessmentDPD Deputy Project DirectorEA Environmental AssessmentEIRR Economic Internal Rate of ReturnEMP Environmental Management PlanEPA Environmental Protection AgencyERKP Economic Revitalization of KP and FATA ProjectERRP Emergency Roads Recovery ProjectERP Emergency Recovery ProjectESSAF Environmental and Social Screening and Assessment FrameworkESFP Environmental and Social Focal PointESMPs Environmental and Social Management PlansFATA Federally Administered Tribal AreasFBS Fixed Budget SelectionFHA Frontier Highways AuthorityFIDIC International Federation of Consulting EngineersFIU Field Implementation UnitFOI Freedom of InformationFY Fiscal YearGEF Global Environment FacilityGoB Government of BalochistanGoKP Government of Khyber-PakhtunkhwaGOP Government of PakistanGPS Global Positioning System

GRC Grievance Redressal Committee HQ HeadquartersIA Implementing AgencyIBRD International Bank for Reconstruction and Development ICB International Competitive BiddingICR Implementation Completion ReportIDA International Development AssociationIDP Internally Displaced PersonsIED Improvised Explosive DeviceIFC International Finance CorporationIFRs Interim Financial ReportsIRI International Roughness IndexKm KilometerKP Khyber-PakhtunkhwaLAC Land Acquisition CollectorLCS Least Cost SelectionM&E Monitoring and EvaluationMD Managing DirectorMDTF Multi Donor Trust FundNAS Narcotics Affairs SectionNCB National Competitive BiddingNDMA National Disaster Management AuthorityNGO Non Governmental OrganizationNHA National Highways AuthorityNPV Net Present ValueNWFP North West Frontier ProvinceOCC Opportunity Cost of CapitalOP Operational PolicyORAF Operational Risk Assessment FrameworkPAP Project Affected PersonsPaRRSA Provincial Rehabilitation, Reconstruction and Settlement AuthorityPC Planning CommissionPC-1 Planning Commission Performa 1PCNA Post Conflict Needs AssessmentPD Project DirectorPDO Project Development ObjectivePIO Project Information OfficerPMU Project Management UnitPSC Provincial Steering CommitteeQCBS Quality and Cost Based SelectionQCS Quality Control SpecialistRP Resettlement PlanRE Resident EngineerRVP Regional Vice PresidentSA Social AssessmentSMEs Small and Medium EnterprisesSAR South Asia RegionSCF Standard Conversion FactorSERF Standard Exchange Rate Factor

SPP Simplified Procurement PlanSSS Single Source SelectionSWR Shadow Wage RateTOR Terms of ReferenceUN United NationsVOC Vehicle Operating CostsVTT Value of Travel TimeWB World BankW&SD Works and Services DepartmentXEN Executive Engineer

Vice President: Isabel M. GuerreroCountry Director: Rachid Benmessaoud

Sector Director: John Henry SteinSector Manager: Michel Audigé

Task Team Leader: Zafar Iqbal Raja

PAKISTANKhyber-Pakhtunkhwa Emergency Roads Recovery Project (KP ERRP)

CONTENTSPage

A. Introduction..........................................................................................................................9

B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed Bank Emergency Project.............................................................................................................9

C. Bank Response: The Project..............................................................................................11

D. Appraisal of Project Activities...........................................................................................15

E. Implementation Arrangements and Financing Plan..........................................................18

F. Lessons Learned and Reflected in the Project Design.......................................................21

G. Project Risks and Mitigating Measures.............................................................................22

H. Terms and Conditions for Project Financing.....................................................................23

Annex 1: Detailed Description of Project Components............................................................24

Annex 2: Results Framework and Monitoring.........................................................................25

Annex 3: Summary of Estimated Project Costs........................................................................27

Annex 4: Operational Risk Assessment Framework (ORAF).................................................28

Annex 5: Financial Management and Disbursement Arrangements......................................31

Annex 6: Procurement Arrangements.......................................................................................35

Annex 7: Implementation and Monitoring Arrangements......................................................40

Annex 8: Project Preparation and Appraisal Team Members...............................................45

Annex 9: Environmental and Social Safeguards Framework.................................................46

Annex 10: Economic and Financial Analysis............................................................................51

Annex 11: Documents in Project Files.......................................................................................61

Annex 12: Statement of Loans and Credits...............................................................................62

Annex 13: Country at a Glance..................................................................................................65

Annex 14: Maps...........................................................................................................................66

Basic InformationCountry Director: Rachid BenmessaoudSector Manager/Director: Michel Audigé/John Henry SteinTeam Leader: Zafar Iqbal RajaProject ID: P125584Expected Effectiveness Date: July 31, 2011Lending Instrument: Multi-Donor Trust Fund (MDTF)

Sectors: TA Roads & Highways (73%)JB Other Social Services (18%)BV Public Administration – Transportation (9%)Themes:58 Conflict Prevention and Post-Conflict Reconstruction (100%)Environmental Category: BExpected Closing Date: June 30, 2014

Project Financing Data[ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other:Proposed terms:

Financing Plan (US$m)Source Total Amount (US $m)

Total Project Cost:

Multi-Donor Trust Fund: Borrower: Total Project Financing:

US$ 8.0

8.0-

8.0Client Information

Recipient: Government of PakistanResponsible Agency: Frontier Highways Authority (FHA)Contact Person: Mr. Zahid Arif, Managing Director, FHATelephone No.: 92-91-9210557Fax No.: 92-51-9210434Email: zahidArif1@hotmail.com

Estimated disbursements (Bank FY/US$m)FY FY12 FY13 FY14Annual 3.0 4.0 1.0Cumulative 3.0 7.0 8.0

Project Development Objective and DescriptionProject development objective: The Project Development Objective (PDO) is to enable the population along the Project corridor to benefit from year round improved access and mobility through reconstruction of priority damaged roads and bridges in the conflict hit areas.

Project description:

The project aims to rehabilitate priority corridors or segments of the main roads in the Swat District of the province of Khyber-Pakhtunkhwa (KP) with a view to improve access and mobility. The Project has the following two components:

Component 1: Infrastructure Rebuilding – this consists of civil works along the provincial highway S-3B (Chakdara-Madyan on the Right Bank of River Swat) comprising:

a. Reconstruction and widening of about 10.5 km of highway, including related structures from Sharif Abad (Km 30+424) to Kanju (Km 40+924); and

b. Associated relocation of utilities, land acquisition and resettlement.

Component 2: Project Management – this includes support for:

a. Contract administration & construction supervision consultant services;b. Environmental & social safeguards consultant services; andc. Incremental operating costs.

Safeguard and Exception to PoliciesSafeguard policies triggered:Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12)Safety of Dams (OP/BP 4.37)Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)

[X]Yes [ ] No[ ]Yes [X] No[ ]Yes [X] No[ ]Yes [X] No[ ]Yes [X] No[ ]Yes [X] No[X]Yes [ ] No[ ]Yes [X] No[ ]Yes [X] No[ ]Yes [X] No

Does the project require any exceptions from Bank policies?Have these been approved by Bank management?

[X]Yes [] No[X ]Yes [] No

Conditions and Legal Covenants:Grant Agreement Reference Description of Condition/Covenant Date Due

Section 5.01 of the Grant Agreement

Unless the Project Implementing Entity has prepared, submitted to the World Bank for review and approval, adopted, and locally disclosed an Environmental Management Plan and a Resettlement Plan in accordance with the provisions of Section I.D.2 of the Schedule to the Project Agreement.

By Effectiveness

Section I.A.9 of the Schedule to the Project Agreement

The Project Implementing Entity shall appoint and thereafter maintain, throughout Project implementation, a Project Engineer, with qualifications, experience, and terms of reference satisfactory to the World Bank for purposes of Project implementation, for purposes of contract management and construction supervision in relation to works under the Project.

not later than one (1) month after the Signing

Date

Section I.D.6(a) of the Schedule to the Project

Agreement

The Project Implementing Entity shall appoint a consultant, with qualifications, experience, and terms of reference satisfactory to the World Bank for purposes of Project implementation, for purposes of independent monitoring of the following environmental quality parameters at locations identified in the Environmental Management Plan: (i) ambient air quality; (ii) ground and surface water quality; and (iii) noise levels

not later than one (1) month after the Signing

Date

Section I.D.6(b) of the Schedule to the Project

Agreement

The Project Implementing Entity shall appoint a consultant each, with qualifications, experience, and terms of reference satisfactory to the World Bank for purposes of Project implementation, for purposes of independent monitoring and validation of implementation of the Environmental Management Plan and the Resettlement Plan, respectively.

not later than eight (8) months after the Signing

Date

Section IV of the Schedule to the Project Agreement

The Project Implementing Entity shall prepare and furnish to the Recipient and the World Bank, progress reports covering the month, in form and substance satisfactory to the World Bank, on the implementation of works under the Project.

not later than two (2) weeks after the end of each calendar month

Standard Financial Management, Procurement and Monitoring and Evaluation Covenants

A. Introduction

1. This Project Paper seeks the approval of the Regional Vice President (RVP) to provide a GRANT under the Multi Donor Trust Fund (MDTF) in an amount of US$ 8.0 million to THE ISLAMICREPUBLIC OF PAKISTAN for KHYBER-PAKHTUNKHWA EMERGENCY ROADS RECOVERYPROJECT.

2. The proposed GRANT would help respond to the post-conflict situation by carrying out emergency rebuilding of priority roads infrastructure damaged during the conflict in the Province of Khyber-Pakhtunkhwa (KP). The proposed project focuses on early recovery priorities agreed between the Government of Khyber-Pakhtunkhwa (GoKP) authorities and the World Bank as the administrator of the MDTF. The Project supports the Pillar1: Restoration of Damaged Infrastructure and Disrupted Services of the MDTF Financing Strategy. Given the deep crisis situation, exacerbated by the 2010 devastating floods, the main focus of the first set of priorities is restoration/improvement of pedestrian and vehicular access to some of the KP’s poorest neighborhoods in the Swat Valley.

3. The proposed project consists of: Component 1 – Infrastructure Rebuilding involving reconstruction/improvement of strategic roads and bridges; and Component 2 – Project Management providing support for contract administration/construction supervision and safeguards related consultant services and incremental operating costs. The expected outcome is improved traffic flow resulting in reduced vehicle operating costs and travel time for beneficiaries using the road. For measurement of the output, length of roads reconstructed (km) and number of bridges reconstructed/repaired has been identified as the key indicators. The anticipated results will support Governmental efforts to help maintain minimal economic activity and improve social and political stability in the province. The project will be implemented by the Frontier Highways Authority (FHA), an autonomous roads organization of the GoKP.

B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed Bank Emergency Project.

4. Pakistan’s strategic location at the crossroads of South Asia, Central Asia, China and the Middle East has also brought its own set of challenges in the form of overlapping religious and national identities, contested geographical boundaries and sharply contrasting ideological orientations – factors which have sometimes contributed to generating conflicts that have deeply affected Pakistan. The provinces of Balochistan, Khyber-Pakhtunkhwa and Federally Administered Tribal Areas (FATA) are strategically located along the Pakistan-Afghanistan border. The region presents the challenges of arduous mountainous terrain with equally difficult access. Tribalism is rooted deeply in this region. During the last two hundred years of colonialism, the region became a buffer zone in the struggle between global powers in Central Asia to the North and those in the Subcontinent to the South and was, as a result, further isolated and remained severely under-developed. For these reasons, the post-9/11 war against terrorism that started in Afghanistan has also been localized in this region. Some militants from Afghanistan were pushed into the region and attempted to establish themselves as a local power in collaboration with indigenous ideological partners. Over time, militant groups tried to push further east across the settled districts of KP.

5. In early 2009, the Government of Pakistan (GOP) launched major military operations to root out the local pockets of militants’ support in the KP Province and FATA. Starting from the valley of Swat, bordering the tribal areas, the military operations have gradually moved westward and now seem poised to take on the last strongholds of the militancy in the Waziristan agencies. The inadvertent consequences of routing out militancy with military operations led to large scale internal population displacement. An immense cost has been exacted from the local economy as large numbers of people

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have lost their homes and livelihoods; and significant damage has been caused to the physical and social infrastructure.

6. The military operation led to displacement of about 3 million individuals in KP and FATA . About 7 percent of displaced families moved to camps, the rest occupying schools, public buildings and living with host families mostly in FATA, Swabi and Mardan. While the majority of the internally displaced persons (IDPs) have returned to their places of origin, many have lost their homes and livelihoods. Those who stayed behind have suffered equally and tend to be just as poor and vulnerable as the IDPs.1 The conflict has imposed a huge economic cost, on top of the obvious human tragedy. The crisis affected areas constitute 15% of the combined area of KP and FATA, are home to about 18% of the population, and account for some 17% of the value added.

7. Even after successful completion of military operations, large parts of FATA and KP still await major economic activity which is essential for building people stakes in sustainable peace . Geographical location of the area gives it added advantage to reap the benefits of regional trade by acting as a gateway to Central Asian Republics. Importance of transport infrastructure and services is a must in realization of these goals.

8. The transport sector in the crisis area of KP solely depends on the road network. In KP, the road network in the five crisis affected districts consists of 198 km of National Highways and 145 km of Provincial Highways managed by the respective National Highway Authority (NHA) and Frontier Highway Authority (FHA). The remaining road network consists of 5,156 km of district roads of which about 2,000 km are paved and managed by Works and Services Department (W&SD) and Local Government. Due to maintenance neglect, about three quarter of these roads have poor to bad condition. In addition to aforementioned road network in KP, there are streets in urban areas and community roads in rural areas. Swat district in KP has the lowest road density (0.2 km/sq.km) amongst the affected areas.

9. The military operations led to significant damage to roads infrastructure. The damage during the conflict crisis in road sector consists of damages to (a) bridges, cross drainage structures, retaining and slope protection structures; (b) potholes and ditches in pavement due to shelling or Improvised Explosive Devices (IEDs); (c) road formation damage due to tracks of tanks; and (d) pavement damage due to temporary blockades on roads.

10. The roads infrastructure has also been severely damaged by the recent floods – worst in over 80 years. According to the National Disaster Management Authority (NDMA) the rains/floods had affected over 20 million people with over 1,800 reported deaths. Damages to the road infrastructure vary from the mountainous northern region to the plains in the southern provinces. In KP, the damages are dramatic and much more visible due to strong flow of rivers that washed away sections of roads, embankments, and structures including bridges. The high speed water-flow eroded riverbanks and bridges, widened rivers that now require longer bridges, and caused landslides that washed away sections of roads requiring realignment.

Government Response, Damage and Needs Assessment and Partnership Arrangements

11. In the face of the crises that have confronted KP and FATA, the federal and provincial governments have embarked on rapid post-crisis recovery and reconstruction efforts in collaboration with international and national humanitarian agencies. Since the beginning, donor support has been coordinated by the Planning Commission (PC) at the Federal Level, while, the

1 Based on the household survey data analysis reported by ‘Food Security and Market Assessment in Crisis Affected Areas of KP and FATA’, World Food Program, 2010.

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Provincial Rehabilitation, Reconstruction and Settlement Authority (PaRRSA) was established to coordinate and implement these initiatives for both KP and FATA.

12. The GOP also has launched various assessments for strategic medium to long term support for the region. A Damage and Needs Assessment (DNA) was completed in 2009 with the Asian Development Bank (ADB) and World Bank support covering the areas first affected by the GOP’s action to combat the militants2 and a subsequent Post Crisis Needs Assessment (PCNA) was completed in October 2010 with the assistance of ADB, European Union (EU), United Nations (UN) and WB. The PCNA assessed and quantified the short and medium term social and economic needs of the region.

13. The PCNA provides the underpinning for long term peace building in KP and FATA. Drawing on extensive stakeholder consultations, the Report identifies key crisis drivers and the consequent priority areas that need to be addressed to support a coherent and durable peace-building strategy. The key strategic objectives of the PCNA are: (i) enhance responsiveness and effectiveness of state to restore citizen trust; (ii) stimulate employment and livelihood opportunities; (iii) ensure provision of basic services; (iv) counter-radicalization and reconciliation. The Project builds on the third strategic objective of the PCNA.

14. The PCNA also suggested the establishment of a PCNA Federal Steering Committee with the Prime Minister as the Chair. The PCNA assessment itself was completed through an institutional structure led by the Strategic Oversight Council (SOC) chaired by the Prime Minister 3. The SOC continues as the strategic apex, with the KP and FATA Secretariats represented by the respective Additional Chief Secretaries, over and above the Chief Minister, the Governor other political, civil and military representatives. Furthermore, the Secretariats have developed two respective Steering Committees, one for KP and the other for FATA, also referenced in the PCNA implementation institutional framework.

C. Bank Response: The Project

Brief description of Bank’s Strategy of Emergency Support

15. In order to respond to the KP-FATA 2009 DNA, and subsequent PCNA 2010 Report, the Bank has established, with support from a variety of development partners, the MDTF for the crisis affected areas of KP, FATA and Balochistan. The MDTF is supporting the implementation of a program for reconstruction and development aimed at facilitating rapid recovery from the impact of the armed conflict and reducing the potential for escalation or resumption . The MDTF is mobilizing donor support to finance critical investments in support of reconstruction and peace building in crisis affected areas. To date ten donors have contributed a total of US $140.0 million for the MTDF (Australia, Denmark, European Union, Finland, Germany, Italy, Sweden, Turkey, UK, and USA). The MDTF provides flexibility to finance stand-alone projects or program activities, including those co-financed by the government, bilateral or multilateral agencies.

16. There are four MDTF financing strategy pillars:

a. Restoring Damaged Infrastructure and Disrupted Servicesb. Improving Governance and Service Deliveryc. Supporting Livelihood and Creating Employment Opportunities d. Building Capacity and Institutional Strengthening.

2 Swat, Upper and Lower Dir, Buner, Shangla, Mohmand, and Bajaur.3 Supported by a Steering Committee and PCNA Secretariat

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17. The Government and the Bank as administrator of the MDTF have agreed on the first set of priorities and allocations amongst sectors as well as within the crisis affected areas. Allocations under pillars are: 15% Pillar-I, 20% Pillar-II, 49% Pillar-III, and 16% Pillar-IV. And, allocations within the crisis affected areas are: 53% KP, 35% FATA and 12% Balochistan. There are nine projects to be financed from Round-1 resources of the MDTF.

18. A US$ 20.0 million ‘Economic Revitalization of KP and FATA Project’ (ERKF) has been approved. It is supporting the GOP in the economic recovery and revitalization of the crisis affected areas of KP province and FATA, by creating sustainable employment opportunities through rehabilitation of Small and Medium Enterprises (SMEs), investment mobilization, and institutional capacity building. In parallel, the Bank provided an IDA Credit of US$ 250.0 million – supplemented by US$ 35.0 million MDTF Grant through the KP-FATA ‘Emergency Recovery Project’ (ERP) to finance cash transfer to conflict-affected households in the KP and FATA.

19. The proposed US$ 8.0 million ‘Emergency Roads Recovery Project’ (ERRP) is financing the reconstruction of priority road infrastructure in the Swat Valley of KP . The ERRP is supporting the Pillar1: Restoration of Damaged Infrastructure and Disrupted Services of the MDTF Financing Strategy. Given the deep crisis situation, exacerbated by the recent devastating floods, one focus of the first set of priorities is restoration of access to crisis affected areas in KP.

20. The following Project is also at advanced stages of preparation: Governance Support Project (US$ 6.0 million).

21. Five projects are under discussion: (a) Balochistan Education Support Project (US$ 10.0 million); (b) FATA Micro-Enterprises and Urgent Community Needs (US$ 8.0 million); (c) FATA Rural Roads Project (US$ 12.0 million); (d) Strengthening Health Services in Crisis affected Districts of KP (amount to be decided); and (e) FATA Urban Centers Project (FUCP) Program (US$ 7.0 million).

22. The MDTF Secretariat has been asked to lead an initiative to develop a 3-5 year costed work plan to operationalize PCNA recommendations. At the Second Steering Committee Meeting held on April 27, 2011, the Steering Committee requested that further assistance to be channeled through the MDTF be based on a 3-5 year costed work plan to operationalize the PCNA recommendations, which will become the PCNA Program.

23. Finally, the Bank as administrator of the MDTF will continue to provide advisory support, critical for the success and sustainability of the overall response to the crisis . This includes sharing best practices in terms of institutional arrangements to ensure the best possible delivery mechanisms and sound governance arrangements including tracking of fund flows, procurement practices, grievance mechanisms, and monitoring and evaluation systems, to ensure accountability and transparency.

Rationale for Proposed Emergency Project

24. The GOP has requested MDTF assistance to help respond to the emergency situation resulting from the militancy. The challenges of the emergency require mobilization of a significant amount of resources in a timely manner to limit the negative effects of the shock and to immediately revive economic activities in the crisis-affected areas.

25. Floods in the Swat River have destroyed seven bridges on National Highway N-95 from Chakdara to Kalam and have washed out a 27 km stretch from Madyan to Kalam, which requires realignment and reconstruction. N-95 which is on the left bank of the Swat River links Saidu Sharif (the capital of Swat) with rest of the country and serves as economic lifeline for people of Swat who are

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presently cut-off. Efforts are underway to construct a jeepable track. From Km 93 (Madyan) to Km 106 (Bahrain) and from Km 125 to Km 135 (Kalam) a jeepable track has been completed. Work is underway to complete the remaining portion from Km 106 to Km 125. The GOP is exploring funding for reconstruction of this National Highway through the ADB as well as the World Bank.

26. The proposed Project is on a Provincial Highway S-3B which is on the right bank of the Swat River, which is the area of significant war damage caused by the militants . The United States Government is providing US$ 15.0 million4 for reconstruction of about 42 kms of S-3B from Kanju to Madyan. The proposed Project is financing about 10.5 kms from Kanju to Sharif Abad. The proposed ERRP aims to rehabilitate priority damaged roads and bridges in the conflict hit areas of the Swat District of KP to fully operational conditions that guarantee 24 hours and 7 days (24/7) access with a view to improve access and mobility. The expected outcome is improved traffic flow resulting in reduced vehicle operating costs and travel time for beneficiaries using the road. For measurement of the output, length of roads reconstructed (km) and number of bridges reconstructed/repaired has been identified as the key indicators.

27. As an administrator of the MDTF, the Bank is well placed to help Pakistan cope with these challenges due to its substantial international and regional experience (including in post conflict situation response) in generating immediate and long term sustainable job opportunities through economic growth initiatives. The World Bank has designed infrastructure rebuilding projects in conflict/flood/tsunami affected areas in the region and globally. For example, in Republic of Togo (Emergency Infrastructure Rehabilitation and Energy Project), Republic of Liberia (Emergency Infrastructure Project), Republic of Haiti (Infrastructure and Institutions Emergency Recovery Project), Sri Lanka (Transport Emergency Recovery Project) and Pakistan (Additional financing for reconstruction of Road Damaged By 2005 Earthquake). These are all examples where the Bank Group has quickly responded to the needs of the emergency.

Project Development Objectives

28. The Project Development Objective (PDO) is to enable the population along the Project corridor to benefit from year round improved access and mobility through reconstruction of priority damaged roads and bridges in the conflict hit areas.

Summary of Project Components

29. Component 1: Infrastructure Rebuilding – this consists of civil works along the provincial highway S-3B (Chakdara-Madyan on the Right Bank of River Swat) comprising:

a. Reconstruction and widening of about 10.5 km of highway, including related structures from Sharif Abad (Km 30+424) to Kanju (Km 40+924); and

b. Associated relocation of utilities, land acquisition and resettlement.

30. Component 2: Project Management – this includes support for:

a. Contract administration & construction supervision consultant services;b. Environmental & social safeguards consultant services; andc. Other Project management activities through the financing of incremental operating costs.

4 Cost of ERRP is about 21% higher than the US-NAS project which was contracted out last year. Since then petroleum and bitumen prices have increased significantly.

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Eligibility for Processing under OP/BP 8.0

31. ERRP is in line with the guiding principles under the Bank’s operational policy/business process OP/BP 8.00 and addresses adverse economic impact on KP resulting from the crisis. The project is adapted to the emergency's particular circumstances and takes into account the Bank’s assistance strategy for the country, which highlights under the Fourth Pillar, ‘Improving Security and Reducing the Risk of Conflict’ that the Bank will support Government to implement its strategy to promote broader and deeper development in the conflict-affected areas of Pakistan and enhance the presence and responsiveness of the state to citizens in these areas.

32. Moreover, the ERRP is in line with the core development and economic mandate, including peace-building objectives and reconstruction and rehabilitation activities. For the overall MDTF, there is close coordination and establishment of appropriate partnership arrangements with other development partners in line with the comparative advantage and core competencies of each such partner. Additionally, there are appropriate oversight arrangements, including governance and fiduciary oversight.

Rapid Resolution for Results

33. The Project Team may, if needed, shall utilize the newly established ‘help-desk facility’ to assist managers and staff in resolving policy and procedural bottlenecks that they may face as they tackle operational challenges in fragile and conflict-affected situations (FCS). The Rapid Resolution for Results (RR4R) is now available to all staff.

Consistency with the MDTF

34. The ERRP is within the mandate and strategy of the MDTF designed to restore infrastructure, services and livelihoods while addressing governance and other challenges that contribute to conflict. More specifically, the proposed Project supports the Pillar1: Restoration of Damaged Infrastructure and Disrupted Services of the MDTF Financing Strategy.

Consistency with Country Partnership Strategy (CPS)

35. The Pakistan CPS for FY10-13 recognizes that conflict and insecurity represent major obstacles to economic development and poverty reduction. The operation is fully aligned with the CPS, falling under both Pillar 2 – ‘Improving Infrastructure to Promote Growth’ – and Pillar 4 – Improving Security and Reducing the Risk of Conflict’. Under Pillar 2, the CPS seeks to ‘improve efficiency and reliability of the transport and logistics network’. And, under Pillar 4, the CPS supports ‘increased responsiveness and effectiveness of the state’. The CPS acknowledges that coping with the causes and consequences of the ongoing conflict in the Northwest Border region is an urgent priority for the Government and Pakistan’s development partners. Conflict centered in KP and FATA has had severe human and economic consequences in areas ranking amongst the poorest in Pakistan. The persistence of conflict in KP and FATA poses a threat to some of the most vulnerable and marginalized populations in Pakistan, while also challenging economic stability across the country.

Expected Outcomes

36. The proposed Project aims to rehabilitate priority damaged roads and bridges in the conflict hit areas of the Swat District of KP to fully operational conditions that guarantee 24 hours and 7 days (24/7) access with a view to improve access and mobility. The Project would benefit about 300,000 persons.

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37. The expected outcome is improved traffic flow resulting in reduced vehicle operating costs and travel time for beneficiaries using the road. For measurement of the output, length of roads reconstructed (km) and number of bridges reconstructed/repaired has been identified as the key indicators.

D. Appraisal of Project Activities

Economic and Financial Analysis (Annex-10)

38. The cost-benefit analysis was carried out using the “Discounted Cash Flow Technique”. Economic measures like “Net Present Value (NPV)”, “Benefit Cost Ratio (B/C Ratio)” and “Economic Rate of Return (EIRR)” have been worked out. The results indicate that the proposed investment is economically justified:

a. NPV = US$ 13.98 million (Rs 1,196.89 million)b. B/C Ratio = 3.14:1c. EIRR = 29.87%

39. These results are robust to the sensitivity analysis that has been carried out.

Technical

40. The civil works proposed under the Project are based on proven engineering designs and construction techniques that are well within the capability of the implementing agency and the private sector. Designs, technical specifications and procurement documents have been prepared under the guidance of experienced consultants working in close coordination with FHA. Civil works will be constructed to internationally accepted standards and supervised by experienced consultants.

Fiduciary

41. Financial Management (Annex-5) : FHA has implementation experience of one ADB funded Project. However, FHA has no prior experience of implementing a World Bank or MDTF financed Project. Therefore, the inherent risk for the Project is “High”. The Finance Section of the FHA will carry out Project financial management. FHA’s Finance Section is headed by a Deputy Director (Finance) and is supported by an Assistant Director (Account) and five accounts assistants. FHA’s Finance Section shall be further strengthened by hiring a dedicated Accountant with foreign-aided project(s) experience. The Internal Auditor already in place shall start reporting to the Managing Director, FHA instead of reporting to Deputy Director, (Account). Separate books of account, on cash basis, will be maintained by FHA for the Project activities using the New Accounting Module – Chart of Accounts. Sufficient subsidiary records will be kept to facilitate preparation of quarterly financial reports and annual financial statements providing details of receipts and expenditures by Project component and activities. FHA has computerized accounting system (Peach Tree) for reports generation. Manual books are also maintained. The accounting procedures of FHA have been reviewed and approved by Controller General of Accounts. Segregation of duties amongst existing staff strengthened by experienced Project Accountant to be recruited from the market and direct reporting of Internal Auditor to the MD, FHA shall strengthen the internal controls. In accordance with the revised accounting procedures for Revolving Fund Accounts (Foreign Currency Assignment Account) referred as the Designated Account (DA) by the World Bank, issued by the Finance Division, Government of Pakistan on June 30, 2010, a segregated DA would be opened by FHA in which the funds would be received from the MDTF to be used for exclusively for the ERRP eligible expenditures. The account would be jointly operated by two senior officials of the FHA. Initial advance into the DA will be provided by the Bank on the basis of forecast for the first two quarters, which will be replenished quarterly on the basis of actual expenditures incurred from the DA and cash

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forecast for the following two quarters. Withdrawals for the Project would be ‘Report – Based’ (Interim Financial Reports – IFRs), which will allow for adequate funds to be at the FHA’s disposal based on its cash forecast for two calendar quarters in advance. The quarterly IFRs shall be provided within forty five days of end of each quarter. The format of IFRs shall be agreed during negotiations of the project. Internal audit of the Project will be carried out by the Internal Auditor who will report directly to the Principle Accounting Officer i.e. MD, FHA. The head of Finance Department will keep the track of the actions taken on the audit opinions/observations and regularly (at least quarterly) report the progress to the Principle Accounting Officer with a copy to the Bank. External audit of the project will be conducted by the Supreme Audit Institution, i.e., the Office of the Auditor General of Pakistan which is acceptable to the Bank. Acceptable audited financial statements will be submitted within 6 month of the close of each financial year. Intensive FM supervision of the Project will be required. This will include training to the FHA financial staff on the Bank requirements. Keeping in view the security situation, substantial portion of the FM supervision activities would consist of desk review of the quarterly financial reports, fixed assets physical verifications reports, internal and external audit reports supplemented by the dialogue with the FHA staff.

42. There are nine IDA-financed projects in Pakistan which have not refunded or provided documentation on the use of Designated Accounts/Special Accounts (DA/SA) after the deadline of two months after the end of the “grace period” (i.e., the “lapsed loan” date, normally six months after the Closing Date). Under Bank policy (OP 12.00, disbursement paragraph 12), failure to refund unused Designated Accounts/Special Accounts balances results in the Bank not permitting the use of DA under new loans, which term includes recipient-executed grants financed from trust funds. Management endorsement for a waiver of the requirements of OP 12.00 has been secured for a period of 12 months ending on October 31, 2011 to allow for continued use of DAs for loans and credits to Pakistan.

43. Procurement: (Annex-6): Procurement arrangements for the project are simple. There are two large contracts; civil works contract estimated to cost US $ 5 m and supervision consultancy contract estimated to cost about US $ 200,000. A very small contract for environmental monitoring could be taken up by any commercial consulting firm, NGO or academia depending upon the market situation. Few individual consulting contracts are also envisaged. FHA is the implementing agency with set procurement practices, and the approving authority for all procurements rests with MD FHA. As FHA has recently not done any Bank funded project, procurement risk is assessed as High.

Environmental and Social Safeguards (Annex-9)

44. Environmental Aspects: Restoration of the key road link in the area and the associated increase in long-term economic activity and the improvement in the standard of life of the people are visualized as the major positive impacts of the proposed Project. The potentially negative impacts are mostly related to the construction stage and include soil erosion, air quality deterioration, improper disposal of spoil, contamination of soil and water, loss of natural vegetation, damage to wild- and aquatic life, displacement of population, disturbance to people, disruption of traffic, impacts on the health and safety of general public and workers, issues related with longitudinal and cross-drainage, and slope stabilization. The potential impacts during the operation phase of the road include an increase in green house gasses emissions due mainly to the increased volume of traffic. However, most of these impacts are not likely to be irreversible, wide-spread, or unprecedented, and can be addressed with the help of appropriately designed and effectively implemented mitigation plan. Therefore the proposed project has been classified as Environment Category B, in accordance with the WB Operational Policy 4.01. No other environmental operational policy is triggered.

45. To address the potentially negative environmental and/or social impacts associated with the projects under MDTF, the Bank has prepared an Environmental and Social Screening and Assessment Framework

16

(ESSAF), in accordance with the OP 8.0 for emergency operations. Since the ERRP is being proposed under MDTF, ESSAF is applicable to this project also. The ESSAF specifies the environmental and social assessment requirements the implementing agency will need to fulfill before any Project under the MDTF can be implemented. The Framework also describes the generic environmental/social monitoring and reporting requirements to be fulfilled during the Project implementation, in addition to defining the broad institutional arrangements required for environmental and social safeguard aspects associated with the individual projects under the MDTF. The ESSAF has been shared with the FHA. It has been disclosed locally by the FHA on May 17, 2011 and also at the InfoShop.

46. In accordance with ESSAF requirements, the FHA has conducted a project-specific Environmental Assessment (EA)/Environmental management Plan (EMP) which is being reviewed by the Bank. The EA identifies the negative environmental impacts that are likely to be caused by the Project during its various phases, and also proposes mitigation measures to address these impacts. The EA/EMP also proposes the institutional arrangements to manage the environmental aspects of the project, identifies environmental monitoring requirements to ensure the effective implementation of the mitigation measures, describes the environmental training needs, and also specifies the reporting and documentation requirements.

47. Social Aspects: Following the requirements of ESSAF, a Social Assessment (SA)/Resettlement Plan (RP) is being undertaken. A screening study conducted by FHA has revealed that a total of 498 persons will be directly affected and about 4,900 persons shall be indirectly affected by the Project. Major potential adverse impacts of the Project are expected from acquisition of about 30 kanals of (mostly productive) land in rural areas to improve road curves, loss of about 1,000 trees and crops on 40 kanals associated with land (30 kanals of land to be acquired and 10 kanals encroached by the farmers). In urban areas the project will remain within its existing right of way but structures constructed within the right of way will be affected. It includes 158 permanent structures of small businesses/shops (123 structures will be affected partially and 35 significantly). It will also temporarily disrupt businesses of 358 vendors and squatters. 46 houses will be affected (37 partially and 9 significantly), 38 boundary walls of commercial buildings will be affected (21 partially, 13 significantly and 4 fully).

48. SA will provide a detailed inventory survey of project impacts and a census survey of the project affected household and a social economic survey of affected population. During the SA, extensive consultations will be carried out with affected persons/communities and other stakeholders to take their views over the Project impacts, discuss resettlement options and formulate compensation entitlement, relocation and rehabilitation policy for the project, and integrate their concerns and recommendations in the highway construction. A Resettlement Plan (RP) shall be developed for the Project following the Pakistan Land Acquisition Act (1894) and the World Bank OP 4.12 on Involuntary Resettlement, in the light of broader principles laid down in ESSAF. The RP shall take into account feedback from the consultations with the affected communities and other stakeholders. It will provide inventory of affected assets and their ownership status, project entitlement policy, the resettlement and rehabilitation program, mechanisms for timely disclosure of information to the affected person and other stakeholders, regular and meaningful consultations with affected persons and general public, their effective participation, and grievance redress. It shall also provide detail of institutional arrangements, cost estimates, implementation schedule, and internal and external monitoring mechanisms.

49. In addition to the Bank’s internal procedures of safeguard documents disclosure, the draft RP, having summary of the WB Involuntary Resettlement Policy and principles, will be disclosed by the FHA on its website. It will be shared with the stakeholders including the Revenue Department, local Non-Governmental Organizations (NGOs), Community Support Organizations (CSOs) and Project Affected Persons (PAPs) through their representatives and location specific meetings. After the approval of RP by the Bank, the FHA shall again disclose it on its website, translate it into Urdu/Pashto and share a copy of it with Affected Persons Committees. A summary of RP will be shared with each affected House Hold

17

(HH) through registered mail in the form of a pamphlet in local language. Final RP will also be shared with other government agencies involved in the resettlement especially the Revenue Department and local NGOs/CSOs. Following the Land Acquisition Act, FHA will ensure that the Revenue Department will carry out a step-by-step procedure of information disclosure and consultation with the affected persons losing land, as per provisions in the law.

E. Implementation Arrangements and Financing Plan

50. Implementation Period – 3.0 Years: Estimated Construction Period – 2.0 Years; Implementing Agency – The project has been prepared by Frontier Highways Authority (FHA) and shall be implemented by FHA. The Authority was established under the Ordinance Notification dated August 29, 2001. The Frontier Highways Council consists of 8 members, headed by the Chief Minister of KP Province and meets at least once a year. The Management Board of the FHA is headed by a Chairman, who is the Managing Director (MD) of FHA and comprises three other members appointed by the Council. FHA is custodian of 15 Provincial Highways with a total length of 2177 Kms.

51. Overall Oversight Arrangements. The GoKP will manage implementation of the Project through a Provincial Steering Committee (PSC) which will provide overall guidance and oversight for the Project and technical and administrative recommendations and/or advice as necessary. The PSC will be headed by Additional Chief Secretary (ACS) and its core members will comprise: the Secretary, Finance Department, Secretary, Communications and Works Department (C&WD), Commissioner, Malakand Division, Director General, Provincial Rehabilitation, Reconstruction and Settlement Authority (PaRRSA), Managing Director (MD), FHA, and Project Director (ERRP) who will also act as the secretary of the PSC. Other members may be co-opted for discussing/addressing issues as needed. The PSC will initially meet every quarter during the first year to oversee ERRP progress. Following that, the PSC will meet every six months. The PSC shall ensure that the KP ERRP is reflected in the KP’s FY 11/12 Annual Development Plan (ADP) and in subsequent fiscal years budgets. The PSC shall also facilitate opening of a segregated Designated Account (DA) in US$ at the National Bank of Pakistan in accordance with accounting procedures for Revolving Fund Accounts (Foreign Currency Assignment Account) issued by the Finance Division, Government of Pakistan on June 30, 2010.

52. In addition, a Project Steering Committee headed by MD, FHA and comprising Project Director (ERRP), Deputy Director (North), Deputy Director (Headquarters) and Deputy Director (Finance) will be responsible for ensuring timely and successful implementation of the Project.

53. Project Management Unit. There shall be a Project Management Unit (PMU) at FHA Headquarters in Peshawar, headed by the Project Director (ERRP) and supported by Deputy Director (Headquarters) and Deputy Director (Finance). The PMU functioning as the Project Secretariat shall support the Project Steering Committee. The PMU will be responsible for overall coordination, internal/external processing of all approvals including PC-I, procurement and implementation of civil works, procurement and management of consultant services.

54. Field Implementation Unit. A ‘Field Implementation Unit’ (FIU) headed by Deputy Director (North) and supported by Deputy Director (Environment) and Assistant Director (Resettlement) shall be responsible for general administration, land acquisition, handing over of sites, coordination with other authorities to ensure timely relocation of various utility services, oversight of environmental safeguards, management of social safeguards, and performance monitoring of civil works implementation.

55. Project Engineer. A professional consulting firm will be responsible for Contract Administration & Construction Supervision. The firm will be fully empowered as the ‘Engineer’ in accordance with International Federation of Consulting Engineers (FIDIC) stipulations. FHA will act as the Employer.

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The Project Director will be designated as the Employer’s Representative. The Resident Engineer (RE) will act as the Engineer’s Representative.

Financing Plan

56. The Project will be financed by a Grant of US$ 8.0 million from MDTF.

Years Ending June 30US$ Million

Year 1 Year 2 Year 3Project Costs

Investment Costs 3.0 4.0 1.0Recurrent Costs 0.0 0.0 0.0

Total Project Costs 3.0 4.0 1.0Financing

Government 0.0 0.0 0.0MDTF 3.0 4.0 1.0

Total Project Financing 3.0 4.0 1.0

Bank Supervision, Monitoring, and Evaluation (M&E) Arrangements:

57. The Project’s supervision plan has been developed considering the limitation of Bank staffs’ access to the Project area, in light of gradual deterioration in the law and order situation in various parts of KP. Increased challenges for the Bank’s task team requires alternative ways for field supervision and monitoring of ongoing operations, while there is limitation in supervision budget. The CPS (FY 2010-2013) also recognizes this challenge and emphasizes that the Bank needs to find ways to enhance supervision while mitigating the risks associated with a challenging security environment. Following the United Nations (UN) decision to raise its security risk levels to Phase III for KP, the Bank teams have adopted several innovative measures to continue supervision and monitoring of projects in these areas.

58. For the ERRP, proposed supervision mechanisms include:

a. Supervision Missions in FHA and/or Bank Premises: Six-monthly regular supervision missions shall be fielded in the FHA Headquarters at Peshawar and/or Bank premises at Islamabad. Participants shall include the Bank’s Task Team, FHA officials, Project Manager of the civil works Contractor, Resident Engineer of the Construction Supervision Consultant and two representatives of the Project Affected Persons.

b. Third Party Monitoring. For quality assurance and cross verification, a third party monitoring team will be hired after the initial six months of implementation for an independent assessment of the reported progress. The experience of employing third party monitoring and the promotion of sustained beneficiary participation in projects, in collaboration with civil society organizations, offers a viable alternative and necessary complement to Bank’s supervision.

c. Possible Innovative Measures5: The recently initiated pilots of the South Asia Region (SAR) Innovation Team funded by the Governance Partnership Facility grant concluded that in the face of emerging security conditions in several SAR countries, the Bank task teams need to find creative ways to address challenges of field supervision. The ERRP will therefore

5 Similar measures are being tried out by DFID for its ongoing projects in KP and FATA.

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consider using technology such as geo-referencing through Global Positioning System (GPS) enabled cameras for physical asset verification and mobile phones based voice messaging for beneficiary participation, tracking and verification. While these measures cannot fully replace the utility of actual field visits, they provide a useful alternative in crisis affected areas where access is an issue.

d. Project M&E System: The progress in achieving the Project's objectives against the performance indicators will be measured through a comprehensive M&E system (details are provided in Annex 2).

e. Financing for the Supervision: To ensure the availability of sufficient resources for implementation support, the MDTF has committed sufficient resources (about US$ 350,000) for project preparation and supervision over three years. The Bank’s supervision team will be led by a Senior Specialist, based in the local office, and supported by local and international technical specialists to oversee implementation of the Project.

Communications Strategy

59. Freedom of Information Ordinance 2002 (FOI) has become effective in Pakistan since 26 October 2002. The manifested purpose of the FOI-2000 is to “provide for transparency and freedom of information to ensure that the citizens of Pakistan have improved access to public records and for the purpose to make the Federal Government more accountable to its citizens and for matters connected therewith or incidental thereto.”

60. FHA has developed a draft disclosure policy (see Appendix-1 to Annex-7). FHA’s Project Director (ERRP) will also be the Public Information Officer (PIO). The main responsibilities of PIO will include:

a. To ensure that as much information is provided suo motu to the public and project affected persons (as per mechanism of ESSAF and RP) at regular intervals through various means of communications, including (but not limited to) C&WD web-site, notice boards, newspapers, public announcements, media broadcasts, and any other means.

b. To deal with requests from persons seeking information and render reasonable assistance to the persons seeking such information.

c. To ensure that PIO name, postal and street address, phone and fax numbers, and, if any, electronic mail address are available on the website of C&WD for the general public to reach him/her with requests for information.

61. The Project entails land acquisition and resettlement. Extensive consultations will be carried out with local communities and project affected persons over the Project impacts, design options to avoid or minimize resettlement impacts, compensation entitlement, relocation and rehabilitation policy for the Project as well to incorporate their concerns and recommendations for the highway construction. The feedback from the consultations will be taken into consideration in the resettlement planning and implementation. Meaningful public consultations will continue through the detailed planning and implementation process.

62. Following the grievance redressal mechanism, a Grievance Redressal Committee (GRC) will be created and established at the Project site, which will look into all the grievance cases. The main objective of the grievance redressal mechanism shall be to investigate charges of irregularities and complaints received from the affectees and provide an early, transparent and fair resolution. The Project will maintain

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a community complaints-management register to record grievances brought forward by affected communities, and ensure that these are appropriately addressed.

63. The Bank will be involved in monitoring of implementation of the arrangements and particularly actions related to the Bank supported Project, through inter alia, the following:

a. Disclosure of information will be supervised mainly through: (a) checking the frequency and comprehensiveness of website updates, and (b) checking the distribution of materials to key participating civil society groups & villages; and (c) checking the comprehensiveness of information available at Public information kiosks.

b. Functioning of the complaints handling system and the system of sanctions and remedies will be supervised mainly through: (a) periodic review of statistics based on records kept on the website of FHA; and (b) field level checks to ensure that problems are being reported and acted upon.

F. Lessons Learned and Reflected in the Project Design

64. The Bank Group has a long history of similar projects in places like Aceh (Indonesia), Afghanistan, Congo, South Eastern Europe, and West Bank Gaza, often in close cooperation with other parts of the Bank Group (IDA, IFC and MIGA) and donors. This rich history of projects provides many valuable design and implementation lessons:

a. The most critical factor for success is government commitment and ownership. Activities proposed under the project have been identified in the PCNA, but at the same time were separately identified by the KP and FATA authorities as initiatives they wanted to undertake as part of their development strategies6.

b. In post crisis situations, grant financing tends to be more successful than credits . With grant financing it is possible to align incentives and outcomes, particularly when done in a "matching" way to facilitate risk-sharing. Conversely, credit financing requires firms to be willing to assume all the risk, in an environment that is highly uncertain.

c. The project design must be simple and flexible: Too many components can overwhelm the client and their ability to implement the Project, and the Bank's ability to support project implementation can be challenged, particularly in an insecure environment.

d. Implementation capacity is often limited in post crisis scenario. This Project addresses capacity challenges by strengthening existing capacity of FHA through outsourcing and dedicated staffing for the Project.

65. The main lessons to date from the on-going Highways Rehabilitation Project and incorporated in the project design include:

a. Unanticipated and unprecedented hike in international oil prices has caused a cost overrun of US$ 110.0 million – realistic cost estimates based on latest market rates with a premium, appraisal upon receipt of bids, 12% price contingencies to adequately cover price escalation during civil works implementation.

6 KP- Comprehensive Development Strategy (CDS) (2009-2015); FATA- Sustainable Development Plan (2006-2015)

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b. Construction industry constraints – the local contractors’ capacity is heavily overstretched and foreign contractors are tending to avoid Pakistan mostly on account of security situation – invite bids through comprehensive advertisements, appraisal upon review and clearance of bids evaluation report7.

G. Project Risks and Mitigating Measures

Risks Risk Mitigation MeasuresRisk Rating

withMitigation

To project development objectiveCapacity of implementing agency and lack of timely decision making

A dedicated Project Management Unit adequately staffed with competent professionals shall implement the Project. The risk of delays due to departmental/governmental procedures remains present. The Provincial Steering Committee shall ensure that any such bottlenecks are promptly addressed.

Medium-I

Project design The Project design reflects key lessons learned from previous highway projects in Pakistan. The Project design is simple and flexible, with manageable components and a single implementing agency.

Low

To component resultsInsufficient capacity within the project setup to implement the Environmental Management Plan (EMP) and Resettlement Plan (RA) and address relevant issues during their implementation leading to delays of site-handover

The Project requires land acquisition and the civil works contract will not be awarded unless RP/EMP has been cleared with the Bank. The Project includes arrangements for:

Independent RP/EMP monitoring. 3rd party validation. EMP and RP compliance is included in the

Supervision Consultant and Civil Works contracts.

In addition, the Bank shall carry out training and capacity building.

Medium-I

Project delivery quality A professional consulting firm will be responsible for Construction Quality. The firm will be fully empowered as the ‘Engineer’ in accordance with International Federation of Consulting Engineers (FIDIC) stipulations.

Medium-L

Overall risk rating Medium-I

H. Terms and Conditions for Project Financing

66. The proposed project will be financed by a US$ 8.0 million MDTF grant.

67. The Closing Date is June 30, 2014.

7 The Bank has reviewed and cleared the BER. Three bids were received. FHA is ready to sign the Contract Agreement with lowest responsive bidder.

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Annex 1: Detailed Description of Project ComponentsPAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

Component 1: Infrastructure Rebuilding (US$ 6.417 million)

1. Civil Works (US$ 5.142 million): This sub-component will finance widening and reconstruction of about 10.5 km of the provincial highway S-3B (including structures) from Sharif Abad (Km 30+424) to Kanju (Km 40+924) located along the right bank of River Swat. The civil works involve reconstruction of a 7.3 meter wide asphalt concrete 2-lane single carriageway with 1.0 meter wide paved shoulders. The road section in urban areas varies from 10 to 12 meters and includes 1.22 meter wide covered drains which will be 0.50 meter elevated above the finished road level to be used as footpaths. The pavement comprises of up to 20 cm Sub Base Course, 15 cm Aggregate Base Course, 7 cm Asphaltic Concrete Base Course, and 5 cm Asphaltic Concrete Wearing Course. The Right of Way (ROW) shall be 15 meter (49.2 feet) from the centre of the road (7.5 meters or 24.6 feet on each side). The contract spans a construction period of 24-months, and a post construction defect liability period of 12-months. These works have been be bid as ad-measured, item rate contracts with provisions for price escalation, on the basis of designs and bid documents prepared by FHA through consultants. The contract is being procured under National Competitive Bidding (NCB) procedures.

2. Relocation of Utilities, Land Acquisition and Resettlement (US$ 1.275 million): This sub-component will finance relocation of 220 high tension electricity poles and 130 telephone poles with cables, land acquisition – about 30 kanals and resettlement costs associated with compensation for removal of 158 permanent structures of small businesses/shops, 46 houses, 38 boundary walls of commercial buildings, loss of about 1,000 trees and crops on about 40 kanals, transitional period allowance and shifting charges for 358 vendors and squatters.

Component 2: Project Management (US$ 0.613 million)

1. Contract Administration & Construction Supervision Consultant Services (US$ 0.188 million): This sub-component will finance a professional firm engaged as the ‘Engineer’ responsible for Contract Administration and Construction Supervision. The firm would be fully empowered as the ‘Engineer’ in accordance with FIDIC stipulations.

2. Environmental & Social Safeguards Consultant Services (US$ 0.053 million): This sub-component will also finance costs associated with independent monitoring of environmental parameters and 3 rd

Party Validation of implementation of the EMP/RP activities.

3. Other Project management activities through the financing of incremental Operating Costs (US$ 0.373 million): This sub-component provides support to cover incremental staff salaries, allowances, per diem, operation and maintenance cost of office buildings, office equipment, bank charges, advertising expenses, temporary lodgings and vehicles for the purposes of the Project.

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Annex 2: Results Framework and MonitoringPAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

Program Development Objective

Program Outcome Indicators Use of Results Information

The Project Development Objective is to enable the population along the Project corridor to benefit from year round improved access and mobility through reconstruction of priority damaged roads and bridges in the conflict hit areas.

1. 34%, 26% and 5% decrease in vehicle operating costs of 2-axle truck, 3-axle truck and passenger buses

2. 50% increase in operating speeds of commercial traffic.

3. Favorable response by trade: customer satisfaction level = 3 (scale High = 4, Low = 1).

1. Assess decrease in vehicle operating costs and increase in trip speeds.

2. Determine if strategy needs to be changed.

Intermediate ResultsOne per Component

Results Indicators for Each Component

Use of Outcome Monitoring

Component One:Infrastructure Rebuilding

About 10.5 km of the provincial highway S-3B from Sharif Abad (Km 30+424) to Kanju (Km 40+924) constructed and operational

Low kms may flag project implementation issues such as non-performing contractor, significant price escalation or changes in exchange rate; lack of strong leadership, and transparent and timely decision making.

Component Two:Project Management

Satisfactory performance of construction supervision and contract administration activities and environmental and social safeguards activities.

Poor performance may indicate lack of professionalism, commitment and/or incapable staff.

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Arrangements for results monitoring

Target Values Data Collection and ReportingProject Outcome

Indicators Baseline YR1 YR2 YR3 Frequency

and ReportsData Collection

InstrumentsResponsibility for Data Collection

4. 34%, 26% and 5% decrease in vehicle operating costs of 2-axle truck, 3-axle truck and passenger buses

5. 50% increase in operating speeds of commercial traffic

6. Level of customer satisfaction (High = 4.0, Low = 1.0)

Rs 23.89, Rs 24.76 and Rs 12.09

20 km/hour

-

-

-

-

-

-

-

Rs 15.84, Rs 18.33 and Rs 11.47

30 km/hour

3.0

End-of-Project

Implementation

Completion Report (ICR)

Traffic Count and Travel Time

Surveys, Customer

Satisfaction Survey

FHA

Results Indicators for Each Component

Component 1: About 10.5 km of the provincial highway S-3B from Sharif Abad (Km 30+424) to Kanju (Km 40+924) constructed and operational

- 3 km 10.5 km - Monthly Construction Supervision

Reports; Quarterly Interim

Financial Reports (IFRs)

Certification of Quantities by the Engineer

Construction Supervision

Consultant; FHA

Component 2: Project Management

- Consultant services procured

Satisfactory performance of construction supervision and contract administration and environmental and social safeguards activities.

- Consultants Inception and

Progress Reports,

Mid-Term Report and

ICR

Reports Consultants; FHA

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Annex 3: Summary of Estimated Project Costs

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

Project Cost By ComponentLocal

US$ MillionForeign

US$ MillionTotal

US$ MillionA. Infrastructure Rebuilding(a) Reconstruction and Widening of 10.5 km of S-3B(b) Relocation of Utilities, Land Acquisition &

ResettlementB. Project Management(c) Contract Administration & Construction Supervision

Consultant Services(d) Environmental & Social Safeguards Consultant

Services(e) Incremental Operating Costs

Total Baseline Cost

Physical & Price Contingencies

2.5711.275

0.188

0.053

0.373

4.460

0.969

2.571-

-

-

-

2.571

-

5.1421.275

0.188

0.053

0.373

7.031

0.969

Total Project Costs 5.429 2.571 8.00Front-end Fee - - -

Total Financing Required 5.429 2.571 8.001Identifiable taxes and duties are US$ 0.42 million, and the total project cost, net of taxes, is US$ 7.58 million. Therefore, the share of project cost net of taxes is 95.2%.

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Annex 4: Operational Risk Assessment Framework (ORAF)

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

Project Development ObjectiveThe Project Development Objective is to enable the population along the Project corridor to benefit from year round improved access and mobility through reconstruction of priority damaged roads and bridges in the conflict hit areas.

PDO Level Results Indicators:

1. 28%, 24% and 9% decrease in vehicle operating costs of 2-axle truck, 3-axle truck and passenger buses2. 50% increase in operating speeds of commercial traffic.3. Favorable response by trade: customer satisfaction level = 3 (scale High = 4, Low = 1).

Risk Category Risk Rating Risk Description Proposed Mitigation Measure

Project Stakeholder Risks Medium-I

The Project includes a key section of the Provincial Highway S-3B on the right Bank of River Swat that provides vital access to remote and disaster-prone communities in Khyber-Pakhtunkhwa (KP). Delays in implementation may invite criticism from the road users, inhabitants and businesses along the Project reaches, which can potentially be a reputational risk for both Government and the Bank.

Extensive stakeholder consultations. Engage both print and electronic media to publicize work activities in advance. Manage traffic at construction sites: road signs, service roads, effective coordination with traffic police. Proactively work to expeditiously complete the remaining civil works. The Provincial Steering Committee shall ensure that any departmental and/or governmental procedure related bottlenecks are promptly addressed.

Implementing Agency Risks Medium-L Implementing Agency (IA) is exposed to three key risks: (a) capacity, (b) governance, and (c) fraud and corruption.

a. FHA has implemented a number of Projects since its creation in 2001 with a satisfactory track record. Presently, FHA is custodian of 15 Provincial Highways with a total length of 2177 Kms. FHA staff is technically competent. A dedicated Project Management Unit adequately staffed with competent professionals shall further augment the FHA capacity.

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Risk Category Risk Rating Risk Description Proposed Mitigation Measure

b. FHA has implemented an ADB financed project and is aware of multilateral donor’s fiduciary systems/requirements. Moreover, the finance staff shall be further strengthened by hiring a dedicated Accountant with foreign-aided project(s) experience.

c. FHA operates within three sets of guidelines: those of the Pakistan Procurement Regulation Authority (PPRA), its own Code and Freedom of Information Ordinance-2002. All provide mechanisms to enhance transparency of the decision processes during the preparation and implementation, including those for procurement, financial and safeguards by enhancing disclosure of information, introducing oversight mechanisms, and setting up an effective mechanism for handling comments, suggestions and grievances. Free web access is available on procurement information. Bank’s guidelines are applicable and barring a few smaller ones, civil works and construction supervision consultant services contracts have been prior reviewed.

Project Risks

Design Low

Too many components can overwhelm the client and their ability to implement the Project, and the Bank's ability to support project implementation can be challenged, particularly in an insecure environment.

The Project design reflects key lessons learned from previous highway projects in Pakistan. The Project design is simple and flexible, with manageable components and a single implementing agency.

Social & Environmental Medium-L Inadequate capacity to implement the Resettlement Plan (RP) and Environmental Management Plan (EMP) and oversee their execution is a risk.

The Project includes arrangements for: Institutional set up for implementation of RP

and EMP RP/EMP monitoring. 3rd party validation.

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Risk Category Risk Rating Risk Description Proposed Mitigation Measure RP and EMP compliance is included in the

Supervision Consultant and Civil Works contracts.

Environmental and social safeguards trainings Also, included as a Legal Covenant.

Program & Donor Low

There could be delays in seeking approvals from the GOP on various actions including clearance of PC-I for the commencement of activities under the Project.

MDTF Secretariat is housed in the Bank’s Country Office in Islamabad. The services of the Secretariat will be requested to pursue desired approvals and actions from the GOP on fast track basis. Bank’s internal procedures have already been streamlined under OP 8.0 to enable Project Preparation and approval on fast track basis.

Delivery Quality Medium-L

Poor quality of construction resulting in low service life of assets created.

A professional consulting firm will assure quality of the works during construction, carry out independent testing, and approve or disapprove and certify the works that conform to the specifications. The Consultant will also give notice to the Contractors of any defects and deficiencies, and issue instructions for the removal and substitution of the improper works, where provided under the contract.

Overall Risk Rating: Preparation

Overall Risk Rating: Implementation Comments

Medium-L Medium-I

This is a technically simple Project. FHA is an established road agency which has successfully implemented many projects in the past. Preparation stage risk is rated as Medium driven by likelihood based on capacity issues and country environment. Implementation risk is rated Medium driven by Impact risk rating while taking into account country environment, possible governance and stakeholder risks.

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Annex 5: Financial Management and Disbursement Arrangements

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

Inherent Risk

1. The inherent risk is “High”. Country level risk is “Substantial to Moderate”. Keeping in view the FHA’s not having any past experience of implementing the Bank projects and has implementation experience of only one foreign (ADB) funded project closed in 2006, added by security situation which restrict travel to field, the inherent risk for the Project is “High”.

Control Risk

2. The control risk is assessed as “High”, but when a dedicated Accountant is hired from the market, accounting procedures in place are tested and regular Internal Audit is conducted, the control risk is expected to come down to at least “Substantial”.

Residual Risk

3. The residual risk rating of the Project is considered “High”.

Risk Analysis

Risk Initial FM Risk Risk Mitigation

FM Risk After

MitigationInherent RiskCountry Level Substantial

Adhering to the financial management policies and procedures. Moderate

Control Risk

- Staffing High Addition of a dedicated Accountant to the FM team of FHA Substantial

- Budgeting Substantial Realistic and timely preparation, approval and monitoring of budget Moderate

- Accounting High Following the accounting procedures and maintenance of books of accounts. Substantial

- Internal Controls High Segregation of duties amongst

accounting staff, regular internal audit Substantial

- Funds Flow Substantial Timely and realistic preparation of cash forecast Moderate

- Financial Reporting High

Recruitment/training of FM staff ensuring timely and accurate preparation of financial reports

Substantial

- Auditing SubstantialTimely drafting of the financial statements by FHA and getting account audited

Moderate

- Detection Risk High Restricted and limited movement in the projects areas to review activities shall be mitigated by regular interaction with

Substantial

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FHA and desk reviews.Residual Risk High Substantial

Staffing

4. The Finance Section of the FHA will carry out Project financial management. FHA’s Finance Section headed by the Deputy Director belonging to Audit and Accounts services with 26 years experience and also passed SAS (Subordinate Accounts Services) of Auditor General of Pakistan in 1991. The Deputy Director is supported by Assistant Director Accounts, who is M. Com and has also passed Part I and II relating to Defense and Civil Audit, also carries 21 years experience of audit and accounts. The Finance Section of FHA is supported by five Accounts Assistants. However, the finance staff shall be further strengthened by hiring a dedicated Accountant with foreign-aided project(s) experience as soon as possible but no later than grant negotiations. Once the Accountant is in place, the FM staffing of FHA shall be adequate for carrying out the Project activity.

5. The Internal Auditor already in place shall start reporting to the Managing Director, FHA instead of reporting to Deputy Director, (Account).

Budgeting

6. FHA has two separate nonlapsable funds known as “FHA Development Fund” and “Frontier Highways Authority Road Maintenance Fund”. The budget is formulated in under three Heads, firstly “Construction/Development Budget”, secondly “Operational Budget” and thirdly “Repairs and Maintenance Budget”. In addition to regular budget monitoring through trial balance, 6-monthly meetings are also held at the Planning and Development Department to review the budget utilization. Any reappropriation of budget amongst these three heads requires recommendation of the Council and approval of Provincial Cabinet.

7. KP ERRP will be included in the development budgets of the KP and Federal Governments. The proposal for the budget shall be prepared by FHA and go thru the normal approval processes.

Accounting

8. Separate books of accounts, on cash basis, will be maintained by FHA for the Project activities using the New Accounting Module - Chart of Accounts. Sufficient subsidiary records will be kept to facilitate preparation of quarterly financial reports and annual financial statements providing details of receipts and expenditures by Project component and activities.

FHA has computerized accounting system (Peach Tree) for reconciliation and reports generation.

Internal Controls

9. The accounting procedures of FHA have been reviewed and approved by Controller General of Accounts. Segregation of duties amongst existing staff strengthened by experienced Project Accountant to be recruited from the market and direct reporting of Internal Auditor to the MD, FHA shall strengthen the internal controls.

Funds Flow Arrangement

10. In accordance with the revised accounting procedures for Revolving Fund Accounts (Foreign Currency Assignment Account) referred as the Designated Account (DA) by the World Bank, issued by

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the Finance Division, Government of Pakistan on June 30, 2010, a segregated DA in US$ would be opened at the National Bank of Pakistan by FHA. The funds received from the MDTF into DA shall be used for the KP ERRP eligible expenditures. The account would be jointly operated by two senior officials of the FHA.

11. Initial advance into the DA will be provided by the Bank on the basis of forecast for the first two quarters, which will be replenished quarterly on the basis of actual expenditures incurred from the DA and cash forecast for the following two quarters.

12. Withdrawals for the Project would be ‘Report – Based’ (Interim Financial Reports), which will allow for adequate funds to be at the FHA’s disposal based on its cash forecast for two calendar quarters in advance. The quarterly IFRs shall be provided within forty five days of end of each quarter. The format of IFRs shall be agreed during negotiations of the project.

Allocation of MDTF Proceeds

Disbursement Category Amount of Allocation(Expressed in US Dollars)

Percentage of Expenditures to be

Financed1. Civil Works including Relocation of

Utilities, Land Acquisition and Resettlement, Consultant Services, and Incremental Operating Costs for the Project

8,000,000 100%

The Project will be 100% financed by the MDTF, inclusive of import duties and taxes.

13. Incremental operating costs under the Project, incurred by the Recipient and the Project Implementing Entity for purposes of the implementation, management, and monitoring and evaluation of the Project, on account of office supplies and consumables, utilities, bank charges, communications, mass media and printing services, vehicle rental, operation, maintenance, and insurance, office space rental, building and equipment maintenance, domestic travel, lodging, and subsistence allowances, and salaries of contractual and temporary staff, but excluding salaries, fees, honoraria, and bonuses of members of the Recipient’s civil service.

Audit

14. External audit of the project as well as Entity Audit (FHA) will be conducted by the Supreme Audit Institution, i.e., the Office of the Auditor General of Pakistan which is acceptable to the Bank. Acceptable audited financial statements will be submitted within 6 month of the close of each financial year.

Audit Report Due DateProject Financial Statements for the Financial Year ended June 30 each year

December 31 each year

Entity (FHA) Financial Statement for Financial Year ended June 30 each year

December 31 each year

15. Internal audit of the Project will be carried out by the Internal Auditor who will report directly to the Principle Accounting Officer i.e. MD, FHA. Terms of Reference (TOR) of the Internal Auditor shall be shared with the Bank by July 31, 2011 for comments. The head of Finance Department will keep the track

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of the actions taken on the audit opinions/observations and regularly (at least quarterly) report the progress to the Principle Accounting Officer with a copy to the Bank.

16. Since this is Bank’s first engagement with FHA, therefore, there is no outstanding audit report or ineligible expenditure.

17. Agreed Actions:

S. No. Agreed Action By Whom Completion Date

1 Hire Accountant for KP ERRP FHA July 15, 2011

2 Internal Auditor to Report to Chairman/MD, FHA

Chairman, FHA July 15, 2011

3 TORs of the Internal Auditor to be shared with the Bank for comments.

Chairman, FHA July 31, 2011

18. Supervision plan: Intensive FM supervision of the Project will be required. This will include training to the FHA financial staff on the Bank requirements. Keeping in view the security situation, substantial portion of the FM supervision activities would consist of desk review of the quarterly financial reports, fixed assets physical verifications reports, internal and external audit reports supplemented by the dialogue with the FHA staff.

Note: The FM assessment is based on information/documents obtained through meetings with FHA’s FM staff in Islamabad.

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Annex 6: Procurement Arrangements

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

1. Procurement for the proposed Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated January 2011; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated January 2011, as well as the provisions stipulated in the Grant Agreement. The general description of various items under different expenditure categories are described below. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are to be agreed between the Borrower and the Bank Project team in the Procurement Plan. The borrower has prepared a draft procurement plan, which shall be finalized by negotiations. The Procurement Plan will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity. A General Procurement Notice is not deemed essential for publication as no contracts have been identified which would require international competition.

Procurement of Works

2. One contract of civil works is identified which costs about US $ 6 m for the reconstruction of the provincial road Sharifabad to Kanju. Given the size of the contract, the law and order situation of the project area and the presence of ample number of national contractors working in the vicinity, this contract shall be awarded based on national competitive bidding. No ICB contracts are envisaged in this project, and contracts up to the cost of US $ 200,000 may be procured through shopping procedures. Direct contracting may be used to carry out emergency works (if any), after prior approval of the Bank. The Bank’s agreed bidding document for NCB shall be used.

Procurement of Goods

3. There are no goods procurements envisaged in this project.

Additional Provisions and Procedures for National Competitive Bidding (NCB)

4. When procuring works pursuant to the provision of rules 18 through 22, 24, 31, 35 and 36 of the NWFP Public Procurement rules (SO)FR)/9-7/2002 for KP, it shall be ensured that the following additional provisions are applied:

(i) Invitations to bid shall be advertised in at least one (1) national newspaper with a wide circulation, at least thirty (15) days prior to the deadline for the submission of bids.

(ii) Bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee.

(iii) Foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders in the bidding process.

(iv) Bidding shall not be restricted to pre-registered firms. (v) Qualification criteria shall be stated in the bidding documents. (vi) Bids shall be opened in public, immediately after the deadline for submission of bids. (vii) Bids shall not be rejected merely on the basis of a comparison with an official estimate without

the prior concurrence of the World Bank. (viii) Before rejecting all bids and soliciting new bids, the World Bank’s prior concurrence shall be

obtained. (ix) Bids shall be solicited and works contracts shall be awarded on the basis of unit prices.

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(x) Contracts shall not be awarded on the basis of nationally negotiated rates. (xi) Single bids shall also be considered for award. (xii) Contracts shall be awarded to the lowest evaluated and qualified bidder.(xiii) Post-bidding price negotiations shall not be allowed with the lowest evaluated or any other

bidders. (xiv) Draft contracts would be reviewed by the World Bank in accordance with the prior review

procedures.(xv) State-owned enterprises shall be eligible to bid only if they can establish that they are legally and

financially autonomous, operate under commercial law, and are not a dependent agency of the Recipient

(xvi) A firm declared ineligible by the World Bank, based on a determination by the World Bank that the firm has engaged in corrupt, fraudulent, collusive, coercive or obstructive practices in competing for or in executing a World Bank-financed contract, shall be ineligible to be awarded a World Bank-financed contract during the period of time determined by the World Bank.

(xvii) The World Bank shall declare a firm ineligible, either indefinitely or for a stated period, to be awarded a contract financed by the World Bank, if it at any time determines that the firm has, directly or through an agent, engaged in corrupt, fraudulent, collusive, coercive, or obstructive practices in competing for, or in executing, a contract financed by the World Bank.

(xviii) Each contract financed from the proceeds of the Grant shall provide that the suppliers, contractors and subcontractors shall permit the World Bank, at its request to inspect their account and records audited by auditors appointed by the World Bank. The deliberate and material violation by the supplier, contractor or subcontractor of such provision may

Procurement of non-consulting services

5. No such requirements are identified at this stage. If any such procurement is agreed, the Banks sample documents for such procurements shall be used.

Selection of Consultants

6. The major consultancy assignments would be for supervision consultancy and possibly of the third party monitoring of the environmental safeguards. The latter could be either through a consulting firm, and NGO or academia. Contracts with consulting firms will be procured in accordance with Quality and Cost Based Selection procedures or other methods given in Section III of the Consultants’ Guidelines. Consulting services selection would be carried out through Quality and Cost Based Selection (QCBS) for contracts with consulting firms costing more than US $300,000 equivalent, and through Consultants Qualification (CQ) for contracts costing up to US $300,000. Other methods as mentioned in Section III of Consultants’ Guidelines shall be used as required.

Individual Consultants

7. This is envisaged to include any full-time or part-time technical assistance required for the Project. Currently the identified individual consultancies are for review of social safeguards and environmental safeguards. Services for assignments that meet the requirements set forth in paragraph 5.1 of the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5.2 through 5.3 of the Consultant Guidelines, which stipulate that the selection should be made through comparison of at least 3 CVs that meet the requirements of the Terms of Reference including those for qualifications and experience. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole-source basis.

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Operational Costs

8. Costs related to the implementation of the Project will be financed by the Grant.

Assessment of the Agency’s Capacity to Implement Procurement

9. The identified risks for procurement and contract implementation and mitigation measures are provided below. Given the readiness status of the project the overall Project risk for procurement is High.

Capacity of Implementing Agency

10. FHA will be responsible for project implementation. The procurement processes of FHA are defined. Procurement responsibilities are rested with the director. The evaluation committees are formed comprising Project Director (ERRP), Deputy Director (Environment) and Deputy Director (HQ). MD FHA is the approving authority for all the procurement decisions. The DD HQ is the procurement focal point for the project. There is no requirement to hire any additional staff.

11. The Bank held detailed procurement discussions with the concerned project staff on Feb 10 and March 16. Earlier MD FHA attended a two day workshop on Banks procurement procedures on Jan 10 and 11 held in Islamabad.

Procedural Clarity

12. Given the emergency nature of the project, quick turnaround in procurement decisions is essential. FHA has informed that after approval of the PC-I, the approving authority for all the procurements is MD FHA. Given the simple nature of the implementation arrangements where one works and two consultancy contacts are to be procured by FHA, separate documentation of the recipient’s internal procurement procedures is not required.

Market Constraints

13. There is a concern that a limited number of contracting and consulting firms would participate in this project given the law and order situation. However in the procurement process of an adjacent contract some xx firms participated. It is hence expected that the response would be reasonable. The pool of firms shortlisted for the parallel contract was used as a long list for the supervision consultancy. Innovative arrangements for third party validation of environmental aspects shall be explored including NGOs, academia or hiring of individuals etc. Wide circulation shall be ensured for better participation.

Transparency

14. The official websites of FHA shall have a specific procurement link for adequate dissemination. All procurement notices, bid documents /RFPs, evaluation reports, and award data shall be posted on the website. These websites shall also be used for posting of grant evaluations, awards, and performances. Bank’s guidelines on publication of award paragraph 2.31 of consultancy guidelines and 2.60 of the procurement guidelines shall be followed for disclosure.

Complaints

15. FHA shall manage the complaint handling system. This system would include documentation and addressing of complaints within a period of 7 days. FHA shall keep the Bank informed by forwarding to it

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any complaints within 3 days of the receipt. A second tier for appeals for the complainant shall also be identified.

Table 1: Procurement Actions (Summary of the above identified issues and agreed actions)Issues Action Timeline Responsibility

i. Capacity of PCU and Project Cell

Training session of Project staff

Jan 10-11 2011; Feb 10 2011, Mar 16 2011 (done)

Bank

ii. Procedural clarity Agreement on Recipients’ internal approval procedures

Feb 10, 2011; March 16, 2011 (done)

FHA

iii. Market Constraints Adequate packaging Wide circulation

Mar 16, 2011 (done) Ongoing

FHAFHA

v. Transparency Functional web site

Disclosure on website

Exists for FHA; Update (May 31, 2011) May 31, 2011

FHA

FHAvi. Complaints Independent complaint

redressal mechanism May 31, 2011 FHA

Procurement Plan

16. The Recipient has developed a Procurement Plan for Project implementation which provides the basis for the procurement methods. Procurement plan will be made available in the Project’s database, Project website, and the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity Frequency of Procurement Supervision.

17. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended frequent supervision missions to visit the field to carry out post review of procurement actions.

Review of Procurement by the Bank

18. Thresholds for prior review of contracts under eligible expenditures are given in the table below. All other contracts will be subject to Post-Review by the Bank. FHA will send to the Bank a list of all contracts for post-review on a quarterly basis. Post-reviews as well as the implementation reviews would be done six monthly. Such review of contracts below threshold will constitute a sample of about 15-20 percent of the contracts.

Table 2: Thresholds for Procurement Methods and Prior ReviewAligned with The Rapid Response to Crisis and Emergencies: Streamlined Procurement

Procedures.

Prior Reviews Identified in Approved Procurement Plan Expenditure

CategoryContract Value

(Threshold)US $

ProcurementMethod

Contracts Subject to Prior Review US$ thousand

1.Civil Works >200,000 NCB First contract<200,000 Shopping First contract

Regardless of value Direct Contracting All

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2. Consulting Services All TORs and Training Programs to be reviewed

by Bank’s TTL2.A Firms QCBS,CQS,

QBS,FBS,LCS, First contract by any

process and thereafter as provided in Proc. Plan

Regardless of value Single Source AllIndividual Consultants

Comparison of 3 CVs First contract

Note: ICB = International Competitive Bidding; NCB = National Competitive Bidding; QCBS = Quality- and Cost-Based Selection; QBS = Quality-Based Selection; FBS = Fixed Budget Selection; LCS = Least-Cost Selection; CQS = Selection Based on Consultants' Qualifications; TOR = Terms of Reference.

19. Details of the Procurement Arrangement for major contracts

a. Works.

(a) List of contract Packages which will be procured following ICB and Direct contracting:

Ref No.

Contract Description

Estimated Cost (US$)

Procurement Method

PQ Domestic Preference

Reviewby Bank(Prior / Post)

ExpectedBid-OpeningDate

Comments

1 Civil works US $ 6 m NCB no No prior May 16, 2011

b. Consulting Services.

(a) List of Consulting Assignments with short-list of international firms.

1 2 3 4 5 6 7

Ref. No.

Description of Assignment Estimated

CostSelectionMethod

Reviewby Bank

(Prior / Post)

ExpectedProposals

SubmissionDate

Comments

1. Supervision Consultancy US $ 0.3 m QCBS prior April 15,20112. Environmental monitoring US $ 0.03 m CQS/SSS Post/prior Aug 2011

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Annex 7: Implementation and Monitoring Arrangements

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

1. Implementation Period – 3.0 Years: Estimated Construction Period – 2.0 Years; Implementing Agency – The project has been prepared by FHA and it will be implemented by FHA.

2. Overall Oversight Arrangements. The GoKP will manage implementation of the Project through a Provincial Steering Committee (PSC) which will provide overall guidance and oversight for the Project and technical and administrative recommendations and/or advice as necessary. The PSC will be headed by Additional Chief Secretary (ACS) and its core members will comprise: the Secretary, Finance Department, Secretary, Communications and Works Department (C&WD), Commissioner, Malakand Division, Director General, Provincial Rehabilitation, Reconstruction and Settlement Authority (PaRRSA), Managing Director (MD), FHA, and Project Director (ERRP) who will also act as the secretary of the PSC. Other members may be co-opted for discussing/addressing issues as needed. The PSC will initially meet every quarter during the first year to oversee ERRP progress. Following that, the PSC will meet every six months. The PSC shall ensure that the KP ERRP is reflected in the KP’s FY 11/12 Annual Development Plan (ADP) and in subsequent fiscal years budgets. The PSC shall also facilitate opening of a segregated Designated Account (DA) in US$ at the National Bank of Pakistan in accordance with accounting procedures for Revolving Fund Accounts (Foreign Currency Assignment Account) issued by the Finance Division, Government of Pakistan on June 30, 2010.

3. In addition, a Project Steering Committee headed by MD, FHA and comprising Project Director (ERRP), Deputy Director (North), Deputy Director (Headquarters) and Deputy Director (Finance) will be responsible for ensuring timely implementation of the Project.

4. Project Management Unit. There shall be a Project Management Unit (PMU) at FHA Headquarters in Peshawar, headed by the Project Director (ERRP) and supported by the Deputy Director (Headquarters) and Deputy Director (Finance). The PMU functioning as the Project Secretariat shall support the Project Steering Committee. The PMU will be responsible for overall coordination, internal/external processing of all approvals including PC-I, procurement and implementation of civil works, procurement and management of consultant services. FHA’s finance section augmented by a dedicated Accountant with foreign-aided project(s) experience shall be responsible for the financial management of the Project.

5. Field Implementation Unit. A ‘Field Implementation Unit’ (FIU) headed by Deputy Director (North) and supported by Assistant Director (North), Deputy Director (Environment) and Assistant Director (Resettlement) shall be responsible for general administration, land acquisition, handing over of sites, coordination with other authorities to ensure timely relocation of various utility services, oversight of environmental safeguards, management of social safeguards, and performance monitoring of civil works implementation.

6. Project Engineer. A professional consulting firm will be responsible for Contract Administration & Construction Supervision. The firm will be fully empowered as the ‘Engineer’ in accordance with International Federation of Consulting Engineers (FIDIC) stipulations. FHA will act as the Employer. The Project Director will be designated as the Employer’s Representative. The Resident Engineer (RE) will act as the Engineer’s Representative. The Consultant will administer the civil works contracts, make engineering decisions, be responsible for quality assurance, provide general guidance and furnish timely responses to the Contractors in all matters relating to the civil works, and ensure that all clauses of the Contract Agreement between the civil works Contractors' and FHA are

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respected. The Consultant will advise FHA on all matters relating to the efficient and successful execution of the civil works contracts, and will act at all times to protect the interests of the project and will take all reasonable steps to keep the construction costs to a minimum, consistent with sound economic and engineering practices; and will prepare a "Contract Administration and Construction Supervision Manual" outlining routines and standard operating procedures to be applied in contract administration and construction supervision, based on sound internationally recognized practice.

7. RP Implementation and Monitoring. The Deputy Director (North) will be overall responsible for the implementation of all RP development tasks and cross-agency coordination, and shall be tasked with day-to-day RP related activities. The Deputy Director (North) shall be assisted by an Assistant Director (Resettlement). A Land Acquisition Collector (LAC) shall acquire land. The Project Director (ERRP) shall ensure that all relevant agencies involved in the implementation of RP are fully informed of RP and the World Bank Policy’s requirements. A Grievance Redressal Mechanism will be followed and a Grievance Redress Committee (GRC) will be created and established at contract site, which will look into all the grievance cases. The GRC will be headed by Deputy Director (North) and comprise of : (a) Assistant Director (Resettlement), (b) Resident Engineer, (c) LAC, and (d) two representatives of the Project Affected Persons (PAPs). The main objective of the grievance redressal mechanism shall be to investigate charges of irregularities and complaints received from the affectees and provide an early, transparent and fair resolution. The Assistant Director (Resettlement) will maintain a community complaints-management register to record grievances brought forward by affected communities, and ensure that these are appropriately addressed. The complaint register will provide for: the date and particulars of the complaint; description of the grievance; follow-up action required; name of person responsible for implementing the action; and a target date for redressal. The Project Director (ERRP) and the Deputy Director (North) will periodically monitor the system and ensure its efficacy. In addition, to further strengthen the RP implementation and monitoring arrangements, the Contract Administration and Construction Supervision Consultants will provide a Senior Social Safeguards Specialist to review the status of the RP implementation in the light of the targets, budget and duration that has been laid down in the RP. The key tasks during monitoring will include: (i) review and verify internal monitoring reports prepared by FHA field office; (ii) identification and selection of impact indicators; (iii) impact assessment through formal and informal surveys with the PAPs; (iv) consultation with PAPs and Officials of FHA for preparing review report; and (v) assess the resettlement efficiency, effectiveness, impact and sustainability, drawing lessons for future resettlement policy formulation and planning. Monitoring will also pay close attention to the status of project affected vulnerable groups such as female-headed households, disabled affected persons and economically backwards families (i.e. below poverty line). The following will be the basis for indicators in monitoring and evaluation of the Project: (i) mechanism used for disclosure of information, consultation and participation of Project Affected Persons; (ii) socioeconomic conditions of the PAPs in the post-resettlement/ rehabilitation period; (iii) communications and reactions from PAPs on entitlements, compensation; (iv) changes in housing/business restoration and income levels; (v) grievance procedures; its recording, reporting and processing time and its redressal; (vi) disbursement of compensation; and (vii) mechanisms for internal and external monitoring; (viii) institutional arrangements; and (ix) level of satisfaction of PAPs in the post resettlement period. The consultants will carry out a final evaluation report at the end of the Project. Lastly, FHA will engage an independent agency (an NGO, an academic institute or an individual consultant) to conduct 3rd party validation of implementation of the RP activities.

8. EMP Implementation and Monitoring. The Deputy Director (Environment) will be overall responsible for the implementation of all EMP-related tasks and cross-agency coordination. EMP shall be made integral part of the civil works bidding and contract documents – the civil works Contractor will be responsible for its implementation. The Construction Supervision Consultants will provide a Senior Environmental Specialist who will: (i) assure that the Contractors comply with all

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necessary requirements contained in the EMP; (ii) ensure that the day-to-day construction activities are carried out in an environmentally sound and sustainable manner; (iii) develop good practices construction guidelines to assist the Contractors in implementing the EMP; and (iv) prepare and submit regular environmental progress reports, inter alia including a breakdown of non-compliances and rectification by the contractors and the monitoring results. In addition, FHA will engage an Independent Environmental Monitoring Consultants to monitor the following environmental quality parameters at locations identified in the EMP: (i) ambient air quality; (ii) ground and surface water quality; and (iii) noise levels. FHA will also engage an independent agency (an academic institute or an individual consultant) to conduct 3rd party validation of implementation of the EMP activities.

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Appendix-1 to Annex-7: Disclosure of Information

The table below specifies types of information for disclosure, time and frequency, media, and responsibility for disclosure.

Topic Documents to be disclosed

Time & Frequency Media Responsibility

FHA’s General Information

Organogram; A directory of FHA Officers and Employees, The Powers and Duties of FHA Officers and Employees; FHA Vision, Mission Statement; FHA Business Plan containing both Annual Development and Maintenance Plans; Copies of FHA Ordinance, Rules, Regulations, Instructions, Code, Manuals, and Standard Operating Procedures; Budgetary Allocations and Statement of Direct Receipts.

Immediately upon their development and/or their revision

C&WD website;FHA HQ and Provincial Offices

Director (Construction)

KP Emergency Roads Recovery ProjectEngineering List of roads proposed to

be undertaken, clearly indicating start and end points of the contract.Proposed works/treatment giving details of widening, bypasses, junction improvement, drainage, traffic safety feature etc. Construction program with milestones and completion dates. Proposed cross section and strip plan depicting major features.

Prior to awarding works and to remain on website until end of the Project

C&WD website;FHA HQ and FHA Site Office

Project Director (ERRP), Deputy Director (North)

Physical and financial progress of civil works contract. Work progress photographs

To be updated by the 10th of every month.

C&WD website, Construction Supervision Reports

Project Director (ERRP), Construction Supervision Consultants,

Procurement Procurement plan Six-monthly C&WD website Project Director (ERRP)Complaints mechanism Once and updated

from time to timeC&WD website.

All general and specific procurement notices, national invitations to express interest and to tender, bid documents,

As per updated procurement plan and/or when required

C&WD websiteNational press

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Topic Documents to be disclosed

Time & Frequency Media Responsibility

requests for proposals, minutes of pre-bid conferences and addenda/corrigenda to bidsContract award details Within 2 weeks of

awardC&WD website

Financial Management

Audited entity and Project-level Financial Statements

Annually C&WD website Deputy Director (Finance)

Social Safeguards Management

Social Assessment and Resettlement Plan

Once at the start of the Project. But to remain on the website and other disclosure locations throughout the project period.

WB’s InfoShop; C&WD website;Project Locations

Project Director (ERRP), World Bank

RP Monthly Progress/Monitoring Report

10th day of every month

C&WD website;FHA HQ

Project Director (ERRP)

RP Implementation Completion & External Monitoring Reports

After substantial completion of civil works contract

C&WD website Project Director (ERRP)

Affected Persons and Public Consultation and Grievance Redress Process

Continuous process throughout the project cycle

WB’s InfoShop;C&WD website;Project Site Office, One to one contact with PAPs.

Project Director (ERRP), Deputy Director (North), Assistant Director (Resettlement),World Bank

Environment Management

Environmental Assessment and Environment Management Plans

Once in the entire project cycle and prior to awarding works. But to remain on the website and other disclosure locations throughout the project period.

World Bank’s Infoshop.C&WD website.Provincial and District Libraries; FHAHQ

Project Director (ERRP)

Quarterly progress report Within 15 days after end of each quarter

C&WD website;FHA HQ

Project Director (ERRP), Supervision Consultants

Other Progress on Project Management component

As and when appropriate

C&WD website Project Director (ERRP)

Project performance indicators, targets and actual figures

Annually C&WD website Project Director (ERRP)

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Topic Documents to be disclosed

Time & Frequency Media Responsibility

User satisfaction surveys results

End-of-project C&WD website Project Director (ERRP)

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Annex 8: Project Preparation and Appraisal Team Members

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

Planned ActualAIS approvalPCN review

February 2, 2011Not Applicable

Appraisal Stage PID to PIC Not ApplicableAppraisal Stage ISDS to PIC June 8, 2011Decision MeetingAppraisal

June 1, 2011June 2 to 17, 2011

Negotiations June 23, 2011RVP Approval July 05, 2011Grant Agreement signing June 15, 2011Planned date of effectiveness July 31, 2011Planned date of mid-term review July 1, 2012Planned closing date June 30, 2014

Key institutions responsible for preparation of the Project: Frontier Highway Authority

Bank staff and consultants who worked on the project included:

Name Title Unit

Zafar Iqbal Raja Task Team LeaderSr. Highways Specialist SASDT

Fernanda R. Nuiz Economist SASDTChaohua Zhang Sr. Social Sector Specialist SASDSSamina M. Islam Social Development Specialist SASDSJavaid Afzal Sr. Environmental Specialist SASDIOmar Khalid Environmental Specialist SASDIUzma Sadaf Sr. Procurement Officer SARPSSameena Dost Sr. Counsel LEGESChau-Ching Shen Sr. Finance Officer CTRFCRiaz Mahmood Financial Management Analyst SARFMAnwar A. Bhatti Financial Analyst SACPKGhulam Farid Program assistant SASDOAbid Hussain Chaudhry Program Assistant SASDOComfort Olatunji Program Assistant SASDOGizella Diaz Program Assistant SASDO

Jacques Buré Peer ReviewerSenior Highway Engineer ECSS5

Jean-Charles Crochet Peer ReviewerSenior Transport Economist MNSTR

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Annex 9: Environmental and Social Safeguards Framework

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

1. To address the potentially negative environmental and/or social impacts associated with the projects under MDTF, the Bank has prepared an Environmental and Social Screening and Assessment Framework (ESSAF), in accordance with the OP 8.0 for emergency operations. Since the ERRP is being proposed under MDTF, the ESSAF is applicable to this project also. The key aspects of the Framework are summarized below.

Impact Screening, Assessment and Mitigation Planning

2. While preparing any operations or projects for financing under the MDTF, the ESSAF will be followed to screen environmental and social impacts and plan any required mitigation measures. The screening process and its findings as well as the proposed mitigation measures will be documented as part of the project/subproject package. The following guidelines, codes of practice and requirements will be followed in the selection, design and implementation of any operations financed under the MDTF.

a. Environmental Assessment will be conducted for all projects/subprojects under MDTF, during the project implementation. Criteria for the type of assessment to be conducted for individual projects/subprojects are provided in Table 1. Full Environmental Assessments (EAs) will need to be conducted and clearance obtained from the Bank prior to initiating environmental category ‘A’ projects/subprojects. Environmental and Social Management Plans (ESMPs) will need to be prepared and clearance obtained from the Bank prior to initiating works under environmental category ‘B’ projects/subprojects. ESMP shall include EA and Environmental Management Plan (EMP) as defined in paragraph 8(b) of World Bank OP 4.01, Environmental Assessment and Annex-C; and Resettlement Plan (RP) as defined in Annex-A of World Bank OP 4.12 Involuntary Resettlement. The EAs and ESMPs will also be submitted to the relevant EPA for obtaining No Objection Certificate (NOC) before commencing works under the project/subprojects, in line with the national regulatory requirements in the Country. For smaller subprojects, environmental and social screening and assessment will be conducted with the help of checklists (a typical checklist is provided in the ESSAF).

b. Each implementing agency for the projects under the MDTF will appoint/designate an environmental and social focal point (ESFP), who will be responsible for ESSAF implementation within his/her organization, and also for the preparation and submission of quarterly monitoring reports to the Bank on the screening of and the rationale for the proposed environmental categorization of each project.

c. While conducting environmental assessment, cumulative impacts of a large number of projects/subprojects will also be considered.

d. All projects/subprojects will be screened for need of land acquisition and resettlement. If confirmed, necessary planning efforts will be carried out to develop mitigation measures. A guideline for land compensation and resettlement planning is provided in ESSAF.

e. All projects/subprojects will be screened for impacts on physical cultural resources and necessary mitigation measures. Procedures for the protection of cultural property, including the chance discovery of archaeological artifacts, unrecorded graveyards and burial sites are outlined in ESSAF.

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f. All construction contracts for the projects/subprojects financed by the MDTF will include appropriate clauses to ensure effective implementation of the mitigation measures identified in EA/ESMP/Checklist. A sample environmental safeguards procedure for inclusion in the technical specifications of contracts is provided in ESSAF.

g. The Environment, Health and Safety Guidelines developed by the International Finance Corporation (IFC) and the World Bank will also be applicable to the activities under the emergency projects/subprojects. The Guidelines are provided in ESSAF.

h. The procurement plans for the proposed projects/subprojects will include milestones for preparation of EA/ESMP/Checklist, and obtaining clearance from the Bank.

i. Subject to the needs as determined by the Bank’s safeguards’ team, the implementing agency will engage an independent consultant or consulting firm to conduct an annual environmental and social audit as third party validation, of the subprojects undertaken during each year of the Project implementation.

Consultations

3. Consultations will be mainstreamed in the preparation of new operations under the MDTF. For environmental Category ‘A’ and ‘B’ operations8, the implementing agencies will consult the potentially affected groups and local nongovernmental organizations on the project environmental and social aspects, and will take their views into account. The implementing agencies will initiate these consultations as early as possible, and for meaningful consultations, will provide relevant material in a timely manner prior to consultation, in a form and language(s) that are understandable and accessible to the groups being consulted.

4. For Category ‘A’ projects/subprojects, the implementing agencies will consult these groups at least twice: (a) shortly after the environmental screening and prior to finalization of the terms of reference for the EA and Resettlement Plan (RP); and (b) once a draft EA report and RP are prepared. For the initial consultation, the implementing agencies will provide a summary of the proposed subproject's objectives, description, and potential impacts. For both Category ‘A’ and ‘B’ projects, the implementing agencies will provide these groups with a summary of the EA report and RP (including the conclusions of the assessment). In addition, the implementing agencies will make the draft reports publicly available to project-affected groups and local nongovernmental organizations.

Planning, Review and Approval

5. The entire environmental and social screening and assessment procedure described above will be integrated within the preparation of the operations under the MDTF. To this end, the screening and planning to address environmental and social impacts would be initiated during the operation preparation phase. The operation preparation agencies will be responsible for the screening and planning of any environmental and social action plans required in line with this Framework. The EA or ESMP and RPs will be submitted to the project approving authority as part of the project/subproject application package. The implementation agencies will assign specialists to review the environmental and social safeguard action plans, such as screening report, EA, ESMP and RP. The implementation agencies will submit the safeguard documents for World Bank’s review and clearance, in accordance with the procedures as described earlier in the Annex. The implementation agencies will not approve the proposed operations until the required environmental and social safeguard action plans are cleared for compliance with the

8 As defined in World Bank Operational Policy 4.01, Environmental Assessment.

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Subproject identification Subproject preparation

Determine type of assessment required per criteria in Section VIConduct EA, prepare ESMP, or fill Checklist; prepare RP per criteria in Section VIReview and approval of EA, ESMP or Checklist; and RP by EPA and WBProject / subproject approval by Competent Authority

Project /subproject implementation.

Implementation of social and environmental mitigation measures as identified in EA/ ESMP/Checklist/RP.

Framework by the World Bank. A simplified flow chart for subproject preparation, approval and execution along with the EA/ESMP/Checklist requirements is provided below.

6. The implementing agencies will implement the projects under MDTF in close coordination with the relevant line departments, local governments, and political agents. Each implementing agency and in turn, each line department, will be responsible for applying the safeguard screening and mitigation requirements to its own projects. Separate environmental and social focal points (ESFPs) will be identified in each of the implementing agencies, with responsibility for overseeing the implementation of the ESSAF. The provincial EPAs (for KP and Balochistan), and Federal EPA (for FATA projects) will be responsible for environmental clearance for operations or projects/subprojects that require statutory environmental clearance, in accordance with the law. Although the national/provincial environmental clearance procedures are adequate and fairly reliable, the Bank will still review a samples of the EAs/ESMPs prepared under each subcomponent and provide necessary concurrence for the approval of disbursements of funds.

7. All agencies and departments who are preparing and will implement operations under the MDTF will appoint officers as the environmental and social focal points (ESFPs), who will liaise and coordinate with relevant agencies to ensure compliance with this Framework.

Capacity-Building and Monitoring Of ESSAF Implementation

8. As part of the capacity-building to be provided for implementation of the proposed operations, the ESFPs and relevant staff of the concerned line departments will also receive training in ESSAF’s application. The World Bank will monitor and provide guidance in the implementation of the ESSAF. The World Bank will also assist in this capacity-building in the implementation of approved safeguard action plans.

9. The implementing agencies through their ESFPs will be responsible, besides other functions, to monitor and supervise the implementation of any safeguard action plans. For this purpose, the implementing agencies will establish a monitoring mechanism as part of the project management system over the implementation of agreed safeguard action plans. In addition, the implementing agencies will also engage external monitors over the implementation of agreed safeguard action plans. The monitoring mechanisms should be detailed in the required action plans.

Disclosure

10. This ESSAF has been shared with all relevant agencies, line departments of the provincial and federal governments, concerned nongovernmental organizations, and development partners. Subsequently, it has also been disclosed in Urdu and English by the implementing agencies, and also made available at the

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websites of GOP, GoKP, FATA Secretariat, Government of Balochistan (GoB)and the relevant line departments including FHA. Copies of ESSAF have also been sent to Federal EPA, KP EPA, and Balochistan EPA. The document is also disclosed at the World Bank’s InfoShop. Relevant project specific safeguard documents/mitigation plans to be prepared subsequently will also be disclosed in a similar manner.

TABLE 1: CRITERIA FOR TYPE OF ENVIRONMENTAL INSTRUMENT

Type of SubprojectCategory A

Projects/SubprojectsFull EA Required

Category B Projects/Subprojects

ESMP Required

Smaller Projects/Subprojects

Environmental Screening Required

Infrastructure (such as water supply, sanitation, solid waste management, access roads, drainage, and street lighting)

Cost: Rs 25 million or above

Cost: less than Rs 25 million, but more than 1 million

Cost: up to 1 million

Roads Cost: Rs. 50 million or above

Cost: less than Rs 50 million, but more than 2 million

Cost: up to 2 million

Schools and health care facilities

Cost: Rs. 50 million or above

Cost: less than Rs 50 million, but more than 2 million

Cost: up to 2 million

Note: These criteria may need to be customized for individual projects under MDTF and approval obtained from the Bank.

Project-specific Environmental Assessment

11. The civil works under the proposed ERRP may potentially cause negative environmental impacts, such as soil erosion, water and soil contamination, air quality deterioration, damage to natural vegetation wild and aquatic life, and safety hazards for workers and surrounding population. In order to address these potential impacts and in accordance with ESSAF requirements described earlier, the GoKP has conducted a project-specific Environmental Assessment (EA) and has prepared a Environmental Management Plan (EMP), which are being reviewed by the Bank.

12. The key elements of the EA/EMP are listed below:

a. Potential impacts of the project activities on soils, air, water, natural vegetation, wildlife, and people, traffic management and disposal of construction waste and debris into the river

b. Mitigation measures to address the above impacts

c. Institutional arrangements for the environmental management of the project. These include appointment of Deputy Director (Environment) and Assistant Director (Resettlement) within the project’s implementation agency (i.e., FHA).

d. Monitoring mechanism to ensure the implementation of the mitigation measures during the implementation of the Project.

e. Reporting and documentation protocol for environmental and social management.

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f. Environmental training and capacity building requirements.

13. Following the requirements of ESSAF, a Social Assessment (SA)/Resettlement Plan (RP) is being undertaken. A screening study conducted by FHA has revealed that a total of 498 persons will be directly affected and about 4,900 persons shall be indirectly affected by the Project. Major potential adverse impacts of the Project are expected from acquisition of about 30 kanals of (mostly productive) land in rural areas to improve road curves, loss of about 1,000 trees and crops on 40 kanals associated with land (30 kanals of land to be acquired and 10 kanals encroached by the farmers). In urban areas the project will remain within its existing right of way but structures constructed within the right of way will be affected. It includes 158 permanent structures of small businesses/shops (123 structures will be affected partially and 35 significantly). It will also temporarily disrupt businesses of 358 vendors and squatters. 46 houses will be affected (37 partially and 9 significantly), 38 boundary walls of commercial buildings will be affected (21 partially, 13 significantly and 4 fully). SA will provide a detailed inventory survey of project impacts and a census survey of the project affected household and a social economic survey of affected population. A Resettlement Plan (RP) shall be developed for the Project following the Pakistan Land Acquisition Act (1894) and the World Bank OP 4.12 on Involuntary Resettlement, in the light of broader principles laid down in ESSAF.

14. The EA/EMP and SA/RP will need to be cleared by the Bank before the works under the project can be started. In addition, the EA/EMP and SA/RP will be made part of the construction contract, making its effective compliance as one of the contractual requirements. The EA/EMP and SA/RP will also be included in the legal covenants of the agreements between the GOP/FHA and the Bank acting as administrator of the MDTF.

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Annex 10: Economic and Financial Analysis

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

GENERAL

1. The economic justification of the project has been assessed within the framework of efficiency criterion of public investment using the “Discounted Cash Flow Technique”. Economic measures like “Net Present Value” (NPV), “Benefit Cost Ratio” (B/C Ratio) and “Economic Internal Rate of Return (EIRR)” have been worked out to indicate the profitability of investment. Economic analysis involves:

a. Traffic Studyb. Determination of economic parameters for expressing project benefits and cost in terms

of economic prices;c. Quantification of project economic benefits;d. Translation of project costs into economic prices;e. Determining B/C Ratio, NPV, EIRR; andf. Undertaking sensitivity analysis by varying various parameters used in the “Base Case”

analysis

TRAFFIC STUDY

2. A comprehensive traffic study was carried out involving Classified Traffic Counts and Origin-Destination Surveys. Average Annual Daily Traffic was computed using the week day and seasonal variation factors. Traffic growth was estimated using data on: (a) growth of registered vehicles in Project area during the period 2001 to 2009, (b) growth in fuel consumption in road transport, and (c) population growth in Project area. Generated and diverted traffic were also estimated. The total projected traffic is as follows:

2–Axle 3–Axle 4–Axle 4–Axle Articulated 5–Axle 6–Axle

AADT 2010 772 328 71 21 20 11 1,525 346 6,056 1,853 11,0022011 826 351 76 23 21 12 1,607 370 6,381 1,952 11,6192012 884 376 82 24 23 12 1,693 396 6,723 2,057 12,269

1 2013 946 402 87 26 24 13 1,784 424 7,083 2,167 12,9572 2014 1,013 430 93 28 26 14 1,879 454 7,463 2,283 13,6843 2015 1,084 461 100 30 28 15 1,980 486 7,863 2,406 14,4524 2016 1,161 493 107 32 30 16 2,074 520 8,236 2,520 15,1885 2017 1,242 528 115 34 32 17 2,172 556 8,626 2,639 15,9616 2018 1,329 565 123 36 34 19 2,275 595 9,035 2,764 16,7767 2019 1,423 604 131 39 37 20 2,383 637 9,463 2,895 17,6328 2020 1,522 647 140 42 39 21 2,496 682 9,912 3,033 18,5349 2021 1,623 690 150 44 42 23 2,608 727 10,356 3,168 19,43110 2022 1,731 735 160 47 45 24 2,725 776 10,820 3,310 20,37211 2023 1,845 784 170 50 48 26 2,847 827 11,304 3,459 21,36012 2024 1,967 836 181 54 51 27 2,974 882 11,811 3,614 22,39713 2025 2,098 891 193 57 54 29 3,108 940 12,340 3,775 23,48614 2026 2,232 948 206 61 58 31 3,243 1,000 12,879 3,940 24,60015 2027 2,376 1,009 219 65 61 33 3,385 1,065 13,442 4,113 25,76816 2028 2,528 1,074 233 69 65 35 3,533 1,133 14,029 4,292 26,99317 2029 2,690 1,143 248 74 69 38 3,688 1,206 14,642 4,480 28,27818 2030 2,863 1,216 264 78 74 40 3,849 1,283 15,282 4,676 29,62519 2031 3,044 1,293 281 83 79 42 4,010 1,364 15,924 4,872 30,99320 2032 3,236 1,375 298 88 84 45 4,179 1,450 16,593 5,077 32,426

DESIGN YEAR

YEAR / VEHICLE

TYPE

TRUCKS TRUCK TRAILORS

TOTAL TRAFFIC PROJECTION

GRAND TOTAL

Const. Period

Passenger Buses

Tractor Trolleys

Mini Buses / Cars Vans

/ Jeeps / Pickups

Motor Cycles /

Rickshaw

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DETERMINATION OF ECONOMIC PARAMETERS

3. In order to remove price distortions due to market imperfection and existence of non– formal sector in economy, financial prices are required to be adjusted by various conversion factors like Standard Conversion Factor (SCF), Shadow Wage Rate (SWR) for skilled and unskilled labor and specific conversion factors for internationally traded goods to represent economic prices to be used in economic analysis. Necessary conversion factors and Namarari (parameters) used in the economic analysis are discussed below:

Standard Exchange Rate Factor

4. Economic Analysis has been conducted using domestic prices. Therefore a Standard Exchange Rate Factor (SERF) has been used to calculate the economic prices of internationally traded Goods, such as Cement and Steel. SERF has been taken as reciprocal of Standard Conversion Factor (SCF). Most general conversion factor used in the economic analysis is the Standard Conversion Factor (SCF), which represents the ratio of prices of all goods within the economy to their international prices. The SCF is mainly influenced by the trade policies of the Government. It is approximated by the weighted average of import and export tariffs, with subsidies excluded. The weights used are based on the magnitude of imports and exports in the total trade during the recent years.

5. Table given below gives the yearly data used to calculate the Standard Conversion Factor for this project has been calculated on the basis of an average of last five years fiscal years 2004 – 05 to 2009 – 10. An average of five years is taken to allow for annual fluctuations in trade, taxes and subsidies. Taxes on exports are levied on a range of items including raw cotton, rice, hides and skins. Rebates of excise duties and sales taxes are allowed on certain domestically produced goods used in the production of exports. Based on this data Standard Conversion Factor has been calculated as 0.90. SERF thus, calculated as 1/0.90 = 1.1.

Shadow Wage Rate

6. Market rate for unskilled labor has been converted to economic rate by application of a shadow wage rate factor of 0.75 and same for skilled labor has been used a factor of 0.90 (SCF).

Price Datum

7. All costs and benefits attributed to the project are expressed in constant March 2011 price level. No allowance for inflation during and after the construction period of the project has been taken into account in the economic analysis.

Discount Rate

8. The selection of an appropriate discount rate is a matter of considerable importance. A low discount rate exaggerates the desire or postpones the future benefits thereby giving preference to long gestation projects. Moreover, a low rate would make the marginal project look profitable with a high rate of return. The choice of social discount rate has been the subject of considerable debate and the theoretical work involved is highly sophisticated and cumbersome in practical application. In general, the appropriate social discount rate would depend on the economic conditions of the economy. The discount rate in developing countries is higher than the same in capital rich countries because in case of the former, people have a low level of consumption, which implies preference to present over future consumption.

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Moreover, in developing countries the marginal rate of return on capital is high owing to the shortage of investment funds.

9. In Pakistan, the marginal productivity of capital is believed to lie somewhere between 10 and 12 percent. A notification by the Finance Division, Budget Wing Government of Pakistan dated March 2002 regarding rate of mark-up chargeable on development loans and advances by the Federal Government to the Provincial Governments indicates a mark-up rate of 11.11%. The Appraisal Wing of the Planning Commission, Government of Pakistan in the recently approved PC-Is is also using OCC (Opportunity Cost of Capital) of 11.11% for financial appraisal and 12% for economic appraisal.

IDENTIFICATION OF PROJECT ECONOMIC BENEFITS

10. Project economic benefits have been classified as Tangible and Intangible benefits. Intangible benefits are those which cannot be assigned any monetary value. Tangibles benefits are quantifiable. Reduced vehicle operating costs and savings in value of travel time have been taken as a measure of project economic benefits resulting from improved road geometrics due to project implementation resultant increase in travel speeds for various types of vehicles. Quantification of project benefits is detailed hereunder.

QUANTIFICATION OF TANGIBLE BENEFITS

11. The benefits, which can be assigned monetary value, as already stated are defined as tangible benefits. These benefits comprise of road users benefits expressed in terms of savings in Vehicle Operating Cost (VOC) and savings in value of travel time (VTT) after implementation of the proposed project works. A detailed description of estimation of project benefits has been given below:

Vehicle Operating Cost Per Kilometer (VOC/Km.)

12. VOC/Km. is the function of operating speeds under “Without” and “With” project conditions. Vehicle operating speeds under “Without” project under existing situation have been worked out by type of vehicles by undertaking speed test surveys. Projected speeds for both without project and with project conditions have been calculated by using Volume–Capacity Analysis. Average Vehicle Operating Speeds thus worked out are shown in Table–1 and 2 under without and with project conditions respectively.

TABLE–1: AVERAGE VEHICLE OPERATING SPEEDS WITHOUT PROJECT(KPH)

VEHICLE TYPE 2010 2015 2020 2025 20302 Axle Trucks 20 15 10 10 103 Axle Trucks 20 15 10 10 104 Axle Trucks 20 15 10 10 104 Axle Trucks Articulated 20 15 10 10 105 Axle Trucks 20 15 10 10 106 Axle Trucks 20 15 10 10 10Passenger Buses 30 25 20 15 15Mini-Buses / Wagons 35 30 25 20 15Agriculture Tractors 15 10 10 10 10

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TABLE–2: AVERAGE VEHICLE OPERATING SPEEDS WITH PROJECT(KPH)

VEHICLE TYPE 2010 2015 2020 2025 20302 Axle Trucks 20 35 35 30 253 Axle Trucks 20 30 30 25 204 Axle Trucks 20 30 30 25 204 Axle Trucks Articulated 20 30 30 25 205 Axle Trucks 20 30 30 25 206 Axle Trucks 20 30 30 25 20Passenger Buses 30 50 45 40 35Mini-Buses / Wagons 35 55 50 45 40Agriculture Tractors 15 25 25 20 15

13. VOC/Km. by each type of vehicle have been calculated by estimation of Fuel consumption, Oil Consumption, Tire Wear, Depreciation, Interest, Parts and Labor Maintenance. Market prices of various types of Vehicles, Tires, Fuel and Lubricants have been converted to economic prices by excluding all transfer payments like duties and taxes from market prices. VOC/Km. against average operating speeds is given in Table–3 and 4 under without and with project conditions respectively.

TABLE–3: AVERAGE VEHICLE OPERATING COSTS PER KM.WITHOUT PROJECT

VEHICLE TYPE 2010 2015 2020 2025 20302 Axle Trucks 23.89 27.71 33.16 33.16 33.163 Axle Trucks 24.76 28.80 34.54 34.54 34.544 Axle Trucks 28.48 30.25 36.26 36.26 36.264 Axle Trucks Articulated 29.90 31.76 38.08 38.08 38.085 Axle Trucks 32.89 34.93 41.88 41.88 41.886 Axle Trucks 34.54 36.68 43.98 43.98 43.98Passenger Buses 12.09 12.33 12.74 13.35 13.35Mini-Buses / Wagons 11.52 11.74 12.08 12.56 13.23Agriculture Tractors 21.50 24.94 29.84 28.84 29.84

TABLE–4: AVERAGE VEHICLE OPERATING COSTS PER KM. WITH PROJECTVEHICLE TYPE 2010 2015 2020 2025 2030

2 Axle Trucks 23.89 15.84 15.84 17.77 20.143 Axle Trucks 24.76 18.33 18.33 20.85 23.964 Axle Trucks 28.48 19.35 22.72 25.11 25.114 Axle Trucks Articulated 29.90 20.31 20.31 23.86 26.375 Axle Trucks 32.89 22.91 26.06 29.95 22.916 Axle Trucks 34.54 24.06 27.36 31.44 31.44Passenger Buses 12.09 11.47 11.56 11.80 12.20Mini-Buses / Wagons 11.52 9.67 9.91 10.20 10.62Agriculture Tractors 21.50 14.25 15.99 18.13 18.13

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Annual Vehicle Operating Costs Savings

14. Annual vehicle operating costs both under “Without” and “With” project conditions have been calculated by multiplying VOC/Km. with AADT and Annual Distance Travel. Annual vehicle cost savings have been taken as a measure of project benefits. These savings are the difference in Annual Vehicle Operating Costs under “Without and “With” project conditions. Annual Vehicle Operating Costs Savings have been calculated and are given in Table–5.

TABLE–5: VEHICLE OPERATING COST SAVINGS (ANNUAL)(Rs. Million)

YEARS WITHOUT PROJECT WITH PROJECT SAVINGS2010 296.72 296.72 0.002015 415.16 319.01 96.152020 586.03 419.26 166.762025 776.62 564.40 212.212030 1024.07 768.45 255.62

Value of Travel per Kilometer (VTT/Km.)

15. There would be considerable savings in travel time due to increase in speeds with the implementation of project works. VTT/Km. has been calculated. The average monthly income of a car passenger has been taken as Rs. 20,000/–. The car occupancy has been assumed to be 1.5 passengers. 25 percent “in vehicle time” has been taken to calculate economic value of travel time. The total working hours in a year have been assumed to be 2,100. Based on these assumptions value of travel time per hour has been calculated as Rs. 42.86. Value of travel time per Km. has been calculated by dividing hourly cost with average operating speed. Same methodology has been used to work out value of travel time for Mini Buses and Buses. Detailed calculations of value of travel time are given in Table–6.

TABLE– 6: ECONOMIC VALUE OF TRAVEL TIME PER HOURTRAVEL TIME VALUE OF

PASSENGERS / OCCUPANTS CAR MINI BUS BUS

Average Income of Passenger (Rs. / Month) 20,000 10,000 6,000Average Income of Passenger (Rs. / Annum) 240,000 120,000 72,000Working (Hours / Annum) 2,100 2,100 2,100Rate of Passenger (Rs. / Hour) 114.29 57.14 34.29No. of Occupants 1.5 10 20Travel Time Value of Occupants in Financial Terms (Rs. / Hour) 171.43 571.43 685.71

Travel Time Value of Occupants in Economic Terms (Rs. / Hour) 42.86 142.86 171.43

16. Value of travel time per kilometer for various types of vehicle against average operating speeds under without and With Project Conditions are given in Table–7 and 8 respectively.

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TABLE–7: VALUE OF TRAVEL TIME PER KM. WITHOUT PROJECT(RS./KM.)

YEARS CARS MINI BUSES BUSES2010 1.22 4.08 5.712015 1.43 4.76 6.862020 1.71 5.71 8.572025 2.14 7.14 11.432030 2.86 9.52 11.43

TABLE–8: VALUE OF TRAVEL TIME PER KM WITHOUT PROJECT(RS./KM.)

YEARS CARS MINI BUSES BUSES2010 1.22 4.08 5.712015 0.78 2.60 3.432020 0.86 2.86 3.812025 0.95 3.17 4.292030 1.07 3.57 4.90

Annual Value of Travel Time Savings

17. Same methodology has been used to calculate savings in value of Travel Time Savings as it was in case of VOC Savings. Annual Value of Travel Time Savings is shown in Table–9.

TABLE–9: VALUE OF TRAVEL TIME SAVING (ANNUAL)(Rs. Million)

YEARS WITHOUT PROJECT WITH PROJECT SAVINGS2010 60.86 60.86 0.002015 93.04 49.36 43.682020 142.66 68.66 74.012025 227.02 95.34 131.672030 341.85 133.50 208.35

Benefits due to Normal Traffic

18. Economic Benefits for Normal Traffic have been worked out by aggregating VOC Savings and VTT Savings. Benefits thus calculated are given in Table–10.

TABLE–10: BENEFITS DUE TO NORMAL TRAFFIC(Rs. Millions)

YEAR BENEFITS DUE TO SAVINGS IN TOTALVOC VTT2010 0.00 0.00 0.002015 96.15 43.68 139.832020 166.76 74.01 240.772025 212.21 131.67 343.892030 255.62 208.35 463.98

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Benefits due to Generated Traffic

19. Benefits due to Generated Traffic have been calculated by taking half in savings in Vehicle Operating Cost and Value of Travel Time per KM. Benefits thus, worked out are also given in Table–11.

TABLE–11: BENEFITS DUE TO GENERATED TRAFFIC(Rs. Millions)

YEAR BENEFITS DUE TO SAVINGS IN TOTALVOC VTT2010 0.00 0.00 0.002015 7.21 3.28 10.492020 12.51 5.55 18.062025 15.92 9.88 25.792030 19.17 15.63 34.80

Benefits due to Diverted Traffic

20. Benefits due to Diverted Traffic have also been calculated and shown in Table–12. At present due to poor condition of the existing road and bottlenecks in the form of irregular geometric features, the project road is not preferred by the passenger and freight transport. This is the traffic likely to occur as a result of improvement and widening of road and construction of bridges.

TABLE–12: BENEFITS DUE TO DIVERTED TRAFFIC(Rs. Millions)

YEAR BENEFITS DUE TO SAVINGS IN TOTALVOC VTT2010 0.00 0.00 0.002015 23.34 6.58 29.922020 44.74 11.23 55.972025 55.26 20.22 75.482030 63.69 29.76 93.45

TOTAL PROJECT BENEFITS

21. Total Project Benefits due to Normal and Generated Traffic have been aggregated and are given in Table–13.

TABLE–13: TOTAL PROJECT BENEFITS(Rs. Millions)

YEARBENEFITS DUE TO

TOTALNORMAL TRAFFIC GENERATED AND DIVERTED TRAFFIC

2010 0.00 0.00 0.002015 139.83 40.41 180.242020 240.77 74.03 314.802025 343.89 101.27 445.162030 463.98 128.25 592.23

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INTANGIBLE BENEFITS

22. The total benefits of the Project may be underestimated since the Project is expected to generate other benefits mentioned below that cannot be measured due to lack of data.

a. Increase in Trade and Commercial Activitiesb. Increase in Employment Opportunitiesc. Improved Income Level

PROJECT ECONOMIC COST

23. Project Costs comprise Capital Costs, Annual Operation & Maintenance Costs and Replacement Cost (Periodic Maintenance Cost). Total Project Cost has been worked out as Rs. 681.32 Million. O&M Cost estimated as Rs. 1.66 Million per year while Periodic Maintenance Cost has been calculated as Rs. 5.25 Million in every Five Year. For conversion of Financial Cost to Economic Cost Price Escalation of Rs. 34.80 Million has also been excluded from Financial Cost. Based on Standard Conversion Factors for tradeable and non-tradeable items, Financial Project Costs have been converted to Economic Cost. Economic Cost thus, worked out as Rs. 615.39 Million as detailed in Table–14.

TABLE–14: DERIVATION OF ECONOMIC COSTS(Rs. Million)

(i) Project Cost 681.32(ii) Foreign Component –(iii) Local Component –(iv) Less Escalation 34.80(v) Net Local Component 646.52(vi) Adjusted Local Component (See Below) 615.39TOTAL ECONOMIC COSTS 615.39

COMPONENT AT MARKET PRICES

ADJUSTMENT FACTORS

ADJUSTED AT ECONOMIC

PRICES(i) Land Compensation 24.00 1.00 24.00(ii) Materials

Steel 62.25 1.10 68.48Cement 217.88 1.00 217.88Other 155.63 1.00 155.63

Sub Total 435.76 441.99(iii) Labor

Skilled 62.25 0.90 56.03Unskilled 124.50 0.75 93.38

Sub Total 186.76 149.40TOTAL COMPONENT 681.32 615.39

RESULT OF ANALYSIS

24. Results of Analysis of the project road in term of Net Present Value (NPV), Benefit-Cost Ratio (B/C Ratio) and Economic Internal Rate of Return (EIRR) have been calculated. For this purpose projected streams of economic benefits and economic costs have been discounted using pre-determined discount rate of 12% as already discussed in paragraph above. A salvage value of Rs. 246.16 Million has

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been added in the last year of projected benefits stream. Economic Decision Parameters thus worked out are given in Table–15 and summarized in Table–16.

TABLE–15: ECONOMIC ANALYSIS

PARAMETERS DISCOUNT RATE12 15 20 25

Discounted Benefits 1755.53 1315.82 601.85 440.81Discounted Cost 558.64 535.39 475.06 444.34Net Present Value 1196.89 780.44 126.78 -3.53Benefit-Cost Ratio 3.14 2.46 1.27 0.99Economic Internal Rate of Return = 29.87 percent

TABLE–16: ECONOMIC INDICATORS AT 12% DISCOUNT RATENPV (Rs. in Million) B/C RATIO EIRR (%)

1,196.89 3.14 : 1 29.87

25. A review of Table–16 indicates that NPV is Rs. 1,196.89 million (positive), B/C Ratio 3.14:1 (greater than unity) and calculated EIRR is 29.87 % greater than opportunity cost of capital in Pakistan. Therefore, project is feasible for implementation. The above benefits include savings in road maintenance costs.

SENSITIVITY ANALYSIS

26. The results of analysis given above have been computed on the basis of a set of assumptions. Alternate analysis has therefore been undertaken by varying the following assumptions:

a. Project Works delayed by One Yearb. Excluding Value of Travel Timec. Benefits due to Generated Traffic Excludedd. 10 Percent Decrease in Project Benefitse. 10 Percent Increase in Project Costsf. Benefit reduction and Cost Over–Run (each by 10 percent) occurring simultaneously.

27. Result of Sensitivity Analysis have been calculated and are given in Table–17.

TABLE–17: THE RESULT OF SENSITIVITY ANALYSISDESCRIPTION EIRR (%)

Base Case 29.87Sensitivity Analysis(i) Project Works delayed by One Year 29.72(ii) Value of Travel Time Excluded 22.58(iii) Benefits due to Generated Traffic Excluded 28.63(iv) 10 Percent Decrease in Project Benefits 27.86(v) 10 Percent Increase in Project Costs 27.66(vi) Benefit Reduction and Cost Over–Run (each by 10 percent)

occurring simultaneously 25.82

59

28. A review of the results indicates that proposed project is not sensitive to the assumptions made above.

Land Acquisition Cost

29. A provision of estimated Land acquisition cost has been taken as RS. 24.00 million for the purpose of economic analysis. EIRR including Land Acquisition cost has been worked out as 29.87 percent.

CONCLUSION

30. As the calculated Economic Internal Rate of Return is not sensitive to even the worse assumption, therefore, project is economically feasible and recommended for implementation.

60

Annex 11: Documents in Project Files

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

1. PC-I containing project description, cost estimates, traffic and economic analyses, pavement design.

2. Invitation for Bids.

3. Request for Proposal Document: Contract Administration and Construction Supervision Consultant Services

4. Bidding Document for Civil Works.

5. TOR for 3rd Party Validation

6. TOR for independent monitoring of environmental parameters.

7. Environmental Assessment (EA)

8. Social Assessment (SA)

61

Annex 12: Statement of Loans and Credits

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Project

Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

P125105P121394P125109P123914P118177P124913P122756P118779P123311P112902P122635P096745

201120112011201120112011201120112011201120112011

Flood Emergency Cash TransferKP and FATA Emergency RecoveryPolio Eradication III - AFERC for Flood ResponseSkills DevelopmentSindh Education sectorPunjab Education SectorTertiary Education ProjectHighways Rehabilitation AFKarachi Port Improvement ProjectPIFRA II Additional FinancingPunjab Barrages Improvement II Project

0.000.000.000.000.000.000.000.000.00

115.800.00

145.60

125.00250.0041.00

300.0021.0050.0050.00

300.00130.00

0.0024.500.00

0.000.000.000.000.000.000.000.000.000.000.000.00

0.000.000.000.000.000.000.000.000.000.000.000.00

0.000.000.000.000.000.000.000.000.000.000.000.00

85.00250.0041.000.00

21.0029.918.82

300.00130.00115.8024.50

140.24

0.000.000.000.000.000.000.000.000.000.000.000.00

0.000.000.000.000.000.000.000.000.000.000.000.00

P115638 2010 Social Safety Nets DPC 0.00 200.00 0.00 0.00 0.00 50.06 -158.91 0.00

P114508 2009 3rd Partnership for Polio Eradication 0.00 74.68 0.00 0.00 0.00 14.70 -18.14 0.00

P101684 2009 Second Trade and Transport Facilitation 0.00 25.00 0.00 0.00 0.00 24.48 -1.37 0.00

P107300 2009 SINDH EDUCATION SECTOR PROJECT (SEP)

0.00 300.00 0.00 0.00 0.00 113.83 19.44 0.00

P102608 2009 Punjab Education Sector Project 0.00 350.00 0.00 0.00 0.00 121.67 11.46 0.00

P105075 2009 PPAF III 0.00 250.00 0.00 0.00 0.00 218.16 -36.30 0.00

P103160 2009 Social Safety Net Technical Assistance 0.00 60.00 0.00 0.00 0.00 33.97 -20.61 0.00

P095982 2008 Electricity Distribution and Transmission 173.60 83.10 0.00 0.00 0.00 206.60 68.12 0.00

P089378 2008 Balochistan SSIP 0.00 25.00 0.00 0.00 0.00 19.78 10.68 0.00

P084302 2008 Sindh Water Sector Improvement Project 0.00 150.20 0.00 0.00 0.00 141.96 12.37 0.00

P110099 2008 Water Sector Capacity Building Project 0.00 38.00 0.00 0.00 0.00 31.54 3.95 0.00

P090501 2007 Land Records Mgmt & Information Systems

0.00 45.65 0.00 0.00 0.00 39.89 11.26 0.00

P099110 2006 Pakistan Earthquake ERC 0.00 400.00 0.00 0.00 0.00 13.75 -3.80 0.00

P076872 2006 PIFRA II 0.00 84.00 0.00 0.00 0.00 24.74 22.63 0.00

P083929 2006 Punjab Municipal Services Improvement 50.00 0.00 0.00 0.00 0.00 29.88 29.88 24.54

P094086 2006 Balochistan Education Support Project 0.00 22.00 0.00 0.00 0.00 12.77 8.73 0.00

P077306 2005 Tax Administration Reform Project 24.40 78.50 0.00 0.00 0.00 73.60 70.22 0.00

P082977 2004 Second Poverty Alleviation Fund Project 0.00 551.00 0.00 0.00 4.35 0.04 -329.14 -15.46

P078997 2004 Sindh On-Farm Water Management Project

0.00 111.14 0.00 0.00 0.00 40.63 -8.81 0.00

P010556 2004 HIGHWAYS REHAB 215.00 150.00 0.00 0.00 0.00 39.26 -137.29 3.03

P071454 2003 AJK Community Infrastructure & Services 0.00 50.00 0.00 0.00 1.43 6.85 -27.69 2.31

Total: 463 3048.27

0 0 5.78 1258.16

-473.32

14.42

PAKISTAN

62

STATEMENT OF IFC’sHeld and Disbursed Portfolio

In Millions of US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2005 ABAMCO FUND 0.00 3.46 0.00 0.00 0.00 3.46 0.00 0.00

1995 AES Lal Pir 12.42 9.50 0.00 0.00 12.42 9.50 0.00 0.00

1996 AES Pak Gen 9.20 9.50 0.00 5.37 9.20 9.50 0.00 5.37

1995 Abamco Mgmt 0.00 0.29 0.00 0.00 0.00 0.29 0.00 0.00

1991 BRRIM 0.00 0.23 0.00 0.00 0.00 0.23 0.00 0.00

1993 Crescent Bahuman 0.00 0.31 0.00 0.00 0.00 0.31 0.00 0.00

1997 Crescent Bahuman 0.00 0.20 0.00 0.00 0.00 0.20 0.00 0.00

2001 Crescent Bahuman 2.72 0.00 2.50 1.50 2.72 0.00 2.40 1.50

2006 Dewan Petroleum 15.00 12.00 0.00 0.00 0.00 0.00 0.00 0.00

2004 Dewan SME 0.00 0.98 0.00 0.00 0.00 0.00 0.00 0.00

2003 Dewan Salman 25.00 0.00 5.00 0.00 25.00 0.00 4.00 0.00

1991 Engro Chemical 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00

2006 Engro Chemical 0.00 0.64 0.00 0.00 0.00 0.64 0.00 0.00

2001 Eni Pakistan 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00

1990 FIIB 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00

1992 FIIB 0.00 0.40 0.00 0.00 0.00 0.40 0.00 0.00

2004 First UDL 7.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

GTFP Metropolita 2.54 0.00 0.00 0.00 2.08 0.00 0.00 0.00

1996 Gul Ahmed 8.10 4.10 0.00 5.22 8.10 4.10 0.00 5.22

2006 Habib Bank Li... 0.00 0.00 50.00 0.00 0.00 0.00 0.00 0.00

2003 KCT 6.46 0.00 1.50 0.00 6.46 0.00 1.50 0.00

1995 Kohinoor 6.25 6.30 0.00 2.03 6.25 6.30 0.00 2.03

2002 Micro Bank 0.00 2.43 0.00 0.00 0.00 2.43 0.00 0.00

2004 NBFI Credit 6.50 0.00 0.00 0.00 6.50 0.00 0.00 0.00

Orix Finance 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2006 Orix Leasing 17.00 0.00 0.00 0.00 17.00 0.00 0.00 0.00

2005 PICT 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00

2006 PICT 8.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1983 PPL 0.00 1.33 0.00 0.00 0.00 1.33 0.00 0.00

2002 PPL 0.00 5.63 0.00 0.00 0.00 5.63 0.00 0.00

1965 Packages 0.00 0.05 0.00 0.00 0.00 0.05 0.00 0.00

1987 Packages 0.00 0.02 0.00 0.00 0.00 0.02 0.00 0.00

1991 Packages 0.00 0.02 0.00 0.00 0.00 0.02 0.00 0.00

1994 Packages 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00

1995 Packages 0.00 0.26 0.00 0.00 0.00 0.26 0.00 0.00

2005 Packages 25.00 5.43 0.00 0.00 0.00 1.47 0.00 0.00

2006 Paktel 2005 35.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2001 Sarah Textiles 1.12 0.00 0.00 0.00 1.12 0.00 0.00 0.00

2004 TRG Pakistan 0.00 4.16 0.00 0.00 0.00 4.16 0.00 0.00

2007 TRG Pakistan 0.00 2.50 0.00 0.00 0.00 2.50 0.00 0.00

2006 Tameer Bank 0.00 1.01 0.00 0.00 0.00 1.01 0.00 0.00

63

1996 Uch Power 29.60 0.00 0.00 0.00 19.68 0.00 0.00 0.00

Total portfolio: 239.91

72.98 59 14.12 134.53

56.04 7.9 14.12

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2004 CSIBL 0.04 0.00 0.00 0.00

2006 IHFL II 0.01 0.00 0.00 0.00

2004 Dewan SME 0.00 0.00 0.00 0.00

2006 JSPE Fund 0.00 0.02 0.00 0.00

2006 Habib Bank 0.00 0.05 0.00 0.00

2006 Paktel 2005 0.00 0.00 0.00 0.03

2006 Orix SME OLP 0.02 0.00 0.00 0.00

2006 Tameer Bank 0.00 0.00 0.00 0.00

2006 Dewan Petroleum 0.00 0.00 0.00 0.03

Total pending commitment: 0.07 0.07 0 0.06

64

Annex 13: Country at a Glance

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Project

Pakistan at a glance 12/9/09

Lower-POVERTY and SOCIAL South middle-

Pakistan Asia income2008P opulation, mid-year (millions) 166.1 1,543 3,702GNI per capita (Atlas method, US$) 950 986 2,078GNI (Atlas method, US$ billions) 157.3 1,522 7,692Average annual growth, 2002-08P opulation (%) 2.3 1.5 1.2Labor force (%) 4.1 2.2 1.6Most recent estimate (latest year available, 2002-08)P overty (% of population below national poverty line) .. .. ..Urban population (% of total population) 35 30 41Life expectancy at birth (years) 67 65 68Infant mortality (per 1,000 live births) 72 59 46Child malnutrition (% of children under 5) .. 41 26Access to an improved water source (% of population) 90 87 86Literacy (% of population age 15+) 54 63 83Gross primary enrollment (% of school-age population) 85 108 109 Male 93 111 112 Female 77 104 106

KEY ECONOMIC RATIOS and LONG-TERM TRENDS1988 1998 2007 2008

GDP (US$ billions) 38.5 62.2 143.2 164.5Gross capital formation/GDP 18.0 17.7 22.5 22.0Exports of goods and services/GDP 13.6 16.5 14.2 12.8Gross domestic savings/GDP 9.9 16.7 15.4 11.0Gross national savings/GDP 21.5 21.3 24.6 20.0Current account balance/GDP -3.0 -2.7 -4.8 -8.3Interest payments/GDP 1.8 1.4 0.8 0.6Total debt/GDP 44.4 51.9 28.4 30.0Total debt service/exports 25.3 19.8 9.3 9.3P resent value of debt/GDP .. .. 22.9 21.9P resent value of debt/exports .. .. 117.8 113.2

1988-98 1998-08 2007 2008 2008-12(average annual growth)GDP 4.2 5.0 5.7 2.0 3.5GDP per capita 1.7 2.6 3.4 -0.2 1.2Exports of goods and services 5.2 9.3 2.3 -5.3 0.2

STRUCTURE of the ECONOMY1988 1998 2007 2008

(% of GDP )Agriculture 26.0 27.3 20.5 20.4Industry 24.4 23.8 26.9 26.9 Manufacturing 16.8 15.8 19.0 19.7Services 49.6 48.9 52.6 52.7Household final consumption expenditure 74.6 72.1 75.5 76.6General gov't final consumption expenditure 15.5 11.3 9.2 12.4Imports of goods and services 21.7 17.5 21.3 23.8

1988-98 1998-08 2007 2008(average annual growth)Agriculture 4.5 3.1 4.1 1.1Industry 4.7 6.6 8.8 1.7 Manufacturing 4.2 8.5 8.3 4.8Services 4.7 5.7 7.0 6.6Household final consumption expenditure 4.7 4.0 4.7 -1.3General gov't final consumption expenditure 1.2 8.0 -9.6 39.0Gross capital formation 3.7 5.2 12.9 3.9Imports of goods and services 4.4 6.7 -3.5 3.6

Note: 2008 data are preliminary estimates.This table was produced from the Development Economics LDB database.* The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

-10-505

101520

03 04 05 06 07 08

GCF GDP

Growth of capital and GDP (%)

-100

1020304050

03 04 05 06 07 08

Exports Imports

Growth of exports and imports (%)

Pakistan

Lower-middle-income group

Development diamond*

Life expectancy

Access to improved water source

GNIpercapita

Grossprimary

enrollment

Pakistan

Lower-middle-income group

Economic ratios*

Trade

Indebtedness

Domesticsavings

Capital formation

65

Annex 14: Maps

PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project

IBRD 38578

66