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The World BankProject for Strengthening the National Rural Transport Program (P132750)

REPORT NO.: RES32135

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

PROJECT FOR STRENGTHENING THE NATIONAL RURAL TRANSPORT PROGRAM

APPROVED ON DECEMBER 23, 2013

TO

THE GOVERNMENT OF NEPAL

TRANSPORT & DIGITAL DEVELOPMENT

SOUTH ASIA

Regional Vice President: Ethel Sennhauser Country Director: Qimiao Fan

Senior Global Practice Director: Jose Luis IrigoyenPractice Manager/Manager: Karla Gonzalez Carvajal

Country Manager:Task Team Leader:

Faris H. Hadad-ZervosSri Kumar Tadimalla

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ABBREVIATIONS AND ACRONYMS

CSMS Construction Site Monitoring SystemDO Development ObjectiveDOLIDAR Department of Local Infrastructure Development and

Agricultural RoadsDTO District Technical OfficeFY Financial YearGON Government of NepalIDA International Development AssociationM MillionMTR Mid Term ReviewMPI Maintenance Performance IndicatorOHS Occupational Health and SafetyPAD Project Appraisal DocumentPDO Project Development ObjectiveRAIDP Rural Access Improvement and Decentralization ProjectRuTIMS Rural Transport Infrastructure Management SystemSDR Special Drawing RightsSNRTP Strengthening the National Rural Transport Program USD United States Dollar


Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.

BASIC DATA

Product Information

Project ID Financing Instrument

P132750 Investment Project Financing

Original EA Category Current EA Category

Partial Assessment (B) Partial Assessment (B)

Approval Date Current Closing Date

23-Dec-2013 15-Jul-2019

Organizations

Borrower Responsible Agency

Government of Nepal represented by Ministry of Finance Department of Local Infrastructure Development and Agricultural Roads (DoLIDAR)

Project Development Objective (PDO)

Original PDOThe project development objective for this operation is to enhance the availability and reliability of transport connectivity for rural communities in participating districts.OPS_TABLE_PDO_CURRENTPDOSummary Status of Financing

Ln/Cr/Tf Approval Signing Effectiveness ClosingNet

Commitment Disbursed Undisbursed

IDA-53360 23-Dec-2013 24-Mar-2014 02-Apr-2014 15-Jul-2019 28.00 0 24.79

IDA-H8990 23-Dec-2013 24-Mar-2014 02-Apr-2014 15-Jul-2019 72.00 41.52 25.84


Policy Waiver(s)

Does this restructuring trigger the need for any policy waiver(s)?No

Note to Task Teams: End of system generated content, document is editable from here.

I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING

A. Project Status

1. The Project for Strengthening the National Rural Transport Program (SNRTP: IDA Credit 5336-NP and IDA Grant H899-NP) became effective on April 02, 2014. The current closing date of the Project is July 15, 2019. The total Grant and Credit amount from the International Development Association (IDA) is SDR 46.9 million (US$ 72 million equivalent) and SDR 18.36 million (US$ 28 million equivalent). The objective of the project is to enhance the availability and reliability of transport connectivity for rural communities in participating districts. The project has the following two components:

(a) Component A: Institutional Strengthening and Technical Assistance (US$ 19.7 million); and (b) Component B: Civil works (US$ 155.7 million), comprising: (i) routine and periodic maintenance of roads and crossing

structures (Window 1: US$ 50million); and (ii) road upgrading and rehabilitation, and new crossing structure construction and rehabilitation (Window 2: US$ 105.7 million).

2. The last implementation review carried out in March 2018 observed notable progress in many of the works already awarded and in completing the preparatory work for procurement of the balance of works. The review also noted that the Project has been addressing various concerns identified and actions agreed in the earlier implementation support review in August 2017), e.g., (i) enhanced monitoring of labor camps; (ii) developing Occupational Health and Safety (OHS) guidelines and training of contractors and project teams; (iii) revision of model bid documents with explicit provisions for OHS and prevention of child labor; and (iv) significant increase in use of Rural Transport Infrastructure Management System (RuTIMS) and Construction Site Monitoring System (CSMS). In view of this good progress, the ratings for Implementation Progress (IP) and Safeguards compliance have been upgraded to Moderately Satisfactory. The rating for the achievement of Development Objective (DO), however, has been retained as ‘Moderately Unsatisfactory’ as the Project is unlikely to meet some of its current physical targets, mainly because of the increase in per unit cost of some of the civil works, further explained in the following section.

3. As of May 10, 2018, out of total US$ 100 million of IDA support, the project has disbursed US$ 41.5 million and an additional US$ 13 million is in the pipeline in terms of works completed for which claims are under preparation. Of the balance, US$ 38 million is already committed and in various stages of implementation and the remaining about US$ 7 million is also expected to be committed within Q1 of FY19. Based on the current state of progress of implementation and procurement, the Project is likely to substantially utilize all the funds and achieve the revised targets being proposed before the current closing date of July 15, 2019. There are no outstanding audit reports or audit issues.

B. Rationale for Restructuring

4. Although the project has been making reasonable progress on several fronts, targets of various categories of civil works, component costs and category allocations need revision due to inter alia increases in costs of some activities and actual field-level requirements encountered at the time of implementation, as detailed below.

(a) Component A: Institutional Strengthening and Technical Assistance: the cost of this component has significantly increased (by an estimated US$7m) mainly because the Project had to significantly shore up the level and quality of


implementation to come out of problem-status, through more intensive monitoring as well as enlist additional consulting support. These costs also increased due to inclusion of three additional districts that were severely affected by the devastating earthquake of April 2015, which added about 500 km of roads under routine maintenance, about 70 km of roads under periodic maintenance, and about 22 meters of crossing structure under new construction.

(b) Component B: Civil Works - Upgradation and rehabilitation of Roads and Crossing Structures: At the time of the appraisal, it was presumed that the roads that would be upgraded would be selected primarily from among the roads that were brought up to a specified quality standard as part of an earlier roads Project (Rural Access Improvement and Decentralization Development Project – RAIDP; closed: 2013). However, during implementation, quite a few other roads with relatively lower quality standard were included. Also, after the appraisal, the Nepal Rural Road Standard 2071 (geometric) was upgraded, which resulted in increase of drainage works, structural works and/or earthworks in the case of roads as well as crossing structures. In addition, the costs of labor and construction materials – originally estimated based on the earlier Project – turned out to be substantially higher during implementation. Due to a combination of these factors, the cost of upgradation has substantially increased in the case of both roads and crossing structures. In view of this, and the amount of funds available, it is proposed to revise the targets for upgradation downwards: from 2,221 km to 1,210 km in the case of roads and from 4,500 meters to 1,270 meters in the case of crossing structures.

(c) Component B: Civil Works - Periodic and Routine Maintenance of Roads: The length of roads that required periodic maintenance turned out to be lower than that envisaged at the time of appraisal, mainly because the road network in hill districts was mostly comprised of earthen roads, wherein the demand is more for upgradation to a gravel or black-top road instead of periodic maintenance (which only includes works such as grading to cover loss of camber, maintaining shoulders and repairing corrugations). Conversely, the length of roads being covered under routine maintenance turned out to be substantially higher because of the higher share of earthen roads in the hill districts, and the addition of three earth-quake affected districts (see bullet (a) above). Accordingly, in keeping with the actual requirements, the target for periodic maintenance of roads is being revised from 2,309 km to 1,400 km, and that of routine maintenance from 3,067 km to 5,500 km.

(d) Component B: Civil Works - Periodic and Routine maintenance of Crossing Structures: Here, the bridges that required maintenance, especially routine maintenance, turned out to be less than the numbers envisaged at the time of appraisal. In keeping with the actual requirements, the targets for the periodic maintenance and routine maintenance of the crossing structures are proposed to be revised from 2,469 meters to 2,100 meters and 5,850 meters to 4,000 meters, respectively.

(e) At the time of project preparation (see Maintenance Performance Indicators table attached to Schedule 2), it was envisaged that the payments under category (2) – that is, for Works under Part B.1 (Periodic and Routine Maintenance) of the project – would be met with funds from IDA (2%), other Donors (23%), and the Government of Nepal (75%). Accordingly, the per unit payments from IDA/Donors for each type of maintenance works were determined at a level of 25% (representing the then envisaged share of funding from IDA and other donors) of the estimated per unit cost of that type of maintenance. However, during project implementation, no other donors came on board, resulting in IDA and GoN sharing the costs of these works in the ratio of 2:98. In line with this, it is proposed to revise the per unit payments in the MPI table to a level of 2% - that is, the share of IDA support - of the per unit cost of undertaking the respective type of maintenance. Correspondingly, it is proposed to limit the Percentage of Expenditures to be Financed for Category (2) Works to 2%.

5. The Ministry of Finance, Government of Nepal, has endorsed the proposal of the implementation agency to restructure the Project, through formal revision of the indicator targets, component costs and loan allocation, in line with the current realities and requirements and what could be realistically achievable within the current closing date, that is, July 15, 2019 (Ref. Government letter No. IECCD/MoFALD/WB/2074-75/2587, dated June 4, 2018).

II. DESCRIPTION OF PROPOSED CHANGES

C. Proposed Changes


6. In view of the above, it is proposed to restructure the project with the following changes:

(a) Revision of costs of the two components, and the corresponding amounts to be financed through IDA credit and the Government of Nepal, as indicated in Table below:

Table 1: Revision of Components CostsFinancing Structure (US$ Million)

Original-PAD Proposed RevisionComponents/ActivitiesTotal GoN IDA Total GoN IDA

A: Institutional strengthening & Tech. Assistance 19.7 -- 19.7 26.9 0.3 26.6B: Maintenance, Upgrading & Rehabilitation of Roads and Crossing Structures 155.7 75.4 80.3 148.5 75.1 73.4

Of which, Window 1: Output-based maintenance 50.0 49.0 1.0 45.9 44.9 1.0Window 2: Upgrading and rehabilitation 105.7 26.4 79.3 102.6 30.2 72.4

Of which, Roads 75.0 18.7 56.3 87.4 25.9 61.5Crossing Structures 30.7 7.7 23.0 15.2 4.3 10.9

Grand Total 175.4 75.4 100.0 175.4 75.4 100.0

(b) Revision of the results framework, with changes of targets related to selected civil works, as listed in Table below:

Table 2: Revision of Results FrameworksCumulative Target Values for

Y5 (End of Project)Intermediate Results Indicators Unit of Measure

As per PAD Proposed Revision

Improved maintenance planning Number of participating districts generating Annual Road Maintenance Plan

33 36

Improved transparency and accountability in the implementation of physical works

Number of participating districts using beneficiary monitoring mechanisms

33 36

Improved quality of civil works Number of participating districts with material testing laboratories that meet DoLIDAR standards

33 36

Rehabilitation and upgrading of district core road network roads to all-weather standards

km of roads upgraded/rehabilitated in participating districts.

2,221 1,210

Improved periodic maintenance of district core road network roads

km of maintainable district core road network roads undergoing periodic maintenance.

2,309 1,400

Improved routine maintenance of district core road network

km of maintainable district core road network roads undergoing routine maintenance annually

3,067 5,500

New or rehabilitated crossing structures on district core road network

Meters of new / rehabilitated crossing structures in participating districts

4,500 1,270

Improved periodic maintenance of crossing structures on district core road network roads

Meters of maintainable crossing structures on district core road network roads undergoing periodic maintenance

2,469 2,100

Improved routine maintenance of crossing structures on district core road network

Meters of maintainable crossing structures undergoing routine maintenance annually

5,850 4,000

(c) Reallocation of the IDA Grants across various categories in accordance with the above changes, in Section IV under Schedule 2 of the Finance Agreement as indicated in the Table below:

Table 3: IDA Category AllocationOriginal Proposed Revision

Category Amount of the Credit Allocated (expressed

in SDR)

Amount of the Grant

Allocated

Percentage Expenditure

Amount of the Credit

Allocated

Amount of the Grant

Allocated

Percentage Expenditure


(expressed in SDR)

to be Financed

(expressed in SDR)

(expressed in SDR)

to be Financed

1) Goods, works, non-consulting services, Training, Incremental Operating Costs and consultants’ services for the Project, other than Part B.1 thereof

12,810,000 100% 17,375,800 100%

2) Works under Part B.1 of the Project

650,000 100% 650,000 2%

3) Works under Part B.2 of the Project

18,300,000 33,440,000 75% 18,300,000 28,874,200 75%

TOTAL AMOUNT 18,300,000 46,900,000 18,300,000 46,900,000

(d) Revision to the Maintenance Performance Indicators (MPI) table to limit the Per Unit Payments to the share of IDA support only, that is, 2% of the Estimated Per Unit Costs of the works under part B1 of the project, as shown below.

Original[Basis:25% of estimated cost to be paid by IDA (2%) & other Donors (23%)]

Proposed Revised[Basis:2% of estimated cost to be paid by IDA]

Maintenance ClassTerai District Hill/Mountain

District Unit of payment Terai District

Hill/Mountain District Unit of payment

MPI-1T: MPI-1H: MPI-1T: MPI-1H:Periodic road maintenance NPR 284,000 NPR 300,000

per kilometerNPR 22,720 NPR 24,000

per kilometer

MPI-2T: MPI-2H: MPI-2T: MPI-2H:Routine road maintenance NPR 25,000 NPR 33,000

per kilometerNPR 2,000 NPR 2,640

per kilometer

MPI-3T: MPI-3H: MPI-3T: MPI-3H:Periodic bridge maintenance NPR 40,000 NPR 45,000

per meter of a completed discrete structure NPR 3,200 NPR 3,600

per meter of a completed discrete structure

MPI-4T: MPI-4H: MPI-4T: MPI-4H:Periodic causeway maintenance NPR 12,000 NPR 15,000

per meter of a completed discrete structure NPR 960 NPR 1,200


MPI-5T: MPI-5H: MPI-5T: MPI-5H:Routine crossing structure maintenance (bridge & causeway) NPR 775 NPR 825

per meter of a completed discrete structure NPR 62 NPR 66


Note to Task Teams: The following sections are system generated and can only be edited online in the Portal.

III. SUMMARY OF CHANGES

Changed Not Changed

Change in Results Framework ✔

Change in Components and Cost ✔

Reallocation between Disbursement Categories ✔

Change in Disbursement Estimates ✔

Change in Implementing Agency ✔

Change in DDO Status ✔


Change in Project's Development Objectives ✔

Change in Loan Closing Date(s) ✔

Cancellations Proposed ✔

Change in Disbursements Arrangements ✔

Change in Overall Risk Rating ✔

Change in Safeguard Policies Triggered ✔

Change of EA category ✔

Change in Legal Covenants ✔

Change in Institutional Arrangements ✔

Change in Financial Management ✔

Change in Procurement ✔

Change in Implementation Schedule ✔

Other Change(s) ✔

Change in Economic and Financial Analysis ✔

Change in Technical Analysis ✔

Change in Social Analysis ✔

Change in Environmental Analysis ✔

IV. DETAILED CHANGE(S)

OPS_DETAILEDCHANGES_RESULTS_TABLE

RESULTS FRAMEWORK

Project Development Objective Indicators PDO_IND_TABLE

PDO-1: Increased access to all weather transport infrastructureUnit of Measure: PercentageIndicator Type: Custom

Baseline Actual (Current) End Target Action

Value 0.00 0.00 4.00 No Change

Date 23-Dec-2013 10-Oct-2014 15-Jul-2019

Roads in good and fair condition as a share of total classified roadsUnit of Measure: PercentageIndicator Type: Custom



Value 0.00 0.00 50.00 No Change

Date 23-Dec-2013 10-Oct-2014 15-Jul-2019

Size of the total classified networkUnit of Measure: KilometersIndicator Type: Custom Supplement


Value 3787.00 3787.00 3787.00 No Change

Intermediate IndicatorsIO_IND_TABLE

Improved maintenance planningUnit of Measure: NumberIndicator Type: Custom


Value 30.00 36.00 36.00 Revised

Date 23-Dec-2013 21-Mar-2018 15-Jul-2019

Improved transparency and accountability in the implementation of physical worksUnit of Measure: NumberIndicator Type: Custom


Value 16.00 36.00 36.00 Revised

Date 23-Dec-2013 21-Mar-2018 15-Jul-2019

Improved quality of civil worksUnit of Measure: NumberIndicator Type: Custom


Value 30.00 36.00 36.00 Revised

Date 23-Dec-2013 21-Mar-2018 15-Jul-2019

Roads rehabilitated, Rural


Unit of Measure: KilometersIndicator Type: Custom


Value 0.00 350.00 1210.00 Revised

Date 18-Oct-2013 21-Mar-2018 14-Jul-2019

Improved periodic maintenance of district core road network roadsUnit of Measure: KilometersIndicator Type: Custom


Value 0.00 350.00 1400.00 Revised

Date 23-Oct-2013 21-Mar-2018 15-Jul-2019

Improved routine maintenance of district core road network roadsUnit of Measure: KilometersIndicator Type: Custom


Value 80.00 5500.00 5500.00 Revised

Date 23-Dec-2013 21-Mar-2018 15-Jul-2019

New or rehabilitated crossing structures on district core road networksUnit of Measure: Meter(m)Indicator Type: Custom


Value 0.00 398.00 1270.00 Revised

Date 23-Dec-2013 21-Mar-2018 15-Jul-2019

Improved periodic maintenance of crossing structures on district core road networksUnit of Measure: Meter(m)Indicator Type: Custom


Value 0.00 775.00 2100.00 Revised

Date 23-Dec-2013 21-Mar-2018 15-Jul-2019

Improved routine maintenance of crossing structures on district core road networkUnit of Measure: Meter(m)Indicator Type: Custom



Value 0.00 4880.00 4000.00 Revised

Date 23-Dec-2013 21-Mar-2018 15-Jul-2019

OPS_DETAILEDCHANGES_COMPONENTS_TABLE

COMPONENTS

Current Component Name

Current Cost

(US$M)Action Proposed

Component NameProposed

Cost (US$M)

Component A: Institutional Strengthening, T.A., and Monitoring

19.70 RevisedComponent A: Institutional Strengthening, T.A., and Monitoring

26.95

Component B: Maintenance, upgrading, and rehabilitation 155.70 Revised Component B: Maintenance,

upgrading, and rehabilitation 148.45

TOTAL 175.40 175.40

OPS_DETAILEDCHANGES_REALLOCATION _TABLE

REALLOCATION BETWEEN DISBURSEMENT CATEGORIES

Current Allocation Actuals + Committed Proposed Allocation Financing %(Type Total)

Current Proposed

IDA-53360-001 | Currency: XDR

iLap Category Sequence No: 3 Current Expenditure Category: Wks Prt B.2 of the Project

18,300,000.00 0.00 18,300,000.00 75.00 75.00

Total 18,300,000.00 0.00 18,300,000.00

IDA-H8990-001 | Currency: XDR

iLap Category Sequence No: 1 Current Expenditure Category: Gds,Wks,NCS,Trg,OC,CS except Prt B1

12,810,000.00 12,352,195.05 17,375,800.00 100.00 100.00



650,000.00 0.00 650,000.00 100.00 2


33,440,000.00 15,048,175.70 28,874,200.00 75.00 75.00

Total 46,900,000.00 27,400,370.75 46,900,000.00

OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE

DISBURSEMENT ESTIMATES

Change in Disbursement EstimatesYes

Year Current Proposed

2014 2,000,000.00 5,000,000.00

2015 8,000,000.00 6,742,329.00

2016 12,000,000.00 6,775,487.00

2017 28,000,000.00 3,921,963.00

2018 27,000,000.00 37,366,234.00

2019 22,000,000.00 40,193,987.00

2020 1,000,000.00 0.00

Note to Task Teams: End of system generated content, document is editable from here.

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