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Report No.: 59089 - IN

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PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$350 MILLION

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TO THE REPUBLIC OF INDIA

FOR THE SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT February 24, 2011

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Transport Unit Sustainable Development Unit South Asia Region 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.

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT CURRENCY EQUIVALENTS (Exchange Rate Effective February 1, 2011)
Currency Unit US$1 1 lakh 1 Crore (Cr.) = = = = Indian Rupees (Rs.) 45 Rs. 100,000 10,000,000

FISCAL YEAR
April 1 March 31

ABBREVIATIONS AND ACRONYMS

AADT AG CAA&A CAG CRN DBFOMT DEA DPR EA EIA EIRR EMP EOI EPC ERR E&SM GAAP GOI GOK ICB ICR IDSAP IRI IUFR JCA KSHIP KSHTTA KRDCL Annual Average Daily Traffic Auditor General Controller of Aid Accounts and Audit. Comptroller and Auditor General of India Core Road Network Design Build Finance Operate Maintain Transfer Department of Economic Affairs Detailed Project Report Environmental Assessment Environmental Impact Assessment Economic Internal Rate of Return Environmental Management Plan Expression of Interest Engineering and Procurement Contract Economic Rate of Return Environmental and Social Management Governance and Accountability Action Plan Government of India Government of Karnataka International Competitive Bidding Implementation Completion Report Institutional Development Strengthening Action Plan International Roughness Index Interim Unaudited Financial Report Joint Controller of Accounts Karnataka State Highways Improvement Project Karnataka State Highway Transport and Tariff Authority Karnataka Road Development Corporation Limited MCA MDR M&E NCB NHDP NPV ODR O&M ORAF PAD PIO PIU PMGSY PPIAF PPP PQ PWD RAP RFQ RFP RIS R&R RTIA SBD SH SNTA TNA TOR VGF Model Concession Agreement Major District Roads Monitoring and Evaluation National Competitive Bidding National Highways Development Program Net Present Value Other District Roads Operation and Maintenance Operational Risk Assessment Framework Project Appraisal Document Public Information Officer Project Implementation Unit Pradhan Mantri Gram Sadak Yojana Public Private Infrastructure Advisory Facility Public Private Partnership Pre-Qualification Public Works Department Resettlement Action Plan Request for Qualification Request for Proposal Road Information System Resettlement and Rehabilitation Right to Information Act Standard Bidding Document State Highways Sub-National Technical Assistance Training Needs Assessment Terms of Reference Viability Gap Fund

Regional Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader:

Isabel Guerrero Roberto Zagha John H. Stein Michel Audig Binyam Reja

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Table of Contents I. A. B. C. II. A. B. A. B. C. D. E. F. G. H. Strategic Context ...............................................................................................................1 Country Context .........................................................................................................1 Sectoral and Institutional Context ................................................................................1 Rationale for Bank Assistance .....................................................................................7 Project Development Objectives ........................................................................................7 Project Components ....................................................................................................8 Lessons Learned and Reflected in the Project Design................................................. 10 Institutional and Implementation Arrangements ........................................................ 10 Sustainability ............................................................................................................ 11 Key Risks ................................................................................................................. 12 Appraisal Summary .................................................................................................. 13 Financial Management .............................................................................................. 14 Procurement ............................................................................................................. 15 Social ....................................................................................................................... 16 Environment ............................................................................................................. 17

III. Project Description ............................................................................................................8

IV. Implementation ............................................................................................................... 10

Annex 1: Results Framework and Monitoring .......................................................................... 18 Annex 2: Detailed Project Description .................................................................................... 21 Annex 3: Implementation Arrangements ................................................................................. 28 Annex 4: Operational Risk Assessment Framework (ORAF).................................................... 55 Annex 5: Implementation Support Plan ................................................................................... 58 Annex 6: Team Composition ................................................................................................... 62 Annex 7: Economic and Financial Analysis ............................................................................. 63 Annex 8: Institutional Development and Strengthening Action Plan 2010-2016 ........................ 73 Annex 9: Governance and Accountability Action Plan ............................................................. 78

PAD DATA SHEET

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT APPRAISAL DOCUMENT South Asia Region SASDT Date: February 24, 2011 Country Director: Roberto Zagha Sector Director: John Stein Sector Manager: Michel Audig Team Leader(s): Binyam Reja Project ID: P107649 Lending Instrument: Specific Investment Loan Sector(s): Roads and highways (100%) Themes: Infrastructure services for private sector development (67%); Other public sector governance (33%) EA Category: A

[X] Loan [ ] Credit [ ] Grant For Loans/Credits/Others: Total Bank financing (US$m.): 350.00 Proposed terms: 6-month LIBOR plus a variable spread; 18 years repayment including 5 years grace period; Level repayment of principal. Financing Plan (US$m) Source Local Foreign Total Borrower 155 0 155 Private Sector Developer 500 0 500 International Bank for Reconstruction and Development 230 120 350 Total: 885 120 1,005 Borrower: Government of India Department of Economic Affairs, Ministry of Finance North Block, New Delhi 110 001 Fax: +91 11 2309 4075 Responsible Agency: Government of Karnataka Public Works Department 3rd Floor, Vikasa Soudha Dr. Ambedkar Road Bangalore, India Tel: (91-80) 225-1449; Fax: (91-80) 2235-3988 E-mail: prs-pwd@karnataka.gov.in

Project Financing Data: [ ] Guarantee [ ] Other:

iv

AND Karnataka Road Development Corporation Limited The Managing Director No. 16/J, Miller Tank Bed Area, Thimmaiah Cross Road Bangalore - 560 052 Ph: 080 - 22382630, 22382362, 22380140 / Fax: 080 -22380143 email. mdkrdcl@krdcl.in, cekrdcl@gmail.com Estimated Disbursements (Bank FY/US$ m) FY Annual Cumulative 2011 10.0 10.0 2012 35.0 45.0 2013 52.0 97.0 2014 70.0 167.0 2015 84.0 251.0 2016 70.0 321.0 2017 29.0 350.0

Project Implementation Period: June 1, 2011 December 31, 2016 Expected effectiveness date: June 1, 2011 Expected closing date: December 31, 2016 Does the project depart from the CAS in content or other significant respects? If yes, please explain: Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board? If yes, please explain: Does the project meet the Regional criteria for readiness for implementation? If no, please explain: Yes X No

Yes Yes Yes X Yes

X No No No No

Project Development objective: To accelerate the development of the Core Road Network through leveraging public sector outlays with private sector financing and improving the institutional effectiveness of the road sector agencies to deliver effective and safe roads to users.

Project description Component 1: Road Improvement Works (Total Cost: US$603 million; IBRD: US$260 million; GOK: US$94 million; Developer: US$249 million). This component will support capital improvement and maintenance works of selected priority Core Road Network through a combination of traditional contracts and PPP concessions. Component 2: Highway Financing Modernization (Total Cost: US$374 million; IBRD: US$67 million; GOK: US$56 million; Developers/Financial Institutions: US$251 million). This component will assist KRDCL in implementing the concept of co-financing with private financial institutions through technical assistance and pilot transactions. Component 3: Road Safety Improvement (Total Cost: US$14 million; IBRD: US$11 million; GOK: US$3 million). This component will assist the GOK to respond to the growing road safety problems in Karnataka with comprehensive strategic and institutional measures, consistent with the main thrusts of the 2007 Sundar Committee report and the findings of the road safety management capacity review. Component 4: Road Sector Policy and Institutional Development (Total Cost: US$11.8 million; IBRD: US$9.44 million; GOK: US$2.36 million).This component will support implementation of a new medium-term Institutional Development and Strengthening Action Plan (IDSAP) for the period 2010-2016. Safeguard 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) Conditions and Legal Covenants: Financing Agreement Reference Description of Condition/Covenant Date Due X Yes Yes X Yes Yes X Yes Yes X Yes Yes Yes Yes X X X X X X No No No No No No No No No No

vi

Project Agreement, Schedule, Section I, PARA 7

For the DBFOMT Annuity Concessions, the GOK shall meet all annuity payments due under the Concession Agreements in a timely manner in accordance with the terms of Concession Agreements.

Six months after the Commercial Operation Day of the road concession, and thereafter every six months until the end of the 10-year concession period.

Project Agreement, Schedule, Section I, PARA 8 Project Agreement, Schedule, Section I, PARA 9

Undertake a comprehensive road safety interventions in the identified safe corridor demonstration program Operationalize road asset management system to prioritize road investment and management program. KRDCL to develop a consolidated investment and borrowing plan to improve selected corridors under the Core Road Network

April 1, 2011

Dec 1, 2014

Project Agreement, Schedule, Section I, PARA 10

Dec 31, 2013, and annually there after

vii

I. Strategic Context A. Country Context 1. Karnataka, located in the southwest of India, is the eighth largest state in the country with a population of about 57 million, of which 34 percent lives in urban area, making Karnataka the fifth most urbanized state in India. Considered a middle-income state in India, it has one of the fastest growing and more vibrant economies in the country. It has been growing at or above the all-India economic rate of growth. As a result of the worldwide economic crisis, the real annual GSDP growth rate in 2008-09 has been estimated at 4.5 percent (constant 1999-2000 prices) as against 12.6 percent in 2007-08 percent (at constant 1999-2000 prices). Major contributors to economic growth are manufacturing and service sectors, accounting for 26 percent and 55 percent respectively during the year 2006/07. Karnataka is one of the knowledge and technology hubs of India, and many domestic and international software and IT firms have located in Bengaluru, the capital city. Karnatakas mining and quarrying sector has also enjoyed a boom in recent years due to the increased global demand for raw materials. 2. Karnataka has maintained a good fiscal balance since the early 2000s. The State Government passed the Karnataka Fiscal Responsibility Act in 2002, requiring the government to achieve a zero revenue budget deficit, and contain the fiscal deficit within three percent of the estimated Gross State Domestic Product (GSDP), and the total debt stock not to exceed 25 percent of the GSDP. Karnataka has also adopted a number of reforms to improve the quality of governance and service delivery, most notably in the areas of public transport provision, energy distribution, solid waste management, and parking management. Several public sector units have also been privatized or restructured. Other reforms include simplification of procedures and egovernance, productivity, integrity and accountability in administration and decentralized and participatory governance. 3. Despite the recent economic progress, Karnataka, as in other states in India, has wide regional development disparities, posing risks for sustaining further growth and making it more inclusive. Currently economic activities are concentrated in a few cities with Bengaluru and Mysore accounting for 37 percent of the GSDP. Only six out of the 29 districts in Karnataka have GSDP per capita higher than the states average. The regional disparities are exacerbated in part because most of the growth-generating manufacturing and service industries are located in cities with good infrastructure, urbanization and agglomeration of economic activities, leaving behind districts that do not have these characteristics. Improving infrastructure, including road transport, is a key component of GOKs development strategy to sustain growth and bridge the regional disparities. B. Sectoral and Institutional Context India Road Sector Context 4. Indias road network, estimated at 3.3 million kilometers, carries 65 percent of the freight and 80 percent of passenger traffic in the country. It includes a primary network consisting of National Highways (NH), a secondary network comprising of State Highways (SH) and Major 1

District Roads (MDR) and a tertiary network of Rural Roads. In broad terms, the central government is responsible for the construction and maintenance of National Highways, while the state and local governments are responsible for the secondary and tertiary networks within their jurisdictions. 5. Recent Road Sector Development in India. Until the mid-nineties, the central and state governments relied on public sector agencies and budgetary allocations to develop and maintain roads. Under this regime, in part due to lack of incentives for pursuing efficiency and inadequate resources, capacity expansion lagged behind transport demand and maintenance was given low priority. Critical road user services such as safety and traffic management received little attention. This situation started to improve, especially for the primary and tertiary networks after the Government of India (GOI) introduced two important programs, namely, the National Highway Development Program (NHDP) and the Prime Ministers Rural Roads Program (PMGSY). These programs, which are partly funded through the Central Road Fund, have substantially increased the resources allocated for the improvement of the National Highway and Rural Roads networks. In contrast, the secondary network (State Highways and MDRs) suffers from consistent under funding and weak capacity of the state road agencies. 6. Public Private Partnership (PPP) in Indias Highway Sector. A key development in Indias highway sector in the last decade is the expansion of PPP arrangements in the development and maintenance of National Highways. As of December 2009, 39 National Highway PPP projects, with an estimated cost of US$3 billion, completed the construction of the selected highways, and are currently in operations phase. Another 64 projects with an estimated cost of US$9.3 billion are under construction, and further 81 projects with an estimated cost of US$17 billion are at various stages of project development 1. The large PPP program was possible because GOI undertook a series of policy measures to make PPP an attractive business proposition to the private sector. The measures include: (a) establishing a credible cost recovery policy through tolls and/or annuity payments; (b) setting up a Viability Gap Fund (VGF) to provide subsidy to qualified PPP projects that are economically viable, but not financially viable without a government grant; (c) allowing 100 percent foreign equity participation in road construction and maintenance projects; (d) providing 100 percent tax exemption in any 10 consecutive years within a 20-year period after the completion of the project construction; and (e) agreements with a large number of countries to avoid double taxation. In addition, to facilitate uniform and rapid structuring and bidding of projects, the GOI issued Model Bidding Documents and Concession Agreement with explicit allocation of key risks between the public and private sector entities. 7. Some state governments, encouraged by the successes achieved by the Central Governments in attracting private sector financing, have been pursuing PPP approaches to develop their respective State Highways. In this regard, Gujarat, Maharashtra and Madhya Pradesh are at the forefront, accounting for nearly two-thirds of the completed state highway PPP projects in terms of road length (and more than 90 percent in terms of the cost). Other states in active pursuit of PPP options include Andhra Pradesh, Karnataka, Haryana, Orissa, Rajasthan, Tamil Nadu and Uttar Pradesh. Yet, it is important to recognize that PPP transactions for state
1

Source: PPP Projects in Infrastructure (Compendium), Secretariat for Infrastructure, planning Commission, Government of India, March 2010.

highways has been largely limited to a few relatively high traffic stretches with adequate traffic to recover costs through toll revenues and viability gap support. A key challenge faced by many states is how to utilize PPP concessions for roads that are economically viable, but may not be good candidates to be developed as BOT-Toll concessions due to low traffic and the political difficulties associated with widespread tolling. There appears to be significant potential for attracting private investment and harnessing private sector operational efficiencies in developing and operating state highways provided state governments are willing to consider alternative PPP options like annuity-based (availability payment) BOT concessions that do not rely on tolls to recover costs for capital and maintenance expenditure. Karnataka Road Sector Context 8. Karnataka road network is relatively extensive, but, as in need of significant resources for improving its quality and standards. The total length of 208,262 km is classified into National Highway (3,958 km), State Highway (22,078 km), Major District Roads (50,037 km) and Rural Roads (147, 212 km). The Department of Public Works, Ports, and Inland Water Transport (PWD in short) is responsible for managing the State Highway and Major District Roads. The Panchayat Raj Department is responsible for managing the Rural Road network. About 79 percent of State Highways and Major District Roads are single-lane standard and 13 percent are intermediate, and only eight percent have two-lane or higher standard. According to the latest road condition survey 2, while 70 percent of the National Highway network is in good condition3, only 35 percent of State Highway and 25 percent of Major District Roads are in good condition. At the same time, the number of registered vehicles has been growing rapidly at the rate of 10 to 15 percent per year in the last decade. The foregoing shows that road development in Karnataka is lagging behind the states economic growth and does not adequately meet the current and projected transport demand. 9. Karnataka has a worsening road safety situation. According to the National Crime Record Bureau, 46,252 accidents were registered by the police in Karnataka in 2009, which account for 10 percent of the total road accident cases in India, and resulting in 8,7144 deaths accounting for seven percent of the fatalities in the country. The number of fatalities has increased by 55 percent since 2000 to reach a rate of 140 per 100,000 vehicles in 2009 compared with rates like nine in the UK, 15 in USA and 70 in Brazil and China. The high fatality rate in Karnataka is attributed to lack of effective road safety management and enforcement system , and the growing motorization and mixed traffic of the State. Pedestrians, non-motorized and slow moving vehicles comprise a large portion of these fatalities (60-70 percent) followed by users of motorcycles and small cars. Bus and truck driving at nighttime with poor visibility, fat igue and alcohol is also a major cause of accidents on state highways. A traffic study 5done in Bangalore finds that in 44 percent of crashes, two-wheeler drivers seeking medical attention were under the influence of alcohol.

2 3
4

Source: PWD Road Condition Survey, 2008. Defined as IRI < 4m/km

This number is likely to be a gross under-estimate of actual deaths, given that a road death is defined as occurring within 24 hours in Karnataka (the international definition is 30 days). 5 Dinesh Mohan, The Road Ahead, Traffic Injuries and fatalities in India, TRIPP Transport Research and Injury Prevention Programme, WHO Collaboration Center.

10. The GOK recognizes that improving the effectiveness and safety of the states road network is essential to maintain the states competitiveness and reduce regional disparities. In 2000, it launched a road improvement program and secured the first World Bank loan, the Karnataka State Highway Improvement Project (KSHIP). KSHIP was implemented from 2001 to 2007, and successfully improved and maintained about 2,385 km of State Highways and Major District Roads, which now constitute some of the most important arterial highways in the state providing interconnectivity between districts and major cities within the state. The first KSHIP also put in place a strategic plan for investment and carried out some institutional reforms. The Implementation Completion Report (ICR) rated the Outcome of the first KSHIP as Satisfactory. The ICR also rated the Risk to Development Outcome as Moderate, Bank and Borrower Performances as Satisfactory. 11. As part of the overall road sector reform, GOK established the Karnataka Road Development Corporation (KRDCL) in 1999 to develop State Highways under PPP arrangements. In 2001, the GOK established the Karnataka State Highway Transport and Traffic Authority (KSHTTA) as a statutory body with an eight member Board to advise on the planned development, coordination of policy and planning of highways (including road safety aspects) in the State of Karnataka. GOK articulated a PPP policy through the Infrastructure Policy of Karnataka 2007 to enable KRDCL to undertake road projects under PPP. More recently, in July 2010, it passed a tolling policy to allow KRDCL and private concessionaires to toll State Highways and MDRs. 12. The main reason behind the slow improvement of Karnatakas road network is the financing framework within which state-owned roads are developed. The improvement of state roads is funded through pay-as-you-go expenditure program financed out of current state government taxes and revenues, and central government transfers. The GOK Consolidated Fund includes about US$1.4 billion revenues collected by the Transport and Commercial Departments, including what could be termed as road user charges. These are taxes authorized under the central and state government Motor Vehicle Act and petrol, diesel, motor vehicle, and motor and lubricant sales taxes. Table 1 shows that only 53 percent of the Road User Charge collections are returned for the development and maintenance of the road sector (This is an increasing trend, up from 34 percent in 2004-05). The remainder road user charges cross subsidizes other sectors. This cross-subsidy makes up 7 percent of the total GOK operating budget. In FY 2008-09 the total GOK operating budget was Rs. 418.5 billion (US$9.3 billion).
Table 1
GOK FY 2008-09: Total Operating Budget, Revenue from Road User Charges and Expenditures Item US$ (million) Total Government Operating Budget Expenditure 9,300 Total Road User Charges Collected 1,400 Road Sector Budget 742 (%) of Road User Charges spent in the Road Sector 53% Amount of Road User Charges spent in non-road sectors 658 (%) of Road User Charges spent in non-road sectors 47% Road User Charges spent in non-road sectors as a percentage of 7% GOK Total Operating Budget Expenditure Sources: GOK Medium Term Fiscal Plan, 2010-2014; Price Waterhouse Coopers (2009) Karnataka Draft Road Fund Report

Highway Financing Innovations in Karnataka: An Agenda for Reform 13. Early during project preparation, the GOK secured a grant from the Public Private Infrastructure Advisory Facility-Sub-National Technical Assistance (PPIAF-SNTA) program to engage a Financial Advisor to help it develop a financing strategy to leverage the IBRD loan. The PPIAF-SNTA study has now been completed, and recommends the following strategy: (a) attracting private sector investment where possible to develop high-traffic roads, (b) developing different PPP structures (such as annuity payment concessions) that are more suited for low traffic state highways, (c) introducing market borrowing from domestic financial institutions and capital markets, and (d) introducing additional road user charges, and securitize these revenues for servicing domestic debt and supporting PPP concessions. The PPIAF-SNTA study also recommends channeling some of the transport charges, fuel taxes, infrastructure cess, and tolls into a dedicated road fund. In the proposed approach, the road fund would be used for providing a dedicated revenue stream to service annuity payments and debt repayments for capacity expansion, as well as fund some pay-as-you-go expenditure for maintenance. A dedicated nonlapsable, ring-fenced road fund with legally assigned streams of cash flow provides clear market signal to potential concessionaires and financiers. 14. Following the PPIAF-SNTA study and various rounds of internal consultations, the GOK now intends to prioritize its road development program and develop a diversified financing strategy beyond relying on government budget and international sovereign borrowing. GOK has prioritized its State Highways and Major District Roads network and identified about 25,000 km of the most important traffic corridors and designated them as the states Core Road Network (CRN). GOKs plan is to develop the Core Road Network as a priority into double-lane standard at an estimated cost of US$10 billion. However, the GOK has not secured a financing plan to develop the CRN, beyond the proposed World Bank loan for US$350 million and the recently approved ADB loan for US$315 million, The current pay -asyou-go expenditure program that relies on the Consolidated Fund is not suited for major highway expansion program and could not be relied up on to accelerate the governments new priority to develop the CRN. This is because annual budgetary allocations have uncertainties, and hence not suited for long-term strategic planning and financing commitments of a large program. 15. Accelerating CRN development, therefore, will require a shift in the financing framework within which roads are developed and maintained. It requires a transition from traditional pay as-you-go financing from Consolidated Fund to ring-fencing of road user charges that can be used for long-term road development through PPP and borrowing from financial institutions. The ring-fenced revenues could be committed in advance to future contractual commitments (such as annuity payments in a road concession) or securitized to mobilize debt, which, in turn, could be used to pay for item rate contracts or cash/viability support under PPP transactions. Such road user charges could include tolls on existing highway or motor vehicle license fees, sales taxes on petrol, diesel, motor parts and lubricants, and other road related charges. Most of these road user charges are currently collected by the Transport and Commercial Tax Departments and deposited into the Consolidated Fund for general government purposes. 16. The GOK is planning to make this transition from pay-as-you-go to ring-fencing of specified revenue streams in a phased manner. Towards this end, the GOK has approved the

tolling of about 1500 km of recently improved highways and channelizing of the revenues into a ring-fenced, dedicated account. These roads, which are in relatively good condition, would generate substantial net revenue. KRDCL will collect the tolls (through PPP arrangement) and transfer the net revenues into a dedicated account, which would then be used to meet the future annuity commitments or for raising debt that could be used for either PPP transactions (e.g., for providing cash or viability gap support during the construction phase) or for traditional item -rate contracts. For the subsequent phase, the GOK is considering establishing a road fund and channeling, amongst others, some road user charges into it. Leveraging IBRD Loan with PPP and Domestic Borrowing 17. The GOKs original request for World Bank financing was for a loan of US$1. 6 billion to develop about 3,411 km of roads. However, given the competing priorities in the Banks Country Program for India, the GOIs Department of Economic Affairs (DEA) endorsed and the Bank agreed for an IBRD loan of US$350 million for KSHIP II. This leaves a large gap in GOKs requirement for the 3,411 km (a subset of the 25,000 km Core Road Network). Therefore, the GOK intends to use the majority of the IBRD loan for leveraging private sector financing through PPP transactions and attracting co-financing from domestic financial institutions. The project will finance GOKs contribution to PPP transactions and co-financing with domestic financial institutions. Road Safety Situation in Karnataka 18. Currently the engineering design for roads developed in Karnataka does not provide adequate safety measures. The consultants and PWD engineers do not adequately follow safety standards during design and construction of roads, in part due to inadequate budgetary allocation for safety measures, such as providing paved shoulders, separation of fast and slow moving traffic, control of accesses to and intersection on fast-moving roads, reducing encroachment, catering for pedestrians and speed management in built up areas and villages. Road safety engineering to date has focused mainly on improving black spots in isolation from other factors, such as enforcement. 19. Road safety rules and regulations are not adequately enforced. In 1991, the GOK created a post within Karnataka Police of Commissioner for Traffic and Road Safety to monitor road safety measures, prevent accidents and to ensure road safety. The police collect and maintain a limited crash dataset, which feeds into the State Crime Records Bureau. As part of a broader national initiative, a national Highway Patrol has been introduced on selected NH corridors in Karnataka. This patrol mainly targets emergency rescue and law and order issues, and some enforcement of safety rules. There is no equivalent patrol for the state highway network, which contributes to 50 percent of road crashes in Karnataka. 20. In recent years, the GOK has committed itself to improving road safety in the state through new strategic and comprehensive measures, broadly aligned with the findings and recommendations of the 2007 Sundar Committee report on Road Safety and Traffic Management in India. The National Road Safety and Traffic Management Act 2007 (which follows the Sundar Committee Report on Road Safety and Traffic Management) enables States to set up an

advisory Road Safety and Traffic Management Board to aid and advise the State Government on matters relating to road safety and traffic management in the State. The GOK plans to revamp KSHTTA and to make a multi-sector coordinating body for road safety, as well as advise on all road safety matters, in compliance with the Sundar Committee recommendations. More recently, the GOK has nominated the Transport Department to be the lead agency for road safety, and the KSHTTA to be the apex coordinating body for road safety.

C. Rationale for Bank Assistance 21. Through this project, the World Bank aims to support the GOK in two primary areas of highway development: (a) achieving more diversified sector financing for increased road infrastructure development, and (b) improving road safety design, management and enforcement to reduce road fatalities and major injuries. These issues are critical priorities for GOK and are consistent with the Banks Country Strategy for India (FY2009-12), which supports infrastructure development, emphasizes providing cutting-edge knowledge and lending solutions that match the needs of a middle-income country/state and supports strategic action on road safety. 22. The Bank is well positioned to promote best practices in the design of innovative highway financing and road safety improvements. The Banks support through PPIAF-SNTA has already supported GOK to develop a coherent reform strategy. During implementation, the Bank would further tap into PPIAF, IFC and other World Bank Group institutions to provide advisory support and financing to help GOK access private sector financing for its road network development program. 23. With respect to Road Safety, the Bank carried out a road-safety management capacity review to inform the design of the Road Safety component of the project, following international practices developed by the World Health Organization (WHO) and the Bank. The review helped in starting Bank-GOK dialogue on safety intervention. The Global Road Safety Facility (a multidonor funded trust fund by the Bank) is providing support to the PWD to carry out safety audits on two selected highway corridors through the International Road Assessment Program (iRAP), which will help determine the engineering and other measures required to im prove safety on KSHIP II roads. II. Project Development Objectives

24. The proposed KSHIP II is designed to improve the impact of the Banks support for Indias highway sector through: (a) leveraging IBRD resources with private sector financing to extend the governments ability to access necessary investment capital for the sector, (b) scaling up support for road safety to reduce serious accidents during road construction and operation, (c) supporting government-owned sector governance and institutional reforms, including those related to transparency and accountability, and (d) ensuring effective and professional project implementation, including streamlined land acquisition and environmental clearances, and well managed procurement and financial management process.

25. Within this strategic context, the Project Development Objective (PDO) is to accelerate the development of the Core Road Network through leveraging public sector outlays with private sector financing, and improving the institutional effectiveness of the road sector agencies to deliver effective and safe roads to users. 26. The Projects direct beneficiaries are road users and roadside communities who will benefit from the reduction in transportation costs, improved riding quality, safer roads, and better transport services. The secondary beneficiaries are business and government. The acceleration of the road development program and attention to road safety will result in realizing social and economic development benefits sooner, thereby spurring more business investment and commerce, as well as increasing government tax revenues from the additional economic activities. 27. The achievement of the PDO will be monitored by the following PDO Level Indicators. Annex 1 provides the detailed Outcome and Intermediate Indicators, including the baseline data and target values. Achievement by GOK in generating at least US$500 million in new private sector capital for CRN improvement and management by end-of-project (EOP). Share of Core Road Network in good condition (IRI < 4) increases from 50 percent to 65 percent by EOP. 15 percent reduction in Vehicle Operating Costs and 25 percent reduction in Travel Time Cost on project corridors by EOP. 30 percent reduction in road-accident related fatalities on safe corridor pilots by EOP.

III. Project Description A. Project Components 28. Component 1: Road Improvement Works (Total Cost: US$603 million; IBRD: US$260 million; GOK: US$94 million; Developer: US$249 million). This component will support capital improvement and maintenance works of selected priority Core Road Network through a combination of traditional contracts and PPP concessions (Details in Annex 2). 29. Component 2: Highway Financing Modernization (Total Cost: US$374 million; IBRD: US$67 million; GOK: US$56 million; Developers/Financial Institutions: US$251 million). This component will assist KRDCL in implementing the concept of co-financing with private financial institutions through technical assistance and pilot co-financing transactions to develop selected priority highways from the Core Road Network (Details in Annex 2). 30. Component 3: Road Safety Improvement (Total Cost: US$14 million; IBRD: US$11 million; GOK: US$3 million). This component will assist the GOK to respond to the growing road safety problems in Karnataka with comprehensive strategic and institutional measures,

consistent with the main thrusts of the 2007 Sundar Committee report and the findings of the road safety management capacity review6(Details in Annex 2). 31. Component 4: Road Sector Policy and Institutional Development (Total Cost: US$11.8 million; IBRD: US$9.4 million; GOK: US$2.4 million).This component will support implementation of a new medium-term Institutional Development and Strengthening Action Plan (IDSAP) for the period 2010-2016. The IDSAP builds on the institutional and capacity improvements achieved during the first KSHIP. It covers the PWD and the KRDCL, and has been established by the GOK in consultation with both the World Bank and the ADB as a basis for the harmonization of external assistance in this sector (Details in Annex 2). 32. Project Financing. Table 2 provides the cost and financing arrangement for the project. The total project cost is estimated at US$1,005 million. The IBRD loan of US$350 million will be leveraged with addition US$500 million from the private sector as part of the annuity concessions and borrowing by KRDCL. The GOK counterpart fund is US$155 million, which would be used mostly for land acquisition, R&R support, utility shifting, and to cover counterpart financing for conventional item-rate contracts, The GOK will also have repayment obligations for the annuity concessions and domestic borrowing. These repayments will be met primarily through GOK budgetary allocations and supplemented by road user charges. A fiscal impact analysis carried out for the project shows that GOK has adequate fiscal space to assume the IBRD debt and the private sector repayment obligations (Annex 7).
Table 2 Project Cost and Financing (US$ million) Costs Including Contingency 603.0 166.0 436.7 373.7 5.0 368.9 13.6 11.8 2.0 1004.1 0.88 1005.0 Developer/ Private Sector Banks 249.1 0.0 249.2 250.9 0.0 250.9 0.0 0.0 0.0 500.0 0 500.0

Component 1 - Road Improvement Works a) Item Rate Contracting b) DBFOMT Annuity Concession 2 - Highway Financing Modernization a) TA Services for KRDCL b) Civil Works under Co-financing pilot 3 - Road Safety Improvement 4 - Policy and Institutional Development 5 - Incremental Operating Costs Total Project Cost Front-end Fee Total Financing Required

Bank Financing 260.0 119.6 140.1 67.1 4.0 63.3 11.0 9.4 1.6 349.1 0.88 350.0

GOK Financing 93.9 46.4 47.4 55.7 1.0 54.7 2.6 2.4 0.4 155.0 0 155.0

33. Lending Instrument. A Specific Investment Loan (SIL) has been chosen as the lending instrument to finance the identified project works and technical assistances services. The Loan

Assessment of Road Safety Management Capacity in the State of Karnataka, World Bank 2008.

terms are 6-month LIBOR plus a variable spread; 18 years repayment including 5 years grace period; Level repayment of principal. B. Lessons Learned and Reflected in the Project Design 34. The following lessons drawn from the implementation of KSHIP I and other highway projects in India and elsewhere have been reflected in the project design. 35. Institutional and policy reforms are likely to be more successful when (i) they are implemented in a phased, incremental manner, (ii) integrated with the wider operations in the target agency, and (iii) supported by wider consensus on sector reforms among key government departments and their leadership. 36. The road safety component should be implemented by an agency that is closer to road users. Agencies focused on road construction often do not have relevant capacity as the staff are not trained in transport and safety regulation. For a road safety component involving vehicles and drivers to achieve effective outcomes, a suitably empowered lead agency such as a transport department should be responsible for its implementation. 37. Procurement process may be more competitive with post-qualification approaches, rather than pre-qualification. A procurement process review carried out for KSHIP I shows that compared with pre-qualification contracts, post-qualification contracts received more competitive price against the clients estimate, and had lower cost overruns during contract execution. 38. Inter-agency communication and cooperation is crucial for timely project implementation, especially coordination during execution between the implementing agency and departmen ts dealing with environment and social safeguards. Land acquisition processes are more efficient when delegated to the project authority together with administrative and financial powers to speed up the process. Integration of environmental management plans with construction contracts improves the compliance and attention to environmental requirements of the project. IV. A. Implementation Institutional and Implementation Arrangements

39. Overall implementation arrangement. The Government of Karnataka will be implementing the proposed project through its Public Works Department (PWD) and the Karnataka Road Development Corporation Limited (KRDCL), an autonomous corporation owned by the state government. The Public Works Department has established a Project Implementation Unit (PIU) to implement three of the four project components, namely Components 1, 3 and 4. The KRDCL using its main organizational setup will be responsible for implementing Component 2, which focuses on the highway modernization and co-financing. Both the PIU and KRDCL will report to the Principal Secretary, PWD, who will be ultimately responsible for the project results on behalf of GOK. In addition, the GOK has established the following apex bodies to ensure coordination and accountability for the project: (a) Project 10

Governing Board, chaired by the Chief Secretary, to meet quarterly, to address interdepartmental issues affecting project implementation; and (b) Project Steering Committee, chaired by the Principal Secretary (PWD), to coordinate and monitor the project implementation, with a focus on ensuring effective project implementation performance and achievement of results. 40. The PIU has successfully implemented KSHIP I from 2001 to 2007, and many of the PIU staff from KSHIP I will continue to work in the PIU, thus providing continuity in capacity of the PIU. GOK also has assigned new staff from other departments, with experience in implementing similar externally-funded projects. Similarly, KRDCL has experience in PPP transactions, having done at least four transactions in the last few years. It has plans to scale up its road development program through PPP, and the transactions envisaged under KSHIP II will further enhance KRDCL capacity in managing a large-scale PPP program. 41. Results Monitoring and Evaluation. The monitoring and evaluation of the achievement of the PDO and the outcome indicators will be conducted during the project using the results framework (Annex 1). The baseline data have been collected and the intermediate and final outcome targets have been established. In addition, three rounds of road user satisfaction surveys will be carried out during the project start, mid-term, and completion to assess the perception of road users on quality of road infrastructure and services provided by the PWD. The physical and financial progress for all project components will be carried out as part of regular quarterly progress reporting and project financial management system. B. Sustainability

42. Overall Sustainability. The Highway Finance Modernization will provide GOK the required financial instruments not only to accelerate road development in the state, but to put in place a sustainable arrangement to ensure the maintenance of the road network. The GOK is committed to the sustainable financing of the road network through mobilizing additional resources and increasing allocations for the road sector. 43. Physical sustainability of assets. The physical sustainability of the assets created under the project will depend on the initial design and construction quality, and subsequently timely and adequate maintenance. A significant portion of the assets will be developed through DBFOMT concessions or other forms of PPP., and thus the Developer will bear the design and performance risk (ensuring quality construction), and will have the responsibility for maintenance during the operation phase. The annuity payments will be made after an Independent Engineer certifies the achievement of the agreed performance criteria and service levels. With regard to the traditional contracts, road works will be carried out by qualified contractors and supervised by a Construction Supervision Consultants to ensure quality works. The maintenance will be ensured as part of the overall financing reforms being undertaken by GOK. 44. Institutional Sustainability. The primary institutions involved in the road sector, namely the PWD, KRDCL, Transport Department and KSHTTA, have evolved further since KSHIP I. They are now well poised for their planned involvements in the KSHIP II project and take forward GOKs initiatives to enhance institutional and governance capabilities in the sector. The

11

technical assistance and advisory services provided under the project are being harmonized between the World Bank and the ADB to ensure overall efficiency and results. The Road Safety measures supported by KSHIP II will include a specific focus on (a) the sustainability of road safety management capacity within GOK between the lead agency and the other concerned departments / entities, and (b) the sustainability of overall road safety outcomes through the implementation by the GOK of viable results-based and comprehensive road safety management strategy and action plans developed under the project. C. Key Risks

45. Market Response for PPP Transactions. The proposed DBFOMT Annuity concession structure is a new concept in Karnataka, although there are some examples already in India. Accordingly, it entails some uncertainty regarding how the potential developers and financiers will respond to this opportunity in terms of achieving adequate competition and prices that deliver better value for money for the government. The GOK has extensively discussed the proposed model with representatives of several potential developer companies, banks and financial institutions, including through two road shows, and ascertained that the proposed structure, per se, is commercially attractive and bankable. Nevertheless, if the market response turns out to be poor or the bids received do not provide value-for-money to GOK, the roads will be repackaged as conventional item rate contracts in agreement with the Bank. 46. Reform Implementation Risk. The risks to implementation of reforms arise primarily in relation to road financing reforms. The GOK has already taken several positive measures, including establishing a road sector policy emphasizing PPPs, passing tolling policy, and empowering KRDCL to lead the participation of private sector capital and capacity in road network investment. Further reform challenges are identified with the implementation of a largescale PPP program, including wider acceptability of tolling, and improved resource mobili zation, including via a possible road fund. The GOK is considering to establish a road fund, after extensive consultation with key stakeholders, including on the need to mobilize additional resources via tolling and user charges. In addition, the proposed project will provide technical assistance to support KRDCL in its revamped role and responsibilities. 47. The social and environmental risks associated with project include delays in timely acquisition of land, implementation of resettlement and rehabilitation activities, and obtaining environmental regulatory clearances. The GOK has improved significantly the institutional capacity of the PIU to handle social and environmental risks and have already taken several measures to avoid delays, including advanced land acquisition and linking contract award to completion of social and environmental safeguard requirements. 48. Implementation of road safety agenda. The proposed project has allocated substantial resources to support the improvement of road safety in the state. Yet, the projects support is starting from a very low base of ownership and capacity in the state for improving road safety, apart from road engineering measures. The project is addressing these risks with an integrated measures and highly-targeted expert inputs aimed at establishing a sustainable lead agency role and effective multi-sectoral capabilities to be built up from the pilot Safe Corridor Demonstration Program.

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D.

Appraisal Summary

49. Economic Analysis. The road improvement works component will upgrade about 831 km, into two-lane with paved shoulder standard. The economic evaluation of this component was carried out using the Highway Development and Management Model (HDM -4), a globally accepted key analytical tool for economic analysis for highways with investment alternatives, which simulates life cycle conditions and costs and provides economic decision criteria for multiple road design and maintenance alternatives. The main project economic benefits are savings in vehicle operating costs, travel time costs, and maintenance costs resulting from the road improvements. The cost-benefit analysis of the project indicates that the project economic benefits are satisfactory. The Net Present Value (NPV) of the road improvement component is estimated at US$835 million, at a 12 percent discount rate over a twenty-year evaluation period. The overall project-level Economic Internal Rate of Return (EIRR) is estimated at 30 percent. All corridors are also economically viable individually. 50. Financial Analysis. A spreadsheet model was used to conduct a financial analysis of the four roads to be developed under PPP (DBFOMT Annuity Concession) mode. The primary output of the financial modeling exercise is to determine the estimated annuity payments from the GOK to the selected concessionaire for each of the concession packages in order to yield an expected Project IRR of 11 percent and Equity IRR of 15 percent, the minimum threshold returns at which the Indian market would consider the PPP packages to be bankable and attract adequate private sector financing. Considering that the inputs and assumptions used in the model are broadly representative of the current market conditions for similar road sector projects with private equity participation in India, the estimated level of annuity payments and the overall project financial indicators of the PPP projects are within an acceptable range of expectations of potential investors. In addition, the government will undertake a value-for-money analysis of the annuity bids received to determine if they meet the VfM benchmark for the government. 51. Fiscal Impact. The projects fiscal impact was assessed both at the macro-level and project-level. The macro-level assessment reviewed GOKs fiscal space to support the IBRD debt and annuity payment obligations, while the project-level analysis assessed the expenditures and revenues generated from the project. The GOK has adequate fiscal space to meet the projected annuity payments, as well as to service the IBRD loan associated with the project. Considering the annuity payment as a capital expenditure, the percent of the total annuity payment for all the four proposed DBFOMT projects relative to the projected FY2012-13 and FY 2013-14 MTFP capital formation expenditure is small: 2.03 percent and 1.65 percent respectively. At the project level, the analysis shows that the project will generate adequate revenues (in the form of additional user charges and taxes) that would cover the capital and maintenance expenditure revenue. On the annuity packages, the revenues would not be adequate to cover the expenses, and thus GOK has to support some of the annuity payments from other general tax revenues, or would need to toll them to generate additional revenue to pay the expenses. 52. Technical Analysis. All roads included under the road improvement component are proposed to be widened to two-lane carriageway (7.0 m wide) with 1.5 m paved shoulder and 1.0 m earthen shoulder or with 2.5 m earthen shoulder on either side, providing a total formation

13

width of 12.0 m. These roads are very standard and have low risk from design and implementation. The PIU, with help from consultants, has prepared Detailed Engineering Design Reports for both the BoQ contracts and Annuity Concessions. The designs meet all the engineering and safety standards as prescribed in the Indian guidelines for road construction, including the Indian Road Congress (IRC) standards. 53. Extensive road safety design review was carried out for all roads included in the project. This exercise was supplemented with road safety audit on the already operational Karnataka State Highway project corridors, particularly to understand the types of road crashes and identify the safety vulnerabilities. Based on the safety design review and audit, safety vulnerabilities were identified in the at grade intersections, pedestrian at grade crossings and urban/semi -urban limits where the traffic mix is highly heterogeneous. Specific road safety engineering counter measures were adequately integrated in the main engineering designs to reduce the safety risks in these vulnerable locations and also to provide a safer road environment. Besides providing adequate signage, marking and safety devices (e.g. delineators, crash barriers etc.), special effort has been made towards introducing (a) dedicated slow traffic lanes delineated by raised pavement markers, and (b) dedicated at grade or grade separated pedestrian crossings, in the built up sections, and (c) providing channelization and installing safety devices e.g. blinkers at the intersections, to further improve road safety during operation of the road. To avoid highly congested town stretches, three bypasses and major realignment have been proposed. Two at grade rail-road crossings will be upgraded to provide fully grade-separated crossings to improve safety at these locations. E. Financial Management

54. There are two implementing agencies responsible for the proposed project, namely: PIU and KRDCL. For the activities of the PIU, all major payments and accounting would be centralized in the PIU office in Bangalore, while payments for utility shifting and other small payments would be made in the division offices of the PIU. For the component managed by KRDCL, all payments and accounting will be done by KRDCL. The PIU was responsible for implementing the first Bank-financed KSHIP, and its staff are familiar with the Banks financial management procedures and policies. There are adequate systems and processes in place in the PIU to carry out the accounting and financial management requirements of the proposed project. KRDCL is a government-owned corporation, which has been working for more than a decade and has adequate systems and processes in place. Overall, the financial management arrangements at the PIU and KRDCL are considered to be adequate to support the use of funds under the proposed Loan. 55. The audit of the project funds managed by the PIU will be carried out by the Comptroller and Auditor General (CAG) of India as per the agreed terms of reference. For project funds managed by the KRDCL, the audit will be carried out by a Chartered Accountant (CA) appointed as per the agreed terms of reference and selection process agreed with the Bank. Internal audit s would be an integral part of the project design. A CA firm (who is empanelled with the CAG and is eligible to carry out major audits) would carry out the internal audit. The TOR for the internal audit would cover review of aspects covering contract management, physical verification, internal controls etc.

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56. A Designated Account (DA) will be maintained with the Reserve Bank of India (RBI) for the project and would be operated by the Controller of Aid Accounts and Audit (CAAA) in accordance with the Banks operational policies. There will be a one-time fixed advance of US$10 million, which will be maintained throughout the project life and adjusted towards the end of the project. Both the PIU and KRDCL will submit withdrawal applications supported by Interim Unaudited Financial Report (IUFR) to CAA&A for onward submission to Bank for replenishment of the DA or reimbursement. The Bank will replenish the DA with equivalent amount claimed on eligible expenditure by the implementing entities and as reported in the IUFRs. 57. Disbursements will be made based on quarterly IUFR, which will be submitted by the PIU and KRDCL for their respective activities to the Bank within 45 days from the end of the quarter. These IUFRs would reflect the actual expenditure for the loan components. Any advances given by the project would be separately shown in the IUFRs. All expenditures reported in the IUFRs will be subject to confirmation/certification by the annual audit reports. Any difference between the expenditure reported in the IUFRs and those reported in the annual audit reports will be analyzed and those expenditures, which are confirmed by the Bank as being not eligible for funding would be adjusted in the subsequent disbursements. The IUFR formats will be agreed by negotiations. 58. Budgeting and Fund Flow. The proposed Loan funds will flow through a new budget head 5054-03-337-0-84-172 Development of State Highway (WBA Roads) which has been created for the PIU portion of the loan funds. The GOK is in the process of creating a similar budget head for KRDCL, and KRDCL will be authorized to withdraw the funds from the treasury for its component. The PIU would use the treasury system for payments for the components they manage. The KRDCL would draw the money from the Treasury and maintain a separate bank account for setting all project-related payments. 59. Based on the experience of the PIU in handling the first KSHIP and the current financial management setup in both the PIU and KRDCL, the FM rating for the Project is rated as Moderate. The details of the FM assessment are provided in Annex III. F. Procurement

60. General: Procurement for the proposed project will be carried out in accordance with the World Banks "Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Legal Agreement. However, some contracts for which advanced procurement has taken place will follow Procurement and Consultant Guidelines May 2004, Revised Oct 2006 and May 2010. 61. Procurement Risk Assessment and Mitigation: The proposed project will be implemented by the PIU and KRDCL. The PIU was established in PWD for implementation of KSHIP I, and

15

the same PIU will continue during the implementation of KSHIP II. Many of the PIU procurement staff have experience in handling procurement functions in accordance to Bank policies and procedures, having successfully handled procurement activities for KSHIP I. However, the PIU has not handled in the past PPP transactions, and as such the procurement staff do not have adequate experience to procure the DBFOMT Annuity Concessions to be financed under the proposed project. Furthermore, the Bank does not have a standard bidding documents through which PPP transactions financed under Bank loans could be procured. The GOK, with the help of consultants, is preparing a set of bidding documents and concession agreement, which would be acceptable to the Bank procurement principles, and will be used to procure the DBFOMT concessions financed under the proposed project. The PIU has completed the preparation of Request for Qualification (RFQ), Request for Proposal (RFP) and Concession Agreement for the proposed DFOMT concessions. The Bank has provided the no-objection to GOK to issue the RFQ to interested applicants. The review of the RFP and CA is ongoing, and is likely to be completed before the GOK is ready to issue them to the pre-qualified bidders for the concession. 62. KRDCL will be responsible for implementation of Component 2, which includes services and civil work improvement with co-financing from domestic financial institutions. Although, KRDCL has not handled Bank procurement in the past, the present staff in KRDCL had earlier handled Bank procurement for KSHIP I, and most of them are conversant with Bank procurement procedures. In addition, the KRDCL will continue to provide training to its staff on Bank Procurement Guidelines, as well as get support from the PIU staff on procurement matters as needed until its staff are fully trained. The current procurement decision-making process in KRDCL is time consuming. In order to expedite the decision-making, KRDCL will submit the contract award recommendations to the current established KSHIP Project Steering Committee as an interim measure. As a long-term measure, the KRDCL will form a Board sub-committee with full powers to award all contracts. 63. Procurement Plan: The draft procurement plan for procurement to be taken up during the first 18 months of project implementation has been prepared and is enclosed as Appendix- 1 to Annex-3. The procurement plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. It will also be posted in the KSHIP website and on the Banks external website. G. Social

64. A social impact assessment was carried out by the borrower along the project roads to identify the potential social impacts and propose appropriate mitigation measures. The land acquisition and resettlement impacts in this project are moderate. The land acquisition required for all the Component 1 of the project roads (831 km) is estimated to be about 225 hectares including 10 hectares of government land. The number of families to be affected is estimated to be about 5,300 households and more than half of them are to be minor impacts. The PIU, with assistance from its consultants, has prepared a Resettlement Action Plan (RAP) for the project, outlining the land acquisition and resettlement impacts and proposed mitigation measures. The compensation and assistance/ support proposed for the affected people are in line with National Resettlement and Rehabilitation (R&R) policy provisions and the Bank's Operational Policy

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guidelines. The RAP has been locally disclosed by the borrower as a draft and final versions and discussed with the affected people and other stakeholders during consultations held at six important places in the project area. The Bank has also disclosed the draft RAP and final versions in the Banks Info Shop. The RAP has been endorsed by the Bank and approved by the Government. The implementation of RAP has been initiated and land acquisition for item-rate contracts is in an advanced stage. At the time of appraisal, 40 percent of 78 hectares of land required for these contracts has been acquired. The balance land acquisition will be completed and handed over in accordance with the schedules specified in the bid documents. For resettlement assistance, all preparatory actions such as joint verification of assets on Right of Way, issuance of identity cards to eligible people, identification of alternative plots, obtaining options for economic rehabilitation, etc. are in progress. The NGO services and M&E consultants services are already in place to provide implementation support to the borrower. The KRDCL roads will be carried out in Phase 2, and the social screening and impact assessment and management through preparation and implementation of Resettlement Action Plan will be followed in the same manner as the PIU-managed roads. The KRDCL roads will be identified during project implementation, and the nature and magnitude of land acquisition and resettlement impacts will be assessed then following similar procedures as done for the first phase of the project. In order to increase its social impact management capacity, KRDCL will (a) adopt the land acquisition and R&R policy provisions followed for KSHIP II roads; and (b) engage qualified staff having experience in dealing with land acquisition and resettlement matters. H. Environment

65. The PWD has completed the EA process for the project using the Project Preparation consultants environmental experts. A screening exercise for selecting roads to be improved from the 3,411 km of core road network ensured that key environmental issues were dully incorporated in the project design. The Environmental Assessment of the selected roads has culminated with an Environmental Impact Assessment for the project and corridor specific Environmental Management Plans have been prepared. Since the project does not include road works through environmentally sensitive areas, the potential adverse impacts are manageable. During the EA process, several alternatives for realignment and material use were analyzed to ensure that the project design balances environmental, social, and technical considerations in selecting the intervention for each road improvement. The EA for the project has been adequately prepared and the PIU has put in place an institutional structure that will be able to address environmental impact management and related issues that are likely to arise during project implementation. The EA documents have been published locally and in the Banks InfoShop. Since this is a Category A project, an Independent Review has been conducted by independent consultants, who have confirmed that the EA process was conducted following established Bank and Government environmental policies and guidelines. For KRDCL roads, a similar environmental screening will be undertaken to ensure that no roads pass through protected areas. Also, environmental impact assessment, and preparation of environmental management plan will be undertaken during Phase 2 of the project implementation along the lines of Phase 1, to manage the potential environmental impacts. A corresponding institutional structure with sufficient capacity will be put in place at KRDCL.

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INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 1: Results Framework and Monitoring
Project Development Objective (PDO): To accelerate the development of the Core Road Network through leveraging public sector outlays with private sector financing, and improving the institutional effectiveness of the road sector agencies to deliver effective and safe roads to users. Responsibility Description Cumulative Target Values** PDO Level Results Unit of Data Source/ Baseline Frequency for Data (indicator definition Indicators* Measure Methodology YR 1 YR 2 YR3 YR 4 YR5 Collection etc.) Achievement by GOK in US$ 200.00 200.00 500 Every two PWD Annual PWD, KRDCL The indicator will generating at least US$500 million (Currently (KRDC (KRDCL years Report, measure private sector million in new private sector raised by L+KSH + KSHIP KRDCL debt and equity raised capital (debt and equity) for KRDCL) IP II) II) Annual as part of the CRN improvement and Report DBFOMT concession management by end-ofand by KRDCL as project (EOP). part of the cofinancing, and by KRDCL on its own through parallel transactions. Share of Core Road Network Km (%) 50% 50% 65% Every two Asset PWD Will measure in good condition (IRI < 4) years Management expansion of road increases from 50 percent to Unit quality and expansion 65 percent by EOP. in the state. The baseline date includes National Highway, which are part of the CRN 15 percent reduction in US$ per VOC: VOC: When the Asset PWD Will measure the Vehicle Operating Costs and vehicleUS$0.26 US$0.20 road Management impact of the project 25 percent reduction in Kms TT: TT: construction Unit on road users Travel Time Cost on project US$0.074 US$0.06 is completed corridors by EOP 30 percent reduction in roadNumber 30 (on 30 27 21 Every two M&E Report PWD Will measure ability accident related fatalities on of Belgaum to years on safe of the project to show safe corridor pilots by EOP. fatalities Hungund corridors pilot measureable results on per year corridor)1 road safety Core INTERMEDIATE RESULTS Intermediate Result (Component One): Road Improvement Component Km / Contracts 100 kms Completion of upgrading and Procurement awarded road widening of about 269 km. milestones. constructio through itemrate contracts
269 km road construc Every Year Project Progress Report PWD

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Completion of upgrading, widening of about 562 km. through DBFOMT (Annuity) Concessions Land acquisition and resettlement Implementation (a) Land acquisition completed (Phase I) (b) Key R&R assistance provided (alternative housing and livelihood support)- Phase I (c) Improve the living standards (measured percent PAFs with increased/restored income/assets): Phase I Environmental Management Implementation of EMP as agreed. (b) ISO 14001 certification obtained for operational units

Km./ Procurement milestones

RFQ issued

n substantial ly completed Developers hired

tion complet ed 562 Km Construction Completed O&M phase started Every Year Project Progress Report PWD

Every Year

Project Progress Report

Percentage Percentage

0%
0%

40% 20%

70% 40%

100% 70%
Every Year 100% Project Progress Report

Percentage

0%

Project Progress Report 25% 80% Twice in the project period R&R Impact Assessment Report Project Progress Report PWD

Every Year No. 0 0 As awarded

PIU(HQ ) certified

1 field division certified

Intermediate Result (Component Two): Highway Financing Modernization Component KRDCL generates additional road user revenues and commits them for mobilizing debt financing (via securitization) and/or making payments for PPP transactions Completion of upgrading, widening and O & M of Passing of Tolling Policy
Tolling started on selected roads KRDCL issues debt or develops PPP transaction backed by toll revenues DPR completed Construction Completed Every Year Project Progress Report KRDCL

Policy and Institutiona l Action

Km / Procurement

Screening commenc

Cofinancing

Every Year

Project Progress Report

KRDCL

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about 400 km through cofinancing arrangements

milestones

ed

arrangem ent establish ed; Transacti on Adviser engaged

Intermediate Result (Component Three): Road Safety Improvement Component Effective implementation of Safe Corridor Pilot
Policy and Institutional Actions Lead Agency Established : pilot corridor identified Consulta nt services procured

Multisector interventi on implement ation started Studies Complete d

Multisector intervent ion complete d

Minimum 3 star rating achieved through iRAP investigation

Every Year

M&E Report on Safe Corridors Pilot Annual Report of Road safety Cell

PWD / Road Safety Cell

Intermediate Result (Component Four): Road Sector Policy and Institutional Development Component Policy and IDSAP and Key Satisfactory implementation Institutional GAAP consultan of agreed Action Plan for Actions Endorsed t services institutional development procured and governance improvement

Recom mended actions taken

Assessment of IDSAP and GAAP results made

*Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators) **Target values should be entered for the years data will be available, not necessarily annually. 1. Baseline data for Bangalore-Mysore corridor will be collected during early implementation

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INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 2: Detailed Project Description

1. The proposed project will have four components: (i) Road Improvement Works, (ii) Highway Modernization, (iii) Road Safety, and (iv) Road Sector Policy and Institutional Development. 2. Component 1: Road Improvement Works (Total Cost: US$603 million IBRD: US$260 million; GOK: US$94 million; Private Sector: US$249 million). This component will support capital improvement and maintenance works of selected priority Core Road Network through a combination of conventional item-rate contracts and DBFOMT annuity concessions. 3. Civil works under conventional item-rate contracts. The project will finance improvement of about 269 km roads following conventional item-rate contracting. These are Bill-of-Quantity (BOQ) type contracts. The roads to be improved under this contracting approach are provided in the table below. This component will also finance the design, construction supervision and associated environmental management plans, and land acquisition, utility shifting and R&R expenses 7. 4. Design-Build-Finance-Operate-Maintain-Transfer (DBFOMT) Annuity Concessions. The project will finance improvement of four corridors with a total length of 562 km under DBFOMT (annuity) concessions. The GOK will select a concessionaire through a competitive bidding process. The project will finance 50 percent of the estimated construction cost, which would be paid to the selected concessionaire by GOK during the construction period. The concessionaire would raise the required financing to carry out construction works and other expenditure including the O&M expenses, through a combination of equity and debt. The concessionaire will recover the investments through two types of payment by GOK: (a) lumpsum payment (50 percent of the estimated construction cost) during construction on achievements of agreed milestones. The lump-sum payments will be financed entirely by the proposed IBRD loan; (b) a semi-annual payments (annuities) during the operating period of the concession. The amount of the annuity payment will be determined through a competitive process during the bidding stage, and will be entirely financed by GOK during the O&M phase. The concession will span for a period of 10 years with a construction period of two to three years, and O&M phase of seven to eight years. The selected concessionaire will fully bear the design and performance responsibility and risks. A firm will be engaged as an Independent Engineer to monitor the progress and quality of works during the construction period , as well as to enforce maintenance and safety management on the corridors during the O&M phase of the concession period. The list of project roads to be developed under this scheme is provided below, along with the financing arrangement. This component will also finance the preliminary design, transaction advisory services, associated land acquisition and R&R activities and the fees of independent engineer.

All land acquisition, utility shifting, and the major of R&R costs are financed entirely by GOK.

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Table 3 Component 1: Road Improvement Works: List of Roads and Financing Arrangement

(US$ million)
Costs Including Contingency 166.00 137.59
25.54 35.79 19.63 40.14 16.49

Activity Description (a) Civil Works under Item Rate Contracts (i) Base Construction Cost Estimate
Hoskote H Cross - Chintamani Bypass Hangal-Tadas-Haveri Dharwad - Saudatti Tinthni-Devadurga-Kalmala Chowdapur- Gulbarga

Bank Financing

GOK Financing

Developer

119.57 110.07
20.43 28.63 15.70 32.11 13.19

46.43 27.52
5.11 7.16 3.93 8.03 3.30

0.00 0.00
0.00 0.00 0.00 0.00 0.00

(ii) Land Acquisition (iii) Utility Shifting (iv) Resettlement &Rehabilitation (v) Environmental Management Plan (vi) Project Coordination and Supervision Consultancy Services (b) Civil Works under DBFOMT Annuity Concession (i) Base Construction Cost Estimate
Malavalli-Tumkur-Pavagada Muvol-Kabbur-Nippani Shimoga - Anandapuram (NH-206) Managuli-Talikota-Devapura

2.71 8.19 7.63 1.48 8.40

0.00 0.00 1.59 1.19 6.72

2.71 8.19 6.04 0.30 1.68

0.00 0.00 0.00 0.00 0.00

436.65 274.07
97.67 58.10 69.82 48.48

140.08 137.04
48.83 29.05 34.91 24.24

47.39 0.00
0.00 0.00 0.00 0.00

249.18 137.04
48.83 29.05 34.91 24.24

(ii) Land Acquisition (iii) Utility Shifting (iv) Resettlement &Rehabilitation (v) Environmental Management Plan (vi) Transaction Advisor Costs (vii) Independent Engineer (viii) Operation and Maintenance (ix) Project Development, Financing and other Charges Total

6.39 26.18 16.06 3.47 0.23 3.14 39.24 67.86 602.65

0.00 0.00 1.60 0.00 0.18 1.26 0.00 0.00 259.65

6.39 26.18 14.46 0.00 0.05 0.31 0.00 0.00 93.82

0.00 0.00 0.00 3.47 0.00 1.57 39.24 67.86 249.18

5. Component 2: Highway Financing Modernization (Total Cost: US$374 million IBRD: US$67 million; GOK: US$56 million; Private Sector: US$251 million).This component will assist KRDCL in implementing the concept of co-financing with private financial institutions through technical assistance and pilot transactions.

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6. Technical assistance and Advisory Services. This component will finance a range of technical assistance and advisory services designed to assist KRDCL to expand private sector participation in highway development and to undertake fiscally prudent market borrowing for the development of the Core Road Network. As part of GOKs strategy to transition the road financing arrangements from annual budgetary allocations to non-lapsable, ring-fencing of specified stream of revenues from road user fees, it has allowed KRDCL to toll recently improved highways and channelize the consequent revenues into a dedicated account. KRDCL will be utilizing these revenues flows to support development of roads including through PPP transactions, either directly or through mobilizing additional debt financing via securitization. To begin with, KRDCL will levy tolls on about 1500 km of highways, which were recently improved by it and under KSHIP I. These roads, which are in relatively good condition, would generate substantial net revenue. In this context, the project will finance the costs of a Financial Planner and other experts to assist KRDCL and GOK in the following critical areas: (a) developing a tolling strategy, including the optimal means for effective collection and monitoring of toll revenues; (b) preparing a medium-term financial plan, covering various sources and uses of the revenues generated by KRDCL; (c) formulation of debt policies that would enable KRDCL to achieve appropriate investment-grade credit rating for its bonds; and (d) governments contingent liability, if any, on account of the KRDCL borrowing. The advisory support to GOK and KRDCL would ensure that borrowing by KRDCL would be prudent, sustainable, and within its revenue projections.
Table 4 Component 2: Highway Financing Modernization: Co-financing Arrangement (US$ million) Costs Including Contingency 5.00 2.50 2.50 368.85 308.58 7.72 32.18 14.48 3.15 2.75 373.85 Bank Financing 4.00 2.00 2.00 63.26 62.00 0.00 0.00 0.00 1.26 0.00 67.26 GOK Financing 1.00 0.50 0.50 54.69 0.00 7.72 32.18 14.48 0.31 0.00 55.69 Developer/ Private Banks 0.00 0.00 0.00 250.90 246.58 0.00 0.00 0.00 1.57 2.75 250.90

Activity Description (a) Consultancy and Transaction Advisory Services for KRDCL (i) Financial Planning Advisor (ii) PPP Advisor (b) Civil Works under Co-financing with Commercial Banks (i) Base Construction Cost Estimate (ii) Land Acquisition (iii) Utility Shifting (iv) Resettlement & Rehabilitation (v) Supervision Consultancy Services (vi) Financing Costs Total

7. Co-financing pilot transactions. The project will provide US$62 million financing to KRDCL for co-financing with commercial financial institutions to develop about 400 km of highways under either item-rate contracts or PPP concessions. This component will also finance the preliminary design, transaction advisory services, associated land acquisition and R&R activities and the fees of independent engineer. Several domestic financial institutions have 23

shown interest to provide co-financing with IBRD for KRDCL program. The co-financing is expected to generate additional US$250 million from financial institutions and developers, allowing IBRD financing to reach further. The IBRD co-financing would also help KRDCL to attract commercial financing at relatively attractive terms by lowering the risk perception of the loans. The co-financing sub-component, which is planned for Phase 2 of the project, will be implemented following the safeguard and fiduciary policies agreed for KSHIP II, and will be acceptable to the World Bank. 8. Component 3: Road Safety Improvement (Total Cost: US$14 million; IBRD: US$11 million / GOK: US$3 million). Against the backdrop both of rapidly increasing motorization and a continuing sharp rise in road-related deaths over the last decade in Karnataka, the GOK has committed itself to improving road safety in the state through new strategic and comprehensive measures. These measures are broadly aligned with the findings and recommendations of the 2007 Sundar Committee report on Road Safety and Traffic Management in India, and include the assignment of Lead Agency role for road safety management to the Transport Department and the recent establishment of a Traffic and Road Safety Cell under the Transport Department. 9. The activities and interventions to be supported under this KSHIP II Component will build on the road safety management capacity review undertaken by the GOK in 2008 with Bank assistance, which inter-alia recommended the initiation of a multi-sector / multi-agency Safe Corridor Demonstration Program. The participation of Karnataka via the PWD in a joint World Bank / Government of India multi-state program of road safety assessment, being undertaken by the International Road Assessment Program (iRAP) and funded by the World Bank Global Road Safety Facility as part of the Bloomberg Road Safety in 10 Countries projects, will produce engineering countermeasures to be implemented under this component. The KSHIP II assistance will also build on results being achieved in various discrete ADB-funded Road Safety technical and capacity development activities and build on previous initiatives being undertaken in Karnataka to build a crash data management system. 10. This component of the Project will primarily support the development, implementation and evaluation of a multi-sector Safe Corridor Demonstration Program, and will provide assistance to the GOK to build the capacity to deliver various lead agency functions in the Transport Department under the Traffic and Road Safety Cell. The Safe Corridor Demonst ration Program outputs and outcomes are expected to inform progressive state-wide GOK action. 11. Implementation of a Safe Corridor Demonstration Program . The selected road safety corridors are Maddur to Mysore (53 km) and Belgaum to Hungund (186 km). Under this Program, the following activities will be funded: (a) Improving the engineering conditions of the two safety corridors based on the iRAP recommendations to achieve a minimum of three-star rating along the corridors. (b) Strengthening the enforcement along the corridors by providing necessary consulting services and equipments to traffic police units responsible for the Corridors. The RoadPol initiative of the World Bank Global Road Safety Facility will start the dialogue with senior level police officers in Karnataka to initiate a general deterrence enforcement

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model on the two safety corridors, which may include the establishment and training of a dedicated Highway Patrol unit to pilot enforcement activities on the two safety corridors. (c) Enhancing road safety education, awareness for the population using and residing along the Corridors; this will include targeted awareness campaigns for specific risk factors to be launched by local NGOs who are active in this field. (d) Improving the emergency medical response time and making these resources available along the corridors by providing necessary technical assistance and equipments for response teams along the corridors.
Table 5 Road Safety Components (US$ million) Costs Activity Description Including Contingency (a) Safe Corridor Program (Works) 7.49 (b) Safe Corridor Program (Goods) 1.84 (i) Police Enforcement Equipment 0.81 (ii) Post-Impact Care 0.35 (iii) Monitoring and Evaluation Software and Hardware 0.69 (c)Safe Corridor Program (Services) 1.40 (i) Capacity Building for Police Enforcement 0.60 (ii) Development of Safety Campaigns 0.20 (iii) Capacity Building for Post-Impact Care (iv) Consulting Services for Monitoring and Evaluation (d) Capacity Building for PWD/Lead Agency (e) Road Safety Centre of Excellence Study and Establishment Total 0.20 0.40 1.70 1.20 13.64

Bank Financing 5.99 1.48 0.65 0.28 0.55 1.12 0.48 0.16 0.16 0.32 1.36 0.96 10.91

GOK Financing 1.50 0.37 0.16 0.07 0.14 0.28 0.12 0.04 0.04 0.08 0.34 0.24 2.73

12.

Lead Agency Capacity Building. This includes the following activities: (a) Capacity building of the Transport Department and its Traffic and Road Safety Cell to assume the lead agency institutional management functions as defined earlier; (b) Facilitation / support for the necessary framework(s) of horizontal and vertical coordination mechanisms and for multi-disciplinary technical working groups to deliver the intervention on the corridors; (c) Implementing the Karnataka Road Accident Form (KRAF) that was developed in 2006 in the districts along the two safety corridors. This includes providing technical assistance, training and equipments to police stations in charge of the two safety corridors. The collected data will be used to monitor and evaluate the safe corridor demonstration program through a technical assistance.

13. Capacity Building for PWD Staff. This includes the implementation of new PWD policies and processes for mainstream integration of road safety engineering and construction zone safety factors in PWD and KRDCL roads planning and design, supported by specific training programs and equipment procurement.

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14. Establishment of the GOK Center of Excellence for Road Safety Training, Education and Research through the following activities: (a) Feasibility and scoping study to inform on the institutional arrangements, functions, design, funding and implementation of the Center. (b) Assistance to GOK (alongside similar ADB assistance) towards the costs of establishing the Center. 15. Component 4: Road Sector Policy and Institutional Development Component (Total Cost: US$11.8 million IBRD: US$9.44 million / GOK: US$2.36 million). This component will support selected key elements of a new medium-term Institutional Development and Strengthening Action Plan (IDSAP) for the period 2010-2016. The IDSAP, which is shown in Annex 8, covers the PWD, the KRDCL and the Transport Department. The GOK, in consultation with the World Bank and the ADB, has established this Plan as the basis for harmonized sectoral support by both the development partners. In order to achieve the IDSAP, the project will financing the following technical assistance, advisory services and studies (Table 6):
16. Table 6 17. IDSAP Component TA Services, Training, and Goods (US$ million) 18. Costs Bank Including Activity Description Financing Contingency US$ US$ (a) Road Financing Study 2.50 2.00 (b) Road Asset Management system - data population and operation 2.50 2.00 (c) PWD-wide QM / ISO Certification program (Phase II) 0.50 0.40 (d) QM / Quality Control capacity enhancements in PWD (e) IT-ICT-MIS Strategy and Action Plan preparation and implementation (f) PWD implementation of Project Management framework/processes (g) Implementation of new PWD Financial Management System (h) HRD and Training enhancements and program delivery in PWD (i) Strategic Studies for GOK Planning (j) Other IDSAP and GAAP target implementation support Total 2.00 0.60 0.45 0.30 1.65 0.65 0.65 11.80 1.60 0.48 0.36 0.24 1.32 0.52 0.52 9.44

GOK Financing US$ 0.50 0.50 0.10 0.40 0.12 0.09 0.06 0.33 0.13 0.13 2.36

(a) Out-sourcing of network-wide road condition data collection and management services to fully populate and commission the PWD Road Asset Management system, to support Maintenance Budget planning and management. (b) Facilitation of the new Road Funds operationalization following its enactment by GOK, including the preparation of Fund operating policies and Rules, financial and

26

administrative management processes, an appropriate governance and reporting framework, Fund-specific organizational and business plans, and building the capacity of the secretariat resources of the Fund in all aspects of its revenue, budget, financing and borrowing functions and activities. (c) Completion of the PWD-wide ISO Certification program, also covering KRDCL. In the first phase under KSHIP I, 21 PWD units completed the program and 46 units are to be covered in the second phase under KSHIP II. (d) Implementation of an integrated PWD package of Quality Management / Quality Control skill development measures, systems and equipment. (e) Development and implementation of medium-term PWD-centered IT-ICT-MIS Strategy and Action Plan(s) to frame PWD action on IT-related investments, integration, operations management and security. (f) Enhancement of PWD processes and capacity for Human Resources Development and Training, including planning, training needs assessment, program development, establishment of a sustainable dedicated Training / HRD budget , support for PWD / KRDCL participation in specialist international training programs and high-priority study tours, and implementation of new PWD-specific performance management tools. (g) Implementation of the Project Management model / framework of functions, processes and capacities as demonstrated by the PIU since KSHIP I, in all major PWD units the planning, preparation and delivery of GOK-funded projects (h) Implementation/roll-out of new PWD-wide computerized Financial Management System, including training support and E-systems integration services. (i) General implementation support for other IDSAP and GAAP elements over the KSHIP II period, including facilitation of Project-based third party quality monitoring resources, implementation of on-line Complaints Handling process and Projectcentered public information and communications functions and capacity, a KRDCL corporate governance assessment and preparation of a medium -term core systems Sustainability Plan. (j) Policy and/or strategic studies (to be determined progressively) to advise GOK on CRN asset protection options, on multi-modal integrated transport planning, future sector institutional options and/or governance issues .

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INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 3: Implementation Arrangements A. Implementation Arrangement

1. Overall implementation arrangement and Coordination. The Government of Karnataka will be implementing the proposed project through its Public Works Department (PWD) and the Karnataka Road Development Corporation Limited (KRDCL), an autonomous corporation owned by the state government. The Public Works Department has established a Project Implementation Unit (PIU) to implement three of the four project components, namely Components 1, 3 and 4. The KRDCL using its main organizational setup will be responsible for implementing Component 2, which focuses on highway financing modernization and cofinancing with private banks. Both the PIU and KRDCL will report to the Principal Secretary, PWD, who will be ultimately responsible for the project results on behalf of GOK. In addition, the GOK has established the following apex bodies to ensure coordination and accountability for the project. (i) Project Governing Board, chaired by the Chief Secretary, to meet quarterly to address inter-departmental issues affecting project implementation and take stock of progress in the reform program; and (ii) Project Steering Committee, chaired by the Principal Secretary (PWD), to coordinate and monitor the project implementation, with a focus on ensuring effective project implementation performance and achievement of results. 2. Implementation Capacity. An implementation capacity assessment was carried out on both the PIU and KRDCL, and both agencies are found to have adequate capacity to implement the project, with additional implementation support and transaction advisory services. Many of the staff in the PIU have experience in implementing the first bank-financed KSHIP I. The PIU is currently fully staffed and have the following key officers: (i) A Chief Project Officer as head of the PIU; (ii) A Chief Engineer, PWD, as the full time Project Director, (iii) Three Superintending Engineers and Three Executive Engineers to manage procurement, Environment and implementation of all project components, (iv) Two Karnataka Administrative Service officers, two assistant commissioners and three Tehsildars to manage land acquisition and R&R issues, (v) A Deputy Secretary Finance, a Joint Controller of Accounts, assisted by Audit Officer and two Accounts Superintendents, to oversee financial management issues, (vi) Two experienced Environmental and Social Management specialists, to manage social and environmental safeguards management issues, (vii) A Financial Management expert, recruited from the market, to manage project financial management aspects, and (viii) Several mid/junior level engineers, social and environmental staff, accountants and other support staff.

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3. The KRDCL is an autonomous corporation within PWD, managed by an independent Board, with its executive powers vested in a Managing Director appointed by Karnataka Government. The Managing Director will be overseeing the day-to-day implementation of the project, and would closely interact with the PIU. KRDCL is also in the process of strengthening its procurement management capability by mobilizing additional procurement staff. KRDCL has implemented a few annuity concessions, and is actively preparing several PPP transactions to take into the market. The project will provide technical assistance services to KRDCL to increase its capacity to manage PPP programs following national and international practices. Road Improvement Works (Component 1) 4. The road improvement works are proposed to be implemented in two parts. The first part, representing about 35 percent of the total value of works under Component 1, will be implemented through traditional Bill-of-Quantity based contracts. The second part, representing the balance 65 percent of the works under Component 1, will be implemented through DesignBuild-Finance-Operate-Maintain-Transfer (DBFOMT) Annuity Concessions. 5. Component 1(a) Item-rate (BoQ) Contracts: These works will be implemented by qualified international and/or national contractors, and supervised by an internationally recruited supervision consultant firm who will act independently as the Engineer for the project. The PWD staff will monitor the works in the capacity of Employers representative. 6. Component 1(b): DBFOMT Concessions: These concessions, spanning a period of 10 years with a construction period of two to two-and-half years, will be implemented by qualified international and/or national developers, fully bearing the design and performance responsibility and risks. For each of these concessions, a firm will be engaged as an Independent Engineer to monitor the progress and quality of works during the construction period on a continuous basis and thereafter the maintenance and safety management issues on an intermittent (monthly) basis during the remaining concession period. 7. Construction Zone Safety: In recent highway construction programs in India, there have been several construction accidents resulting in major injuries and death of workers and travelers. Although KSHIP I did not have such experience, it is nevertheless important to strengthen project implementation framework to comply with construction zone safety standards and regulations. In order to ensure that the contractors follow good safety standards, the bidding documents have been enhanced to include (a) detailed checklist on work-zone safety measures, (b) additional contract clauses to improve the contractual enforcement of the work-zone safety regulations, and (c) pay items in the bill of quantities to ensure compliance with construction safety regulations. The contract documents will also specifically include strong deterrents including heavy penalties (or deductions from the annuity payments) and temporary stoppage of affected works in the event of lapses in construction safety and until remedial measures are undertaken. In addition, the terms of reference of the supervision consultants have been enhanced to include (a) a full-time construction safety expert/specialist in the team; (b) construction safety aspects as part of their explicit duties, responsibilities and reporting requirements; and (c) hands-on construction safety training of the work site personnel of the contractors and consultants. Finally, on the government (client) side, the implementation and

29

management framework on work-zone safety for both BoQ contracts and DBFOMT concessions will be strengthened with (a) introduction of an independent safety audit, carried out as surprise checks by designated construction safety personnel drawn from regulatory / labor welfare departments or academia; and (b) establishing closer cooperation with few labor welfare and safety initiatives/ organizations already set up in Karnataka. Highway Financing Modernization (Component 2) 8. This component will be implemented by KRDCL. KRDCL has experience in managing various types of road construction works and it has also recently awarded two BOT concessions. Yet, considering that KRDCL will be responsible for modernizing the GOKs highway financing strategy based on ring-fencing of toll revenues - through mobilizing co-financing and implementing pilot transactions -- with support from the project, they will procure expert assistance in critical areas, including development of tolling strategy, preparation of mediumterm fiscal plan for the sources and uses of revenue generated by KRDCL, formulation of debt policies and preparation and structuring of PPP transactions. Concomitantly, KRDCL will be establishing a dedicated wing to implement the highway financing modernization component, with adequate internal and outsourced staff with expertise in technical, financial, safety, environmental and social management aspects. Road Safety (Component 3) 9. The project-supported Technical Assistance and other action to build effective lead agency capacity in the Transport Department will be procured by the KSHIP II PIU, although the day-day-management of this TA will be the responsibility of Transport Department via its Traffic and Road Safety Cell. Overall oversight of progress in this action and on the Safe Corridor Demonstration Program (SCDP) will be the responsibility of the Transport Department. However, the road infrastructure part of the SCDP would be implemented by the KSHIP II PIU. The KSHIP II funding for this component will include financing of works, consultancy services, goods and technical support to the Transport Department and other participating entities for all aspects of the SCDP. Road Sector Policy and Institutional Development (Component 4) 10. The implementation of this will be primarily managed by the Public Works Department (PWD) via the Institutional Development and Strengthening (IDS) Cell, which has inter-alia has been given the responsibility for supporting the Principal Secretary (PWD) and the PWD senior management on the institutional development agenda for the sector. KSHIP II funding under Component 4 will finance some consulting services and technical assistance inputs for follow-on (post-ADB-CDTA) capacity building measures in the Planning and Road Asset Management Center (PRAMC) for its responsibility for PWD-centered organizational development and modernization, and the responsibility for such procurement will rest with the PIU. Reporting on implementation progress in the IDSAP program will be provided by the PWD, via joint PRAMC and PIU action, and reviewed periodically by the KSHIP II Project Steering Committee.

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B. Monitoring and Evaluation 11. Results Monitoring and Evaluation. The monitoring and evaluation of the achievement of the PDO and the outcome indicators will be conducted through a continuous process during the project life essentially using the Results Framework shown in Annex 1. Most of the progressive status data on the indicators including traffic volume, speeds and road condition will be collected through the asset management / road information system already developed under the first KSHIP. This data collection effort will be supplemented by relevant / real time outputs from various engineering / institutional strengthening studies to be funded by the project. Moreover, the impact of institutional development, improved governance and safety management will be measured through periodic objective assessments, stakeholder meetings and user satisfaction surveys. Karnataka PWD is one of the few road agencies that publishes annual reports an d also disseminates key operational and performance statistics through its official website. This information will also be helpful in the monitoring and evaluation exercise. 12. Third Party Monitoring. As an innovative measure to enhance quality of works, the PIU will introduce principle third-party monitoring of project works through an Independent Panel of Experts drawn from reputed engineering institutions and retired Senior Engineers. This will be a nice complement to the task force constituted by GOK with outside experts drawn from the profession and academia for ensuring quality in all civil works that reports directly to the Chief Minister. 13. Road User Satisfaction Survey. Three rounds of road user satisfaction surveys will be carried out, the first one coinciding with the start of the project, the second at the mid -term and the third just before the project closure, to broadly assess the perception of road users on quality of road infrastructure and services in the state. These surveys would also endeavor to capture the project-specific impacts. Baseline, mid-term and end-term impact evaluation on social, environmental and other operational issues directly related to the project will be also carried out by independent professional agencies. The feedback from the third party monitoring exercise will be also suitably integrated in the overall monitoring and evaluation exercise. 14. Quarterly Progress Report. The physical and financial progress for various project components will be carried out as part of regular quarterly progress reporting and project financial management system. It is also envisaged that a full-fledged computerized MIS system will be developed for the project within the first eighteen months of project implementation and the results of progress monitoring will be fully integrated with the project progress reporting system. C. Environmental and Social Impact Management 15. The PIU will be responsible for ensuring that the social and environmental safeguards are fully implemented in the project. The GOK has deployed a Special Deputy Commissioner and two Assistant Commissioners (Land Acquisition) to be based in two separate field Offices with delegated administrative powers to execute land acquisition. In addition, the Chief Project Officer will have all delegated administrative powers to approve resettlement actions. He will be assisted by a senior level Karnataka Administrative Services Officer to manage the R&R related

31

impacts. Two local NGOs are also engaged to provide support to PIU in the implementation of RAP. Based on the experience of implementing the first project and provisions of National R&R policy, 2007, the PWD has developed project specific R&R policy to describe the compensation and assistance for the project affected people, which is consistent with the provisions of the Banks Operational Policy on Involuntary Resettlement. 16. The Environment Management Plan will be included in the contract documents and will be carried out by the contractor and developers alike. The Supervision Consultant and Independent Engineer will supervise the implementation of the EMPs. The PIU has its own environmental engineer and staff from Forest Department for co-ordination and overall supervision of measures as per the EMP. Environmental regulatory clearance will be the responsibility of the PWD while contractors will be responsible for obtaining regulatory permissions for their plants and equipment in line with Indian regulations. The Phase-II project roads are yet to be finalized. The approach for the environmental management for these roads will be similar to that used in Phase I. The capacity of the KRDCL to mange environmental aspects will be developed during Phase -I using, interaila, opportunities available in implementation of Phase I roads. Social safeguards 17. A social impact assessment was carried out by the PIU along the project roads to identify the potential social impacts and propose appropriate mitigation measures. The land acquisition and resettlement impacts in this project are moderate. The land acquisition required for all Component 1 project roads (831 km.) is estimated to be about 225 hectares including 10 hectares of government land. The PIU has prepared the Resettlement Action Plan (RAP) with assistance of the consultants outlining the land acquisition and resettlement impacts and proposed appropriate mitigation measures. Social assessment for works to be implemented by KRDCL under Component 2 will be carried out during project implementation following the same procedures as done for Component 1. 18. The compensation and assistance/ support proposed for the affected people are in line with National R&R policy provisions and the Bank's operational policy guidelines. The key policy provisions include: compensation through negotiations with minimum compensation has been defined as 1.5 times of the guidance value for districts closer to Bangalore metropolitan region and two times for other districts, plus other top-up amounts such as amount towards taxes and registration, additional compensation for loss of narrow stretch of lands, additional 25 percent for those severance lands, rehabilitation grants and transitional allowances to those becoming land less and marginal. The assistance for loss of residential and commercial properties also includes compensation and alternative plots, shifting and subsistence allowances. The non title holders will be provided with support and assistance to re-establish their shelter and livelihood. The entitlements also include measures for income restoration assistance and support for vulnerable groups. A committee including some of the independent members has been constituted for negotiations with the landowners on compensation amount. 19. A large number of consultations have been held in about 25 places involving about 1800 people from more than 150 villages. The outcomes of these consultations are incorporated in the designs and R&R entitlements as appropriate and relevant. Socio-economic surveys were carried

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out among the potentially affected families. The key socio-economic characteristics are as follows: the average annual income of the affected families is INR 36,145 (US$800) and about 57 percent are living below poverty line with below INR 26,000/ year. a large proportion of them, i.e. 40 percent are engaged in cultivation and about 30 percent in commerce and trade. only 4 percent reported that they are under debt. nearly half (49 percent) live in Kutcha houses (temporary housing) and the average area of the house is about 35 sq. mt. only 30 percent of the houses are electrified and only seven percent have piped water supply only a small proportion of the families (less than 8 percent) own household assets such as Television, refrigerator, cooking gas, two-wheeler and a phone. These living standards will become basis for measuring the impact of compensation and resettlement assistance in the post resettlement period.

20. The RAP has been locally disclosed by the borrower as a draft in March, 2010 and discussed with the affected people and other stakeholders during consultations held at six important places in the project area. The final RAP endorsed by the Bank and approved by the GOK was also disclosed in the PWDs website in August 2010. The Bank has also disclosed both draft and final RAPs in the Banks InfoShop. 21. The implementation of the RAP has been initiated and land acquisition is underway. A separate Social Development and Resettlement Cell, created during the implementation of the first project, continue to function within PIU. All key staff consisting of Chief Administrative Officer, Special Deputy Collector, Assistant Commissioners and Assistant Director and Resettlement Officer are already in place. The two local NGOs are providing implementation support and the concurrent third party monitoring is commissioned. Impact evaluation is proposed to be undertaken at the mid -term and ICR stage to verify how far the objectives are realized in improving the living standards of the affected people. Further, the borrower is preparing the contract package wise implementation plans to describe the details about land owners, coordinated time table in line with the construction schedules etc. The RAP also describes the coordination with civil works and lists the activities that need to be completed prior to issue of bids and prior to award of works. An independent grievance redressal committee at the district levels is proposed to be in place prior to start of the implementation in the respective districts. The land acquisition process has been initiated in the item-rate contract stretches and first notification for all 75 hectares of private land is completed. So far compensation has been offered to about 40 percent of the affected land-owners in the item-rate contract stretches and substantial progress in relocation of affected community assets such as worship places, drinking water sources, bus shelters, etc. were noticed.

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22. The RAP has been adequately prepared to address the social safeguard issues that are likely to be encountered in the project and the policy provisions proposed for payment of compensation and ass istance are in line with the Bank's operational policy on Involuntary Resettlement. 23. OP 4.10 Indigenous Peoples: The project affects few tribal people, who are not affected as groups and are scattered throughout the project roads. The borrower has undertaken focused assessment of project impacts on these people and confirmed that none of the project roads passes through the designated tribal areas. This was also confirmed by the Tribal Welfare Department of Karnataka. The consultations with tribal people reveal that they are mainstreamed with other people and that they do not exhibit the characteristics that are outlined in the Bank's OP 4.10. Therefore, it was concluded that these tribals would be given support in line with other people and there is no need for a separate IPDP for Component 1. For Component 2, the roads are likely to be selected from the 3,411 km sub-set of the Core Road Network, for which social and environmental screening has been completed. The screening has shown that these roads do not have tribal people living in the corridors who meet the characteristics of indigenous people as defined in OP 4.10. Therefore, the IP policy will also not be triggered for Component 2. Environment Impact Management 24. The Environmental Assessment (EA) process was carried out in parallel with the preparation of engineering designs for the improvement of project roads. Several alternatives for realignment and material use were analyzed to ensure that the adopted engineering design balances the considerations for environmental and social aspects, with technical engineering solutions. The EA has identified key environmental impacts from the proposed road improvement works, and these include: a) the acquisition of short patches of forest land; b) removal of roadside trees; c) potential for localized changes to natural drainage system close to the road; and d) increased levels of noise and air pollution, especially affecting sensitive receptors, such as schools/hospitals located adjacent to the roads. The EA has also identified construction stage impacts such as pollution from the contractors camp and equipment, temporary dust and related pollution in stretches under construction, potential degradation in water quality in case of untreated discharges, and indiscriminate disposal of debris of construction. The corridor-specific EMPs provide payments for compensatory afforestation, and forest land acquired, and provide measures for additional avenue plantation along improved roads, noise barriers in cases in selected areas, and contract conditions that require the contractors to reduce the pollution from their plants and establishment as well as include features such as water recharge pits in the design of the road. In addition, the PIU will carry out additional enhancement of selected roadside ponds using small contractors. The State Environmental Impact Assessment Authority has provided clearance for the roads under the Component 1 of the project following its own review requirements and procedures. 25. Consultations with the community were carried out at various times during the EA preparation. The project design has incorporated some of the concerns raised by the local communities, including those related to safety, dust control, conservation of water resources. During the Independent Review of the EA, additional consultations were conducted. The Independent Review has established that EA preparation conforms to World Bank requirements set out in OP4.01 and other environmental safeguards policies triggered.

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26. The PIU has begun implementing some activities identified in the EMP, such as provision of noise barriers for sensitive receptors close to the roads. It has also put in place an Environmental Management Unit, headed by an Executive Engineer, and deputed Forest Department officials. In the field offices, environmental engineers positions have been established and being filled up. For monitoring the implementation of the EMP measures by the Contractor, the Construction Supervision Consultants teams will include specialists to monitor and verify the completion of the EMPs for each road corridor. Similar expertise will also be included in the Independent Engineers teams overseeing the Annuity contracts. Towards its institutional development, the PIU will use the project to get itself, and one of the PWDs field divisions to be certified to ISO 14001 during the project implementation. The EA for the project has been adequately prepared and the PIU is putting in place an institutional structure that should be able to address environmental safeguards management related issues that are likely to be encountered during project implementation. A similar arrangement is being established for KRDCL. D. Procurement Management 27. Procurement for the proposed project will be carried out in accordance with the World Banks "Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines) and the provisions stipulated in the Legal Agreement. However, some contracts for which advanced procurement has taken place will follow Procurement and Consultant Guidelines May 2004, Revised Oct 2006 and May 2010. The details are in the attached procurement plan at Annex 3 (Appendix 1). 28. The following major procurements are envisaged in KSHIP II:

Procurement of Works: 29. Conventional Item Rate Contracts: The works relating to upgrading and widening of 269 km of roads will be implemented in five contract packages. The total estimated value is US$140 million. The bids for these contracts were invited on International Competitive basis following Banks Standard Bidding Document for Works (March 2007) on slice and package basis. The contract award is expected by end-February 2011. 30. DBFOMT (Annuity) Concessions: The upgrading and widening of 562 Km of roads will be implemented in four concession packages following DBFOMT (Annuity) Concessions. The estimated project cost of these four packages is US$328 million (varying between US$53 to US$120 million). The concessionaire will be selected through open competitive procedures and the process will include pre-qualification and issue of bidding documents to the pre-qualified bidders. The Request for Qualification (RFQ), Request for Proposal (RFP) and Concession Agreement will be prepared by the PIU and agreed with the Bank. The Bank has already cleared

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the RFQ. The review of the RFP and CA is ongoing, and will be completed before the GOK issues them to pre-qualified bidders for the concession. Procurement of Goods: 31. Procurement of Goods for the proposed project will include purchase of Road safety equipment and medical response equipment, IEC Material, survey equipments, computers, software, Lab equipment, Furniture, etc. While some software being proprietary in nature will be procured by direct contracting, other goods and software will be procured by ICB, NCB, shopping and or using DGS&D rate contract within shopping threshold. The Standard Bidding documents of the Bank as agreed with GoI task force (as amended from time to time) for all procurement under NCB will be used. For ICB contracts, the Banks latest Standard Bidding Documents (SBDs) will be used. Selection of Consultants: 32. The project includes the following consultancy services: (i) Construction Supervision for conventional item rate contracts; (ii) Independent Engineer (IE) for Monitoring Annuity Contracts (50 percent of the IE cost is financed by the Concessionaire subject to maximum of one percent estimated construction cost and balance by the project); (iii) Road Asset Management System Data Population and Operationalization; (iv) PWD-wide QM/ISO Certification program (second phase); (v) QM / Quality Control capacity enhancements in PWD; (vi) IDSAP and GAAP target implementation support; (vii) Strategic studies for GOK planning; (viii) Consultancy services and training for Traffic Police; (ix) Consultancy services to build Road Safety lead agency capacity in Transport Department; (x) Road safety Consultant for DBFOMT (Annuity) Contracts; and (xii) Consultancy Services for Capacity Building of PWD Staff in Road Safety. The process of selection of consultants for Construction Supervision for conventional item rate contracts is in advanced stage. The draft contract negotiations completed and the contract will be signed by end of February 2011. As regards selection of Independent Engineers, the TOR is ready and the selection process will be initiated to hire four IEs to match with construction schedule of DBFOMT (Annuity) contracts. The Bank's Standard Request for Proposal Document will be used as a base for all procurement of consultancy services to be procured under the Project. Procurement capacity and Risk Assessment of implementing agencies 33. Procurement capacity of PWD: Procurement capacity Assessment of PWD was carried out as part of project preparation. The engineers of Karnataka State belong to a common cadre undertaking works in Irrigation, Highway, Public Health and Building Departments and have implemented/or implementing several Bank financed projects including KSHIP I. Procurement Function in PWD is carried out by the respective Executive Engineer of the PWD Divisions and there is no centralized procurement organization. The PWD division offices have technical Junior and Assistant Engineers headed by Executive Engineer. Executive Engineer is the tender inviting authority in PWD. After processing the tenders received by EE, depending upon the delegation of powers the tenders are accepted by the Executive Engineer/Superintending Engineer/Chief Engineer/Government as the case may be. In order to ensure effective

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implementation of KSHIP I, a separate Project Implementation Unit (PIU) in PWD was created with field divisions and with support from consultants. The tenders for the KSHIP I were invited and evaluated in PIU. Many of the staff in PIU for implementation of KSHIP II is the same as the one that had handled the procurement functions in KSHIP I and is conversant with the Bank Procurement procedures. For KSHIP, the following committees of GOK are in place to ensure governance and oversight during implementation. a) Project Governing Board: The Project Governing Board would be the highest decision making body in KSHIP II for formulation of all policy matters and taking decision relating to implementation. This board is headed by the Chief Secretary to the Government of Karnataka. b) Steering Committee: Steering Committee under the Chairmanship of the Principal Secretary to Government, Public Works Department with members from Finance Department, Planning Department, KSHIP and Karnataka Road Development Corporation Ltd would make all tender decisions relating to the project and recommends on important policy matters to the Project Governing Board. c) Review Committee: The Review Committee would review the outputs submitted by the consultants and give its comments/suggestions and approve the reports and other outputs of the consultants. The committee is headed by the Secretary (PWD ), GOK and members comprising of Chief Project Officer, PIU, KSHIP, Project Director, PIU, KSHIP MD, KRDCL, Chief Engineer, C&B North and South. d) Technical Evaluation Committee: Within the PIU a technical evaluation team would be undertaking all tender evaluations for the approval of the Project Steering Committee. e) Technical Committee: Technical Committee comprises of PD, CE (National Highways), Project Coordinating Consultant, Construction Supervision Consultant and CE (C&B (South)) reviews and recommends design changes and the variation orders. 34. Karnataka Transparency in Public Procurement Act: Under the GOK's reform program, the GOK has promulgated a Karnataka Transparency in Public Procurement (KTPP) Act to improve the transparency and competitiveness of its procurement process. The State Government makes it mandatory for all the procurement agencies under the government to follow the tendering process in public procurement. 35. Record Keeping: All records pertaining to award of tenders, including bid notification, register pertaining to sale and receipt of bids, bid opening minutes, Bid Evaluation Reports and all correspondence pertaining to bid evaluation, communication sent to/ with the World Bank in the process, bid securities, approval of invitation/evaluation of bids by the Empowered Committees are maintained in PIU in electronic and physical files. Further PIU maintains records relating to variation orders, monthly progress reports prepared by KSHIP, monthly/quarterly/annual progress reports furnished by consultants covering physical,/financial/contractual issues progress tracking in MS Project, S-curves, etc., Inspection reports of the KSHIP Officers, correspondence of claims, final award on claims, etc. will be separately documented. For each contract, a separate file will be maintained.

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36. In KSHIP I, large variations were observed in the initial packages, which were mainly due to large time gap between the initial investigation for preparing DPR and actual commencement of work. During this time delay, the field situations changed due to poor maintenance of existing roads by the concerned PWD divisions. Based on the existing condition of road, the pavement designs had to be modified, which resulted in large variations. However, validation of designs was done on subsequent packages tendered and BoQs revised based on validation survey before tendering, which resulted in decrease in variations during the execution. The same process would be applicable to the BoQ package in KSHIP II as well. 37. The claims of contractor are reviewed and accepted by PIU if these are as per the conditions of contract. In case of dispute in KSHIP I, the provisions of adjudication/Dispute Resolution Board (DRB) were invoked. Some disputes in KSHIP I were also referred for arbitration for settlement. Out of five cases referred for arbitration in KSHIP I, the award was in favor of employer in one case and four cases were decided in favor of contractors. PIU also paid the amount to the contractors after the arbitration award. There were few cases of contract termination and forfeiture of performance security due to non-performance by contractors in KSHIP I. 38. e-Procurement: As per KTPP Act e-Procurement has been introduced and mandated for the works costing more than INR 5 million. The Bank carried out e-GP assessment of GOKs system. The Bank is still discussing certain issues on the system with the GOK before it can be adopted for the project. 39. Procurement capacity of KRDCL: KRDCL will be responsible for implementation of the Highway Financing Modernization (Component 2) which will mainly include hiring of consultancies and civil works; and Co-financing with private domestic financial institutions for civil works following traditional or DBFOMT (Annuity) contracts. Procurement capacity Assessment of KRDCL was carried out as part of project preparation. KRDCL is Government of Karnataka Undertaking. KRDCL has not handled procurement following Bank Procurement Guidelines in the past. However, during discussions held with KRDCL it emerged that the present staff members in KRDCL had earlier handled Bank procurement for KSHIP I and are conversant with Bank Procurement Procedures. KRDCL is also following PWD Codes and manuals for its procurement. The MD, KRDCL has limited delegation of powers in respect of hiring consultants [INR 50 million] and PPP contracts can be awarded only after clearance from the Government. The consultancy contracts are expected to be within INR 50 million. 40. The overall procurement capacity assessment of KRDCL reveals that their procurement capacity needs to be strengthened in order to carry out procurement activities following Bank Procurement Guidelines and to improve the decision making process to mitigate risk of time consuming procurement process within KRDCL. 41. Procurement Risk Assessment and Mitigation Measures: Though PIU has adequate procurement capacity for implementation of conventional BoQ contracts for KSHIP II, major portion of civil works under the project will be on PPP basis following the new DBFOMT (Annuity) approach. There is limited experience in PWD in handling similar procurement in past and this new approach also entails market uncertainty. Further, the Bank does not have a

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standard bidding document to procure PPP concessions, and thus a new set of bidding documents (RFQ and RFP) and Concessionaire Agreement(CA) has to be developed that would be acceptable to the Bank. Therefore, overall procurement risk in the project is assessed as High. To address the capacity issue for the DBFOMT (Annuity) contracts, the PIU has engaged consultants for preparation and finalization of RFQ, RFP and MCA and the draft documents have been reviewed and commented upon by the Bank. The PIU has also initiated the process for selection of Transaction Advisor to assist it in completion of pre-qualification evaluation, bid invitation, evaluation and selection of concessionaire for DBFOMT (Annuity) contracts. The documents used for these contracts will be reviewed by the Bank at each stage to ensure compliance of fairness, transparency, efficiency and economy. 42. The KRDCL will carry out evaluation of technical proposals in case of consultancies and bid evaluation report [RFQ and RFP evaluation] in case of DBFOMT (Annuity) contracts by technical evaluation committee nominated by MD and submit recommendations to KSHIP Steering Committee as an interim measure. This will mitigate the risk time-consuming decisionmaking process within KRDCL. As a long-term measure, the KRDCL will form a Board subcommittee with full powers to award all contracts. Procurement Plan 43. For contracts to be financed by the Bank, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time-frame are agreed between the Borrower and the Bank in the procurement plan. Th e procurement plan for procurement to be taken up by PIU, KSHIP and KRDCL during the first 18 months of project implementation have been prepared is enclosed as Appendix- 1 to this Annex3. The procurement plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. It will also be available in the KSHIP website and on the Banks external website. 44. GOK in December 2009 introduced a system of Monthly Program Implementation Calendar (MPIC) for review and reporting of various activities by each department, which includes the tendering and award progress and the physical progress with respect to the targets. In PIU, KSHIP, Project director reviews the progress on monthly basis and submits the report to GOK and the same will be shared with the Bank. 45. Disclosure of Procurement Information: The following documents shall be disclosed in the KSHIP website: (i) procurement plan and updates, (ii) invitation for bids for goods and works for all ICB and NCB contracts, (iii) request for expression of interest for selection/hiring of consulting services, (iv) contract awards of goods and works procured following ICB/NCB procedures, (v) list of contracts/purchase orders placed following shopping procedure on quarterly basis, (vi) short list of consultants, (vii) contract award of all consultancy services, (viii) list of contracts following DC or CQS or SSS on a quarterly basis, (xi) monthly financial and physical progress report of all contracts and (xii) action taken report on the complaints received on a quarterly basis.

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46. The following details shall be sent to the Bank for publishing in the DgMarket and UNDB: (a) invitation for bids for procurement of goods and works using ICB procedures, (b) request for expression of interest for consulting services with estimated cost more than $200,000, (c) contract award details of all procurement of goods and works using ICB procedure, (d) contract award details of all consultancy services with estimated cost more than $200,000, and (e) list of contracts/purchase orders placed following SSS or CQS or DC procedures on a quarterly basis. 47. Further the KSHIP will also publish in their websites, any information required under the provisions of suo moto disclosure as specified by the Right to Information Act. 48. Post Review: All contracts not covered under prior review by the Bank will be subject to post review during Implementation Support Missions and/or special post review missions including missions by consultant hired by the Bank. 49. Frequency of Procurement Supervision: Two missions in a year each at an interval of six months are envisaged for procurement supervision of the proposed project. E. Financial Management 50. Implementing Entities: The PIU which works under the PWD of GOK would be implementing agencies for the project and execute components 1, 3 and 4. This entity successfully carried out and completed the first KSHIP project with the Bank. KRDCL, a government company registered under the Companies Act, will be the other implementing agency for Component 2. 51. Implementation Arrangements -- PIU: The Project Director will be assisted by Deputy Secretary (DS)-Finance and the Joint Controller of Accounts (JCA) of the PIU. The PD, DSFinance and JCA will be responsible for all matters relating to financial management of the project i.e., maintenance of accounts and records, transactional and financial control, submission of periodic IUFRs to the Bank and the Project Financial Statements comprising Source and Uses of Funds to audit and onward transmission of the audit report to the B ank. In case of KRDCL, the MD, the Chief Engineer and Manager Finance will be responsible for all matters relating to financial management of the project i.e., maintenance of accounts and records, transactional and financial control, submission of periodic IUFRs to the Bank and the Project Financial Statements comprising Source and Uses of Funds to audit and onward transmission of the audit report to the Bank. 52. Budgeting: The proposed Loan funds will flow through a new budget head 5054-03-337-084-172 Development of State Highway (WBA Roads) which has been created for the PIU portion of the loan funds. The GOK is in the process of creating a similar budget head for KRDCL, and KRDCL will be authorized to withdraw the funds from the treasury for its component. 53. Fund flow: The PIU will use the treasury system for all payments while KRDCL would draw the money from the Treasury and deposit the same in a separate project bank account.

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(a) PIU: All the payments would be made through Treasury. The budget allocation would be done for the KSHIP project by FD/PWD and the sub allocation for the divisions would be done by the PIU. All major payments for contractors would be accounted and made by the head office. The divisions (Tumkur, Shimoga, Belgaum, and Raichur) would be making payments for utility shifting and land acquisition, which would be recorded in their books. (b) KRDCL would draw the funds from the Treasury and maintain the same in a separate project bank account. The limit of such drawl for this purpose would be as per FD approval. This bank account would be operated under the joint signatures of Chief Engineer and Manager Finance. In this case the payments would be made by KRDCL directly to the vendors based on the bills and internal controls as per the existing KRDCL system and would be recorded in the books. 54. FM Staffing and Capacity building: The PIU has appointed one FM Manager (CA) and one FM support (B.Com) staff already. The PIU is expected to appoint one more commerce graduate within three months of effectiveness at the PIU level. The FM manager would be supported by the accounts officer of the department so that the knowledge transfer takes place gradually within the project staff and department staff. The detailed staffing structure is outlined in the FM Manual. It is envisaged that incremental accounting staff at division level would be assessed based on the outputs, provided in the first three months of effectiveness. A s of now extra staff is not envisaged, however in future if required, based on mutual discussions with the project, one commerce graduate with exposure to the accounting software would be appointed for each division. 55. In case of KRDCL, the accounting staff would require augmentation. It has been agreed that the project would hire one commerce graduate with exposure to Tally accounting within 120 days from effectiveness by the project. This person would be dedicated personnel to maintain the project accounts. Accounting 56. Accounting System: The project funds will be accounted for separately both by PIU and KRDCL. Separate cashbook and ledger books of account will be maintained by the PIU for the loan funded activity to record utilization of funds. The accounts for the project would be maintained in a manual cashbook as well as in computerized forms (until the AG accepts computerized accounts for the project). All major payments for contractors would be made by the head office and accounted at the head office. The divisions (Tumkur, Shimoga, Belgaum, and Raichur) would be making payments for utility shifting and land acquisition which would be recorded in their books. All the accounting locations would be having separate cashbook to track down the project expenditure. In case of KRDCL also the project funds will be accounted separately by using a separate cash book and set of ledger accounts. The accounting would be carried out using a common chart of accounts. 57. Accounting software: The PIU has already implemented TALLY for project accounting at the HO and the Project Divisions. All the accounting entities has been computerized and linked to the HO for accounting. KRDCL already has implemented TALLY for its entity accounting,

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and would use the same to the project with the chart of accounts and reporting requirements as per the FM Manual. The required monthly reports and the cashbook would be generated through the software. It is expected that the IUFR and accounting reports would be prepared based on TALLY records. 58. FM Manual: A draft FM manual for the project has been prepared and submitted to the Bank. The Bank has provided the comments and the final manual has been submitted. The FM consultant is also training and helping the project to implement TALLY. 59. Report based disbursement: Report (IUFR) based disbursement would be followed for the project. PIU and KRDCL would submit IUFRs to the bank for their respective components separately. The Interim Unaudited Financial Report in the agreed format will also be used for reporting and financial monitoring and shall be submitted to the Bank on a quarterly basis within 45 days from the end of the quarter. The IUFRs will disclose receipt and utilization of project funds (both Bank share and counterpart contribution) during the quarter, year to date and project to date compared with forecasts. The IUFRs will be based on project accounts and will be reconciled with the project accounts prior to submission. In addition, the IUFRs will provide contract wise payments and project progress in physical and financial terms. The IUFR format would be agreed and finalized during negotiations. In terms of disbursement , KSHIP/KRDCL would first spend from the budget and then claim reimbursement from the Bank. All expenditures reported in the IUFRs will be subject to annual project audit. 60. Item rate contracts payments: For the item rate contracts the payments would be made on the basis of the running bills/Interim Payment Certificate (IPC) submitted by the contractor. The project is required to send along with IUFR the list of contract, any variations and the current payments made. 61. DBFOMT Concession payments: The GOK will pay 50 percent of the estimated construction cost as a lump sum payment in two installments during the Construction Period upon certification from the Independent Engineer: (a) First installment will be paid to the Concessionaire upon i) the completion of 50 percent of the project road length as per the Road cross sections indicated in schedule B in minimum continuous stretches of 10 Kms, as certified by the Independent Engineer; and ii) 50 percent draw down on equity required for project implementation, as certified by the Statutory Auditors of the Concessionaire. (b) Second installment of the Lump sum Payment will be given on Commercial Operation Day. 62. The exact amount of the lump-sum payments will be specified in the Concession Agreement, and the Bank will reimburse the entire amount paid by GOK as lump sum payment to the concessionaire. The eligible expenditures to be financed by IBRD loan are the road construction costs (goods, works and services) under Concession Agreement paid by GOK. IBRD will disburse the funds based on the actual payments made by the GOK and the achievement of milestones. Payment of IBRD loan will be made as per the milestones given above, specified in the Concession Agreement, and based on: (a) pre-determined construction

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costs for the package, and (b) verification of completed milestone. This operation would be similar to Output-Based Disbursement (OBD), and the key factor for disbursements is the predetermined construction costs. This cost would be used as the basis for calculating the disbursement amounts. The annuity payments over the concession period would be the liability of the state government and payable by the state government. Supporting documents for the above IBRD payments would include the Concession Agreement, road construction physical progress and financial report, Interim Payment Certificate, and verification report. These documents need to be maintained by the PIU subject to audit and the bank supervision. 63. Co-financing based payments for Component 2: The contractual methods for the cofinancing could be either item-rate contracts or DBFOMT Annuity concession, for which the Bank and GOK have agreed on procurement and financing procedures, as in Component 1. For other PPP concessions, especially for BOT-Toll concessions, for which VGF grant is required, Bank financing will be considered only after the procurement and disbursement procedures has been agreed amongst GOI/GOK and the Bank. 64. Contract management and variations: Based on the experience in KSHIP I project, the controls in the area of contract management and variations management needs strengthening. It was agreed that under the new project clear procedures and internal controls would be established and documentation requirement enhanced, in case of variations. A matrix defining the variation slabs along with the appropriate authority /delegation of powers to approve variation, needs to be worked out and would require vetting by the PIU officials and Steering Committee. These procedures are clearly documented in the FM manual. There are already clear guidelines of DOP for EOT and Variation orders, which are documented and will be followed up during supervision. 65. External Audit: There would be two audit reports for the project one for PIU from the AG and one for KRDCL from CA firm. 66. PIU: The annual audit of the Project Financial Statements (PFS) would be carried out by The Comptroller and Auditor General of India (CAG). The PFS in an agreed format will be subject to audit by the CAG under terms of reference already agreed between the Bank and The CAG for Bank funded projects. All supporting records and documents under the project would be subject to this audit. The PFS will summarize all receipts and expenditures reported in the IUFRs. The annual audit report would consist of (i) annual audited project financial statements (ii) audit opinion and (iii) management letter highlighting weaknesses, if any, and identifying areas for improvement. The annual project audit report and accounts will be submitted to the Bank by September 30 each year. Any difference between the expenditure reported in the IUFRs and those reported in the annual project audit reports will be analyzed and those expenditures which are confirmed by the Bank as being not eligible for funding would be adjusted in the subsequent disbursements. 67. KRDCL: The auditing in this case for the KRDCL project funds would be carried out by CA firm appointed as per the Terms of Reference acceptable to the Bank. The annual audit of the Project Financial Statements (PFS) would be carried out by CA firm, which would be selected and appointed as per the agreed procedures with the Bank. The auditor would be appointed

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within four months from effectiveness. All supporting records and documents under the project would be subject to this audit. The PFS will summarize all receipts and expenditures reported in the IUFRs. The annual audit report would consist of (i) annual audited project financial statements (ii) audit opinion and (iii) management letter highlighting weaknesses, if any, and identifying areas for improvement. The annual project audit report and accounts will be submitted to the Bank by September 30 each year. Any difference between the expenditure reported in the IUFRs and those reported in the annual project audit reports will be analy zed and those expenditures which are confirmed by the Bank as being not eligible for funding would be adjusted in the subsequent disbursements. 68. The following audit reports will be monitored in the Audit Reports Compliance System (ARCS):
Implementing Agency PIU KRDCL DEA/GOI Audit Project Financial Statement Project Financial Statement Designated account Auditors CAG CA CAG Due Date for Audit Submission 30th September (6 months after the end of each fiscal year) 30th September (6 months after the end of each fiscal year) 30th September (6 months after the end of each fiscal year)

69. Internal Audit: Internal audit would be an integral part of the project design. The internal audit of both PIU and KRDCL would be carried out by a CA firm (who is empanelled with CAG and is eligible to carry out major audits). The ToR for the internal audit would cover review of aspects covering contract management, physical verification, internal controls and technical audit. The auditors will be appointed based on selection criteria agreed with the Bank, which will be finalized by negotiations. The auditor would be appointed within four months from effectiveness. The quarterly audit reports along with the compliance would be shared with the bank. Also, the project would constitute an audit committee at the HO level which would review all the audit reports and follow up on the action taken. 70. Internal Control: All financial controls applicable to routine GOK/ KSHIP expenditures will also apply to the expenditures under the project. The DSF/JCA shall process withdrawals/payments and PD shall forward to Treasury for payments. All payments will be approved/ vetted in accordance with the schedule of powers in place for KSHIP. All project related receipts and payments/ withdrawals will be reconciled with periodic Treasury Statements. In case of KRDCL the entire internal control framework followed by the company would be used for the project funds also. 71. Disclosure of information: KSHIP/KRDCL would be required to disclose the following: IUFR for every quarter, Annual Project Financial Statements, Annual Project Audit report, Contract details (including contract amount , payments made package wise) 72. Disbursement Arrangements: A Designated Account (DA) would be maintained in the RBI for the project and would be operated by the CAAA in accordance with the Banks

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operational policies. There will be a one-time fixed advance of US$10 million, which will be maintained throughout the project life and adjusted towards the end of the project. The project will submit withdrawal applications supported by IUFRs to CAAA in DEA for onward submission to Bank for replenishment of the DA or reimbursement. The Bank will replenish Designated Account equivalent to the amount claimed on eligible expenditure by the project and as reported in the IUFRs. 73. Disbursements will be made based on quarterly Interim unaudited financial reports 8 (IUFR) submitted by the project. These IUFRs would reflect the actual expenditure for the loan components. Any advances given by the project would be separately shown in the IUFRs. KSHIP and KRDCL would submit IUFRs for their respective components separately. 74. All expenditures reported in the IUFRs will be subject to confirmation/certification by the annual audit reports. Any difference between the expenditure reported in the IUFRs and those reported in the annual audit reports will be analyzed and those expenditures which are confirmed by the Bank as being not eligible for funding (refundable to IBRD), would be adjusted in the subsequent disbursements. The IUFR formats would be agreed by negotiations. 75. Action plan for FM: The following action plan has been agreed with the client:

Financial Management Arrangement FM Manual PIU By Negotiations Budget head for KRDCL KRDCL By Negotiations Support accounting staff deployed at PIU and PIU 4 months from accounting staff at divisions (Legal Covenant) effective date Appointment of internal auditor for the project PIU 4 months from (Legal Covenant) effective date Appointment of statutory auditor for KRDCL KRDCL 4 months from (Legal Covenant) effective date

Draft submitted

76. Adequacy of FM Arrangements: Overall, the financial management arrangements at KSHIP and KRDCL after taking the above-indicated steps may be considered adequate to support the use of funds under the loan. The FM risk rating for the loan is currently rated as Moderate. 77. Supervision: The supervision will be limited to half-yearly supervision as the risk level is Moderate and the transactions in the project would be limited due to high value contracts with staggered high value payments. This would require more of desk review rather than on field supervision. In the initial year, frequent visits would be made to ensure that the accounting system is setup and the required output is being derived from the system. Once the system is established, then more desk reviews with half-yearly missions should be sufficient. Further if any future requirements arise in the field to strengthen the FM/reporting arrangements, then field visits would be carried out based on the facts and issues. In the first year, two to three weeks of FM involvement is expected. There may be a requirement to carry out post-project closure supervision for annuity payments based on the funding mechanism agreed.

To be submitted within 45 days from end of quarter.

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Appendix 1 of Annex 3 Procurement Plan I. General 1. 2. 3. 4. II Banks approval Date of the procurement Plan: February 14, 2011 Date of General Procurement Notice: UNDB Issue No: 720 Dated Feb 16, 2008 Period covered by this procurement plan: First 18 months Implementing Agency : PIU, KSHIP in PWD, GOK and KRDCL

Goods and Works and non-consulting services

1 a) Procurement Methods and Thresholds: Method of Procurement Threshold (US$ Equivalent) for Goods > 500,000
>30,000 and up to 500,000 Up to 30,000 As per paragraph 3.7 of Guidelines

Threshold (US$ Equivalent) for Works > 10 million

>30,000 and up to 10 million Up to 30,000 As per paragraph 3.7 of Guidelines

International Competitive Bidding

National Competitive Bidding (NCB) Shopping Direct Contracting (DC)

1. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 of Procurement Guidelines will be: Goods: First NCB by PIU, KSHIP and KRDCL and subsequently any contracts more than US$500,000 or equivalent. All contracts following Direct Contracting irrespective of value. Works: First NCB by PIU, KSHIP and KRDCL and subsequently any contracts more than US$5 million or equivalent. All contracts following Direct Contracting irrespective of value. In the case of contracts subject to prior review, before agreeing to (a) a material extension of the stipulated time for performance of a contract; or (b) any substantial modification of the scope of services or other significant changes to the terms and conditions of the contract; or (c) any variation order or amendment (except in cases of extreme urgency) which, singly or combined with all variation orders or amendments previously issued, increase the original contract amount by more than 15 percent; or (d) the proposed termination of the contract, the Borrower shall seek the Banks no objection. For post review contracts the amendments for increasing the cost beyond 15 percent of original contract value or extension of time shall be informed to the Bank promptly.

46

All other contracts shall be post reviewed. 2. Prequalification. Bidders for PPP concessions and Annuity Packages shall be prequalified in accordance with the provisions of paragraphs 2.9 and 2.10 of the Guidelines. 3. Any Other Special Procurement Arrangements: a) The bid evaluation will be carried out as per agreed timeline in the Procurement Activity Schedule. Works estimated to cost less than US$10,000,000; and Goods estimated to cost less than $500,000 equivalent per contract may be procured under contracts awarded on the basis of National Competitive Bidding procedures as per paragraph 3.3 and 3.4 of the Procurement Guidelines and the following additional provisions: Only the model bidding documents for NCB agreed with the Government of India Task Force (and as amended from time to time) shall be used for bidding. Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission of bids. No special preference will be accorded to any bidder either for price or for other terms and conditions when competing with foreign bidders. Except with prior concurrence of the Bank, there shall be no negotiation of price with the bidders, even with the lowest evaluated bidder. Extension of bid validity shall not be allowed without the prior concurrence of the Bank (i) for the first request for extension if it is longer than four weeks; and (ii) for all subsequent requests for the extension irrespective of the period (such concurrence will be considered by the Bank only in cases of Force Majeure and circumstances beyond the control of implementing agency). Re-bidding shall not be carried out without the prior concurrence of the Bank. The system of rejecting bids outside a pre-determined margin or bracket of prices shall not be used in the Project. Rate contracts entered into by Director General of Supplies & Disposals (DGS&D) will not be acceptable as a substitute for NCB procedures. Such contracts will be acceptable for any procurement under shopping procedures. Two or three envelope system shall not be used. DBFOMT (Annuity) Contracts: There is no standard bidding documents for DBFOMT (Annuity) Contracts following PPP procedures. The KSHIP will prepare the RFQ, RFP and CA with the technical assistance hired under the project and the same will be reviewed and agreed with the Bank. Advance procurement and retroactive financing : The IFB for procurement of civil works of conventional item rate contracts was issued during January 2010. During 2010 the IT Equipment, Office Equipment and Furniture was procured. These

b)

c)

d)

47

bidding documents were based on Procurement Guidelines May 2004, Revised October 2006. These contracts will be financed by the project. e) The RFQ, RFP and CA for DBFOMT contracts have been prepared and under discussion. The review of RFQ has been completed and likely to be cleared by Feb 15, 2011. These documents and subsequent procurements initiated after December 31, 2010 will follow Procurement Guidelines Dated January 2011. Domestic Preference: The provisions of paragraphs 2.55 and 2.56 of the Procurement Guidelines, providing for domestic preference in the evaluation of bids is not applicable as requested by the GOK.

f)

4. Summary of the Procurement Packages planned during the first 18 months after project effectiveness (including those that are subject to retroactive financing and advance
procurement):

A: Works:
1 Ref. No. 3 Estimated Contract cost in Description INR (Millions) Conventional BOQ Contracts Upgradation of the 1,214 Road from Hoskote (Km.0+000) to Chintamani Bypass(Km 52+400) of SH-82 Upgradation of the 1,640 Road from Haveri (NH-4) (Km 0+000) to Tadasa (Km 75+260) of SH-1, SH-2. Upgradation of the 1,025 Road from Dharwad (Km 0+000) to Saundatti (Km 38+500) of SH-34 Upgradation of the 1,931 Road from Tinthni (Km 0+000) to Kalmala (Km 73+800) of SH-61 & SH-15 Upgradation of the 769 Road from Chowdapur (Km 0+000) to Gulbarga (Km 28+630) of SH22 Construction for 135 Road safety improvement from Maddur to Mysore 2 4 Estimated Cost (US$ million) 27 5 Procur ement Metho d ICB 6 PreQuali ficati on No 7 Domestic Preference (yes/no) No. 8 Review by Bank (Prior / Post) Prior 9 Expected Bid Opening Date June 1, 2010 10 Comments

WEP-1

Award expected by end Feb 2011

WEP-2

37

ICB

No

No.

Prior

June 1, 2010

Award expected by end Feb 2011

WEP-3

23

ICB

No

No.

Prior

June 1, 2010

Award expected by end Feb 2011 Award expected by end Feb 2011

WEP-4

43

ICB

No

No.

Prior

June 1, 2010

WEP-5

17

ICB

No

No.

Prior

June 1, 2010

Award expected by end Feb 2011

SCDP.0 1

NCB

No

No

Prior

Aug 10, 2011

48

1 Ref. No. SCDP.0 2

2 Contract Description

Construction for Road safety improvement from Belgaum to Hungund DBFOMT (Annuity) Contracts Design, Build, Finance, Operate, Maintain and Transfer the existing State Highway (SH33&SH3) from Malavalli to Pavagada on DBFOMT (Annuity) Basis in the State of Karnataka. Design, Build, Finance, Operate, Maintain and Transfer the existing State Highway (SH18) from Mudhol to Maharashtra Border on DBFOMT (Annuity) Basis in the State of Karnataka Design, Build, Finance, Operate, Maintain and Transfer the existing State Highway (SH1 & SH57) from Shikaripura to Anandapuram (NH206) and Shimoga to Hangal on DBFOMT (Annuity) Basis in the State of Karnataka Design, Build, Finance, Operate, Maintain and Transfer the existing State Highway (SH61) from Managuli to Devapur on DBFOMT (Annuity) Basis in the State of Karnataka 5,605

3 Estimated cost in INR (Millions) 158

4 Estimated Cost (US$ million) 3.5

5 Procur ement Metho d NCB

6 PreQuali ficati on No

7 Domestic Preference (yes/no) No

8 Review by Bank (Prior / Post) Post

9 Expected Bid Opening Date Sep 10, 2011

10 Comments

WAP-1

125

ICB

Yes

No.

Prior

July , 2011

Bank will finance INR 2,197 million

WAP-2

3,205

71

ICB

Yes

No.

Prior

July , 2011

Bank will finance INR 1,307 million

WAP-3

4,007

89

ICB

Yes

No.

Prior

July , 2011

Bank will finance INR 1,571 million

WAP-4

2,674

59

ICB

Yes

No.

Prior

July , 2011

Bank will finance INR 1,091 million

49

B: Goods:
1 Ref. No. 1 2 Contract Description Supply of IT Equipment and Office Equipment [Seven packages] Supply of Almirah IT Equipment for MIS IT Equipment for implementation of project management framework QA/QS equipment 3 Estimated cost in INR (Millions) 3.9 4 Estimat ed Cost (US$ million) 0.09 5 Procur ement Metho d Shoppi ng 6 PreQulificati on No 7 Domesti c Preferen ce (yes/no) No 8 Review by Bank (Prior / Post) Post 9 Expected Bid Opening Date During 2010 10 Comments

Retroactive financing

2 3

0.06 16

0.001 0.35

Shoppi ng NCB

No No

No No

Post Prior

Jul 2010 Dec 15, 2011 Jul 15, 2012

Retroactive financing

0.2

NCB

No

No

Post

67.5

1.5

ICB

No

No

Prior

Dec 15, 2011

Procurement of Police Enforcement Equipment

32

0.7

ICB

No

No

Prior

Jan 15, 2012

Procurement of IT Equipment for Accident Data System

27

0.6

ICB

No

No

Prior

Jan 15, 2012

III

Selection of Consultants:

1 a) Selection Methods and Thresholds Method of Procurement

(a) Quality and Cost Based Selection (a) Quality Based Selection (b) Selection Made Under a Fixed Budget (c) Least Cost Selection (d) Selection Based on Consultants Qualifications (e) Single Source Selection (f) Selection of Individual Consultants

Threshold (US$ Equivalent) No threshold No threshold No threshold No threshold < 200,000 As per Consultant Guidelines Para 3.9 No threshold

50

1 b) Prior Review Threshold Consultancy Services: First consultancy contract by PIU, KSHIP and KRDCL and subsequently any contract value more than US$200,000 equivalent for firms; and > US$100,000 equivalent for individuals All Single Source Selections and hiring procurement consultants, inspection agents and legal advisors are subject to prior review, irrespective of the contract value. In case of contract to individuals, the qualifications, experience, terms of reference and terms of employment shall be subject to prior review. For prior review contracts, the amendments before agreeing to: (a) an extension of the stipulated time for performance of a contract; (b) any substantial modification of the scope of services, substitutions of key experts, or other significant changes to the terms and conditions of the contract; or (c) the proposed termination of the contract shall also be subject to Banks prior review. All other contracts will be post reviewed. 2. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than US$500,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

3. Any Other Special Selection Arrangements: The finalization of consulting services shall follow the timeline agreed in the Procurement Activity Schedule. Advance procurement and retroactive financing: The procurement for Construction supervision consultant for item rate contracts and Transaction advisory consultants has been initiated and three small resettlement action plan consulting services, preparation FM manual and Implementation Support Consultant hired during KSHIP I which were awarded following Consultant Guidelines May 2004 revised October 2006. These contracts will be financed by the project. Any procurement after December 31, 2010 will be procured following Consultant Guidelines January 2011. 4.
1 Ref. No. 1

Consultancy Assignments with Selection Methods and Time Schedule

2 Description of Assignment Construction Supervision Consultants for the Supervision of Construction and Contract Administration of the Karnataka State Highway Improvement 3 Estimated Cost in INR Millions 250 4 Estimated Cost US$ in Millions 6 5 Method of Selection QCBS 6 Review by Bank (Prior / Post) Prior 7 Estimated Proposal Opening Date July 9, 2010 8 Comments

Contract negotiations completed and contract will be signed by Feb 28

51

1 Ref. No.

2 Description of Assignment for 5 EPC Contract Packages Transaction Advisory services for procurement of Four Annuity Contract Packages under Karnataka State Highway Improvement Project Independent Consultant (IE) for the Monitoring of 4 Annuity Contract Packages [Four consultancy contract packages]

3 Estimated Cost in INR Millions

4 Estimated Cost US$ in Millions

5 Method of Selection

6 Review by Bank (Prior / Post)

7 Estimated Proposal Opening Date

8 Comments

0.20

QCBS

Prior

Mar 1, 2011

305

6.78

QCBS

Prior

Jan 15, 2012

Consultancy Service for Transaction Advisory Services for BOT-Toll O & M packages under KRDCL. Financial Planning and Advisory Services for KRDCL Road fund Consultancy service for BOT-Toll O & M Packages under KRDCL and PWD Road Asset Management System Data Population and Operationalization PWD-wide QM / ISO Certification program (second phase) QM / Quality Control capacity enhancements in PWD IDSAP and GAAP target implementation support Strategic studies for GOK planning Consultancy services and training for Traffic Police Consultancy services to build Capacity in the Road safety centre of Excellence (Operational Assistance) Consultancy services to build Road Safety lead agency capacity in Transport Department

115

2.50

QCBS

Prior

Sep 15, 2011

115

2.50

QCBS

Prior

Sep 15, 2011 Sep 15, 2011

115

2.50

QCBS

Prior

113

2.5

QCBS

Prior

July 30, 2011

23

0.5

QCBS

Prior

Oct 30, 2011 Nov 30, 2011 Dec 30, 2011 Jan 30, 2012 Jan 30, 2012 Sep 30, 2011

23

0.5

QCBS

Prior

10 11 12

29 29 27

0.65 0.65 0.6

QCBS QCBS QCBS

Prior Prior Prior

13

46

1.00

QCBS

Prior

14

54

1.20

QCBS

Prior

Sep 30, 2011

52

1 Ref. No. 15

2 Description of Assignment Road safety Consultant for DBFOMT (Annuity) Contracts Consultancy Services for Capacity Building of PWD Staff in Road Safety Monitoring Consultants for BOT-Toll O & M packages under KRDCL. Consultancy Services for Statutory Audit of KRDCL Environment Monitoring of EPC & Annuity Roads NGO Services for Implementation of Resettlement Action Plan for North Karnataka Packages NGO Services for Implementation of Resettlement Action Plan for South Karnataka Packages M & E Consultants for Implementation of Resettlement Action Plan for both Packages Consultancy Services for preparation of Financial Management Manual Consultancy Services for Internal Audit of KSHIP II Consultancy services to deliver feasibility and scoping study for the Center of Excellence IT-ICT-MIS Strategy & Action Plan preparation and implementation HRD & Training enhancements and program delivery in PWD PWD implementation of Project Management framework/processes Project coordinating consulting services for implementation support [Phase II] Hired as part of KSHIP I (WBR # 82)

3 Estimated Cost in INR Millions 27

4 Estimated Cost US$ in Millions 0.60

5 Method of Selection QCBS

6 Review by Bank (Prior / Post) Prior

7 Estimated Proposal Opening Date Jan 15, 2012 Jan 30, 2012

8 Comments

16

23

0.50

QCBS

Prior

17

0.10

QCBS

Post

Sep 15, 2011 Sep 15, 2011 May 5, 2011 NA

18

0.10

QCBS

Post

19 20

2.4 3.50

0.05 0.08

LCS QCBS

Post Post

Contract awarded on Nov 9, 2009

21

0.11

QCBS

Post

NA

Contract awarded on Nov 9, 2009

22

0.06

QCBS

Post

NA

Contract awarded on Nov 9, 2009 Contract awarded on June 2, 2010

23

1.5

0.03

SSS

Prior

NA

24

2.4

0.05

QCBS

Post

Mar 15, 2011 Dec 25, 2011

25

0.20

QCBS

Post

26

11

0.25

QCBS

Prior

Dec 15, 2011 Oct 15, 2011

27

1.15

QCBS

Post

28

11

0.25

QCBS

Prior

July 30, 2011 Procured during Jan 2007 as part of KSHIP I Contract for Phase II for implementation support was entered during Jan 2010. This contract will be

29

59

1.31

QCBS

Prior

53

1 Ref. No.

2 Description of Assignment

3 Estimated Cost in INR Millions

4 Estimated Cost US$ in Millions

5 Method of Selection

6 Review by Bank (Prior / Post)

7 Estimated Proposal Opening Date

8 Comments

30

Consulting services for data management [Land acquisition and RR]

2.00

0.044

SSS

Prior

NA

again reviewed by the Bank to determine eligibility under this project Procured during Nov 2009

54

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 4: Operational Risk Assessment Framework (ORAF) Project Development Objective(s) PDO: to accelerate the development of the Core Road Network through leveraging public sector outlays with private sector financing, and improving the institutional effectiveness of the road sector agencies to deliver effective and safe roads to users. PDO Level Results Indicators: Achievement by GOK in generating at least US$500 million in new private sector capital for CRN improvement and management by end-of-project (EOP). Share of Core Road Network in good condition (IRI < 4) increases from 50 percent to 65 percent by EOP. 15 percent reduction in Vehicle Operating Costs and 25 percent reduction in Travel Time Cost on project corridors by EOP 30 percent reduction in road-accident related fatalities on safe corridor pilots by EOP.
Risk Rating ML Risk Description Unwillingness of road users to pay new user charges and tolls Proposed Mitigation Measures Create awareness of the benefits from improved roads through publications, project website and public consultations, which would reduce the resistance to paying fees and tolls. The project will establish framework to improve the investment climate" to increase private sector participation in highway development, including: (a) mobilize additional resources through Increase road user charges, and securitize these revenues for servicing domestic debt and support PPP concessions

Risk Category Project Stakeholder Risks

Inadequate private sector participation on PPP transactions and domestic borrowing.

55

Risk Category

Risk Rating

Risk Description

Proposed Mitigation Measures (b) Conduct PPP workshops and road shows on DBFOMT (Annuity) concept to investors. Technical assistance support for engaging suitably qualified transaction advisory consultants and ensuring establishment of dedicated counterpart teams with suitable skills in the implementing agencies The proposed contracts will be suitably publicized to facilitate greater competition and the bidding process will provide for suitable steps for seeking clarifications and register complaints, if any, by utilizing the Complaint Handling System provided in the GAAP

Implementing Agency Risks

Lack of familiarity with PPP contracts that may cause delays in awarding contracts and disbursement

Risk of fraud and corruption due to lack of transparency

Project Risks MI The design is not flexible enough to make changes if some of the innovative components (such as the annuity concession) are not implemented as planned. Key elements of project design, such as cofinancing with domestic financial institutions If the annuity concessions do not materialize, the government will carry out the project as a traditional contract. To facilitate the proposed co-financing arrangement, the government will be required to identify a dedicated stream of cash flows and ring-fence them into a dedicated, non-lapsable account. Also, suitable technical assistance will be made available to help GOK and KRDCL to manage the debt raising through co-financing, in an effective and sustainable manner. Advanced actions for LA and R&R following a streamlined procedures have already been taken. For the remaining, mandatory completion of the

Design

Social and Environmental

MI

Delays in the implementation of LA and RAP.

56

Risk Category

Risk Rating

Risk Description

Proposed Mitigation Measures agreed LA and R&R activities prior to contract award. The Project provides financial and transaction advisory services to assist KRDCL to implement its PPP programs and borrowing from the market. Also, GOK has taken a cabinet decision to allow KRDCL to toll state highways, thereby paving way for KRDCL to mobilize additional resources through tolling of about 1500 km of recently improved highways. The PIU and their consultants have checked the designs on site before construction begins. In addition, the design risk for the DBFOMT concessions will be transferred to the concessionaire, and who would be penalized if construction quality is not followed.

Program and Donor

MI

Risk of other GOK road development programs not taking off, especially those being developed by KRDCL for the Core Road Network, as well as slow progress on the reform program

Delivery Quality

Quality of construction suffers due to poor quality design.

L ML MI H

Low Impact Low Likelihood Medium L (Low Impact High Likelihood) Medium I (High Impact Low Likelihood) High Impact High Likelihood Overall Risk Rating at Preparation ML Overall Risk Rating During Implementation MI

Comments

57

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 5: Implementation Support Plan

Strategy and Approach:

1. The strategy for the implementation support has been developed based on the nature of activities involved in the project and their commensurate risk profile in accordance with the ORAF. The Implementation Support Plan (ISP), as described below, will be a live document and will be reviewed regularly and revised as and when required during the implementation, at least on a half yearly basis. 2. Technical Support. The Bank will provide required technical support through sector specialist and institutional, project finance, road safety and governance specialists to GOK in finalizing technical aspects of the engineering and bidding documents and formulating medium and long term strategy related to improved planning, financing, asset management, safety and governance aspects. The implementation support will be provided through at least two implementation support missions in a year and through continuous exchange of correspondence and regular communication. Frequent use of telecommunication including video conferencing, preferably once every two months, will be resorted to maintain a close coordination among the Bank team and the project staff. 3. Procurement. Implementation support will include: (a) reviewing procurement documents and providing timely no objection; (b) providing detailed guidance on the Banks Procurement Guidelines to the PIU/KRDCL staff; (c) monitoring procurement progress against the detailed Procurement Plan; and (d) identifying the capacity building/training need for PIU/ KRDCL staff on procurement processing and providing training if required. The support will be provided through regular interactions, regular half-yearly implementation support missions and thematic implementation support missions, if required. 4. Financial management. Implementation Support will review the projects financial management system, including but not limited to, accounting, reporting and internal controls. The broader integrity risks as regards to the financial management aspects will be also addressed as part of the GAAP implementation. The support will be provided through regular interactions, regular half-yearly implementation support missions and thematic implementation support missions, if required. 5. Environmental and Social Safeguards. The Bank safeguards specialists in the team will supervise various activities to ensure full compliance with the Banks operational policies/procedures and the agreed framework related to environment and social safeguards aspects. The implementation support will be provided through regular interactions, regular halfyearly implementation support missions and thematic review missions, if required and in full cooperation with the technical members in the Bank team.

58

Implementation Support Plan: 6. Most of the Bank team members will be based in the India country office, which would facilitate timely, efficient and effective implementation support to the client. International expertise will be drawn from the Task Team Leader based in Washington DC and as and when required in various activities including project finance, institutional and road and work-zone safety aspects. Formal Implementation Support Missions and field visits will be carried out semiannually. In addition, the implementation progress of the project will also be reviewed through thematic implementation support missions and during the joint portfolio review meetings by the Government of India and the Bank. Detailed inputs from the Bank team are outlined below: (a) Technical Support. Input from Transport Sector Specialist and PPP/project Finance Specialist will be provided to finalize the technical, financial structuring and risk allocation, and other commercial aspects of the bidding documents for DBFOMT (Annuity) contracts and achieve the financial closure for the annuity concessions during the first year. The technical specialist will also provide specific implementation support to facilitate smooth implementation of the item-rate contracts and DBFOMT (Annuity) concessions throughout the project life. The technical specialist will also collaborate with the safety expert in providing implementation support for the road safety component (particularly engineering aspects) as well as work-zone safety aspects during construction. (b) Institutional Strengthening Inputs. The institutional specialist along with the Project Finance/PPP specialist will provide implementation support in finalizing the institutional strengthening and infrastructure finance sub-components, assist GOK in completing the procurement process for these components and then review along with the GOK project staff the quality of various studies/outputs prepared by the consultants. Starting from second year of the project implementation, they would also provide specific implementation support in ensuring the adoption/rolling out of various institutional reforms and TA study recommendations. (c) Road safety inputs. The road safety specialist in collaboration with the institutional specialist and the technical/sector specialist would provide implementation support to GOK in developing a comprehensive road safety strategy/action plan for the state and its subsequent implementation. Specific implementation support will be also provided for developing road safety corridor and close monitoring of its operation expected to commence from third year of project preparation. (d) Fiduciary Compliance and Management. The Banks financial management and procurement specialist will help GOK identify capacity building needs to strengthen its procurement and financial management capacity and to improve procurement management efficiency including identification of red flags (for fraud and corruption). Both the specialists will be also provided timely support in procurement processing and compliance with financial management requirement including tim ely submission of audit statements and financial reports. Besides regular supervision, thematic supervisions will be carried out by the specialist if, and when required. (e) Safeguards Compliance and Management. The Banks social and environmental specialists will provide implementation support in preparation of various safeguards

59

documentation and ensuring compliance with the Banks operational policies and procedures on social and environmental safeguards. Besides regular supervision, thematic supervisions will be also carried out by the specialist if, and when required. (f) Governance. In order to support GOK in the effective implementation and good governance under the project, the task team will undertake enhanced supervision in the areas of - implementation of GAAP and institutional strengthening activities and closely monitor the procurement process and contract management under the project. This support will be primarily provided by the Governance specialist with adequate assistance from FM specialist, Procurement Specialist and other team members. 7. The main focus of implementation support is summarized below.
Focus Implementation of Itemrate Contract Component Procurement of DBFOMT (Annuity) Concessions Structuring of Highway Financing Modernization Component Finalizing Institutional Strengthening and Road Safety Components Team leadership 12-60 months Resource Estimate Technical Specialist 6 SW PPP / Project Finance Specialist 6 SW Road Sector Specialist(s)/Institutional Development Specialist(s) - 6 SW Procurement specialist(s) 4 SW Environment Specialist(s) 2 SW Social Development Specialist 2 SW FM Specialist(s) 2 SW Road Safety Specialist(s) 3 SW Governance Specialist 4 SW Task Team Leader - 8 SW Technical Specialist 6 SW/ year PPP / Project Finance Specialist 5 SW / year Road Sector Specialist(s)/Institutional Development Specialist(s) - 5 SW / year Procurement specialist(s) 2 SW / year Environment Specialist(s) 2 SW/ year Social Development Specialist 2 SW / year FM Specialist(s) 2 SW / year Road Safety Specialist(s) 3 SW / year Governance Specialist 3 SW / year FM specialist(s) - 1 SW / Year TTL - 7 SW / Year NA Partner Role NA

Time First twelve months

Implementation of Itemrate Contracts and DBFOMT (Annuity) Concessions Implementation of Institutional Strengthening and Road safety Components

Financial management disbursement and reporting Task leadership Note: SW Staff-Week

60

8.

Staff skill mix required is summarized below.

Skills Needed Number of Staff Weeks 6 SWs first year, then 2 SWs annually in the following years 6 SWs fisrt year, 5 SWs annually in the following years 6 SWs first year, then 5 SWs annually in the following years 4 SWs first year, then 2 SW annually. 2 SWs every year 3 SWs annually . 3 SW annually 4 SW first year, 3 SWs annually in the following years 8 SW first year, 7 SWs annually in the following years Number of Trips 3 3 3 Comments Country office based/ HQ Based Country office based/ HQ Based International Specialist

Technical Specialist(s) PPP / Project Finance Specialist Institutional Development Specialist Procurement Specialist(s) Social/Environment specialist(s) FM Specialist Safety Specialist Governance Specialist Task team leader

1 2 1 2 2 4

Country office based Country office based Country office based HQ based Country office based HQ based

61

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 6: Team Composition World Bank staff and consultants who worked on the project:
Binyam Reja Arnab Bandyopadhyay Mei Wang Sri Kumar Tadimalla Junxue Chu Said Dahdah Juan Carlos Alvarez Yash Gupta Duthaluri Nagaraju S. Krishnamurthy I. U. B. Reddy Gaurav D. Joshi Rodrigo Archondo-Callao Radia Benamghar Gizella Diaz N.S. Srinivas Fredrick Kranz A.K. Swaminathan Krishnan Srinivasan Ernst Huning Benjamin Darche Andres Pizzaro Zhi Liu Michel Bellier Eric R. Lancelot Joel Jean-Philippe Hamann Sr. Transport Economist/TTL Senior Transport Engineer/Co-TTL Senior Counsel Senior Public Private Partnerships Specialist Senior Finance Officer Road safety Specialist Senior Counsel Procurement Specialist Senior Procurement Specialist Financial Management Specialist Senior Social Development Specialist Environmental Specialist Senior Highway Engineer Operation Analyst Program Assistant (Washington) Program Assistant (Delhi) Consultant (Procurement/PPP Transactions) Consultant (Engineering) Consultant (Governance) Institutional Development (consultant) Consultant (PPP/Financing Specialist) Senior Transport Specialist (Peer Reviewer) Lead Infrastructure Specialist (Peer Reviewer) Lead Transport Specialist (Peer Reviewer) Senior Transport Specialist (Peer Reviewer) Intern / Economist SASDT SASDT LEGES SASDT CTRFC TWITR LEGES SARPS SARPS SARFM SASDI SASDI ETWTR SASDT SASDO SASDO SARPS SASDT SASDT SASDT SASDT LCSTR EASTS MNSTR LCSTR SASDT

62

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 7: Economic and Financial Analysis I. Economic Analysis A. Summary of Benefits and Costs 1. The road improvement works component will upgrade twenty-five road links, totaling 831 km, into two-lane with paved shoulder standard. The economic evaluation of this component was carried out using the Highway Development and Management Model (HDM -4), a globally accepted key analytical tool for economic analysis for highways with investment alternatives, which simulates life cycle conditions and costs and provides economic decision criteria for multiple road design and maintenance alternatives. The main project economic benefits are savings in vehicle operating costs, travel time costs, and maintenance costs resulting from the road improvements. 2. The cost-benefit analysis of the project indicates that the project economic benefits are satisfactory. The Net Present Value (NPV) of the road improvement component is estimated at US$835 million, at a 12 percent discount rate over a twenty-year evaluation period. The Economic Internal Rate of Return (EIRR) is estimated at 30 percent. The following table presents the economic analysis summary.
Table 7: Economic Analysis Summary

Benefits (US$million) Costs (US$million) Net Benefits (US$million) Economic Rate of Return (%)

1201 366 835 30%

3. An inventory of the corridors has been carried out that included visual observations supplemented with sample measurements. Kilometer wise features like surfacing type, width, shoulder type and width, drainage condition, shoulder condition, distresses like edge break, cracking, potholes, rut depth and ravelling, height of embankment, sub-grade, local soil type, intersectional details, were recorded. The riding quality survey was carried out using a properly calibrated vehicle mounted bump integrator to measure the roughness of the roads. The evaluation of structural strength of existing flexible pavement was carried out using a Benkelman Beam at every 10 km along the corridors. 4. Twenty-five links belonging to various corridors of total length 831 km were evaluated with HDM-4. All links have flexible pavements with varying pavement width, condition, strength and traffic characteristics. The table below presents the length, traffic, road width and roughness of the twenty-five links. The average total motorized traffic is 3,673 AADT and the average roughness is 5.7 IRI, m/km.

63

Table 12: Basic Road Characteristics

Package WEP1 WEP2 WEP3 WEP4 Link No, 67A 67B T8 M7D 21B 13A 13B 6C 63A 63B 63C 63D 63E 64F 64G 19A 19B 19C 19D T21 M7B M7C M7A 10A 10B Link Name Hoskote - H Cross H Cross - Chintamani Bypass Haveri (NH-4) - Hangal Hangal Tadasa Dharwad Soundatti Tinthini Chinchodi-Jalhalli-KaregudDevadurga Devadurga - Masarkal - Gabbur Kalmala Chowdapur - Gulbarga Malavalli Maddur Maddur - Huliyurdurga Huliyurdurga - Kunigal Kunigal Tumkur Tumkur Kortagere Koratagere - Madhugiri Madhugiri - Pavagada Mudhol - Mahalingapura Mahalingapura - Kabbur Kabbur Chikodi Chikodi - (NH-4 cross) Nippani Anandapura (on NH-206)-Shikaripura Shikaripura - Anavatti Anvatti Hangal Shimoga - Shikaripura Managili-Talikota Talikota-Devapura Length (km) 23.5 29.0 31.8 43.5 38.5 32.5 41.4 28.7 22.8 27.5 21.1 35.2 27.9 20.0 35.8 19.2 42.4 18.4 28.1 32.2 45.4 26.2 49.8 61.3 48.7 830.8 Width (m) 7.00 5.50 5.50 3.75 7.00 3.75 3.75 5.50 7.00 5.50 5.50 7.00 5.50 5.50 5.50 5.50 3.75 3.75 5.50 3.75 3.75 3.75 5.50 3.75 3.75 Motorized Traffic (AADT) 5,896 4,247 2,936 2,134 3,056 4,530 2,338 3,885 7,039 3,043 3,127 6,030 6,010 4,540 2,552 3,030 4,780 3,864 3,367 3,505 4,276 555 3,457 1,543 2,088 91,828 Average Roughness (IRI) 3.9 4.0 6.3 7.4 5.9 5.7 5.4 7.2 3.9 4.0 3.0 4.2 4.1 4.9 4.1 5.4 7.9 6.0 5.9 5.5 8.1 8.1 7.1 6.8 8.1

WEP5 WAP1

WAP2

WAP3

WAP4 Total

5. The improvement proposals for all candidate road links include upgrading to a two lane 7.0m carriageway flexible pavement with geometric improvements and paved shoulders. The construction duration is either two or three years and the construction cash flow for the first year is considered as 30 percent and the balance 70 percent is considered for the second year or as 20 percent for the first year and 40 percent for each of the remaining two years. The following table shows the estimated road works financial costs. The total cost of the program is US$480.8 million that represents an average improvement cost of US$579,666 per kilometer.
Table 13: Proposed Road Work Cost
Package WEP1 WEP2 WEP3 WEP4 Link No, 67A 67B T8 M7D 21B 13A 13B Link Name Hoskote - H Cross H Cross - Chintamani Bypass Haveri (NH-4) - Hangal Hangal Tadasa Dharwad - Soundatti Tinthini Chinchodi-Jalhalli-KaregudDevadurga Devadurga - Masarkal - Gabbur Kalmala Shoulder Type Paved Paved Paved Paved Paved Paved Paved Cost (US$ M) 11.9 15.6 18.5 21.5 20.2 19.9 22.9 Cost (US$/km) 504,827 538,797 580,540 493,222 523,989 612,673 553,473

64

Package WEP5 WAP1

WAP2

WAP3

WAP4 Total

Link No, 6C 63A 63B 63C 63D 63E 64F 64G 19A 19B 19C 19D T21 M7B M7C M7A 10A 10B

Link Name Chowdapur - Gulbarga Malavalli - Maddur Maddur - Huliyurdurga Huliyurdurga - Kunigal Kunigal - Tumkur Tumkur - Kortagere Koratagere - Madhugiri Madhugiri - Pavagada Mudhol - Mahalingapura Mahalingapura - Kabbur Kabbur - Chikodi Chikodi - (NH-4 cross) Nippani Anandapura (on NH-206)-Shikaripura Shikaripura - Anavatti Anvatti Hangal Shimoga - Shikaripura Managili-Talikota Talikota-Devapura

Shoulder Type Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved Paved

Cost (US$ M) 16.0 21.1 16.0 10.9 21.0 18.4 12.1 21.1 13.7 24.9 11.2 19.4 21.1 27.5 24.7 14.3 30.1 27.0 480.8

Cost (US$/km) 558,449 924,060 580,018 515,905 595,421 659,593 606,560 589,019 715,407 587,009 609,925 689,144 654,594 604,729 941,675 288,001 491,177 554,066 578,666

6. The road works standards considered for the analysis include: (i) without project alternative, routine maintenance and periodic maintenance of 20 mm Premix Carpet every four years and overlay of 25 mm Semi Dense Bituminous Macadam applied at whenever the roughness reaches 8 IRI; and (ii) with project alternative, upgrading the existing carriageway to a two lane flexible pavement of designed thickness to be followed by routine maintenance and periodic maintenance of 20 mm Premix Carpet every five years and overlay of 25 mm Semi Dense Bituminous Macadam every 10 years or applied at whenever the roughness reaches 4.5 IRI, m/km. 7. The following table shows the economic evaluation results. The Net Present Value (NPV) of the road improvement component is estimated to be US$835 million, at a 12 percent discount rate over a twenty-year evaluation period. The overall Economic Internal Rate of Return (EIRR) is estimated to be 30 percent and all links yield an EIRR higher than 12 percent. Therefore, the economic evaluation of the program is satisfactory.
Table 14: Economic Evaluation Results
Package WEP1 WEP2 WEP3 WEP4 Link No, 67A 67B T8 M7D 21B 13A 13B 6C 63A Link Name Hoskote - H Cross H Cross - Chintamani Bypass Haveri (NH-4) - Hangal Hangal - Tadasa Dharwad - Soundatti Tinthini Chinchodi-Jalhalli-KaregudDevadurga Devadurga - Masarkal - Gabbur Kalmala Chowdapur - Gulbarga Malavalli - Maddur NPV (US$ M) 10.7 23.8 3.0 60.4 12.7 91.2 47.3 40.6 6.8 NPV/ Cost (#) 1.1 1.8 0.2 3.2 0.8 5.9 2.7 3.0 0.4 EIRR (%) 23.1 27.6 14.6 33.6 21.2 47.6 30.1 40.5 16.8

WEP5 WAP1

65

Package

WAP2

WAP3

WAP4 Total

Link No, 63B 63C 63D 63E 64F 64G 19A 19B 19C 19D T21 M7B M7C M7A 10A 10B

Link Name Maddur - Huliyurdurga Huliyurdurga - Kunigal Kunigal - Tumkur Tumkur - Kortagere Koratagere - Madhugiri Madhugiri - Pavagada Mudhol - Mahalingapura Mahalingapura - Kabbur Kabbur - Chikodi Chikodi - (NH-4 cross) Nippani Anandapura (on NH-206)-Shikaripura Shikaripura - Anavatti Anvatti - Hangal Shimoga - Shikaripura Managili-Talikota Talikota-Devapura

NPV (US$ M) 0.1 9.5 17.3 20.9 15.7 8.7 8.3 23.2 12.9 1.6 27.6 180.7 11.0 85.4 34.4 81.4 835.2

NPV/ Cost (#) 0.0 1.1 1.1 1.5 1.6 0.5 0.7 1.1 1.4 0.1 1.7 5.5 1.8 3.7 1.4 3.7 2.1

EIRR (%) 12.1 23.0 23.2 24.4 27.0 18.0 20.5 24.3 26.7 13.2 28.7 49.0 28.9 39.3 24.7 37.0 30.0

8. The economic evaluation was subjected to a sensitivity analysis carried out by increasing costs by 20 percent, decreasing benefits by 20 percent and increasing costs by 20 percent plus decreasing benefits by 20 percent. Under a worst-case scenario of increasing costs by 20 percent plus decreasing benefits by 20 percent, the project EIRR is 22.7 percent. The table below shows the results of the sensitivity analysis.
Table 15: Economic Evaluation Sensitivity
Base Link No, 67A 67B T8 M7D 21B 13A 13B 6C 63A 63B 63C 63D 63E 64F 64G 19A 19B 19C 19D EIRR (%) 23.1 27.6 14.6 33.6 21.2 47.6 30.1 40.5 16.8 12.1 23.0 23.2 24.4 27.0 18.0 20.5 24.3 26.7 13.2 EIRR Sensitivity Analysis B:Ben.A A:Cost+20% 20% &B (%) (%) (%) 20.1 19.5 16.8 24.3 23.7 20.8 12.2 11.7 9.5 30.0 29.3 26.2 18.1 17.4 14.7 42.6 27.0 35.3 14.3 10.0 20.1 20.1 21.5 23.7 15.4 17.5 21.0 23.1 11.1 41.6 26.3 34.2 13.8 9.6 19.5 19.5 21.0 23.1 14.9 17.0 20.4 22.5 10.6 37.2 23.5 29.8 11.5 7.6 16.9 16.8 18.5 20.1 12.5 14.4 17.5 19.4 8.6

Package WEP1 WEP2 WEP3 WEP4

WEP5 WAP1

WAP2

Link Name Hoskote - H Cross H Cross - Chintamani Bypass Haveri (NH-4) - Hangal Hangal Tadasa Dharwad - Soundatti Tinthini Chinchodi-Jalhalli-KaregudDevadurga Devadurga - Masarkal - Gabbur Kalmala Chowdapur - Gulbarga Malavalli - Maddur Maddur - Huliyurdurga Huliyurdurga - Kunigal Kunigal - Tumkur Tumkur - Kortagere Koratagere - Madhugiri Madhugiri - Pavagada Mudhol - Mahalingapura Mahalingapura - Kabbur Kabbur - Chikodi Chikodi - (NH-4 cross) Nippani

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Base Link No, T21 M7B M7C M7A 10A 10B EIRR (%) 28.7 49.0 28.9 39.3 24.7 37.0 30.0

Package WAP3

WAP4 Total

Link Name Anandapura (on NH-206)-Shikaripura Shikaripura - Anavatti Anvatti Hangal Shimoga - Shikaripura Managili-Talikota Talikota-Devapura

EIRR Sensitivity Analysis B:Ben.A A:Cost+20% 20% &B (%) (%) (%) 25.0 24.3 21.1 43.9 42.9 38.3 25.5 24.9 21.8 34.9 34.0 30.1 21.7 21.0 18.3 32.8 32.0 28.5 26.5 25.8 22.7

9. The switching values analysis shows that in order to obtain a zero NPV, investment costs need to be multiplied by 3.3 or benefits need to be multiplied by 0.31. It is estimated that 63 percent of the program benefits are resulting from a reduction on motorized traffic vehicle operating costs, while the reduction of motorized traffic passenger time costs account for 36 percent and the reduction on non-motorized road user costs account for the remainder 1 percent. II. Financial Analysis 10. The GOKs Project Preparation Consultants used a spreadsheet-based model to undertake a financial analysis of the road projects to be developed under PPP following the DBFOMT Annuity Concession approach. The financial model has the following basic structure: The Concession duration is for 10 years, including an estimated 24 to 30 months for construction and 7.5 to 8 years for Operation and Maintenance (O&M). GOK will be responsible for land acquisition, resettlement and utility relocation, whereas the selected concessionaire will be responsible for the construction and O&M of the roads as prescribed in the Concession Agreement; The selected concessionaire is expected to recover its capital and O&M expenditures through two distinct payment steams from GOK. First stream of payments will be made during the construction phase, using the proposed IBRD loan to pay a pre-specified amount (50 percent of the estimated construction costs), in two installments against achievement of specified thresholds of progress of construction and equity contribution, as detailed in the Concession Agreement. The second stream payments will be made during the O&M phase (i.e., after completion of construction and the road is operatio nal). In that phase, GOK will pay the competitively determined semi-annual payments until the end of the concession period, subject to fulfillment of performance levels stipulated in the Concession Agreement; The concessionaire shall be responsible for mobilizing the financing through a combination of debt and equity; and Tolls on the highways will not be levied by the concessionaire. However, the GOK may subsequently toll the project roads, and the revenues would accrue solely to the GOK 11. A package-wise listing of the proposed concessions, along with their respective estimated costs and the amount payable by GOK during the construction phase, is provided below.

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Table 8: Concession-wise Details

Estimated Total Project Cost (TPC, US$ mn) Overhead, contingenci Estimated es and Constructio Other costs n Cost [a] [b] Total 98 58 70 49 27 14 19 11 125 72 89 60 Payment by GOK (US$mn ) During Construction % of Base Amou Constn. nt Cost 49 29 35 24 50 50 50 49

Sl. No. 1) 2) 3) 4)

DBFOMT Annuity Concession WAP 1: MalavalliPavagada WAP 2: Mudhol-Nippani WAP 3: ShimogaAnandpuram WAP 4: ManaguliDevpura

Length (Km) 190 108 154 110

Total (US$ mn) 562 275 71 346 137 50 Notes [a] comprises of expenditure towards site clearance, earthworks, pavement construction, structures, drainage and protective works, sign marking and other traffic control/safety devices, environment management plan and sundries. [b] comprises of overhead construction cost and insurance cost, contingencies during construction, supervision costs, physical contingencies, financing charges and interest during construction [c] 1 US$ = Rs.45/Source: Financial Analysis by DPR Consultants, M/s Scott Wilson, dated December 2010

12. The primary output of the consultants financial modeling exercise is an estimated annuity amount for each project in order to yield the market-prevailing returns and minimum threshold at which the Indian PPP market would consider the projects to be bankable and attractive for private sector financing. The financial modeling is examined for (a) the reasonableness of the critical inputs and assumptions underpinning the model and (b) the impact of variations in those assumptions on the estimated annuity amounts. In addition, the total estimated annuity payments were examined against certain key fiscal parameters of the Government of Karnataka, to arrive at an indicative assessment of its ability to meet those payment obligations. The assumptions related to financing, the long-term loan rates and equity return expectations in particular, are also broadly representative of current market conditions for road sector projects with private equity and debt participation in India. Also, a sensitivity analysis was carried out on the four DBFOMT Annuity Concession models to test the impacts of increase and decrease in the two critical variables that reflect changes in prices and contingency, viz., construction cost and interest rates. Based on these analyses, at the estimated levels of annuity payments, the projects are expected to be attractive for the potential private developers and also bankable. 13. In parallel, a quick review of GOKs MTFP projected expenditures on Major O&M and Capital Formation suggests that the government has adequate capacity to pay the total yearly annuity payments for all the four projects in the base case scenario or in the more restrictive scenario where the construction costs and interest rate increase, respectively, by five percent and one percent. In view of this, the GOK annuity payment risk is considered to be relatively low. The GOK is very creditworthy9 and has substantial debt capacity to accommodate increases in

Fitchs rating for Karnataka State Financial Corporation bonds implies a GOK AA- rating. See Fitch Ratings (28 January, 2010 ), Karnataka State Financial Corporation

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the annuity payments, as well as the IBRD annual debt service payments, as discussed in the Fiscal Impact Analysis section below. III. Fiscal Impact Analysis 14. The primary fiscal impact of the IBRD loan is on the states debt burden and future expenditure obligations of the project. A fiscal analysis was carried out at a macro- and projectlevel to determine the implied impact of the project on the states fiscal situation. The macro level looks at the states ability to support the IBRD debt and annuity commitments, while the project-level review the expenditures incurred and the revenues generated (road user charges and direct and indirect tax revenues) as a result of doing this project. State-Wide Macro Fiscal Impacts 15. The fiscal impact analysis uses two debt burden ratios: Total Consolidated Debt Stock to GSDP and Debt Service to Own State Revenues. The primary contributors to the changes in the states fiscal condition are the capital expenditures required to upgrade the four DBFOMT annuity concessions and item-rate contracts. In addition, any KRDCL borrowing, while it is offbudget, may have contingent liability. Debt burden is the primary indicator used by credit rating agencies to measure a states ability to make interest and principal payments for existing and future debt. It also gives an indication of the states ability to fund future capital expenditures and the impact of debt service payments on the delivery of services and payment of social obligations such as pension and social security. 16. The consolidated debt to GSDP ratio provides a picture of the extent to which the state may incur addition debt to support its capital budget. The debt service to own source revenue ratio assess the impact of the additional KSHIP debt service payments on GOK operations. 17. The source of GOK debt service payments is primarily own source revenues. The GOK receives tax transfers from the GOI, but these are mostly passed through to specific spending programs. Increasing GOK debt service payments constrains its capacity to use its own source revenues for essential or non-discretionary operating expenditures such as salaries, pensions, maintenance of assets, and subsidies. These expenditures, including interest, consumed 70 percent of the states own source tax and non-tax revenue in 2009-1010. 18. Table 9 presents current debt burden ratios (without KSHIP II) derived from the 2010-2014 MTFP. The table shows that debt service payments are projected to rise over 50 percent between FY10-11 and FY12-13. However, a 46 percent increase in own source revenues in the same period limits the 1.87 percent increase in the debt service to own source revenue ratio This shows a stable relationship between current and capital spending to maintain services while continuing to invest in its capital program while retaining the GOKs conservative fiscal and revenue deficit targets. The projection is based on the MTFPs 4.5 percent WPI inflation and 8 percent real GSDP growth assumptions that drive the revenue and expenditure forecasts.

10

2010-14 MTFP, page 26.

69

19. The decline in the estimated/projected consolidated debt to GSDP ratio from 27.89 percent to 26.98 percent between FY10-11 and FY13-14 provides additional fiscal space for increased capital expenditures. A decrease in this ratio may reflect a faster pace of debt retirement than debt accumulation; an increase in pay-as-you go spending for capital investment; or reduced capital spending to accommodate increases in current revenue support for salaries, pensions, subsidies, grants in aid, maintenance of assets and social security payments (inflexible expenditures). These inflexible expenditures, plus interest, consume 70 percent of the States own source revenues. 20. Regardless of the cause of a lower debt service to own source revenue ratio, as Table 9: Key 2010-2014 Medium Term Fiscal Plan Indicators (without KSHIP II Debt) demonstrates, there appears to be sufficient fiscal space to support borrowing for KSHIP II and/or other capital investments
Table 9: Key 2010-2014 Medium Term Fiscal Plan Indicators (without KSHIP II Debt) MTFP Indicator FY10-11 FY11-12 FY12-13 FY13-14 BE Projected Projected Projected Debt Service 1.95 2.39 2.76 3.06 State Own Tax Revenue 8.05 9.14 10.37 11.77 Debt Service/State Own Source 24.13% 26.14% 26.62% 26% Revenue GSDP (at current prices) 72.96 82.34 92.93 104.88 Consolidated Debt Stock 20.35 22.66 25.31 28.3 Consolidated Debt Stock/GSDP 27.89% 27.52% 27.23% 26.98%
Source: GOK MTFP 2010-14; Scott Wilson Detailed Project Reports, Nov. 2010, and IBRD

KSHIP II Impact on the GOKs Debt Burden. 21. Table 10 shows the impacts on the debt burden ratios for the GOKs additional outstanding debt and debt service payment obligations required for the KSHIP II program . These obligations include: US$172.15 million IBRD loan for the 50 percent grants to the four DBOMT (Annuity) concessionaires; US$127.85 million IBRD loans for the item-rate contracts; US$145 million commercial bank loans to the four DBFOMT concessionaires to fund the remaining capital expenditure for the projects.

22. The outstanding debt increases by 460 million between FY2010-11 through FY2012-13, but reduced to 439 million in FY2013-14 due to a commercial loan amortization payment. The IBRD loan has a 5-year grace and does not have any principal payments during this period. The small increments of outstanding debt and debt service payments relative to the size of the GOKs GSDP and own source revenues results in a minimal increase in the debt burden ratios. This demonstrates that the State has substantial debt capacity to meet KSHIP II debt service payments and retains sufficient additional capacity to fund its MTFP capital program.

70

Table 10: KSHIP II Impact on MTFP Indicators (US$ billions) FY10-11 BE FY11-12 FY12-13 FY13-14 Projected Projected Projected KSHIP II Debt Service .009 .023 .036 .067 (IBRD, Annuity Payment) Increase in Debt 24.34% 26.40% 26.96% 26.57% (0.57%) Service/State Own Tax (+0.21%) (+0.26%) (+0.34%) Revenue with KSHIP II Borrowing KSHIP II Debt Stock .460 .460 .460 0.439 (IBRD, Annuity Component) Increase in Consolidated 28.93% 28.44% 28.05% 27.69% Debt Stock/GSDP with (+1.04%) (+0.92%) (+0.82%) (+0.71%) KSHIP II Debt Stock
Source: GOK MTFP 2010-14; Scott Wilson Detailed Project Reports, Nov. 2010, and IBRD.

Project Level Fiscal Impact 23. A fiscal impact analysis has been done at the project level, comparing net revenues for GOK in with the project, and without the project scenarios. The analysis was conducted over 20 years, starting from 2011, and in 2011 constant prices. Cash flows were calculated for each of these years, taking into account the total expenditure on the project links on the one side and the total direct and indirect revenues generated by the roads on the other side. 24. Total Expenditure. In both scenarios, maintenance expenditure is estimated as provided in the HDM-4 economic analysis input data. Maintenance is the only source of expenditure in the without project scenario during the 20-year period. In the with-project scenario, total construction cost is taken into account for the first two or three years of the project according to the link considered. Only 50 percent of the construction costs are borne by the government in the annuity concessions, whereas 100 percent of the construction costs are funded by the government in the item-rate packages. For annuity packages, an annuity payment has to be paid every six months from year three or four to year ten after the beginning of the project. Finally, the World Banks loan repayments and interests payments occur after a five-year long grace period and repaid in 18 years. 25. Total Revenues. Revenues sources are mostly Karnataka State taxes. Direct taxes revenues have been taken into consideration for the following sources: taxes on construction expenditure, taxes on maintenance expenditure, fuel taxes, taxes on lubricants, tires and vehicle p arts consumption, VAT on new vehicle sales and quarterly and lifetime taxes on vehicles. Central Government tax revenues were neglected in this analysis 11. Indirect tax revenues will be generated by the activity created by construction and maintenance acti vities thanks to a multiplier effect. This additional revenue has been estimated to four times 12 percent of total
11

Central Government has the authority to levy taxes on income, customs duties, central excise and service tax. The states share in union governments tax revenue was 28 percent for the period 2000-2005. Among this share, revenues are split between all the states with the poorest states receiving more than the richest ones. Only 4.6 percent of the states share goes to GOK.

71

spending on construction and maintenance. After improvement of the links, road user costs will decrease and thus consumption of other goods than fuel and vehicle parts is likely to increase, which will generate extra VAT revenues and further activity that will also generate VAT revenues. This effect has also been taken into account in the analysis. 26. Net Fiscal Impact. The following table shows the results of the analysis. The present value of the fiscal impact (calculated with a 12 percent discount rate) is positive for Item-rate contracts, which indicates that the fiscal revenues generated by the project will more than compensate the expenditure. Whereas total expenditure on these roads will increase by US$199.5 million as compared to the without project scenario, total revenue will increase by US$204.3 million, resulting in a positive fiscal impact of US$4.9 million (in present value terms). O n the other hand, the present value of the fiscal impact for Annuity concessions is negative. For these roads, expenditure will increase by US$481.5 million and revenue will increase by US$424.5 million, resulting in a loss for GOK of US$57.0 million. The overall fiscal impact present value for the project is therefore US$-52.1 million.

Table 11: Fiscal Impact at the Project Level

PV Expenditure Project Category Item-rate Contracts Annuity Concessions Total Without project 10.7 27.6 38.2 With project 210.1 509.1 719.2 Net Expenditure 199.5 481.5 681.0 Without project 205.1 387.0 592.1 PV Revenue with project 409.4 811.6 1,221.0 Net revenue 204.3 424.5 628.8 NPV Fiscal Impact (Net Revenue-Net Expenditure) 4.9 -57.0 -52.1

27. These results indicate that the item-rate contracts will pay for themselves since they will generate more revenue than what they will cost. The higher expenditure for annuity concessions is related to the annuity payments, which reflect the financing costs, as well as the improved services due to the secured maintenance provided by the concessionaire. In addition, unlike the item-rate contracts, the annuity concessions do not have additional costs from contingencies. The service level provided by the annuity concessions are higher since there is a guaranteed maintenance and user would continue to gain reduction in transportation costs, which would in turn feed into the economy and government revenue. Yet, to compensate for the loss of fiscal revenue due to higher annuity payment, a strategy would be to introduce a toll system capturing a fraction of the road users benefits due to the roads improvement.

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INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 8: Institutional Development and Strengthening Action Plan 2010-2016 Major Objectives and Key Result Areas 1. The Government of Karnataka (GOK) has given its endorsement to an Institutional Development and Strengthening Action Plan (IDSAP) that will be implemented with Project support over the period 2010 2016. The endorsed Action Plan involves various early milestones for catalytic actions on sector policy, road funding reforms, governance, road maintenance planning and operational enhancements in the Public Works Department (PWD), as well as medium-term strategic targets in (e.g.) asset management, network master planning, quality management, human resources development and new road safety programs. Wherever appropriate and synergistic, the IDSAP elements are linked with and/or give support to action on matters being addressed in the Project-facilitated Governance and Accountability Action Plan (GAAP), to strengthen the interventions that in various ways aim to deal with the operational risks and governance challenges in the Project environment. 2. The major IDSAP objectives and the related key results area(s) are summarized in a matrix format presented at pages 79 through 82 of this Annex. 3. The GOK has confirmed that the IDSAP is being embraced by both the World Bank and the Asian Development Bank (ADB) as the basis for a harmonized and efficient inter-donor approach to providing support for the GOK plans for ongoing institutional reforms and enhanced service delivery in the states roads sector. The IDSAP will be jointly treated as a living document, with the major areas to be updated at major intervals during its timeframe between the responsible GOK agencies, the World Bank and the ADB. This will ensure the IDSAP is responsive to any significant changes in the IDSAP implementation environment and/or in aspects of the overall Project strategy, which may affect the IDSAP. 4. When duly expanded by the GOK and its PWD into a more detailed action program, the IDSAP will be implemented with a carefully targeted range of external assistance financed both under this Project and via current and planned ADB roads investment and technical assistance operations focused on Karnataka. The more detailed working level IDSAP will provide specific details of individual targets and sub-targets, the range of required outputs, the actions to be taken, the assigned milestones and the respective accountabilities across the GOK and the concerned Karnataka agencies. The more comprehensive working level IDSAP shall be established by Project launch and will be made publicly accessible during the Project period via the dedicated website being established for this Project. 5. Within the GOK, the IDSAP implementation process will be supported by the KSHIP Project Implementation Unit (PIU), specifically by the Institutional Development and Strengthening (IDS) cell being established there. In this way, the PWD will take lead responsibility for facilitating the IDSAP implementation process across the various PWD areas and other involved GOK entities, such as the Transport Department and the KSHTTA. The planned IDS Cell will also be responsible for IDSAP implementation progress monitoring and reporting, for both GOK and Bank purposes and requirements. Overall progress and results in IDSAP implementation will also be monitored periodically by the high-level empowered Project Steering Committee for the KSHIP II, who will have responsibility on behalf of the GOK for resolving any critical issues that may jeopardize achievement of the intended outcomes of the IDSAP. 73

INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Institutional Development and Action Plan [IDSAP] 2010 2016 Summary Matrix
S. Objective Key Result Area and Timing No. Roads Sector Strategy and Sustainability 1 Effective sector Revised PWD code (D-Code) authorized by GOK (June 2011) policy, Transport Dept. confirmed by GOK as lead (nodal) agency for stateresponsibilities wide Road Safety strategy, action planning and coordination (October and 2010) empowerment G.O. updating Karnataka Road Sector Policy (2009) on new Planning and Asset Management Centre role / functions (November 2010) G.O. on revised Karnataka State Highways Transport and Traffic Authority (KSHTTA) role and functioning as sector apex body (November 2010) Establish KSH Act-based GOK tolling powers for both public and PPP-based roads via new Regulations (September 2010) Finalize D-Code Safety During Construction section (June 2011). New Road Asset Management Policy (RAMP) in place (December 2011). Updated road classification and responsibility framework (December 2011). Karnataka Road Sector Policy of 2009 reviewed / updated (June 2013). 2 Establish and Confirmation of the Core Road Network (CRN) and of assigned CRN manage management responsibility at CE level in PWD (June 2011) prioritized Core CRN asset management guidelines and plan(s) established (March Road Network 2012) (CRN) Capacity-building in PWD for CRN management completed (June 2012) 3 Adequate CRN GOK to formulate financing strategy and institutional measures for funding CRN development and management (December 2011) GOK considers establishment of Road Fund (August 2011). 4 Increased Capacity building in PPP project management skills in PWD (including private sector for KRDCL, KSHIP-PIU and NH units) completed (March 2012). participation Initial 3 PPP-based CRN improvement projects underway (June 2012). (PSP) Piloting of PPP-based CRN O&M contracts/concessions underway (June 2013). 5 Effective Implement new Planning functions and capacity in PWD (November Transport sector 2011). infrastructure Finalize and roll-out new state-level Roads Master Plan (August 2011). master planning Implement Planning Road Asset Management System (PRAMS) in PWD to support CRN investment planning (December 2011). Draft GOK policy on multi-modal / inter-modal transport development strategy and investment planning, developed (June 2013). Asset Management 6 Computerized Software for Road Asset Maintenance and Management System road network (RAMMS), integrated with (also-updated) RIS and GIS databases, Asset ready for PWD pilot operation and evaluation ( September 2011). Lead Partner N/A N/A

ADB N/A

N/A ADB ADB ABD&W B WB N/A ADB ADB&W B N/A WB ADB&W B WB WB ADB ADB ADB ADB&W B ADB

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S. No.

Objective Management system, procedures and capacity

Key Result Area and Timing

Dedicated RAMMS responsibility assigned in HQ of PWD (December 2011). Establish and implement RAMMS manual and PWD training ( March 2012). RAMP-based Action Plan implemented by PWD (June 2012). RAMMS fully operational in dedicated PWD unit and is providing outputs directly for use in GOK road maintenance budget decisionmaking and allocation processes for IFY 2013-2014 and onwards (October 2012). New PWD asset protection policy and guidelines for CRN-centered administration of vehicle axle-load limits, developed (December 2012). Project Preparation, Implementation and Management 7 Comprehensive PWD piloting of IT-based Project Management tools (with progress / PWD project performance monitoring and reporting) underway for works of Rs. 50 management Crores and over (March 2012). procedures, PWD-wide training-supported implementation of Project Management systems and system (with integrated progress/performance monitoring and practices reporting) completed for PWD projects of Rs. 10 Crores and over (June 2014). 8 Effective G.O. issued on application of Environment and Social Management Environment (E&SM) provisions in D-Code to projects of Rs. 50 Crores and over and Social (August 2011). Management E&SM codes, functions, staffing and logistics in place and effectively (safeguards) involved in pilot-batch of PWD North and South Zones projects (June capacity 2012). Externally-certified PWD pilot of Streamlined Environmental Management completed and evaluated (December 2013). Governance and Accountability 9 Satisfactory GOK-endorsed, RTI-compliant Governance and Accountability Action sector public Plan (GAAP) for KSHIP established (February 2011) information, KSHTTA status and responsibilities updated (June 2012). governance and KSHTTA-centered mechanisms for public and stakeholder accountability consultations on roads-related matters in place (December 2012). mechanisms Main GAAP-based actions and capacity building completed (December 2013) Periodic road user satisfaction surveys completed and results publicized via KSHTTA (June 2011, April 2012 and April 2015). 10 Effective PWD Second-round ISO-certification QMS program for remaining PWD framework, units, KSHIP (PIU) and KRDCL completed (June 2013). functions and Strengthening of QC laboratory / testing skills, equipment and capacity for resources in PWD field units completed (December 2013). Quality Review undertaken by IR-RAASTA / effectiveness in PWD of full ISO management / QMS program (March 2014). 11 E-governance E-procurement facilities in place in PWD for major procurements, systems and extended to procurements of Rs. 5 Lakhs or more (April 2011). capacity in Implement e-billing, e-contract management and other e-governance place in PWD facilities progressively in PWD (December 2013). Road Safety

Lead Partner ADB ADB ADB ADB&W B

WB

WB

WB

N/A

WB

WB

N/A ADB ADB&W B WB WB WB WB WB ADB&W B ADB

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S. No. 12

Objective Effective statelevel Road Safety strategy, capacity and action

Key Result Area and Timing

Finalize TOR for piloting of Traffic Incident Management System (TIMS) on selected CRN corridors (March 2011). Re-activate RAAS with RIS linkage and implement pilot jointly between Transport Department and PWD (December 2011). Capacity building for Transport Dept. and other GOK agencies for new RS roles and responsibilities completed (December 2012). Implement new Centre of Excellence for RS training, education and research involving GOK and major stakeholders (June 2013). Pilot safe corridors action program completed (December 2014). New comprehensive state-level RS strategy and capacities in place and new RS Action Plan being implemented by GOK (June 2015). Multi-year black-spot mitigation program completed (June 2016). Organizational Structure and Management Processes 13 Efficient Establishment actions and essential staffing measures completed for structures and enhanced PWD functions/responsibilities (December 2012). capacity for Effective sustainability measures being taken by PWD for new core, evolving roads critical and/or specialized functions and skills (June 2014). responsibilities. 14 Updated Revised authorized D-Code published and fully implemented both framework for PWD-wide and in concerned sector areas (December 2011). PWD role and Cyclical review / updating of D-Code undertaken (June 2014). outputs 15 Effective IT and Medium-term prioritized IT-ICT-MIS Strategy and Action Plan ICT resources covering relevant technology, facilities, assets and capacities for PWD to support all core IT-ICT management and operational support functions, in place PWD (December 2012). management IT establishment and staffing in PWD strengthened sustainably in functions and essential skills / capacities (December 2012). responsibilities External resources / capacity needed for sustainability in IT-ICT operations, user support and data/system security in PWD, in place (December 2013). 16 Effective ITIntegration of localized FM tools in PWD into a comprehensive supported PWD agency-wide IT-based Financial Management Information System, accounting and compatible with the GOK Treasury system, fully operational financial (December 2012). management Human Resources Development 17 Sound PWD Finalization and implementation of general Training strategy, Action staffing profile, Plan and ongoing training calendar for PWD staff (August 2010 and skills mix and ongoing). competencies Creation of a Budget sub-item for Staff Training (April 2011). for its evolving Working Group (WG) proposals on enhancement of standard APR for functions and PWD needs submitted to GOK (December 2011). responsibilities Training-supported roll-out of enhanced APR PWD-wide completed (December 2012). Enhanced PWD core skills training suite [inter alia covering PPP/PSP, Asset Management, Road Safety, E&SM, Quality, Public Communication and Information, Ethics and Governance] fully implemented (December 2012 and ongoing).

Lead Partner ADB ADB WB WB&AD B WB WB WB N/A ADB&W B N/A WB WB&AD B

ADB&W B WB

WB

ADB

N/A WB WB ADB&W B

76

S. No.

Objective

Key Result Area and Timing Review-based measures to strengthen the HR (HRM and HRD) functions, staffing, MIS and other resources to support PWD, KRDCL and KSHIP, implemented (June 2013). Review of evolving PWD functions, organization and staffing relative to road sector challenges, and identification of future institutional development strategy and options for GOK consideration, completed (March 2014).

Lead Partner WB

WB

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INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT Annex 9: Governance and Accountability Action Plan Background: Overall Governance and Accountability Arrangement in Karnataka 1. Karnataka is one of the most forward-looking states in India in promoting initiatives to make its governance citizen friendly, transparent and responsive. The Government of Karnataka (GOK) has undertaken a number of initiatives including: e-procurement, Khajane (computerized transactions for the Treasury), Karnataka State Wide Area Network (KSWAN), Attendance Monitoring System/Flexi-time, Bhoomi (digitization of land records), Nemmadi, Stamps and Registration. The GOK has also introduced many other reforms such as citizens charter, public hearing and online complaints system to promote administrative accountability in the state. In recent years, Karnataka has privatized or restructured several government-owned enterprises to improve service quality, including public transport provision, energy distribution, solid waste management, and parking management. 2. Karnataka has a well-established system for investigation of alleged cases of irregularities in respect of duties discharged by public servants. Investigation of implementing agencies and high-level government officials is conducted by an independent agency, the Lokayukta, which is a similar institution of the state as the Central Vigilance Commission (CVC) at the Central level. The Lokayukta, headed by retired judges, has jurisdictions over all implementing agencies and government officials except for the Chief Minister and his Cabinet Ministers. It has offices in all the districts of the state and has a website (http://lokayukta.kar.nic.in). Any member of the public can contact the Lokayukta to complain about any aspect of the administration. In addition, the Lokayukta also takes suo moto cognizance of media reports or newspaper articles to follow up with investigations fraud and corruption cases. Governance and Accountability Arrangement in Public Works Department 3. Within the overall context of the state governance structure, the PWD has undertaken several measures to improve its governance and acceptability arrangement for its activities. The most notable ones include: Creation of departmental web portal (www.kpwd.gov.in) Establishment of GIS based Road Information System (WEBRIS) through the web, which would allow to track the condition of roads Implementation of e-procurement for all tenders worth more than Rs. 20 Lakh12 Introduction of ISO 9001-2008 Quality Management certification at 21 PWD offices Adoption of Standard Bidding Documents (SBD) based on international practices Approved the Infrastructure Policy of Karnataka (2007) to enable taking up of road projects on PPP basis Payment of invoices through the treasury (Khajane)

12

Extension of e-procurement for all works under Rs. 5 lakh is already in process.

78

Adoption of the Institutional Strengthening Action Plan, with significant resources allocated from the project to improve project management and organization capacity of the PWD.

Governance and Accountability Arrangement in the Project Implementation Unit 4. The PIU has benefited from the state-wide and PWD-wide governance initiative. It has also been involved in the implementation of the first Bank-financed KSHIP, as such has a good capacity to implement a follow on project. As part of the project implementation KSHIP I and the requirements for a follow on project, the PIU has undertaken several steps to improve its governance structure and its ability to implement the project effectively and transparently. Adoption of R&R policy and constitution of Grievance Redressal Cell to address grievances of Project Affected Families, Payment of invoices through the treasury (Khajane) Conduction of Road User Satisfaction Survey on a periodic basis Introduction of Public Private Partnerships in the state road sector Financial management systems comprising budgeting, accounting, internal controls, financial reporting and auditing were strengthened during the implementation of KSHIPI. E-payment is proposed to be made operational for payment of invoices to Contractors / Consultants.

5. Notwithstanding the improvements the PIU has made, there are a number of areas where governance could improve, especially in the areas of disclosure, complaint handling system and third-party monitoring. Accordingly, a Governance and Accountability Action Plan (GAAP) has been prepared to improve these aspects of the governance in the PIU. The GAAP has been prepared taking into consideration the key risks in project implementation and lessons learnt from the first KSHIP and the measures that are already or would be in place to mitigate the impact of the risks related to implementation and governance risks on the achievement of the Project Development Objective. The GAAP also builds on the Right to Information Act (RTIA, 2005), the Karnataka Lokayukta Act (1984), the Prevention of Corruption Act (1988) and several initiatives the GOK has undertaken to improve governance in Karnataka. Based on the existing legal framework and GOK policy directives, the GAAP is designed to improve the PIUs procedures and capacity for better governance and create a forum for public participation during the implementation of the project. The GAAP 6. Based on a review of current practices in Karnataka and India and lessons learned from similar projects elsewhere, a number of actions have been identified to improve governance in the PIU related to the above three areas. The actions include project-level support to implement the provisions of the RTI Act in the PIU, and revamp the complaint handling system (taking into account the role of the Lokayukta and PWDs own investigation unit), and third party monitoring. In addition, the GAAP has close linkages with the IDSAP, which is directed at improving systems and procedures in PWD and the PIU. Actions to improve information disclosure

79

7. The Right to Information Act, 2005 (RTI Act) mandates the disclosure of and universal access to information wherever in the public interest. Compliance to the Act is required for all public entities including the PIU. The implementation of the RTIA requires substantial resources to put in place systems and procedures for both on demand and suo moto disclosures of information. The proposed project will provide the required funding and technical assistance for the PIU to improve its system and procedures so that information about KSHIP II is widely available to the public. 8. To enable the KSHIP staff to respond to public requests for better information, training programs will be arranged for all KSHIP officers for in-depth understanding of the RTI Act, in suitable institutions such as ATI-Mysore, DTIs, KERS, DPAR, etc., and also, by inviting outside experts to the PIU-KSHIP. 9. The PIU has formulated a comprehensive project disclosure policy, identifying which documents from KSHIP are to be disclosed. This disclosure also complies with the new World Bank Disclosure Policy. For effective and timely dissemination of information, the PIU has established a dedicated website for KSHIP II (www.kship.org). The website is a good start, but it requires improvements both, in content and style. The project will provide support for the improvement of the website and other means of dissemination of information. All project documents will be duly catalogued, indexed and computerized, as appropriate, to facilitate their access and retrieval. In addition, as per the mandate of the Act, the PIU has appointed an Appellate Authority, Public Information Officer and Assistant Public Information Officer for the PIU, and the field units involved in the implementation of the project. 10. The project will also provide support for improved integration and enhancement of the IT ICT-MIS (hardware and software) assets and facilities in the PWD to put in place a comprehensive IT-ICT platform and tools for PWD-wide functions in project planning and implementation, contract management and financial management. 11. PWD has already gone ahead with e-procurement of works for more than two and a half years (since January 1, 2008). To enhance transparency and efficiency of procurement in KSHIP, the PIU and WB should expedite and ensure that the e-procurement process will be revised to meet the requirements of the World Bank on robustness and user-friendliness and adopted for the project13as soon as possible. A database of information on all contracts, bid prices, specifications, unit prices, contractor participation and performance, price variations, time and cost overruns etc will be developed for KSHIP projects to create benchmarks for future reference. Actions to enhance complaint handling 12. The complaint handling system for the PIU will follow the established procedures in the PWD and Lokayukta, with additional provisions for monitoring and tracking of response to complaints.

13

After obtaining clearance from the World Bank

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13. The PIU will establish a Complaint Handling Cell, which will be headed by a Complaint Management Officer (CMO) of the rank of Executive Engineer or Superintending Engineer to handle and oversee all complaints regarding KSHIP II. The CMO will be supported by two assistants from the Establishment and Engineering sections of the PIU, KSHIP. 14. For complaints relating to fraud and corruption, an officer from Administration Section of the PIU, KSHIP will be designated as the Internal Vigilance Officer to handle and follow up on all F&C cases and ensure proper investigation is done and followed up. Complaints deemed serious infringements will be referred for further investigation by the Internal Vigilance Officer to the Chief Project Officer of the PIU for further action and for reporting. Complaints of fraud and corruption of higher-level officers in the PIU will be referred to the Principal Secretary (PWD) for further action. Independently, these cases may also be referred to the Lokayukta for investigation as well. 15. For complaints regarding quality of construction, resettlement and other project implementation issues, the CMO of the PIU, KSHIP will be the nodal officer. The Contact information (dedicated email address, phone numbers) of the complaint handling and vigilance officials shall be widely publicized. 16. Monitoring of the complaints will be done as per the procedures laid out in the complaint handling mechanism. Details of complaints received and their resolution will also be submitted to the Bank quarterly. Tracking of the status of complaints, related investigations and measures taken will be reported monthly by the CMO to the Chief Project Officer. All F& C complaints and investigation will be included in quarterly reports to the Bank. For efficient decision-making and file-tracking, a document management system with electronic movement of files will be explored.14 Actions to Enhance Quality and Project Monitoring 17. The current quality monitoring system involves three levels of checks by the contractor, construction supervision consultant (CSC) and the PIU engineers (Client). In addition, the Quality Assurance wing of the PWD has been mandated to conduct quality inspections. Further, the Works Monitoring Cell of the PWD is also responsible for monitoring quality through specific investigations, either on the advice of the PWD or based on complaints received from the public or media. 18. In some cases, however, the current check-and-balance and monitoring system may miss some aspects of quality, and more importantly does not create a space for wider stakeholder participation. For this reason, it is proposed that the PIU pilot a third-party monitoring. 19. To enhance quality of works, the PIU has agreed in principle to pilot third-party monitoring of project works through the use of empanelled retired engineers of high integrity and/or reputed engineering colleges/technical institutions. This will be a nice complement to the task force constituted by GOK with outside experts drawn from the profession and academia for ensuring quality in all civil works, that reports directly to the Chief Minister.
14

Hard copies with signatures of all competent authorities shall be preserved only after a decision has been made.

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Actions to Enhance Institutions and Project Coordination 20. In 1999, the GOK incorporated KRDCL as a wholly owned government company (under the Companies Act) for undertaking projects that are economically viable and strategically important. It is also responsible for developing, maintaining and operating roads, highways, bridges, and public facilities on a publicprivate partnership basis. KRDCL works are funded from a number of sources, including budgetary provisions for specific projects and loans from the Housing and Urban Development Corporation (with principal and interest payments guaranteed by the government). KRDCL has been tasked with the responsibility of executing projects including those based on PPP model for which TA services will be procured under KSHIP II. To enable KRDCL to fulfill its mandate and develop its capacity to undertake more such projects in the future, the WB is of the view that KRDCL needs to embrace best corporate practices. As such, the project would facilitate this by initiating a corporate governance assessment of KRDCL, followed by concrete measures to strengthen its structure and functional capabilities. Development of monitoring indicators for compliance and outcomes 21. The CMO has also been tasked with the implementation of the actions under the GAAP. The PIU and the Bank team will review the implementation of the GAAP during the supervision missions and a comprehensive review at mid-term. This will enable an evaluation of the GAAPs effectiveness and opportunity for any mid-course corrections.
S. No. 1. GAAP Element Information disclosure Complaint handling Performance Benchmark(s) frequency and comprehensiveness of website updates, comprehensiveness of information available on citizen information boards at site(s), periodic review of statistics based on records on the KSHIP website; field level checks to ensure that problems are being reported and acted upon; and review of quarterly reports on complaint handling submitted to the Bank harnessing of third parties in review of project design and monitoring, periodicity of reports of the impact assessment and user satisfaction surveys. Timeliness in completion of tasks by KRDCL progress in implementation of online complaints handling system, procurement and project management database and the project MIS. Percentage of staff and officers sent for training including on RTIA

Quality Control/ project coordination Institutional improvements Capacity

4 5

Indicative Costs 22. The cost of the GAAP implementation is part of the technical assistance component of the project comprising of: (a) cost to develop MIS; (b) costs to develop online complaint handling mechanism; (c) costs to commission third-party monitors/quality assurance consultants; (d) costs to commission the annual impact assessment and user satisfaction surveys; (e) cost of training staff.

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Table 1: Governance and Accountability Action Plan

1. Policy actions to enhance transparency Risk Area Action(s) to be taken to mitigate risk Timeline/Status Implement ing Officials PIO, APIO, All PIU staff PIU PIU Bank, KSHIP

Lack of transparency and accountability that may adversely affect project outcomes.

Project-level Formulate a proactive public disclosure policy and disclose all project information to the public through the KSHIP website. Appoint Appellate authority, PIO, APIO at PIU and in the field units Enhance website for clarity of content and style of project related information Engagement with media during supervision missions to highlight issues. Entity-level Widely publicise both internally and externally - the existing Civil Service Conduct Rules governing sanctions for staff.

Policy formulated and agreed upon. Appointed Continuous As needed.

June 2011

KPWD, Vigilance Officials

2. Measures to enhance procedures Corruption/ Project-level collusion in Revise e-procurement process to conform to procurement; World Bank requirements on robustness and weak financial user-friendliness management Enable online contractor registration and complaint Entity-level handling procedures; Establish complaint-handling cell, appoint a complaint management officer (CMO) and internal vigilance officer (IVO) and establish procedures to deal with different types of complaints. Maintain an updated database on complaints received and action taken for suo moto or ondemand public disclosure. Notify details of the process for disqualification of bidders who engage in misrepresentation/ fraudulent/ corrupt practices on KSHIP website. Create workgroup to assess feasibility of online contractor registration for all departmental works Initiate corporate governance assessment of KRDCL; Implement key recommendations 3. Measures to strengthen institutions Weak complaint handling Project-level Develop a project MIS for effective project monitoring and review and link it to the web

By Negotiations

PIU

December 2012

PIU

Completed

PIU Vigilance Officials

From project start

PIO, IVO

APIO,

June 2011

Vigilance officials, PIU KPWD

March 2011

September 2011; December 2012

Upon approval GOK

by

To be developed during the 1st year

PIU

83

mechanisms, project management, quality control and asset maintenance

for quick review and follow up action. Commission impact assessment studies and user satisfaction surveys to obtain user feedback Empanel third-party mechanism to review highway designs and quality of works. Start compiling database on number of bids, bid prices, unit prices, specifications, contractor performance for future reference. Entity-level Make Finance Management Manual fully functional. Pilot an online system for registering, tracking and monitoring of complaints under the project for department wide rollout by end of project. Maintain asset registers under the Road Information System.

of project implementation Annual

PIU

By Negotiations. June 2011

PIU Procurement officials of KSHIP PIU Vigilance and Complaint Management Officers KPWD

Ongoing June 2011

Annually by June of every year

4. Measures to enhance human resources (all at entity-level) Weak implementation arrangements that may adversely affect project processes and results Identify G&A-related staff training needs, finalize training plan and conduct appropriate PWD-wide staff training. Conduct knowledge-sharing workshops for KSHIP staff and contractors/developers on PPP and new contracting methods. Conduct training on RTIA for all KSHIP officers and staff Continuous KPWD

Periodically.

PIU, Bank

Continuous

PIO, APIO

84