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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No.: 59089 - IN
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$350 MILLION
TO THE
REPUBLIC OF INDIA
FOR THE
SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT
February 24, 2011
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.
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INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT
CURRENCY EQUIVALENTS
(Exchange Rate Effective – February 1, 2011)
Currency Unit = Indian Rupees (Rs.)
US$1 = 45 Rs.
1 lakh = 100,000
1 Crore (Cr.) = 10,000,000
FISCAL YEAR
April 1 – March 31
ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic MCA Model Concession Agreement
AG Auditor General MDR Major District Roads
CAA&A Controller of Aid Accounts and Audit. M&E Monitoring and Evaluation
CAG Comptroller and Auditor General of India NCB National Competitive Bidding
CRN Core Road Network NHDP National Highways Development
Program
DBFOMT Design Build Finance Operate Maintain
Transfer
NPV Net Present Value
DEA Department of Economic Affairs ODR Other District Roads
DPR Detailed Project Report O&M Operation and Maintenance
EA Environmental Assessment ORAF Operational Risk Assessment
Framework
EIA Environmental Impact Assessment PAD Project Appraisal Document
EIRR Economic Internal Rate of Return PIO Public Information Officer
EMP Environmental Management Plan PIU Project Implementation Unit
EOI Expression of Interest PMGSY Pradhan Mantri Gram Sadak Yojana
EPC Engineering and Procurement Contract PPIAF Public Private Infrastructure Advisory
Facility
ERR Economic Rate of Return PPP Public Private Partnership
E&SM Environmental and Social Management PQ Pre-Qualification
GAAP Governance and Accountability Action Plan PWD Public Works Department
GOI Government of India RAP Resettlement Action Plan
GOK Government of Karnataka RFQ Request for Qualification
ICB International Competitive Bidding RFP Request for Proposal
ICR Implementation Completion Report RIS Road Information System
IDSAP Institutional Development Strengthening
Action Plan
R&R Resettlement and Rehabilitation
IRI International Roughness Index RTIA Right to Information Act
IUFR Interim Unaudited Financial Report SBD Standard Bidding Document
JCA Joint Controller of Accounts SH State Highways
KSHIP Karnataka State Highways Improvement
Project
SNTA Sub-National Technical Assistance
KSHTTA Karnataka State Highway Transport and Tariff
Authority
TNA Training Needs Assessment
KRDCL Karnataka Road Development Corporation
Limited
TOR Terms of Reference
VGF Viability Gap Fund
Regional Vice President: Isabel Guerrero
Country Director: Roberto Zagha
Sector Director:
Sector Manager:
John H. Stein
Michel Audigé
Task Team Leader: Binyam Reja
INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT
Table of Contents
I. Strategic Context ...............................................................................................................1
A. Country Context .........................................................................................................1
B. Sectoral and Institutional Context ................................................................................1
C. Rationale for Bank Assistance .....................................................................................7
II. Project Development Objectives ........................................................................................7
III. Project Description ............................................................................................................8
A. Project Components ....................................................................................................8
B. Lessons Learned and Reflected in the Project Design................................................. 10
IV. Implementation ............................................................................................................... 10
A. Institutional and Implementation Arrangements ........................................................ 10
B. Sustainability ............................................................................................................ 11
C. Key Risks ................................................................................................................. 12
D. Appraisal Summary .................................................................................................. 13
E. Financial Management .............................................................................................. 14
F. Procurement ............................................................................................................. 15
G. Social ....................................................................................................................... 16
H. Environment ............................................................................................................. 17
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
iv
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 Audigé
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
Project Financing Data:
[X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
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$m)
Source Local Foreign Total
Borrower 155 0 155
Private Sector Developer 500 0 500
International Bank for Reconstruction and
Development 230 120 350
Total: 885 120 1,005
Borrower:
Government of India
Department of Economic Affairs, Ministry of Finance
North Block, New Delhi 110 001
Fax: +91 11 2309 4075
Responsible Agency:
Government of Karnataka
Public Works Department
3rd Floor, Vikasa Soudha
Dr. Ambedkar Road
Bangalore, India
Tel: (91-80) 225-1449; Fax: (91-80) 2235-3988
E-mail: prs-pwd@karnataka.gov.in
v
AND
Karnataka Road Development Corporation Limited
The Managing Director
No. 16/J, Miller Tank Bed Area, Thimmaiah Cross Road
Bangalore - 560 052
Ph: 080 - 22382630, 22382362, 22380140 / Fax: 080 -22380143
email. mdkrdcl@krdcl.in, cekrdcl@gmail.com
Estimated Disbursements (Bank FY/US$ m)
FY 2011 2012 2013 2014 2015 2016 2017
Annual 10.0 35.0 52.0 70.0 84.0 70.0 29.0
Cumulative 10.0 45.0 97.0 167.0 251.0 321.0 350.0
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?
○ Yes X No
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?
○ Yes X No
○ Yes ○ No
○ Yes ○ No
If yes, please explain:
Does the project meet the Regional criteria for readiness for
implementation?
X Yes ○ No
If no, please explain:
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.
vi
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)
X Yes ○ No
○ Yes X No
X Yes ○ No
○ Yes X No
X Yes ○ No
○ Yes X No
X Yes ○ No
○ Yes X No
○ Yes X No
○ Yes X No
Conditions and Legal Covenants:
Financing Agreement
Reference
Description of
Condition/Covenant
Date Due
vii
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
Undertake a comprehensive road
safety interventions in the
identified safe corridor
demonstration program
April 1, 2011
Project Agreement, Schedule,
Section I, PARA 9
Operationalize road asset
management system to prioritize
road investment and
management program.
Dec 1, 2014
Project Agreement, Schedule,
Section I, PARA 10
KRDCL to develop a
consolidated investment and
borrowing plan to improve
selected corridors under the Core
Road Network
Dec 31, 2013, and annually there after
1
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. Karnataka‟s 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 e-
governance, 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 state‟s 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 GOK‟s development strategy to sustain growth and bridge the
regional disparities.
B. Sectoral and Institutional Context
India Road Sector Context
4. India‟s 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
2
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 Minister‟s 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 India’s Highway Sector. A key development in
India‟s 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 development1. 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.
3
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 survey2, 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 state‟s 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 study5done in Bangalore
finds that in 44 percent of crashes, two-wheeler drivers seeking medical attention were under the
influence of alcohol.
2 Source: PWD Road Condition Survey, 2008.
3 Defined as IRI < 4m/km
4 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.
4
10. The GOK recognizes that improving the effectiveness and safety of the state‟s road
network is essential to maintain the state‟s 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 Karnataka’s 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
GOK Total Operating Budget Expenditure 7%
Sources: GOK Medium Term Fiscal Plan, 2010-2014; Price Waterhouse Coopers (2009)
“Karnataka Draft Road Fund Report”
5
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 non-
lapsable, 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
state‟s Core Road Network (CRN). GOK‟s 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-as-
you-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 government‟s 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
6
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 GOK‟s 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 Bank‟s Country
Program for India, the GOI‟s 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 GOK‟s
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 GOK‟s 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
7
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 Bank‟s 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 Bank‟s 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 multi-
donor 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 improve safety on
KSHIP II roads.
II. Project Development Objectives
24. The proposed KSHIP II is designed to improve the impact of the Bank‟s support for India‟s
highway sector through: (a) leveraging IBRD resources with private sector financing to extend
the government‟s 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.
8
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 Project‟s 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,
9
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$155 million, which
would be used mostly for land acquisition, R&R support, utility shifting, and to cover counter-
part financing for conventional item-rate contracts, The GOK will also have repayment
obligations for the annuity concessions and domestic borrowing. These repayments will be met
primarily through GOK budgetary allocations and supplemented by road user charges. A fiscal
impact analysis carried out for the project shows that GOK has adequate fiscal space to assume
the IBRD debt and the private sector repayment obligations (Annex 7).
Table 2
Project Cost and Financing (US$ million)
Component
Costs
Including
Contingency
Bank
Financing
GOK
Financing
Developer/
Private
Sector
Banks
1 - Road Improvement Works 603.0 260.0 93.9 249.1
a) Item Rate Contracting 166.0 119.6 46.4 0.0
b) DBFOMT Annuity Concession 436.7 140.1 47.4 249.2
2 - Highway Financing Modernization 373.7 67.1 55.7 250.9
a) TA Services for KRDCL 5.0 4.0 1.0 0.0
b) Civil Works under Co-financing pilot 368.9 63.3 54.7 250.9
3 - Road Safety Improvement 13.6 11.0 2.6 0.0
4 - Policy and Institutional Development 11.8 9.4 2.4 0.0
5 - Incremental Operating Costs 2.0 1.6 0.4 0.0
Total Project Cost 1004.1 349.1 155.0 500.0
Front-end Fee 0.88 0.88 0 0
Total Financing Required 1005.0 350.0 155.0 500.0
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
6 Assessment of Road Safety Management Capacity in the State of Karnataka, World Bank 2008.
10
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 client‟s 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 departments
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. Implementation
A. 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
11
Governing Board, chaired by the Chief Secretary, to meet quarterly, to address inter-
departmental 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
GOK‟s initiatives to enhance institutional and governance capabilities in the sector. The
12
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 large-
scale PPP program, including wider acceptability of tolling, and improved resource mobilization,
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 project‟s 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.
13
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 project‟s fiscal impact was assessed both at the macro-level and
project-level. The macro-level assessment reviewed GOK‟s 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
14
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 Bank‟s 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.
15
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 Bank‟s 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 Bank‟s "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
16
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 Bank‟s 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
17
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 Bank‟s 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
consultant‟s 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 Bank‟s
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.
18
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.
PDO Level Results Indicators* C
ore
Unit of Measure
Baseline Cumulative Target Values**
Frequency Data Source/ Methodology
Responsibility for Data
Collection
Description (indicator definition
etc.) YR 1 YR 2 YR3 YR 4 YR5
Achievement by GOK in generating at least US$500 million in new private sector capital (debt and equity) for CRN improvement and management by end-of-project (EOP).
US$ million
200.00 (Currently raised by KRDCL)
200.00 (KRDCL+KSHIP II)
500 (KRDCL + KSHIP II)
Every two years
PWD Annual Report, KRDCL Annual Report
PWD, KRDCL The indicator will measure private sector debt and equity raised as part of the DBFOMT concession and by KRDCL as part of the co-financing, and by KRDCL on its own through parallel transactions.
Share of Core Road Network in good condition (IRI < 4) increases from 50 percent to 65 percent by EOP.
Km (%) 50% 50% 65% Every two years
Asset Management Unit
PWD Will measure expansion of road quality and expansion in the state. The baseline date includes National Highway, which are part of the CRN
15 percent reduction in Vehicle Operating Costs and 25 percent reduction in Travel Time Cost on project corridors by EOP
US$ per vehicle-Kms
VOC: US$0.26 TT: US$0.074
VOC: US$0.20 TT: US$0.06
When the road construction is completed
Asset Management Unit
PWD Will measure the impact of the project on road users
30 percent reduction in road-accident related fatalities on safe corridor pilots by EOP.
Number of fatalities per year
30 (on Belgaum to Hungund corridor)1
30 27 21 Every two years
M&E Report on safe corridors pilot
PWD Will measure ability of the project to show measureable results on road safety
INTERMEDIATE RESULTS
Intermediate Result (Component One): Road Improvement Component
Completion of upgrading and widening of about 269 km. through item–rate contracts
Km / Procurement milestones.
Contracts awarded
100 kms road constructio
269 km road construc
Every Year Project Progress Report
PWD
19
n substantial
ly completed
tion complet
ed
Completion of upgrading, widening of about 562 km. through DBFOMT (Annuity) Concessions
Km./ Procurement milestones
RFQ issued
Developers hired
562 Km Construction Completed
O&M phase started
Every Year Project Progress Report
PWD
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
Percentage Percentage Percentage
0% 0% 0%
40% 20%
70% 40% 25%
100% 70%
100% 80%
Every Year Every Year Twice in the project period
Project Progress Report Project Progress Report Project Progress Report R&R Impact Assessment Report
Environmental Management
Implementation of EMP as agreed.
(b) ISO 14001 certification obtained for operational units
No.
0 0
As awarded
PIU(HQ) certified
1 field division certified
Every Year Project Progress Report
PWD
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
Policy and Institutional Action
Passing of Tolling Policy
Tolling started on selected roads
KRDCL issues debt or develops PPP transaction backed by toll revenues
Every Year Project Progress Report
KRDCL
Completion of upgrading, widening and O & M of
Km / Procurement
Screening commenc
Co-financing
DPR completed
Construction Completed
Every Year Project Progress Report
KRDCL
20
about 400 km through co-financing arrangements
milestones ed arrangement established; Transaction 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
Consultant services procured
Multi-sector intervention implementation started
Multi-sector intervention completed
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
Satisfactory implementation of agreed Action Plan for institutional development and governance improvement
Policy and Institutional Actions
IDSAP and GAAP Endorsed
Key consultant services procured
Studies Completed
Recommended 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
21
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
expenses7.
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) lump-
sum 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.
7 All land acquisition, utility shifting, and the major of R&R costs are financed entirely by GOK.
22
Table 3
Component 1: Road Improvement Works: List of Roads and Financing Arrangement
(US$ million)
Activity Description
Costs
Including
Contingency
Bank
Financing
GOK
Financing Developer
(a) Civil Works under Item Rate
Contracts 166.00 119.57 46.43 0.00
(i) Base Construction Cost Estimate 137.59 110.07 27.52 0.00
Hoskote H Cross - Chintamani Bypass 25.54 20.43 5.11 0.00
Hangal-Tadas-Haveri 35.79 28.63 7.16 0.00
Dharwad - Saudatti 19.63 15.70 3.93 0.00
Tinthni-Devadurga-Kalmala 40.14 32.11 8.03 0.00
Chowdapur- Gulbarga 16.49 13.19 3.30 0.00
(ii) Land Acquisition 2.71 0.00 2.71 0.00
(iii) Utility Shifting 8.19 0.00 8.19 0.00
(iv) Resettlement &Rehabilitation 7.63 1.59 6.04 0.00
(v) Environmental Management Plan 1.48 1.19 0.30 0.00
(vi) Project Coordination and Supervision
Consultancy Services 8.40 6.72 1.68 0.00
(b) Civil Works under DBFOMT
Annuity Concession 436.65 140.08 47.39 249.18
(i) Base Construction Cost Estimate 274.07 137.04 0.00 137.04
Malavalli-Tumkur-Pavagada 97.67 48.83 0.00 48.83
Muvol-Kabbur-Nippani 58.10 29.05 0.00 29.05
Shimoga - Anandapuram (NH-206) 69.82 34.91 0.00 34.91
Managuli-Talikota-Devapura 48.48 24.24 0.00 24.24
(ii) Land Acquisition 6.39 0.00 6.39 0.00
(iii) Utility Shifting 26.18 0.00 26.18 0.00
(iv) Resettlement &Rehabilitation 16.06 1.60 14.46 0.00
(v) Environmental Management Plan 3.47 0.00 0.00 3.47
(vi) Transaction Advisor Costs 0.23 0.18 0.05 0.00
(vii) Independent Engineer 3.14 1.26 0.31 1.57
(viii) Operation and Maintenance 39.24 0.00 0.00 39.24
(ix) Project Development, Financing and
other Charges 67.86 0.00 0.00 67.86
Total 602.65 259.65 93.82 249.18
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.
23
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 GOK‟s 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) government‟s 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)
Activity Description
Costs
Including
Contingency
Bank
Financing
GOK
Financing
Developer/
Private
Banks
(a) Consultancy and Transaction
Advisory Services for KRDCL 5.00 4.00 1.00 0.00
(i) Financial Planning Advisor 2.50 2.00 0.50 0.00
(ii) PPP Advisor 2.50 2.00 0.50 0.00
(b) Civil Works under Co-financing
with Commercial Banks 368.85 63.26 54.69 250.90
(i) Base Construction Cost Estimate 308.58 62.00 0.00 246.58
(ii) Land Acquisition 7.72 0.00 7.72 0.00
(iii) Utility Shifting 32.18 0.00 32.18 0.00
(iv) Resettlement & Rehabilitation 14.48 0.00 14.48 0.00
(v) Supervision Consultancy Services 3.15 1.26 0.31 1.57
(vi) Financing Costs 2.75 0.00 0.00 2.75
Total 373.85 67.26 55.69 250.90
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
24
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 Demonstration 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
25
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)
Activity Description
Costs
Including
Contingency
Bank
Financing
GOK
Financing
(a) Safe Corridor Program (Works) 7.49 5.99 1.50
(b) Safe Corridor Program (Goods) 1.84 1.48 0.37
(i) Police Enforcement Equipment 0.81 0.65 0.16
(ii) Post-Impact Care 0.35 0.28 0.07
(iii) Monitoring and Evaluation Software and Hardware 0.69 0.55 0.14
(c)Safe Corridor Program (Services) 1.40 1.12 0.28
(i) Capacity Building for Police Enforcement 0.60 0.48 0.12
(ii) Development of Safety Campaigns 0.20 0.16 0.04
(iii) Capacity Building for Post-Impact Care 0.20 0.16 0.04
(iv) Consulting Services for Monitoring and Evaluation 0.40 0.32 0.08
(d) Capacity Building for PWD/Lead Agency 1.70 1.36 0.34
(e) Road Safety Centre of Excellence Study and
Establishment 1.20 0.96 0.24
Total 13.64 10.91 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.
26
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.
Activity Description
Costs
Including
Contingency
US$
Bank
Financing
US$
GOK
Financing
US$
(a) Road Financing Study 2.50 2.00 0.50
(b) Road Asset Management system - data population and
operation 2.50 2.00 0.50
(c) PWD-wide QM / ISO Certification program (Phase II) 0.50 0.40 0.10
(d) QM / Quality Control capacity enhancements in PWD 2.00 1.60 0.40
(e) IT-ICT-MIS Strategy and Action Plan preparation and
implementation 0.60 0.48 0.12
(f) PWD implementation of Project Management
framework/processes 0.45 0.36 0.09
(g) Implementation of new PWD Financial Management
System 0.30 0.24 0.06
(h) HRD and Training enhancements and program delivery in
PWD 1.65 1.32 0.33
(i) Strategic Studies for GOK Planning 0.65 0.52 0.13
(j) Other IDSAP and GAAP target implementation support 0.65 0.52 0.13
Total 11.80 9.44 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 Fund’s operationalization following its enactment by
GOK, including the preparation of Fund operating policies and Rules, financial and
27
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 Project-
centered 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 .
28
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 co-
financing 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.
29
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 Design-
Build-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 „Employer‟s 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
30
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 GOK‟s 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 medium-
term 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 and 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
32
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
Bank‟s 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
33
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 PWD‟s website in August 2010. The Bank has also disclosed
both draft and final RAPs in the Bank‟s 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.
35
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 Consultant‟s 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 Engineer‟s teams overseeing the Annuity contracts. Towards its
institutional development, the PIU will use the project to get itself, and one of the PWD‟s 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
Bank‟s "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
Bank‟s 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
36
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 Bank‟s 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
37
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.
38
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 GOK‟s
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
39
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 decision-
making process within KRDCL. As a long-term measure, the KRDCL will form a Board sub-
committee 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. The
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 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
available in the KSHIP website and on the Bank‟s 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, DS-
Finance 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 Bank. 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 5054-03-337-0-
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.
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.
41
(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,
42
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
43
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 pre-
determined 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 co-
financing 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
44
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 analyzed 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
Audit Auditors Due Date for Audit Submission
PIU Project Financial
Statement
CAG 30th September (6 months after the end
of each fiscal year)
KRDCL Project Financial
Statement
CA 30th September (6 months after the end
of each fiscal year)
DEA/GOI Designated account CAG 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 Bank‟s
45
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 reports8 (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 Draft submitted
Budget head for KRDCL KRDCL By Negotiations
Support accounting staff deployed at PIU and
accounting staff at divisions (Legal Covenant)
PIU 4 months from
effective date
Appointment of internal auditor for the project
(Legal Covenant)
PIU 4 months from
effective date
Appointment of statutory auditor for KRDCL
(Legal Covenant)
KRDCL 4 months from
effective date
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.
8 To be submitted within 45 days from end of quarter.
46
Appendix 1 of Annex 3
Procurement Plan
I. General
1. Bank’s approval Date of the procurement Plan: February 14, 2011
2. Date of General Procurement Notice: UNDB Issue No: 720 Dated Feb 16, 2008
3. Period covered by this procurement plan: First 18 months
4. Implementing Agency : PIU, KSHIP in PWD, GOK and KRDCL
II Goods and Works and non-consulting services
1 a) Procurement Methods and Thresholds:
Method of Procurement Threshold (US$
Equivalent) for
Goods
Threshold (US$
Equivalent) for Works
International Competitive Bidding > 500,000 > 10 million
National Competitive Bidding (NCB) >30,000 and up to
500,000 >30,000 and up to 10
million
Shopping Up to 30,000 Up to 30,000
Direct Contracting (DC) As per paragraph 3.7 of
Guidelines As per paragraph 3.7 of
Guidelines
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 Bank‟s 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.
47
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.
b) 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.
c) 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.
d) 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
48
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.
f) 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.
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 2 3 4 5 6 7 8 9 10
Ref. No. Contract
Description
Estimated
cost in
INR
(Millions)
Estimated
Cost
(US$
million)
Procur
ement
Metho
d
Pre-
Quali
ficati
on
Domestic
Preference
(yes/no)
Review
by Bank
(Prior /
Post)
Expected
Bid
Opening
Date
Comments
Conventional BOQ Contracts
WEP-1 Upgradation of the
Road from Hoskote
(Km.0+000) to
Chintamani
Bypass(Km 52+400)
of SH-82
1,214 27 ICB No No. Prior June 1,
2010
Award
expected by
end Feb
2011
WEP-2 Upgradation of the
Road from Haveri
(NH-4) (Km 0+000)
to Tadasa (Km
75+260) of SH-1,
SH-2.
1,640 37 ICB No No. Prior June 1,
2010
Award
expected by
end Feb
2011
WEP-3 Upgradation of the
Road from Dharwad
(Km 0+000) to
Saundatti (Km
38+500) of SH-34
1,025 23 ICB No No. Prior June 1,
2010
Award
expected by
end Feb
2011
WEP-4 Upgradation of the
Road from Tinthni
(Km 0+000) to
Kalmala (Km
73+800) of SH-61
& SH-15
1,931 43 ICB No No. Prior June 1,
2010
Award
expected by
end Feb
2011
WEP-5 Upgradation of the
Road from
Chowdapur (Km
0+000) to Gulbarga
(Km 28+630) of SH-
22
769 17 ICB No No. Prior June 1,
2010
Award
expected by
end Feb
2011
SCDP.01
Construction for
Road safety
improvement from
Maddur to Mysore
135 3 NCB No No Prior Aug 10,
2011
49
1 2 3 4 5 6 7 8 9 10
Ref. No. Contract
Description
Estimated
cost in
INR
(Millions)
Estimated
Cost
(US$
million)
Procur
ement
Metho
d
Pre-
Quali
ficati
on
Domestic
Preference
(yes/no)
Review
by Bank
(Prior /
Post)
Expected
Bid
Opening
Date
Comments
SCDP.02
Construction for
Road safety
improvement from
Belgaum to Hungund
158 3.5 NCB No No Post Sep 10,
2011
DBFOMT (Annuity) Contracts -
WAP-1 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.
5,605 125 ICB Yes No. Prior July , 2011 Bank will
finance
INR 2,197
million
WAP-2 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
3,205 71 ICB Yes No. Prior July , 2011 Bank will
finance
INR 1,307
million
WAP-3 Design, Build,
Finance, Operate,
Maintain and
Transfer the existing
State Highway (SH1
& SH57) from
Shikaripura to
Anandapuram (NH-
206) and Shimoga to
Hangal on DBFOMT
(Annuity) Basis in
the State of
Karnataka
4,007 89 ICB Yes No. Prior July , 2011 Bank will
finance
INR 1,571
million
WAP-4 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
2,674 59 ICB Yes No. Prior July , 2011 Bank will
finance
INR 1,091
million
50
B: Goods:
1 2 3 4 5 6 7 8 9 10
Ref.
No.
Contract
Description
Estimated
cost in
INR
(Millions)
Estimat
ed
Cost
(US$
million)
Procur
ement
Metho
d
Pre-
Qulificati
on
Domesti
c
Preferen
ce
(yes/no)
Review
by Bank
(Prior /
Post)
Expected
Bid
Opening
Date
Comments
1 Supply of IT
Equipment and
Office Equipment
[Seven packages]
3.9 0.09 Shoppi
ng
No No Post During
2010
Retroactive
financing
2 Supply of Almirah 0.06 0.001 Shoppi
ng
No No Post Jul 2010 Retroactive
financing
3 IT Equipment for
MIS
16 0.35 NCB No No Prior Dec 15,
2011
4 IT Equipment for
implementation of
project management
framework
9 0.2 NCB No No Post Jul 15,
2012
5 QA/QS equipment 67.5 1.5 ICB No No Prior Dec 15,
2011
6 Procurement of
Police Enforcement
Equipment
32 0.7 ICB No No Prior Jan 15,
2012
7 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 Threshold (US$ Equivalent)
(a) Quality and Cost Based Selection No threshold
(a) Quality Based Selection No threshold (b) Selection Made Under a Fixed Budget No threshold
(c) Least Cost Selection No threshold (d) Selection Based on Consultant‟s Qualifications < 200,000
(e) Single Source Selection As per Consultant Guidelines Para 3.9 (f) Selection of Individual Consultants No threshold
51
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 Bank‟s
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$500,000 equivalent per contract, may comprise
entirely of national consultants in accordance with the provisions of paragraph 2.7 of
the Consultant Guidelines.
3. Any Other Special Selection Arrangements: The finalization of consulting services
shall follow the timeline agreed in the Procurement Activity Schedule.
Advance procurement and retroactive financing: The procurement for Construction
supervision consultant for item rate contracts and Transaction advisory consultants has
been initiated and three small resettlement action plan consulting services, preparation
FM manual and Implementation Support Consultant hired during KSHIP I which were
awarded following Consultant Guidelines May 2004 revised October 2006. These
contracts will be financed by the project. Any procurement after December 31, 2010 will
be procured following Consultant Guidelines January 2011.
4. Consultancy Assignments with Selection Methods and Time Schedule 1 2 3 4 5 6 7 8
Ref.
No.
Description of
Assignment
Estimated
Cost in INR
Millions
Estimated
Cost
US$ in
Millions
Method
of
Selection
Review
by Bank
(Prior /
Post)
Estimated
Proposal
Opening
Date
Comments
1 Construction Supervision
Consultants for the
Supervision of
Construction and
Contract Administration
of the Karnataka State
Highway Improvement
250 6 QCBS Prior July 9,
2010
Contract
negotiations
completed and
contract will be
signed by Feb
28
52
1 2 3 4 5 6 7 8
Ref.
No.
Description of
Assignment
Estimated
Cost in INR
Millions
Estimated
Cost
US$ in
Millions
Method
of
Selection
Review
by Bank
(Prior /
Post)
Estimated
Proposal
Opening
Date
Comments
for 5 EPC Contract
Packages
2 Transaction Advisory
services for procurement
of Four Annuity Contract
Packages under
Karnataka State Highway
Improvement Project
9 0.20 QCBS Prior Mar 1,
2011
3 Independent Consultant
(IE) for the Monitoring
of 4 Annuity Contract
Packages [Four
consultancy contract
packages]
305 6.78 QCBS Prior Jan 15,
2012
4 Consultancy Service for
Transaction Advisory
Services for BOT-Toll O
& M packages under
KRDCL.
115 2.50 QCBS Prior Sep 15,
2011
5 Financial Planning and
Advisory Services for
KRDCL
115 2.50 QCBS Prior Sep 15,
2011
6 Road fund Consultancy
service for BOT-Toll O
& M Packages under
KRDCL and PWD
115 2.50 QCBS Prior Sep 15,
2011
7 Road Asset Management
System – Data
Population and
Operationalization
113 2.5 QCBS Prior July 30,
2011
8 PWD-wide QM / ISO
Certification program
(second phase)
23 0.5 QCBS Prior Oct 30,
2011
9 QM / Quality Control
capacity enhancements in
PWD
23 0.5 QCBS Prior Nov 30,
2011
10 IDSAP and GAAP target
implementation support
29 0.65 QCBS Prior Dec 30,
2011
11 Strategic studies for
GOK planning
29 0.65 QCBS Prior Jan 30,
2012
12 Consultancy services and
training for Traffic
Police
27 0.6 QCBS Prior Jan 30,
2012
13 Consultancy services to
build Capacity in the
Road safety centre of
Excellence (Operational
Assistance)
46 1.00 QCBS Prior Sep 30,
2011
14 Consultancy services to
build Road Safety lead
agency capacity in
Transport Department
54 1.20 QCBS Prior Sep 30,
2011
53
1 2 3 4 5 6 7 8
Ref.
No.
Description of
Assignment
Estimated
Cost in INR
Millions
Estimated
Cost
US$ in
Millions
Method
of
Selection
Review
by Bank
(Prior /
Post)
Estimated
Proposal
Opening
Date
Comments
15 Road safety Consultant
for DBFOMT (Annuity)
Contracts
27 0.60 QCBS Prior Jan 15,
2012
16 Consultancy Services for
Capacity Building of
PWD Staff in Road
Safety
23 0.50 QCBS Prior Jan 30,
2012
17 Monitoring Consultants
for BOT-Toll O & M
packages under KRDCL.
5 0.10 QCBS Post Sep 15,
2011
18 Consultancy Services for
Statutory Audit of
KRDCL
5 0.10 QCBS Post Sep 15,
2011
19 Environment Monitoring
of EPC & Annuity Roads
2.4 0.05 LCS Post May 5,
2011
20 NGO Services for
Implementation of
Resettlement Action Plan
for North Karnataka
Packages
3.50 0.08 QCBS Post NA Contract
awarded on
Nov 9, 2009
21 NGO Services for
Implementation of
Resettlement Action Plan
for South Karnataka
Packages
5 0.11 QCBS Post NA Contract
awarded on
Nov 9, 2009
22 M & E Consultants for
Implementation of
Resettlement Action Plan
for both Packages
3 0.06 QCBS Post NA Contract
awarded on
Nov 9, 2009
23 Consultancy Services for
preparation of Financial
Management Manual
1.5 0.03 SSS Prior NA Contract
awarded on
June 2, 2010
24 Consultancy Services for
Internal Audit of KSHIP
II
2.4 0.05 QCBS Post Mar 15,
2011
25 Consultancy services to
deliver feasibility and
scoping study for the
Center of Excellence
9 0.20 QCBS Post Dec 25,
2011
26 IT-ICT-MIS Strategy &
Action Plan preparation
and implementation
11 0.25 QCBS Prior Dec 15,
2011
27 HRD & Training
enhancements and
program delivery in
PWD
7 1.15 QCBS Post Oct 15,
2011
28 PWD implementation of
Project Management
framework/processes
11 0.25 QCBS Prior July 30,
2011
29 Project coordinating
consulting services for
implementation support
[Phase II] – Hired as part
of KSHIP I (WBR # 82)
59 1.31 QCBS Prior 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
54
1 2 3 4 5 6 7 8
Ref.
No.
Description of
Assignment
Estimated
Cost in INR
Millions
Estimated
Cost
US$ in
Millions
Method
of
Selection
Review
by Bank
(Prior /
Post)
Estimated
Proposal
Opening
Date
Comments
again reviewed
by the Bank to
determine
eligibility
under this
project
30 Consulting services for
data management [Land
acquisition and RR]
2.00 0.044 SSS Prior NA Procured
during Nov
2009
55
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 Category
Risk
Rating
Risk Description Proposed Mitigation Measures
Project Stakeholder Risks
ML Unwillingness of road users to pay new user charges and tolls Inadequate private sector participation on PPP transactions and domestic borrowing.
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
56
Risk Category
Risk Rating
Risk Description Proposed Mitigation Measures
(b) Conduct PPP workshops and road shows on DBFOMT (Annuity) concept to investors.
Implementing Agency Risks
H 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
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
Project Risks
Design
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 co-financing 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.
Social and Environmental
MI Delays in the implementation of LA and RAP.
Advanced actions for LA and R&R following a streamlined procedures have already been taken. For the remaining, mandatory completion of the
57
Risk Category
Risk Rating
Risk Description Proposed Mitigation Measures
agreed LA and R&R activities prior to contract award.
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
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.
Delivery Quality
L Quality of construction suffers due to poor quality design.
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.
L - Low Impact Low Likelihood ML - Medium – L (Low Impact High Likelihood) MI - Medium – I (High Impact Low Likelihood) H - High Impact High Likelihood
Overall Risk Rating at Preparation
Overall Risk Rating During Implementation
Comments
ML MI
58
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 Bank‟s
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 project‟s 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 Bank‟s operational
policies/procedures and the agreed framework related to environment and social safeguards
aspects. The implementation support will be provided through regular interactions, regular half-
yearly implementation support missions and thematic review missions, if required and in full
cooperation with the technical members in the Bank team.
59
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 semi-
annually. 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 Bank‟s 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 timely 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 Bank‟s social and environmental
specialists will provide implementation support in preparation of various safeguards
60
documentation and ensuring compliance with the Bank‟s 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.
Time Focus Resource Estimate Partner Role
First twelve
months
Implementation of Item-
rate Contract Component
Procurement of DBFOMT
(Annuity) Concessions
Structuring of Highway
Financing Modernization
Component
Finalizing Institutional
Strengthening and Road
Safety Components
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
NA
Team leadership Task Team Leader - 8 SW
12-60 months
Implementation of Item-
rate Contracts and
DBFOMT (Annuity)
Concessions
Implementation of
Institutional Strengthening
and Road safety
Components
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
NA
Financial management
disbursement and reporting FM specialist(s) - 1 SW / Year
Task leadership TTL - 7 SW / Year
Note: SW – Staff-Week
61
8. Staff skill mix required is summarized below.
Skills Needed Number of Staff Weeks Number
of Trips
Comments
Technical
Specialist(s)
6 SWs first year, then 2 SWs annually in
the following years
3 Country office based/ HQ
Based
PPP / Project
Finance Specialist
6 SWs fisrt year, 5 SWs annually in the
following years
3 Country office based/ HQ
Based
Institutional
Development
Specialist
6 SWs first year, then 5 SWs annually in
the following years
3 International Specialist
Procurement
Specialist(s)
4 SWs first year, then 2 SW annually. 1 Country office based
Social/Environment
specialist(s)
2 SWs every year 2 Country office based
FM Specialist 3 SWs annually . 1 Country office based
Safety Specialist 3 SW annually 2 HQ based
Governance
Specialist
4 SW first year, 3 SWs annually in the
following years
2 Country office based
Task team leader 8 SW first year, 7 SWs annually in the
following years
4 HQ based
62
INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT
Annex 6: Team Composition
World Bank staff and consultants who worked on the project:
Binyam Reja Sr. Transport Economist/TTL SASDT
Arnab Bandyopadhyay Senior Transport Engineer/Co-TTL SASDT
Mei Wang Senior Counsel LEGES
Sri Kumar Tadimalla Senior Public Private Partnerships Specialist SASDT
Junxue Chu Senior Finance Officer CTRFC
Said Dahdah Road safety Specialist TWITR
Juan Carlos Alvarez Senior Counsel LEGES
Yash Gupta Procurement Specialist SARPS
Duthaluri Nagaraju Senior Procurement Specialist SARPS
S. Krishnamurthy Financial Management Specialist SARFM
I. U. B. Reddy Senior Social Development Specialist SASDI
Gaurav D. Joshi Environmental Specialist SASDI
Rodrigo Archondo-Callao Senior Highway Engineer ETWTR
Radia Benamghar Operation Analyst SASDT
Gizella Diaz Program Assistant (Washington) SASDO
N.S. Srinivas Program Assistant (Delhi) SASDO
Fredrick Kranz Consultant (Procurement/PPP Transactions) SARPS
A.K. Swaminathan Consultant (Engineering) SASDT
Krishnan Srinivasan Consultant (Governance) SASDT
Ernst Huning Institutional Development (consultant) SASDT
Benjamin Darche Consultant (PPP/Financing Specialist) SASDT
Andres Pizzaro Senior Transport Specialist (Peer Reviewer) LCSTR
Zhi Liu Lead Infrastructure Specialist (Peer Reviewer) EASTS
Michel Bellier Lead Transport Specialist (Peer Reviewer) MNSTR
Eric R. Lancelot Senior Transport Specialist (Peer Reviewer) LCSTR
Joel Jean-Philippe Hamann Intern / Economist SASDT
63
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$835 million, at a 12 percent discount rate over a twenty-year evaluation period. The
Economic Internal Rate of Return (EIRR) is estimated at 30 percent. The following table
presents the economic analysis summary.
Table 7: Economic Analysis Summary
Benefits 1201
(US$million)
Costs 366
(US$million)
Net Benefits 835
(US$million)
Economic Rate of Return 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.
64
Table 12: Basic Road Characteristics
Motorized Average
Link
Length Width Traffic Roughness
Package No, Link Name (km) (m) (AADT) (IRI)
WEP1 67A Hoskote - H Cross 23.5 7.00 5,896 3.9
67B H Cross - Chintamani Bypass 29.0 5.50 4,247 4.0
WEP2 T8 Haveri (NH-4) - Hangal 31.8 5.50 2,936 6.3
M7D Hangal – Tadasa 43.5 3.75 2,134 7.4
WEP3 21B Dharwad – Soundatti 38.5 7.00 3,056 5.9
WEP4 13A
Tinthini Chinchodi-Jalhalli-Karegud-
Devadurga 32.5 3.75 4,530 5.7
13B
Devadurga - Masarkal - Gabbur –
Kalmala 41.4 3.75 2,338 5.4
WEP5 6C Chowdapur - Gulbarga 28.7 5.50 3,885 7.2
WAP1 63A Malavalli – Maddur 22.8 7.00 7,039 3.9
63B Maddur - Huliyurdurga 27.5 5.50 3,043 4.0
63C Huliyurdurga - Kunigal 21.1 5.50 3,127 3.0
63D Kunigal – Tumkur 35.2 7.00 6,030 4.2
63E Tumkur – Kortagere 27.9 5.50 6,010 4.1
64F Koratagere - Madhugiri 20.0 5.50 4,540 4.9
64G Madhugiri - Pavagada 35.8 5.50 2,552 4.1
WAP2 19A Mudhol - Mahalingapura 19.2 5.50 3,030 5.4
19B Mahalingapura - Kabbur 42.4 3.75 4,780 7.9
19C Kabbur – Chikodi 18.4 3.75 3,864 6.0
19D Chikodi - (NH-4 cross) Nippani 28.1 5.50 3,367 5.9
WAP3 T21 Anandapura (on NH-206)-Shikaripura 32.2 3.75 3,505 5.5
M7B Shikaripura - Anavatti 45.4 3.75 4,276 8.1
M7C Anvatti – Hangal 26.2 3.75 555 8.1
M7A Shimoga - Shikaripura 49.8 5.50 3,457 7.1
WAP4 10A Managili-Talikota 61.3 3.75 1,543 6.8
10B Talikota-Devapura 48.7 3.75 2,088 8.1
Total
830.8
91,828
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$579,666 per kilometer.
Table 13: Proposed Road Work Cost
Link
Shoulder Cost Cost
Package No, Link Name Type (US$ M) (US$/km)
WEP1 67A Hoskote - H Cross Paved 11.9 504,827
67B H Cross - Chintamani Bypass Paved 15.6 538,797
WEP2 T8 Haveri (NH-4) - Hangal Paved 18.5 580,540
M7D Hangal – Tadasa Paved 21.5 493,222
WEP3 21B Dharwad - Soundatti Paved 20.2 523,989
WEP4 13A
Tinthini Chinchodi-Jalhalli-Karegud-
Devadurga Paved 19.9 612,673
13B
Devadurga - Masarkal - Gabbur –
Kalmala Paved 22.9 553,473
65
Link
Shoulder Cost Cost
Package No, Link Name Type (US$ M) (US$/km)
WEP5 6C Chowdapur - Gulbarga Paved 16.0 558,449
WAP1 63A Malavalli - Maddur Paved 21.1 924,060
63B Maddur - Huliyurdurga Paved 16.0 580,018
63C Huliyurdurga - Kunigal Paved 10.9 515,905
63D Kunigal - Tumkur Paved 21.0 595,421
63E Tumkur - Kortagere Paved 18.4 659,593
64F Koratagere - Madhugiri Paved 12.1 606,560
64G Madhugiri - Pavagada Paved 21.1 589,019
WAP2 19A Mudhol - Mahalingapura Paved 13.7 715,407
19B Mahalingapura - Kabbur Paved 24.9 587,009
19C Kabbur - Chikodi Paved 11.2 609,925
19D Chikodi - (NH-4 cross) Nippani Paved 19.4 689,144
WAP3 T21 Anandapura (on NH-206)-Shikaripura Paved 21.1 654,594
M7B Shikaripura - Anavatti Paved 27.5 604,729
M7C Anvatti – Hangal Paved 24.7 941,675
M7A Shimoga - Shikaripura Paved 14.3 288,001
WAP4 10A Managili-Talikota Paved 30.1 491,177
10B Talikota-Devapura Paved 27.0 554,066
Total 480.8 578,666
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$835 million, at a 12 percent discount
rate over a twenty-year evaluation period. The overall Economic Internal Rate of Return (EIRR)
is estimated to be 30 percent and all links yield an EIRR higher than 12 percent. Therefore, the
economic evaluation of the program is satisfactory.
Table 14: Economic Evaluation Results
NPV/
Link
NPV Cost EIRR
Package No, Link Name (US$ M) (#) (%)
WEP1 67A Hoskote - H Cross 10.7 1.1 23.1
67B H Cross - Chintamani Bypass 23.8 1.8 27.6
WEP2 T8 Haveri (NH-4) - Hangal 3.0 0.2 14.6
M7D Hangal - Tadasa 60.4 3.2 33.6
WEP3 21B Dharwad - Soundatti 12.7 0.8 21.2
WEP4 13A
Tinthini Chinchodi-Jalhalli-Karegud-
Devadurga 91.2 5.9 47.6
13B
Devadurga - Masarkal - Gabbur –
Kalmala 47.3 2.7 30.1
WEP5 6C Chowdapur - Gulbarga 40.6 3.0 40.5
WAP1 63A Malavalli - Maddur 6.8 0.4 16.8
66
NPV/
Link
NPV Cost EIRR
Package No, Link Name (US$ M) (#) (%)
63B Maddur - Huliyurdurga 0.1 0.0 12.1
63C Huliyurdurga - Kunigal 9.5 1.1 23.0
63D Kunigal - Tumkur 17.3 1.1 23.2
63E Tumkur - Kortagere 20.9 1.5 24.4
64F Koratagere - Madhugiri 15.7 1.6 27.0
64G Madhugiri - Pavagada 8.7 0.5 18.0
WAP2 19A Mudhol - Mahalingapura 8.3 0.7 20.5
19B Mahalingapura - Kabbur 23.2 1.1 24.3
19C Kabbur - Chikodi 12.9 1.4 26.7
19D Chikodi - (NH-4 cross) Nippani 1.6 0.1 13.2
WAP3 T21 Anandapura (on NH-206)-Shikaripura 27.6 1.7 28.7
M7B Shikaripura - Anavatti 180.7 5.5 49.0
M7C Anvatti - Hangal 11.0 1.8 28.9
M7A Shimoga - Shikaripura 85.4 3.7 39.3
WAP4 10A Managili-Talikota 34.4 1.4 24.7
10B Talikota-Devapura 81.4 3.7 37.0
Total 835.2 2.1 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 EIRR Sensitivity Analysis
Link
EIRR A:Cost+20%
B:Ben.-
20%
A
& B
Package No, Link Name (%) (%) (%) (%)
WEP1 67A Hoskote - H Cross 23.1 20.1 19.5 16.8
67B H Cross - Chintamani Bypass 27.6 24.3 23.7 20.8
WEP2 T8 Haveri (NH-4) - Hangal 14.6 12.2 11.7 9.5
M7D Hangal – Tadasa 33.6 30.0 29.3 26.2
WEP3 21B Dharwad - Soundatti 21.2 18.1 17.4 14.7
WEP4 13A
Tinthini Chinchodi-Jalhalli-Karegud-
Devadurga 47.6 42.6 41.6 37.2
13B
Devadurga - Masarkal - Gabbur –
Kalmala 30.1 27.0 26.3 23.5
WEP5 6C Chowdapur - Gulbarga 40.5 35.3 34.2 29.8
WAP1 63A Malavalli - Maddur 16.8 14.3 13.8 11.5
63B Maddur - Huliyurdurga 12.1 10.0 9.6 7.6
63C Huliyurdurga - Kunigal 23.0 20.1 19.5 16.9
63D Kunigal - Tumkur 23.2 20.1 19.5 16.8
63E Tumkur - Kortagere 24.4 21.5 21.0 18.5
64F Koratagere - Madhugiri 27.0 23.7 23.1 20.1
64G Madhugiri - Pavagada 18.0 15.4 14.9 12.5
WAP2 19A Mudhol - Mahalingapura 20.5 17.5 17.0 14.4
19B Mahalingapura - Kabbur 24.3 21.0 20.4 17.5
19C Kabbur - Chikodi 26.7 23.1 22.5 19.4
19D Chikodi - (NH-4 cross) Nippani 13.2 11.1 10.6 8.6
67
Base EIRR Sensitivity Analysis
Link
EIRR A:Cost+20%
B:Ben.-
20%
A
& B
Package No, Link Name (%) (%) (%) (%)
WAP3 T21 Anandapura (on NH-206)-Shikaripura 28.7 25.0 24.3 21.1
M7B Shikaripura - Anavatti 49.0 43.9 42.9 38.3
M7C Anvatti – Hangal 28.9 25.5 24.9 21.8
M7A Shimoga - Shikaripura 39.3 34.9 34.0 30.1
WAP4 10A Managili-Talikota 24.7 21.7 21.0 18.3
10B Talikota-Devapura 37.0 32.8 32.0 28.5
Total 30.0 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 GOK‟s 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 operational).
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.
68
Table 8: Concession-wise Details
Sl.
No.
DBFOMT Annuity
Concession
Length
(Km)
Estimated Total Project Cost (TPC,
US$ mn)
Payment by GOK
(US$mn )
Estimated
Constructio
n Cost [a]
Overhead,
contingenci
es and
Other costs
[b] Total
During
Construction
Amou
nt
% of Base
Constn.
Cost
1)
WAP 1: Malavalli-
Pavagada 190 98 27 125 49 50
2) WAP 2: Mudhol-Nippani 108 58 14 72 29 50
3)
WAP 3: Shimoga-
Anandpuram 154 70 19 89 35 50
4)
WAP 4: Managuli-
Devpura 110 49 11 60 24 49
Total (US$ 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 GOK‟s 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
9 Fitch‟s rating for Karnataka State Financial Corporation bonds implies a GOK AA- rating. See Fitch Ratings (28
January, 2010 ), “Karnataka State Financial Corporation”
69
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 state‟s debt burden and future
expenditure obligations of the project. A fiscal analysis was carried out at a macro- and project-
level to determine the implied impact of the project on the state‟s fiscal situation. The macro -
level looks at the state‟s 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
state‟s 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 off-
budget, may have contingent liability. Debt burden is the primary indicator used by credit rating
agencies to measure a state‟s ability to make interest and principal payments for existing and
future debt. It also gives an indication of the state‟s 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 state‟s 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 GOK‟s conservative fiscal and
revenue deficit targets. The projection is based on the MTFP‟s 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.
70
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 State‟s
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
BE
FY11-12
Projected
FY12-13
Projected
FY13-14
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
Revenue
24.13% 26.14% 26.62% 26%
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 GOK’s Debt Burden.
21. Table 10 shows the impacts on the debt burden ratios for the GOK‟s 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$145 million commercial bank loans to the four DBFOMT concessionaires to fund the
remaining capital expenditure for the projects.
22. The outstanding debt increases by 460 million between FY2010-11 through FY2012-13,
but reduced to 439 million in FY2013-14 due to a commercial loan amortization payment. The
IBRD loan has a 5-year grace and does not have any principal payments during this period. The
small increments of outstanding debt and debt service payments relative to the size of the GOK‟s
GSDP and own source revenues results in a minimal increase in the debt burden ratios. This
demonstrates that the State has substantial debt capacity to meet KSHIP II debt service payments
and retains sufficient additional capacity to fund its MTFP capital program.
71
Table 10: KSHIP II Impact on MTFP Indicators (US$ billions)
FY10-11 BE FY11-12
Projected
FY12-13
Projected
FY13-14
Projected
KSHIP II Debt Service
(IBRD, Annuity
Payment)
.009 .023 .036 .067
Increase in Debt
Service/State Own Tax
Revenue with KSHIP II
Borrowing
24.34%
(+0.21%)
26.40%
(+0.26%)
26.96%
(+0.34%)
26.57% (0.57%)
KSHIP II Debt Stock
(IBRD, Annuity
Component)
.460 .460 .460 0.439
Increase in Consolidated
Debt Stock/GSDP with
KSHIP II Debt Stock
28.93%
(+1.04%)
28.44%
(+0.92%)
28.05%
(+0.82%)
27.69%
(+0.71%)
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
Bank‟s loan repayments and interests‟ payments occur after a five-year long grace period and re-
paid 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 parts‟
consumption, VAT on new vehicle sales and quarterly and lifetime taxes on vehicles. Central
Government tax revenues were neglected in this analysis11
. Indirect tax revenues will be
generated by the activity created by construction and maintenance activities 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 government‟s 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.
72
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). On 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
Project Category
PV Expenditure PV Revenue NPV Fiscal
Impact (Net
Revenue-Net
Expenditure)
Without
project
With
project
Net
Expenditure
Without
project
with
project
Net
revenue
Item-rate Contracts 10.7 210.1 199.5 205.1 409.4 204.3 4.9
Annuity
Concessions 27.6 509.1 481.5 387.0 811.6 424.5 -57.0
Total 38.2 719.2 681.0 592.1 1,221.0 628.8 -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.
73
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 state‟s 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 sha ll 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.
74
INDIA: SECOND KARNATAKA STATE HIGHWAY IMPROVEMENT PROJECT
Institutional Development and Action Plan [IDSAP] 2010 – 2016
Summary Matrix
S.
No. Objective Key Result Area and Timing
Lead
Partner
Roads Sector Strategy and Sustainability
1 Effective sector
policy,
responsibilities
and
empowerment
Revised PWD code (“D-Code”) authorized by GOK (June 2011) N/A
Transport Dept. confirmed by GOK as lead („nodal‟) agency for state-
wide Road Safety strategy, action planning and coordination (October
2010)
N/A
G.O. updating Karnataka Road Sector Policy (2009) on new Planning
and Asset Management Centre role / functions (November 2010)
ADB
G.O. on revised Karnataka State Highways Transport and Traffic
Authority (KSHTTA) role and functioning as „sector apex body‟
(November 2010)
N/A
Establish KSH Act-based GOK „tolling powers‟ for both public and
PPP-based roads via new Regulations (September 2010)
N/A
Finalize D-Code Safety During Construction section (June 2011). ADB
New Road Asset Management Policy (RAMP) in place (December
2011).
ADB
Updated road classification and responsibility framework (December
2011).
ABD&W
B
Karnataka Road Sector Policy of 2009 reviewed / updated (June 2013). WB
2 Establish and
manage
prioritized Core
Road Network
(CRN)
Confirmation of the Core Road Network (CRN) and of assigned CRN
management responsibility at CE level in PWD (June 2011)
N/A
CRN asset management guidelines and plan(s) established (March
2012)
ADB
Capacity-building in PWD for CRN management completed (June
2012)
ADB&W
B
3 Adequate CRN
funding
GOK to formulate financing strategy and institutional measures for
CRN development and management (December 2011)
N/A
GOK considers establishment of Road Fund (August 2011). WB
4 Increased
private sector
participation
(PSP)
Capacity building in PPP project management skills in PWD (including
for KRDCL, KSHIP-PIU and NH units) completed (March 2012).
ADB&W
B
Initial 3 PPP-based CRN improvement projects underway (June 2012). WB
Piloting of PPP-based CRN O&M contracts/concessions underway
(June 2013).
WB
5 Effective
Transport sector
infrastructure
master planning
Implement new Planning functions and capacity in PWD (November
2011).
ADB
Finalize and roll-out new state-level Roads Master Plan (August 2011). ADB
Implement Planning Road Asset Management System (PRAMS) in
PWD to support CRN investment planning (December 2011).
ADB
Draft GOK policy on multi-modal / inter-modal transport development
strategy and investment planning, developed (June 2013).
ADB&W
B
Asset Management
6 Computerized
road network
Asset
Software for Road Asset Maintenance and Management System
(RAMMS), integrated with (also-updated) RIS and GIS databases,
ready for PWD „pilot‟ operation and evaluation ( September 2011).
ADB
75
S.
No. Objective Key Result Area and Timing
Lead
Partner
Management
system,
procedures and
capacity
Dedicated RAMMS responsibility assigned in HQ of PWD (December
2011).
ADB
Establish and implement RAMMS manual and PWD training ( March
2012).
ADB
RAMP-based Action Plan implemented by PWD (June 2012). ADB
RAMMS fully operational in dedicated PWD unit and is providing
outputs directly for use in GOK road maintenance budget decision-
making and allocation processes for IFY 2013-2014 and onwards
(October 2012).
ADB&W
B
New PWD „asset protection‟ policy and guidelines for CRN-centered
administration of vehicle axle-load limits, developed (December 2012).
WB
Project Preparation, Implementation and Management
7 Comprehensive
PWD „project
management‟
procedures,
systems and
practices
PWD piloting of IT-based Project Management tools (with progress /
performance monitoring and reporting) underway for works of Rs. 50
Crores and over (March 2012).
WB
PWD-wide training-supported implementation of Project Management
system (with integrated progress/performance monitoring and
reporting) completed for PWD projects of Rs. 10 Crores and over (June
2014).
WB
8 Effective
Environment
and Social
Management
(„safeguards‟)
capacity
G.O. issued on application of Environment and Social Management
(E&SM) provisions in D-Code to projects of Rs. 50 Crores and over
(August 2011).
N/A
E&SM codes, functions, staffing and logistics in place and effectively
involved in pilot-batch of PWD North and South Zones projects (June
2012).
WB
Externally-certified PWD pilot of Streamlined Environmental
Management completed and evaluated (December 2013).
WB
Governance and Accountability
9 Satisfactory
sector public
information,
governance and
accountability
mechanisms
GOK-endorsed, RTI-compliant Governance and Accountability Action
Plan (GAAP) for KSHIP established (February 2011)
N/A
KSHTTA status and responsibilities updated (June 2012). ADB
KSHTTA-centered mechanisms for public and stakeholder
consultations on roads-related matters in place (December 2012).
ADB&W
B
Main GAAP-based actions and capacity building completed (December
2013)
WB
Periodic road user satisfaction surveys completed and results
publicized via KSHTTA (June 2011, April 2012 and April 2015).
WB
10 Effective PWD
framework,
functions and
capacity for
Quality
management
Second-round ISO-certification QMS program for remaining PWD
units, KSHIP (PIU) and KRDCL completed (June 2013).
WB
Strengthening of QC laboratory / testing skills, equipment and
resources in PWD field units completed (December 2013).
WB
Review undertaken by IR-RAASTA / effectiveness in PWD of full ISO
/ QMS program (March 2014).
WB
11 E-governance
systems and
capacity in
place in PWD
E-procurement facilities in place in PWD for major procurements,
extended to procurements of Rs. 5 Lakhs or more (April 2011).
ADB&W
B
Implement e-billing, e-contract management and other e-governance
facilities progressively in PWD (December 2013).
ADB
Road Safety
76
S.
No. Objective Key Result Area and Timing
Lead
Partner
12 Effective state-
level Road
Safety strategy,
capacity and
action
Finalize TOR for piloting of Traffic Incident Management System
(TIMS) on selected CRN corridors (March 2011).
ADB
Re-activate RAAS with RIS linkage and implement „pilot‟ jointly
between Transport Department and PWD (December 2011).
ADB
Capacity building for Transport Dept. and other GOK agencies for new
RS roles and responsibilities completed (December 2012).
WB
Implement new Centre of Excellence for RS training, education and
research involving GOK and major stakeholders (June 2013).
WB&AD
B
Pilot „safe corridors‟ action program completed (December 2014). WB
New comprehensive state-level RS strategy and capacities in place and
new RS Action Plan being implemented by GOK (June 2015).
WB
Multi-year black-spot mitigation program completed (June 2016). WB
Organizational Structure and Management Processes
13 Efficient
structures and
capacity for
evolving roads
responsibilities.
Establishment actions and essential staffing measures completed for
enhanced PWD functions/responsibilities (December 2012).
N/A
Effective „sustainability‟ measures being taken by PWD for new core,
critical and/or specialized functions and skills (June 2014).
ADB&W
B
14 Updated
framework for
PWD role and
outputs
Revised authorized D-Code published and fully implemented both
PWD-wide and in concerned sector areas (December 2011).
N/A
Cyclical review / updating of D-Code undertaken (June 2014). WB
15 Effective IT and
ICT resources
to support all
PWD
management
functions and
responsibilities
Medium-term prioritized IT-ICT-MIS Strategy and Action Plan
covering relevant technology, facilities, assets and capacities for PWD
„core‟ IT-ICT management and operational support functions, in place
(December 2012).
WB&AD
B
IT establishment and staffing in PWD strengthened sustainably in
essential skills / capacities (December 2012).
ADB&W
B
External resources / capacity needed for sustainability in IT-ICT
operations, user support and data/system security in PWD, in place
(December 2013).
WB
16 Effective IT-
supported PWD
accounting and
financial
management
Integration of localized FM tools in PWD into a comprehensive
agency-wide IT-based Financial Management Information System,
compatible with the GOK Treasury system, fully operational
(December 2012).
WB
Human Resources Development
17 Sound PWD
staffing profile,
skills mix and
competencies
for its evolving
functions and
responsibilities
Finalization and implementation of general Training strategy, Action
Plan and ongoing „training calendar‟ for PWD staff (August 2010 and
ongoing).
ADB
Creation of a Budget sub-item for Staff Training (April 2011). N/A
Working Group (WG) proposals on enhancement of „standard APR‟ for
PWD needs submitted to GOK (December 2011).
WB
Training-supported roll-out of „enhanced APR‟ PWD-wide completed
(December 2012).
WB
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).
ADB&W
B
77
S.
No. Objective Key Result Area and Timing
Lead
Partner
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).
WB
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).
WB
78
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 citizen‟s 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.
79
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 PIU‟s
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 PWD‟s 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
80
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
project13
as 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
81
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.
82
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 public–private 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 GAAP‟s
effectiveness and opportunity for any mid-course corrections.
S.
No.
GAAP Element Performance Benchmark(s)
1. Information
disclosure
frequency and comprehensiveness of website updates,
comprehensiveness of information available on citizen information
boards at site(s),
2 Complaint
handling
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
3 Quality Control/
project
coordination
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
4 Institutional
improvements
progress in implementation of online complaints handling system,
procurement and project management database and the project MIS.
5 Capacity Percentage of staff and officers sent for training including on RTIA
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.
83
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
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.
Policy formulated
and agreed upon.
PIO, APIO,
All PIU staff
Appoint Appellate authority, PIO, APIO at
PIU and in the field units
Appointed PIU
Enhance website for clarity of content and
style of project related information
Continuous PIU
Engagement with media during supervision
missions to highlight issues.
As needed. Bank, KSHIP
Entity-level
Widely publicise – both internally and externally
- the existing Civil Service Conduct Rules
governing sanctions for staff.
June 2011
KPWD,
Vigilance
Officials
2. Measures to enhance procedures
Corruption/
collusion in
procurement;
weak financial
management
and complaint
handling
procedures;
Project-level
Revise e-procurement process to conform to
World Bank requirements on robustness and
user-friendliness
By Negotiations PIU
Enable online contractor registration December 2012 PIU
Entity-level
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.
Completed PIU
Vigilance
Officials
Maintain an updated database on complaints
received and action taken for “suo moto” or on-
demand public disclosure.
From project start
PIO, APIO,
IVO
Notify details of the process for disqualification
of bidders who engage in misrepresentation/
fraudulent/ corrupt practices on KSHIP website.
June 2011 Vigilance
officials, PIU
Create workgroup to assess feasibility of online
contractor registration for all departmental
works
March 2011 KPWD
Initiate corporate governance assessment of
KRDCL; Implement key recommendations
September 2011;
December 2012
Upon
approval by
GOK
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
To be developed
during the 1st year
PIU
84
mechanisms,
project
management,
quality control
and asset
maintenance
for quick review and follow up action. of project
implementation
Commission impact assessment studies and
user satisfaction surveys to obtain user
feedback
Annual PIU
Empanel third-party mechanism to review
highway designs and quality of works.
By Negotiations. PIU
Start compiling database on number of bids,
bid prices, unit prices, specifications, contractor
performance for future reference.
June 2011 Procurement
officials of
KSHIP
Entity-level
Make Finance Management Manual fully
functional.
Ongoing PIU
Pilot an online system for registering, tracking
and monitoring of complaints under the project
for department wide rollout by end of project.
June 2011
Vigilance and
Complaint
Management
Officers
Maintain asset registers under the Road
Information System.
Annually by June
of every year
KPWD
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.
Continuous KPWD
Conduct knowledge-sharing workshops for
KSHIP staff and contractors/developers on PPP
and new contracting methods.
Periodically. PIU, Bank
Conduct training on RTIA for all KSHIP
officers and staff
Continuous
PIO, APIO
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