north-south road corridor investment program – tranche 1 ......completion of engineering design...

Completion Report

Project Number: 42145-023 Loan Number: 2561 January 2020

Armenia: North‒South Road Corridor Investment

Program (Tranche 1)

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

CURRENCY EQUIVALENTS

Currency unit – Armenian dram (AMD)

At Appraisal At Project Completion (4 September 2009) (16 June 2016)

AMD1.00 = $0.0027 $0.0021 $1.00 = AMD377.00 AMD478.83

ABBREVIATIONS ADB – Asian Development Bank APFS – audited project financial statement DMF – design and monitoring framework EIRR – economic internal rate of return EMP – environmental management plan IPC – interim payment certificate FY – fiscal year km – kilometer LARP – land acquisition and resettlement plan MEDI – Ministry of Economic Development and Investments MFF – multitranche financing facility MOF – Ministry of Finance MTCIT – Ministry of Transport, Communication, and Information

Technologies NPV – net present value PMU – project management unit RRP – report and recommendation of the President SNCO – state non-commercial organization TA – technical assistance TPIO – Transport Projects Implementation Organization

NOTES

(i) The fiscal year (FY) of the Government of Armenia ends on 31 December.

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

Vice-President Shixin Chen, Operations 1 Director General Werner Liepach, Central and West Asia Department (CWRD)

Director Dong-Soo Pyo, Transport and Communications Division (CWTC), CWRD Country Director Paolo Spantigati, Armenia Resident Mission, CWRD Team leader Thomas Herz, Senior Transport Specialist, CWTC, CWRD Team members Ederlyn Norte, Associate Project Analyst, CWTC, CWRD Anna Liza Silverio, Senior Operations Assistant, CWTC, CWRD

Mitzi Vina Tamayo, Senior Operations Assistant, CWTC, CWRD Krisanta Carissa Vila, Associate Project Analyst, CWTC, CWRD

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

CONTENTS

Page

BASIC DATA i

MAP viii

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 2

A. Project Design and Formulation 2 B. Project Outputs 3 C. Project Costs and Financing 5 D. Disbursements 6 E. Project Schedule 7 F. Implementation Arrangements 7 G. Consultant Recruitment and Procurement 8 H. Gender Equity 9 I. Safeguards 10 J. Monitoring and Reporting 10

III. EVALUATION OF PERFORMANCE 11

A. Relevance 11 B. Effectiveness 11 C. Efficiency 12 D. Sustainability 12 E. Development Impact 13 F. Performance of the Borrower and the Executing Agency 13 G. Performance of the Asian Development Bank 14 H. Overall Assessment 14

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 15

A. Issues and Lessons 15 B. Recommendations 15

APPENDIXES

1. Design and Monitoring Framework 16

2. Project Cost at Appraisal and Actual 18

3. Project Cost by Financier 19

4. Summary of Reallocation of Loan 21

5. Contract Awards of ADB Loan and Grant Proceeds 22

6. Disbursement of ADB Loan and Grant Proceeds 23

7. Chronology of Main Events 24

8. Summary of Contracts 29

9. Economic Re-evaluation 30

10. Status of Compliance with Loan Covenants 39

BASIC DATA A. Loan Identification

1. Country Armenia 2. Loan number and financing source 2561-ARM, Special Funds Resources 3. Project title North‒South Road Corridor Investment

Program (Tranche 1) 4. Borrower Government of Armenia 5. Executing agency Ministry of Transport, Communication and

Information Technologies 6. Amount of loan SDR38,443,000.00 ($60,000,000.00) 7. Financing modality Multitranche Financing Facility

B. Loan Data

1. Appraisal Waiveda – Date started – Date completed 2. Loan negotiations – Date started 31 August 2009 – Date completed 1 September 2009 3. Date of Board approval 6 October 2009 4. Date of loan agreement 12 October 2009 5. Date of loan effectiveness – In loan agreement 11 December 2009 – Actual 24 February 2010 – Number of extensions 1

6. Project completion date – Appraisal 31 December 2013

– Actual 16 June 2016 7. Loan closing date – In loan agreement 30 June 2014 – Actual 23 February 2018 – Number of extensions 3

8. Financial closing date – Actual

23 February 2018

9. Terms of loan – Interest rate 1% per year during the grace period, and

1.5% per year thereafter, on the amount of the loan withdrawn from the loan account and outstanding from time to time

– Maturity (number of years) 32 – Grace period (number of years) 8 10. Terms of relending (if any) – Interest rate

N/A

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

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a The agreement reached under the memorandum of understanding of the fact-finding mission on 15–29 July 2009 for

the multitranche financing facility and the first tranche project formed the basis for the government’s project processing schedule. 11. Disbursements

a. Dates

Initial Disbursement 26 May 2010

Final Disbursement 27 July 2017

Time Interval 86.10 months

Effective Date 24 February 2010

Actual Closing Date 23 February 2018

Time Interval 95.9 months

b. Amount (SDR ‘000)

Category

Original Allocation

(1)

Increased or Decreased

during Implementation

(2)

Cancelled during

Implementation (3)

Last Revised

Allocationa (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balanceb (6 = 4–5)

1. Works 24,347.00 9,812.51 34,159.51 34,121.26 38.25 2. Consulting services

3,204.00 (797.84) 2,406.16 2,401.42 4.74

3. Goods 641.00 (641.00) 4. Project management

641.00 608.61 1,249.61 1,249.61

5. Interest during construction

1,281.00 (653.28) 627.72 627.72

6. Unallocated 8,329.00 (8,329.00) Total 38,443.00 0.00 38,443.00 38,400.01 42.99 a As approved on 21 June 2017. b The undisbursed balance was cancelled on 23 February 2018.

Amount ($ ’000 equivalent)

Category

Original Allocation

(1)

Increased or Decreased

During Implementation

(2)

Cancelled During

Implementation (3)

Last Revised

Allocationa (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

1. Works 38,000.00 14,595.36 50,644.07 50,592.46 51.61 2. Consulting services

5,000.00 (1,236.60) 3,659.30 3,653.61 5.69

3. Goods 1,000.00 (993.17) 4. Project management

1,000.00 949.45 1,899.47 1,899.47

5. Interest during construction

2,000.00 (410.00) 916.21 916.21

6. Unallocated 13,000.00 (12,905.04) Total 60,000.00 0.00 57,119.05 57,061.75 57.30 a As approved on 21 June 2017. The total revised allocation was the US dollar equivalent as of 21 June 2017.

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12. Local costs financed (not applicable)

– Amount ($) – Percent of local costs – Percent of total costs

C. Project Data

1. Project cost ($ ‘000)

Cost Appraisal Estimate Actual

Foreign exchange cost Asian Development Bank 60,000.00 57,061.75 Government 10,000.00 12,558.09 Total 70,000.00 69,619.84

2. Financing plan ($ ‘000)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 10,000.00 12,558.09 ADB financed 58,000.00 56,145.54 Other external financing 0.00 0.00 Total implementation cost 68,000.00 68,703.63 Interest during construction costs Borrower financed ADB financed 2,000.00 916.21 Other external financing Total interest during construction cost 2,000.00 916.21

3. Cost breakdown by project component ($ million)

Component Appraisal Estimatea Actual

A. Base Cost 1. Civil works for road improvement

a. Yerevan–Ashtarak road (km 11.8 to km 30.2)b 33.70 18.71

b. Road safety improvement for the Yerevan–Ararat roadb 4.30 31.88

2. Project management support

a. Project management unitc 0.90 1.90

3. Project implementation consultants a. Detailed design for tranche 1 0.10 0.30 b. Construction supervision of tranche 1 and preparation of tranches 2 and 3

3.90 3.27

c. External financial audit 0.10 0.08

4. Support for implementation of the road subsector pland

a. Consulting services 1.00 -

b. Traffic management and monitoring equipmente 1.00 -

5. Taxes and dutiesf 10.00 12.56

Subtotal (A) 55.00 68.70

B. Contingenciesg

1. Physical contingency 9.00 - 2. Price contingency 4.00 - Subtotal (B) 13.00 -

C. Financing Charges during Implementationh 2.00 0.92

Total 70.00 69.62 a In mid-2009 prices. b Scope was changed as described in para. 11. c Includes project management and administration cost of the management unit under the MTCIT. d ADB approved on 13 November 2013 the transfer of this output to Loan 2993-ARM (tranche 3).

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e Deleted as described in para. 17. f Includes value-added tax and import duties. g Physical contingencies are computed at 20% of base costs. Price contingencies are computed at 2% on foreign

exchange costs and 12% on local currency costs. Includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

h Includes interest charges during construction.

4. Project schedule

Item Appraisal Estimate Actual

Date of contract with consultants National detailed design of tranche 1 Q3 2009 22 April 2010 International pavement specialist for detailed design of tranche 1 Q3 2009 22 April 2010 International construction supervision of tranche 1 and preparation of tranches 2 and 3

Q4 2009 24 September 2010

National verification and valuation of land and asset and review of land acquisition and resettlement plan (LARP) for tranche 2

Q3 2010 4 October 2010

External financial audit for FY2010 to FY2013 Q1 2011 6 June 2011 External financial audit for FY2014 Q3 2015 23 October 2015 External financial audit for FY2015, FY2016, half FY2017 Q2 2016 12 December 2016 National independent monitoring agency Q4 2010 20 August 2011 International resettlement specialist for preparing draft LARP for tranche 3

Q3 2012 15 October 2012

National resettlement specialist for preparing draft LARP for tranche 3

Q3 2012 16 October 2012

International social development and resettlement specialist for preparing final LARP for tranche 3

Q4 2012 13 March 2013

National social development and resettlement specialist for preparing LARP for tranche 3

Q3 2014 21 January 2015

Date of contract for consulting services for road subsector plana Q4 2009 Completion of engineering design (report) Q2 2010 10 September 2010

Design review by specialists (report) 30 June 2011 Civil works contract Date of award to the contractor Q3 2011 27 April 2012 Completion of work Q4 2012 16 June 2016 Issuance of taking-over certificate to the contractorb 16 June 2016 Equipment and supplies

Traffic management and monitoring equipmentc a On 13 November 2013, ADB approved the removal of consulting services for the road subsector plan, which were

transferred to tranche 3. b The government issued the taking-over certificate to the contractor. c On 13 November 2013, ADB approved the removal of traffic management and monitoring equipment.

5. Project performance report ratings

Implementation Period Ratings

From 6 October 2009a to 31 December 2009 From 1 January 2010 to 31 December 2010 From 1 January 2011 to 31 December 2011 Actual problem From 1 January 2012 to 31 December 2012 Potential problem From 1 January 2013 to 31 December 2013 On track From 1 January 2014 to 31 December 2014 On track From 1 January 2015 to 31 December 2015 On track From 1 January 2016 to 31 December 2016 On track From 1 January 2017 to 31 December 2017 On track From 1 January 2018 to 23 February 2018b On track

a The loan was approved on 6 October 2009. b The loan was closed on 23 February 2018.

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D. Data on Asian Development Bank Missions

Name of Missiona Date No. of

Persons

No. of Person-

Days Specialization of Membersb

Fact-finding 15–29 Jul 2009 7 105 a, b, c, d, e, g, h Consultation 7–14 Oct 2009 5 40 a(2), g, h, j Inception 7–11 Dec 2009 3 15 a, g, h Review 1 8–22 Mar 2010 4 20 a, c, f, g Review 2 29 May–8 Jun 2010 5 55 a, c, f, g, h Review 3 13–20 Sep 2010 3 24 a, g, h Review 4 25 Oct–4 Nov 2010 6 66 a, b, c, g, h, j Review 5 24 Feb–4 Mar 2011 3 27 a, f, h Review 6 17–30 Aug 2011 3 42 a, g, j Review 7 4–19 Oct 2011 3 48 a, i(2) Review 8 23–24 Apr 2012 2 4 a, i Review 9 2–13 Jul 2012 5 60 a, d, f, I, k Review 10 2–12 Oct 2012 2 22 a, i Review 11 19–22 Mar 2013 5 20 a(2), i, j(2) Special project administration 13–21 May 2013 3 27 a, i, k Review 12 11–24 Jul 2013 5 70 a, f, g, k, l Midterm review 18–28 Sep 2013 3 33 a, j, k Review 13 14–16 Nov 2013 3 9 a, i, k Review 14 24 Feb–1 Mar 2014 2 10 a, g Review 15 25 Apr–6 May 2014 4 48 a, f, g, l

Review 16 17–29 Jun 2014 2 26 a, k Review 17 11–16 Aug 2014 3 18 a, j, m Financial audit consultation 11–14 Sep 2014 2 8 m, n Review 18 14–17 Oct 2014 2 8 a, m Country safeguards (environment) review 10–23 Nov 2014 2 28 d, k Review 19 25 Nov–2 Dec 2014 5 40 a, j, k(2), m Social safeguards consultation 27 Jan–05 Feb 2015 2 20 o, p Review 20 13–18 Mar 2015 3 18 a, j, m Review 21 18–24 Jun 2015 4 28 a, j, k, m Review 22 16–24 Sep 2015 4 36 a, j, k, m Country safeguards review 27 Oct–7 Nov 2015 2 24 d, p Review 23 2–9 Dec 2015 3 24 a(2), i Review 24 22–26 Feb 2016 7 35 a, d, i(2), j, m, p Review 25 1–12 Aug 2016 7 84 a(2), d, j, m, p(2), Review 26 18–26 Oct 2016 4 36 a, j(2), m Review 27 28 Nov–2 Dec 2016 4 20 a, k, j, m Review 28 23–31 Jan 2017 5 45 a(2), k, j, m Review 29 20–28 Feb 2017 7 63 a, j(2), k, m, p, r Review 30 15–19 May 2017 4 20 a, j(2), m Review 31 10–15 Jul 2017 7 42 a, d, j(2), m, p, r Review 32 29 Aug–6 Sep 2017 5 45 a, i, j, m, r Review 33 6–15 Nov 2017 4 40 a, j(2), r Review 34 19 Feb–05 Apr 2018 5 230 a(2), j(2), r Review 35 30 May–18 Jun 2018 4 80 a, i, j, r Review 36 23 Jul–02 Aug 2018 4 44 a, j(2), r Review 37 24 Sep–03 Oct 2018 5 50 a, I, j(2), r Review 38 14–23 Nov 2018 3 30 a, j, r Project completion review 26 Sep–2 Oct 2019 3 21 a(2), s a Missions were combined for other projects. b a = transport specialist, b = financial specialist, c = social development and resettlement specialist, d = environment

specialist, e = legal counsel, f = director, g = country coordination officer, h = project implementation officer, i = project officer, j = project analyst, k = consultant, l = resident representative, m = portfolio management officer, n = financial management specialist, o = advisor and head (office of the director), p = social development specialist (safeguards), q = portfolio management specialist, r = unit head (project administration), s = operations assistant.

I. PROJECT DESCRIPTION 1. Armenia, a landlocked country characterized by mountainous terrain and extreme weather fluctuations, depends on cross-border transport for trade. Three factors lead to high trade transaction costs for Armenia: (i) the legacy of a transport network developed under the former Soviet Union, (ii) its landlocked geography, and (iii) restricted cross-border transport because two of its four international borders are closed. These constraints increase transport costs for traded goods and necessitate expensive infrastructure rehabilitation and maintenance. The Government of Armenia has made efforts to strengthen its economic linkages with other countries to increase trade, investment opportunities, and jobs. The north‒south road corridor, which runs from Agarak to Bavra through Kapan and Yerevan, plays an important role because it connects to the east–west highway of Georgia that leads to Poti and Batumi on the Black Sea coast. 2. On 15 September 2009, the Asian Development Bank (ADB) and the government signed the framework financing agreement for ADB to provide a multitranche financing facility (MFF) in an aggregate amount not exceeding $500 million.1 On 18 September 2009, the Ministry of Economic Development and Investments (MEDI) submitted to ADB the first periodic financing request and an initial environmental examination report for tranche 1;2 On 29 September 2009, ADB approved the MFF for the investment program with an availability period up to 14 September 2019 and on 11 September 2019, extended the availability period by 5.2 years.3 Following the MFF’s approval, ADB approved tranche 1 project (Loan 2561-ARM) amounting to SDR38.44 million (equivalent to $60 million) on 6 October 2009. The loan agreement was signed on 12 October 2009 and became effective on 24 February 2010. MEDI is the borrower and the executing agency is the Ministry of Transport, Communication, and Information Technologies (MTCIT).4 3. Through the Government’s Decree No. 892-A, dated 26 October 2009, the government formulated the Armenia Transport Strategy 2020 and the North‒South Road Corridor Investment Program to support Armenia’s economic growth and regional cooperation by constructing and/or improving the 550-kilometer (km) Agarak‒Yerevan‒Bavra route crossing Armenia from Iran to Georgia. The government started works on the program immediately north and south of Yerevan. The north‒south corridor comprises two national roads: (i) the M1 road from Yerevan north to Bavra at the Georgian border, and (ii) the M2 road from Yerevan south to Meghri at the Iranian border. Tranche 1 project aimed to improve two road sections of the north‒south corridor: (i) the M1 from Yerevan north to Ashtarak (section 3), and the M2 from Yerevan south to Ararat (section 2). The M1 and M2 roads leading in and out of Yerevan have rapidly deteriorating pavements which require immediate safety improvements. Because these road sections carried the highest traffic loads, rehabilitating them is envisioned to have the largest immediate benefit to road users. Therefore, tranche 1 project’s main components are: (i) reconstruction of an 18.4-km four-lane section between Yerevan and Ashtarak; (ii) road safety enhancement of a 38.1-km four-lane section between Yerevan and Ararat; (iii) project management support including due diligence, detailed design, supervision consultancy, and preparation of tender and procurement documents

1 Of the total amount, $440 million is sourced from ordinary capital resources and $60 million from special funds

resources. 2 The periodic financing request was originally submitted by the Ministry of Economy, which was renamed the Ministry

of Economic Development and Investments (MEDI) in accordance with Law on Making Amendment on the RA Law on Structure of the Government of Armenia, dated 29 September 2016, the Ministry of Economy.

3 Financing of tranche 1 was included in the approval of MFF0035-ARM. On 9 August 2016, the extension of the MFF availability period from 31 December 2017 to 14 September 2019 was approved to allow the government additional time to implement Loan 2729-ARM (tranche 2) and Loan 2993-ARM (tranche 3).

4 In accordance with the Law on Making Amendment on the RA Law on Structure of the Government of Armenia dated 29 September 2016, the Ministry of Transport and Communication was renamed the Ministry of Transport, Communication, and Information Technologies (MTCIT).

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for subsequent projects for MFF financing; and (iv) support for implementing the road subsector plan under the transport sector strategy. The impact of the project is increased subregional trade and accelerated economic growth in Armenia. The outcome of the project is the improved section of road from Yerevan to Gyumri. In July 2009, during the implementation of the project preparatory technical assistance (TA) for the program MFF and tranche 1 project of the MFF, the ADB mission and the government agreed to change the originally agreed Yerevan (Ashtarak)–Gyumri road section to be included under tranche 1 because of resettlement and environment impacts.5 It required more time to complete the resettlement plan and environmental assessment to comply with the MFF and ADB safeguard policy requirements. Thus, the Yerevan–Ashtarak section was selected as tranche 1 and processed together with the MFF proposal.6 The design and monitoring framework (DMF) is in Appendix 1.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 4. The envisaged output targets and intended project design for tranche 1 (Loan 2561-ARM) were prepared through the ADB-funded project preparatory TA for the program MFF and tranche 1 project of the MFF (footnote 6). ADB engaged an international consulting firm, in association with a national consulting firm, to (i) formulate the MFF; (ii) prepare feasibility study and preliminary design of the project components for tranche 1; (iii) develop a framework financing agreement on the basis of the components identified for tranche 1; and (iv) conduct a preliminary study of succeeding road sections (tranches 2 and 3). During project preparation, the consultant carried out due diligence through consultations with the government to ensure that outputs accord with the government’s needs. 5. The TA consultant carried out an initial environmental examination that (i) assessed the environmental settings of the corridors through which the project road sections pass, (ii) identified the likely project impacts, (iii) determined the significance of those impacts and appropriate mitigation measures during construction and operational phases. The findings were presented in a summary environmental management plan (EMP) and monitoring program.7 The TA consultant also carried out due diligence by conducting full consultations with the government, local authorities, civil society, and others, and established a grievance redress mechanism to address any concerns. Tranche 1 project is classified B for environment and C for involuntary resettlement. Impacts are not expected to be highly significant and civil works took place within the existing right-of-way or on unused state-owned land; preparation of a land acquisition and resettlement plan (LARP) is not required because there is no relocation of households or acquisition of productive land. Tranche 1 is classified C for indigenous people, with no impact. 6. At appraisal, the design of tranche 1 was relevant. It was in line with ADB’s Armenia Transport Sector Development Strategy, 2020, which identified the north‒south corridor as a priority project proposed for rehabilitating, reconstructing, and expanding international corridors.8 It was also a part of ADB’s country operations and business plan for Armenia, 2008–2010, which

5 ADB. 2008. Technical Assistance to the Republic of Armenia for Preparing the North‒South Road Corridors

Development Program. Manila (TA No. 7208-ARM, approved on 12 December 2008, financed by ADB). 6 ADB. 2009. Report and Recommendation of the President to the Board of Directors on a Proposed Multitranche

Financing Facility and Administration of Cofinancing for the Armenia North–South Road Corridor Investment Program. Manila.

7 ADB. 2002. Environmental Policy of the Asian Development Bank. Manila and ADB. 2003. Environmental Assessment Guidelines. Manila.

8 ADB. 2008. TA 4973-ARM: Transport Sector Development Strategy. Manila.

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focused on transport and urban infrastructure, regional cooperation, and private sector development.9 It was aligned to ADB’s country economic report and interim operational strategy for Armenia, 2006–2009, which aimed to help improve regional cooperation and promote exports by rehabilitating existing regional road and railways infrastructures and improving cross-border procedures. 10 The impact and outcome defined in tranche 1’s DMF were also consistent with the government’s Sustainable Development Program and remained relevant to the continued improvement of road infrastructure under Armenia Development Strategy, 2014–2025.11 B. Project Outputs 7. The following were the outputs at appraisal and achievements at completion: 8. Output 1: an 18.4-km, four-lane section of road (Yerevan–Ashtarak) improved. At appraisal, it was envisaged to reconstruct 18.4 km (km 11.8–km 30.2, section 3) of the four-lane section of the M1 Yerevan‒Ashtarak road to meet 100 km/hour design standards. Works were to reconstruct the existing pavement, improve drainage and shoulders, and repair concrete structures. The new road pavement was to be a 26-cm thick concrete slab on a crushed stone base course. One overpass required demolition and replacement by a new overpass; eight other bridges required repair.

9. On 9 August 2010, ADB and the government found that rehabilitating the first 6.7 km of the 18.4 km M1 Yerevan–Ashtarak (section 3) road would require considerable land acquisition to correspond with defined road standards. The executing agency and ADB agreed to divide tranche 1 into two civil works contract packages: (i) reconstruction of 11.7 km of the Yerevan–Ashtarak road (CW1 package); and (ii) reconstruction of 6.7 km of the Yerevan–Ashtarak road, plus safety improvements to about 38 km of the M2 Yerevan–Ararat section (CW2 package).

10. The project management unit (PMU) revised the bidding documents and carried out procurement for CW1 package. The award of the civil works contract was planned for the first quarter (Q1) of 2010, but the bidding failed.12 Out of 13 firms that purchased bidding documents, only three submitted bids. Two bids were nonresponsive and one bid far exceeded the engineer’s cost estimate. The evaluation committee recommended that the MTCIT reject all bids. Subsequently, ADB and the government agreed to procure civil works for tranches 1 and 2 under one bidding comprising three road sections to attract a larger number of qualified bidders. 11. The bidding documents were once more revised. Because of the need for stronger safety mitigation measures and government plans to construct the Yerevan bypass, the first 6.7 km of the M1 Yerevan–Ashtarak (section 3) were removed from the original scope of tranche 1, reducing the original 18.4-km section to 11.7 km. Because the scope for section 3 was reduced in length, safety improvements originally foreseen on the section M2 Yerevan to Artashat (part of section 2) were increased to: (i) about 19.6 km (from km 9+312 to km 28+912), comprising reconstruction of the median to provide continuous safety barriers and widening carriageway, leveling of existing asphalt to overlay with new cement concrete pavement, construction of additional ramps at three

9 ADB. 2007. Armenia: Country Operations Business Plan 2008–2010. Manila 10 ADB. 2006. Armenia: Country Economic Report and Interim Operational Strategy (2006–2009). Manila. 11 Government of Armenia. 2008. Sustainable Development Program. Yerevan (approved by the Decree of the

Government of Armenia No. 1207-N dated 30 October 2008); and Government of Armenia. 2014. Armenia Development Strategy for 2014-2025. Yerevan (approved by Government Decree No. 442-N on 27 March 2014 that revised the Sustainable Development Program adopted in 2008).

12 The invitation for bids was posted on ADB website on 17 September 2010, with the deadline for submission of bids on 1 November 2010.

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interchanges and rehabilitation of other ramps, and installation of road lighting at interchanges; and (ii) road safety improvements of the Artashat–Ararat section, about 18.5 km (km 28+912 to km 47+400), upgrading road signs and pavement markings to international standards. 12. The invitation for bids for the combined civil works contract of tranches 1 and 2 was posted on the ADB website on 19 August 2011 and in an Armenian newspaper on 20 August 2011. The package included tranche 1 as outlined above and tranche 2 (section 1), which comprised upgrading and widening the existing M1 Ashtarak–Talin road from a two-lane single carriageway to four-lane dual carriageway road, with a total length of 41.9 km (from km 29+600 to km 71+500).

13. The rebidding resulted in a bid amount of the lowest evaluated, substantially responsive bidder that was about 10% higher than the engineer’s estimate. ADB approved the executing agency to negotiate a reduced contract price with the winning bidder. The combined civil works contract was awarded to Corsan Corviam Construccion S.A., (Spain) on 27 April 2012.13 Works under tranche 1 were valued at $70.4 million (inclusive of tax). The notice to proceed was given on 24 July 2012.

14. Because the approved contract amount for civil works exceeded the allocation for civil works in tranche 1, ADB approved the government’s request to reallocate available funds from other categories to civil works. A financing gap of about $6.0 million remained; the government confirmed in writing to finance the gap and future cost overruns of tranches 1 and 2. Because of Armenia’s fiscal constraints, ADB approved on 17 June 2016 the government’s request to change the scope of tranche 1 by transferring the tranche 1 financing of 2 km of the M1 Yerevan–Ashtarak road (section 3) to tranche 2 for the M1 Ashtarak–Talin road (section 1). Hence, tranche 1 financed about 10 km of the M1 Yerevan–Ashtarak road (section 3).

15. On 15 September 2014, ADB approved the government’s request to cancel the road safety enhancement of M2 Artashat–Ararat (tranche 1, section 2) because of government plans to fully rehabilitate this section in 2016. The savings from this cancellation (about $1.6 million) were used for civil works on sections 2 and 3.14

16. At project completion, tranche 1 reconstructed about 10 km of the M1 Yerevan–Ashtarak (section 3)15 and 19.6 km of the M2 Yerevan–Artashat (section 2) for a total of about 30 km, increasing the original output of 18.4 km by about 12 km. The added improvements on the Yerevan‒Artashat section strengthened road safety features and brought more benefits to road users, neighboring communities, and residents. During tranche 1 implementation, the PMU, with the supervision and project management consultant, supported project management, including due diligence and detailed design of subsequent projects (tranches 2 and 3) for financing under the MFF. PMU support included preparing tender and procurement documents for the subsequent tranches, thus building the capacity of the executing agency and the implementing agency (PMU). 17. Output 2: Road subsector plan strengthened and implemented. The funds allocated for project management were depleted by the end of November 2013. To cover the cost for PMU operations, which had to be extended because of civil works delays and extension of the loan

13 The civil works contract of tranches 1 and 2 combined was $250 million (including value-added tax), which was $10

million higher than the engineer’s estimate; including value-added tax, $179.56 million was allocated to tranche 2 and $70.44 million allocated to tranche 1 (section 2: $46.32 million, section 3: $24.12 million).

14 Works included a utility pipeline on the M2 (Yerevan–Artashat), repairing the bridge over Qasakh River on the M1 (Yerevan–Ashtarak), and other urgent works such as bridge abutments and on/off ramps.

15 According to the approved contract, the total length is 11.4 km (from km18+370 to km 29+773). The output of tranche 1 was changed to about 10 km (from km 18+370 to 27+773). About 2 km (from km 27+773 to km 29.773) was transferred from tranche 1 to tranche 2.

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closing date, the government requested to reallocate funds from the goods and consulting services to project management support. As a result, the preparation of the road subsector plan development and the procurement of traffic management and monitoring equipment (goods) were removed from tranche 1 and included in tranche 3 during the processing. ADB approved the request on 13 November 2013.

18. Taking into account the changes made to tranche 1, ADB revised the DMF accordingly, based on a minor change in scope memo approved on 17 June 2016 (Appendix 1).

C. Project Costs and Financing 19. ADB financing for tranche 1 included civil works, consulting services for project implementation, support to the PMU and external financial audit, support for implementing the road subsector plan (comprising consulting services and traffic management and monitoring equipment–goods), contingencies (unallocated), and financing charges (interest during construction). ADB approved a minor change in the implementation arrangement to allow tranche 1 loan proceeds to finance bank charges and the cost of bank transactions. 20. Appendix 2 compares the actual detailed costs for each component of tranche 1 with appraisal estimates. At appraisal, the cost of tranche 1 was estimated at $70.00 million, including taxes and duties. ADB was to provide SDR38.44 million (equivalent to $60 million, about 86% of the total estimated cost). ADB financing of $60 million included $38 million for civil works, $5 million for consulting services, $1 million for goods, $1 million for project management support, $2 million for financing charges, and $13 million unallocated amount. The government was to provide $10 million (about 14% of the total estimated cost) to finance local taxes and duties, including value-added tax and import duties. 21. During implementation, civil works and project management support experienced cost overruns because: (i) the expanded scope resulted in an approved contract amount for civil works ($58.7 million), exceeding the allocation for works ($37.7 million) and (ii) the allocation for project management support ($1.02 million) was insufficient to cover the estimated costs ($1.89 million). Therefore, ADB approved the government’s request to (i) reallocate funds to civil works from unallocated funds ($12.9 million) and consulting services ($1.2 million) and (ii) reallocate funds to project management support from unutilized goods ($1.02 million). On 8 December 2015, ADB approved reallocating funds to civil works from undisbursed interest during construction ($0.92 million). On 21 June 2017, ADB approved the government’s request to reallocate to civil works about $42,000 remaining under consulting services (because of foreign exchange fluctuations). 22. Despite approved reallocations to civil works, a financing gap of about $6.0 million remained; the government confirmed in writing to finance the gap but was unable to comply. Subsequently, ADB approved the government’s request to change the scope of tranche 1 by transferring the financing of 2 km of the M1 Yerevan–Ashtarak road from tranche 1 (Loan 2561) to tranche 2 (Loan 2729). During processing of tranche 3 (Loan 2993), ADB and the government agreed to move the financing of the goods and consulting services for implementing the subsector plan from tranche 1 to 3. Further, after completion of road works for tranche 1, the government identified the need to demolish an existing overpass, replace it with a new one, and repair eight other bridges. ADB approved financing of these works from tranche 3 proceeds. 23. During tranche 1 implementation, the civil works contractor faced several challenges, including quality control and cash flow; was unable to produce the required quality standard for the concrete pavement; and suffered delays. The substandard works reduced the road’s

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pavement life and the government deducted $5.2 million from tranche 1’s contract value based on failure to meet the required specifications for the concrete pavement (para. 38). 24. At completion, the actual project cost totaled $69.62 million. ADB financed SDR38.40 million (equivalent to $57.06 million or 82%), while the Government of Armenia financed $12.56 million (18%). Actual interest during construction totaled SDR0.63 million (equivalent to $0.92 million). The unutilized loan balance of SDR0.04 million (equivalent to $0.06 million) was cancelled during loan financial closing on 23 February 2018. Appendixes 2 and 3 summarize actual versus appraisal costs for each project component and the related financing plan and Appendix 4 summarizes loan reallocations. D. Disbursements 25. At appraisal, disbursement was envisaged to occur over 5 years, from 2009 to 2014. Actual implementation was spread over 8 years from 2010 to 2017 because of delays. Disbursement of tranche 1 loan proceeds started in May 2010. For consulting services contracts approved in 2010, disbursement was smooth. Disbursement for civil works was delayed because of the failed first bidding for tranche 1 civil works and the new bidding for the combined civil works of tranches 1 and 2 under one contract. The civil works contract was approved in April 2012 and the contractor received advance payment for tranche 1 in July–August 2012. During the ADB midterm review mission in September 2013, the mission noted that disbursement for tranche 1 in 2013 was slow and below the targets. The main reasons were the contractor's start-up delays due to late issuance of the construction permit, which may have delayed starting works for tranche 1 (sections 2 and 3). Works progressed slowly and their poor physical quality further slowed disbursements because the engineer and PMU did not readily endorse interim payment certificates (IPC) for processing. Physical works were poor quality because the contractor’s unconventional management organization gave the project manager insufficient control over construction. The subcontractors were not well-managed. The PMC’s staff were inexperienced in quality control. The mission also found that the contractor’s unsubstantiated statements and lack of supporting documents caused slow processing of withdrawal applications. The process of reviewing and approving IPCs also needed to be streamlined and expedited; except for the advance payment to the contractor in 2012, processing of many 2013 IPCs was delayed. 26. In addition, the PMU needed to upgrade its accounting software to manage the internal accounts more efficiently, instead of depending on the engineer's software and procedures. ADB advised the PMU to take immediate corrective actions. In September 2014, accounting software was installed in the PMU North‒South Road Corridor Investment Program Implementation Organization, a state non-commercial organization (SNCO), and in all project implementation units. For inadequate financing of some loan categories, ADB immediately approved the government's requests for reallocation of funds and/or changes in project scope, to avoid delaying disbursements. In 2014, disbursement improved as implementation of project activities improved, and the PMU requested the contractor to submit all outstanding IPCs. 27. The loan proceeds were disbursed according to ADB’s Loan Disbursement Handbook (2007, as amended from time to time), using (i) direct payment procedures for civil works and large consulting service contracts and (ii) an imprest account for smaller contracts. MEDI, through the PMU, established an imprest account in May 2010 at Ararat Bank, a commercial bank acceptable to ADB. The loan proceeds financed the bank charges on this imprest account. At the Ministry of Finance (MOF)’s request, ADB approved transferring the imprest account from a commercial bank to the state treasury on 13 March 2014. For simplified documentation, PMU followed the statement of expenditures procedure to reimburse expenditures and liquidate

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advances to the imprest account for any individual payment transaction of $100,000 equivalent or less. The MOF monitored the imprest account and reviewed the monthly accounts reconciliation. Projected and actual contract awards and disbursements are in Appendixes 5–6. E. Project Schedule 28. The original closing date of the loan was 30 June 2014, which was extended three times at the request of the borrower. Due to lengthy start-up delay caused by the failure of the first bidding round for civil works, on 26 November 2013 ADB approved the first request for loan extension from 30 June 2014 to 30 June 2015. 29. The initial contract duration of tranche 1 was 18 months (from 23 July 2012 to 21 January 2014), or 548 days, with a completion date of 31 December 2013. However, works were not completed according to the original schedule because of slow mobilization by the contractor, insufficient resources, and failure to mobilize major equipment according to the program of works, modifications, and design changes. During implementation, unpredictable extreme weather conditions and variations to the civil works contract also delayed the project. Thus, MTCIT and the contractor entered into a memorandum of agreement (MOA No. 1) on 04 April 2014 to revise the project completion date to 23 December 2014. 30. Delays continued; the contractor was still unable to complete the works by 23 December 2014. The contractor took more time than expected to set up paving operations, which should have been done at the outset in 2012, resulting in the revised project completion date of 1 September 2015. The borrower requested a second extension of the loan closing date by 12 months from 30 June 2015 to 30 June 2016 to be in line with the revised civil works completion date, which was approved by ADB on 26 January 2015.

31. The completion of works for tranche 1 project was extended twice: (i) from 21 January 2014 to 23 December 2014, and (ii) from 23 December 2014 to 13 June 2016. Subsequently, the loan closing date was extended until 30 June 2017 to recover the advance payment for civil works. Following completion of paving works, the four-lane road with a design speed of 100 km/hour, with international roughness index in the range of 2–4 for sections 2 and 3, was opened to traffic on 29 December 2015. The contractor substantially completed works on 16 June 2016. The actual period for completion was from 23 July 2012 to 16 June 2016 (1,424 days), or a delay of 877 days. On 16 June 2016, the taking-over certificate for both sections was issued and the defects notification period started (finishing on 16 June 2017). The loan was closed on 30 June 2017 and the winding-up period ended on 31 October 2017. The loan was declared financially closed on 23 February 2018. The government informed ADB that the contractor did not complete remedial works for tranche 1 as scheduled; thus, the government extended the defects notification period from 16 June 2017 to 16 June 2018. The chronology of main events is in Appendix 7. F. Implementation Arrangements 32. The MTCIT was the executing agency and responsible for carrying out tranche 1 project activities. Originally, the Armenian Roads Directorate was designated to implement tranche 1 and establish a PMU under the MTCIT’s supervision. On 10 February 2010, the Ministry of Economy (later MEDI) proposed an interim measure: that the Foreign Financing Projects Management Center under the MOF act as a temporary implementing agency to select consultants and prequalify bidders for tranche 1 civil works until the PMU was created. In June 2010, the PMU—named the North‒South Road Corridor Investment Program Implementation Organization, an

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SNCO, under the government's Decree No. 446-N on 11 March 2010—was established, and the Armenian Roads Directorate was no longer involved in implementing tranche 1. 33. In a letter dated 9 February 2017, the MTCIT informed ADB that Government's Decree No. 1304-A dated 15 December 2016, restructured the MTCIT by merging two units: the Transport Projects Implementation Unit and the North‒South Road Corridor Investment Program Implementation Organization, creating the Transport Projects Implementation Organization (TPIO), an SNCO that was the legal successor of the two units and will implement all project activities. Starting 1 March 2017, the TPIO was in charge of all program activities. Merging these units maintained the same capacity to manage, simplified communication and effective implementation, and overall performance of tranche 1. During implementation, the TPIO as the PMU provided adequate expertise in key aspects of project development and implementation, including planning, civil engineering, procurement, contract management, and social and environmental safeguards. The TPIO provided efficient support on implementation and supervision and helped ensure project completion. G. Consultant Recruitment and Procurement 34. The consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). At appraisal, the identified consulting services were: (i) detailed design for tranche 1; (ii) construction supervision for tranche 1 and design of tranches 2 and 3; (iii) consulting services for implementing the road subsector plan; and (iv) external financial audit. 35. The temporary implementing agency (Foreign Financing Projects Management Center) recruited (i) a national detailed design consulting firm through the consultant qualification selection procedure, (ii) an individual international pavement specialist to support the detailed design firm through the individual consultant selection method, (iii) an independent monitoring agency through consultants’ qualifications selection method, and (iv) an international resettlement specialist for LARP preparation through single source selection method (tranches 2 and 3). ADB approved the government’s request for the following minor changes in scope to finance recruiting consultants under tranche 1 in order to expedite implementation of tranche 1 and approval and implementation of tranches 2 and 3, using the recruitment process appropriate for each contract: (i) an individual national consultant to verify and value land assets in accordance with the government’s decree on public domain land (tranches 2 and 3); (ii) an individual national consultant to monitor LARP implementation (tranches 2 and 3); and (iii) an individual international consultant to review the LARP prepared by the TA consultant (tranche 3). The procurement plan was revised accordingly. 36. Using the quality- and cost-based selection method procedure (80% for quality and 20% for cost), the executing agency recruited EGIS Bceom International (France) to supervise construction of tranche 1 and prepare tranches 2 and 3. The MTCIT and EGIS Bceom International signed a contract on 24 September 2010. For the combined contract of tranche 1 and 2 civil works, the project management consultant—JV Safege (Belgium)/Eptisa (Spain)—was recruited on 18 May 2012, through quality- and cost-based selection method (90% for quality and 10% for cost), and financed under tranche 2. The scope of work included project management and construction supervision of the two projects, resulting in removing the supervision component of tranche 1 project and LARP preparation of tranche 3 from the contract of EGIS International, thus reducing the scope to preparation of detailed design of tranches 2 and 3. ADB provided no objection to contract variation no. 3 to the contract of EGIS on 22 January 2013.

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37. Consulting services to implement the road subsector plan was removed from tranche 1 and transferred to tranche 3 (para. 17). The executing agency used the least-cost selection method to recruit SOS-Audit to prepare the audited project financial statement (APFS) of tranche 1 for fiscal year (FY) 2010 to half of FY2014. The executing agency engaged SOS-Audit through the single source selection method (i) after the approval of loan extension up to June 2015, to prepare the APFS for FY2014, and (ii) on 12 December 2016, to prepare the APFS for FY2015–2016 and half of FY2017, in line with the extended loan closing date of 30 June 2017. 16

38. Procurement of civil works followed ADB’s Procurement Guidelines (2007, as amended from time to time). The civil works of tranche 1 was procured together with tranche 2 (paras. 10 and 13), through international competitive bidding, using FIDIC17 conditions for construction (harmonized edition 2010), single-stage, one-envelope bidding procedure with post-qualification method. The civil works contract was awarded to the contractor on 27 April 2012 in the amount of $70.44 million ($58.7 million excluding value-added tax) for tranche 1. During implementation, the civil works contract was amended: (i) settlement of issues relating to micro-milled section in section 2; (ii) settlement of issues regarding air content and concrete strength requirement in some parts of the concrete pavement in sections 2 and 3; (iii) settlement of issues regarding the retaining wall built in section 3 and other variations; and (iv) revised completion dates. The summary of contracts is in Appendix 8. On 29 December 2015, the employer, contractor, and engineer entered into a memorandum of agreement (MOA N2) that is a negotiated settlement of all outstanding issues, design changes, claims, and disputes they have against each other regarding tranche 1 (sections 2 and 3). Most of the physical works were completed in December 2015. Tranche 1 project was opened to traffic in December 2015. H. Gender Equity 39. All local consultations to address safety, social, and cultural issues during project implementation were carried out as recommended in the summary poverty reduction and social strategy. Tranche 1 project had some gender elements. The civil works contract included provisions on compliance with labor laws and employment of women, local people, and disadvantaged people living in the project area. No child labor was employed. Men and women were given equal employment opportunities directly or indirectly arising from projects of the investment program and without any differentiation of wages for equal work. The bidding documents included mechanisms for maximizing local employment benefits. A non-government organization (Real World Real People) periodically monitored activities. 40. The investment program, and tranche projects positively impacted gender equality. The majority of women in the program areas are engaged in agriculture activities or small and medium-sized agro-industries (including cottage agro-industries). Reduced travel time and more available transport services helped improve the lives of women and children: improved road transport increased their access to the nearest markets and social service delivery institutions (schools, hospitals, clinics, and other health facilities) and created employment opportunities. Greater road connectivity positively impacted less-educated girls and women and enabled their access to more education and training opportunities. A linked pilot project under a regional TA also provided training to women on business development and food processing.18 For the gender design to

16 Payment to SOS-Audit for APFS for FY2014 was made under tranche 2. 17 Federation Internationale des Ingenieurs-Conseils. 18 ADB. 2010. Promoting Gender-Inclusive Growth in Central and West Asia Developing Member Countries. Manila.

RETA 7563, approved on 19 July 2010, financed by ADB, fosters long-term capacity for gender mainstreaming. ADB conducted the Armenia country gender assessment including gender entrepreneurship and enterprise development

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enhance livelihoods of local women vendors by providing permanent market sites at roadside intersections (including sanitation) to replace unregulated roadside sales points, the consultants under tranche 3 assisted in the process of consulting local women. This is now included in the loan agreement, Schedule 5, para. 21 of tranche 3 project. I. Safeguards 41. Environment. At appraisal, tranche 1 was classified B for environment. The PMU monitored environmental and social safeguards throughout implementation. On project completion, a post-construction environmental audit in July–August 2016 verified that construction works were appropriate and satisfied all prescribed conditions in the EMP to avoid or minimize environmental negative impacts in the Yerevan‒Artashat and Yerevan‒Ashtarak road sections. The post-construction environmental audit confirmed that (i) there were no archaeological issues in tranche 1, (ii) there were no unresolved grievances by the end of construction, (iii) grievances received during construction were properly managed and solved, and (iv) no grievances were logged during the post-construction period. A second post-construction environmental audit in October 2017 showed that construction works implemented during the defects notification period were appropriate and satisfied all prescribed conditions in EMP to avoid or minimize negative environmental impacts. 42. Involuntary resettlement. At appraisal, tranche 1 was classified category C because the civil works were within the existing right-of-way or on unused state-owned land; therefore, no land acquisition or relocation of households took place, and there were no cases of (i) affected crops, trees, buildings, business and employment; or (ii) physical resettlement.19 However, construction of two new overpasses in Marmarashen and Burastan were identified to possibly impact private and community land plots and cause land acquisition and resettlement issues. To avoid impacts of tranche 1 on privately owned lands and to affected persons or households, the design was changed, affecting only the community-owned land plots. As direct beneficiaries, the communities of Marmarashen and Burastan voluntarily donated their lands for the construction of the overpasses. The executing agency prepared a compliance report of due diligence review for voluntary donation of land. Likewise, government decree on donation of community-owned lands for the construction of the two overpasses was circulated in state agencies. 43. Indigenous peoples. Tranche 1 is classified as category C for indigenous peoples. In Armenia, there are no groups with characteristics fitting ADB's definition of indigenous peoples.

J. Monitoring and Reporting 44. The PMU was established in June 2009 directly under the executing agency, the Ministry of Transport and Communication, later renamed the MTCIT. The MTCIT established an adequate organizational setup and appointed or engaged competent PMU staff. The PMU, later named the TPIO, was responsible for coordinating project implementation, including monitoring and reporting on implementation performance and results. The PMU (i) developed the project performance management system based on tranche 1 DMF indicators and (ii) prepared monthly and quarterly progress reports and submitted them to the MTCIT and ADB regularly. ADB’s Safeguard Policy Statement (2009) required the MTCIT to submit environmental monitoring reports. PMU carried

for women. In addition to the government programs on women’s entrepreneurship, many international organizations and nongovernment organizations have projects supporting enterprise development and business training.

19 TPIO. 2019. Compliance Report of Due Diligence Review Implementation for Voluntary Donation of Land (Marmarashen and Burastan). Yerevan.

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out regular environmental monitoring according to the EMP, and submitted bi-annual environmental monitoring reports to ADB, and disclosed them. 45. During implementation, the government provided the required counterpart funds in a timely manner and ensured that the project was implemented successfully. The PMU maintained separate project records adequate to identify (i) the works, goods and services financed from the loan proceeds; (ii) the financing resources received; (iii) project expenses incurred on the components of each project; and (iv) use of counterpart funds. The PMU engaged an independent external auditor acceptable to ADB to audit project accounts at the end of fiscal year, including the imprest account and the statement of expenditures procedures, and submitted to ADB certified copies of the audit report in English language, with separate opinion on the use of the imprest account and statement of expenditures procedures. 46. The APFS for FYs 2010–2014 were submitted within 6 months after the end of each year and are acceptable to ADB. Submission of the APFS for FY2015 was delayed by 6.4 months, for FY2016 by 2.5 months, and for FY2017/2018 by 11.5 months. Because the PMU was unable to extend the contract of the audit firm and submit the APFS for FY2017/2018 within the winding-up period and prior to closing of the loan, the government recruited an audit firm and bore the fee using the government budget.

III. EVALUATION OF PERFORMANCE A. Relevance 47. Tranche 1 project is rated relevant at appraisal and completion because the intended outcome remained (i) aligned with Armenia’s Transport Sector Development Strategy 2020 and the North–South Road Corridor Investment Program under it, with a priority to rehabilitate, reconstruct, and expand international transport corridors, and (ii) in line with ADB’s Country Strategy, 2020 to support regional cooperation and rehabilitate regional road and railway infrastructure, and ADB’s country operations business plan for Armenia, 2008–2010, which focused on transport and urban infrastructure, regional cooperation and private sector development. The reconstructed road sections are part of the country’s north–south road corridor, which the government prioritized to improve through the program.

48. The project design was appropriate to achieve the intended outcome. The designer, supported by the pavement specialist, carried out competent analysis, detailed pavement calculations and design, and construction technical specifications to arrive at the best result. The design review consultants reviewed and analyzed design standards and norms operational in Armenia with regard to international best practices and standards. Project completion was delayed due to factors discussed in paras. 23, 29, 30, and 38. According to the executing agency, although project implementation was delayed, the outputs and outcomes met the government’s transport sector development objectives and ADB’s country partnership strategy. B. Effectiveness 49. Project 1 is rated effective because it increased the targeted original outputs. While changes in scope occurred during implementation due to unforeseeable changes in circumstances (paras. 11, 14–15), tranche 1 reconstructed a total of 30 km of road, with about 10 km of the M1 Yerevan–Ashtarak (section 3) (footnote 15) and 19.6 km of the M2 Yerevan‒Artashat (section 2), an increase of about 12 km over the original output of 18.4 km defined in the report and recommendation of the President (RRP). Outcomes defined in the DMF cannot be

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validated at this time, because they refer to the completion of the Yerevan–Gyumri road; the entire section has not been completed yet. Both reconstructed sections are operating with strongly increased traffic volume, in a safe and efficient manner. The project achieved the rehabilitation and improvement of sections 2 and 3; the enhancements strengthened the road safety features and brought more benefits to the road users, neighboring communities, and residents, according to the executing agency (para. 16). However, the project was delayed three times because of the contractor’s poor performance, among other factors (para. 47). C. Efficiency 50. The project is rated efficient in achieving its intended output and remained economically viable at completion. The implementation delays did not negatively affect the project outcomes. The reconstruction of section 2 increased the outcomes. Because tranches 1 and 2 were combined, the cost overrun was managed efficiently on tranche 1 (paras. 21–22). At appraisal, only section 3 (Yerevan–Ashtarak) was assessed, with an economic internal rate of return (EIRR) of 16.8% and net present value (NPV) of $12.4 million. At completion, section 2 (Yerevan–Artashat) was included in the reevaluation of the EIRR, using the same methodology as at appraisal. The reevaluation considered the actual investment costs for: (i) the civil works contractor from tranche 1 proceeds; (ii) an additional amount for about 2 km of reconstructed road financed under tranche 2; (iii) reconstructing eight overpasses in section 3 and constructing one overpass in section 2, financed under tranche 3; and (iv) consulting services and project management support costs financed under tranche 1. The calculated economic benefits compared the with- and without-project cases, including savings in vehicle operating costs and passenger travel time costs. At completion, the EIRR is 13.3% for section 2 and 12.4% for section 3; the combined EIRR is 13% with an NPV of $5.22 million. Since the EIRR is above the discount rate of 12% at appraisal, the project remains economically viable. Details of the economic reevaluation are in Appendix 9. D. Sustainability 51. The project is rated less than likely sustainable. The sustainability of the road rehabilitation depends on (i) the quality of the design and construction; (ii) enforcement of vehicle and axle load regulations; and (iii) appropriate financial, organizational, and operational arrangements for road maintenance. The project faces challenges on the design and quality of the pavement constructed which reduced pavement life and durability. The contractor was financially penalized for substandard works. The enforcement of vehicle and axle load regulations is not fully implemented and may lead to overloading of vehicles that further damages the road. The road maintenance agency and contractors faced challenges in maintaining the concrete pavement; however, the contractor provided maintenance manuals. The financial crisis affected road sector funding, so the government reduced the budget allocation for road rehabilitation and maintenance from $55.7 million in 2009 to $32.9 million in 2010, so the required 5% increase in the annual maintenance budget was not realized from 2008 onwards. However, during processing of tranche 3, the government confirmed that from the fiscal year 2014 and for each fiscal year thereafter, the annual state budget for maintaining state and interstate roads will increase by at least 5% from the actual budget in the previous fiscal years. Based on the government’s request, this covenant was waived in the tranche 1 loan agreement, schedule 5, para. 10, road maintenance funding (Loan 2561-ARM), and redefined in the tranche 3 loan agreement, schedule 5, para. 11(a) (Loan 2993-ARM). Likewise, ADB and the government agreed that tranche 3 will prepare and implement a long-term subsector plan, together with an asset management and road maintenance administration system. This is now defined in the loan agreement (schedule 5, para. 10) of tranche 3. However, works on the soft components have not started yet under tranche 3.

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52. Road maintenance. The government has increased its budget allocation for road maintenance since 2012. Appendixes 1 and 8 show yearly increases averaging 10.5% in the road maintenance budget up to 2017, which will allow sustained road maintenance activities throughout the country. The project introduced concrete pavement, a new pavement type to the country, leading to initial challenges with winter maintenance. The supervision engineer produced a winter maintenance manual. The government will need to undertake further efforts to strengthen the maintenance regime and technologies, especially for concrete pavements. 53. Road safety. After construction, the supervision engineer’s road safety audit assessed that road construction achieved a reasonable level for accident prevention upon completion, the road sections were finished in good condition, and those sections open to traffic operated well.20 However, after the sections opened to traffic, a number of accidents, including fatalities, occurred, primarily caused by temporary traffic management systems that were reestablished for bridge improvement works commissioned in mid-2016. The audit outlines several recommendations to further improve traffic safety on sections 2 and 3. E. Development Impact 54. The project’s development impact is rated satisfactory. The investment program and the tranche supported Armenia’s economic growth and regional cooperation (cross-border infrastructure, trade, and investments) by reconstructing and rehabilitating road sections. A post-construction economic survey conducted by the engineer in July–August 2016 showed that tranche 1 has a positive impact on the social and socioeconomic climate in the affected communities. Although the public transport operators did not generally reduce the passenger fares, vehicle operating costs and travel time were reduced significantly. Access to markets became easier and damage to agricultural products because market transport was reduced. 55. Improved roads have positive impacts on women’s lives because of the shortened time to reach markets and social services, schools, clinics, other health facilities, and social service centers. The project delivered benefits to all users, including women; significantly increased traffic safety; and helped increase female mobility. The new road with a divided dual carriageway, safety barriers, and high-quality surface attracts more female drivers, who used to avoid potentially risky intercity travel, to travel more and benefit from new economic and social opportunities. F. Performance of the Borrower and the Executing Agency 56. The performance of the borrower and executing agency is rated satisfactory. The government and the executing agency established an adequate organizational framework with competent staff. The executing agency (MTCIT), despite being new and unfamiliar with infrastructure projects funded by international financing institutions, established a PMU as a SNCO to undertake key functions to administer and implement the project. The PMU engaged experts in planning, civil engineering, procurement, contract management, social and environmental safeguards, and monitoring and reporting. Late establishment of the PMU delayed project implementation, including disbursements. Before PMU establishment, the government approved an interim measure, creating a temporary implementing agency to select consultants and prequalify bidders for civil works. In the beginning, the government process of approving contracts was slow and delayed issuing the notice to proceed, handing over of project sites, and issuing a construction permit to the contractor. Despite initial difficulties and challenging

20 Safege-Eptisa, Road Safety Audit Report (Post Construction), Tranche 1, November 2016.

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circumstances, the executing agency and PMU advanced their ability and knowledge by employing more experienced staff with good capabilities while maintaining their key staff. The PMU became familiar with policies and procedures on project implementation, management, and construction supervision. With added trainings and guidance through ADB missions and resident mission, they were able to efficiently support the project and helped ensure project completion. G. Performance of the Asian Development Bank 57. The performance of ADB is rated satisfactory. ADB administered and monitored project implementation activities together with the resident mission. ADB reviewed reports (e.g. safeguard, monthly and quarterly progress, and financial) submitted by the executing agency. ADB also fielded various missions to review project progress and provide guidance. ADB missions held dialogues with the executing agency and PMU on alternative ways to improve the situation and mitigate the risk of further delays. ADB also engaged a team of a technical auditor and independent staff consultants to examine the quality of workmanship of works and provide recommendations to resolve disputes. ADB facilitated a tripartite meeting of PMU senior officials, the contractor, and the engineer on 29 April 2014, to agree on a strategy to accelerate the civil works program, resulting in approved variations and memorandum of agreements on the works contract, which settled the disputes and facilitated completion of works. ADB and the executing agency’s assistance to the consultants and contractor improved their performance. ADB, through the resident mission, invited the executing agency’s key staff to attend trainings and workshops in Manila on project administration and implementation, consultant recruitment, procurement, and disbursement, to enhance their knowledge of ADB operations, policies and procedures. Due to several changes of ADB project officers and staff assigned to supervise the project, resolving important issues and providing proper advice to the executing agency sometimes took a longer time, sometimes affecting project performance. Overall, ADB’s project supervision and monitoring until project completion was satisfactory. H. Overall Assessment 58. The project is rated successful, despite challenges. It was designed, implemented and completed as conceived. It is relevant to the government’s transport sector development objectives, ADB’s country partnership strategy, and the regional cooperation economic program for Central Asia and the Caucasus. The project is rated efficient. With the reconstruction of section 2, the original outputs were increased and cost overruns were managed efficiently. The two completed road sections and their enhancements improved transport efficiency in the north–south road corridor. It is economically viable; however, less than likely sustainable.

Overall Ratings Criteria Rating

Relevance Relevant 2 Effectiveness Effective 2 Efficiency Efficient 2 Sustainability Less than likely sustainable 1 Overall Assessment Successful Development impact Satisfactory Borrower and executing agency Satisfactory Performance of the Asian Development Bank Satisfactory

Source: Asian Development Bank.

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IV. ISSUES, LESSONS, AND RECOMMENDATIONS A. Issues and Lessons 59. Project readiness at inception. The project could have benefited from a more thorough planning and design effort. The initial bidding and project documents were not specific enough, thus led to a failed bidding. When tranches 1 and 2 were combined in a second bidding, the scope included a concrete pavement and safety improvements on section 2 expanded to a full reconstruction of a 19.6 km section. 60. Operation and maintenance of the newly built cement-concrete road. The road is in a climatic zone prone to regular freezing–thawing cycles in winter. Annually, the temperature ranges from –30° to +40° Celsius, with frequent sudden changes within a short period of time. Under such conditions, concrete slabs experience intensive expansion and compression cycles, which may negatively impact their service life and maintenance cost. Weather should be considered in selecting future pavement types during design, construction, and operation.

61. Organizational strengthening of road management and maintenance. During the design, construction, and maintenance, there were challenges in road maintenance. The organizational structures and human resource capacities and capabilities in the road management agencies needed to be reviewed to determine their adequacy with respect to planning, programming, and implementing road maintenance. It is essential that actions on institutional reforms, staff relocation, acquisition, and training ensure that road management and maintenance is efficiently and effectively planned, programmed, and implemented.

62. Use of FIDIC contracts. The project’s newly established PMU had limited understanding of FIDIC conditions of contracts, which led to several misinterpretations of contractual provisions and resulted in delays. Thus, additional due diligence and monitoring are required to ensure that the borrower and its executing agency understand FIDIC contracts. During the project preparation, ADB should advise the borrower to assess the difference between legal practices of a FIDIC contract and contractually prevailing national law. TA support should be provided to the borrower during loan preparation to train and appoint senior legal advisors who can help resolve any legal misinterpretations between provisions of a FIDIC contract and national legislation.

B. Recommendations 63. Future monitoring. Continuous monitoring of the number of accidents along the project road, their types, and reasons is required, which will help the government implement preventive road safety policy instruments, such as road safety blackspot programs, road safety awareness campaigns, average speed cameras, and other methods of speed control. 64. Covenants. Major loan covenants were complied with (Appendix 10). During processing of tranche 3 (Loan 2993-ARM), ADB and the government agreed on the covenants related to road sector masterplan and road maintenance. These covenants were defined in the tranche 3 loan agreement, schedule 5, paras. 10 and 11(a), signed on 11 March 2014. The covenants in the loan and project agreements should be maintained in their existing form. 65. Timing of the project performance evaluation report. Because tranches 1 and 2 were approved as a single contract, the project performance evaluation report should be undertaken after tranche 2 project has been completed.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK Design Summary Performance Indicators and Targets Project Achievements

Impact Increased subregional trade and accelerated economic growth in Armenia

Increase in Armenia’s exports to Georgia from $87.9 million in 2007 to $150 million in 2017 Increase in imports to Armenia from Georgia from $46.3 million in 2008 to $100.0 million in 2017

Likely to be achieved In 2017: total exports to Georgia increased from $87.9 million to $145 million.1 Likely to be achieved In 2017: total imports to Armenia from Georgia increased from $46.3 million to $87 million (footnote 1).

Outcome Improved section of road corridor from Yerevan to Gyumri2

Reduced travel time from Yerevan to Gyumri to 1.0 hour by 2015 from 1.5 hours in 2008 Increased daily traffic from Yerevan to Gyumri to 7,000 vehicles by 2015 from 3,000 vehicles in 2008 About 1.6 million people will benefit from improvement of Yerevan to Gyumri road

Likely to be achieved The outcome refers to the entire section between Yerevan and Gyumri to be improved. Tranches 2 and 3 are not finalized yet and benefits cannot be measured. Travel time on section 3 (Yerevan to Ashtarak) was reduced by approximately 2 minutes, based upon the vehicle speed relationships included in HDM-4. Likely to be achieved Traffic on the section 3 has increased from 12,384 vehicles in 2009 to 18,635 in 2017; Likely to be achieved Once entire road section is completed, 1.6 million people will benefit.

Outputs Output 1 Yerevan–Ashtarak road reconstructed Output 2 Road subsector plan strengthened and implemented

Original By 2015: 18.4 km, four-lane road improved to 100 km/hour operational standards Revised By 2017: 10 km, four-lane road improved to 100 km/hr operational standards 2a. 5% annual increase in road maintenance financing from actual budget in 2008 adjusted for inflation

Achieved In 2017: The government improved 29.6 km, 4-lane road with an international operational standard and design speed of 100 km/hr. Completed Tranche 1 is composed of: (i) Section 2: Yerevan–Artashat (from km 9+312 to km 28+912) with a total length of 19.6 km; and (ii) Section 3: Yerevan–Ashtarak (km 18+370 to km 27+773) with an approximate length of 10 km Safeguards: Post-construction environmental audits implemented in July-August 2016 and in October 2017 (for DNP) verified that construction works were appropriate and satisfactory in terms of all prescribed conditions in the EMP to avoid or minimize environmental impacts in Yerevan–Artashat and Yerevan–Ashtarak road sections.

1 World Integrated Trade Solution. 2017. Armenia Trade Summary. Available at:

https://wits.worldbank.org/CountryProfile/en/Country/ARM/Year/LTST/Summarytext 2 See project description, para. 3.

https://wits.worldbank.org/CountryProfile/en/Country/ARM/Year/LTST/Summarytext

Appendix 1 17

Design Summary Performance Indicators and Targets Project Achievements

2b. Road asset management system introduced 2c. Project planning, evaluation, execution and reporting capacities reinforced

Likely to be achieved Expected Yearly Budget (in AMD ‘000) 2009: 6,499,500 2010: 6,809,000 2011: 7,118,500 2012: 4,217,000 2013: 5,550,315 2014: 5,827,830 2015: 5,958,754 2016: 6,256,692 2017: 7,354,172 Actual Yearly Budget (in AMD ‘000) 2009: 4,300,000 2010: 4,840,000 2011: 4,050,000 2012: 4,187,000 2013: 5,167,930 2014: 5,781,851 2015: 5,918,600 2016: 6,160,228 2017: 7,299,910 Difference Year over Year of Actual Budget 2010: 540,000 2011: -790,000 2012: 137,000 2013: 980,930 2014: 613,921 2015: 136,749 2016: 241,628 2017: 1,139,682 Moved to Tranche 3. Achieved. The EA and PMU were able to advance their ability and knowledge by employing more experienced staff with good capabilities while maintaining their key staff. The PMU became familiar with policies and procedures on project implementation, management and construction supervision with trainings and guidance provided through ADB HQ missions and Armenia resident mission.


18 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL ($ million)

Appraisal Estimate Actual

Item ADB Government Total Cost ADB Government Total Cost

A. Base Costs 1. Civil works for road improvement a. Yerevan–Ashtarak road (km 11.8-km30.2) 33.70 - 33.70 18.71 - 18.71

b. Road safety improvement for Yerevan–Ararat road

4.30 - 4.30 31.88 - 31.88

2. Project management support a. Project management unit 0.90 - 0.90 1.90 - 1.90 b. External financial unit 0.10 - 0.10 0.08 - 0.08 3. Project implementation consultants a. Detailed design for Tranche 1 0.10 - 0.10 0.31 - 0.31 b. Construction supervision and design for

Tranche 2 3.90 - 3.90 3.27 - 3.27

4. Support for implementation of road subsector plan a. Consulting services 1.00 - - - - - b. Traffic management and monitoring equipment 1.00 - - - - - 5. Taxes and duties - 10.00 10.00 - 12.56 12.56 Subtotal (A) 45.00 10.00 55.00 56.15 12.56 68.71 B. Contingencies 1. Physical contingency 9.00 - 9.00 - - - 2. Price contingency 4.00 - 4.00 - - - Subtotal (B) 13.00 0.00 13.00 0.00 0.00 0.00 C. Financing Charges During Implementation 2.00 - - 0.92 - 0.92 Total (A+B+C) 60.00 10.00 70.00 57.06 12.56 69.62

Source: Asian Development Bank estimate and Ministry of Territorial Administration and Infrastructure.

Appendix 3 19

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier

($ million) ADB Government Total Cost

Item Amount % of Cost Category

Amount % of Cost Category

Amount

A. Base Costs1 1. Civil works for road improvement a. Yerevan–Ashtarak road (km 11.8 – km 30.2) 33.7 100.0% - - 33.7 b. Road safety improvement for Yerevan–Ararat road 4.3 100.0% - - 4.3 2. Project management support

a. Project management unit2 0.9 100.0% - - 0.9 b. External financial audit 0.1 100.0% - - 0.1

3. Project implementation consultants a. Detailed design for Tranche 1 0.1 100.0% - - 0.1 b. Construction supervision and design for Tranche 2 3.9 100.0% - - 3.9

4. Support for implementation of road subsector plan a. Consulting services 1.0 100.0% - - 1.0 b. Traffic management and monitoring equipment 1.0 100.0% - - 1.0 5. Taxes and duties3 c - - 10.0 100.0% 10.0

Subtotal (A) 45.0 81.8% 10.0 18.2% 55.0 B. Contingencies4

1. Physical contingency 9.0 100.0% - - 9.0 2. Price contingency 4.0 100.0% - - 4.0 Subtotal (B) 13.0 100.0% - - 13.0

C. Financing Charges During Implementation5 e 2.0 100.0% - - 2.0

Total Project Cost (A+B+C+D) 60.0 10.0 70.0 % Total Project Cost

85.7%

14.3%


Notes: 1 In mid-2009 prices. 2 Includes project management and administration cost of the management unit under the Ministry of Transport, Communication and Information Technologies. 3 Includes value-added tax and import duties. 4 Physical contingencies are computed at 20% of base costs. Price contingencies are computed at 2% of foreign exchange costs and 12% on local currency costs.

Includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. 5 Includes interest charges during construction.

20 Appendix 3

Table A3.2: Project Cost at Completion by Financier ($ million)

ADB Government Total Costa

Item Amount

% of Cost Category

Amount % of Cost Category

Amount

A. Base Costs 1. Civil works for Road Improvement a. Yerevan–Ashtarak Road (km 11.8 – km 30.2) 18.71 100.0% - - 18.71 b. Road Safety Improvement for Yerevan–Ararat Road6 31.88 100.0% - - 31.88 2. Project Management Support

a. Project Management Unit 1.90 100.0% - - 1.90 b. External Financial Audit 0.08 100.0% - - 0.08

3. Project Implementation Consultants a. Detailed Design for Tranche 1 0.31 100.0% - - 0.31 b. Construction Supervision and Design for Tranche 2 3.27 100.0% - - 3.27

4. Support for Implementation of Road Subsector Plan a. Consulting Services7 - - - - - b. Traffic management and monitoring equipment8 - - - - - 5. Taxes and Duties - - 12.56 100.0% 12.56

Subtotal (A) 56.15 81.7% 12.56 18.3% 68.71 B. Contingencies

1. Physical Contingency - - - - - 2. Price Contingency - - - - - Subtotal (B) - - - - -

C. Financing Charges During Implementation 0.92 100% - - 0.92

Total Project Cost (A+B+C) 57.06 82.0% 12.56 18.0% 69.62 % Total Project Cost

Source: Asian Development Bank and Ministry of Territorial Administration and Infrastructure.

6 On 25 August 2014, the Ministry of Transport and Communication (later renamed the Ministry of Transport, Communication, and Information Technologies or

MTCIT) requested to cancel the originally-planned road safety improvement works and reallocate the savings to (i) construction of utility pipeline on Yerevan–Artashat section, (ii) repairing of the bridge over Qasakh River on Yerevan–Ashtarak section and for other un-envisaged works under Tranche 1. On 15 September 2014, ADB approved the request.

Appendix 4 21

TABLE A4.1: SUMMARY OF REALLOCATION OF LOAN (SDR ’000)

Category Allocated Amount

Approved on 21 May 2012a

Approved on 13 November 2012b

Approved on 26 January 2015c

Approved on 8 December 2015d

Approved on 21 June 2017e

Total Amount

Disbursed Undisbursed

Amount

Reallocation Revised

Allocation Reallocation Revised




Allocation

Works 24,347.00 9,129.00 33,476.00 - 33,476.00 - 33,476.00 653.28 34,129.28 30.23 34,159.51 34,121.26 38.25 Consulting Services

3,204.00 (800.00) 2,404.00 - 2,404.00 - 2,404.00 - 2,404.00 2.17 2,406.17 2,401.42 4.75

Goods 641.00 - 641.00 (400.00) 241.00 (241.00) - - - - - - - Project Management Support

641.00 - 641.00 400.00 1,041.00 241.00 1,282.00 - 1,282.00 (32.39) 1,249.61 1,249.61 -

Interest During Construction

1,281.00 - 1,281.00 - 1,281.00 - 1,281.00 (653.28) 627.72 - 627.72 627.72 -

Unallocated 8,329.00 (8,329.00) - - - - - - - - - - - Total 38,443.00 38,443.00 38,443.00 38,443.00 38,443.00 38,443.00 38,400.01 42.99

Notes: a SDR8.33 million (equivalent to $12.9 million) from unallocated and SDR0.80 million (equivalent to $1.2 million) from consulting services category to works category to meet the additional civil works cost identified following the award of civil works contract. b SDR0.40 million (equivalent to $0.62 million) from goods category to project management support category to avoid shortage of funding of PMU operations. c SDR0.24 million (equivalent to $0.37 million) from goods category to project management support category to keep the PMU fully staffed until the end of the project. d SDR0.65 million (equivalent to $0.41 million) from interest during construction category to works category. e SDR32.39 million (equivalent to $43.72 million) from project management support category to allocate to works category amounting to SDR30.23 million (equivalent to $40.79 million) and SDR2.17 million (equivalent to $2.93 million) to cover the cost of external financial auditor’s contract and part of the retention payment for civil works.

TABLE A4.2: SUMMARY OF REALLOCATION OF LOAN ($ ’000)

Category Allocated Amount

Approved on 21 May 2012

Approved on 13 November 2012

Approved on 26 January 2015

Approved on 8 December 2015

Approved on 21 June 2017

Total Amount

Disbursed Undisbursed

Amount

Reallocation Revised





Allocation

Works 38,000.00 14,144.56 52,144.56 - 52,144.56 - 52,144.56 410.00 50,096.18 40.79 50,644.07 50,592.46 51.61 Consulting Services

5,000.00 (1,239.53) 3,760.47 - 3,760.47 - 3,760.47 - 3,655.93 2.93 3,659.30 3,653.61 5.69

Goods 1,000.00 - 1,000.00 (619.76) 380.24 (373.41) 6.86 - - - - - - Project Management Support

1,000.00 - 1,000.00 619.76 1,619.76 373.41 1,993.17 - 1,925.69 (43.72) 1,899.47 1,899.47 -

Interest During Construction

2,000.00 - 2,000.00 - 2,000.00 - 2,000.00 (410.00) 1,407.55 - 916.21 916.21 -

Unallocated 13,000.00 (12,905.04) 94.96 - 94.96 - 94.96 - 19.47 - - - - Total 60,000.00 60,000.00 60,000.00 60,000.00 57,104.82 57,119.05 57,061.75 57.30

Note: Discrepancies on the loan amount were due to foreign exchange rate.

22 Appendix 5

CONTRACT AWARDS OF ADB LOAN AND GRANT PROCEEDS

Table 5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Annual Contract Awards Cumulative Contract Awards

Year Amount

($ million) % of Total Amount

($ million) % of Total

2009 - - - - 2010 5.34 9.50% 5.34 9.50% 2011 0.08 0.14% 5.42 9.65% 2012 50.63 90.18% 56.05 99.83% 2013 0.06 0.11% 56.11 99.94% 2014 - - 56.11 99.94% 2015 0.01 0.02% 56.12 99.96% 2016 0.02 0.04% 56.15 100.00% 2017 - - 56.15 100.00% Total 56.15 100.00%


Figure 5.2: Projection and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Note: Contingencies amounting to $13.0 million and IDC amounting to $2.0 million were not included in the projected cumulative contract awards.

0.30

42.60 44.30

44.70

45.00

-

10.00

20.00

30.00

40.00

50.00

60.00

2009 2010 2011 2012 2013 2014 2015 2016 2017

$ m

illio

n

Annual Contract Awards

Cumulative Contract Awards

Projected Cumulative Contract Awards

Appendix 6 23

DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS

Table 6.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Year

Annual Disbursement Cumulative Disbursement

Amount ($ million)

% of Total Amount

($ million) % of Total

2009 - - - - 2010 1.50 2.63% 1.50 2.63% 2011 1.11 1.95% 2.61 4.57% 2012 17.10 29.96% 19.70 34.53% 2013 0.97 1.71% 20.68 36.24% 2014 25.60 44.86% 46.27 81.09% 2015 10.76 18.86% 57.04 99.96% 2016 - - 57.04 99.96% 2017 0.02 0.04% 57.06 100.00% Total 57.06 100.00%


Figure 6.1: Projection and Cumulative Disbursement of ADB Loan Proceeds

($ million)

Notes: 1. The total disbursement amount includes the $0.92 million allocated for IDC. 2. The projected cumulative disbursement is based on the projected annual disbursement indicated in FAM dated October 2009. It is noted that contingencies amounting to $13.0 million was not included in the projected cumulative disbursement. 3. Due to several extensions of the effectivity of the loan, the disbursement was adjusted. The loan was extended on the following dates: (1) 30 June 2014; (2) 30 June 2015; (3) 30 June 2016; and (4) 30 June 2017. The loan effectively closed on 23 February 2018.

0.20

6.70

21.80

35.90

43.60

47.00

-

10.00

20.00

30.00

40.00

50.00

60.00

2009 2010 2011 2012 2013 2014 2015 2016 2017

$ m

illio

n

Annual Disbursement Cumulative Disbursement

Projected Cumulative Disbursement

24 Appendix 7

CHRONOLOGY OF MAIN EVENTS

Date Event

2008 12 December ADB approved PPTA7208: Preparing the North‒South Road Corridor Development

Project.

2009

15–29 July Fact-finding mission for Proposed MFF North‒South Road Corridor Development Investment Program and Tranche 1 Project fielded.

19 August Advance action on procurement and recruitment of consultants and retroactive financing approved and posted on ADB website.

Management review meeting held.

31 August–1 September Loan negotiations held.

15 September ADB and Government of Armenia signed the Framework Financing Agreement.

16 September Editorial change in the name of the Program from “North‒South Road Corridor Development Program” to “North‒South Road Corridor Investment Program”.

18 September Ministry of Economy submitted to ADB the project financing request for Tranche 1.

24 September ADB approved reduced posting of EOI for consulting services for detailed design.

29 September ADB approved MFF0035-ARM.

6 October ADB approved Loan 2561-ARM (Tranche 1).

7–11 October Consultation mission fielded.

12 October Loan agreement duly signed.

31 October Government’s interim measure that Foreign Financing Projects Management Center (FFPMC) under the Ministry of Finance, as temporary implementing agency approved.

26 November EOI for national detailed engineering design and individual pavement specialist posted.

7–11 December Loan inception mission fielded.

2010

24 February Loan agreement declared effective

11 March Request for expression of interest for supervision consultant of Tranche 1 and preparation of detailed design for Tranches 2 and 3 published.

8–22 March Review mission 1 fielded.

05 April PPTA 7208-ARM completed.

22 April National consultant for detailed design and international pavement specialist for Tranche 1 engaged.

30 April Project management unit (PMU) established, registered and PMU head recruited.

25 May Imprest account established at Ararat Bank.

26 May Initial disbursement of the loan proceeds.

29 May–8 June Review mission 2 fielded.

9 June Ministry of Economy informed ADB that the government has established the PMU directly under Ministry of Transport and Communication (MOTC) and ARD will no longer be involved.

27 July ADB approved a change in implementation arrangements. PMU took over all activities and responsibilities from FFPMC, as the Implementing Agency under the (MOTC.

9 August Video conference held between ADB and Government of Armenia agreeing on the implementation of Tranche 1 (L2561-ARM) and processing of Tranche 2.. Civil works of Tranche 1 was divided into two contract packages: (i) 11.7 km Yerevan to Ashtarak (CW1), and (ii) 6 km Yerevan to Ashtarak plus 38 km Yerevan to Ararat safety improvement (CW2).

26 August Minor change in scope of Tranche 1 (L2561-ARM) approved to include engagement of a consulting service for verifying and valuing land and assets of Tranche 2 approved.

Appendix 7 25

Date Event 15 September ADB provided no objection to the draft bidding documents and invitation for bids of

Tranche 1 civil works (package CW1).

17 September Invitation for Bids of civil works contract Tranche 1 (package CW1) was posted on ADB website.

18 September Invitation for Bids of civil works contract Tranche 1 (package CW1) was advertised on the national newspaper of Armenia

23 September PMU was named the North‒South Road Corridor Investment Program state non-commercial organization (NSRCIP-SNCO).

24 September Contract between MTCIT and EGIS BCEOM International was signed for construction supervision of Tranche 1 and preparation of Tranches 2 and 3 of the North‒South Road Corridor Investment Program.

13–20 September Review mission 3 fielded.

1 October Construction supervision consultant commenced work.

6 October Minor change in scope approved to recruit an independent monitoring agency (IMA) for implementation of LARP of Tranches 2 and 3 approved.

25 October-4 November Review mission 4 fielded.

01 November Bidding for civil works contract (CW1 package) was held.

2011

27 January ADB Procurement Committee reviewed the EA’s bid evaluation report for procurement of civil works contract (CW1 package) and approved the EA’s recommendation to reject all three bids due to non-responsiveness of the bids; the bid price of one firm was higher than the project’s cost estimates.

24 Feb–4 March Review mission 5 fielded.

4 March Minor change approved allowing bank charges of the imprest account to be financed by Tranche 1 project.

30 March Note to file of a video conference between ADB and the government regarding agreement to rebid the combined civil works contract of tranches 1 and 2.

03 May SNCO appointed by the government as implementing agency, instead of ARD.

06 June External financial auditor for FY2010 to FY2013 procured.

02 August Invitation for bids for combined tranches 1 and 2 civil works posted in advance by ADB, comprising: (i) Section 1, M1 Ashtarak to Talin (41.9 km); (ii) Section 2, M2 Yerevan to Ararat (38 km) consisting of (a) reconstruction of Yerevan to Artashat (19 km), and (b) upgrading of road signs and markings of Artashat to Ararat (19 km); and (iii) Section 3, M1 rehabilitation of Yerevan to Ashtarak (approx.12 km).

19 August Invitation for bids for the combined civil works contract of tranches 1 and 2 was posted on ADB website.

20 August Invitation for bids of civil works contract of the combined civil works of tranches 1 and 2 was posted on an Armenian newspaper.

1 September The PMC/Engineer prepared the cost estimates ($240 million) for the combined civil works contract of tranches 1 and 2.

10 October ADB approved a minor change in scope for the combined procurement of civil works of tranches 1 and 2. Due to time constraint, ADB and MOTC agreed to change the procurement from pre-qualification to post-qualification.

02 November Facility administration manual (FAM) updated.

2012

16 March Note to file prepared regarding meeting between CWTC and CWOD-PSG to discuss combined civil works contract of tranches 1 and 2, comprising three civil works road sections.

21 March 6 bidders submitted bids for combined tranches 1 and 2 civil works. ADB Procurement Committee did not endorse the EA’s recommendation to award the contract to Sinohydro Corporation Limited Ltd., PRC due to failure to satisfy qualification criteria on general

26 Appendix 7

Date Event

construction experience. PC approved EA to negotiate with lowest evaluated substantially responsive bidder, Corsan Corviam Construccion S.A., Spain, and PC allowed EA to negotiate a price reduction with the firm.

04 April L2561-ARM (sections 2 and 3) does not require land acquisition, while L2729-ARM (section 1) involves land acquisition for which LARP has not been implemented yet. To expedite project implementation, ADB approved a minor change to waive the contract award condition in the LA of L2729-ARM on LARP implementation as a condition for award of the combined packages of civil works contract, allowing civil works to commence on road sections with no land acquisition without delay.

27 April Civil works contract for tranches 1 and 2 was awarded to and signed by Corsan Corviam Construccion S.A., Spain for (i) Section 1, upgrading and widening of 41.9 km M1 Ashtarak to Talin; (ii) Section 2, rehabilitation of 119.6 km Yerevan to Artashat and improvement of road safety measures of existing 18.5 km M2 Artashat to Ararat; and (iii) rehabilitation of existing 11.7 km M1 Yerevan to Ashtarak.

18 May Contract signed between MOTC and Safege S.A. and Eptisa JV for project management and supervision of tranches 1 and 2 combined civil works contract.

21 May ADB approved the reallocation of funds totaling $14.1 million equivalent ($12.9 million from Unallocated category and $1.2 million from Consulting Services category) to Works category to meet the additional civil works cost of the contract under Tranche 1. The bid price for sections 2 and 3 was $58.7 million, while the revised allocation for the Works category was $51.8 million ($37.7 million, plus the reallocated amounts); therefore, there remains a cost overrun of $6.9 million.

24 July Notice to proceed issued by the EA to the civil works contractor.

7 August The site was handed over by the government to the civil works contractor.

10 September MOTC issued the construction permit to the civil works contractor.

1 October Civil works contractor commence work.

23 November ADB letter to the government to confirm in writing to finance $6.9 million financing gap in Tranche 1.

21 December Ministry of Economy’s letter to ADB confirming to finance the funding gap for Tranche 1 civil works as well as other cost overruns during implementation of the combined civil works contract of tranches 1 and 2.

2013

18-28 September Midterm review mission for Tranche 1 (L2561-ARM) fielded.

13 November ADB approved minor change in scope and reallocation of loan proceeds due to the cancellation of consulting services for executing the road subsector plan since this output was moved to tranche 3 (L2993-ARM), and funds for the traffic management and monitoring equipment (goods category) was reallocated to project management category.

26 November ADB approved loan closing date extension of L 2561-ARM from 30 June 2014 to 30 June 2015.

31 December Original completion date of Tranche 1.

2014

23 January L2561-ARM loan agreement amended, revised loan closing date of Tranche 1, from 30 June 2014 to 30 June 2015.

24 Feb-1 March Review mission 6 fielded. Mission discussed the delay in implementation of Tranche 1 caused by extreme weather condition, lack of project management experience of the contractor particularly working under FIDIC contracts, delay in site access restrictions to the contractor and LARP was still under implementation for tranche 2 project). MOTC discussed with the contractor a revised work program of works.

12 March ADB approved the request of the Ministry of Finance to transfer the imprest account from a commercial bank to the state treasury.

04 April Memorandum of Agreement No. 1 signed between MTCIT and Corsan Corviam Construccion S.A.

Appendix 7 27

Date Event 25 April-6 May Review mission fielded. PMU informed the mission that the road safety enhancement of

the road section between Yerevan and Ararat in the RRP will be revised to take out the enhancement works from Artashat to Ararat because this section is scheduled for improvement in the next few years. Mission advised PMU to formally present this matter to ADB for endorsement.

30 June Original closing date of Loan 2561-ARM.

25 August MTCIT requested to ADB to cancel the originally planned road safety improvements between Artashat to Ararat (km 27+712 to km 47+400) of Section 2.

15 September ADB approved MTCIT’s request to cancel the originally planned road safety improvements between Artashat to Ararat, 19 km (km 27+712 to km 47+400) of section 2 which are limited to lane markings and using the savings for (a) constructing a utility pipeline in section 2; (b) repairing the bridge over Qasakh River in section 3; and (c) more urgent works such as bridge abutments and on/off ramps in both sections 2 and 3 to increase the sustainability of the investment. During ADB mission in April 2014, the government confirmed its intention to fully rehabilitate the road section from Artashat to Ararat in future.

22 September ADB no-objection letter regarding cancellation of road safety improvements from Artashat to Ararat.

23 December Revised project completion date based on Memorandum of Agreement No. 1 with contractor.

2015

1 January Technical audit report (final report) submitted.

26 January Approved reallocation of funds from goods category to project management support.

15 January ADB approved extension of closing date of Loan 2561-ARM from 30 June 2015 to 30 June 2016.

30 June Revised closing date of Loan 2561-ARM.

14 July Audit report for FY2014 approved.

20 July Updated procurement plan for Tranche 1 disclosed.

1 September Revised completion date of Tranche 1.

16 October ADB approved extension of closing date of Loan 2561-ARM from 30 June 2016 to 30 June 2017.

11 November ADB letter to the government requesting to inform ADB of the government’s plan for financing the shortfall.

8 December ADB approved government’s request for reallocation of funds (SDR653,279.41) from the IDC category to Works category.

29 December Tranche 1 road was opened to traffic.

29 December Memorandum of Agreement No. 2 was signed between MTCIT and Corsan Corviam Construccion S.A.

2016

30 March The government requested ADB to consider financing Tranche 1 cost overrun from the available Tranche 2 loan proceeds.

13 June Revised completion date of Tranche 1 based on Memorandum of Agreement No. 2.

16 June Actual completion of Tranche 1. Taking-over certificate was issued by the Supervision Engineer.

16 June Start of defects notification period.

17 June ADB approved the request of the government to finance Tranche 1 cost overrun from available Tranche 2 loan proceeds by reducing the length of Section 3: Yerevan–Ashtarak by 2 km. ADB approved a minor change in scope.

17 June ADB approved the government’s request to reallocate $6 million from undisbursed amount of IDC category to Works category of tranche 2 (Loan 2729-ARM).


28 Appendix 7

Date Event 9 August ADB approved extension of availability period of MFF0035-ARM from 31 December 2017

to 14 September 2019 to allow additional time for implementing tranches 2 and 3. The FFA and FAM were revised accordingly.

12 December SOS-Audit was engaged to prepare APFS for FY2015–2016, and half of FY2017.

15 December PMU was merged with SNCO and named Transport Projects Implementation Organization (TPIO).

2017

1 March “Transport Project Implementation Organization” SNCO was created.

9 June ADB sent no objection to SNCO regarding MOA3.

21 June ADB approved the government’s request for reallocation of undisbursed PMS category (SDR32,393.42) to works and consulting services categories to cover the cost of external financial auditor’s contract and part of the retention payment for civil works, since the PMS for implementation of the MFF projects is being supported by another tranche.


27 July Final disbursement of the loan proceeds.

31 October 2017 End of winding-up period for loan disbursement.

2018

23 February Tranche 1 unutilized loan balance of SDR42,988.92 ($62,754.29 equivalent) cancelled.

23 February Loan 2561-ARM was financially closed.

28 February ADB sent reminder to SNCO to submit outstanding reports.

2019

26 September–2 October PCR mission undertaken.


Appendix 8 29

SUMMARY OF CONTRACTS

Package Procurement

Mode Contractor / Consultant /

Supplier Contract Signing

Date Contract Amount

($) ADB Financing

A. Civil Works for Road Improvement ICB Corsan Corviam Construccion S.A. 27 April 2012 70,442,816.87 50,592,456.88 1. Yerevan–Ashtarak road (km 11.8-km 30.2)

2. Road safety improvement for Yerevan–Ararat road

B. External Financial Audit SOS Audit LLC 3.

4. 5.

FY2010–FY2013 FY2014 FY2015–FY2016 and half of FY2017

LCS SSS SSS

6 June 2011 23 October 2015 12 December 2016

71,512.30 11,145.52 33,902.86

54,234.54 0.00

22,809.68 C. Project Implementation Consultants 6. Detailed design for Tranche 1 CQS Dorproject Institute Ltd. 22 April 2010 307,767.57 270,117.77 7. Pavement specialist ICS Bent Kjeldgaard Larsen 22 April 2010 47,000.00 37,600.00 8. Construction supervision and design for

Tranche 2 QCBS EGIS International 24 September 2010 3,636,079.77 3,001,147.72

9. Independent monitoring agency CQS Economic Development Research Center

30 June 2011 26,201.53 26,529.34

10. International resettlement specialist for preparing draft LARP for Tranche 3

SSS John Pilgrim 8 October 2012 19,838.00 17,489.27

11. National resettlement specialist for preparing LARP for Tranche 3

ICS Zaruhi Hayrapetyan 4 October 2012 30,746.36 22,863.66

12. International social development and resettlement specialist for preparing final LARP for Tranche 3

ICS Pravash Kumar Mishra 25 February 2013 66,000.00 62,040.92

13. National resettlement specialist for preparing LARP for Tranche 3

ICS Varadzat Hovhannisyan 20 January 2015 15,359.88 10,874.58

14. Verification and valuation of land and assets Others Mar-Mos 4 October 2010 48,819.08 127,898.01

15. Review of LARP for Tranche 2 Others Gohar Tavedosyan 4 October 2010

ADB = Asian Development Bank, ICB = international competitive bidding, FY = fiscal year, km = kilometer; LCS = least-cost selection, SSS = single source selection, CQS = consultant’s qualifications selection, ICS = individual consultant selection, QCBS = quality- and cost-based selection. Source: Asian Development Bank.

30 Appendix 9

ECONOMIC RE-EVALUATION

North‒South Road Corridor Investment Program Tranche 1

A. Scope 1. This appendix contains the economic re-evaluation of Tranche 1 of the North‒South Road Corridor Investment Program approved by the Asian Development Bank in 2009. As conceived at appraisal, Tranche 1 had two works components:

i) Reconstruction of 18.4km of an existing four lane section of the M1 north of Yerevan, from km11.8 (the northern boundary of Yerevan city) to km30.2

ii) Safety improvements on the Yerevan–Ararak road (M2) south of Yerevan 2. Tranche 1 underwent a major change of scope following appraisal. Of the original 18.4km north of Yerevan, only the first 11.4km (from km11.8 to km23.2) were reconstructed; this section became known as section 3. South of Yerevan, two changes were made. First, the scope of safety improvements was reduced to apply to km28.9 to km47.4, and, second, 19.6km of an existing four lane road between km9.3 and km28.9 were reconstructed to a six-lane standard.1 This 19.6km section is referred to in post-project documentation as section 2. The works on sections 2 and 3 are collectively referred to in post-project documentation as project 1. 3. Civil works on both sections started in April 2012. The official opening took place in December 2015, but section 2 was partially closed in 2016 to allow bridge works to be completed. Section 3 has a 20.4m carriageway and a concrete pavement with a 260mm wearing course. Section 2 has a 29.7m carriageway and a concrete pavement with a 240mm wearing course. Both sections have safety features not present on the previous roads: improved junction layouts, safety barriers along the median strip, limited access, reduced U-turn possibilities and lighting at intersections.

B. Economic Analysis at Appraisal 4. Only the 18.4km section of the M1 ((i) above) was appraised at RRP. The calculated EIRR at appraisal was 16.8%, based on an investment cost at 2009 world economic prices of $29.6million2 ($1.6million/km). The estimated IRI roughness prior to reconstruction was 5.4; benefits quantified at appraisal arose solely from improved pavement conditions. They comprised (i) vehicle operating cost (VOC) savings (68% of the total as a PV discounted at 12%) and (ii) time savings. Implementation was assumed to take place between 2010 and 2012, with first benefits in 2013. 5. The appraisal was predicated on an asphaltic concrete (AC) pavement. A comparison between concrete and AC was carried out at detailed design stage, as a result of which concrete was chosen. 6. The rationale for the program as a whole remains that of improved access to Poti and Batumi ports and improved connections between the Caspian and Black Seas. A complementary

1 The existing road had a wide central reserve. As part of reconstruction it proved possible to create two additional

slow traffic lanes from the existing road reserve, making six lanes in all. 2 However, the RRP (appendix 7) has a works cost of $40.4m including physical contingencies.

Appendix 9 31

31

assumption at appraisal was that traffic with trip ends in Georgia or Turkey would divert from the Bagratashen border crossing point (BCP) to the Bavra BCP from 2010, on the assumption that the Georgian road network connecting to Bavra would by then have been upgraded. Diversions added 423 vehicles/day to 2009 base year traffic of 11,257 vehicles/day. Cars accounted for 61% and heavy goods vehicles for 30% of diversions.

C. Economic Re-evaluation 7. This re-evaluation compares with- and without-project scenarios. For M1 section 3, this re-evaluation makes a comparison with the outcome expected at appraisal. There was no appraisal for M2 section 2, and so no comparison is possible. The re-evaluation period is construction followed by 20 years’ operation, i.e., 2012–2035. Economic costs and benefits are based on 2016 world prices. The discount rate is 12%, as at appraisal. 8. Financial costs were converted to economic costs in line with ADB guidelines. 3 All predicted project costs and benefits are measured in 2016 economic prices expressed in $. Traded goods are measured at world prices and non-traded inputs at domestic prices less indirect taxes multiplied by a standard conversion factor (SCF) estimated at 0.98.4 A shadow wage rate factor (SWRF) of 0.85 was estimated and applied to unskilled labor used in road construction. A SWRF of 1.0 was applied to skilled and professional labor. 9. In the without-project scenario it is assumed that the IRI for M1 section 3 increases from 5.4 in 2009 to 6.0 at the start of the re-evaluation in 2012. The same assumption is made for M2 section 2. The with-project operating speed for an SUV on the M1 is approximately 80km/h. While the without project speed can no longer be observed (and was not recorded at appraisal), the unimproved section of the M2 south of Artashat represents a good proxy; the average speed on this section is 75km/h.

10. The with-project scenario involves the construction of a four-lane concrete pavement from km11.8 to km23.2 of the M1 (section 3, north of Yerevan) and a six lane concrete pavement from km9.3 and km28.9 of the M2 (section 2, south of Yerevan). Post-construction roughness measured as International Roughness Index (IRI) is improved to 2.0. 11. Both road sections have several junctions, whose locations are tabulated below.

Table 1: Project Road Junctions

Section Start Junctions/Features End

M1 section 3 km11.8 km16.3 (Ashtarak) km17.1 (Kasagh br) km18.8 (M3) km23.2 (Ashtarak)

M2 section 1 km9.3 km13.1 (M15/Masis) km15.4 (H13/Masis) km19.5 (Mkhyan) km28.9 (Artashat)

Note: Chainages are approximate. Automatic traffic counters are located at km20.7 (M1) and km9.38 (M2). Source: Asian Development Bank estimates.

3 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila. 4 Using the ADB simplified method based on merchandize imports of $3.960bn, exports of $1.655bn and taxes on

trade of $122m (averages in current $ for 2012-17 from World Bank data) 5 An approximation based on the ratio of rural and urban incomes from all sources for 2014 (Armenia National

Statistical Service: Household Income, Expenditures and Basic Food Consumption)

32 Appendix 9

D. Demand Estimation 12. Transport demand is principally estimated from records from automatic traffic count (ATC) stations, supplemented by classified counts undertaken as part of appraisal. Each section has one ATC station: at km20.7 on the M1 and km9.38 on the M2. 13. Traffic reported by the ATC station at km20.7 can be taken as representative of demand on M1 section 3: this site lies between the junction with the M3 and the end of the section (Table 1). It may therefore omit some (principally small passenger vehicle) traffic with trip ends in the commuter settlement of Ashtarak (2016 estimated population 18,000), but the effect is small and conservative. 14. Traffic reported by the ATC station at km9.38 on the M2, however, is at the northernmost end of section 1, close to Yerevan city. It can be taken as representative of demand only on the section between the start point and the M15 junction at km13.1 (see Table 1). TA consultants preparing the NSCIP6 undertook a classified count at km16 in 2009 (Table 3), where traffic should be broadly representative of the remaining sections from km13.1 to km28.9. Traffic volumes fall rapidly with distance from Yerevan: traffic at km16 was 44% of that at km9.38 in 2009.

Table 2: Automatic Traffic Count Records on Sections 2 and 3, 2009-18, veh/day

Yeara

Light vehicles Trucks

Truck-trailers etc Total

Light vehicles Trucks

Truck-trailers etc Total

ATC on M1, km20.7 (section 3) ATC on M2, km9.38 (section 2)

2009 8,649 3,454 281 12,384 15,552 7,216 638 23,406

2010 9,435 2,089 183 11,707 22,451 6,401 523 29,375

2011 14,196 1,364 189 15,749 26,484 5,198 593 32,275

2012 13,863 2,555 360 16,778 26,546 4,674 466 31,686

2013 14,842 1,712 143 16,697 29,505 3,713 286 33,504

2014 30,299 2,676 188 33,163

2017 18,011 541 83 18,635 29,983 2,175 228 32,386

2018 34,846 2,714 271 37,831 a No data for 2014-16 at M1 site and 2015-17 at M2 site. Source: Armenian Roads Directorate.

Table 3: 2009 PPTA Counts

Section Cars Pick-ups Mini-buses Bus

2-axle trucks

3-axle trucks ≥4-axle Total

M1 km20.7 11,490 783 806 181 374 151 53 13,839

M2 km16 7,651 788 688 137 373 435 225 10,297 Note: Both counts adjusted for seasonal effects. Source: Asian Development Bank estimates.

15. Base year (2012) traffic estimates are shown in Table 4.

6 Padeco Co Ltd, 2010. TA 7208-ARM Armenia: Preparing the North‒South Road Corridor Development Project.

Tokyo

Appendix 9 33

33

Table 4: Base Year (2012) Traffic

Section Cars Pick-ups Mini-

buses Bus 2-axle trucks

3-axle trucks

Truck-trailers Total

M1 section 3 12,179 830 854 655 1,353 547 360 16,778

M2 km9.3-13.1 22,252 2,293 2,001 677 1,846 2,151 466 31,686

M2 km13.1-28.9 10,960 1,129 986 196 243 283 146 13,942

Source: Asian Development Bank estimates.

16. From 2005 to 2013 traffic growth rates at both ATC sites was between 1.0 and 1.2 times GDP growth over the same period. More recently, M1 growth has stalled, with 2013-17 traffic growth at 0.7 times GDP (and only small vehicles showing any growth), but M2 growth from 2014-18 has averaged 3.8% (0.9 times GDP growth) with strong heavy goods traffic growth. Heavy goods traffic remains well below the levels reported in 2009-12, however. 17. Forecast GDP growth rates for 2019, 2020 and 2023 are 4.3%, 4.5% and 4.5% respectively (sources: ADO 2019 for 2019-20, IMF for 2023). Use of historic elasticities suggests overall traffic growth of 3-4%. For the re-evaluation it is assumed that transit via Bavra and Akhaltsikhe (Georgia) to the Black Sea ports will become feasible for truck-trailers from 2022. Until then passenger and goods vehicle growth rates of 4% and 3% respectively are assumed. From 2022 it is assumed that truck-trailer traffic grows at 5%, while other classes continue to grow at 4% and 3%. From 2028 all growth rates are reduced to 2%. These forecasts are acknowledged to be subject to considerable uncertainty. Historically, truck-trailer traffic has occasionally shown rapid growth (e.g. 30% per year on the M2 at km200.32 after sanctions against Iran sanctions were relaxed in 2016), while small passenger traffic, which accounts for 85-95% of the vehicle fleet, is likely to level off as ownership levels in and around Yerevan approach saturation. 18. The table below shows that re-evaluation forecasts for the M1 are much lower than those at appraisal. Appraisal estimates were predicated on increases in the national vehicle fleet, growth in transport demand between Yerevan, traffic diverted from Bagratashen to Bavra, Gyumri economic development and 10% generated traffic. The expected growth in the vehicle fleet has largely taken place (and is matched here in the assumed 4% passenger vehicle growth rate), but goods traffic has declined, traffic has not diverted to Bavra and Gyumri’s economy has not developed as hoped.

19. The severely reduced traffic forecasts on re-evaluation reduce project vehicle operating cost (VOC) and journey time savings, and therefore reduce net benefits. Expressed as present values (PVs) the VOC benefits of the M1 are now slightly less than half, while the PV of journey time savings is around one third of those estimated at appraisal.

Table 5: Traffic Forecasts

Year Appraisal, M1 km11.8-30.2

Re-evaluation, M1 km11.8-23.2



2020 24,500 20,800 40,900 19,100

2025 36,700 25,200 49,600 23,200

2032 65,600 30,700 60,300 28,300

2035 N/A 32,600 64,000 30,000

Note: Values rounded to three significant figures. Source: Asian Development Bank estimates.

34 Appendix 9

E. Economic Costs

20. Investment costs. At RRP the cost of works (Yerevan–Ashtarak reconstruction plus road safety works on the Yerevan–Ararat road) and consulting services related to Tranche 1 (design, audit and PMU) was $46.9m at 2009 prices including 20% physical contingencies but excluding VAT. The estimated financial reconstruction cost per km at RRP was $2.5m. 21. Outturn costs shown in Table 3 have four components: (i) payments to the civil works contractor from the proceeds of the Tranche 1 loan, (ii) an additional amount for about 2 km of reconstructed road financed from the proceeds of Tranche 2, (iii) the costs of raising eight bridge soffits on section 3 and one on section 2, financed from the proceeds of Tranche 3 and (iv) consulting services (CS) and project management support costs, also drawn from the Tranche 1 loan. For the re-evaluation, outturn works costs are distributed across the construction period pro rata to payment certificates and brought from current to 2016 prices. Adjusting for shadow wages of unskilled labor (assumed to represent 5% of works costs) and using an SCF of 0.98 brings works costs at constant 2016 financial prices to economic prices. A residual value equal to 30% of initial investment cost is inserted as a negative cost in the final year of the evaluation period. 22. At constant prices, outturn economic costs per kilometer are about 20% lower than those estimated at appraisal.

Table 6: Actual Investment Costs

Item

Actual at Completion, $m Current Prices

Constant $m 2016 Prices

2016 Economic Prices, $m

Total M1 (section 3) – 11.4km

M2 (section 2) – 19.6km

Civil works 50.59 51.75 50.25 18.09 32.16

Bridge works 7.23 7.23 7.09 0.12 6.97

2km from Tranche 2 loan 6.00 6.00 5.83 5.83 0.00

Consulting services 5.55 5.68 5.68 2.04 3.64

Total, $m 69.40 70.70 68.90 26.10 42.80

Total, $m/km 2.29 2.18

CS = consultant supervision, LAR = land acquisition and resettlement. Source: Asian Development Bank estimates.

23. Maintenance costs. For the without project case the regime included routine winter and summer maintenance included pothole patching and crack sealing as well as snow clearance and drain cleaning at an average financial cost of about $4,600/km. Periodic maintenance comprised a 40mm overlay at a unit financial cost of $29/m2 triggered by an IRI≥7 (which in practice means an overlay every 6-10 years). For the new concrete pavement maintenance was confined to annual off-carriageway routine maintenance interventions. F. Economic Benefits 24. The main quantifiable economic benefits are vehicle operating cost (VOC) savings and savings in travel time. Crash cost savings could not be assessed for want of without-project crash data. 25. VOC savings. The shadow price of gasoline was estimated at $0.53 per liter, based on retail prices less taxes and allowing for the proportion of vehicles using compressed natural gas

Appendix 9 35

35

(CNG). The shadow price of diesel was estimated at $0.70. Other salient vehicle characteristics and costs are shown in the table below.

Table 7: Vehicle Fleet

Item Unit Cars, SUVs etc Mini-

buses Bus 2-axle trucks

3-axle trucks

≥4-axle rigid & truck-trailers

Axles No 2 2 2 2 3 5

km/year km 10,000 80,000 100,000 100,000 100,000 100,000

Service life Years 15 10 10 8 8 8

No of passengers No 3 12 40 1 0 0

Operating weight tonnes 1.4 3.2 15 13 20 30

Vehicle cost $ 23,000 18,000 43,000 21,000 40,000 90,000

Tire cost $ 125 80 330 170 330 330

Maintenance labor $/h 1.5 1.0 1.5 1.5 1.5 1.5

Crew $/h 0 1.2 1.2 1.2 1.2 2.4

Passenger working time $/h 3.0 1.5 1.0 1.0 - -

Passenger non-working time

$/h 0.75 0.38 0.25 0.25 - -

% of work-related trips % 75 50 50 50 - -

Source: Asian Development Bank estimates.

26. Fleet average VOC components against IRI are shown in the table below. The most significant item is capital, i.e. the equivalent annual cost of a vehicle, which is calculated within HDM-4 using the “optimal life” approach, which links vehicle life to IRI.

Table 8: VOC Components, $/veh-km

IRI, m/km Fuel Spares Capitala Othersb Total

2.5 0.066 0.045 0.128 0.020 0.26

5.0 0.066 0.055 0.135 0.021 0.28

7.0 0.066 0.063 0.159 0.022 0.31 a Equivalent annual cost of vehicle, computed using the optimal life approach b Includes maintenance, crew costs, tires, lubricating oil and overheads Source: Asian Development Bank estimates 27. VOC and journey time savings across the entire fleet and over the evaluation period are summarized below.

Table 9: VOC and Journey Time Savings Without Project With Project Saving

IRI $/veh-km IRI $/veh-km $/veh-km

VOC 5.5a 0.272 2.4a 0.248 0.026

Journey time savings 0.103 0.093 0.010 a Average over evaluation period from 2016 to 2035 (M1). Source: Asian Development Bank estimates.

28. Travel time cost savings. Travel time savings have been identified based upon the vehicle speed relationships included in HDM-4. These identify the number of minutes saved for each vehicle trip. These benefits have been monetised by applying values of time estimated for different categories of road users. The increase in average speed over the evaluation period is modest at around 6km/h, leading to a journey time saving of about 2 minutes over the entire 31km. Based on recent Armenian wages, working time is given a shadow price of between $1/h (bus

36 Appendix 9

passengers) and $3/h (car passengers). Non-working time is valued at 25% of working time. Cargo delays were given zero value. Although delays to goods in transit have an opportunity cost, little is known about payload values. Also, journey time savings are too small to make a difference to supply chains. Time savings account for about 30% of project benefits.

29. It is estimated that about 14% of VOC and journey time savings will accrue to the poor, made up of (a) all bus journey time savings and (c) 10% of car and minibus road user cost savings. G. Results of Economic Re-evaluation

30. The results of the economic re-evaluation covering the full project period for both sections are summarized in Table 10 and shown in detail in Table 11. The economic indicators provided are: EIRR, NPV, and benefit-cost ratio (BCR). A comparison between completion and appraisal is only possible for M1 section 3; all indicators at completion are less favorable, although all demonstrate that each sub-project, as well as the combined project, remains economically viable. The principal reason for the adverse changes to indicators is reduced transport demand, arising from reduced economic growth and lack of diversions from Bagratashen to Bavra BCP. 31. In Table 11 the incremental investment column shows negative costs in years when periodic maintenance is carried out in the without-project case. The negative benefits during construction arise because without-project periodic maintenance is triggered by an IRI of 7, an event that takes place in 2013 (on the M1) and 2014 (on the M2).

Table 10: Project Economic Indicators

Section NPV ($, m)

BCR (ratio)

EIRR (%)

M1 section 3

At appraisal a 12.4 2.95 16.8 At completion b 0.71 1.04 12.4

M2 section 2 At appraisalc N/A N/A N/A At completion 4.51 1.19 13.3

Combined At appraisalc N/A N/A N/A At completion 5.22 1.14 13.0

BCR = benefit-cost ratio; EIRR = economic internal rate of return; N/A = not applicable; NPV = net present value. a For km11.8-km30.2. b For km11.8-km23.2. c Not appraised. Source: Asian Development Bank estimates.

32. The results of a sensitivity analysis appear below. Inevitably there is considerable sensitivity to quite small changes in costs and benefits.

Table 11: Streams of Costs and Benefits (2016 World Prices, $m) Incremental Costs Incremental Benefits Total Net

Year Investment Maintenance VOC Time Benefits Benefits

2012 1.09 -0.04 0.00 0.00 0.00 -1.05

2013 8.70 -0.07 -2.62 -0.94 -3.56 -12.18

2014 16.33 -0.04 -7.24 -3.00 -10.24 -26.53

2015 32.49 -0.10 -11.98 -5.18 -17.16 -49.55

2016 0.00 -0.02 6.45 2.52 8.97 8.99

2017 -1.25 -0.02 8.01 3.03 11.04 12.31

2018 0.00 -0.02 7.82 3.03 10.86 10.87

2019 -3.76 -0.02 9.52 3.60 13.12 16.90

Appendix 9 37

37

Incremental Costs Incremental Benefits Total Net

Year Investment Maintenance VOC Time Benefits Benefits

2020 0.00 -0.02 7.43 2.94 10.36 10.38

2021 0.00 -0.05 9.12 3.48 12.59 12.64

2022 -5.21 -0.02 11.04 4.14 15.18 20.41

2023 -1.25 -0.02 7.81 3.26 11.06 12.33

2024 0.00 -0.02 6.38 2.90 9.28 9.30

2025 0.00 -0.02 7.80 3.36 11.17 11.18

2026 0.00 -0.02 9.49 3.91 13.40 13.42

2027 0.00 -0.04 11.48 4.57 16.05 16.09

2028 -3.76 -0.02 13.75 5.37 19.13 22.90

2029 0.00 -0.02 10.66 4.47 15.13 15.15

2030 0.00 -0.02 12.59 5.12 17.71 17.73

2031 -1.25 -0.12 14.85 5.93 20.78 22.15

2032 -5.21 -0.02 13.22 5.57 18.79 24.02

2033 0.00 -0.02 7.79 3.88 11.68 11.69

2034 0.00 -0.02 9.28 4.32 13.60 13.62

2035 -20.65 -0.02 11.00 4.85 15.85 36.51

PV at 12% 37.7 -0.3 30.7 12.0 42.6 5.22 NPV 5.22

EIRR 13.0%

BCR 1.14


Table 12: Sensitivity Analysis

Item

Sub-project M1+M2

M1 M2

Sensitivity to: EIRR% NPV $m EIRR% NPV $m EIRR% NPV $m

Costs x 1.2 11.0 -2.1 12.0 0.0 11.6 -2.2

VOC benefits x 0.8 11.2 -1.5 12.2 0.6 11.8 -0.9

VOT x 0.8 12.0 0.0 12.8 2.9 12.5 2.8

Switching values:

Costsa 105 120 114

Benefitsa -5 -16 -12 EIRR = economic internal rate of return; m = meters; NPV = net present value; VOC = vehicle operating cost; VOT = value of time. a The percentage by which costs or benefits need to change to give an EIRR of 12%. Source: Asian Development Bank estimates.

33. In summary, project return exceeds the 12% threshold (for each road and for the two roads combined), and the project remains economically viable.

38 Appendix 9

LIST OF PARAMETER VALUES/ASSUMPTIONS

Price base year: 2016

Discount year: 2012

Currency of analysis: $

Construction start year: 2012

Construction end year: 2015

First year of benefits: 2016

Appraisal period: 20 years (operation) plus implementation period

Numeraire used: World price numeraire

Income elasticity of demand: 0.9 until 2028, then dropping to 0.4 (weighted averages)

Value of time (in work, 2016): $3/hour (car passengers) - $1/hour (bus passengers)

Value of time (non-work, 2016): $0.75/hour (car) - $0.25/hour (bus passengers)

GDP growth assumption: Asian Development Outlook and International Monetary Fund World Economic Outlook, Oct 2018: 4.3% (2019), 4.5% (2020), 4.5% (2023)

Shadow price of labor: 0.8 (unskilled)

Shadow conversion factor: 0.98

Conversion factor applied to engineering works and physical contingencies: 0.97

Conversion factor applied to supervision: 1.0

Conversion factor applied to taxes, duties, profits, transfers: 0.0

Appendix 10 39

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan

Agreement

Status of Compliance

Economic

The Borrower shall ensure that ADB is informed of Borrower's policies and programs related to the road subsector that will materially affect the economic viability of the Project or any other project, subproject, or component financed under the Facility.

Schedule 5, Para. 6

Not applicable. There were no government’s policies and programs that materially affected the Project financed by ADB.

Further, the Borrower shall ensure that: (i) policies under the PCA with the PMU governing the road subsector development and operations are harmonized in a way that road subsector roadmap and investment plan under the Investment Program are implemented coherently; (ii) best efforts are used to facilitate cross-border transit of road transport consistent with the European Agreement on Main International Traffic Arteries of 15 November 1975, and (iii) developing the human resources, technical, managerial and administrative capacity in the road subsector to achieve greater efficiency in planning, developing and operating the infrastructure financed under the Investment Program is of high priority.

Schedule 5 Para. 7

Partially complied with. Loan proceeds have not been used for these tasks. However, a transport sector outlook was prepared and published in 2011. Ministry of Transport and Communication (MOTC) agreed on a roadmap for road sustainability. The government is improving border crossings under a project financed by EU.

Financial

The Borrower shall ensure that (i) financial, technical and human resources are provided on a timely basis; (ii) adequate funds to sustainably maintain the road corridor throughout its service life are allocated; (iii) financial, human and technical resources to implement the road transport subsector plan are made available; and (iv) best efforts are used to obtain additional external financing as may be necessary for the reconstruction and rehabilitation of the north‒south road corridor agreed with ADB.

Schedule 5, Para. 9

Complied with. (i) Financial, technical and human resources are provided on timely basis in accordance with local legislation and procedures. (ii) Yearly budget includes appropriate funds for road maintenance costs. (iii) Appropriate actions are taken and are in process.

The Borrower shall ensure that actual annual expenditures for road maintenance (including emergency maintenance, but excluding rehabilitation and new construction) for roads within ARD's jurisdiction are increased at least by 5% from the actual amount of road maintenance budget for 2008, adjusted for inflation.

Schedule 5, Para. 10

Complied with. Expected Yearly Budget (in AMD ‘000) 2009: 6,499,500 2010: 6,809,000 2011: 7,118,500 2012: 4,217,000 2013: 5,550,315 2014: 5,827,830 2015: 5,958,754 2016: 6,256,692 2017: 7,354,172 Actual Yearly Budget (in AMD ‘000) 2009: 4,300,000 2010: 4,840,000

40 Appendix 10

Covenant

Reference in Loan

Agreement


2011: 4,050,000 2012: 4,187,000 2013: 5,167,930 2014: 5,781,851 2015: 5,918,600 2016: 6,160,228 2017: 7,299,910 Difference Year over Year of Actual Budget 2010: 540,000 2011: -790,000 2012: 137,000 2013: 980,930 2014: 613,921 2015: 136,749 2016: 241,628 2017: 1,139,682 Reference to ARD was amended in the loan agreement and substituted with reference to PMU. The road sector funding was affected by the financial crisis. Hence, the government’s budget allocation for road rehabilitation and maintenance was reduced from $55.7 million in 2009 to $32.9 million in 2010, so the required 5% increase in the annual maintenance budget was not realized in 2008 onwards. However, during the processing of tranche 3 project of the MFF, the government confirmed that from the fiscal year 2014 and each fiscal year thereafter, the annual state budget on maintenance of state and interstate roads will be increased by at least 5% from the actual budget in the previous fiscal years. Based on the government’s request, this covenant was waived in Loan 2561-ARM and redefined in para. 11(a), Schedule 5, of tranche 3 project (Loan 2993-ARM).

The Borrower shall (i) maintain separate accounts for the Project; (ii) have such accounts and related financial statements audited annually by independent auditors whose qualifications, experience and terms of

Section 4.02 (a)

Complied with.

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reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement as well as on the use of the procedures for imprest account/statement of expenditures), all in the English language.

Final APFS for FY2017 until 28 February 2018 is being revised by the government’s auditor. (i) Separate accounts are used for respective purposes in order to ensure better bookkeeping. (ii) The contract with the financial auditor covers until the loan closing. (iii) Audit reports including audited project financial statements and management letters are submitted to ADB. APFS FY2010, FY2011, FY2012, FY2013, and FY2014 were submitted within 6 months after the end of each year and are acceptable to ADB. APFS FY2015 and FY2016 were submitted with delays of 6.4 months and 2.5 months, respectively. APFS FY2017/2018 was submitted with a delay of 11.5 months.

The Borrower shall enable ADB, upon ADB’s request, to discuss the Borrower’s financial statements for the Project and its financial affairs related to the Project from time to time with the auditors appointed by the Borrower pursuant to Section 4.02(a) hereabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

Section 4.02 (b)

Complied with.

The Borrower shall enable ADB’s representatives to inspect the Project, the Goods and Works financed out of the proceeds of the Loan, and any relevant records and documents.

Section 4.03 Complied with. ADB review missions inspected the project and works. Procurement of goods was removed from Tranche 1 and included in Tranche 3.

Safeguards

The Borrower shall ensure that the Project is designed, carried out, maintained, and monitored in


Complied with.

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compliance with (a) all applicable environmental laws and regulations; (b) ADBs Environment Policy (2002); and (c) the EMP, including the mitigation measures and monitoring requirements arising from the implementation of the IEE. The Borrower shall also cause PMU to ensure that: (i) Works contractors specifications include requirements to comply with the environmental mitigation measures contained in the IEE and EMP, and (ii) Works contractors are supervised to ensure compliance with the requirements of the IEE and EMP.

The detailed designs for the civil works addressed the issues highlighted and incorporated appropriate requirements into the contract specifications and bidding documents. The supervision consultant's TOR included the appropriate tasks for ensuring the compliance of the IEE and EMP requirements.

While the Project does not anticipate land acquisition and resettlement activities, if necessary, the Borrower shall ensure that land acquisition and resettlement are carried out promptly and efficiently following the land acquisition and resettlement plan prepared in accordance with applicable laws and regulations, ADBs Involuntary Resettlement Policy (1995), and the land acquisition and resettlement framework agreed with ADB pursuant to FFA. The Borrower shall ensure that implementation of the land acquisition and resettlement plan is monitored, evaluated, and reported to ADB as required in the resettlement plan. The Borrower shall also ensure that all land and right-of-way required for project implementation are made available to the Project in a timely manner.


Not applicable. No land acquisition is anticipated.

The Borrower shall ensure that contractors commence the Works only after the land acquisition and resettlement plan has been implemented with respect to the relevant road section in accordance with its terms.


Not applicable. No land acquisition is anticipated.

Sector

The Borrower shall prepare a long-term Road Subsector Plan (2010-2020) and adopt it for implementation by June 2011. Such plan shall detail policy actions and measures to: (i) establish a system for efficient planning and prioritization of road maintenance works; (ii) provide funding modalities to finance the maintenance of relevant roads acceptable to ADB; (iii) develop or adopt adequate road maintenance standards and prepare relevant road maintenance planning and operational manuals; and (iv) provide training to strengthen the capacity of local maintenance units.

Schedule 5, Para. 5

Not complied with. However, a transport sector outlook was prepared and published in 2011 which has addressed many of the named issues. ADB and the government have agreed that Tranche 3 of the MFF will prepare and implement a long-term subsector plan together with an asset management and road maintenance administration system. This is now included in the loan agreement of Loan 2993-ARM, Schedule 5, para. 5, signed on 11 March 2014. The recruitment of consultant for preparing the subsector plan has been postponed to Q4-2017 by the government as the

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assignment may need to be revised due to budget constraint and the outcome of the government's coordination with other donors. The procurement of goods for asset management and road maintenance administration system is ongoing.

The Borrower shall ensure that PMU installs appropriate road safety signs and facilities during the Project implementation and after completion, such as warning signs, pavement markings, road signs and signals, communications facilities, hazard barriers, and traffic monitoring facilities, all in compliance with industry's best practices and relevant international conventions to which the Borrower is a party. The Borrower shall ensure that, at least 6 months prior to the opening for operation of the Project Road, (i) PMU will have developed and implemented a plan, acceptable to ADB, for ensuring safe operation of road infrastructure facilities; and (ii) relevant Borrower's authorities will have prepared to police the Project Road and enforce the national laws and regulations. The Borrower shall ensure that PMU monitors the accident rate and traffic volume after commencement of the operation of the Project Road and institutes appropriate safety enforcement measures.


Complied with. PMC is tasked to supervise the works and ensure that appropriate road safety signs and facilities are installed by the Contractor.

Social

The Borrower shall ensure that all local consultations with respect to safety, social, and cultural issues during Project implementation are carried out as recommended in the summary poverty reduction and social analysis prepared for the Project. The mechanisms for maximizing local employment benefits shall be included in the bidding documents.


Complied with.

The Borrower shall ensure that all Works contractors (i) comply with all applicable labor laws; (ii) use their best efforts to employ women and local people, including disadvantaged people, living in the vicinity of the Project; (iii) disseminate information on the risks of sexually transmitted infections to those at worksites employed during construction; (iv) provide equal pay to men and women for work of equal type; (v) provide safe working conditions for male and female workers; and (vi) abstain from child labor. Relevant Works contracts financed under the Project must include specific clauses on these undertakings, and compliance will be strictly monitored during implementation.


Complied with.

The Borrower shall ensure that the Works contracts include a requirement to conduct an information and education campaign on sexually transmitted diseases and HIV/AIDS for construction workers as part of the


Complied with.

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health and safety program at campsites during the construction period.

The Borrower shall undertake concrete and adequate measures to detect and prevent trafficking of humans, wildlife, endangered species, and illegal substances on the Project Road.


Complied with. Multilevel control mechanism comprising state-public organizations and non-governmental organizations is in place and functioning, directly or indirectly combating against illegal trafficking in Armenia.

Others

Fielding of Consultants Schedule 4, Para. 7

Complied with.

The Borrower shall apply the following method for selecting and engaging the specified consulting services, in accordance with, among other things, the procedures set forth in the Procurement Plan: Consultants' Qualification Selection for detailed design.

Schedule 4, Para. 8

Complied with.

MOTC, as the Project Executing Agency, shall be responsible for carrying out of the Project

Schedule 5, Para. 1

The MOTC was renamed Ministry of Transport and Communication and Information Technologies (MTCIT)

The Armenian Road Directorate (ARD)/PMU, the Project Implementing Agency, shall implement the Project

Schedule 5, Para. 2

The ARD was replaced by the Project Management Unit (PMU) named as the state non-commercial organization (SNCO), which was later restructured and renamed Transport Projects Implementation Organization (TPIO).

Established, Staffed, and Operating PMU or PIU Schedule 5, Para. 3

Complied with. The Government requested the replacement of the implementing agency (IA) Armenian Roads Directorate with a new PIU structure [North‒South PIU (N-S PIU)] just after L2561-ARM approval in December 2009. The Government appointed the Foreign Financing Project Management Center under the Ministry of Finance as the temporary IA. The N-S PIU registration was completed and the N-S PIU head recruited in the end of April 2010. The N-S PIU under MOTC officially took over all activities and responsibilities of

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the Investment Program from the temporary IA on 10 June 2010. In Q1-2017, the N-S PIU and the Transport PIU (TPIU) were merged into a new entity called "Transport Project Implementation Organization" State Non-Commercial Organization. The PIU director has changed several times during the implementation of the project. Additional staff positions in PIU have been approved by the Governing Council to improve procurement, contract administration, monitoring, engineering, legal aspects and progress reporting of the tranches. Several new staff have been recruited, and the Engineering staff particularly have been making a large contribution in solving day-to-day construction problems.

The Borrower shall ensure effective coordination and consultation among relevant government agencies through Project Governing Council, co-chaired by the Ministers of Economy and Transport and Communication, and comprising representatives from other ministries, including ministries of finance, justice, territorial administration, and civil societies.

Schedule 5, Para. 4

Complied with.

If any of the following is anticipated: (i) any change in ownership of the road, road facility, or structure financed under the Project; (ii) any sale, transfer, or assignment of interest or control in the road, road facility, or structure financed under the Project; or (iii) any lease or other contract or modification of the functions and authority of the ARD over operation and maintenance of any road, road facility, or structure financed under the Project; then the Borrower shall ensure that ADB's consent is obtained at least six (6) months prior to the implementation of such a plan. The Borrower shall ensure that any such changes will be carried out in a legal and transparent manner.

Schedule 5, Para. 8

Complied with. ADB approved a minor change in implementation arrangement on 27 July 2010 for the changes in the implementing agency. The Ministry of Transport and Communication (now Ministry of Transport, Communications and Information Technologies) remained as the executing agency. ARD was replaced with a new established project implementation unit under MOTC. Updates due to the changes in the project management structure were carried out to the Loan Agreement and Framework Financing Agreement following

46 Appendix 10

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ADB's internal procedures. MOE signed the amendments to the Loan Agreement and the Framework Financing Agreement on 23 June 2011. Changes in ownership and/or operation of the road are not anticipated.

The Borrower shall ensure that (i) the Project road is rehabilitated or constructed in accordance with the technical specifications of the design, construction specifications and other documents stipulated in the bidding documents; and (ii) construction supervision, quality control and contract management are performed in accordance with internationally acceptable standards. The Borrower shall cause MOTC and ARD to build, equip, operate, maintain and manage the Project facilities in compliance with all international agreements and conventions to which Armenia is a party.


Complied with.

The Borrower shall comply with ADB's Anticorruption Policy (1998, as amended to date) for the purposes of the Project. The Borrower, consistent with its commitment to good governance, accountability and transparency, agrees (a) that ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project and (b) to cooperate fully with any such investigation and to extend all necessary assistance. The Borrower shall ensure that all contracts financed by ADB under the Project include provisions specifying the right of ADB to audit and examine the records and accounts of the RD and all contractors, suppliers, consultants, and other service providers as they relate to the Project.


Complied with. However, the Armenian authorities and ADB are conducting its own separate investigations on allegations of fraud and corruption.

north-south road corridor investment program – tranche 1 ......completion of engineering design...

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