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Completion Report

Project Number: 37075 Loan Number: 2140-AFG December 2010

Afghanistan: Andkhoy–Qaisar Road Project

CURRENCY EQUIVALENTS

Currency Unit – afghani/s (AF)

At Appraisal At Project Completion 31 October 2004 31 October 2010

AF1.00 = $0.0219 $0.0221 $1.00 = AF45.70 AF45.17

ABBREVIATIONS ADB – Asian Development Bank EA – executing agency EIRR – economic internal rate of return km – kilometer km2 – square kilometer MOF – Ministry of Finance MPW – Ministry of Public Works NPV – net present value PIU – project implementation unit PMO – program management office PMU – project management unit PPTA – project preparatory technical assistance SDR – special drawing rights TA – technical assistance

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on the 12th month of the lunar year; FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2010 (lunar year 1388) ended on 20 March 2010.

(ii) In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director H. Wang, Transport and Communications Division, CWRD Team leader Z. Wu, Transport Specialist, CWRD Team members M. Pampolina, Assistant Project Analyst, CWRD M. Rehman, Senior Transport Specialist, 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

I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 8 K. Performance of the Borrower and the Executing Agency 9 L. Performance of the Asian Development Bank 10

III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 12 E. Impact 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 13 C. Recommendations 14

APPENDIXES 1. Project Framework (Appraisal versus Actual Implemented) 16 2. Chronology of Major Events 20 3. Contract Awards and Disbursements Funded by the Asian Development Bank 24 4. Project Implementation Schedule 27 5. Status of Compliance with Loan Covenants 28 6. Status of Utilization of Consultancy Inputs 34 7. Economic Analysis 35 8. Quantitative Assessment of Overall Project Performance 40

BASIC DATA A. Loan Identification 1. Country 2. Loan number 3. Project title 4. Borrower 5. Executing agency 6. Amount of loan 7. Project completion report number

Afghanistan 2140-AFG(SF) Andkhoy–Qaisar Road Project Islamic Republic of Afghanistan Ministry of Public Works SDR53.087 million ($80 million equivalent) 1190

B. Loan Data 1. Appraisal – Date started – Date completed 2. Loan negotiations – Date started – Date completed 3. Date of Board approval 4. Date of loan agreement 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions 6. Closing datea – In loan agreement – Actual – Number of extensions 7. Terms of loan – Interest rate – Maturity (number of years) – Grace period (number of years) 8. Terms of relending (if any) – Interest rate – Maturity (number of years) – Grace period (number of years) – Second-step borrower

20 October 2004 25 October 2004 16 November 2004 16 November 2004 15 December 2004 7 April 2005 6 July 2005 8 July 2005 1 30 June 2014 30 June 2014 0 1% 40 years 10 years No

a The capitalization of interest charge during the loan grace period, which is part of loan disbursement, is ongoing and will end by 30 June 2014 (the loan closing date).

ii

9. Disbursementsa

a. Dates Component Road Tolling Facility Project Management Support

Initial Disbursement 18 July 2006

... 29 May 2007

Final Disbursement b

Time Interval (months)

Effective Date

8 July 2005

Original Closing Date

30 June 2014 b

Time Interval

8 years 11 months

... = not available

a As of 10 November 2010 when the project completion report was prepared. b The capitalization of interest charges during the loan grace period, which is part of loan disbursement, is ongoing

and will end by 30 June 2014 (the loan closing date). b. Amount (SDR)

Category

Original Allocation

Last Revised Allocation

Amount Canceled

Net Amount Available

Amount Disburseda Undisbursed Balancea

Civil Works 33,445,000 39,945,680 0 39,945,680 38,582,156 1,363,524 Equipment 4,645,000 4,645,000 4,645,000 0 0 0 Consulting Services 2,190,000 2,190,000 0 2,190,000 1,369,079 820,921

Incremental Project Management Support

1,062,000 1,062,000 0 1,062,000 120,365 941,635

Interest Charge 3,450,000 3,450,000 0 3,450,000 950,055 2,499,945

Unallocated 8,295,000 1,794,320 0 1,794,320 0 1,794,320

Total 53,087,000 53,087,000 4,645,000 48,442,000 41,021,655 7,420,345

10. Local costs (financed)a - Amount ($) 18,168,620 - Percent of local costs 91.89 - Percent of total cost 22.0 a Figure as of 10 November 2010. C. Project Data

1. Project cost ($ million) Cost Appraisal Estimate Actuala

Foreign Exchange Cost, Loan 2140-AFG Grant 0081-AFG Grant 0135-AFG

60.70 0.00 0.00

44.96 9.96 9.40

Local Currency Cost, Loan 2140-AFG 19.30 18.17

Total 80 82.49 a Figure as of 10 November 2010.

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2. Financing plan ($ million) Cost Appraisal Estimate Actuala Implementation costs Borrower financed 0.00 0.00 ADB financed 74.80 61.67 Other financing Grant 0081-AFG Grant 0135-AFG

9.96 9.40

Total 74.80 81.03 IDC costs Borrower financed 0.00 0.00 ADB financed 5.20 1.46 Other financing Grant 0081-AFG Grant 0135-AFG

... ...

... ...

Total 80.00 82.49 ... = not available, ADB = Asian Development Bank, IDC = interest during construction. a Figure as of 10 November 2010.

3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actuala 01 Civil works 50.40 59.40 02 Equipment 7.00 0.00 03 Consulting services 3.30 2.09 04 Incremental project management support 1.60 0.18 05 Interest during grace period 5.20 1.46 06 Unallocated 12.50 0.00 Subtotal Other financing Grant 0081-AFG Grant 0135-AFG Total

80.00

80.00

63.13

9.96 9.40

82.49 a Figure as of 10 November 2010. 4. Project schedule

Item Appraisal Estimate Actual Date of contract with consultant March 2005 21 August 2006 Completion of engineering designs ... 3 October 2008 Civil works contract Date of award Contract 01 Contract 02 Contract 03

June 2005

March 2005 March 2005

17 May 2006 23 April 2006 23 April 2006

Completion of work Contract 01 Contract 02 Contract 03

September 2007 September 2007 September 2007

30 June 2010 29 May 2010 27 April 2009

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Item Appraisal Estimate Actual Equipment and supplies (tolling facilities) Kabul–Kandahar–Spin–Boldak Corridor Northern roads Andkhoy–Qaisar Road

March 2005 March 2006 March 2007

Cancelled Cancelled Cancelled

Dates First procurement March 2005 Cancelled Last procurement March 2007 Cancelled Completion of equipment installation ... ... Start of operations Completion of tests and commissioning ... ... Beginning of start-up ... ... Other milestones

Road tolling facilities component cancelled

...

13 April 2010 ... = not available.

5. Project performance report ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

From 31 December 2004 to 31 December 2005 Satisfactory Satisfactory From 31 January 2006 to 31 December 2006 Satisfactory Satisfactory From 31 January 2007 to 31 December 2007 Satisfactory Satisfactory From 31 January 2008 to 31 December 2008 Satisfactory Satisfactory From 31 January 2009 to 31 December 2009 Satisfactory Satisfactory From 31 January 2010 to 30 October 2010 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions Name of Missiona

Date

No. of Persons

No. of Person-Days

Specialization of Members

Fact-finding Special consultation Pre-appraisal Appraisal Review 1 Review 2

19 May–3 June 2004 19–24 July 2004 30 August–4 September 2004 20–25 October 2004 21–24 February 2005 3–7 March 2005

7 3 4 3 2 1

112 18 24 18 8 5

a, b, c, d, e, f, g a, h, i

a, c, h, i a, c, h

a a

Review 3 25–29 March 2005 2 10 a, c Review 4 Inception

4–6 April 2005 27–31 July 2005

2 2

6 10

a, c j, p

Special project administration 20–21 April 2006 2 4 k, p Review 5 20–23 September 2006 2 8 l, q Review 6 Review 7 Review 8 Review 9 Review 10

6 November 2007 24–25 April 2008 22 October 2008 14–15 March 2009 1–5 March 2010

1 1 1 3 1

1 2 1 6 5

m n n

b, c, o n

Project completion review 16–20 October 2010 3 13 b, c, o, p, r a The first mentioned person in each mission is the team leader a = project specialist; b = transport specialist; c = project implementation officer (AFRM); d = environmental specialist; e = counsel; f = social development specialist/staff consultant; g = consultant (AFRM); h = principal project management specialist; i = project implementation specialist (AFRM); j = project implementation specialist (SATC); k = senior project implementation officer; l = project economist, m = principal transport specialist; n = senior transport specialist; o = portfolio management specialist (AFRM); p = associate project analyst; q = assistant project analyst; r = project/administration assistant

I. PROJECT DESCRIPTION

1. The government of Afghanistan borrowed SDR53,087,000 ($80 million equivalent) from the Special Funds resources of the Asian Development Bank (ADB) to implement the Andkhoy–Qaisar Road Project.1 2. Afghanistan is landlocked and largely mountainous, and roads are the principal means of transport.2 The country’s road density has been very low,3 and much of the road infrastructure has been damaged by more than two decades of conflict, and through prolonged lack of maintenance. There is insufficient basic connectivity, which significantly increases travel time and vehicle operating costs on roads, and aggravates divisions in the country.4 Improvement of the condition of the road network is necessary to facilitate sustainable economic development and improve the delivery of basic social services. The government declared that reconstruction and rehabilitation of the road system, especially national primary roads, is the country’s top priority. 3. A comprehensive needs assessment of the Afghanistan transport sector during March–May 2002 by major external funding agencies urged that the entire primary road network be rehabilitated on a priority basis.5 The Andkhoy–Qaisar road forms part of the last unpaved section of the national primary ring road and is a major north–south link across the central mountains, significantly improving the stability and reliability of the transport system in Afghanistan. The road—as part of the Central Asia Regional Economic Cooperation Corridor 6, together with other international links—will reduce transport time and cost from Europe to the Arabian Sea, and offer competition with the sea route.6 This will reduce transport costs, increase economic exchanges, and eventually contribute to economic growth and poverty reduction in Afghanistan and the subregion. 4. The project’s main objective was to reduce poverty and promote economic and social development through continued support to the government to (i) reestablish the primary road network damaged during 2 decades of conflict and neglect, and (ii) help implement cost-recovery measures. The project comprised three components: (i) reconstruct and improve the Andkhoy–Qaisar road (210 kilometers [km]); (ii) install road tolling facilities, which include toll plazas, computers and communications equipment, and weighing machines for the project road and other primary roads being improved with external financial assistance; and (iii) provide project management support to the Ministry of Public Works (MPW), including by augmenting capacity through on-the-job training, additional staff, and a consultant team with project implementation expertise and experience. 5. At appraisal in 2004, the total project cost was estimated at $80 million covering the foreign exchange cost of $60.7 million and the local currency cost of $19.3 million, inclusive of contingencies 1 ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Islamic

Republic of Afghanistan for the Andkhoy-Qaisar Road Project. Manila. The project classifications were: “General intervention; Sector: Transport and communications; Subsector: Roads and highways; Theme: Sustainable economic growth; Subtheme: Fostering physical infrastructure development; and environment category B.”

2 With only short lengths near the border with Turkmenistan and Uzbekistan, railways currently play a marginal role in Afghanistan’s transport sector.

3 According to the World Development Indicators 2002 (Washington, DC: The World Bank), road densities are 0.03 kilometers (km)/square kilometer (km2) in Afghanistan, while densities for neighboring countries are 0.19 km/km2 in Tajikistan, 0.17 km/km2 in the Kyrgyz Republic, 0.18 km/km2 in Uzbekistan and 0.32 km/km2 in Pakistan.

4 For example, before the conflict, travel from Kabul to Kandahar (1,066 km) took less than 12 hours. Soon after the conflict, it took about 30 hours with a four-wheel drive vehicle.

5 A preliminary needs assessment conducted in December 2001 by ADB, United Nations Development Programme, and the World Bank was presented at the ministerial meeting in Tokyo in January 2002, where external funding agencies pledged about $4.5 billion assistance.

6 ADB. 2008. Transport and Trade Facilitation Strategy Report. Manila (final report).

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and the interest during the grace period. ADB financed 100% of the total project cost, in various currencies, from its Special Funds resources. The loan has a 40-year term including a grace period of 10 years, and an interest rate of 1% per annum. In addition, the interest charge during the grace period will be capitalized and charged to the loan account. 6. The Islamic Republic of Afghanistan was the borrower, with MPW acting as the executing agency (EA). The project was implemented by MPW’s existing project management unit (PMU) which had managed the Kandahar–Spin Boldak Road Project and the Emergency Infrastructure Rehabilitation and Reconstruction Project road component.7

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

7. The project design and outputs at appraisal were relevant and consistent with the government’s National Development Framework which was developed in 2002 and evolved into the National Development Strategy in 2008. This project was also aligned with the ADB’s country strategy and program update, which focused on rehabilitation of the national road network, international link roads, and other key infrastructure.8 While the project involved rehabilitation and reconstruction of an important section of the primary road network, related policy and institutional reforms in the transport sector was addressed by the Post-Conflict Multisector Program.9 The project framework is in Appendix 1. 8. The project design benefited from project preparatory technical assistance (PPTA) that provided a feasibility study of the project road.10 Although the inclusion of the road tolling facilities component had merit, it was not timely;11 implementation of this policy-related physical component was delayed because the road tolling policy was not approved by the government, and the component was eventually cancelled at the government’s request. 9. Appropriate consultations occurred through four missions (a fact-finding mission, a special consultation mission, a pre-appraisal mission, and an appraisal mission) involving 172 person-days of ADB staff input. A wide range of stakeholders were consulted during project processing, including the government, the Embassy of Sweden, the United States Army Corps of Engineers, the European Commission, the World Bank, the United Nations Assistance Mission in Afghanistan, the United Nations Office for Project Services, and the World Food Programme. The project was at risk of cancellation during loan processing, but the issue was resolved through discussions between the government and ADB special consultation missions.12 7 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Islamic

Republic of Afghanistan for the Emergency Infrastructure Rehabilitation and Reconstruction Project. Manila. 8 ADB. 2004. Country Strategy and Program Update: Afghanistan 2004–2006. Manila. 9 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Islamic

Transitional State of Afghanistan for the Post-Conflict Multisector Program. Manila. 10 ADB. 2003. Technical Assistance to the Islamic Transitional State of Afghanistan for Preparing the Herat-Andkhoy Road

Project. Manila. 11 According to the fact-finding mission (19 May–3 June 2004), conflict views on road maintenance financing then existed:

the Ministry of Finance supported road tolling while MPW supported fuel levies. Moreover, the road tolling implementation was built on preconditions that (i) a tolling scheme study would be conducted following the to-be-completed Kabul–Kandahar–Spin–Boldak Road; (ii) the tolling scheme study upon completion would be endorsed by the government; and (iii) the subsequent tolling on the Kabul–Kandahar–Spin–Boldak Road would be replicable to other high traffic volume corridors.

12 The government, in consideration of political stability and cost saving, signed a protocol with an Uzbekistan delegation in 2004 that granted Uzbekistan the right to be solely involved in the construction of the proposed road.

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B. Project Outputs

10. The project was implemented under extremely difficult post-war conditions (with local in-conflict situations), but the project outputs were largely achieved as envisaged and described in the report and recommendation of the President.13 The designed outputs at project appraisal and actual outputs at project completion are listed in Appendix 1. A chronology of major events of the project is in Appendix 2. The project outputs are as follows: 1. Rehabilitation and Reconstruction of the Andkhoy–Qaisar road 11. The component was divided into three civil works contract packages and one supervision contract package. Package 1 (55 km road from Qaisar–Almar) was constructed by China Railway ShisiJu, which began working in August 2006 and completed the civil works in June 2010. Package 2 (70 km road from Almar–Shirin Taghab) and package 3 (85 km road from Shirin Taghab–Andkhoy) were constructed by a single contractor (Samwhan), which commenced work in August 2006. The civil works under package 2 were completed in May 2010 and that under package 3 in April 2009. All three civil work contracts were supervised by a single consulting firm (SMEC International) under the supervision contract package. The supervision consultants were mobilized in August 2006 and demobilized in October 2010. 12. Design–build civil works contracts were intentionally used to expedite project implementation. Preliminary design and bid documents comprising concept design drawings and roughly estimated bills of quantities were prepared by the PPTA consultants (footnote 10), while the contractor was required to conduct the detailed design as project proceeded. The PPTA design recommended a vertical alignment of up to 18% grade in mountainous areas, which was later reduced to 7%–8% to comply with the Afghanistan Road and Highway Standards and American Association of State Highway and Transportation Officials (AASHTO) Geometric Design of Highways and Streets. As a result, earthworks under packages 1 and 2 involved an increase over the originally estimated (i) cut and fill volumes, (ii) funding (an extra $16.5 million), and (iii) time (about 12 months). 13. In August 2009, an external technical audit was conducted on civil works packages 1 and 2, which revealed inconsistencies in onsite project execution and suggested measures to improve contract administration and quality controls.14 Actions taken on the recommendations are highlighted in paras. 40 and 46. The audit and best practice recommendations were disseminated to various stakeholders through a workshop. 14. In general, the quality of civil works under all packages is satisfactory. The sizable implementation delays are attributable to (i) delays in appointing the supervision consultant due to the withdrawal of the first-rank firm on security concerns, (ii) slow mobilization of equipment and resources by the contractors, (iii) design change of vertical alignment in mountainous areas, (iv) abnormal rains and flash flooding from March to May 2009, (v) the Afghan presidential election in 2009, (vi) numerous security incidents, and (vii) MPW's weak management capacity and supervision consultant’s slow actions that led to lengthy negotiations with the contractors and prolonged processing and approval of extra work variation claims. The taking-over certificate for package 1 was issued on 8 August 2010 with an effective date of 30 June 2010, and for package 2 on 26 June 2010, with an effective date of 29 May 2010. The performance certificate for package 3 was issued in May 2010 after the expiration of the 1-year defects notification period. 13 Output indicators were realized; however, a field survey to verify beneficiaries could not be fully undertaken due to the

prevailing security situation near project sites. 14 This technical audit conducted by ResoluteCM was financed under ADB. 2005. Technical Assistance to Afghanistan for

Capacity Building for Road Sector Institutions. Manila (approved on 31 October, for $1 million).

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2. Installation of Road Tolling Facilities 15. During the March 2005 ADB review mission, the Ministry of Finance (MOF) informed that the government had formed a commission comprising representatives from MOF, MPW, the Ministry of Transport, and the Ministry of Interior to look into the issues related to tolls for roads being rehabilitated and reconstructed. The commission (which is chaired by MOF) met a few times to discuss the issues—including the modality for tolling, regulations, and tariff—but produced no specific results. 16. The supervision consultant conducted some preparatory work, including selection of a suitable toll collection method, selection of proper equipment, and cost estimates for construction, operation, and maintenance. The tolling expert under the supervision consultant submitted a toll policy study in March 2009, which was not adopted by the government. Despite various efforts, this component could not be implemented due to the tolling policy decision by the government (pending since 2005), and was cancelled on the request of the government, effective 13 April 2010. 3. Provision of Project Management Support to the Ministry of Public Works 17. Over the project implementation period, many MPW employees were either appointed as project implementation engineers or seconded to the supervision consultant as trainee engineers under its supervision. They gained valuable project experience by working on the three civil works contracts. 18. PMU also received advisory support throughout the project from individual international consultants specializing in project management, finance, highway engineering, environment, and resettlement. C. Project Costs

19. At appraisal in 2004, the total project cost was estimated at $80 million equivalent, including $50.4 million for civil works and $12.5 million for contingencies. After the bidding in 2005, the civil works contract packages totaled $76.6 million. By reallocating $7.6 million from the loan contingency, the government confirmed in October 2006 that it would provide the remaining funding of $18.6 million in its 2007 fiscal year, which did not materialize as the government had financial difficulties. Consequently, ADB approved in 2008 $19 million from Grant 0135-AFG: Road Network Development Investment Program, Tranche 1 Project 15 as supplemental financing to cover this budgetary shortfall. Additionally, a vertical alignment grade change in mountainous areas was required for packages 1 and 2 after civil works commenced, which incurred an extra cost of $16.5 million. As this design change related to safety improvements, the funding gap was subsequently financed through the ancillary and emergency works component under Grant 0081-AFG: Road Network Development Project 116that allows rapid reconstruction and rehabilitation of damaged critical road infrastructure due to the continuing conflict or suboptimal designs. The supervision consultant contract underwent contract variations for four times amounting to $1.5 million to accommodate the time extensions of respective civil works contracts. 15 ADB. 2008. Report and Recommendation of the President to the Board of Directors on a Proposed Multitranche

Financing Facility to the Islamic Republic of Afghanistan for the Road Network Development Investment Program. Manila.

16 ADB. 2007. Report and Recommendation of the President to the Board of Directors to the Islamic Republic of Afghanistan on a Proposed Asian Development Fund Grant Road Network Development Project 1. Manila.

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20. The costs by components are shown in the following table, with full listings of contract awards and disbursements by project component in Appendix 3.

Costs, Appraisal versus Actual ($ million)

Foreign Costs Local Costs Total Cost Item Appraisal Estimate

Actual Appraisal Estimate

Actual Appraisal Estimate

Actuala

Civil works 35.3 59.4b 15.1 18.2 50.4 77.6b Equipment 7.0 0.0 0.0 0.0 7.0 0.0 Construction supervision and monitoring

2.6 3.2c 0.7 0.0 3.3 3.2c

Incremental project management support

1.3 0.2 0.3 0.0 1.6 0.2

Interest Charge 5.2 1.5 0.0 0.0 5.2 1.5 Unallocated 9.3 0.0 3.2 0.0 12.5 0.0

Total 60.7 64.3 19.3 18.2 80.0 82.50 a As of 10 November 2010. Final cost to be determined after the loan closing date (30 June 2014). b Including actual disbursements from supplemental financing Grant 0135-AFG: Road Network Development Investment

Program, Tranche 1 Project and G0081-AFG: Road Network Development Project 1. c Including actual disbursements from supplemental financing G0081-AFG: Road Network Development Project 1. Source: Asian Development Bank's Loan and Grant Financial Information System. 21. Two reallocations of loan proceeds (from the unallocated to the civil works categories) were made: (i) $7.6 million in 2006 to partly cover cost overruns due to a high bidding price, and (ii) $2.12 million in 2009 for a package 1 contract variation due to unexpected excavation of hard materials during embankment construction. D. Disbursements

22. The loan proceeds were disbursed in accordance with ADB’s Loan Disbursement Handbook (2001, as amended from time to time), including reimbursement, direct payment, and imprest account. Loan disbursement occurred more slowly than expected at appraisal. The coordination mechanism for loan disbursement among MPW, MOF, and ADB was not fully streamlined, which caused sporadic delays in the payments during implementation and incurred unnecessary interest claims by contractors. 23. Of $80 million equivalent slated for disbursement at appraisal, $63.1 million was disbursed at major completion. $9.4 million of the $19 million in supplemental financing under Grant 0135-AFG: Road Network Development Investment Program, Tranche 1 Project and $9.96 million of the $22 million under Grant 0081-AFG: Road Network Development Project 1 was disbursed. Appendix 3 presents details of contract awards and disbursements by project components, and a comparison of projected versus actual annual disbursements throughout project implementation. 24. An imprest account was established at the Da Afghanistan Bank on 29 May 2007 with an initial advance of $100,000, which was used to cover the costs of onsite project implementation units (PIUs) and PMU staff and other incremental expenditures. The fund was replenished twice. The unutilized balance of the imprest account to date is $100,000. The capitalization of interest charges during the project grace period, which is a part of loan disbursement, is ongoing and will continue until the loan closing date of 30 June 2014. E. Project Schedule

25. The project was of an emergency nature and originally envisaged to be implemented over 36 months with an estimated completion date of 31 December 2007 (footnote 1). The consulting services contract was expected to be awarded by March 2005, and civil works contracts by

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September 2005. All civil works were to be completed by September 2007. The envisaged completion dates for major milestones in the project implementation plan were overly optimistic, and actual physical completion occurred on 30 October 2010. A comparison of the appraised and actual implementation schedule for all components is in Appendix 4. 26. The project experienced over 6 months of start-up delays, with the loan effective in July 2005. Contract award for consultancy services was almost 18 months behind schedule. Commencement of construction was postponed to coincide with mobilization of the supervision consultant. All civil works packages were completed behind schedule: package 1 was 33 months behind the initial estimate of September 2007, package 2 was 32 months behind and package 3 was 20 months behind (the key reasons for the delays in project implementation are in para. 14). F. Implementation Arrangements

27. The government held the view that setting up separate PMUs for multiple projects would not contribute well to capacity building. Accordingly, the project was implemented by MPW’s existing PMU, which had experience with the Kandahar–Spin Boldak Road and Emergency Infrastructure Rehabilitation and Reconstruction projects. All civil works sites had PIUs in which MPW engineers were stationed to handle day-to-day project implementation. The deputy minister of MPW had overall responsibility for project management as project director of the PMU.17 28. The project augmented the capacity of the PMU by funding an accountant, engineers, and administrative staff with project implementation expertise and experience in their respective fields. The PMU was assisted by the project management and financial management consultants engaged under a TA cluster.18 The PMU consisted of a project director, two project managers, onsite project implementation engineers and trainee engineers, and administrative staff. The PMU continues to function and manage other ongoing projects. In general, the implementation arrangements employed for the project were as proposed at appraisal. G. Conditions and Covenants

29. The loan covenants of the loan agreement were considered relevant. Most covenants have been complied with, except the following (Appendix 5):

(i) Late compliance. Establishment of the project performance monitoring system was due in December 2005, but was completed and approved in March 2007.

(ii) Partial compliance. Covenants that were partly complied with relate to (a) road maintenance financing as the required tolling policy was not approved; and (b) project review, as ADB waived the requirement of the midterm review due to security constraints in the field, and replaced it with a detailed review mission.

(iii) Noncompliance. Covenants that were not complied with relate to (a) health risks and provision, as the contractors did not conduct any information and education campaigns regarding HIV/AIDS or sexually transmitted diseases for local construction workers; and (b) the covenant required the borrower to detect and prevent the smuggling of opium using land transport, including through the improvement of border procedures. No related action(s) was reported.

17 In April 2005, the advisor to the minister of MPW replaced the deputy minister as the new project director of the PMU due

to the deputy minister’s heavy workload and adjusted responsibilities. 18 ADB. 2006. Technical Assistance to Afghanistan for Preparing the Road Rehabilitation and Capacity Building Cluster.

Manila.

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H. Related Technical Assistance

30. During the 2004 country programming mission, the government reconfirmed to ADB its request for assistance to quickly improve the 550 km Herat–Andkhoy road, which was the last unpaved section of the national primary ring road. Accordingly, ADB provided $1 million in PPTA to carry out a project preparatory study with due consideration of possible alternative alignments and design standards (footnote 10). Eventually, only the 210 km Andkhoy–Qaisar section of the Herat–Andkhoy road was financed under Loan 2140 (the project title was subsequently changed to Andkhoy–Qaisar Road Project to better reflect the project scope). 31. The PPTA was originally intended to be implemented over 8 months (December 2003–July 2004), but was actually approved on 17 September 2003, effective on 27 September 2003, and completed on 27 June 2005 with final cost of $940,862. The PPTA outputs were informative, covering major project-related aspects including cartography; topography and field works; a traffic study; climatology; hydrology and drainage; a geologic and geotechnical study; design and geometry; a pavement analysis; cost estimates; an economic analysis; an environmental assessment; and poverty, social, and resettlement issues. 32. The PPTA outputs included a cost estimate that MPW initially insisted was too high and refused to adopt, but which later proved to be comparable with the bid price from the lowest responsive bidders. In addition, there was a design oversight involving the use of up to 18% grade for vertical alignment in mountainous areas, which was later found inappropriate and modified according to the Afghanistan Road and Highway Standards and AASHTO Geometric Design of Highways and Streets. While the delivery of PPTA outputs was significantly delayed, this was outweighed by the achievement of critical objectives, and had no material time impact on consultant recruitment and procurement activities. Overall, the PPTA delivered the expected outputs and duly contributed to the project design, taking into consideration the challenging environment in Afghanistan. I. Consultant Recruitment and Procurement

33. Consultant selection was in accordance with ADB’s Guidelines on the Use of Consultants (2002, as amended from time to time). The consulting firm for construction supervision and monitoring was engaged using ADB’s quality- and cost-based selection procedure with full technical proposals. A total of 16 expressions of interest were received, five short-listed consultant firms were invited to submit proposals, and four firms submitted proposals. The first-ranked firm later withdrew due to the security concerns. Subsequently, the second-ranked firm was invited for contract negotiations and offered the consulting assignment. 34. It took almost 600 days from closing of expression of interest to the signing of contract, as compared to the normal estimate of 248 days. MPW had little experience in evaluation of technical proposals from firms for consultancy services. The ADB consultant selection committee meeting was convened twice, but the evaluation done by MPW was still found to be unacceptable. At the request of MPW, ADB sent a procurement consultant to Kabul to help finalize the evaluation documents. 35. Consulting services (198 international and 273 national person-months) were provided, compared to 100 international and 500 national person-months of services envisaged at appraisal, and 138 international and 327 national person-months of services in the consultant’s contract agreement. A breakdown of consultancy resources actually used against the planned inputs is in Appendix 6. 36. Procurement of goods, services, and civil works was carried out in accordance with ADB’s Guidelines for Procurement (1999, as amended from time to time). MPW did not take advance action

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to select supervision consultants and procure civil works, although this was approved by ADB. Civil works contracts were procured through international competitive bidding using a single-stage, two-envelope procedure with no separate prequalification. No equipment was procured due to the cancellation requested by the government. While MPW provided the main inputs, all international procurement was undertaken by the Afghanistan central procurement facilitation service provider—Afghanistan Reconstruction and Development Services. 37. The project is located in the western part of the country, where ADB nonmember countries, particularly those in the Gulf region, provide competitive sources of bitumen required for road pavement. To maximize the project’s development impact and economic efficiency, ADB approved on an exceptional basis that civil works contractors under the project may procure the bitumen for road pavement from ADB nonmember countries. J. Performance of Consultants, Contractors, and Suppliers

1. Performance of Consultants

38. The performance of consultants was rated partly satisfactory according to the requirements of the consultants’ contracts and terms of reference. The consultant supervised the civil works in a working environment made challenging by the prevailing security situation. Its performance fluctuated over the 4-year project implementation period. 39. The consultant deployed its staff on time, except for the contracts specialist and the tolling expert. The delayed input of the contracts specialist resulted in a delay in finalizing some contract claims, especially for price escalation. The tolling expert was mobilized in 2009 and the tolling policy study was not adopted by the government. Had the tolling expert mobilized early and been involved in related government discussions, their outputs might have helped the government timely establish the tolling policy and avoid the cancellation of the road tolling facilities component. 40. The consultant performed satisfactorily during the early implementation period. However, in 2009 they were warned of slow actions for months on requests by contractors for variations and extra work claims, failure to communicate in a timely manner with PMU and ADB, and monthly progress reports often failing to highlight important project-related subjects or respond to queries raised by ADB in previous reports. An external technical audit (footnote 14) for packages 1 and 2 conducted in 2009 found the consultant’s performance on the project was substandard. 19 The consultant subsequently adopted suggested measures to improve contract administration and quality controls, among other audit recommendations, and significantly improved its post-late 2009 performance. 41. In general, the consultant performed contract management and construction oversight duties and delivered due services toward the successful completion of the project. However, it underperformed in terms of timely and effectively handling critical issues and conducting a meaningful analysis for the EA.

2. Performance of Contractors

42. Overall, the contractors’ performance was rated partly satisfactory. Two contractors were engaged to perform works under the three civil works contracts. Both contractors (Samwhan and 19 They found that (i) contract issues had not been clarified and prioritized in a way that promoted timely and cost-effective

contract management; (ii) the consultant generally did not offer meaningful, actionable analysis and recommendations to the executing agency and ADB; (iii) staffing levels were not adequate to fulfill the consultant’s contract obligations and most expatriate staff shown on the consultancy agreement had demobilized or been replaced; and (iv) the system of recordkeeping and the document control staff was found to be inadequate.

9

China Railway Shisiju) were technically qualified, carried out works in accordance with project specifications, and their workmanship was acceptable. The contractors demonstrated their seriousness by continuing their involvement with the project despite the prevailing security situation in the project areas, which resulted in equipment and site damage, injuries and/or kidnapping of contractor’s staff, and police casualties. Both contractors completed the road construction as required by their respective contracts, albeit with sizable delays and cost overruns.20 43. Key deficiencies in the contractors’ performance included (i) design and management staff were not present onsite to solve issues promptly; (ii) project safety measures for project workers and users of the road were unacceptable; (iii) due diligence and the security plan on the prevailing security situations were insufficient and a security coordinator was not appointed as per the contract; (iv) the plant, equipment, and manpower resources at camp sites were at times inadequate, in both quantity and condition; (v) the procurement of building materials from outside countries was not prompt; and (vi) contractual requirements for social training were not complied with.21 K. Performance of the Borrower and the Executing Agency

44. The performance of the borrower and MPW was both rated partly satisfactory. The borrower, represented by MOF, vested responsibility for implementation in the executing agency—MPW. MOF in general provided timely administrative support at the request of MPW. However, it could not honor the government’s counterpart financing commitment of $18.6 million for the additional civil works of package 1. In addition, it was unable to establish the tolling policy within the project implementation period despite repeated reminders, which led to the cancellation of the road tolling facilities component. 45. MPW was unable to fully realize the expected project outputs, and some project covenants were either not fully complied with, or complied with late. However, the cancellation of the road tolling facilities component was largely due to the inability of MOF to finalize the tolling policy, which hampered the procurement of road tolling facilities. 46. The implementation of the project was monitored by MPW’s existing PMU. Partly due to the rapid staff turnover, MPW’s lack of quick response and effective remedial actions had an adverse impact on the progress of affected contracts. MPW’s performance on the project was found to be marginal by an external technical audit (footnote 14) in 2009.22 MPW was later able to improve its performance by following recommended practices from the audit. 47. The PMU staff gained valuable experience and learned ADB policies and practices and international contracting, and PMU staff are now more qualified to undertake similar duties in future project operations. A program management office (PMO) was established and functional in July 2010 to replace the specific project-oriented PMU. The PMO is headed by a program director and supported by a team of international consultants and local staff to monitor project implementation. 20 Performance of contractors was discussed with MPW and the supervision consultant with regard to following aspects:

mobilization to site; following contractual instruction; setting out; safety procedures; quality assurance; site data; contractor’s representative; sufficiency of the accepted contract amount; avoidance of interference; removal of the equipment from site; protection of the environment; monthly progress report; security of the site; contractor’s activities at site; discipline; maintenance of traffic safety; and reporting. It was found Samwhan outperformed China Railway Shisiju.

21 As identified through ADB review missions, feedback from the EA, the consultant’s monthly progress reports, and a technical audit (footnote 14) for packages 1 and 2 conducted in 2009.

22 The audit found that PMU did not appear to have trained and engaged staff necessary to properly manage the contract and assure its timely and compliant execution, particularly with respect to oversight of the performance of consultants; and appeared to be nearly completely dependent on consultants for project information and recommended actions.

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Current the PMO is still understaffed and has much room for improvement in terms of project management, document control, social safeguards, and quality assurance. L. Performance of the Asian Development Bank

48. The project by its emergency nature required close monitoring and supervision. However, the intended frequency and depth of review during project administration were not adequately achieved. A total of seven review missions were fielded over the almost 5-year project implementation period, the majority of which covered several projects simultaneously. While one or two reviews per year may be adequate for a smooth-running project, greater review frequency would have resulted in ADB being better informed, and in improved project progress. Moreover, some missions could have included representatives from the central operations services office, especially during processing of major changes and variation orders that often slowed project progress. 49. ADB could have been proactive in helping strengthen the capacity of MPW. For example, this was the first time MPW had evaluated technical proposals for consultancy services, and the ADB consultant selection committee convened three times in 2005 with no approval; finally, at the request of MPW, ADB sent a procurement consultant to Kabul in March 2006 to help finalize the technical evaluation report. 50. An ADB realignment in 2006 resulted in the transfer of the Afghanistan portfolio between different operational departments, and some project documents were misplaced in the course of this transfer. Assignment of responsibility for the project was delayed and eventually passed to an officer initially unfamiliar with the project’s problems. There was also high staff turnover—a total of five project officers were sequentially in charge of the project—which adversely affected knowledge continuity regarding project implementation. 51. The ADB Afghanistan Resident Mission provided an appropriate level of follow-up and support to the PMU through advice on PMU staff recruitment, procurement procedures, and other matters. 52. Other problems include (i) the project performance ratings did not always reflect the true status of the project and were often overly optimistic; (ii) the project administration manual was not updated in a timely manner to reflect supplementary financing by ADB, and changes in scope and/or implementation arrangements; and (iii) the midterm review was not fielded due to security constraints, and was replaced by the upgrading of a detailed review mission. Overall, the performance of ADB was rated partly satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

53. The project is rated highly relevant. The rationale as perceived at appraisal was to promote economic growth and social development, and contribute to poverty reduction in the project area through continued support to the government in reestablishing the primary road network. The rationale was sound and highly relevant in view of Afghanistan’s urgent need to build the nationwide physical infrastructure after two decades of conflict, and ADB’s country strategy that focuses on rehabilitation of the national road network, international link roads and other key infrastructure (footnote 8). 54. The impact and outcomes of the project at project completion are being realized as envisaged at appraisal, and remain highly consistent with the government’s National Development Strategy (National Development Framework at appraisal) and closely aligned to ADB’s new country

11

partnership strategy,23 which covers 2009–2013 and continues ADB’s focus on the transport, energy and agriculture sectors as requested by the government. Support to these sectors will include improving road infrastructure, especially the ring road, and connecting links to neighboring countries. 55. During loan negotiations, the government insisted, despite ADB repeated advice, on reducing the construction unit rate, resulting in unwanted cost overruns. A design optimization of the vertical alignment was needed during construction to comply with Afghanistan and international standards, and this also resulted in unexpected cost overruns. In addition, the government had to cancel the road tolling facility component due to its inability to establish the tolling policy within the project period. These issues could not have been reasonably prevented or foreseen in advance, but were resolved in a timely manner during implementation with positive impacts on the project outcome. B. Effectiveness in Achieving Outcome

56. The project is rated effective, on the basis that the outcome and outputs as defined in the project framework were largely achieved or are likely to be achieved. Out of the project’s three components, the road component and the project management support component were rated effective, and the road tolling facility component ineffective. 57. Despite external adverse factors such as insecurity and abnormal rains and flash flooding, the designed 210 km of the national ring road was fully rehabilitated and/or reconstructed. Road physical trips and site surveys along the project road after completion (described in Appendix 1) show (i) a greater than 50% decrease in travel time; (ii) close to 50% decrease in vehicle operating cost and passenger transport fares; and (iii) better access to social services, markets, and other economic opportunities. The project management capacity of MPW has been enhanced through on-the-job training of PMU/PIU engineers and trainee engineers, and provision of additional staff and consultant team specialized in project management, finance, highway engineering, environment, and resettlement. The road tolling facility component, despite various efforts, could not be implemented due to the lack of a decision by the government on tolling policy (it has been pending since 2005). 58. Of the 12 assumptions and two risks included in the design and monitoring framework, nine assumptions generally materialized and all risks have been effectively mitigated. A detailed assessment is in Appendix 1. C. Efficiency in Achieving Outcome and Outputs

59. The project is rated highly efficient. The fact that cost at project completion is over 50% higher than at appraisal called for economic reevaluation of the project. The approach adopted for economic reevaluation was based on the Highway Development and Management Model (HDM-4) developed by the World Road Association; the same approach was used at appraisal. 60. The economic internal rate of return (EIRR) based on current data is 23.6% with net present value (NPV) of $91.5 million, compared with 19.1% with NPV of $196.5 million at appraisal. The difference in the EIRRs and NPVs is due primarily to (i) EIRR and NPV at appraisal represented the 554 km Herat–Andkhoy road as a whole, while this project constitutes only part of the road; and (ii) there is a significant traffic volume increase from appraisal to completion, i.e., from observed 196 vehicles per day in 2004 to 1,691 vehicles per day in 2010. Sensitivity analysis indicates that a simultaneous 15% increase in costs and 15% decrease in benefits would still result in an EIRR higher than the cutoff level of 12% (Appendix 7). 23 ADB. 2008. Country Partnership Strategy: Afghanistan, 2009–2013. Manila.

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D. Preliminary Assessment of Sustainability

61. ADB provided a grant of $20 million through Grant 0081-AFG: Road Network Development Project 1 for road maintenance, and other donors have also agreed to maintain the roads constructed by them. However, creation of an off-budget revenue system (toll collection, user charges, etc.) as an independent road fund for road maintenance is critical, given the government’s financial constraints. Unless the government continues its efforts to earmark sufficient funds for routine and periodic maintenance and set up appropriate operating policies, as envisaged in the project design and covenanted in the loan agreement, the sustainability of this road component is rated less likely. 62. Civil services reforms in Afghanistan that allow a higher payscale for qualified government officials are ongoing. The PMU, as well as the contract of PMU staff, expired at the completion of the project. To continue MPW capacity building, the well-trained project staff and associated valuable project implementation experience has been retained through integration of the PMU into the PMO; the PMU will have responsibility for handling all future projects. Accordingly, the PMO management may revise the PMU staff’s terms of references and adjust their positions within this new organization on a need and qualification basis, in addition to continuing to recruit qualified international consultants. The sustainability of capacity building is rated likely. E. Impact

63. As envisaged at appraisal, the project had no adverse impact on the environment. The project was classified as environment category B in accordance with ADB’s Guidelines on Environmental Assessment. Environmental impacts associated with the construction stage (e.g., disruption of traffic and the water system, and noise and dust) occurred only during the construction period. These impacts were temporary and were mitigated through precautionary measures including rerouting traffic, controlling noise, regular site water spraying, provision of adequate drainage system, etc. Environmental impacts associated with the operation of the project mainly involve traffic safety, and adequate traffic signs and physical barriers have been installed to reduce motorist speed, especially in villages and towns along the road corridor where markets usually take place. However, continued monitoring of safety facilities needs to be carried out to ensure they function properly and are maintained as needed. 64. The traffic on the project road increased from 196 vehicles per day in 2004 to 1,691 vehicles per day in 2010. Travel time from Andkhoy to Qaisar by car reduced from around 9 hours to 3 hours in normal weather, and time savings are much higher during very poor weather. Bus fare from Andkhoy to Qaisar dropped from AF530 per person in 2007 to AF270 per person in 2010. The improved road reduces the transport cost for agricultural and industrial products that are the key income opportunities in the communities along the road. Improved market access due to the road improvements has enabled some communities to diversify cropping patterns from pure wheat to include other crops such as vegetable and fruits. Moreover, employment opportunities have increased with road completion, which has brought roadside commercial operations (e.g., petrol stations, repair shops, and restaurants) and will continue to encourage businesses to invest along the project road. 65. The social impacts of the project road are positive. Many new social services, including schools, medical services, and markets places, have opened up in communities within 2 km of the road center line over the road’s entire length. Access to social services is now easier and faster. Community consultation results show that improved transport access and reduced fares have led households to allow female children to attend school. Additionally, communities (and particularly

13

women) have faster access to hospitals as a result of the road, which resulted in a significant improvement in social service provision.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

66. Overall, the project was well implemented and is rated successful based on a review of relevance, effectiveness, efficiency and sustainability. The project's formulation and design were technically sound and relevant to the achievement of its development goals at appraisal and at completion. The main outputs have been fulfilled except the unforeseeable cancellation of the road tolling facilities. The purposes of the project as stated in the Report and Recommendation of the President have largely been achieved, it is still too early to arrive at a conclusive assessment of achievement of the goals. Appendix 8 presents the quantitative assessment of the project performance rating. 67. Afghanistan faces development challenges by ways of limited in-country project implementation capacity, security, complicated financing plans, and post-conflict needs of basic infrastructure restoration and reconstruction. Nevertheless, the 210 km national ring road section was fully completed as conceived in the project design. The project’s cost overrun, delays (the implementation period was extended by about 2 years), and cancellation of the road tolling facility component could not have been reasonably prevented or foreseen, and timely remedial efforts were made to address these issues during implementation; nevertheless, these factors result in the project rating being downgraded from highly successful to successful. B. Lessons

68. The major lessons from the project are as follows.

(i) It is important to conduct a sound capacity assessment of MPW and adequate analysis of the local political context in the early stages of the project. Driven by the project’s emergency nature, overemphasis on time savings during project preparation unfortunately resulted in delays coupled with cost overruns and implementation problems at a later stage. It is also highly desirable that emergency projects implemented in complex environments receive more frequent and comprehensive monitoring and supervision.

(ii) Consultant quality at entrance is critical, as top international consultants and contractors are less interested in projects in Afghanistan. Emphasis during selection should be on quality and past performance record of consultants, as this can easily result in both cost and time savings, given the prevalence of price escalation, time extensions, and cost overruns for projects in Afghanistan.

(iii) Frequent replacement of the supervision consultants’ key staff members should be avoided or penalized. Projects that suffer from key staffing issues usually experience compounding delaying effects and cost overruns during implementation.

(iv) The rapid turnover of the MPW staff, frequent changes in project officers and mission leaders, and the transfer of project administration from one ADB department to another were counterproductive.

(v) Afghanistan is a country with a long history of war, in which the usual rules do not work well in achieving development impacts. Appropriate adjustments, such as allowing procurement of bitumen from nonmember countries of ADB, proved to be beneficial for maximizing the project’s development impact and economic efficiency.

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(vi) More effort should be made to gain compliance by the borrower and MPW with loan covenants, which helps strengthen the government’s project ownership. Although difficult postwar conditions exist, ADB should use appropriate means—including suspension of disbursements and cancellation of the loan—if necessary and in the best interest of the project.

(vii) The design-build contract adopted for this project is not a turnkey type of contract in which prospective bidders will need to conduct significant site reconnaissance in order to prepare competitive bids, but a measurement contract based on financial unit rates with design carried out by the contractor as the road is constructed. This type of contract was intended to overcome local design capacity constraints and expedite commencement of works. However, the result was mixed: the lead time required for project preparation was reduced, but the use of civil works contract documents without a finalized detailed design resulted in substandard implementation quality in terms of time, cost, and ease of implementation.

(viii) The annual hiatus in processing withdrawal applications by MOF for the 3-month budget approval period (end of the financial year on 21 March until the end of June) causes cash flow difficulties for the contractors and consultants, as this period coincides with the peak construction season. A streamlined coordination among MPW, MOF, and ADB should be developed to minimize the adverse impact on project progress and avoid interest claims on late payments.

(ix) The adequacy of security arrangements at project sites in Afghanistan determines the pace at which projects can be implemented. Ultimately, protecting construction crews and facilities and equipment storage areas will be feasible only if an effective grassroots outreach program is mounted to win the support and goodwill of communities who live near construction sites and secure the collaboration of local government officials and village leaders.

C. Recommendations

1. Project Related

69. Future monitoring. Timely and proper maintenance of road facilities is critical to their long-term service. This road is part of a domestic and international transport corridor, and is envisaged to carry a rapid increase of heavy vehicles in the near to midterm, which necessitates that proper axle-load monitoring and enforcement be in place, and a sufficient and timely maintenance budget be provided. ADB should continue to regularly monitor the maintenance of the project road through the government’s annual submission of budget allocations. 70. Covenants. Vital covenants (government counterpart supports, safeguards, etc.) and consequences of violation should be communicated to the government well in advance, and repeated. ADB should not hesitate to take strong actions if the borrower still fails to comply with the covenants. 71. Further action or follow-up. The development of a sustainable means of revenue generation for road maintenance remains a critical need. The lack of a road tolling policy prevented the project’s road tolling facility component from being implemented. Nevertheless, ADB should follow up with the government to ensure the establishment and functioning of the maintenance funding mechanism to sustain the project road. 72. Additional assistance. ADB may consider financing a special study for the government on establishing a road maintenance fund, with short-, medium-, and long-term solutions and exploring all possible options (e.g., road tolling, fuel levies, vehicle licensing, and road user charges). Future

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project design should be based on recommendation of this study to ensure sustainability during post construction phase. 73. Timing of the project performance evaluation report. A project performance evaluation should be undertaken in 2–3 years to appropriately reflect project benefits as compared to the baseline data developed at project inception. It is proposed to carry out an evaluation in late 2012 and report to ADB. However, in the interim ADB should require the government to continue monitoring performance of the project road and reporting project benefits.

2. General

74. The situation in Afghanistan results in limited competition among a few contractors. The project experience revealed that large contingencies need to be in place during project design for possible cost overruns and implementation delays, especially when bid documents are not based on detailed engineering designs. 75. For infrastructure projects having emergency nature, fixed-period civil works contracts with premiums and penalties could be more appropriate if high caliber supervision consultants can be recruited for quality and compliances check. 76. The contractor’s obligations shall not be considered to have been completed until the supervision consultant has issued the performance certificate to the contractor, which normally occurs after the 1-year defects notification period. In the mean time, the supervision consultant’s sporadic inputs may still be required, especially when the employer has a weak project management capacity; hence, this matter should be duly considered in the project design and during contract negotiation with the supervision consultant. 77. For post-conflict countries, security at project sites to a large extent determines the pace of civil works progress. The current practice of embedding security cost in the overall price to be quoted by the contractor does not work well, as the contractor often treats it casually and either uses it as a means to leverage the bid price, or treats it as part of profits. To effectively avoid project delays in this connection, security costs should be separated in civil works contracts as a provisional sum to be used only for engaging security firms and/or individuals.

16 Appendix 1

PROJECT FRAMEWORK (APPRAISAL VERSUS ACTUAL)

Performance Indicators/Targets Assumptions and Risks Design Summary Appraisal Actual

Monitoring Mechanisms Appraisal Actual

Goal Promote economic and social development and reduce poverty in the project area.

A 15% increase in per capita income in the project area over 3 years A 10% reduction in poverty incidence in the project area

Progress made but no evidence of achievement; it is too early to arrive at a conclusive assessment Progress made but no evidence of achievement; it is too early to arrive at a conclusive assessment

National, provincial, and district socioeconomic statistics from the Central Statistics Office

Purpose 1. Reduce transport

costs and travel time on the project road.

2. Provide rural

population with better access to social services, markets, and other economic opportunities.

A 50% decrease in travel time on the project road for all types of vehicles immediately after project completion A 50% decrease in vehicle operating cost (VOC) or freight and passenger transport fares within 3 months of project completion An average 50% reduction in travel time to nearest health, primary education, and other essential services within 3

Approximately 65% decrease in travel time per trip over the entire project road in good weather. Travel time saving is much higher in winter or after rain as the road was at times barely passable before the project. HDM results show that VOC savings are 41% for buses, 33% for mini buses, 37% for trucks, and 25% for cars. Taxi fare from Andkhoy to Qaisar decreased by 40%, and bus fare decreased by 49%. Many new social services (schools, medical services and markets/trading places) have opened within 2 km of the road

Impact monitoring to be conducted by the loan-financed consultants including traffic counts, survey on transportation costs, and origin-destination survey Assessment of Asian Development Bank (ADB) project administration missions

(A) Timely completion of improvement to other road sections of the Herat–Andkhoy road (A) Increased availability of transport services following improvement of the project road (A) Continued complementary assistance by other development agencies and nongovernment

About 310 km out of the 550 km Herat–Andkhoy road funded by various donors has been completed to date, which includes the 210 km under this project. Roadside commercial enterprises have commenced operation along the road. Several petrol stations and repair shops are either nearing completion or already partly in operation. Three-wheeled taxis are prevalent. Continued complementary assistance in rehabilitating economic infrastructure and provision of basic

Appendix 1 17



3. Enhance project

management capability of Ministry of Public Works (MPW)

months of project completion MPW to have a core group of staff equipped with knowledge of modern construction techniques and capable of managing large-scale projects implemented under the employer-engineer- contractor modality

centerline over the entire project road, Access to social services is much easier and faster, while survey respondents consciously quote walking distance or time, rather than time in a vehicle. The PMU engineers in MPW have managed three large and complex international competitive bidding road projects (the Kandahar–Spin Boldak Road Project, the Emergency Infrastructure and Reconstruction Project and this project).

organizations in rehabilitating other economic infrastructure, and provision of basic social services (A) Timely implementation of civil services reforms that allow a higher payscale for qualified government officials (A) Political and economic stability of the country

social services was provided by development agencies including World Bank, European Commission, USAID, etc. Civil services reforms are still ongoing. Political stability has improved slightly; the security situation remained volatile.

Outputs 1. A primary road

section from Andkhoy to Qaisar improved to a standard that allows smooth passage of all types of vehicles, and equipped with a facility for road tolling and axle load control

Construction completed and open to traffic by 2007

Completed as required but with delays. 85 km from Shirin Taghab–Andkhoy was completed and formally open to traffic in 2009. 70 km from Almar–Shirin Taghab and 55 km from Qaisar–Almar was completed and formally open to traffic in 2010. All three road sections were being used by traffic during the construction.

Certification by the supervision consultant at the time of handing over the completed section to MPW as per International Federation of Consulting Engineers (FIDIC) conditions

(A) Implementation capacity of MPW, good performance of contractors and suppliers, strict supervision and quality control (A) Successful completion of the on-the-job training under the ongoing Emergency Infrastructure Rehabilitation and Reconstruction Project road component, and

Implementation capacity of MPW was improved; performance of contractors was acceptable; supervision and quality control were duly conducted. The PMU engineers in MPW have gained valuable project experience from Emergency Infrastructure Rehabilitation and Reconstruction

18 Appendix 1



2. Primary roads

equipped with facility for road tolling and axle load control

3. Project

managers, accountants, engineers, and other administrative staff within MPW have experience in implementing large investment projects

Installation of facility completed for: - Kabul-

Kandahar-Spin Boldak road by mid-2005;

- Northern roads by mid 2006; and

- Andkhoy-Qaisar Road by mid 2007

Number of staff trained through the project implementation at the time of project completion

Not achieved as the cancellation was made upon government’s request A total of four trainee engineers, three project implementation engineers and two project managers were heavily involved in the project and gained valuable project experience.

Inspection and tests to be conducted by the supervision consultant Assessment by the project management consultant and by ADB project administration missions

continuing training under the project

Project that was beneficial for managing this project. New trainee engineers were seconded to the supervision consultant under its supervision.

Activities 1. Detailed design

by the civil works contractors

2. Construction of

the civil works 3. Preparation of

specifications for equipment for road tolling and axle load control by the supervision consultant

4. Installation of

equipment for road tolling and axle load Control

Conformance to the design specifications Conformance to the approved design and the contract conditions Consistency with the government’s tolling implementation plans Conformance to the specifications and the contract conditions

Conformed Conformed The government was unable to establish the tolling policy within project period and cancelled the road tolling facilities component. Cancelled

Progress reports incorporating the findings, recommendations, and actions taken by PMU to remove problems and deficiencies; and ADB project administration missions

(A) Provision of adequate security by the government in the project area (A) Timely provision of counterpart resources (A) Road tolling implementation plans to be prepared and finalized by the government before the primary roads being improved open to traffic (R) Delays in civil works and installation of

The government provided adequate security support in the project area Counterpart resources were generally provided, though sometimes late The government was unable to establish the tolling policy within project period. No delay was incurred due to difficulty in

Appendix 1 19



5. On-the-job

training of MPW staff in project management and implementation

Regular reporting as required by the loan conditions

Conformed

equipment due to difficulty in mobilizing equipment and materials to the project site from across the border (R) Weather condition in the project area (longer winter and drought can hinder the construction work)

mobilizing equipment and materials to the project site from across the border. Abnormal rains and flash flooding occurred from March to May 2009; otherwise, weather conditions had no significant impact on the construction work.

Inputs Project funding of $80 million for 1. Design and

construction of civil works to improve the road from Andkhoy to Qaisar (210 km) ($50.4 million)

2. Equipment for

road tolling and axle-load control ($7 million)

3. Consulting

services for supervising the civil works, installation of equipment and project performance monitoring ($3.3 million)

4. Incremental

project Management support to MPW ($1.6 million)

Civil works contracts to be awarded in the first quarter of 2005 Supply and installation contracts to be awarded in three phases in 2005, 2006, and 2007 Consulting services contract to be awarded in the first quarter of 2005 Within 3 months of loan effectiveness, PMU to be staffed with required staff

Civil works contracts for packages 2 and 3 were awarded in April 2006 and May 2006 for package 1. Not achieved due to cancellation by the government Consulting services contract was awarded in August 2006. Achieved

Financial certification by the supervision consultant and oversight by PMU staff ADB project administration

(A) Timely implementation of advance actions for engagement of consultants and procurement (A) Timely signing of Loan Agreement

Advance action for selection of supervision consultants and for procurement of civil works, although approved by ADB, was not taken by the executing agency (MPW). The loan was approved on 15 December 2004, and signed on 7 April 2005.

20 Appendix 2

CHRONOLOGY OF MAJOR EVENTS Date Event 2004 19 May–3 June Fact-finding mission

6 July Memo approved by the chief compliance officer of RSDD confirming this project as “Category C, no resettlement impact, no IR impact, and no IPDP/IPDF or specific action required.”

6 July The Government of Afghanistan signed a protocol with a delegation from Uzbekistan that granted Uzbekistan the right to be solely involved in the construction of the entire or portion of the road from Herat to Andkhoy. This put the project at risk of cancellation.

19–24 July Special consultation mission

7 August The minister of MOF informed ADB to proceed with the processing of the project based on the agreed scope of work at the fact-finding mission.

17 August Management review meeting

30 August–4 September Pre-appraisal mission (not successful)

27 September MOF sent a letter to ADB confirming the government’s continued interest in processing the $80 million loan for the Herat–Andkhoy Road Project.

20–25 October Appraisal mission (successful), in which the title of the project changed to Andkhoy–Qaisar Road Project to better reflect the project scope.

5 November Staff review committee meeting

16 November Loan negotiations

25 November Board circulation

15 December Board consideration and approval

2005

19 February–7 March Review mission

24 March–6 April Review mission

7 April Loan agreement signing

20 April Letter from ADB to the minister of MOF on loan effectiveness conditions

26 June Bid submission deadline for civil works packages 2 and 3

4 July Memo to director of SATC requesting a 2-week extension of the loan effectiveness deadline from 6 July to 21 July 2005.

8 July Letter to the minister of MOF declaring the loan effective

24 July–3 August Inception mission

29 September Letter to MPW requesting they re-evaluate the consulting service technical proposals and resubmit the evaluation report to ADB for review and approval.

18 November ADB CSC meeting reviewed the borrower’s evaluation of technical proposals, which was not approved.

14 December ADB CSC meeting re-reviewed the borrower’s evaluation of technical proposals, which was again not approved.

Appendix 2 21

Date Event

2006

6 January Memo from SATC to COSO requesting that COSO staff assist MPW in evaluation of consultancy proposal

7 March Letter to MPW proposing an equal level of involvement by ADB in all three civil works contracts to cover cost overruns by reducing ADB financing percentage in packages 2 and 3 and increasing that in package 1.

16 March ADB CSC meeting reviewed the borrower’s evaluation of technical proposals for the third time, which was approved.

20–21 April Special project administration mission

23 April Contract signing for civil works packages 2 and 3

25 April ADB CSC meeting approved the borrower’s evaluation of financial proposals

17 May Contract signing for civil works package 1

21 August Contract signing for consultancy service

28 August All three civil works construction commenced

20–27 September Review mission

8 October Letter from deputy minister of MOF to ADB confirming government counterpart funding of $18.6 million for civil works package 1

19 October Major change in scope due to change in cost estimate

23 October Loan proceeds reallocated

2007

5–6 May AFRM staff along with MPW project director and advisor visited the project site.

4–9 November Review mission fielded

2008

13 January SC to MPW for approval of VO1 for contracts 1 and 2 due to change of vertical alignment (grade) from 18% to 7%–8%, leading to an increase of $8.6 million and time extension of 10 months for contract 1 and $7.9 million and time extension of 12 months for contract 2.

5 February Letter to MPW approving variation order 1 for contracts 1 and 2 due to change of vertical alignment from 18% grade to 8% grade to increase driving safety.

22–29 April Review mission fielded

26 August Letter from supervision consultant to MPW requesting 4-month time extension for contract 3

8 September Letter to deputy minister of MPW expressing ADB’s concerns over the discrepancy between payment progress and physical progress and returning two IPC claims

22 Appendix 2

Date Event 16–17 September Project site visit by ADB headquarters staff

18 September Letter to MPW approving time extension for contracts 1 and 2 with no extra cost

7 October Letter to MPW approving time extension for the supervision consultancy service

21–25 October Review mission fielded

2009

10–18 March Review mission fielded

22 April Letter to MPW approving time extension for contract 3 up to 27 April 2009 with no additional cost

7 May Letter to MPW approving second time extension for contract 1

23 May Taking-over certificate issued for civil works contract package 3; defects notification period 27 April 2009–26 April 2010

26 May Letter from the contractor to the engineer regarding a security incident on contract 3 caused by remote-controlled improvised explosive device (RCIED) that damaged a box culvert

6 June Armed insurgent attack with police casualties

7 June RCIED attack damaging box culvert and causing injuries

9 June RCIED attack damaging box culvert and causing injuries

12 June Armed insurgent attack with police casualties

15 June Letter from the contractor to MPW requesting for additional police patrol

3 July Armed attack of a water truck driver causing injury

13 August Letter to MPW approving time extension for supervision consultancy contract

20 August Letter to the minister of MOF informing ADB is no longer approving salary payments to deputy ministers from ADB’s loans and grants

8 October Loan proceeds reallocated due to variation order 2 for contract 1

11 October Letter from the contractor to MPW announcing stoppage of works for contract 2 due to insurgent attack

13 October ADB letter to minister of MPW expressing its concerns over the supervision consultant’s poor performance

22 October Statement at completion for contract 3 submitted by the contractor

5 November Letter to MPW approving a second time extension for consultancy service to 31 December 2009

23 November Letter to MPW requesting to advise the engineer and the contractor to implement technical audit recommendations

17 December Letter to MPW approving time extension for contract 1 with proposal for account closing of contract by 30 April 2010

Appendix 2 23

Date Event 2010

16 January Armed attack for contract 1 resulting in the kidnapping of six people and seizure of two vehicles; contract 1 was suspended and resumed on 16 March

12 February Letter from SMEC to MPW requesting a third revised consultancy services contract

1–4 March Review mission

24 March Letter to MPW issuing no objection to variation order 3 of consultancy service extension

8 April Letter from MOF requesting cancellation of the road tolling facility

3 May Letter to MPW issuing no objection to time extensions for contract 1 to 30 June 2010 and contract 2 to 29 May 2010

25 May Performance certificate issued for civil works contract package 3

23 June Armed attack on contract 1 causing injuries

26 June Taking over certificate issued for civil works contract package 2; defects notification period 29 May 2010–28 May 2011

6 July Armed attack on contract 1 causing injuries

11 July Local driver and equipment for contract 1 hijacked

9 August Taking-over certificate issued for civil works contract package 1; defects notification period 30 June 2010–29 June 2011

3 September One international staff member of the contractor under package 1 was kidnapped and remains in captivity as of 10 November 2010.

22 September Letter to MPW issuing no objection of variation order 4 for extending the supervision consultant SMEC’s contract up to 30 September 2010

28 September Memo to VP for a major change in scope to cancel the road tolling facility component

1 October Cancellation of the road tolling facility component logged in the loan milestone events dates

6 October One MPW trainee engineer, one police officer and one driver were kidnapped. The trainee engineer was released on 15 October 2010 and the others had not been released as of 10 November. 2010

13–21 October Project completion review mission

Sources: Project RRP Document and ADB project team’s review mission reports. .

24 Appendix 3

CONTRACT AWARDS AND DISBURSEMENTS FUNDED BY THE ASIAN DEVELOPMENT BANK Table A3.1: Andkhoy–Qaisar Road Project

Contract Issued Amount Disburseda

PCSS No.

Category No.

Contractor/Supplier

Description

Currency of

Contract

Contract Amount

$ Equivalent

Currency of

Contract

Amount

Disbursed

$ Equivalent 0001 01 Samwhan Corporation,

Republic of Korea Contract MPW /333/ADB/CON2

US$ 21,333,467 21,333,467 US$ 20,803,306 20,803,306

0002 01 Samwhan Corporation, Republic of Korea

Contract MPW/333/ADB/CON3

US$ 20,118,419 20,118,419 US$ 20,056,373 20,056,373

0003 03-A SMEC, Australia Consultancyservices US$ 2,514,270 2,514,270 US$ 1,850,089 1,850,089

0003 03-B SMEC, Australia Consultancy services A$ 321,080 275,836 A$ 285,340 239,529 0004 01 China Railway Shisiju Group

Corporation Contract MPW/333/ADB/CON1

US$ 18,660,432 18,660,432 US$ 18,543,013 18,543,013

0005 04 Ministry of Public Works Imprest account, incremental proj mgt support, PMU costs

US$ 100,000 100,000 US$ 91,453 91,453

0006 04 Ministry of Public Works Imprest account, incremental proj mgt support, PMU costs

US$ 100,000 100,000 US$ 89,854 89,854

99 Ministry of Public Works Imprest account (advance)

US$ US$ 100,000 100,000

CON= contract, mgt = management, MPW = Ministry of Public Works, PCSS = procurement contract summary sheet, PMU = project management unit, proj = project. a As of 10 November 2010. Note: Category 02-A: Civil Works, Category 04-A: Incremental Expense, and Category 05-A: Consulting Services. Sources: Asian Development Bank project files and accounting system information.

Appendix 3 25

Table A3.2: Supplemental Financing from Grant 0081-AFG and Grant 0135-AFG

Contract Issued Amount Disburseda

PCSS No.

Category No.

Contractor/Supplier

Description

Currency of

Contract

Contract Amount

$ Equivalent

Currency of

Contract

Amount

Disbursed

$ Equivalent GRANT 0081-AFG G02042 01 China Railways Shisiju Group

Corporation Contract MPW CON1 US$ 8,524,812 8,524,812 US$ 3,245,619 3,245,619

G02043 01 Samwhan Corporation, Republic of Korea

Contract MPWCON2 US$ 10,000,510 10,000,510 US$ 5,646,092 5,646,092

G02086 03 SMEC, Australia Consultancy Services US$ 1,425,520 1,425,520 US$ 1,072,976 1,072,976 G02086 03 SMEC, Australia Consultancy Services A$ 104,770 104,162 A$ 0 0

GRANT 0135-AFG G03159 01 China Railways Shisiju Group

Corporation Contract MPW CON1 US$ 5,300,000 5,300,000 US$ 2,305,998 2,305,998

G03160 01 Samwhan Corporation, Korea Contract MPW CON2 US$ 6,850,000 6,850,000 US$ 3,310,274 3,310,274

G03161 01 Samwhan Corporation, Korea Contract MPW CON3 US$ 6,450,000 6,450,000 US$ 3,788,318 3,788,318

AFG = Afghanistan , CON = contract, MPW = Ministry of Public Works, PCSS = procurement contract summary sheet. a As of 10 November 2010. Note: Category 01: Civil Works, Category 03: Consulting Services. Sources: ADB project files and accounting system information.

26 Appendix 3

Table 3.3: Projected and Actual Disbursements ($ million)

Item 2005 2006 2007 2008 2009 2010a Annual projection 0.3 19.0 21.8 16.5 8.0 2.2 Cumulative projection 0.3 19.3 41.1 57.6 65.6 67.8 Annual actual 0.0 11.5 21.1 20.3 16.1b 13.5 b

Cumulative actual 0.0 11.5 32.6 52.9 69.0 b 82.5 b

a As of 10 November 2010. b Including disbursements from supplemental financing G0135 and G0081. Sources: ADB project files and accounting system information.

Figure A3: Cumulative Disbursements

0

10

20

30

40

50

60

70

80

90

2005 2006 2007 2008 2009 2010Year

$ M

illio

n

Projected Annual Disbursement Projected Cumulative Disbursement

Actual Annual Disbursement Actual Cumulative Disbursement

Source: Asian Development Bank, project performance report system.

Appendix 4 27

ANDKHOY-QAISAR ROAD PROJECT (PCR) PROJECT IMPLEMENTATION SCHEDULE

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2 2

1 1 1 1 1 1

2 2 2 2 2 2 2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

2 2 2

2 2

1 1 1

2 2 2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

2 2

1 1 1 1 1

2 2 2 2 2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

2 2

1 1 1 1 1

2 2 2 2 2 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1

2

2

2

2

2

2

Proposed schedule at appraisal 2 2

A ctual 1 1

Procurem entIns tallation

Tolling FacilityKabul Kandahar Spin Boldak Corridor

Ins tallationProcurem ent

Northern R oadsProcurem entIns tallation

Andkhoy-Qaisar Road

C ivil Works

2008 20092004 2005 2006C ontract

P rocurem ent

C onstruction

Site clearance, levelling, grading and c om pactingContract 1

Qaisar (km 343) to Alm ar (km 398)

Contract 2

Force Account

2010

C onsulting Services

P rocurem ent

C onstruction

2007

Consultant selection

P rocurem ent

C onstruction

Civil works superviosn and other assignm ents

Contract 3Shirin Tagab (km 468) to Andkhoy (km 553)

Alm ar (km 398) to S hirin Tagab (km 468)

km=kilometer. Source: Asian Development Bank.

28 Appendix 5

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan Agreement

Status of Compliance

Road Maintenance Financing The Borrower shall allocate and make available, in a timely manner, sufficient funds from its budget for each fiscal year for the operation and maintenance of the Project facilities and shall ensure that such facilities are operated and maintained in accordance with sound practices in the transport sectors. For the maintenance of the Project road, the Borrower shall, as a short-term measure, ensure implementation of a toll collection system on improved roads. The Borrower shall adopt adequate procedures, which promote transparency and accountability in the collection of the proceeds from the toll collection system and other means of revenue generation and install proper procedures including spot audits to track any abuse in the collection and utilization of these proceeds.

Schedule 6, para. 7 Partly complied with. The government allocates funds to Ministry of Public Works (MPW) annually for routine maintenance and emergency works for the roads under the jurisdiction of MPW, which includes the project road, but these funds are inadequate. With respect to ensuring implementation of a toll collection system on improved roads, the toll policy has not yet been approved.

Duties and Levies The Borrower shall ensure that no duties or other similar levies shall be imposed on any equipment, material or services required for the Project, and if such duties and levies are imposed, they shall be paid by the Borrower promptly to ensure timely Project implementation.

Schedule 6, para. 8 Complied with. The government has not levied any import duties or similar levies for this project. The government passed a presidential decree on 21 November 2008 exempting Asian Development Bank (ADB) projects from the sukuuk tax from February 2009.

Environmental Protection The Borrower shall ensure that adequate environmental protection and safety measures as described in the initial environmental examination (IEE) are included in the design of the Project facilities; and that the Project is implemented, operated and maintained in accordance with the Borrower's environmental laws and policies, ADB's Environment Policy (2002) and IEE including the environment monitoring plan.

Schedule 6, para.10

Complied with. Adequate environmental protection and safety measures were included in the project facilities design; the project was implemented in accordance with loan agreement requirements.

Appendix 5 29

Covenant



Land Acquisition, Resettlement and Indigenous People The Borrower shall ensure that the reconstruction and rehabilitation of the Project road shall be carried out on land already acquired and/or owned by the Borrower. If there are adjustments to the rights-of-way that necessitate land acquisition, the Borrower shall ensure that the social and economic base of the affected persons, regardless of the land title, shall be restored and/or enhanced through mitigating measures. The Borrower shall further ensure that any land acquisition and resettlement activities shall be done in accordance with the relevant laws and policies of the Borrower, the ADB's Policy on Involuntary Resettlement (1995) and ADB's Policy on Indigenous People (1998), which shall be set out in the resettlement plan. The Borrower shall also ensure that all land and rights-of-way required for Project implementation shall be made available in a timely manner. Furthermore, if any adverse impacts on indigenous people are identified during Project implementation, the Borrower shall prepare an indigenous peoples development plan in accordance with ADB's Policy on Indigenous People (1998).

Schedule 6, para. 9 Complied with. The road has been reconstructed on the existing alignment. Therefore, project implementation involved no land acquisition or resettlement issues.

Local Consultation and Gender The Borrower shall ensure that a specific plan for local consultation to address safety, social, and cultural issues, during Project implementation shall be included in the bidding documents. The Borrower shall ensure that men and women are given equal employment opportunities and without any differentiation of wages for equal work by the civil works contractors. The mechanisms for maximizing local employment benefits shall be included in the Project design and the bidding documents.

Schedule 6, para.11

Complied with. The contractors conducted briefings for workers on safety and cultural issues. Local consultations were organized to address safety, social, and cultural issues during implementation. Women were given employment opportunities, with some working on project sites as cleaners and gardeners.

Labor The Borrower shall ensure that the civil works contracts include legally mandated provisions on health and sanitation and on appropriate working conditions, including as appropriate, accommodation, for construction workers at campsites during the construction period. The Borrower shall also ensure that civil works contractors do not employ children for construction and maintenance works. A specific clause shall be included in the bidding documents to this effect and compliance shall be strictly monitored during Project implementation.

Schedule 6, para.12

Complied with. The civil works contracts include legally mandated provisions on health and sanitation and on appropriate working conditions. No child labor was employed during project implementation.

30 Appendix 5

Covenant



Health Risks and Provisions The Borrower shall ensure that the civil 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 health and safety program at camp sites during the construction period. The Borrower shall also develop linkages with national HIV/AIDS prevention or control programs in a timely manner so that the HIV/AIDS prevention activities required under the Project are properly carried out.

Schedule 6, para. 13

Not complied with. The borrower has included these conditions in the contract documents. However, MPW did not conduct any information and education campaigns regarding HIV/AIDS or sexually transmitted diseases for local construction workers. This may have been due to deeply entrenched conservative traditions and a lack of general awareness of this issue.

The Borrower shall maintain or cause to be maintained, separate accounts for the Project; have such accounts and related financial statements audited annually not later than 9 months after the end of each fiscal year. The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than 6 months after the end of each related fiscal year, unaudited Project accounts and financial statements, (iv) furnish to ADB, as soon as available but in any event not later than 9 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 or statement of expenditures), all in the English language; and (v) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Article IV, Section 4.02 (a)

Complied with. The borrower maintains separate accounts for the project and has submitted the audited financial statements up to the financial year that ended in March 2010. The Audited Project Account was received on 23 February 2010.

Appendix 5 31

Covenant



Taxes Taxes: No withdrawals from the Loan Account shall be made in respect of any local taxes.

Schedule 3, para. 2 Complied with. The government has refunded to ADB local taxes (amounting to $1,159,374) previously financed by ADB by authorizing ADB to withhold $5.7 million from program loan 2215-AFG.

Established, Staffed, and Operating Project Management Unit (PMU) Project Management shall be carried out by the existing PMU established under the Emergency Infrastructure Rehabilitation and Reconstruction Project road component. The deputy minister of MPW shall have the overall responsibility for Project management as the project director of the PMU. The existing PMU shall be augmented through the appointment of a Project accountant, two site engineers and other administrative staff, acceptable to ADB, with expertise and experience in respective fields of Project implementation. The two engineers shall be stationed in the field to handle day-to-day Project implementation. Within 3 months of the Effective Date, the Borrower shall ensure that the Project accountant, two site engineers and other administrative staff are appointed accordingly.

Schedule 6, paras. 2–3

Complied with. The project accountant, two site engineers and related administrative staff were appointed within 3 months of the effective date; MPW’s existing PMU established under the Emergency Infrastructure Rehabilitation and Reconstruction Project road component carried out the project management. Staff arrangements were in accordance with loan agreement.

Fielding of Consultants The consultants shall be engaged using the QCBS method. After conclusion of the negotiations but before signing, the contract should be furnished to ADB for approval. ADB should be provided copies of the signed contract. If any substantial amendment of the contract is proposed after its execution, the proposed changes shall be submitted to ADB prior to approval.

Schedule 5, paras. 4–5

Complied with. The contract was awarded in August 2006 after prior review by ADB. A copy of the signed contract was submitted to ADB. Subsequent variation orders were in line with the extension of civil works and were issued after prior ADB review.

Project Review ADB and the Borrower shall jointly review the Project semi-annually to assess the implementation progress of the Project. ADB and Borrower shall conduct a midterm review of the Project around 18 months after the commencement of

Schedule 6, para. 18 Schedule 6, para. 19

Complied with. Joint review of the project was conducted through review missions, video conferences and AFRM regular portfolio meetings. Partly complied with. ADB waived the

32 Appendix 5

Covenant



the Project. The Borrower shall submit to ADB a detailed progress report on the Project's implementation and achievements prior to the midterm review.


requirement of the midterm review mission due to security concerns in the field; instead, a detailed review mission was upgraded. Complied with. Monthly progress report on the implementation and achievements were submitted to ADB, including a detailed progress report prior to the midterm review.

Project Performance Management System Throughout the implementation of the Project, the Borrower shall undertake quantitative and qualitative performance monitoring to evaluate the delivery of the planned facilities and the Project benefits accrued.


Complied with. Project performance monitoring system (PPMS) survey data were collected per year by a local survey team

Project Performance Management System Within six months after the effective date, the PMU, with the assistance of loan-financed consultants, shall develop a comprehensive Project performance management system (PPMS) which shall be reviewed and approved by ADB. ADB and the Borrower shall agree within 3 months after the effective date on the performance parameters to be monitored during the implementation of the Project.


Complied late. A PPMS was designed by MPW in March 2007 with assistance of the supervision consultants. The PPMS included performance parameters to be monitored, and was agreed to by ADB.

Anti-Corruption The Borrower acknowledges that ADB reserves the right to undertake directly or through its agents, investigation of any possible financial or managerial impropriety in the conduct of the Project. The Borrower and each of its relevant agencies shall fully cooperate with any such investigation and extend all necessary assistance, including access to all relevant books and records that may be needed for satisfactory completion of such investigations


Complied with. No particular investigation by ADB was conducted, but the borrower acknowledged that ADB reserves the right to do so at any time, will fully cooperate with any such investigation, and extend all necessary assistance.

Spot Audits The Borrower shall allow and facilitate ADB's representatives to carry out spot and random checks on (i) flow of funds and their use for the Project; and (ii) work-in-progress.


Complied with. The borrower allowed and facilitated spot and random checks by ADB representatives.

Appendix 5 33

Covenant



Security The Borrower shall provide adequate security for the smooth and uninterrupted implementation of the Project.

Schedule 6, para. 4 Complied with. MPW provided an estimated 100 police to guard project sites. The Contractors supplemented this with 300 extra police guards to ensure adequate security. Maintaining site security was difficult and two international staff, two local drivers, four local laborers and two police guards were kidnapped by insurgents in January 2010. In response the Contractor halted work until mid-March 2010, and the kidnapped staff members were released in May 2010. Additional security was subsequently provided by the government, beginning in mid-March 2010. However, one international staff member was again kidnapped in September 2010, and has not been released as of 10 November 2010.

Security The Borrower shall undertake concrete measures to detect and prevent the smuggling of opium through land transportation including through the improvement of border procedures.

Schedule 6, para. 5 Not complied with. There was no project record showing related action(s) have been taken.

Road Safety Measures The Borrower shall ensure that road safety measures are incorporated in the design of the Project and public awareness campaign of such measures shall be conducted on periodic basis.

Schedule 6, para. 6 Complied with. Road safety measures were incorporated in the project design. A related public awareness campaign was conducted, but not on a periodic basis.

34 A

ppendix 6

STATUS OF UTILIZATION OF CONSULTANCY INPUTS

Appraisala

(person-month) Revisedb

(person-month) Actualc

(person-month) Consultant International National International National International National

Senior resident engineer/team leader ... 27 47.1 Resident engineer/senior pavement and materials engineer (3, one for each contract package)

... 81 118.1

Contracts specialist ... 5 5.1 Geotechnical engineer ... 4 4.6 Bridge/structural engineer ... 4 14 Traffic engineer ... 4 3.0 Expert for tolling/axle load control facility design and installation

... 4 1.3

Environment sector specialist ... 2 1.2 Social sector/benefit monitoring specialist ... 4 3.0 Resident engineers (3, one for each contract package)

... 81 116.3

Quality control engineers (3, one for each contract package)

... 81 119.9

Information communications technology specialist ... 27 36.8 Total 100 500 135 189 197.4 273

... = not available

a As per the RRP, in which only outline terms of reference is available. b Initially signed contract with the winning firm— SMEC International Pty Ltd, Australia. c Project completion review. Sources: Project management unit and Asian Development Bank.

Appendix 7 35

ECONOMIC ANALYSIS 1. The economic analyses at project appraisal and completion both used the Highway Development and Management Model (HDM-4). However, at appraisal, the analysis was based on (i) preliminary cost estimates; (ii) predicted traffic for the base year, with high growth rates; and (iii) modifications of model parameters for conditions in Afghanistan wherever applicable, or otherwise model default values. At completion, the reevaluation of the project has been carried out with (i) actual traffic after completion, with a modest growth rate; (ii) final completion costs, and updating of other variables wherever possible. Nevertheless, a review of the results of the appraisal and completion analyses should take into account the foregoing limitations. A. Traffic – Appraisal versus Completion 2. Traffic surveys carried out soon after the completion of the road on 3–7 August 2010 indicate a daily traffic volume of 1,691 vehicles averaged over a 2-day period. A comparison of projected traffic for 2010 at appraisal and actual traffic at completion (Table A7.1) reveals significant differences between individual categories: (i) 75% of the predicted traffic was composed of cars, mini-buses, and buses, with 25% consisting of trucks, while 48% of the actual traffic consists of motor cycles and three wheelers; 42% of cars, mini-buses, and buses; and 10% of trucks; (ii) the total number of vehicles observed is comparable to what was predicted, but the number of vehicles in individual categories is far from what was predicted; and (iii) the predicted passenger capacity is more than twice the actual traffic and predicted goods traffic is close to twice actual traffic. The traffic forecasts at appraisal also added a 10% increase in 2011 to account for generated traffic a few years after the opening of the road. However, there is no indication now of any increase above the normal traffic growth.

Table A7.1: Traffic Volume and Composition Predicted and Actual

Description

Motor Cycle

Car

Mini Bus Utility

Bus

Truck 2-Axle

Heavy Truck

Total

Actual 2004 (average) 0 18 62 14 54 48 196

Forecast 2010 (3 years after traffic opening)

0 332 520 46 147 160 1,205

Percentage 0 27.6 43.1 3.8 12.2 13.3 100

Actual 2010 (average) 810 528 175 12 91 75 1691

Percentage 47.9 31.2 10.3 0.7 5.4 4.4 100

Sources: RRP and Traffic Survey in August 2010. 3. The traffic predictions made at appraisal did not appear to be highly relevant to the actual situation at completion. To avoid overestimating benefits, the economic reevaluation of the project was updated with the actual traffic observed, with the lowest traffic growth rate (6%) suggested at appraisal used to calculate volumes in 2011 and beyond. B. Cost – Appraisal versus Completion 4. At appraisal, the cost of construction was $50.4 million, or an average cost of $240,000 per kilometer (km). At completion, related costs have amounted to $76.8 million, or an average cost of $365,745 per km, as shown in Table A7.2.

36 Appendix 7

Table A7.2: Road Costs ($)

Appraisal Completiona Description

Qaisar–Andkhoy Contract 1 (Qaisar–Almar)

Contract 2 (Almar–

Shirintaghab)

Contract 3 (Shirintaghab

–Andkhoy)

Total

Civil Works 50,400,000 25,891,755 28,583,327 22,331,332 76,806,414

Per km 240,000 470,759 408,333 262,722 365,745

km = kilometer. a As of 15 October 2010; some disputable cost related to price escalation, time extension, etc. still pending. Source: Asian Development Bank estimates. C. Vehicle Characteristics, Unit Costs, and Others 5. The vehicle characteristics and unit costs used in the analysis are given in Table A7.3. They are based on default values of the highway development and management model with modifications based on differences in local conditions and availability of information. The vehicle prices were based on dealer’s invoices for project vehicles as well as prices in local market. Note that unit costs reflect only representative vehicles in the category, rather than any specific vehicle make.

Table A7.3: Vehicle Characteristics and Unit Costs

No.

Description

Motor Cycle

Car

Wagon/ Mini Bus

Bus

Truck 2-Axle

Heavy Truck

A. Basic Characteristics 1. PCU value 0.5 1 1.5 3 3 32. No. of wheels 2 4 4 6 6 103. No. of axles 2 2 2 2 2 34. Annual mileage (1,000 km) 10 23 30 70 70 865. Annual working hours 400 550 750 1,750 1,750 2,0506. Average life (year) 10 12 10 12 12 147. Passenger/ESA 2 3 10 40 3.5* 4a

B. Unit Costs ($) 1. New vehicle price 1,000 10,000 20,000 75,000 40,000 80,0002. Replacement tyre 20 80 200 375 375 3753. Fuel per liter 1 1 1.1 1.1 1.1 1.14. Lubricants per liter 3 3 3 3 3 35. Maintenance-labor per hour 0.5 3 3 3 3 36. Crew wages per hour 0 0 4 4 4 47. Passenger working time 1 2 2 1 0 08. Passenger non-work time 0.3 0.5 0.3 0.3 0 0

ESA = equivalent standard axles, km = kilometer, PCU = passenger car unit a Equivalent standard axles. Sources: Project site visit and Asian Development Bank estimates.

Appendix 7 37

6. Other parameters adopted in the analysis include:

(i) 25-year project life years starting from 2006, with a construction period of 5 years as per the actual expenditure (2006–2010);

(ii) benefits period of 20 years, i.e., 2011–2030; (iii) no salvage value at the end of the project life; (iv) traffic volume at 2010 is 1,691 (actual observation) and is projected backward to

2006 and forward at 6% per annum uniformly for all categories of vehicles; (v) discount rate is 12%; and (vi) a factor of 0.9 is used to convert financial rehabilitation and maintenance costs to

economic costs. 7. For the base case (“without project”) scenario, the surface condition was maintained around an international roughness index level of = 16 meters/km, as specified in the appraisal. Actual values of geometric features such as rise, fall, degrees of curvature, etc., could not be compiled after project completion; accordingly, they were assumed to be slightly lower than appraisal values in hilly areas and the same in flatter areas. D. Economic Internal Rate of Return 8. The physical characteristics and average cost (per km) for civil works contracts 1 and 2 are similar, but are significantly different from that of contract 3. Hence, contracts 1 and 2 were combined for the purposes of the economic evaluation. 9. The results indicate that the relatively flat Andkhoy–Shirintabag section has an economic internal rate of return (EIRR) of 31.8% with a net present value (NPV) of $45.7 million; while the hilly and winding Shirintabag–Qaisar Section has higher costs, with an EIRR of 20.4% and an NPV of $45.8 million. The two sections together provide an EIRR of 23.6% with a NPV of 91.5 million, as shown in Tables A7.4 and A7.5.

Table A7.4: Summary of Results

($million) Description Andkhoy–Shirintabag Shirintabag–Qaisar

Increase in agency costs 4.0 28.1 VOC savings 35.0 53.6 Time Savings 14.7 20.3

NPV 45.7 45.8 EIRR 31.8% 20.4%

EIRR = economic internal rate of return, NPV = net present value, VOC = vehicle operating cost. Source: Asian Development Bank estimates.

38 Appendix 7

Table A7.5: Calculation of Economic Internal Rate of Return for the Overall Project Road (Andkhoy–Qaisar) ($million)

Costs Benefits

Construction Maintenance VOC Savings Time Savings2006 9.776 (0.433) 0.000 0.000 (9.342)2007 18.740 (0.427) (0.723) (0.273) (19.310)2008 17.779 (0.442) (0.500) (0.188) (18.026)2009 12.678 (0.456) (0.245) (0.092) (12.559)2010 9.220 (0.470) 0.042 0.016 (8.693)2011 (3.820) 10.859 4.252 18.9312012 (4.001) 11.828 4.632 20.4612013 (4.192) 12.880 5.040 22.1132014 (4.393) 14.011 5.479 23.8832015 (4.604) 15.223 5.949 25.7762016 (4.827) 16.518 6.453 27.7982017 (5.061) 17.897 6.991 29.9492018 (5.308) 19.354 7.566 32.2282019 (5.569) 20.871 8.178 34.6182020 (5.751) 22.416 8.830 36.9972021 (4.203) 24.025 9.521 37.7492022 (5.880) 25.687 10.251 41.8182023 (4.221) 27.477 11.025 42.7222024 (4.425) 29.333 11.834 45.5932025 (4.431) 31.318 12.682 48.4312026 (4.437) 33.441 13.564 51.4422027 (4.442) 35.708 14.475 54.6262028 (4.447) 38.116 15.410 57.9732029 (4.452) 40.715 16.358 61.5252030 (4.457) 43.532 17.305 65.294

NPV 91.484EIRR 23.63%

Net BenefitsYear

( ) = negative, EIRR = economic internal rate of return, NPV = net present value, VOC = vehicle operating cost. Source: Asian Development Bank estimates.

10. The following needs to be pointed out when comparing the EIRR and NPV at completion with those at appraisal:

(i) At appraisal, the 554 km Herat–Andkhoy road was considered and divided into 10 sections. The project road represents the last two sections (sections 9–10).

(ii) Traffic on the road varied from 731 vehicle/day in section 1 (starting from Herat), to 338 in sections 2–3, 268 in sections 4–7 and 196 in sections 8–10.

(iii) The appraisal EIRR of 19.1% is for the whole road (an average of the 10 sections). An EIRR or NPV per section was not provided.

E. Vehicle Operating Costs 11. The improvement of the road results in savings in vehicle operating costs. The savings are highest for buses (41%) and lowest for motor cycles (10%). In between, savings range between 25% and 37%, as shown in Table A7.6.

Appendix 7 39

Table A7.6: Savings in Vehicle Operating Costs ($/km)

List

Bus

Car

Motorcycle

Mini Bus

Truck 2-Axle

Truck >2-Axle

Base Alternate Costs (2006): Qaisar–Shirintabag

0.83 0.24 0.05 0.45 0.81 1.38

Costs After Improvement (2011): Qaisar–Shirintabag

0.49 0.18 0.045 0.30 0.51 0.87

Savings (%) 41 25 10 33 37 37

km = kilometer. Source: Asian Development Bank estimates. F. Sensitivity Analysis 12. A sensitivity analysis has tested the project’s sensitivity to a 15% increase in costs, 15% decrease in benefits, the two together, and variations in traffic growth rates. In all cases, the project remains economically feasible, still well above the cut off level of 12%, as shown in Table A7.7 below.

Table A7.7: Sensitivity Analysis

(EIRR %) Variable Andkhoy–Shirintabag Shirintabag–Qaisar Combine Normal case 31.8 20.4 23.7 15% increase in cost 29.9 19.0 22.1 15% decrease in benefits 29.7 18.7 21.8 Both together 27.9 17.4 20.4 Traffic growth rate:

5% 4% 3%

29.8 27.4 25.1

18.7 16.9 15.0

21.8 19.9 17.9

EIRR = economic internal rate of return. Source: Asian Development Bank estimates.

40 Appendix 8

QUANTITATIVE ASSESSMENT OF OVERALL PROJECT PERFORMANCE A. Rating of Components

1. Road Component

Criteria

Assessment

Rating (0-3)

Weights (%)

Weighted Rating

Relevance Highly relevant 3 20 0.60 Effectiveness Effective 2 30 0.60

Efficiency Highly efficient 3 30 0.90

Sustainability Less likely 1 20 0.20

Overall rating Successful 2.30

2. Tolling Facility Component

Criteria

Assessment

Rating (0–3)

Weights (%)

Weighted Rating

Relevance Relevant 2 20 0.40 Effectiveness Ineffective 0 30 0.00

Efficiency Inefficient 0 30 0.00 Sustainability Unlikely 0 20 0.00

Overall rating Unsuccessful 0.40

3. Project Management Support Component

Criteria

Assessment

Rating (0–3)

Weights (%)

Weighted Rating

Relevance Relevant 2 20 0.40 Effectiveness Effective 2 30 0.60

Efficiency Less efficient 1 30 0.30 Sustainability Likely 2 20 0.40

Overall rating Successful 1.70

B. Overall Rating

Component

Rating Value ($ million)

Weightsa (%)

Weighted Rating

Road 2.30 77.60 88.37 2.03

Tolling facility 0.40 7.01 7.98 0.03

Project management support 1.70 3.20 3.64 0.06

Overall rating Successful 2.12 a Percentage may not total 100% because of rounding.

Appendix 8 41

C. Rating System

Rating Value Relevance Effectiveness Efficiency Sustainability 3 Highly relevant Highly effective Highly efficient Most likely

2 Relevant Effective Efficient Likely

1 Partly relevant Less effective Less efficient Less likely

0 Irrelevant Ineffective Inefficient Unlikely

Relevance — the consistency of a project's impact and outcome with strategic objectives of

the Government of Afghanistan and the Asian Development Bank. Effectiveness — the extent to which the outcome, either as agreed at approval or as

subsequently modified, has been achieved. Efficiency — how economically resources, ex post, have been converted to results. Sustainability — the likelihood to maintain the outcome over its economic life.

Highly Successful = Overall rating is greater than or equal to 2.7. Successful = Overall rating is greater than or equal to 1.6 and less than 2.7. Partly Successful = Overall rating is greater than or equal to 0.8 and less than 1.6. Unsuccessful = Overall rating is less than 0.8.

Source: Asian Development Bank.

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