Report and Recommendation of the President to the Board of … · 2014. 9. 29. · union – subdivision of an upazila (subdistrict) and lowest tier of administrative unit parishad

Report and Recommendation of the President to the Board of Directors

Project Number: 42248 June 2011

Proposed Loan People’s Republic of Bangladesh: Second Chittagong Hill Tracts Rural Development Project

CURRENCY EQUIVALENTS (as of 2 June 2011)

Currency Unit – taka (Tk)

Tk1.00 = $0.0136 $1.00 = Tk73.53

ABBREVIATIONS

ADB – Asian Development Bank CEGIS – Center for Environmental and Geographic Information

Services CHT – Chittagong Hill Tracts CHTRC – Chittagong Hill Tracts Regional Council CHTRDP – Chittagong Hill Tracts Rural Development Project DPMO – district project management office GIS – geographic information system ha – hectare HDC – Hill District Council km – kilometer LARF – land acquisition and resettlement framework LCS – labor contracting society LGED – Local Government Engineering Department MAD – micro agribusiness development MOCHTA – Ministry of Chittagong Hill Tracts Affairs NGO – nongovernment organization PAM – project administration manual PIC – project implementation consultant PMO – project management office PSC – project steering committee SQMC – safeguards and quality monitoring cell UNDP – United Nations Development Programme

GLOSSARY jhum – swidden or shifting cultivation para – small area of human habitation containing a cluster of houses union – subdivision of an upazila (subdistrict) and lowest tier of

administrative unit parishad – elected council of the administrative unit upazila – subdivision of a district and second tier of administrative unit

NOTE

In this report, “$” refers to US dollars.

Vice-President X. Zhao, Operations 1 Director General S.H. Rahman, South Asia Department (SARD) Director T. Matsuo, Environment, Natural Resources and Agriculture Division, SARD Team leader Y. Siddiqi, Water Resources Specialist, SARD Team members M.A. Ahad, Senior Financial Control Officer, SARD

A. Bauer, Principal Economist, Regional and Sustainable Development Department S. Campbell, Social Development Specialist, SARD

G. Gewali, Senior Project Officer, SARD M.R. Islam, Senior Project Officer, SARD M. Subroto, Senior Country Specialist, SARD

J. Versantvoort, Counsel, Office of the General Counsel Peer reviewer B. Tambunan, Principal Portfolio Management Specialist, Central and West

Asia Department 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

PROJECT AT A GLANCE

I. THE PROPOSAL 1

II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 2 C. Outputs 3 D. Investment and Financing Plans 4 E. Implementation Arrangements 5

III. DUE DILIGENCE 7 A. Economic and Financial 7 B. Governance 7 C. Poverty and Social 8 D. Safeguards 8 E. Risks and Mitigating Measures 9

IV. ASSURANCES 10

V. RECOMMENDATION 10

APPENDIXES

1. Design and Monitoring Framework 11

2. List of Linked Documents 14

PROJECT AT A GLANCE 1. Project Name: Second Chittagong Hill Tracts Rural Development Project 2. Project Number:

42248-013 3. Country: Bangladesh

4. Department/Division: South Asia Department/Environment, Natural Resources & Agriculture Division

5. Sector Classification: Sectors Primary Subsectors Agriculture and natural resources

√ Agriculture and rural sector development

Irrigation, drainage, and flood protection

Land-based natural resources management

6. Thematic Classification: Themes Primary Subthemes Economic growth √ Widening access to markets and

economic opportunities Social development Indigenous people Gender equity Gender equity in economic

opportunities Capacity development Institutional development

6a. Climate Change Impact Adaptation Low Mitigation Low

6b. Gender Mainstreaming Gender equity theme (GEN) √ Effective gender mainstreaming (EGM) Some gender benefits (SGB) No gender elements (NGE)

7. Targeting Classification: Targeted Intervention

General Interventio

n Geographic dimensions of inclusive

growth

Millennium development

goals

Income poverty at household

level √

8. Location Impact: National Low Rural High

9. Project Risk Categorization: Complex

10. Safeguards Categorization: Environment B Involuntary resettlement A Indigenous peoples A

11. ADB Financing: Sovereign/Nonsovereign Modality Source Amount ($

Million) Sovereign Project loan Asian Development Fund 55.0

Total 55.0 12. Cofinancing:

No Cofinancing available.

13. Counterpart Financing: Source Amount ($ Million) Beneficiaries 1.4 Government 14.4

Total 15.9 14. Aid Effectiveness:

Parallel project implementation unit No Program-based approach No

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of Bangladesh for the Second Chittagong Hill Tracts Rural Development Project.1

II. THE PROJECT A. Rationale 2. The project will contribute to poverty reduction by making social services and economic opportunities more accessible to rural people, including indigenous people and poor women, in three hill districts (Banderban, Khagrachari, and Rangamati) of Chittagong Hill Tracts (CHT).2

3. The project will strengthen institutional capacity; improve the access of remote communities to main roads; and provide improved irrigation and other water resources infrastructure and agribusiness support to increase economic opportunities, particularly of women, to improve rural incomes.

4. CHT3 lies in the southeast of Bangladesh, bordering India and Myanmar. Its land area covers 13,000 square kilometers, of which 90% are sloping lands. The area has indigenous peoples from 11 distinct ethnic groups4 and Bengali inhabitants who were settled in the early 1980s under government-sponsored transmigration.

5. In 1960, the construction of Kaptai Dam inundated 40% of the prime cultivable lands in the CHT and displaced one-third (about 100,000) of the CHT population, resulting in intensified shifting cultivation in all three districts as affected people were resettled. This changed CHT from being self-sufficient in cereals to becoming a food-deficit area. The pressures of land policies (transmigration and awarding of land to migrated persons) and their associated ethnic confrontations aggravated an insurgency that spanned more than 20 years, and ended with the signing of the CHT Accord in 1997. CHT residents were economically adversely affected. Insurgency also damaged much of the rural infrastructure and depleted natural resources, as land pressures increased from an influx of population from outside CHT.5 Since the signing of the CHT Accord, the area has had less development interventions than plain land Bangladesh.

6. Over 60% of CHT rural households are involved in agriculture and agricultural labor. Communities are remote, and road and market infrastructure is limited. CHT suffers from income and human poverty.6 Average annual household incomes are about 30% lower than the national average of Tk84,000. Overall incidence of severe poverty7 is 36% in CHT, within which indigenous communities have higher incidence (44%) than other communities (31%). About 40% of the CHT population can be categorized vulnerable (with 8 months food access), while another 10% is categorized invisible poor8 (with only 3 months food access).

7. Lack of access to markets impedes the transformation of production in CHT. Only 16% of CHT villages have access to paved roads,9 and the average distance between a village and

1 The design and monitoring framework is in Appendix 1. 2 The Asian Development Bank (ADB) provided project preparatory technical assistance. ADB. 2010. Technical

Assistance to the People’s Republic of Bangladesh for Preparing the Second Chittagong Hill Tracts Rural Development Project. Manila.

3 Comprising Bandarban, Khagrachari, and Rangamati districts. 4 Each group has its own unique background, language, heritage, and culture. The major groups are: Bawm, Chak,

Chakma, Khumi, Kheyang, Lushai, Marma, Mro, Pankhua, Tanchungya, and Tripura. 5 The non-indigenous population in CHT increased tenfold from around 100,000 in the 1950s to 1,000,000 in 2001. 6 This refers to the social dimensions of poverty such as poor sanitation, poor access to education, etc. 7 Below the hardcore poverty line is defined as food consumption less than 1,805 kilocalories per day. 8 Refers to poor people who have food security issues and low nutrition diets. 9 United Nations Development Programme (UNDP). 2009. Socio-economic Baseline Survey of Chittagong Hill

Tracts. Dhaka.

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the nearest paved road is 4.5 kilometers (km). Economic hubs are on average 7 km away from villages. Manual transportation of goods from village to paved road severely limits the extent to which producers can benefit from larger national and regional markets. The planned rural road network for CHT is 8,867 km; 83% of it is currently unpaved. Less than half of the population has access to tube well water, and supplies are scarce (over 0.5 km from villages) and of variable quality.

8. Greater land pressures caused by increased population have resulted in land degradation. Reduced fallow periods, deforestation, loss of topsoil, and increased water runoff have serious impacts on food security and environmental sustainability. Changing land use and climatic variations (including predicted impacts of climate change) require effective monitoring to understand spatial and temporal variations in the resource base and for sustainable natural resources planning and management.

9. CHT is further challenged by a unique multi-tiered administrative structure comprising ministry and line department counterparts, district administration, local government institutions, and two sets of CHT-specific institutions. These are the Ministry of Chittagong Hill Tracts Affairs (MOCHTA), responsible for all development activities in CHT; the Chittagong Hill Tracts Regional Council (CHTRC), which supervises and coordinates all activities; and hill district councils (HDCs), which are to implement activities. There are also traditional institutions of circle chiefs, headmen, and karbari. 10 The CHTRC and HDCs remain (i) understaffed, (ii) lack requisite finances and technical capacity, and (iii) lack sufficient technical capabilities for planning and undertaking development interventions.

10. The project is based on lessons learned from its predecessor, the Chittagong Hill Tracts Rural Development Project (CHTRDP),11 which was rated successful.12 The main lessons are as follows: (i) improvement13 of all-weather road communication increases access of the rural population to growth center markets; (ii) attainment of high economic return on investments in rural infrastructure through savings in transport costs and promotion of commercial agriculture; (iii) establishment of new private institutions and enterprises around upgraded and rehabilitated roads and increased employment opportunities; and (iv) planning and implementation of a more rigorous social safeguards to avoid resettlement impacts on rural communities (particularly indigenous peoples) who lost land, crops, and income.

11. Under the CHTRDP, six CHT-based nongovernment organizations (NGOs—two for each of the three project districts) were hired to assist the HDCs in implementing the community development component. NGOs’ capacities were strengthened under the loan implementation process and stimulated establishment of new NGOs in the area. However, CHT-based NGOs remain small and specialized. There is potential to broaden their skills set under the project.

B. Impact and Outcome 12. The project impact will be an increase in rural household incomes in subproject areas in CHT. The key performance target will be an increase in average annual household income in subproject areas by Tk20,000 at 2010 price level from Tk63,000 in 2010. The outcome of the project will be increased income-generating opportunities for men and women in subproject areas.

10 This is the village headman. The circle chief, headmen, and karbari were established by CHT Regulations of the

year 1900. 11 ADB. 2000. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the

People’s Republic of Bangladesh for the Chittagong Hill Tracts Rural Development Project. Manila (Loan 1771-BAN, a $30 million loan approved in 2000 and effective in 2002; loan closure was on 30 September 2009).

12 ADB. 2010. Completion Report: Chittagong Hill Tracts Rural Development Project in Bangladesh. Manila. 13 Existing rural roads, including access tracks, were upgraded.

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C. Outputs 13. There will be five main outputs: (i) institutional development and capacity building, (ii) upgraded rural roads, (iii) maintenance of community infrastructure, (iv) sustainable micro agribusiness development (MAD), and (v) efficient project management operational.

1. Output A: Institutional Development and Capacity Building 14. The project will strengthen MOCHTA; CHTRC; Local Government Engineering Department (LGED) of the Ministry of Local Government, Rural Development and Cooperatives; and HDC through capacity building and training in (i) indigenous peoples and safeguard issues, (ii) village mapping, and (iii) improved project management and organizational enhancement.

15. The project will establish three district project management offices (DPMOs) within each HDC. Each HDC will be enhanced by an additional assistant engineer, recruited by the project, who will receive on-the-job training by implementing project activities in association with the DPMO. At the end of the project, those engineers trained will be capable of implementing similar development activities. These positions will be transferred to full-time HDC posts by year 4 of project implementation to continue replication of rural development interventions.

2. Output B: Rural Roads 16. The project will undertake upgrading 14 and improvement of 166 km of rural roads comprising (i) 105 km of union (subdivision of an upazila [subdistrict]) roads; (ii) 61 km of upazila roads; (iii) 3,884 meters of bridges and culverts; and (iv) extension of 3 functional buildings of Bandarban, Khagrachari, and Rangamati executive engineers’ offices of LGED. Of the total proposed road length, 71 km of the roads are to be in Bandarban, 53 km in Rangamati, and 42 km in Khagrachari. A comprehensive long list of potential rural roads (up to 264 km) was agreed with the CHTRC and LGED during the project preparation stage. All roads to be constructed under the project will be selected from the long list. Rigorous procedures will be adopted for resettlement planning and implementation in accordance with the land acquisition and resettlement framework (LARF) of the project.15

17. The LGED will allocate sufficient budget to maintain completed roads in accordance with their standard procedures. Women belonging to labor contracting societies (LCSs)16

will be engaged to improve road shoulders, embankment stabilization, planting of trees on roadsides, planting of shrubs on embankments, and other road maintenance works.

3. Output C: Community Infrastructure 18. Small village roads and footpaths between and within village and markets. The project will provide improved access within villages and to union roads and upazila roads by constructing about 92 km of village roads, footpaths, and steps through community contracts. This will facilitate access to health services, schools, and markets; and provide increased economic opportunity. Communities will also construct about 100 market sheds17 with technical backstopping from the LGED and capacity development support from an NGO. At each market shed, 50% of space will be allocated for women to sell their goods and will promote gender equity in economic opportunities.

14 Bituminous coated or herringbone brick. 15 Land Acquisition and Resettlement Framework (accessible from the list of linked documents in Appendix 2). 16 LCSs comprise poor women with limited income-earning capabilities who carry out routine maintenance on rural

roads using basic hand tools and materials supplied by the LGED. Each LCS contract will have a ceiling value of $10,000.

17 Simple shed structure with corrugated sheet roofing with toilet facilities for men and women, which will be located at local collection points.

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19. Small-scale water resources infrastructure. The project will improve small-scale irrigation and water supply in up to 600 villages to be selected along roads already constructed by the CHTRDP or other agencies like LGED and Chittagong Hill Tracts Development Board will construct. Villages up to 5 km from these roads will be included subject to them (i) having no prior water resources interventions under the CHTRDP, and (ii) not receiving free rations from the government. Activities will include construction of small weirs, lined channels, and provision of ring wells and shallow and deep tube wells for potable water. A total of about 4,000 hectares will receive increased irrigation supplies and 600 villages will benefit from improved water supply. Civil works will be undertaken by beneficiary communities (using the LCS concept), which will be trained in technical and management skills by a suitably qualified NGO. Inclusion of women in planning, implementation, and operation and maintenance (at least 30% of women will be members of the water supply operation and maintenance team) of village water supply will enhance their capacity and role in decision making, and strengthen technical skills.

20. Watershed management. The project will support participatory watershed management interventions (including vegetative and bioengineering measures, agroforestry, growing and intercropping leguminous crops, composting, mulching of root crops, and small-scale structural works) in six sample watersheds. Two watersheds per district were pre-identified during the project preparatory technical assistance. Activities will be implemented by beneficiary communities, with support from a suitably qualified NGO; and will cover about 55 hectares on a pilot basis, which may be replicated based on lessons learned.18

4. Output D: Micro Agribusiness Development 21. The MAD component will improve incomes of poor rural households through (i) capacity building in high potential commodities, marketing, and organizational skills; (ii) marketing by establishing common interest groups, comprising 30% women’s representation; and (iii) improved agriculture production of high potential commodities of CHT like pond fisheries, high-value fruits and vegetables, and medicinal plants. The MAD component will benefit from markets to be built along rural roads (implemented under the CHTRDP and the project) and will be implemented in nine upazilas. Implementation will be through the same NGO responsible for social mobilization and watershed management, with specialist support for MAD activities as required from the Bangladesh Agriculture Research Institute.19

5. Output E: Project Management 22. Project management support will include the (i) establishment of project management office (PMO) and DPMO;20 (ii) provision of technical and implementation expertise from project implementation consultants (PICs); and (iii) establishment of a safeguards and quality monitoring cell (SQMC), which will provide impartial observation of project implementation to be reported independently to the Asian Development Bank (ADB). Individual consultants (national) will provide survey, design, and implementation support for the infrastructure interventions.

D. Investment and Financing Plans 23. The project is estimated to cost $70.81 million (Table 1). Detailed cost estimates by expenditure category and detailed cost estimates by financier are included in the project administration manual (PAM).

18 Activities will be reviewed at midterm, based on which a stand-alone grant project for poor shifting cultivators may

be formulated. 19 The Bangladesh Agriculture Research Institute is functional in the area and was consulted during the project

preparation process for concurrence to support activities. 20 The PMO and all DPMOs will be provided a special project allowance to enhance their performance and incentivize

efficient and collaborative project implementation. This is additional, and will vary between 10% and 20% of PMO and DPMO staff salaries as incentive for working in a challenging area.

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Table 1: Project Investment Plan ($ million)

Item Amount a A. Base Cost b

1. Institutional development and capacity building 0.92 2. Rural roads 31.56 3. Community infrastructure 17.56 4. Micro agribusiness development 4.48 5. Project management 12.03

Subtotal (A) 66.55 B. Contingencies c 2.53 C. Financing Charges During Implementation d 1.73

Total (A+B+C) 70.81 a Includes taxes and duties of $9.9 million to be financed from government resources. b Prices as of March 2011. c Physical contingencies computed at 5% for civil works, surveys, and studies; and 0% on all others including

training. Price contingencies computed at –3.7% in 2011; –1.5% in 2012; and 0.5% for 6 years on foreign exchange costs; and –7.5% for 2011–2013 and 6.0% for 2014–2018. This includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Interest during implementation computed at 1.0% per annum during the grace period. Source: Asian Development Bank estimates.

24. The government has requested a loan of SDR34,286,000 from ADB’s Special Funds resources to help finance the project. The loan21 will have a 32-year term, including a grace period of 8 years, an interest rate of 1.0% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions set forth in the draft loan and project agreements. Interest during construction will be capitalized under the ADB loan.22

25. The financing plan is in Table 2. Compensation for resettlement impacts (including land acquisition) are to be financed under the loan. A robust procedure is established under the project to ensure transparency and accountability in land acquisition and resettlement payment amounting to $2.3 million, excluding costs of consulting services for the resettlement NGO (footnote 15).

Table 2: Financing Plan

Source Amount ($ million)

Share of Total (%)

Asian Development Bank 55.00 77.7 Government of Bangladesh 14.36 20.3 Beneficiaries a 1.45 2.0

Total 70.81 100.0 a To be provided in cash or in kind. Source: Asian Development Bank estimates.

E. Implementation Arrangements 26. MOCHTA will be the executing agency and will be responsible for overall project implementation. The CHTRC will be the lead implementing agency and the LGED will be the implementing agency for the rural roads component. A PMO headed by a project director will be established within the CHTRC to manage and closely coordinate project activities across all agencies. Another project director responsible for the rural roads component will be appointed from the LGED to implement the rural roads. One DPMO for each of the three districts will report directly to the project director, PMO.

21 The loan will finance recurrent costs and may also finance transportation and insurance costs. 22 Project Administration Manual, Table 15: Detailed Cost Estimates by Financier (accessible from the list of linked

documents in Appendix 2).

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27. A project steering committee (PSC) will be established by MOCHTA. The PSC will be responsible for overall coordination and policy guidance and will meet as required, but at least twice annually. A regional coordination committee will be established in CHT for more immediate decisions on project-related matters. The committee will meet quarterly and refer any interagency problems to the PSC. A district level coordination committee will facilitate project implementation and monitoring with all agencies below the district level. The committee will convene monthly.

28. The PIC will be selected using the quality- and cost-based selection23 method. A total of 561 person-months of specialist consulting services will be required, of which 36 person-months will be for the international rural development specialist/team leader and 525 person-months for national consulting services. National NGOs (given their in-depth knowledge of local issues, linguistic advantage, and ease of mobility in the area) will be recruited using the quality- and cost-based selection method (90:10 weighting) to provide social mobilization and community infrastructure and MAD support. There will be three NGO packages for outputs C and D (one per district). Resettlement activities will be implemented by a separate NGO with prior experience in similar types of activities. All consultants will be engaged in accordance with ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time).

29. Procurement of works and goods will be carried out in accordance with ADB’s Procurement Guidelines (2010, as amended from time to time). For national competitive bidding, the government’s applicable Public Procurement Act and rules as acceptable to ADB will be used.

30. Coordination with development partners. The only ongoing major development project in CHT is the Promotion of Development and Confidence Building in the Chittagong Hill Tracts Program. This is a $160 million United Nations Development Programme (UNDP)24 initiative focusing on rural livelihoods development and confidence building to underpin the CHT accord. A draft memorandum of understanding developed with UNDP will avoid duplication of activities.25

31. The implementation arrangements are summarized in Table 3 and described in detail in the PAM.26

Table 3: Implementation Arrangements Aspects Arrangements Implementation period September 2011–November 2018 Estimated Project completion date 31 December 2018 Estimated loan closing date 30 June 2019 Management

(i) Oversight body PSC, chaired by minister, Ministry of Chittagong Hill Tracts Affairs (ii) Executing agency Ministry of Chittagong Hill Tracts Affairs (iii) Key implementing agencies Chittagong Hill Tracts Regional Council (lead implementing agency)

Local Government Engineering Department (for rural roads) (iv) Implementation unit Project management office, 20 staff

District project management office, 10 staff National competitive bidding (upazila [subdistrict] roads)

20 contracts $18.4 million Procurement

National competitive 12 contracts $9.8 million

23 The priority for PIC services is quality outputs. Given the uniqueness of CHT and the specialist expertise required,

a 90:10 weighting will be used for technical and financial evaluation. 24 The main development partners are the Australian Agency for International Development, the Canadian

International Development Agency, the European Commission, and the United States Agency for International Development.

25 Draft Memorandum of Understanding on Collaboration and Coordination with the United Nations Development Programme (accessible from the list of linked documents in Appendix 2).

26 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

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Aspects Arrangements bidding (union roads) Community participation a 600 contracts $6.0 million Project implementation consultants QCBS

561 person-months $4.3 million

NGO for community infrastructure development, watershed management, and MAD QCBS

540 person-months (total for three packages)

$1.3 million (total of three packages)

Consulting services

NGO for resettlement QCBS 100 person-months $225,000 Advance contracting ADB may, subject to its policies and procedures, allow on request advance

contracting of civil works, equipment and materials, and consulting services. Any approval of advance contracting will not constitute a commitment by ADB to finance the project.

Disbursement The loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time) and detailed arrangements the government and ADB have agreed upon.

ADB = Asian Development Bank, MAD = micro agribusiness development, NGO = nongovernment organization, PSC = project steering committee, QCBS = quality- and cost-based selection. a Through direct contracting of labor contracting societies. Each contract package will not exceed $10,000. Source: Asian Development Bank estimates.

III. DUE DILIGENCE A. Economic and Financial 32. Economic and financial analyses indicate that the project is economically viable. The project provides benefits through reduced transportation cost. New opportunities from improved access to markets and the support of value chain development activities will lead to more diversified cropping patterns, increased cropping intensities (up to 40%), and improved yields. The project will lead to increased rice production of 1,800 tons per year and to significant increases in the production of cash crops such as ginger and turmeric. Fruit production will increase by some 13,000 tons per year as a result of MAD interventions. The economic internal rate of return for the overall project is robust at 15.6% which reduces to 13.0% with a 20% cost overrun for community infrastructure combined with a 20% shortfall in benefits.

B. Governance 33. Assessments were made of MOCHTA, CHTRC, and LGED financial management systems to ensure that financial management and procurement capacities are adequate to implement the project. Financial management on CHTRDP was also reviewed. The project has established clear input and output targets to ensure good governance, accountability, and transparency. Procurement of works, goods, and services financed by ADB will be in accordance with its Procurement Guidelines and Guidelines on the Use of Consultants. For national competitive bidding, the government’s Public Procurement Act, 2006 and the Public Procurement Rules, 2008 will be used with such amendments as required to ensure consistency with ADB’s Procurement Guidelines.

34. The procurement capacity of MOCHTA, CHTRC, and LGED varies significantly. Given limited development activities and government expenditure in CHT, MOCHTA, CHTRC, and HDCs have limited prior experience in procurement activities. Contrastingly, LGED is a highly capable institution with significant knowledge and experience of implementing externally and government-financed rural infrastructure projects. Risk will be mitigated by recruiting experienced and competent staff on a competitive basis for the PMO and DPMO. PICs will also provide daily support to the project director, PMO and DPMOs to facilitate institutional strengthening through a combination of formal and on-the-job training.

35. Risks associated with project management, including procurement and disbursement, will be mitigated by (i) engaging international and national consultants to advise and assist in the procurement of goods and services; (ii) establishing a competent PMO and DPMO with

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experienced and capable personnel directly engaged through a competitive process; (iii) providing capacity building on disbursement, financial, and project management for all project staff; (iv) establishing an independent SQMC to provide technical guidance and oversight on resettlement implementation and quality control of civil works; (v) requiring that civil work contracts include a condition that contractors adhere to ADB’s Anticorruption Policy (1998, as amended to date); (vi) the PMO periodically inspecting the contractor’s fund withdrawals and settlements; and (vii) reporting on project activities and implementation on the MOCHTA, LGED, and project websites to foster transparency and timely awarding of contracts. ADB’s Anticorruption Policy was explained to and discussed with the government, MOCHTA, CHTRC, and LGED. The specific policy requirements and supplementary measures are described in the PAM (footnote 26).

C. Poverty and Social 36. The Socio-Economic Baseline Survey carried out by UNDP in 200827 found that the average income in the CHT region is about Tk66,000 per year per family of 5.2, much below Bangladesh’s average of Tk84,000. ADB conducted a separate socioeconomic study of 60 villages likely to be included under the project covering 6,040 people. This study found 53% of the households (47% in the valley regions and 61.2% in the hill areas) to be very poor, 37.3% (43.4% in the valley regions and 29.4% in the hill areas) poor, and 9.5% (9.6% in the valley regions and 9.3% in the hill areas) better off.28 It also found that (i) less connected villages have much higher poverty incidences; and (ii) the closer one gets to the market, the lower the poverty incidence; and the higher the size of the relative middle class, the higher the size of the better off.

37. The project will have a positive impact on reducing poverty. A high proportion of project benefits will accrue directly to households. Allowing for annual inflation from 2009 to 2011, the current equivalent amounts are about Tk60,000 and Tk70,000 per household per year for the lower and upper poverty line groups. In this case, an annual increase of Tk10,000 in household income arising from project interventions represents an increase of 14%–17% for households at the poverty line and could lift many households above the poverty line.

38. Gender and development. Implementation of a gender action plan will help ensure that women participate in and benefit from rural infrastructure. 29 Women’s involvement in infrastructure planning and implementation will enable them to participate in decision making and better empower them to express their needs. New jobs will be created for women in construction and maintenance through LCSs, and elements of the core labor standards will be enforced to benefit them. Allocation of 50% of market space for women and 30% representation in agriculture common interest groups will encourage greater engagement in economic activity. Women will take the lead role in planning of village water supply, particularly hand pump locations, and will be responsible for collection of user fees. They will have skills enhanced in basic maintenance for which they will receive organizational and technical training.

D. Safeguards 39. Indigenous peoples. The project is categorized A for indigenous peoples. The area is home to 41% of Bangladesh’s total indigenous peoples population. The indigenous peoples plan details principles and methodology to design and implement the project to ensure indigenous peoples (i) receive culturally appropriate social and economic benefits, (ii) do not suffer adverse impacts as a result of projects, and (iii) can participate actively in projects that 27 UNDP. 2009. Socio-Economic Baseline Survey of Chittagong Hill Tracts. Dhaka. 28 In the ADB study, “very poor” is defined as having not enough income to meet basic food requirements, “poor” as

having enough to meet basic needs but no surplus/savings, and “better off” as those families that can generate savings.

29 Gender Action Plan (accessible from the list of linked documents in Appendix 2).

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affect them.30 There are four key elements: (i) where there are resettlement impacts, payment will be made (under the loan) for indigenous peoples common lands to usufruct and legal owners of land; (ii) participatory village mapping to ensure inclusion in infrastructure planning and development, and a grievance redress mechanism; (iii) assistance to minor indigenous peoples groups that are more vulnerable to disproportionate benefit capture; and (iv) awareness raising of government officers in indigenous peoples issues and resources of CHT.

40. Resettlement. The project is categorized A for resettlement. Lessons learned from the CHTRDP indicate that lack of transparent guidelines for project land acquisition appears to have resulted in poverty-inducing impacts. Much of the land in CHT is under customary land ownership. In terms of ADB’s Safeguard Policy Statement (2009), this is equivalent, in terms of eligibility for compensation, to titled land ownership. There may also be titled land to be acquired under the project. Therefore, the project LARF outlines an approach to the valuation and compensation of land that is a blend of statutory and customary laws, for valuation, verification, and settling disputes. The LARF also details a robust system for monitoring the resettlement and land acquisition process,31 including provision for verification of monitoring by an external expert. The PIC safeguard specialist, SQMC, and implementing NGO will provide further support to ensure a rigorous process is followed for resettlement planning and implementation, particularly payment of compensation.

41. Environment. The project is categorized B for environment. An environmental assessment and review framework and an initial environmental examination for six sample subprojects have been prepared.32 Since the project will improve the existing rural road network and community infrastructure and new roads are not planned, no significant adverse environmental impacts are expected. Likely impacts from construction activities are (i) silting of canals and drainage structures, (ii) reduction in water flows, (iii) soil erosion, and (iv) deterioration of water quality. An environmental management plan has been prepared and will be adhered to in construction contracts. Those likely impacts can be mitigated through the implementation of the environment management plan. CHTRC institutional capacity for implementation of environmental safeguards is assessed as weak, therefore the necessary support is provided both project-wise (component A) and through provision of relevant specialists in the PMO and SQMC. The LGED has sufficient experience in preparing initial environmental examinations for road subprojects. For all subprojects, formal and documented public consultation and information disclosure will be required in compliance with ADB information disclosure and consultation requirements.

E. Risks and Mitigating Measures 42. Despite a challenging policy framework and political environment, the CHTRDP was rated successful. The main assumption for the second CHTRDP is that the 1997 CHT accord and the enabling legislation remain effective.33 To ensure continuity in project implementation, the PMO and DPMOs will be established so that they will continue to function regardless of the existing legal challenge to the CHTRC Act, 1998. Although progress remains to be made in the implementation of the CHT accord, particularly with regard to securing land titles and in the transfer of subjects as stated in the HDC Act of 1999, this is not expected to be an impediment to project implementation and realization of benefits. Progress has also been made in policy dialogue on amendment of the CHT Land Disputes Resolution Commission Act, 2001, which

30 Indigenous Peoples Plan (accessible from the list of linked documents in Appendix 2). 31 Land Acquisition and Resettlement Framework, Section VI: Monitoring and Evaluation (accessible from the list of

linked documents in Appendix 2). There is an estimated 1,141 affected persons. 32 Initial Environmental Examination for Six Sample Subprojects, and Environmental Assessment and Review

Framework (accessible from the list of linked documents in Appendix 2). 33 Although the High Court of Bangladesh in 2009 declared the CHTRC Act illegal, the writ petition is under review in

the Appellate Division.

10

would safeguard beneficiary communities in receiving long-term benefits of project interventions. The government will submit a road map for the amendment of the Land Disputes Resolution Commission Act, 2001. Other major risks and mitigating measures are summarized in Table 4 and detailed in the risk assessment and risk management plan.34

Table 4: Summary of Risks and Mitigating Measures

Risks Mitigating Measures Resettlement Rigorous advance consultation and review of lessons learned under CHTRDP.

Comprehensive process for resettlement planning and implementation identified in LARF. Establishment of SQMC for monitoring resettlement implementation, grievance redress mechanism for recording complaints, PIC safeguards specialist for additional support. Advance preparation of resettlement plans for rural roads, one in each district. Safeguard orientation and training for all project staff.

Capacity of lead implementing agency (PMO and DPMO)

Well-staffed and experienced PMO and DPMO will be established, relying on staff with prior experience of CHTRDP. Advance actions for timely recruitment of PIC to provide technical backstopping to PMO and DPMO.

Quality control Close monitoring and independent observation by SQMC, which will report independently to ADB. Additional assistant engineer (rural development) and PIC junior engineers to provide additional site supervision to maintain quality control.

Tender collusion Project activities and SQMC staff will oversee tender processes. LGED engineer’s estimate must be based on prevailing schedule of rate. During the life of the project, introduce e-procurement system that satisfies requirements of ADB policies and procedures to reduce risk of tender collusion.

ADB = Asian Development Bank, CHTRDP = Chittagong Hill Tracts Rural Development Project, DPMO = district project management office, LARF = land acquisition and resettlement framework, LGED = Local Government Engineering Department, PIC = project implementation consultant, PMO = project management office, SQMC = safeguards and quality monitoring cell. Source: Asian Development Bank.

IV. ASSURANCES 43. The government and MOCHTA have assured ADB that implementation of the project shall conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM and loan documents. The government and MOCHTA have agreed with ADB on certain covenants for the project, which are set forth in the loan agreement. Agreements have also been reached with MOCHTA, CHTRC, HDC, and LGED on implementation arrangements which are set forth in the project agreement.

V. RECOMMENDATION 44. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan in various currencies equivalent to SDR34,286,000 to the People’s Republic of Bangladesh for the Second Chittagong Hill Tracts Rural Development Project from ADB’s Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; for a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board.

Haruhiko Kuroda President

23 June 2011

34 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms Assumptions and Risks

Impact Assumptions Macroeconomic and political stability No security threats or revitalization of insurgency movement Risks

Increase in rural household incomes in subproject areas in CHT

5 years after completion of the project (2023): Increase in average annual household income in subproject areas by Tk20,000 at 2010 price level (from Tk63,000 in 2010)

Data of Bangladesh Bureau of Statistics National poverty level data Household income surveys by ADB and development partners Performance evaluation from an external independent body engaged by MOCHTA

Legal challenge to the constitutionality of the CHTRC

Outcome Assumptions By the end of the project (2018): Increased household commercial agricultural production from Tk20,000 per year in 2010 to Tk40,000 per year at 2010 price level

Project performance management system within CHTRC, LGED, and MOCHTA Bangladesh Economic Review Bureau of Statistics annual report

50% of market space to be developed under the project allocated for women

Management information system project database within CHTRC, LGED, and MOCHTA

Average time taken for women to fetch water is reduced from 1.5 hrs to 30 minutes Reduced travel time to markets for women by on average 1 hour (2010 baseline = 4 hours)

Union parishad (elected council) and HDC records

Increased income-generating opportunities for men and women in subproject areas

Increased number of crops marketed from 2 to 10 in areas unconnected in 2010

Department of Agriculture annual report

The government continues to support the principle of the CHT Accord. Timely amendment of the CHT Land Commission Act, 2001 for sustainability of land-based rural livelihoods investments

Outputs Assumptions 1. Institutional Development and Capacity Building

CHTRC endorses annual work plan in a timely manner Three revenue posts for assistant engineer (HDC) created and funded and supported by the government by end of year 4 HDC engineers have capacity to replicate rural development interventions

CHTRC annual report HDC organization charts Government order for creation and filling of revenue post HDC annual report

The government continues to transfer subjects to HDC. HDC undertakes timely and quality supervision of works.

Each NGO joint venture or association implementation team includes a women-focused NGO

NGO annual project report

Project executing and implementing agencies and NGO capacities enhanced

60 out of 180 NGO facilitators are women

12 Appendix 1

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms Assumptions and Risks

2. Rural Roads By the end of the project (2018): Assumptions Rural roads agreed with CHTRC are upgraded

105 km of union and 61 km of upazila (subdistrict) road upgraded to agreed quality 3,884 meters of ancillary structures constructed as per engineering design 3 functional buildings of LGED executive engineer offices extended

LGED management information system database LGED GIS database CEGIS database

Adequate operation and maintenance budget allocated, released, and utilized Security status in subproject areas is favorable for implementation and supervision

3. Community Infrastructure By the end of the project (2018):

Risk

Community constructed small-scale infrastructure maintained

Interventions completed in at least 600 villages Build and maintain small-scale infrastructure

10,000 days of work created using LCS principles 3,000 work days created for women Total command area of 4,000 ha covered by irrigation subproject

HDC and union parishad (elected council) records on PDC Department of Public Health Engineering database on number of tube wells and spring source monitoring PDC records and account books Bureau of Statistics Union parishad (elected council) and HDC records

Turnover of staff with low capacity to absorb new skills

Effective watershed management promoted in six selected sites

55 ha of degraded watershed treated in six selected sites as per specified needs

Department of Forest annual reporting CEGIS GIS database

Essential village access ways constructed

92 km small village roads and footpaths constructed using community participation

Community maps from implementing NGOs CEGIS database

Market sheds constructed by communities

100 market buildings constructed with 50% selling space allocated for women

Union parishad (elected council) data on market infrastructure CEGIS database PDC records and accounts

4. Micro Agribusiness Development By the end of the project (2018): Sustainable micro agribusiness established in selected villages

1,620 ha of new orchard development 60 interest groups established 30% of interest group members are women

Department of Agriculture Extension block data NGO annual report

5. Project Management

Assumption

MOCHTA approves annual work plan within 30 days of receipt PMO is operational

PMO annual report PMO records

Efficient project management systems operational

Activity schedule updated annually Contract award and disbursement project versus actual

e-Operations record

Counterpart staff appointed to the project is retained.

Appendix 1 13

Activities with Milestones Inputs

ADB $55.0 million

Item Amount ($ million)

Civil works 37.50

Survey, design, and supervision 0.41

Project equipment and vehicles 1.02

Training/capacity building, surveys, and studies 3.48

Consulting and NGO services 5.24

Land acquisition and resettlement 2.31

Project management and support costs 1.83

Unallocated 1.48

Finance charges 1.73 Government $14.36 million

Item Amount ($ million)

Civil works 9.04

Survey, design, and supervision 0.07

Project equipment and vehicles 0.68

Training/capacity building, surveys, and studies 0.36

Consulting and NGO services 1.30

Project management and support costs 2.75

Unallocated 0.16 Beneficiaries $1.45 million

Item Amount ($ million)

New orchard developments 1.45

1. Institutional Development and Capacity Building 1.1 Prepare capacity development plan (Jul 2011–Mar

2012) 1.2 All new budgeted positions created and filled by end

of project 1.3 Expansion of HDC organization chart (by end of

project) 2. Rural Roads 2.1 Prepare resettlement plans (Feb 2011–Feb 2013)

and implement prior to commencement of works 2.2 Undertake feasibility design of year 2 roads

(Jul 2011–Sep 2012) 2.3 Contract award and commencement of works for

year 2 roads (start in Mar 2012) 2.4 Commence bidding process for year 2 roads (Sep

2011) 3. Community Infrastructure 3.1 Identify and prescreen 600 subprojects (Jul 2011–

Dec 2013) 3.2 Prepare 600 detailed designs (Sep 2011–Jun 2014) 3.3 Commence village mapping (Jan 2012) 3.4 Commence social mobilization of selected PDCs

(Feb 2012) 3.5 Commence community construction works (using

LCS from Dec 2012) 4. Micro Agribusiness Development 4.1 Establish common interest groups in nine upazilas of

three hill districts (by Sep 2013) 4.2 Commence nursery establishment (Dec 2013) 4.3 Establish linkages with local markets and buyers

(Dec 2013) 5. Project Management 5.1 Appoint project directors and recruit PMO and

DPMO staff (Sep 2011) 5.2 Procure all required vehicles and equipment (Dec

2011) 5.3 Recruit NGOs for social mobilization (Dec 2011) and

resettlement (Feb 2012) 5.4 Recruit project implementation consultants (Jan

2012) 5.5 Establish SQMC (Jan 2012)

Consulting services PIC : 36 person-months of international input and 525 person-months of national input LGED survey and design: 576 person-months of national input SQMC: 40 person-months of national input NGO: 1,065 person-months of national input Benefit monitoring and evaluation: 12 person-months of national input GIS database monitoring: 24 person-months of national input

ADB = Asian Development Bank, CEGIS = Center for Environmental and Geographic Information Services, CHT = Chittagong Hill Tracts, CHTRC = Chittagong Hill Tracts Regional Council, DPMO = district project management office, GIS = geographic information system, ha = hectare, HDC = Hill District Council, km = kilometer, LCS = labor contracting society, LGED = Local Government Engineering Department, MOCHTA = Ministry of Chittagong Hill Tracts Affairs, NGO = nongovernment organization, PDC = para (village) development committee, PIC = project implementation consultant, PMO = project management office, SQMC = safeguards and quality monitoring cell. Source: Asian Development Bank.

14 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=42248-01-3

1. Loan Agreement

2. Project Agreement

3. Sector Assessment (Summary): Agriculture and Natural Resources

4. Project Administration Manual

5. Contribution to the ADB Results Framework

6. Development Coordination

7. Economic and Financial Analysis

8. Country Economic Indicators

9. Summary Poverty Reduction and Social Strategy

10. Gender Action Plan

11. Initial Environmental Examination for Six Sample Subprojects

12. Environmental Assessment and Review Framework

13. Land Acquisition and Resettlement Plan for Sapchari Para, Wagga Union Road Subproject

14. Land Acquisition and Resettlement Framework

15. Indigenous Peoples Plan

16. Risk Assessment and Risk Management Plan

Supplementary Documents 17. Draft Memorandum of Understanding on Collaboration and Coordination with the United

Nations Development Programme

18. Due Diligence Note on the Use of Loan Proceeds to Finance Land Acquisition

19. Summary of Key Stakeholder Consultations and Indication of Broad Community Support

20. Micro Agribusiness Development

21. Watershed Management Implementation Arrangements

22. Detailed Economic Analysis