Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD1652 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 254 MILLION (US$360 MILLION EQUIVALENT) TO THE PEOPLE’S REPUBLIC OF BANGLADESH FOR BANGLADESH REGIONAL WATERWAY TRANSPORT PROJECT 1 MAY 20, 2016 Transport and ICT Global Practice Bangladesh Country Management Unit South Asia Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2016) Currency Unit = Bangladesh Taka (BDT) US$1.00 = BDT 78.62 BDT 1.00 = US$0.127 US$1.4173 = SDR 1 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS ADP Annual Development Program AG Accountant General BBIN Bangladesh-Bhutan-India-Nepal BEC Bid Evaluation Committee BE Budget Estimates BIWTA Bangladesh Inland Water Transport Authority BP Business Policy CPTU Central Procurement Technical Unit CNG Compressed Natural Gas CAS Country Assistance Strategy C&AG Comptroller & Auditor General CONTASA Convertible Taka Account CPF Country Partnership Framework CSC Construction Supervision Consultant DoE Department of the Environment DA Designated Account DCC Dhaka-Chittagong Corridor DEPTC Deck & Engine Personnel Training Center DFID Department for International Development DGPS Differential Global Positioning System DPP Development Project Proposal DWT Dead Weight Tons DMDP Dredged Material Disposal Plan e-GP e-Government Procurement EIRR Economic Internal Rate of Return ECC Environmental Clearance Certificate EHS Environmental Health and Safety EMF Environmental Management Framework EMP Environmental Management Plan ESCCU Environmental, Social and Climate Change Unit ENC Electronic Nautical Chart ESA Environmental & Social Assessment ESHS Environmental & Social Health and Safety ESIA Environmental & Social Impact Assessment EU European Union FAPAD Foreign-Aided Project Audit Directorate GHG Greenhouse Gas GoB Government of Bangladesh GoI Government of India GRM Grievance Redress Mechanism GRS Grievance Redress Services GTIDR Global Transport & ICT Development Region (Practice) HIES Household Income and Expenditure Survey HOPE Head of the Procurement Entity IA Implementation/Implementing Agency ICB International Competitive Bidding ICD Inland Container/Clearance Depot ICP Integrated Check Posts ICR Implementation Completion Report IDA International Development Association IFC International Finance Corporation IFR Interim Financial Reports IGSNC Indian General Steam Navigation Company IPP Independent Procurement Panel IT Information Technology IWT Inland Water Transport IEE Initial Environmental Evaluation KM Kilometer LAD Least Available Depth LMIC Lower Middle Income Country LPI Logistics Performance Index M Meter M&E Monitoring & Evaluation MEAL Monitoring Evaluation Audit Learning MoF Ministry of Finance MoS Ministry of Shipping NCB National Competitive Bidding NER North East Region NIMTP National Integrated Multimodal Transport Policy NLTA Non-Lending Technical Assistance ODC Over-dimensional Cargo OP Operational Policy PBC Performance-Based Contract PD Project Director PDO Project Development Objective PEC Proposal Evaluation Committee PFP Procurement Focal Point PIC Project Implementation Committee PIE Project Implementing Entity PIU Project Implementation Unit PIWTT Protocol on Inland Water Transit & Trade PPA Public Procurement Act PPR Public Procurement Rules PSC Project Steering Committee RAP Resettlement Action Plan R&R Resettlement and Rehabilitation RETF Recipient-Executed Trust Fund RIS River Information Systems RFP Request for Proposals RGoB Royal Government of Bhutan RMG Ready-Made Garments RSNC River Steam Navigation Company SAR South Asia Region SAARC South Asia Association for Regional Cooperation SE Superintending Engineer SIA Social Impact Assessment SMF Social Management Framework SPMC Supervision and Performance Monitoring Consultant STEP Systematic Tracking of Procurement Exchanges System STS Ship-to-Ship TBD To Be Defined TOR Terms of Reference UNDB United Nations Development Business WB World Bank Regional Vice President: Annette Dixon Country Director: Qimiao Fan Senior Global Practice Director: Pierre Guislain Practice Manager: Karla Gonzalez Carvajal Task Team Leader: Diep Nguyen-van Houtte SOUTH ASIA Bangladesh Regional Waterway Transport Project 1 Table of Contents Page I. STRATEGIC CONTEXT .................................................................................................1 A. Regional Context .......................................................................................................... 1 B. Country Context ............................................................................................................ 3 C. Sectoral and Institutional Context ................................................................................. 4 D. Higher Level Objectives to which the Project Contributes .......................................... 8 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................9 A. Regional Program ......................................................................................................... 9 B. Project PDO ................................................................................................................ 10 C. Project Beneficiaries ................................................................................................... 10 D. PDO Level Results Indicators ..................................................................................... 10 III. PROJECT DESCRIPTION ............................................................................................11 A. Project Components .................................................................................................... 11 B. Project Financing ........................................................................................................ 14 C. Lessons Learned and Reflected in the Project Design ................................................ 15 IV. IMPLEMENTATION .....................................................................................................16 A. Institutional and Implementation Arrangements ........................................................ 16 B. Results Monitoring and Evaluation ............................................................................ 16 C. Sustainability............................................................................................................... 17 V. KEY RISKS ......................................................................................................................17 A. Overall Risk Rating and Explanation of Key Risks.................................................... 17 VI. APPRAISAL SUMMARY ..............................................................................................20 A. Economic Analysis ..................................................................................................... 20 B. Technical ..................................................................................................................... 22 C. Financial Management ................................................................................................ 23 D. Procurement ................................................................................................................ 24 E. Social (including Safeguards) ..................................................................................... 25 F. Environment (including Safeguards) .......................................................................... 26 G. Other Safeguards Policies Triggered .......................................................................... 29 H. World Bank Grievance Redress .................................................................................. 30 Annex 1: Results Framework and Monitoring .........................................................................31 Annex 2: Sector and Fiscal Analysis ..........................................................................................35 Annex 3: Detailed Program and Project Description ...............................................................39 Annex 4: Implementation Arrangements ..................................................................................49 Annex 5: Governance and Accountability Action Plan ............................................................74 Annex 6: Environmental and Social Safeguards Management ...............................................84 Annex 7: Calculating Project Contributions to GHG Emissions ..........................................106 Annex 8: Economic Evaluation.................................................................................................110 Annex 9: Implementation Support Plan ..................................................................................121 Annex 10: Map ...........................................................................................................................123 . PAD DATA SHEET Bangladesh Bangladesh Regional Waterway Transport Project 1 (P154511) PROJECT APPRAISAL DOCUMENT . SOUTH ASIA REGION Transport and ICT Global Practice Report No.: PAD1652 . Basic Information Project ID EA Category Team Leader(s) P154511 A - Full Assessment Diep Nguyen-Van Houtte Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 17-Jun-2016 30-Dec-2023 Expected Effectiveness Date Expected Closing Date 15-Sep-2016 30-Jun-2024 Joint IFC No Practice Senior Global Practice Country Director Regional Vice President Manager/Manager Director Karla Gonzalez Carvajal Pierre Guislain Qimiao Fan Annette Dixon . Borrower: People's Republic of Bangladesh Responsible Agency: Bangladesh Inland Water Transport Authority Contact: Mahmud Hasan Salim Title: Director of Planning Telephone No.: 88-02-9563188 Email: dpl@biwta.gov.bd . Project Financing Data(in USD Million) [ ] Loan [ ] IDA Grant [ ] Guarantee [X] Credit [ ] Grant [ ] Other Total Project Cost: 400.00 Total Bank Financing: 360.00 Financing Gap: 0.00 . i Financing Source Amount BORROWER/RECIPIENT 40.00 International Development Association (IDA) 360.00 Total 400.00 . Expected Disbursements (in USD Million) Fiscal Year 2017 2018 2019 2020 2021 2022 2023 2024 Annual 11.20 35.20 81.00 77.50 44.00 44.00 42.00 25.10 Cumulative 11.20 46.40 127.40 204.90 248.90 292.90 334.90 360.00 . Institutional Data Practice Area (Lead) Transport & ICT Contributing Practice Areas Environment & Natural Resources, Trade & Competitiveness, Social, Urban, Rural and Resilience Global Practice, Water Cross Cutting Topics [X] Climate Change [ ] Fragile, Conflict & Violence [X] Gender [X] Jobs [ ] Public Private Partnership Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Transportation Ports, waterways and shipping 100 4 100 Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Trade and integration Other trade and integration 50 Trade and integration Trade facilitation and market access 50 Total 100 i . Proposed Development Objective(s) The development objective of the Project is to improve Inland Water Transport (IWT) efficiency and safety for passengers and cargo along the Chittagong-Dhaka-Ashuganj Regional Corridor and to enhance sector sustainability. . Components Component Name Cost (USD Millions) Component 1: Improved Inland Waterway Navigation 261.00 Component 2: Improved Services at Priority Inland Waterway 83.00 Terminals and Landing Stations Component 3: Institutional Capacity Development and Sector 56.00 Sustainability . Systematic Operations Risk- Rating Tool (SORT) Risk Category Rating 1. Political and Governance Substantial 2. Macroeconomic Moderate 3. Sector Strategies and Policies Substantial 4. Technical Design of Project or Program High 5. Institutional Capacity for Implementation and High Sustainability 6. Fiduciary High 7. Environment and Social High 8. Stakeholders Moderate 9. Other OVERALL High . Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ X ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for Yes [ X ] No [ ] implementation? . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X ii Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Subsidiary Agreement 15-Sep-2016 Description of Covenant The Recipient shall, by the Project Effectiveness date, make the proceeds of the Financing available to the Project Implementing Entity under a subsidiary agreement between the Recipient and the Project Implementing Entity, under terms and conditions acceptable to the Association. Name Recurrent Due Date Frequency Safeguards X CONTINUOUS Description of Covenant The Recipient shall: (a) ensure that the Project is carried out in accordance with the provision of the Safeguard Instruments and the requirements of the Grievance Redress Mechanism; and (b) not amend, abrogate or waive, or permit to be amended, abrogated or waived, any provisions of the Safeguard Instruments, unless the Association has provided its prior approval thereof in writing, and the Recipient has complied, or caused the Project Implementing Entity, as applicable, to comply with the same consultation and disclosure requirements as applicable to the original adoption of the said instruments. Name Recurrent Due Date Frequency Safeguards X CONTINUOUS Description of Covenant The Recipient shall take all actions necessary on its part to coordinate with the Project Implementing Entity in the event that the acquisition of land and/or resettlement and/or related activities resulting in Affected Persons is needed for purposes of the Project. Name Recurrent Due Date Frequency Project Implementation Committee X CONTINUOUS Description of Covenant The Project Implementing Entity shall establish and thereafter maintain through the Project implementation period, a Project Implementation Committee with a mandate, composition and resources satisfactory to the Association. Name Recurrent Due Date Frequency iii Project Implementation Unit / Financial X CONTINUOUS Management Specialist Description of Covenant The Project Implementing Entity shall: (i) establish and thereafter maintain through the Project implementation period, a Project Implementation Unit with a mandate, composition and resources satisfactory to the Association; (ii) hire a financial management specialist with qualifications, experience and terms of reference satisfactory to the Association Name Recurrent Due Date Frequency Proposal Evaluation Committee X CONTINUOUS Description of Covenant The Project Implementing Entity shall establish, and therefore maintain throughout the Project implementation period, a proposal evaluation committee with composition, qualifications, experience and terms of reference satisfactory to the Association. Name Recurrent Due Date Frequency Management, Monitoring and X CONTINUOUS Evaluation of Performance-Based Contract Description of Covenant The Project Implementing Entity shall ensure that adequate staff in numbers and with qualifications, experience and terms of reference satisfactory to the Association, are in place to be responsible for the management, monitoring and evaluation of the Performance-Based Contract. Name Recurrent Due Date Frequency Supervision and Performance X CONTINUOUS Monitoring/Construction Supervision Consultant Description of Covenant The Project Implementing Entity shall appoint a supervision and performance monitoring consultant for Part 1 of the Project and/or Construction Supervision Consultant for Part 2 of the Project, with qualifications, experience and terms of reference satisfactory to the Association. Name Recurrent Due Date Frequency Project Operational Manual X CONTINUOUS Description of Covenant The Project Implementing Entity shall adopt and thereafter maintain, throughout the Project implementation period, a Project Operations Manual in form and substance satisfactory to the Association. Name Recurrent Due Date Frequency Safeguards (Frameworks) X CONTINUOUS Description of Covenant The Project Implementing Entity shall: (a) prepare in accordance with the provisions of the EMF or the RPF; and (b) in the case of any activity involving Displaced Persons, ensure that no displacement shall iv occur before the necessary measures consistent with the RPF and RAP have been executed, including full payment to Displaced Persons of compensation and other assistance required. Name Recurrent Due Date Frequency Safeguards (Performance-Based X CONTINUOUS Contract) Description of Covenant The Project Implementing Entity shall ensure that each contract for civil works, including the Performance-Based Contract, under the Project includes the obligation of the relevant contractor and any sub-contractor(s) to comply with the relevant provisions of the Safeguards Instruments applicable to such civil works commissioned/awarded pursuant to said contract. Name Recurrent Due Date Frequency Safeguards (Use and Disposal of X CONTINUOUS Dredged Materials) Description of Covenant The Project Implementing Entity: (a) shall undertake the testing, management and disposal of Dredged Materials in accordance with the Safeguard Instruments; and (b) shall cause all Dredged Materials to be disposed preferentially in-river in accordance with the provisions set forth in the Safeguard Instruments; and (c) under cases where suitable in-river Dredged Materials disposal locations are not available; may dispose Dredged Materials on land provided that: (i) an appropriate site has been identified following the criteria set forth in the Safeguard Instruments; and (ii) additional required Safeguards Instruments have been prepared. Name Recurrent Due Date Frequency Safeguards (Grievance Redress X CONTINUOUS Mechanism) Description of Covenant The Project Implementing Entity shall establish, and thereafter maintain until completion of the Project, an independent Grievance Redress Mechanism acceptable to the Association, as per the requirements of the Safeguard Instruments. Name Recurrent Due Date Frequency Project Steering Committee X CONTINUOUS The Recipient shall establish and thereafter maintain throughout the Project implementation period, a Project Steering Committee with a mandate, composition and resources satisfactory to the Association. Name Recurrent Due Date Frequency Governance and Accountability Action X CONTINUOUS Plan The Recipient shall ensure that the Project is carried out in accordance with the Governance and Accountability Action Plan. Name Recurrent Due Date Frequency Expenditures to be Exclusively Financed X CONTINUOUS with Counterpart Funds The Recipient shall (a) ensure that the following expenditures are financed exclusively out of its own resources or the Project Implementing Entity’s resources; and (b) provide, promptly as needed, the v resources needed for this purpose: (i) all costs associated with land and land use rights required for the purposes of the Project; (ii) all resettlement and rehabilitation compensation and other assistance to Displaced Persons; (iii) Incremental Operating Costs; and (iv) motor vehicles. Name Recurrent Due Date Frequency Audit Reports X CONTINUOUS Description of Covenant The Project Implementing Entity shall have its Financial Statements for the Project audited by independent auditors acceptable to the Association. The Project Implementing Entity shall ensure that the audited Financial Statements for each fiscal year shall be: (a) furnished to the Associated not later than six months after the end of the fiscal year; and (b) made publicly available in a timely fashion and in a manner acceptable to the Association. Team Composition Bank Staff Name Role Title Specialization Unit Diep Nguyen-Van Team Leader (ADM Sr Transport. Spec. GTI06 Houtte Responsible) Asif Ali Procurement Specialist Senior Procurement GGO06 (ADM Responsible) Specialist Arvind Prasad Mantha Financial Management Financial Management GGO24 Specialist Specialist Abedalrazq F. Khalil Team Member Sr Water Resources GWA06 Spec. Ashis Bhadra Team Member Sr Transport. Spec. GTI06 Charles Kunaka Team Member Senior Trade Specialist GTCTC Comfort Onyeje Olatunji Team Member Program Assistant GTI06 Deepak Man Singh Team Member Sr Transport. Spec. GTI06 Shrestha Iqbal Ahmed Safeguards Specialist E T Consultant GEN06 Jorge Luis Alva-Luperdi Counsel Senior Counsel LEGES Kirti Nishan Chakma Safeguards Specialist Consultant GSUGL Leanne Farrell Safeguards Specialist Environmental GEN06 Specialist Luiza A. Nora Team Member Social Development GSU06 Specialist Matias Herrera Dappe Team Member Senior Economist GTI06 Md. Akhtaruzzaman Safeguards Specialist Consultant GSU06 Mridula Singh Safeguards Specialist Senior Social GSU06 Development Specialist vi Nasreen Begum Team Member Program Assistant SACBD Syed Ahmed Ali Team Member Consultant GGO06 Zhiyun Jiang Team Member Consultant GEE06 Extended Team Name Title Office Phone Location Anthony Hughes Consultant - Inland Water Operations Theodorus Konijn Consultant, Navigation Channel Maintenance . Locations Country First Location Planned Actual Comments Administrative Division Bangladesh Chittagong Sandwip X Bangladesh Dhaka Chandpur X Bangladesh Barisal Barisal X Bangladesh Dhaka Dhaka Division X Bangladesh Chittagong Chittagong X Bangladesh Chittagong Chittagong X . Consultants (Will be disclosed in the Monthly Operational Summary) Consultants Required? Consultants will be required vii I. STRATEGIC CONTEXT A. Regional Context 1. The East India Company exported Assam tea by steamboat from Guwahati in Assam to Kolkata in West Bengal, India, by inland waterways as early as 1841. Tea and other traded products between Northeast India and the rest of the world traveled through the inland waterways of the Ganges/Padma, Meghna, and Brahmaputra rivers, also referred to as the GMB river system, in territory that is now Bangladesh and India. These waterways provided a more direct route to connect landlocked Northeast India to Bangladesh, the rest of India, and ports for exports to the rest of the world, cutting the trip by about 1000 kilometers (km). Similarly, Chittagong Port in Bangladesh used to be the main port for the Indian state of Tripura, less than 90 km away, as well as for Mizoram and other states of Northeast India. Between 1863 and 1947, the Assam-Bengal inland navigation trade routes were developed for cargo and passenger transport by the Indian General Steam Navigation Company (IGSNC) and the River Steam Navigation Company (RSNC), which when combined with railway development in Northeast India and West Bengal, formed a multimodal system of transport. 2. However, the continent’s conflicts disrupted this unique multimodal system. Passenger transport on these waterways discontinued in 1948, and cargo transport was disrupted in 1965. A new protocol between Bangladesh and India was signed in 1972 to permit cargo transport but with significant limitations that up to now have hampered private sector interest and investment.1 Passenger transport through this regional system has never resumed since the disruption of 1948. 3. The South Asia continent’s long history of political tensions and conflict has been reflected in other facets of life, giving South Asia the dubious distinction of being the world’s least economically integrated region. Intra-regional trade currently accounts for just five percent of total trade - versus, for example, 25 percent for Association of South East Asian Nations (ASEAN) countries and 60 percent for the European Union (EU). Cross-border investment is also low and there has been little cooperation to date on urgent, shared issues such as river and disaster risk management, which are more amenable to regional rather than national solutions. Removing obstacles to trade - among other things, through improved transport connectivity, logistics facilitation measures and lowering tariffs and other trade barriers - is a high priority for South Asia (especially for its poorest landlocked regions) as a key element of the effort to build shared prosperity and improve people’s welfare. The World Bank’s 2014 Logistics Performance Index (LPI), a global multidimensional assessment of logistics performance, shows that as in previous years, South Asia lags behind all other regions except Sub-Saharan Africa in overall logistics performance. India’s performance is relatively strong overall, but the three landlocked countries (Afghanistan, Bhutan and Nepal) are among the weakest performers. India’s landlocked Northeast Region (NER) is also disadvantaged from a transport cost and, consequently, trade cost perspective. Available estimates suggest that annual intra-regional trade in the region could 1 For example, the Protocol was intended to be renewed every two years, but in practice the renewal process has been done in a piecemeal manner, often only extended for months at a time. 1 increase from the current US$5 billion to US$20 billion if barriers to trading with neighbors were removed.2 4. In the last year, however, dramatic progress has been made on key regional cooperation issues along the ‘Eastern Corridor’ of South Asia involving the BBIN (Bangladesh-Bhutan-India- Nepal) countries. In June 2015, the four countries signed the BBIN Motor Vehicle Framework Agreement which lifts considerably past restrictions on cross-border road transit for vehicles, passengers and cargo across the territories of the countries. The four countries are also in discussions regarding the Multimodal Transport Agreement which will encompass cross-border transit by road, rail and inland waterways. In addition, also in June 2015, India and Bangladesh signed the Coastal Agreement which allows goods to move by sea from Kolkata in West Bengal to Chittagong Port in Bangladesh, and renewed the Protocol on Inland Water Transit and Trade (PIWTT) for five years with automatic renewal with additional ports of call and routes. They also agreed to seek international financing for development of the entire Bilateral Protocol Routes between the two countries with assured Least Available Depth (LAD) to ensure navigability of the routes year-round and including night-time navigation, as envisaged in the Bilateral Framework Agreement on Trade and Transit. Meanwhile, landlocked Bhutan and Nepal have agreements in place with both India and Bangladesh to use the inland waterways (as well as roads, railways, and ports) in these two coastal countries to transport Bhutanese and Nepalese bilateral, international and transit trade. 5. These historic agreements have paved the way for the development of a regional integrated multimodal transport network with enormous potential to increase trade, people-to-people contact, and development of economic corridors. Goods can now move by sea or coastal route from Kolkata Port in West Bengal, India to Chittagong Port in Bangladesh, where bilateral and transit goods to Northeast India would travel by inland waterways from Chittagong Port to Dhaka and onwards to Ashuganj Port. At Ashuganj, the goods would be trans-shipped by road or rail to the border crossing at Akhaura-Agartala to Tripura State in Northeast India. Alternatively, the goods that arrive at Chittagong Port can take the road route to the Ramgarh-Sabroom border crossing, also on the border with Tripura State, Northeast India. The third route would be from Chittagong Port to Thegamukh-Kawrpucchuah on the border with Mizoram State, Northeast India. The map in annex 3 illustrates the alternative multimodal routes linking West Bengal, India with landlocked Northeast India through the territory of Bangladesh. Goods headed from or for Bhutan can also use these same routes from Chittagong Port through Northeast India. 6. To support these encouraging trends in regional cooperation, the Bank has developed and implemented since 2011 a continually evolving Regional program to support the BBIN countries to improve connectivity and trade potential along the ‘Eastern Corridor’ of South Asia. The investments in the Regional Program described in annex 3 are complemented by a significant regional technical assistance and analytical program. The investments include projects supporting regional connectivity for the BBIN countries through road, rail, ICT, and inland waterway connectivity and trade facilitation measures that aim to facilitate intra-regional trade as well as 2 Ahmed, Sadiq and Ghani, Ejaz, 2008. "Making regional cooperation work for South Asia's poor," Policy Research Working Paper Series 4736, The World Bank and Ahmed, Sadiq and Ghani, Ejaz, 2009. "Accelerating Growth and Job Creation in South Asia," OUP Catalogue, Oxford University Press. Raihan (2012) suggests that there would be an increase in South Asian countries’ exports to each other in the range of 94 to 1105 percent (India to Sri Lanka, and Pakistan to India, respectively), with most other bilateral export increases in between. 2 access to the sea and international markets for the landlocked countries and sub-regions namely Bhutan, Nepal, and Northeast India. B. Country Context 7. Bangladesh is the third largest economy in South Asia. It is among the most densely- populated countries in the world with a population of about 160 million in a land area of 130,168 square kilometers. Bangladesh’s economy grew well above the average for developing countries in recent years, averaging 6.2 percent since 2010. With a per capita GDP of US$1,212, Bangladesh reached an important milestone by achieving lower middle income country (LMIC) status in 2015. 8. Bangladesh has made remarkable progress in reducing poverty; however significant challenges remain. The poverty rate in Bangladesh has fallen from 48.9 percent in 2000 to 31.5 percent in 2010 while projections of the 2010 Household Income and Expenditure Survey (HIES) data indicate that the national poverty rate would fall to 24.8 percent in 2015. The creation of more and better jobs is a key challenge for eliminating poverty and boosting shared prosperity. The labor force in the country is growing at 3.1 percent per annum and 21 million people are projected to enter the working age population over the next decade. Therefore, accelerating the employment shift of casual workers and small farmers engaged in agriculture to salaried employment in more dynamic and remunerative sectors of the economy is an important priority. At the same time, growth and employment associated with increased productivity, diversification, and value addition in agriculture and manufacturing supply chains should be strengthened. In that sense, removing hurdles for both domestic and foreign businesses and tapping into regional and global markets is a priority for Bangladesh. 9. Key to the success of Bangladesh’s growth and poverty reduction strategy is the improvement of the multimodal transport and logistics system in the country, with its neighbors and the rest of the world. High transport costs, low efficiency and excessive delays in the logistics chain increase trade costs and reduce the competiveness of the country’s products. Good quality roads, ports, railways, inland water transport (IWT) services, land ports/border crossings, and efficient clearing, consolidation and forwarding systems (that is, logistics systems) are essential components of the regional multimodal system. The inability of the transport and logistics network to keep up with the pace of demand is hampering trade performance. With fierce international competition, Bangladesh manufacturers have complained that their ‘Order to Delivery Cycle’ is 35 to 50 percent longer than many of their competitors due to: slow, expensive and unreliable inland transportation; cumbersome banking, clearance and customs processes; inadequate consolidation terminals and inland clearance depots and land ports; and poor seaport and river port terminal productivity. These supply chain bottlenecks translate into higher costs and negatively affect Bangladesh’s ability to compete in the world market. 10. The Government’s Plan to address the above bottlenecks includes key activities to: (a) enhance the capacity of multiple key modes of transport including expanding the road network, increasing the capacity of Bangladesh Railways to carry freight, and increasing the capacity of the country’s inland waterways to carry freight and passengers; (b) improving the capacity and performance of the country’s main sea port, Chittagong Port, while developing additional deep sea and higher capacity ports for the longer-term; (c) improving regional connectivity; and, (d) improving banking, customs and clearance systems and procedures to decrease clearance times. 3 11. In addition, there are plans to expand intra-regional trade by improving connectivity with India, Bhutan and Nepal through road, rail and inland waterways. For inland waterways, the Government has prioritized the development and improved maintenance of 65 priority river routes, including the Bilateral Protocol Routes3 agreed between Bangladesh and India but also used for trade between Bangladesh, Bhutan and, in the future, Nepal. The protocol routes overlap the Dhaka-Chittagong and Dhaka-Ashuganj corridors, especially for Indian goods in transit to the landlocked Northeastern states. Bhutanese traders have also started using IWT to trade with Bangladesh, especially for the transport of rocks and aggregates used for construction, and the Royal Government of Bhutan (RGoB) is under discussion with Government of Bangladesh (GoB) to improve the waterways for use by Bhutanese trade. Bhutanese traders are already using road and rail networks in India and road network in Bangladesh for trade, but continue to seek a more efficient multimodal transport solution. Bhutan already has permission to use the Bilateral Protocol Routes in both India and Bangladesh. 12. In the meantime, the Government of India (GoI) is making parallel and complementary investments on the Bilateral Protocol Routes within its territory. It has also provided financing to Government of Bangladesh through a Line of Credit to improve the road and railway connections between the inland waterway cargo terminal at Ashuganj to the border with Tripura State in Northeast India. GoI also plans to finance the development of a new container terminal at Ashuganj, and has also invested heavily in its Integrated Check Posts (ICP) Program which has developed key land ports between Bangladesh and India including at Benapole-Petrapole in West Bengal, Akhaura-Agartala and Dawki-Tamabil in Northeast India, with plans to invest in land ports at Kawrpucchuah-Thegamukh, Sabroom-Ramgarh, and Sutarkandi-Shaula in Northeast India. The Government of Bangladesh is making corresponding investments in the same border crossings, partially through the proposed Bank-financed Bangladesh Regional Connectivity Project 1 (Project C in the Regional Program, annex 3). These investments support the BBIN regional multimodal connectivity program. C. Sectoral and Institutional Context 13. Bangladesh has made great strides in developing an extensive transport system to support the needs of its growing export-oriented economy. It boasts an expanding network of highways and rural roads, inland waterways, two seaports, maritime shipping, and a railway system. Major road corridors connect the two largest cities Dhaka and Chittagong with key economic centers and towns. Bangladesh has also developed a network of village roads connecting communities to market centers and the main roads. However, economic growth over the past decades has been accompanied by even faster growth in transport demand, estimated at 6 - 9 percent per year. Growth is putting strain on the transport network, particularly the road network, which is poorly managed and maintained and with only 40 percent of main roads in good condition. 14. As a riverine country, Bangladesh has a large and vibrant inland water transport sector. It has some 700 rivers, streams and canals with a total length of about 24,000 km. Approximately 6,000 km are navigable during the monsoon (wet) period, shrinking to about 3,900 km in the dry periods. Though not as large as in the more developed countries, it carries approximately 194 million tons of cargo and about one-quarter of all passenger traffic. There are some 22,300 3 The Protocol made pursuant to Article VIII of the Trade Agreement between Bangladesh and India. 4 registered vessels, including dry cargo vessels (22 percent), barges (7 percent), tankers and double bottom vessels used predominantly for carriage of petroleum products, sand carriers (16 percent), and passenger vessels (10 percent). In addition to the list of registered vessels, there are some 750,000 country boats of a great variety of shape and size. These play a vital role in the transport of goods and people, especially the poorest, especially on the smaller rivers where transport demand is generated by rural communities, a substantial proportion of which only has access to river transport. Table 1 shows how Bangladesh compares with key global IWT markets. Table 1. Size and Characteristics of Key IWT Markets USA EU China India Bangladesh Commercially significant 19400 5000 12000 4434 5923 waterways (km) Tons carried (million 615 565 1,161 16 194 tons/year) IWT Cargo Fleet (No. of 31,700 11,700 183,000 – 14,000* vessels) coal and coke, coal and coke, coal, coke, coal, fly-ash, building building coal, building grains, mineral grains, cement, materials, materials, materials, ores, chemicals chemicals and Main mineral ores, mineral ores, market and fertilizer, fertilizer, building Commodities chemicals and chemicals and produce oil and materials, oil and fertilizer, oil and fertilizer, oil and (river petroleum petroleum, market petroleum petroleum crossings) products produce products products Note: *excludes fishing vessels, small launches, speed boats, sea going vessels, and country boats. 15. With the exception of ferry services,4 the IWT sector is dominated by the private sector, which has invested heavily in shipping.5 Most cargoes and passengers are trafficked on the Dhaka- Chittagong Corridor (DCC). The annual IWT trade on the main and immediate adjacent routes accounts for a cargo volume of about 90 million tons and 46 million passengers. External seaborne trade is heavily oriented toward imports and of all volumes handled at Chittagong Port, over 50 percent is carried by IWT, primarily to Narayanganj, Dhaka and Ashuganj. Cargo is mainly: dry bulks (including clinker, fertilizers, food grains, coal, salt, gypsum and fly ash); liquid bulks (petroleum products); and, general dry cargo (bagged cargo, machinery and steel). The main dry and liquid bulks are typically offloaded at private jetties or terminals, most of which are equipped with dedicated bulk handling equipment. Some break bulks and other smaller general cargoes are handled at a limited number of common user facilities or directly over the riverbanks by manual labor. There is also bilateral, regional and transit traffic on the Protocol Routes between Bangladesh, India and Bhutan. Most of this consists of fly ash, grains, Over-dimensional Cargo 4 Provided by two Government organizations, BIWTC and the Roads and Highways Division (Ferry Planning Circle/Construction Division). 5 In an estimated amount of US$4 billion in the passenger, dry and liquid bulk trades alone. Various associations represent cargo owners including: the Coastal Ship Owners Association, the Cargo Vessel Owners Association, the Tanker Owners Association and the Launch (Passenger) Vessel Owners Association. Combined they represent some 1,600 owners, the majority of which are single vessel owners. The maximum private fleet size is approximately 20 vessels. 5 (ODC) for capital projects, mostly collected from India on Bangladesh-registered vessels. Cargo from Bhutan is starting to use the Bilateral Protocol routes, mainly to export boulders and construction materials to Bangladesh. 16. As in other countries, IWT has competitive advantages for dry and liquid bulk cargoes. Added advantages for the IWT sector in Bangladesh are that: (a) Much of this cargo can be transferred in the anchorages outside the seaports through Ship-To-Ship (STS) operations— meaning that an ocean carrier does not have to enter the port and thus avoid the current 17-day dwell time at Chittagong Port; and, (b) Much of Bangladesh’s industries requiring bulk imports (that is, the cement and power industries) are located on the riverfront and can be supplied by a mono-modal IWT service directly to the factory gate. 17. This contrasts to the textile and Ready-Made Garments (RMG) industry, the major driver of container imports (of inputs, especially cotton and other fabrics) and exports (Ready-Made Garments accounting for about 85 percent of all exports). Only 3 percent of total current container through-puts (representing about 36 percent of the Chittagong Port volumes) are transported by IWT vessels. While this sector does provide some growth prospects for IWT, there is currently little container penetration to inland markets. Most boxes arriving or departing from Chittagong Port are stripped or stuffed in the port environs and cargo is transported in break-bulk form by small single or double-axle trucks with load limits toward the lower-end of current international practice.6 Although transport of container cargos on inland waterways has a lower ton-km cost, growth in this sector requires reducing river terminal costs, through economies of scale and fast ship and cargo turn-around times at sea and inland ports.7 The development of this sector may therefore require a rethink of the total logistics solutions. Foremost among these will be the need for efficiency improvements and investment in trans-shipment capability (between ocean-going and IWT vessels). Additional capacity will also be needed at the inland ports. 18. River navigation also presents certain challenges. While the larger rivers are up to 50m (meters) depth and the lower Meghna (the main trafficked route on the Dhaka-Chittagong Corridor) is generally 10 - 25m depth, navigation is hindered by very shallow depths on bars, especially at the confluences of the major rivers and their tributaries, river bends, and in the wide delta area. Rainy season floodwater combined with very low-lying topography presents major infrastructure development challenges. Flood waters can rise as much as 10 meters. The Bay of Bengal is responsible for the formation of some of the strongest and most destructive tropical cyclones in the world. Heavy rainfall and associated storm surges from these cyclones are a major cause of loss of life and infrastructure damage in the maritime delta area. Cyclones can occur at any time of the year but most often just before or after the Southwest monsoon (which runs from June to September), affecting communities living on the old and young Meghna floodplains. Notwithstanding the challenges and realizing the importance of the trade between Dhaka and Chittagong and onwards to Ashuganj, Northeast India, and Bhutan, and the need to reduce demand on roads and to reduce Greenhouse Gas (GHG) emissions, the Government has prioritized the improvement of navigability of this IWT Corridor. 6 The single-axle limit in Bangladesh is 10 tons and the maximum combined weight for a truck is only 30 tons. This compares to a weight of 38–42 tons for a tractor-semitrailer unit, normally used for container haulage. 7 IWT vessels operating on short journeys can spend as much as 70 percent of their time in ports—leading to very poor asset utilization and thus high operational cost. 6 19. The sector is managed on behalf of the Government by the Bangladesh Inland Water Transport Authority (BIWTA). It was established to develop, maintain and control inland water transport under the East Pakistan Ordinance No. LXXV Of 1958, changing its name at independence. It operates as a fully-owned Government corporation under the Ministry of Shipping (MoS). It currently employs 3,403 personnel and operates some 100 vessels, 24 river ports,8 448 riverine stations, 374 landing points, 23 coastal stations, 8 ferry terminals, 24 pilot stations, 25 field offices and 5 Differential Global Positioning System (DGPS) stations. It also has three training centers, one each at Narayanganj and Barisal and a ship personnel training institute at Madaripur. Its main functions include: river conservancy/training works for navigational purposes; provision of aids to navigation and navigational/meteorological information/charts; pilotage and hydrographic survey services; efficient maintenance of existing navigable waterways and development of new ones; development, maintenance and operations of inland river ports, landing ghats and terminal facilities; removal of wrecks and obstructions on inland waterways; and, inspection of ships to ensure compliance with Government shipping ordinances and regulations. 20. Despite its importance, IWT has received little attention in the last few decades with only limited resources allocated to its development. The waterways receive only 4 - 7 percent of total transport sector funding. Realizing the important role that inland waterways play in addressing transport needs in Bangladesh, especially for the poor and to support trade, the Government of Bangladesh developed the 2009 Inland Water Transport Master Plan which laid out a detailed action plan for investment in the sector, including for development and maintenance of river routes, navigational aids, river ports, rural development, and institutional development. Current issues faced by the inland water transport sector include: (a) little funding allocated to maintenance of waterways other than ferry crossing routes and consequently inadequate dredging maintenance which fails to address rapid and continuous processes of sedimentation; (b) outdated hydrographic capability and limited data acquisition for river maintenance and other planning purpose; (c) a poor navigation aid system and very limited night time aids; (d) a poor safety culture, including outdated rules and regulations concerning the design, licensing, construction, operation and maintenance of IWT vessels, insufficient vessel shelters, and the lack of facilities for searching and rescuing people in distress; and, (e) insufficient and dilapidated river port facilities for general cargo trade and passenger transport. Many terminal facilities consist of no more than wooden planks used to embark and disembark passengers which are a challenge for mothers with small children, pregnant women, elderly people and the disabled. In the delta and other areas, passengers often have to wade into the river at low water periods to access a vessel. The lack of toilets in most landing places and vessels adds to the inconvenience. This has discouraged many female passengers from using inland water transport. Although GoB has not been systematically collecting data on safety incidents at river terminals and along IWT routes other than for major catastrophic incidents, interviews with users and observations by safeguards specialists indicate significant safety concerns. The lack of reliable navigation safety infrastructure and equipment and vessel storm shelters exposes vessels during inclement weather and prevents night-time navigation. 8 Including Dhaka, Narayanganj, Barisal, Chandpur, Khulna, Baghabari, Patuakhali, Narsingdi, Aricha, Nagarbari, Daulatdia, Tongi, Mawa, Char-Janajat, Ashuganj-Bhairab Bazar, Bhola, Bargona, Nowapara, Munshiganj, Chatak, Meghna Ghat, Cox's Bazar, Ghorashal and Faridpur. 7 D. Higher Level Objectives to which the Project Contributes 21. The proposed Project supports the Bank’s Twin Goals of poverty alleviation and shared prosperity by facilitating trade and growth which will benefit all, and by focusing on the poorest which are the predominant users of IWT. The Project also supports the new Sustainable Development goals as described in table 2 below. Table 2. How Proposed Project Supports Sustainable Development Goals Sustainable Development Goal Project Support The Project supports IWT which is more energy efficient Target 7.3. By 2030, double the global rate of than road transport, and will explore how to improve the improvement in energy efficiency. energy efficiency for most categories of vessels plying inland waterways. Target 9.1. Develop quality, reliable, sustainable, and resilient infrastructure, including regional and trans-border infrastructure, to support The Project supports improving the quality, reliability and economic development and human well-being, safety of infrastructure and systems linked to inland water with a focus on affordable and equitable access transport services including improving navigability of inland for all. waterways, building new river ports and landing ghats, and Target 11.2. By 2030, provide access to safe, improving existing river ports for both cargo and passenger affordable, accessible, and sustainable transport transport services. Focus on access issues for vulnerable systems for all, improving road safety, notably populations including women, children, and the less-abled by expanding public transport, with special are emphasized. attention to the needs of those in vulnerable situations, women, children, persons with disabilities, and older persons. IWT is more fuel efficient and releases fewer GHG and other air emissions for most classes of vessels than road transport. The Project aims to increase traffic on inland waterways and increase IWT’s share of transport services. In addition, the (2.1) air pollution Bank will provide complementary technical assistance to Ministry of Shipping, its agencies, and other relevant ministries to explore alternative technologies for ‘greening’ the vessel fleet to emit lower GHG and other emissions. The Project supports climate change adaption and mitigation. Navigational aids, vessel storm shelters, and design of river ports and landing ghats incorporate climate change (3.9) climate change adaptation and mitigation adaptation considerations. Improving navigability of inland waterways to reduce traffic on roads will help reduce GHG emissions and contribute to mitigating the impact of climate change. 22. The 2008 SAARC (South Asia Association for Regional Cooperation) Multimodal Transport Development Plan endorses development of regional transport networks for road, rail, air and inland water transport sectors. For IWT, the SAARC Plan calls for the re-establishment of old transport routes on inland waterways which now form the Bangladesh-India Bilateral Protocol Routes as negotiated under the Protocol for Inland Water Transport and Trade and renegotiated in June, 2015. Bangladesh and India also renewed in 2015 the bilateral Trade Agreement with new trade facilitation provisions to further increase bilateral trade, investment and economic cooperation with the goal of opening up opportunities for regional trade. 8 23. Bangladesh’s 2013 National Integrated Multimodal Transport Policy (NIMTP) recognizes that Bangladesh’s planning of the last few decades has favored road transport, and investment in inland waterways has been neglected. The policy commits to planning an environmentally sustainable multimodal transport system with attention to safety issues and equitable access. The objectives of the NIMTP include: reducing the cost of transport for goods, so as to make goods and services within Bangladesh less costly, and aid export competitiveness; improving safety; taking advantages of Bangladesh’s geographical position to trade in transport services and induce efficiency in the transport sector; reducing the negative environmental effects of transport; ensuring that transport meets social needs with regard to cost accessibility to all sectors of society; improving integration of the overall transport network; and increasing alternative options for passenger and freight transport. The policy also prioritizes improving regional connectivity, greater private sector participation in the sector; and exploring innovative financing mechanisms to fund sustainable transport solutions. Within the framework of the NIMTP, the priorities for IWT are: (a) Increasing funding to improve navigability of rivers; (b) Applying advanced technology and modern management principles, and developing human resources to improve dredging and hydrographic survey techniques to provide updated information on waterways; (c) Investing in existing river ports, new ports, and inland cargo/container depots to improve cargo and passenger handling, improve interchange between water transport and other modes; and to provide door-to- door service for passenger and freight movement through coordination with cargo operators and other transport operators; (d) Improving navigational aids and vessel tracking; (e) Enhancing efficiency and safety of all vessels; (f) Strengthening research into more fuel-efficient vessels; and, (g) Rationalizing regulatory agencies and updating regulations in the sector. 24. Leveraging IWT to support regional multimodal connectivity to facilitate trade and integration is also a key focus of the Bank South Asia Region’s Regional Integration Strategy. The World Bank Group’s FY16-20 Country Partnership Framework (CPF) program9 prioritizes investments in inland connectivity and transport corridors, IWT and multimodal connectivity, and regional integration. While the proposed Project is mainly mapped to Focus Area 1 which seeks to promote growth and competitiveness, it also supports objectives in Focus Area 2 which promotes Social Inclusion, and Focus Area 3 which supports Climate and Environmental Management. The Project is also aligned with the Systematic Country Diagnostic which specifies upgrading and integrating key transport corridors, reviving inland water transportation, and better maintenance of existing assets, as ‘Priority Areas with Potentially Transformative Impact on the Twin Goals.’ Finally, the Bangladesh Diagnostic Trade Integration Study specifies that: dredging sections of the inland waterway network, modernizing the vessel fleet, and investing in handling equipment are key actions for facilitating trade in Bangladesh. II. PROJECT DEVELOPMENT OBJECTIVES A. Regional Program 25. The BBIN/Eastern Corridor regional integration program aims to facilitate the movement of passengers and cargo on multimodal transport networks for the benefit of traders, transporters, producers, passengers and communities in Bangladesh, Bhutan, India, and Nepal. 9 Report No. 103723-BD, discussed at the Board on April 5, 2016. 9 B. Project PDO 26. The development objective of the Project is to improve Inland Water Transport (IWT) efficiency and safety for passengers and cargo along the Chittagong-Dhaka-Ashuganj Regional Corridor and to enhance sector sustainability. C. Project Beneficiaries 27. Project beneficiaries include passengers, producers, traders and transport services providers in Bangladesh, India, and Bhutan, as well as communities living around the Project Corridor in Bangladesh. They will benefit from the improved navigability of the river routes year- round, including at night-time, which will cut down transport time and cost, ultimately leading to increased trade and investments, and lower costs for consumers. Traders, including importers and exporters, and transport services providers will benefit from the use of improved and safer cargo terminals, as well as shortened transport time. Economies of scale also reduce transport costs by allowing carriage of greater loads on fewer ships. This can also result in notable environmental benefits by reducing emissions from transport. Users of landing ghats and passenger terminals will benefit from improved safer facilities, and greater access to transport services in the new terminals. Vulnerable groups such as women, children, the elderly, and otherwise less-abled will especially benefit from safer facilities which will improve their access to transport services. More specifically, the Project will focus on women and support development of an action plan on how to make IWT friendlier for women and address barriers that women face in using the facilities including but not limited to issues of safety, lighting, separate toilets and waiting areas. D. PDO Level Results Indicators 28. The Project Level Results Indicators are:  Number of days per year that the minimum advertised Least Available Depth (LAD) is available (days)- to increase from the current 150 days/year to 347 days/year;  Availability of Aids to Navigation (%) – to increase from the current 30 percent to 95 percent;  Travel time on the Dhaka-Chittagong Corridor for cargo vessels (hours) – to decrease from the current 40 hours to 30 hours;  Regional trade and transit traffic (million metric tons) – to increase from the current 1.89 million tons to 3.50 million tons;  Annual Revenue derived from Tariffs associated with Development and Maintenance of Infrastructure (US$ millions) – from the current 14.5 US$ million to US$29.0 million;  Satisfaction of passengers at project terminals. 29. In addition, the number of beneficiaries will be monitored, and disaggregated by gender. 10 30. Key intermediate indicators include: (a) Performance-based contract for navigation improvement signed (b) Number of Aids to Navigation installed (c) Number of cargo terminals built or rehabilitated (d) Number of passenger terminals built or rehabilitated (e) Number of passenger landing ghats built or rehabilitated (f) Satisfaction of beneficiaries with consultation process (g) Number of Class I routes with ENCs produced (h) Framework for sector sustainability including Tariff Framework developed III. PROJECT DESCRIPTION A. Project Components 31. The Project will finance interventions aimed at improving IWT for cargo and passengers along the heavily-trafficked Chittagong-Dhaka-Ashuganj river routes, and in so doing, stimulating traffic growth on the waterways and away from the already heavily congested roads along these routes. These fall under the jurisdiction of the Bangladesh Inland Water Transport Authority, a Government authority mandated to oversee sector development. Main interventions include: navigation channel maintenance and improvement; navigation safety improvements; the construction, rehabilitation, and modernization of select river terminals; development of River Information Systems (RIS); institutional capacity development; and, funding for research and development to enable continuing sector improvement and sustainability. This includes work on sector policies and strategies needed to: improve revenue collection and management; incentivize public and private sector investments especially related to container transport; and, mitigate and improve IWT’s impact on the social and physical environment. The Project consists of three components as follows: Component 1: Improved Inland Waterway Navigation (IDA financing US$235 million) 32. This component shall include work to guarantee advertised depths and widths of navigation channels on select river routes (see table 3.2 in annex 3). The work also includes provision of aids to navigation. The work is to be done on a Performance-based Contracting (PBC) method designed to increase the efficiency and effectiveness of river asset management and maintenance. It is designed to ensure that the physical condition of the rivers under contract are adequate for the need of river users, over the entire period of the contract which is six to seven years. This type of contract significantly expands the role of the private sector, from the simple execution of works to the management and conservation of river assets. This is a departure from the traditional river maintenance contracts used in Bangladesh which have been less-than-optimal. Even where works have been carried out according to plan, the nature of the rivers has meant that advertised depths, aids to navigation and other river infrastructure do not last as long as they should because of 11 deficiencies in the original design, aggravated by inadequate maintenance. The beneficiaries of the new concept are expected to be the river users. In a wider sense, future generations will be able to benefit from a better maintenance of past investments. River users will be able to know the Service Level they can expect in return for the payments they make for the use of the infrastructure (tolls, tariffs, user fees, taxes, and so on). The River Administration shall also benefit by obtaining better overall river conditions with reduced levels of expenditure. 33. Also included in Component 1 is work to provide six safe harbors or storm shelters whereby users can seek shelter from the stress of inclement weather in the Meghna Delta area during tropical cyclones. The Bay of Bengal is responsible for the formation of some of the strongest and most destructive tropical cyclones in the world. Adverse wave conditions, heavy rainfall and associated storm surges from these cyclones are a major cause of loss of life and infrastructure damage in the maritime delta area. With projected climate change, these effects are likely to intensify in coming decades. It is intended that the storm shelters shall be constructed under the same Performance-based Contract, since the works will primarily consist of dredging close to the bank to create a safe harbor area and breakwater system, and few to no permanent onshore structures. Activities to be financed in this component include: (a) bathymetric and other surveys to determine the extent and types of dredging required, river training, environmental protection or other works; (b) visual aids for day and night navigation such as light buoys, radar beacons, leading lines and other aids; (c) limited and selected performance-based dredging to guarantee advertised Least Available Depth; (d) development of six vessel shelters within cyclone prone areas along Project routes equipped with mooring buoys to ensure safety for the vessels; (e) provision of supervision and performance monitoring consulting services for the works carried out under for this component; (f) carrying out of land assessments to identify suitable land for the activities under this component, including the allocation and acquisition of land and the provision of resettlement and rehabilitation compensations to Displaced Persons; and, (g) carrying out environmental mitigation measures for this component in accordance with the Environmental Management Plan (EMP), including supervision and management of the Dredged Material Disposal Plan (DMDP) and for biodiversity conservation activities. Component 2: Improved Services at Priority Inland Waterway Terminals and Landing Stations (IDA financing US$75 million) 34. This component supports the development of two cargo terminals, four passenger terminals and 14 landing stations (or ghats). The development of passenger and cargo terminals are within existing inland waterway port areas under the jurisdiction of BIWTA. It includes the modernization and extension of existing facilities to cater for increased demand. Terminals and landing stations are part of the network of about 448 river terminals, 374 landing stations, 23 coastal terminals and 25 pilot stations already provided by BIWTA. The passenger terminals and landing stations will specifically incorporate the needs of women users and less abled users, and all investments will address safety-related issues for all users. Specifically, this component will finance the following:  The cargo terminals include: (a) extension of the existing Pangaon Container Terminal with new general cargo vessel berths and land access infrastructure on the Buriganga River; and, (b) rehabilitation and modernization of the existing general cargo terminal at Ashuganj including river bank erosion prevention, the replacement of pontoons, gangways and other 12 dilapidated marine structures, the extension of berthing space.  The passenger terminals include: (a) construction of a new passenger terminal at Shashanghat downstream of the existing terminal at Sadarghat where landside congestion preclude the development of additional berths; (b) rehabilitation works for the passenger terminal at Narayanganj; (c) construction works for the new passenger terminal at Madrashaghat, Chandpur near the existing terminal; and, (d) extension of the existing passenger terminal at Barisal.  Rehabilitation works or new construction of 14 landing stations or landing ghats under this Project are designed to provide access for rural communities, some of which in the lower Meghna delta have no alternative means of transport.  Design, Supervision, Safeguards Services, and Other Activities relating to River Port Terminals and Landing Stations including: (a) Provision of supervision and performance monitoring consulting services; (b) Carrying out of land assessments to identify suitable land including the allocation and acquisition of land and the provision of resettlement and rehabilitation compensations to Displaced Persons; and, (c) Carrying out environmental mitigation measures in accordance with the Environmental Management Framework (EMF), and site-specific EMPs to be developed. Component 3: Institutional Capacity Development and Sector Sustainability (IDA financing US$50 million) 35. A series of activities are proposed that will support BIWTA’s overall enhancement of its management systems and human resources capacity for modern, efficient, and high quality management of the IWT sector in line with international standards, and to help BIWTA achieve long-term operational and financial sustainability, and enhance the climate resilience of the IWT sector. Activities to be supported include: (a) Improving Revenue and Institutional Sustainability through the development of River Information Systems to improve data collection for the planning, maintenance and development of IWT including inter alia: the collection and dissemination of hydrographic data and electronic nautical charts (ENCs); provision of an aid-to-navigation monitoring system; provision of vessel and terminal maintenance plans; provision of a traffic monitoring system for passengers and cargo; conducting a Tariff Review to look into how both infrastructure and service charges are levied - with a view to reducing dependence on Government subsidies; conducting an Organizational Review to look into mechanisms to reduce expenditure; and, conducting an Operations Review to ensure dredging delivers results in solutions that provide best value (rather than lowest cost) including investment in new technology and work processes; (b) improvement of Human Resources capacity for better management of the IWT sector through upgrading and modernizing the IWT Deck and Engine Personnel Training Centre (DEPTC)) into a regional IWT Training Center with open access to all users in the Region and the world; (c) financing of feasibility, surveys, design and safeguards studies for continuous sector development; and, (d) support for the Project Implementation Unit (PIU). A detailed discussion of sustainability challenges is in annex 2. 13 B. Project Financing 36. The Government seeks regional IDA to finance the proposed Project, in addition to national IDA. The Project meets the requirements for regional IDA because (a) it involves the participation/collaboration of at least three countries - The Project is part of the BBIN/Eastern Corridor Regional Multimodal Connectivity Program which involves the participation of Bangladesh, Bhutan, India and Nepal (annex 3); (b) it supports policy harmonization for connectivity and regional integration as specified in the SAARC Multimodal Transport Development Plan; and, (c) it has spillover benefits, and avoids negative spillover impact at the regional level. Traffic would take more direct routes between landlocked Bhutan, Nepal and Northeast India to-from Bangladesh and the rest of India, and avoid the longer roundabout route around the Chicken’s Neck which would add about 1,000 km to the trip causing more GHG emissions, traffic safety issues, and higher transport and trade costs. By component, the Project meets regional IDA criteria as described in table 3. Subcomponent 2b for passenger river terminals will seek only national IDA. However, the remaining components all qualify for regional IDA with Component 3 seeking less than the usual proportion in regional IDA. As such, the Project is seeking US$170 million in national IDA and US$190 million in regional IDA. Table 3. How Proposed Project Meets Regional IDA Criteria Component How Project Meets Criteria Component 1: Improved Two-thirds Regional and One-third National IDA - Maintaining the Least Inland Waterway Available Depth of the waterways for navigability will benefit regional trade Navigation (IDA US$235 including trade from India, Bhutan, and Bangladesh, and in future, Nepal. million) Subcomponent 2a: Improved Services at Two-thirds Regional and One-third National IDA - the cargo terminals will be Priority Cargo River used for Indian and Bhutanese cargo traffic and trade, and in future Nepalese Terminals (IDA US$35 trade, in addition to Bangladeshi traffic. million) Subcomponent 2b: All National IDA - although in the future it is planned and expected that Improved Services at passengers from Bhutan, India and Nepal will use the passenger terminals, in Priority Passenger River the near future, the project team expects that most passengers using these Terminals (IDA US$40 terminals will be domestic. million) Regional and National IDA - The proposed capacity and sector improvements will help maintain the navigability of the waterways in a more economically, Component 3: Institutional financially, technically and environmentally sustainable manner which will Capacity Development and benefit regional and national traffic and trade. However, while the component Sector Sustainability (IDA will have clear benefits for regional traffic and trade, the activities are more US$50 million) national in nature and therefore it is proposed that 20 percent of the funds should be funded by regional IDA and 80 percent by national IDA. Project Cost and Financing 37. The total Project cost is estimated to be US$400 million. The Government will finance ten percent, or US$40 million which will include land acquisition and resettlement and rehabilitation compensation (R&R) costs, part of the taxes associated with contracts, sitting fees, honoraria, civil servant salaries, vehicles, fuel, and office space. IDA will finance 90 percent of total Project cost. The taxes under the Project are presently estimated at SDR 15.22 million which is approximately six percent of total Project cost and will be mainly financed from GoB financing. Under no 14 circumstances will IDA financing of taxes exceed 15 percent of the total IDA financing. The detailed costing and government contributions vs. IDA financing are included in annex 4. Table 4. Project Cost and Financing Project IDA % Project Components Cost Financing Financing 1. Improved Inland Waterway 261 235 90.0 Navigation 2. Improved Services at Priority Inland 83 75 90.3 Waterway Terminals and Landing Stations 56 50 89.3 3. Institutional Capacity Development and Sector Sustainability Total Costs 400 360 90.0 C. Lessons Learned and Reflected in the Project Design 38. The proposed Project builds on the Bank’s operational experience with IWT projects, with projects under implementation in Bangladesh, and with regional integration projects. The Implementation Completion Report (ICR) for the Third Inland Water Transport Project in Bangladesh which concluded in 1999 concluded that even though Bank and Borrower performance during supervision was satisfactory, and implementation of investments was satisfactory, sustaining institutional capacity is a challenge, and that reforms take time to develop properly and to get ownership. To reflect these lessons, the proposed Project does not propose sector reforms immediately, but builds funds into the Project for consultations and studies to properly design and gain ownership for proposed reforms. Development of systems and staffing capacity are also incorporated into the key aspects of sector management. The multiple aspects of ensuring sector sustainability have also been incorporated into Project design as described in the Sustainability section below. Further, recognizing that improved sector performance will require continuous engagement and significant investments, this Project is the first proposed in a program with foreseeable follow-on projects which will build on the capacity and lessons learned in the implementation of this proposed Project. 39. Lessons learned from the Bank’s portfolio in Bangladesh include: (a) most Government agencies require extra procurement capacity and monitoring; (b) intensive project monitoring is key to implementation success; (c) frequent turnovers at senior levels may disrupt project implementation and ownership. To mitigate these impacts, extra resources will be requested for close Bank supervision. To mitigate the impact of senior official changes, capacity development is focused on the PIU and technical staff levels. 40. Lessons from the Bank’s extensive experiences in the implementation of regional projects, especially from the Africa Region, include: (a) given the complex and often highly politicized nature of regional projects, national projects or components should be prepared separately when ready, but as key building blocks to an integrated regional program; and (b) knowledge products, technical assistance, and capacity development are key complementary activities that help support 15 regional dialogue, preparation and implementation readiness. As such, this project is designed to be part of an integrated regional program, with parallel Non-Lending Technical Assistance (NLTA) and investment projects that complement each other’s objectives; and, (c) there is significant political risk in regional projects, more so than in national projects, both from the cross- border relationships perspective and from the perspective of managing national stakeholders. As such, it is best to choose projects to implement that are well-embedded in national development plans. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 41. Bangladesh Inland Water Transport Authority is the implementation agency for the Project and is responsible for overall implementation, management and monitoring of the Project. BIWTA is an autonomous body established under the Ministry of Shipping. The authority was set up for development, maintenance and operations of inland water transport in Bangladesh. The institution functions through a formal structure of Board of Directors which is headed by a Chairman at the rank of Additional Secretary and supported by senior officials of Government of Bangladesh. BIWTA has experience in implementing donor-funded programs and managing large value infrastructure projects, but no experience with performance-based contracts. Therefore, the proposed implementation structure builds in needed technical, fiduciary, safeguards and monitoring capacity as needed, especially for monitoring the performance-based contracts, as described in annex 4. B. Results Monitoring and Evaluation 42. The Project Director (PD) and Project Manager (PM) will be responsible for overall project monitoring and evaluation (M&E). In addition, the Project Steering Committee (PSC) headed by the Secretary, Ministry of Shipping, will monitor overall project performance, make decisions on high-value contracts above defined thresholds, and make key policy decisions. The Project Implementation Committee (PIC), chaired by the Chairman of BIWTA, will monitor performance and decisions required at the transaction/implementation level. The high-value Performance-Based Contract for navigability maintenance will require monitoring support in addition to the capacity within BIWTA. A separate contract for an experienced international Supervision/Performance Monitoring Consultant for the PBC has been planned, and this Consultant will also train staff within BIWTA, in the Planning, Dredging, Hydrography, Civil Engineering and Conservancy and Pilotage departments, to continually monitor and evaluate the performance of the PBC contractor and other navigation improvement contracts. 43. Obtaining reliable historic data has been a challenge for the sector. In response, the Project is financing multiple River Information Systems to help improve sector planning and management, including for data development and maintenance especially for the Hydrographic Department, as well as systems for tracking cargo and passenger traffic, revenues, accidents, passenger and user complaints, contractor performance, and fiduciary systems for improvement of financial management and procurement. Crowd-sourcing will be used to collect data for the River Information Systems and other data systems. 16 C. Sustainability 44. To ensure sustainability of Project investments and sector improvement, several key principles have been incorporated into the Project design. First, a performance-based maintenance approach has been adopted for the major element of works. This is distinct from the more usual practice for river maintenance (low-bid combined with method specification) and is a departure from customary dredging contracts applied in Bangladesh which have not achieved desired results. The use of PBC maintenance contracting is therefore designed to shift focus to outcomes, specifically a 95 percent availability of advertised depth (and aids to navigation) along the total length of the Project Corridor. Like all PBCs this shall include incentives and and/or disincentives to the contractors to achieve desired outcomes or results - without detailing how, when, or where to do the work. Second, a longer-term contract period has been adopted with the objective of attracting the best international companies. Third, the PBC is designed to allow sub-contracting of local contractors, with the requirement that the lead international contractor must build the capacity of BIWTA and the local contracting industry. This is especially relevant to the use of different technologies which are not used in Bangladesh (such as water injection dredging), and the use of modern surveying and data processing. Fourth, rigorous consultation has been conducted at the design stage to gather stakeholder and community input, and funds have been built into the Project to fund continuous improvement for the sector from the environmental and social safeguards perspective, as well as for market development and improvements to both hard and soft infrastructure to improve the entire logistics system linked to inland water transport. Fifth, noting that institutional development is key to sustainability and profitability of the sector, the Project has focused on institutional development for the multiple and various aspects of IWT. Sixth, the Project sets aside funds to study and engage stakeholders on policy issues, and to develop and continually refine a policy framework to improve the competitiveness and attractiveness of IWT, including attracting private sector investment, maintaining competitive transport costs, incentivizing modal shift, and getting to cost-recovery and eventually profitability for BIWTA. V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks 45. The overall risk rating for the proposed Project is rated High, stemming from risks related to technical design, institutional capacity, fiduciary, and environmental risks. Risks linked to political governance, sector strategies and policies, and stakeholders are rated Moderate or Substantial, as indicated in the SORT table. 46. Political governance risk is rated Substantial. Frequent Government changes at senior level may affect implementation progress. However, maintaining navigability of the waterways, especially for regional trade, is a top government priority. At the technical level, staffing has remained relatively stable, and capacity development efforts will focus on this level to ensure commitment and continuity. 47. Risks associated with Sector Strategies and Policies are rated Substantial as maintaining navigability of priority waterways, and improving the operating environment for IWT has remained a top Government priority since the adoption of the 2009 Inland Water Transport Master Plan, followed by the 2013 National Integrated Multimodal Transport Policy which 17 commits to planning an environmentally sustainable multimodal transport system with attention to safety issues and equitable access for all. The policy to incentivize private sector investment in IWT needs to be developed, and will be addressed during implementation. 48. Technical design risks are rated High. The risks related to technical design mainly arise from (a) the dependence on one contractor for a high-value PBC contract which accounts for about 56 percent of the total Project cost; and, (b) the Government’s limited experience with performance-based contracting for navigation fairway improvement and maintenance. To mitigate the first risk, the team has done a market assessment to assure that there are sufficient contractors on the global market who fulfill the financial and technical criteria to implement the PBC. Moreover, an ongoing prequalification process provides assurance that there is sufficient interest from qualified contractors in the PBC. To mitigate the second risk, experiences from other countries that have used PBCs for IWT have and continue to be studied, and international experts with the requisite experience will be procured by the Project for advice and monitoring. A Monitoring/Supervision Consultant will be hired concurrently with the performance-based contractor, and will be available to monitor the contractor from the start of the contract, as well as to train BIWTA staff in the management of PBCs for dredging and navigation improvement contracts. Procurement of the Supervision/Performance Monitoring Consultant has been initiated. Both the PBC contract and the Supervision/Performance Monitoring Consultant contract are expected to be awarded by December, 2016. 49. Institutional capacity risks are considered High as BIWTA has insufficient experienced technical staff. Capacity is weak, and BIWTA has not implemented a Bank-financed project since the 1990s. To mitigate this risk, the Project will require the deputation of a full-time Project Director who is a GoB official, plus the deputation and recruitment of an additional 20 technical staff to support project implementation, in addition to consultant support. 50. Fiduciary risks are rated High and are described in the Appraisal Summary section. Bangladesh operates in a challenging procurement environment. Procurement risks arise out of many factors like weak capacity, unfavorable market, and weak governance. The last one manifests itself in the form of fraud, corruption, collusion and coercion. BIWTA deals with a limited number of specialized suppliers, which has kept its procurement environment free from fraud, corruption, and collusion. The works contracts involving civil construction could experience some governance issues as bidders for those types of contracts are known to have a tendency for collusion and coercion. The PBC, on the other hand, is large and specialized to the extent that the critical mass required for collusion does not exist within the country. In the backdrop of the unsupportive country governance context, and weak procurement capacity in relation to PBCs and somewhat weak contract management capacity in the implementing agency, overall procurement risk is rated as High. Mitigation measures are described in detail in annex 4 and include: Establishment of a Procurement and Contract Management Cell; ensuring balanced representation in the Bid / Proposal Evaluation Committee; Introducing the Systematic Tracking of Procurement Exchanges system (STEP); development of a Project Procurement Strategy; implementing e- Procurement for NCB contracts; utilizing an Independent Procurement Panel (IPP) to provide oversight and assurance of the procurement of high-risk and complex contracts; and carrying out extra due diligence on the local agents of bidders. For financial management, the assessment indicates that BIWTA over years has developed some financial management capacity to implement government programs and schemes in the area of port development and dredging 18 operations. However, it lacks institutional capacity and experience to manage PBCs. It requires extensive support and guidance in the area of financial management and Bank disbursement policy/procedures. To support project implementation, essential institutional capacity will be provided by contracting accounting firms and professionals. An accounting system will be procured for the Project to support timely submission of financial reports. The accounting and payment function will be centralized from the PIU and internal control aspects will be documented in the Accounting Manual which will serve as a reference document to Project staff. The oversight arrangements, that is, internal and external audit will provide reasonable assurance on use of Bank funds for Project activities. During the first year of implementation, the Bank will undertake semi- annual implementation support missions, including field visits to ensure that agreed financial management arrangements are understood and appropriately followed by the PIU. As implementation progresses, review of financial and audit reports will be required. 51. Environmental and Social risks for the Project are considered High. The Project is classified as Category ‘A’ under OP 4.01, due to the diversity, overall magnitude, and complexity of potential environmental impacts related to the proposed dredging and river terminal investment activities under the Project. Although the routes selected for channel maintenance are already being dredged without the Project, dredge volumes are nonetheless expected to be significant in some locations, including in some areas of known sensitive natural habitat. Major environmental risks for Component 1 relate to disposal of dredged material, as well as disturbance of aquatic and benthic habitats caused by dredging operations and subsequent traffic on the river channel. Construction and rehabilitation works on river terminals and landing stations will also entail various site-specific impacts, which in some cases may be significant. In addition, the majority of the Project area is highly exposed to natural hazards including cyclones, storm surges, and flooding in cases of extreme weather events. Climate change may further increase rainfall intensities during the monsoon period, decrease rainfall during the dry season, raise future sea levels, increase wind speeds, and increase cyclone-induced storm surge height and wave run-up, all of which may impact river navigability and also directly threaten IWT terminals and other on-shore infrastructure. Land acquisition is minimal as BIWTA already owns most of the land required for terminal construction and upgrading; nonetheless, it is estimated that 2.06 hectares of land may need to be acquired, and existing lands to be allocated to the Project may be under current use by leaseholders and or squatters (those with no title to land). BIWTA’s lack of any existing internal capacity on environmental and social management is an element of risk. The Environmental and Social Assessment process has evaluated impacts and identified necessary mitigation, management and monitoring measures, including measures to enhance climate change and natural hazard resilience, as well as necessary institutional arrangements and capacity building to manage these risks. 52. Stakeholder risks are considered Moderate, since the main social impacts are positive as beneficiaries will benefit from improved facilities with focus on incorporating gender and physical challenge aspects in the design and will have access to feedback and grievance systems. The Grievance Redressal Mechanism (GRM) using information technology (IT) systems for the Project will be set up to address grievances and to strengthen accountability. Satisfaction surveys will be administered to ensure participation and transparency in all processes. 19 VI. APPRAISAL SUMMARY A. Economic Analysis 53. The main objective of improvements to the performance of trade corridors is to increase trade, either by volume or by value. The Project is expected to affect passenger time and safety of users of the corridor, the time and reliability of goods shipments handled on the inland waterway, improve the capacity of the institutions that manage and train personnel and deepen the knowledge of operations on inland waterways in Bangladesh and through shared networks in India and other countries in South Asia. The expected impacts of the Project are summarized in table 5. 54. Where a corridor is already well-developed and economic rigidities are not very strong cost-benefit analysis can be used to assess likely impacts.10 Cost-benefit analysis in corridor projects involves estimating the cost and time savings of implementing a proposed project rather than not implementing it. The cost savings typically include those of operating and maintaining vessels as well as reductions in the cost of deterioration and loss of goods in transit. The time savings include those related to vessel operations (such as reductions in vessel transit time) and the inventory costs of goods in transit and kept in storage to cover the risk of delays in transit and uncertainty of delivery times. Where feasible, the time savings are converted into equivalent cost savings. These cost and time savings are compared with the infrastructure and investment and maintenance costs needed to achieve them. This comparison is usually through comparing the stream of all cost and time savings and investment costs and either discounting the net annual costs to a net present value or calculating an internal rate of return for the stream of annual net costs. Table 5. Expected Project Impact Activity Expected Impact Reduced costs from use of larger vessels Reduced transit times for domestic and regional traffic Maintenance of fairway and provision of Improved reliability navigational aids Reduced road congestion from traffic diversion Reduced GHG emissions Reduced accident costs Shelters for vessels in adverse weather Reduced vessel and cargo losses during adverse weather conditions events New common user general cargo terminal Rehabilitation and modernization of the existing general terminal at Ashuganj Reduced cargo handling and transport costs Development of a new passenger terminal Improved vessel utilization through reduction in delays at at Shashanghat terminals Rehabilitation of passenger terminals at Passenger time savings due to increased service frequency Narayanganj and Chandpur, extension of Improved convenience for passengers existing passenger terminal at Barisal Improved safety for users (excluded from economic analysis) Upgrade of 14 Existing Landing Stations/ Launch Ghats Seafarer Training Improved safety, regulatory compliance and oversight Hydrographic Survey Improvements (excluded from economic analysis) 10 World Bank (2005) TRN-19 Projects With Significant Expected Restructuring Effects, World Bank. 20 Activity Expected Impact Increased climate resilience and reduced GHG emissions (excluded from economic analysis) Reduced costs and GHG reductions from use of larger vessels Environmental Safeguards Improvement and cleaner engines (excluded from economic analysis) and Sustainability through sector level Increase in utilization of IWT (excluded from economic capacity building analysis) Experience gained in enhanced environmental performance of IWT sector (excluded from economic analysis) Continuing Sector Improvement and Increase in utilization of IWT (excluded from economic Sustainability analysis) 55. The economic evaluation of the Project was carried out in a context where there is generally poor data on transport and logistics. For this Project, the dearth of data was exacerbated by the fact that the Project is on a mode of transport that has generally been neglected. In such a case, recommended practice is to employ as simple an approach as possible and to rely on good practice techniques. As a result, while corridor projects are known to potentially have significant economic and spatial impacts on firms and the space economy in the regions that they serve, the data are just not available to provide robust results. Consequently, the economic evaluation sought to determine whether the reductions in cost of current trade and the generation of new trade are worth the investment cost that is needed to bring them about. Simple cost-benefit analysis was employed. Summary of Evaluation 56. The economic evaluation of the proposed improvements along the corridor is based on a generalized cost function for passengers and trade flows. The analysis utilizes two distinct but complementary approaches, one for expected project impact on passenger traffic and the other on trade logistics. Both are founded on well-established techniques and apply generalized cost functions to the changes in monetary and time costs to be brought about by the project interventions. As argued above, some of the project interventions, such as safety improvements, are required under international best practice and are therefore not monetized. The project evaluation therefore presents a conservative estimate of the expected impacts. 57. The benefits are estimated as the sum of savings in: (a) logistics costs of shippers; (b) vessel operator costs; (c) reduced losses from weather related events for vessel owners and shippers; (d) reduced passenger waiting costs; (e) reduced accident losses; and (f) reduced carbon footprint. All these costs are monetized as described in annex 8. The benefits would accrue to both Bangladesh’s international and domestic trade traffic, and regional transit traffic especially to and from India. 58. Based on the above, and using the cost and time and uncertainty measures related to each project component as defined by the sequence of movements along the corridor, estimates of costs and benefits were derived for the six expected impacts. The net present value of the sum of benefits of the Project were estimated over a period of 20 years at approximately US$365 million (based on a discount rate of 12 percent) and the EIRR of the Project is estimated at 14 percent. The results include maintenance costs of the waterway and were subjected to sensitivity analyses including costs escalations, lower growth rates of traffic, and poor supply response by vessel operators. The 21 EIRR under these scenarios ranged from 11 percent to 12 percent.11 The sensitivity analyses suggest that the Project is viable within feasible ranges of the key risks that can be expected. Details of the calculations are provided in annex 8. B. Technical 59. About half of the funds of the Project are set aside for improvement of navigability of the priority Dhaka-Chittagong-Ashuganj Corridor, as this is key to local, national, and international trade for Bangladesh and the region. Aside from the area between Sandwip and Hatia Islands in the Delta, the Project rivers are characterized by numerous small shoals at multiple different locations which will require small and selective but constant dredging intervention using different dredging techniques. This may include water injection dredging in areas of high flow velocity, the use of cutter suction dredging, use of backhoe or trailing suction hopper dredgers. A Performance- Based Contract maintenance approach is chosen due to the poor performance of traditional dredging contracts in the past and due to the nearly non-existence of navigational aids in the inland waterways network. The PBC work shall include the provision and maintenance of aids to navigation including light buoys, shore beacons and channel markers. Monitoring and Supervision shall be undertaken by BIWTA with the support of an appointed Supervision/Performance Monitoring Consultant. In addition, channel monitoring shall also be undertaken by placing survey sounders on select merchant ships regularly trading on certain routes (crowd-sourcing). Included in the PBC shall be the development of vessel storm shelters in the lower Meghna cyclone area known for frequent and damaging cyclones linked to deaths and vessel damage. 60. Using a performance-based approach is a departure from the traditional dredging approach employed in Bangladesh which is failing to maintain advertised channel depths and widths on a sustained basis. Contractors have historically been paid on the basis of inputs to the works. Even where these works are carried out according to plan and much money is spent, the overall service quality for the river user depends on the quality of the design given to the Contractor who is not accountable for it. In many cases advertised depths, aids to navigation and other river infrastructure do not last as long as they should because of deficiencies in the original design, and rapid and continuous sedimentation processes aggravated by inadequate follow up maintenance. The PBC approach adopted for this project is designed to address these issues. During the bidding process, contractors compete among each other by essentially proposing prices for bringing the river to a certain Service Level and then maintaining it at that level for a relatively long period. Under the output and performance part of the contract, contractors will not be paid directly for “inputs” or physical works (which they have to carry out), but for achieving specified Service Levels, i.e., the maintenance of the river to pre-defined standards (as required by the bidding documents) which is represented by outputs or outcomes. Due to the nature of the river and routes and type of dredging vessels required, the team has determined that having one PBC contractor perform all the work rather than two is more efficient and cost-effective. 61. In addition to BIWTA’s function to provide river conservancy works including river training works for navigational purposes and for provision of aids to navigation, BIWTA is also responsible to develop, operate and maintain facilities for the landing of goods and passengers. Currently there are some 24 river ports of varying size, the largest in the Dhaka area which extends 11 The lower EIRR of 11 percent is obtained for a 5 percent increase in costs which, based on recent trends, is considered highly unlikely. In any event, the use of performance-based contracts is designed to contain costs. 22 some 40km along the length of the Buriganga River. Within these, BIWTA manage some 448 river terminals/stations. Outside the port limits, BIWTA is also responsible for the provision and operation of an additional 374 landing ghats, 23 coastal stations, 8 ferry terminals and 24 pilot stations. Funds are allocated for the development of some of the highest prioritized facilities, including two common user cargo terminals, four passenger terminals and 14 landing ghats. Works on the general cargo and passenger terminals include upfront feasibility and design studies to inform the best design option/alternative for development and including in cases, rehabilitation and modernization of these terminals to cater for growing through-put trends. This includes provision of a new passenger terminal at Shashanghat to relieve congestion at Dhaka’s main passenger terminal, a new common user general cargo terminal adjacent to Pangaon which currently only serves containerized cargo. The 14 landing ghats are mainly located in the lower Meghna River, especially on remote chars or river islands where facilities are either in very poor condition or non-existent. These facilities are often the only means of landing for passengers and goods to communities without other transport alternatives. 62. As mentioned earlier, developing institutional capacity is key to maintaining sustainability for investments and reforms in the sector. As such, significant funds are allocated to the development of systems and staffing capacity in BIWTA to better collect and maintain data, monitor traffic, monitor contractor performance, improve financial management, and lead to overall better management of the sector. Funds are also allocated to studies and activities to improve sector financial and operational sustainability, sector environmental and social impact, and sector market development studies to increase the competitiveness of IWT relative to other, less environmentally-friendly modes of transport, and to promote the job creation potential of IWT. C. Financial Management 63. BIWTA has implemented a Bank-financed project decades ago (during the 1990s). While carrying out the assessment and designing financial management arrangements for this project, the lessons learned in the earlier project were taken into account. BIWTA over the years has developed some financial management capacity to implement government and donor-funded programs and schemes in the area of port development and dredging operations. However, it lacks institutional capacity and experience to manage performance-based contracts. It requires extensive support and guidance in the area of financial management and Bank disbursement policy/procedures. 64. The Project will be implemented by the PIU formed by BIWTA. The PIU will maintain the financial management system of the Project and will ensure that activities are carried out in accordance with the Project’s legal agreements. BIWTA will open two separate bank accounts for receipt of funds under the Project. A Designated Account (DA), Convertible Taka Account (CONTASA) in Nationalized Commercial Bank of Bangladesh will be opened exclusively for receipt of funds from the Bank and for payment for Bank-funded activities. An initial deposit/Advance will be transferred by the Bank into the Designated Account after the Project is declared Effective. Another bank account will be opened by BIWTA for counterpart activities. The accounting and payment function will be centralized at the PIU and internal control principles will be guided through the Accounting Manual. The field offices will maintain accounting records for completed works and will submit bills/invoices to the PIU. Supervision consultants will be engaged as independent engineers to monitor the quality and progress of works and it will certify the bills for payment. An off-the-shelf accounting system will be procured for Project accounting 23 and financial reporting. A financial management specialist will be hired to provide support to the PIU in accounting functions. The Interim Financial Reports (IFRs) will be submitted to the Bank within 45 days from the end of each calendar quarter and will provide detailed financial information on the sources and application of funds according to disbursement categories and project components. The IFR will form the basis of subsequent disbursement into the Designated Account. The Internal Audit will be carried out according to ToRs approved by the Bank and auditors will be selected through Bank procurement guidelines. Additionally, an Integrated Fiduciary Review will be carried out periodically by a consulting firm hired by the Bank with prior notification to the Implementing Agency to assess the governance and oversight arrangements. The annual External Audit for the Project will be carried out by Comptroller and Auditor General of Bangladesh (C&AG) through its Foreign-Aided Project Audit Directorate (FAPAD) and audit reports will be provided to the Bank within 6 months from the end of each financial year, that is, December 31. Overall, the financial management risk of the Project is considered ‘Substantial’. The financial management arrangements proposed under the Project will satisfy fiduciary requirements of OP/BP 10.00. Further details are provided in annex 4. D. Procurement 65. BIWTA has experience in implementing donor-funded and Government-funded development projects. Procurement under these projects are being processed by relevant departments like Dredging, Marine and Mechanical Engineering, Civil Engineering, Conservancy and Pilotage, Hydrography, Deck and Engine Personnel Training Center, and so on. The Project involves one high value performance-based contract to maintain navigability of an inland waterway corridor, and a number of civil works involving construction or upgradation of river ports. BIWTA, however, does not have recent experience implementing Bank-financed projects and no experience processing and managing PBCs. 66. Bangladesh operates in a challenging procurement environment. Procurement risks arise out of many factors like weak capacity, unfavorable market, and weak governance. The last one manifests itself in the form of fraud, corruption, collusion and coercion. BIWTA deals with a limited number of specialized suppliers, which has kept its procurement environment free from fraud, corruption, and collusion. The works contracts involving civil construction could experience some governance issues as bidders for those types of contracts are known to have a tendency for collusion and coercion. The PBC on the other hand is large and specialized to the extent that the critical mass required for collusion does not exist within the country. In the backdrop of the unsupportive country governance context, and weak procurement capacity in relation to PBC and somewhat weak contract management capacity in the implementing agency, overall procurement risk is rated as High. Mitigation measures are described in detail in annex 4 and include: establishment of a Procurement and Contract Management Cell; ensuring balanced representation in the Bid / Proposal Evaluation Committee; introducing the Systematic Tracking of Procurement Exchanges system (STEP); development of a Project Procurement Strategy; implementing e- Procurement for NCB contracts; utilizing an Independent Procurement Panel to provide oversight and assurance of the procurement of high-risk and complex contracts; carrying out extra due diligence on the local agents of bidders; verification of recommended bidders’ post -qualification information; making bidders generally aware about fraud and corruption issues; maintaining detailed procurement records and documents; and, publishing contract award information on 24 Central Procurement Technical Unit’s (CPTU) and BIWTA’s website (and UNDB online for ICBs and international consultancies). E. Social (including Safeguards) 67. The proposed Project supports dredging activities, installation and maintenance of navigational aids, and construction of storm shelters, river terminals (including improvements or modifications to access roads where required) and landing stations. These interventions will improve facilities for passenger and cargo movement. More specifically, women will benefit from upgraded facilities designed to address their needs and safety at terminals and landing stations. River terminals and landing stations will be developed and improved using existing BIWTA land. Vessel shelters will be developed within the river with some facilities on riverbanks. According to BIWTA estimates, 2.06 hectares of private land is likely to be acquired for improvement of landing stations. However, exact locations of the land to be acquired and specific boundary of sites for Project interventions will be identified only when detailed designs of these facilities will be undertaken during project implementation. 68. The Bank’s Operational Policy on Involuntary Resettlement (OP/BP 4.12) is triggered for all the proposed facilities. The adverse impact due to development of terminals both passenger and cargo, storm shelters and landing stations will impact communities dependent on the land required. Disposal of dredged material will be almost entirely in the river. At locations where it is not feasible to deposit in the river, the option to dispose on government land free from encumbrance will be considered. BIWTA has, therefore, prepared a Resettlement Policy Framework (RPF) including community engagement plan and Dredge Material Disposal Plan based on a comprehensive Environmental and Social Impact Assessment (ESIA) of the IWT corridor from Dhaka to Chittagong with links to Barisal and Ashuganj, and an initial screening of proposed terminals and landing stations which are not yet designed. The RPF lays down a clear road map to prepare site-specific Social Impact Assessment (SIA) and Resettlement Action Plan (RAP) when the designs will be available at implementation stage and will use mobile applications to geo-tag the census including inventory of assets affected, and locations of consultations. If it is identified during project implementation that acquisition of private land and/ or, transfer of public land that is being used by individuals or communities, are required at any site, RAPs will be prepared. The ESIA provides the information that no indigenous peoples are living within the influence area of the Project corridor. The RAPs will be shared with the Bank for review and clearance and disclosed locally before the bidding process and implemented before award of civil works contracts. 69. Stakeholder consultations during the ESIA process provided a platform to participants to express their views, concerns and apprehensions that might affect them positively or negatively. In total, over 4,000 stakeholders were consulted as part of project preparation, including institutional actors, NGOs, and local communities. Consultations provided meaningful contributions with regard to reducing adverse impacts, addressing safety issues, and so on. Concerns, views and suggestions expressed by the participants during these consultations were integrated in the Project design and safeguards assessments. 70. The Project has a robust Citizen Engagement strategy with focus on strengthening accountability within the Project, which includes: (a) Consultations as the primary tool to promote stakeholder participation in the process of project design and implementation; (b) Development of a Grievance Redressal Mechanism to respond to the needs of beneficiaries and to address and 25 resolve their grievances and serve as a conduit for soliciting inquiries, inviting suggestions, and increasing community participation. The GRM will cover social, environmental, financial and procurement issues. The collected information will be used to improve operational performance, enhance the Project’s legitimacy among stakeholders; to promote transparency and accountability, deter fraud and corruption and mitigate Project risks; (c) Outreach and information campaigns will include the development of a Project website and Project side boards; and (d) User Satisfaction Surveys to obtain feedback on citizens’ perceptions of the adequacy and efficiency of services provided through improved cargo and passenger terminals; to monitor citizens’ access to services and the facilities, to guide BIWTA’s priorities in policy planning and service delivery; and to assess beneficiaries’ satisfaction with the quality and adequacy of services and further needs. The surveys will be administered three times during the life of the Project: (a) in year one to establish the baseline; (b) year 4 to feed into the Mid-Term Review; and, (c) in the last year of the Project to generate endline data and the results will be captured by the Citizen Engagement indicator: Percentage of Beneficiaries satisfied with infrastructure implemented by the Project (disaggregated by gender), as measured by user satisfaction surveys. F. Environment (including Safeguards) 71. IWT is overall a ‘greener’ transport mode compared to road and rail, notably with respect to GHG and other emissions per ton-km of goods or passengers transported. The Project will therefore overall contribute to improved environmental sustainability of the transport sector on some of the most-trafficked routes in the country, by enhancing the reliability, speed, safety and attractiveness of IWT transport. Nonetheless, Project activities also carry a range of environmental and social risks and impacts which must be appropriately minimized, mitigated and managed in accordance with safeguards policy requirements. 72. The Project is classified as an Environmental Category A project in accordance with OP 4.01 due to the nature and scale of the planned civil works, the complexity of environmental issues associated with the river dredging, and the ecological sensitivity of the Meghna River and estuary. Of the environmental safeguard policies, the Project will trigger (a) OP/BP 4.01 - Environmental Assessment, (b) OP/BP 4.04 - Natural Habitats (d) OP/BP 4.11 - Physical Cultural Resources, and OP 4.36 Forests (due to presence of some mangroves and social forestry plantations in the Project area). In addition, the Environmental, Health, and Safety (EHS) Guidelines of the Bank Group will be applicable to the Project. 73. For IWT route maintenance (Component 1), the main environmental impacts include disturbance of aquatic and benthic habitats, as well as impacts associated with disposal of dredged material. Based on the ESIA, dredging activities under the Project are not expected to cause significant long-term effects on aquatic or benthic species abundance or community diversity, given the existing highly dynamic nature of river morphology, with high sediment and flow volumes which significantly dwarf disturbances caused by the Project. In the smaller navigation channels within the Project area, dredging activities could lead to a marginal decrease in benthic community abundance and diversity within and near dredge locations. River maintenance activities may also impact downstream riverbank erosion patterns, and can temporarily disrupt other river uses such as navigation routes and fishing activities. Increased river traffic expected from Project investments may also increase the risks of improper discharge of waste, ballast waters, and oil spills from ships, with associated impacts to aquatic species. Vessel shelter 26 construction and maintenance will also involve dredging close to the bank to create a safe harbor area and breakwater system. Mitigation measures will be applied to minimize and manage these impacts, and ongoing monitoring will evaluate their effectiveness. A biodiversity conservation and enhancement program will be implemented to respond to any observed material negative impacts on species of conservation concern. 74. Disposal of dredged material, meanwhile, will take place within the river wherever technically feasible, at pre-designated locations which meet appropriate environmental criteria. The EMP has pre-identified several such locations. In areas close to heavy industries and urban areas, there is a possibility that dredged sediments may contain contamination, although baseline assessments carried out as part of the ESIA have not identified this as a major issue. If contaminated sediments are identified in dredge locations (for channel and ferry crossing maintenance as well as for vessel shelters) during project implementation, their disposal will be required to consider potential impacts to both aquatic and terrestrial flora and fauna, as well as possible risks to human health, and to comply with mitigation measures as outlined in the EMP. 75. For Component 2, the construction and rehabilitation/upgrading of river terminals and landing stations will meanwhile result in various impacts. In the construction stage, typical construction impacts will include noise, dust, construction-related vehicular traffic, management of solid waste and effluent discharges, and so on. At some of the locations, Chandpur terminal in particular, dredging will be required. At the proposed location of the new Shashanghat passenger terminal, soil remediation and clean-up may also be required, as the site is currently being used as a ship-breaking yard. In the operations phase, terminals will also generate ongoing noise to surrounding communities, and localized air pollution from idling ship engines. Management of ship-related waste (solid waste as well as effluents), as well as on-shore management of port- related vehicle traffic will also be potentially significant challenges. 76. For Component 1 activities, a full Environmental and Social Impact Assessment has been carried out by BIWTA. This study also includes a Cumulative Impact Assessment covering the full project area of influence (full IWT routes plus all launch terminals, landing stations, ferry crossings and vessel shelters), as well as an ESA Executive Summary also spanning the entire project. The ESIA includes an Environmental Management Plan, which specifies (a) the environmental, social, health and safety (ESHS) requirements of the contractor as well as of BIWTA (both during and beyond the life of the performance-based contractor); (b) roles/responsibilities/staffing and budget requirements for ESHS management by both contractor and BIWTA; (c) monitoring and reporting requirements on ESHS aspects; and, (d) capacity assessment and necessary capacity building measures for BIWTA. The EMP includes both site- specific provisions - such as specifications for depositing of dredge materials in environmentally appropriate locations (avoiding areas of critical habitat, and minimizing impacts to areas of natural habitat) - as well as general measures and performance criteria to minimize negative impacts of dredging operations and to manage impacts associated with vessel shelters. Contractors will furthermore be required to demonstrate adequate management systems such as through ISO 14001 certification, to retain appropriate ESHS expertise, and to apply relevant international good practices on environmental management in the dredging sector. To address long term and cumulative impacts associated with dredging and increased use of the waterways, the EMP also includes programs for protection and enhancement of sensitive habitat for biodiversity 27 conservation, such as by strengthening and/or establishment of hilsa fish and dolphin sanctuaries, mangrove restoration programs, and so on. 77. For river terminals and landing stations, since the exact location and the extent of the activities remain unknown, BIWTA has prepared an Environmental Management Framework covering the potential and likely impacts of these facilities and specifying the requirements for further assessment, planning, and management/mitigation of all such impacts. In accordance with the EMF, full detailed ESIAs for these facilities will be commissioned during year one of the Project, parallel to the feasibility and design studies. The EMF meanwhile includes site screenings of the proposed investment locations, preliminary identification of key issues, and key requirements for the full ESIA and design studies to ensure environmental issues are fully assessed and taken into account. The EMF also lays out institutional arrangements, responsibilities, and systems and preliminary budget estimation for completing the detailed assessments and for implementation, monitoring and oversight of mitigation and management measures. 78. Preparation of the ESIA included extensive consultations with stakeholders, including focus group discussions, informal consultation meetings, and key informant interviews as well as through more formal workshops. In total, over 4,000 individuals have been consulted on the environmental and social assessment package. Initial consultations were held during September November 2015 to share the Project objectives and Terms of Reference (ToR) of the proposed EA work. This included a national stakeholder consultation workshop in Dhaka on October 25, 2015, and workshops in Barisal and Ashuganj on November 18, 2015, to present key design features of the Project and preliminary findings of the ESA reports. The original versions of all safeguards assessments were disclosed both in-country and in the Bank Infoshop on December 2, 2015. Additional consultations at the community level, including in several of the known dredging locations, were subsequently carried out during the month of December, and updated versions were re-disclosed in-country on February 4, 2016 and at the Infoshop on February 8, 2016. The executive summary of the EA package, including the RPF, has been translated into Bengali and disclosed on BIWTA’s website, as well as made available locally in the Project area. A final national consultation workshop on the safeguards studies was held in Dhaka on March 31, 2016, attended by over 120 stakeholders from government, the private sector, NGOs and civil society. Feedback provided was reflected in the final updated versions, which were then re-disclosed both in-country and on the Infoshop in May 2016. 79. The PIU will have an Environmental and Social Cell, headed by a Deputy Director, supported by one social specialist and one environmental specialist and additional consultants as required, to ensure effective management of environmental issues across all project components, and to implement additional environmental sustainability and value-added activities under Component 3. In addition, the Project will support BIWTA to establish a permanent Environmental, Social and Climate Change Unit (ESCCU) in its institutional structure, which will ensure the long-term sustainability, climate resilience and climate sensitivity of project investments as well as other activities across the organization. To ensure proper environmental management in the Project, independent environmental auditing will be carried out by a third party monitoring firm. Annexes 4 and 6 provide additional details on the environmental and social impacts and management arrangements for the Project. 28 80. To further support and promote sector-wide environmental sustainability, the Bank will provide complementary technical assistance on various sustainability aspects to Ministry of Shipping and its affiliate agencies, as well as other relevant ministries, in conjunction with project implementation. Areas of technical assistance will include a study to identify policy and investment measures for ‘greening’ of the vessel fleet, a comprehensive climate change vulnerability assessment for the IWT sector and recommendations for adaptation and resilience measures, and development of a pilot program on biogas production from water hyacinth (which grows plentifully on Project waterways and currently causes obstacles to navigation). Recommendations from these studies would be considered for financing under a potential follow on investment project. GHG Emission Calculations 81. IWT is generally considered as a more emissions-efficient transport mode compared to roads. Analysis of the GHG implications of the Project is based on the assumption that Project investments will facilitate a modal shift from road to waterway for container cargo being transported between Dhaka and Chittagong.12 It is also assumed that the Project will increase vessel size for importing and exporting bulk and general cargos. The Freight Transport Model developed by the Transport and ICT Global Practice13 was used for estimating emissions. In the without-project scenario, expected increases in container cargo traffic between Dhaka and Chittagong due to economic growth over the Project period would primarily take the Dhaka- Chittagong highway, given existing limitations to the reliable availability of the IWT route. It is assumed that Project investments on the IWT route will induce some of this road-based container cargo traffic to instead take the waterway, and the average vessel size will also increase due to increased reliable navigation depth. Overall, emissions related to vessels plying the Dhaka- Chittagong IWT corridor will therefore increase as a result of the Project. However, since most additional container traffic between Dhaka and Chittagong would otherwise take the road in the absence of the Project, it follows that a relative reduction in road-based traffic emissions from trucks carrying container cargo will also result from the Project. Given that IWT transit is overall more fuel-efficient than road-based transit per ton-km hauled, the result is a net decrease in traffic- related GHG emissions between Dhaka and Chittagong, when compared to the without-project scenario. The increase in vessel size for importing and exporting bulk and general cargos will lead to fewer number of trips on inland waterways. Although larger size of vessels require higher fuel consumption per km for each vessel, the total amount of emission will be reduced. The aggregate net project emissions along the Dhaka-Chittagong Corridor between year 3 to year 8 of the Project (for example, the years when full advertised depth of the waterway is expected to be available) are therefore estimated to be -419,203 ton CO2. Assuming maintenance activities will be continued after the Project, total net emission up to year 20 is -1,998,759 ton CO2. Detailed methodology, assumptions and limitations are described in annex 7. G. Other Safeguards Policies Triggered 82. The Bank’s Operational Policy OP 7.50 Projects on International Waterways is triggered since Project activities will take place mostly on the Meghna River and in the Ganges- 12 Connecting routes to Ashuganj and Barisal were not modeled, due to insufficient baseline data on IWT traffic along these routes, and to remain consistent with the economic analysis which focuses on the main DCC corridor. 13 Kopp, A. (2015). GHG Analysis for Low-emission Transport. The World Bank. World Bank. (2015). GHG Analysis for Road Investment Guidance Note. 29 Brahmaputra-Meghna river system. Riparians of these rivers include India, Bhutan, China and Nepal. However, the Project qualifies for an exception from the requirement to notify other riparians under paragraph 7(a) of the policy. To this end, the Bank has determined that an exception is warranted given that the proposed interventions fit within the ongoing scheme of BIWTA’s dredging program (for example, all river channels to be dredged are already existing navigation routes) and existing facilities (for example, investments in terminals and landing stations involve additions/expansions or rehabilitation of existing facilities. The aforementioned activities to be financed by the Bank (a) will not adversely change the quality or quantity of water flows to the other riparians; and (b) will not be adversely affected by the other riparians’ possible water use. 83. BIWTA’s existing 5-year dredging program constitute an ‘ongoing scheme’. The BIWTA’s on-going dredging program is implemented in the following three sub-programs: (a) Dredging on 12 Important River Routes; (b) Dredging of 53 River Routes in Inland Waterways (1st Phase: 24 River Routes); and (c) Dredging of 53 River Routes in Inland Waterways (2nd Phase: 29 River Routes). The first sub-program was approved in October 2011; the second one in September 2012; and the third one is proposed with an implementation period from July 2014 to June 2020. The dredging activities to be financed under the Project are minor additions to BIWTA’s existing dredging program which covers rivers/routes already listed in such program. The list of selected rivers/routes on which dredging activities will be financed under the Project, which are part of the Government’s existing program, is in table 3.2 of annex 3 of this document. 84. In addition, the vessel shelters and other infrastructure are either rehabilitation of existing facilities, or minor additions or alterations to existing facilities since the Project will finance: one new general cargo terminal, one new passenger terminal and the rehabilitation of four other passenger terminals, compared to the 448 already existing river terminals, as well as the construction or rehabilitation of 14 landing ghats compared to the existing 374 landing ghats. The Bank has therefore determined that the activities will not adversely change the quality or quantity of water flows to other riparians, since Bangladesh is the lowest downstream riparian of the Ganges-Brahmaputra-Meghna system. In addition, the Project will not be adversely affected by other upstream riparians’ possible water uses, given the huge scale of water flows in the shared river system, and the nature of project investments. H. World Bank Grievance Redress 85. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or to the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the Bank ’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/grs. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 30 Annex 1: Results Framework and Monitoring Bangladesh Bangladesh Regional Waterway Transport Project 1 (P154511) Results Framework Project Development Objectives PDO Statement The development objective of the Project is to improve Inland Water Transport (IWT) efficiency and safety for passengers and cargo along the Chittagong- Dhaka-Ashuganj Regional Corridor and to enhance sector sustainability. These results are at Project Level Project Development Objective Indicators YR1 YR2 YR3 YR4 YR5 YR6 YR7 End Target Indicator Name Baseline (6/2017) (6/2018) (6/2019) (6/2020) (6/2021) (6/2022) (6/2023) ( 6/2024) Number of beneficiaries 69,729,100 Of which female 13,945,820 Number of days per year that the minimum advertised Least 150 150 150 347 347 347 347 347 347 Available Depth (LAD) is available (days) Availability of Aids to 30 30 30 95 95 95 95 95 95 Navigation (%) Travel time on the Dhaka- Chittagong Corridor for cargo 40 40 40 30 30 30 30 30 30 vessels (hours) Regional trade and transit traffic 1.89 1.89 1.89 2.10 2.30 2.60 2.90 3.20 3.50 (million metric tons) Annual Revenue derived from Tariffs associated with 14.5 14.5 14.5 14.5 14.5 21.8 21.8 29.0 29.0 Development and Maintenance of Infrastructure (US$ millions) Satisfaction of passengers at Tbd Tbd Tbd project terminals 31 Intermediate Results Indicators Cumulative Target Values YR1 YR2 YR3 YR4 YR5 YR6 YR7 End Target Indicator Name Baseline (6/2017) (6/2018) (6/2019) (6/2020) (6/2021) (6/2022) (6/2023) (YR8, 6/2024) Performance-based contracts for navigation improvement signed No Yes Yes Yes Yes Yes Yes Yes Yes (Yes/No) Number of Aids to Navigation installed - Light buoys 20 20 60 100 100 100 100 100 100 - Shore beacons 15 15 90 150 150 150 150 150 150 - Channel markers 5 5 180 300 300 300 300 300 300 Number of cargo terminals built 0 0 0 0 2 2 2 2 2 or rehabilitated Number of passenger terminals 0 0 0 0 2 3 4 4 4 built or rehabilitated Number of passenger landing 0 0 0 2 6 10 14 14 14 ghats built or rehabilitated Satisfaction of beneficiaries Tbd Tbd Tbd with consultation process Number of Class I routes with 0 0 0 1 3 5 5 5 5 ENCs produced Framework for sector sustainability including Tariff No No No Yes Yes Yes Yes Yes Yes Framework Developed (Yes/No) 32 Indicator Description . Project Development Objective Indicators Responsibility for Data Indicator Name Description (indicator definition and so on) Frequency Data Source / Methodology Collection Number of beneficiaries Count of number of Project beneficiaries, 3 Times (year Consultant surveys BIWTA Of which female disaggregated by gender 1, mid-term, last year) Number of days per year that BIWTA commits and advertises Least Annual Weekly contractor surveys, BIWTA advertised Least Available Available Depth (LAD) of 3.96m on Class I and data submitted by crowd Depth (LAD) is maintained on routes and 2.43m for Class II Routes. The sourcing vessels on hotspots Project Corridors increase in the number of days that the LAD is maintained corresponds to better maintenance and increased confidence in the navigability of the routes for users. Availability of Aids to An increase in the percentage of availability of Monthly Aids to Navigation Electronic BIWTA Navigation along Project Aids to Navigation as a percentage of total Monitoring System Corridors availability indicates improved reliability Travel time on the Dhaka- Travel time on the main corridor is measured Yearly Surveys of vessels normally BIWTA Chittagong Corridor for cargo by vessels plying the route daily. plying the route vessels (Hours) Regional trade and transit Regional trade and transit traffic is currently Yearly Customs and BIWTA BIWTA traffic (million metric tons) tracked by Customs and BIWTA clearance and permitting data Increase in Tariffs associated BIWTA currently collects tariffs and tracks Yearly BIWTA tariff collection data BIWTA with Development and manually Maintenance of Infrastructure (US$ millions) . 33 Intermediate Results Indicators Responsibility for Data Indicator Name Description (indicator definition and so on) Frequency Data Source / Methodology Collection Performance-based contract Signing of the Performance based contract Yearly BIWTA BIWTA for navigation improvement signed Number of Aids to Navigation Count of the number of Aids to Navigation Yearly BIWTA BIWTA installed installed Number of cargo terminals Count of the number of cargo terminals built Yearly BIWTA BIWTA built or rehabilitated or rehabilitated (completion of works) Number of passenger Count of the number of passenger terminals Yearly BIWTA BIWTA terminals built or rehabilitated built or rehabilitated (completion of works) Number of landing ghats built Count of the number of landing ghats built or Yearly BIWTA BIWTA or rehabilitated rehabilitated (completion of works) Percentage of beneficiaries Required citizen engagement indicator 3 Times (year Consultant surveys BIWTA satisfied with infrastructure measured by three satisfaction surveys—year 1, mid-term, implemented by the Project 1, mid-term and last year) last year) (disaggregated by gender), as measured by user satisfaction surveys Number of Class I routes with Count of number of Class I routes where ENCs Yearly BIWTA BIWTA ENCs produced have been produced Framework for sector There is currently no framework for sector Yearly BIWTA BIWTA sustainability including Tariff sustainability. The framework needs to be Framework developed defined and the Tariff Framework developed 34 Annex 2: Sector and Fiscal Analysis BANGLADESH: Bangladesh Regional Waterway Transport Project 1 1. Since maintaining operational and financial sustainability of the sector continues to be a challenge for the government and BIWTA, this annex provides a summary of the challenges, and how BIWTA plans to approach the issues during the implementation of the Project. 2. BIWTA operates as a fully-owned Government corporation under the Ministry of Shipping. Its primary purpose is the development and control of Inland Water Transport. Among other things, it performs a regulatory function, including fixing minimum prices and tariffs for both passenger and cargo transport. 3. While Authority is meant to operate as a not a profit making organization, its revenues fall far short of expenditure, despite Government subsidy. In the financial year 2013/2014 total earnings were just US$16.25 million, while total expenditure was some US$43.53 million. Though government subsidies (grants) accounted for close to US$20 million (1.2 times total earnings and close to 1.5 times operational earnings), the Authority still posted a net deficit of some US$7.37 million. 4. Operational income, which accounts for 83 percent of all income is derived mainly from port revenues (especially cargo and passenger fees), which accounted for US$10.5 million (close to 65 percent of all income in year 2013/14/). Other operational income included a meager US$1.58 million from river conservancy, pilotage and salvage charges (though levies based on the number and size of ships using the rivers amounted to less than half of all conservancy charges), an even smaller US$0.3 million from canal revenue and some US$1.23 million from dredging revenue (hire of plant and equipment for other government agency or private use). Non- Operational income amounted to 17 percent of all income is derived mainly from interests on bank deposits, land and property rents and sale proceeds (of redundant equipment). 5. By comparison, the cost of maintaining and running the dredging fleet for river conservancy works in the same year amounted to US$12.6 million, about 29 percent of all expenditure (and about 16 times the amount levied to users for river conservancy—excluding pilotage). However, the amount spent on maintenance dredging falls well short of the estimated US$200 million annually required to maintain the existing list of 24 approved routes (at current Bangladeshi prices of US$2/m3) and, an additional US$480 million annually to dredge the routes awaiting government approval (at similar low rates). 6. Indeed, not only is current spending insufficient to guarantee advertised depths (and provision of aids to navigation) on existing routes, but a lack of modern surveying technology and, the short ‘capital’ nature of the dredging contracts (in rivers requiring continuous maintenance to keep pace with re-sedimentation loads) often means that spending (even over and above what may be required) fails to deliver the expected results. The exception to this is on the main ferry crossing routes, especially on the Padma River, where dredging has been very successful. 7. This problem is compounded by the sheer size and nature of some of the rivers, which prevent economic investment in short-term river training works (to reduce dredging need) and, high seasonal variations of river height, discharge and flow rates often leading to river channels 35 that can shift entirely from season to season. Bangladesh’s low lying topography and long tidal reaches often compound sediment patterns, especially in the delta area. 8. Over and above these challenges, expenditures have also been growing at an average of 7 percent year on year since 2010/11, while revenues have been decreasing by about 1.5 percent (meaning that the level of Government subsidy needs to increase to keep pace with spending (Government subsidy in 2010/11 was approximately US$18 million). Table 2.1 lists BIWTA’s revenue and expenditure over the 2010/11-2013/14 period. Table 2.1. Revenue and Expenditure 2010/11–2013/14 (US$) Year Description 2010/11 2011/12 2012/13 2013/14 Operating Income 9,546,764 13,983,634 13,794,433 13,566,532 Other Income 1,634,794 4,322,749 7,148,023 2,690,099 Total Income 11,181,557 18,306,382 20,942,457 16,256,631 Operating Expenditure 22,614,327 24,246,681 28,559,238 33,693,712 Other Expenditure 6,772,488 7,152,793 7,834,880 9,836,548 (Charges) Total Expenditure 29,386,815 31,399,474 36,394,118 43,530,259 Net Profit/Loss (18,205,257) (13,093,091) (15,451,661) (27,273,628) GOB Grants 17,888,407 15,380,544 17,972,480 19,904,256 Surplus/Deficit (316,851) 2,287,453 2,520,819 (7,369,372) 9. Accordingly and as part of a program (with other interventions) to ensure long-term, cost- effective sustainability, BIWTA wishes to review its revenue and expenditure policy for IWT as described in table 2.2. This entails:  Conducting a Tariff Review to look into how both infrastructure and service charges are levied—with a view to reducing dependence on Government subsidies;  Conducting an Organizational Review to look into mechanisms to reduce expenditure; and,  Conducting an Operations Review to ensure dredging delivers results in solutions that provide best value (rather than lowest cost)—including investment in new technology and work processes. 10. On the main priority routes, the aim should be to make IWT competitive through operation of well-loaded vessels on a regularly used network by an organization with a lean and market- oriented corporate management. Vessel size and payload should provide operating economies, traffic density and heavy network use provide infrastructure economies and corporate structure yields overhead savings. 11. The Tariff Review element of the program shall be designed with the aim to: (a) Ensure that the Authority does not make a loss in any financial year; (b) Maintain a level of financial strength that will support an investment grade credit rating; 36 (c) Generate an Internal Rate of Return on assets from its predicted net cash flows approaching its Weighted Average Cost of Capital (measured over a period of 20 years) and considering the timing of major capital programs and the necessity to smooth prices in any given year; (d) Generate sufficient revenue for user services that are no lower than the forward-looking avoidable cost of providing that service; and no higher than that required to support the provision of that service on a stand-alone basis; (e) Provide an explanation and rationale for any changes in the tariff structure to the GoB and river users. 12. Specifically, BIWTA wishes to establish a mechanism by which they will be able to set prices for the different services that are sufficient to meet their long-run costs. This will mean undertaking: (a) An analysis of the existing tariffs and different tariff categories, their function, the type of charges and the charging units; (b) An analysis of revenue derived on a year on year basis between 2010 to 2015 from port dues and/or other conservancy charges levied to recover the cost incurred in providing facilities necessary to ensure safe ports (defined as one in which ships can reach, enter, remain at and depart without being exposed to dangers which cannot be avoided by good navigation and seamanship—that is, the cost of channel dredging, widening, and so on); (c) An analysis of revenue from any charges levied to recover costs associated with provision of basic infrastructure to facilitate the movement of cargo, differentiated into the container, dry bulk, liquid bulks, general and other cargo trades; (d) An analysis of revenue derived from ship-related user charges, (navigation dues, pilotage, and so on) differentiated by ship size and type in the various trades; (e) An analysis of revenue derived from both passenger and cargo-related user charges (stevedoring, shore handling, and so on); (f) An analysis of revenue derived from storage charges, warehousing and other charges for the different trades; (g) An analysis of revenue derived from all other tariffs; (h) An analysis of the asset register, and in particular an analysis of the description and value of all listed assets and their remaining economic useful life. 13. The analysis should result in a Tariff Framework that: (a) Is structured to align with services provided by BIWTA; (b) Takes into account best practice, current tariff trends and local conditions; (c) Allows calculation of rates of return; (d) Takes into consideration different cost-based pricing methodologies, including: (i) Average cost pricing (determined by adding the total fixed and variable costs and dividing this sum by the projected demand for IWT services); 37 (ii) Marginal and Variable cost pricing (determined by dividing the total variable costs by the projected demand for the services and the facilities); (iii) Performance-based pricing (regarding the use of facilities and optimal usage); (iv) Market or Value-based pricing; (e) Aims at increasing the economic efficiency while maintaining value; (f) Is based on user forecasts and takes into account expected changes to usage resulting from the completion of projects; (g) Includes all hidden operating and overhead costs; (h) Allows for estimated taxation expenses; (i) Includes existing borrowings, proposed repayments and proposed new borrowings; (j) Includes allowances for profit and/or an allowance to retain earnings for future equity investment; and, (k) Includes an allowance for cash-flows; (l) Takes into consideration the need for reduction, abolition, merging and even introduction of new tariff clauses and rates; 14. The analysis should also result in a new reference tariff that ensures: (a) That all users are charged for all uses of BIWTA facilities and infrastructure; (b) Takes into account the necessity (if any) for smoothing price increases to minimize large step changes when planned investments are scheduled to take place; (c) Maintains BIWTA’s reputation for being an honest, fair and efficient manager of IWT (d) Sets out the charges for each regulated service; and, (e) Provides a description of all regulated services together with any applicable service standards. Table 2.2. Sector Sustainability Action Plan Project Subcomponent Action Timeline Component Component 1: Improved Inland Maintenance Dredging, Navigational Aids Years 2–8 Waterway Navigation Component 2: Improved Services at Priority Inland Waterway Terminals River Terminals and Landing Stations Years 2–5 and Landing Stations Tariff Review Organizational Review Component 3: Revenue and Operational Review Year 3 Institutional Institutional Development of River Information Systems Year 4 Capacity Sustainability (Hydrographic Data System and Electronic Year 5 Development Nautical Charts, Aids-to-Navigation Monitoring and Sector System, Traffic Monitoring System) Sustainability Operations Enhanced Human Resources Capacity Years 2–8 Strengthening 38 Annex 3: Detailed Program and Project Description BANGLADESH: Bangladesh Regional Waterway Transport Project 1 A. Regional Program 1. The BBIN/Eastern Corridor regional program aims to facilitate the movement of passengers and cargo on multimodal transport networks for the benefit of traders, transporters, producers, passengers and communities in Bangladesh, Bhutan, India, and Nepal. 2. To support the recent remarkable trends in regional cooperation, the Bank has developed and implemented since 2011 a continually evolving Regional program to support the BBIN countries improve connectivity and trade potential along the ‘Eastern Corridor’ of South Asia. The investments in the Regional Program are described below and mapped in Figure 3.1, and are complemented by a significant regional technical assistance and analytical program. The investments include projects supporting regional connectivity for the BBIN countries through road, rail, ICT, and inland waterway connectivity and trade facilitation measures that aim to facilitate intra-regional trade as well as access to the sea and international markets for the landlocked countries and sub-regions namely Bhutan, Nepal, and Northeast India. Project A: FY14 Nepal-India Regional Trade and Transport Project (P144335). US$99 million in national and regional IDA financing plus IFC Advisory Services support for investments that decrease transport time and logistics costs for bilateral trade between Nepal and India and transit trade along the Kathmandu-Kolkata corridor including: (a) Modernizing transport and transit arrangements between Nepal and India; (b) Strengthening Trade-Related Institutional Capacity in Nepal (Trade Portal and Single Window System Development, Improvement of Trade-Related Laboratories, Institutional strengthening for Interagency Coordination); and, (c) Improving Select Trade-Related Infrastructure (Narayanghat-Mugling road section and improvement of the entire Birgunj-Kathmandu Corridor, new ICD (Inland Container/Clearance Depot) in Kathmandu, and improvement of existing ICDs at Birgunj and Bhairahawa). Project B: FY15 Mizoram State Roads II - Regional Transport Connectivity Project (P145778). US$107 in national and regional IDA to Government of India to support increasing transport connectivity along regional trade corridors in Mizoram. Improvements to the transport network would enhance the environment for development and growth by reducing freight and passenger transport costs, and by providing quicker and safer access to all parts of the state and to neighboring states and countries including Bangladesh and Myanmar. Project C: proposed FY17 Bangladesh Regional Connectivity Project 1 (P154580). US$120 million in national and regional IDA financing to Government of Bangladesh to support investments that complement and connect directly to the BBIN Regional IWT Program to provide multimodal connectivity by road and inland waterways between the BBIN countries. The proposed investments support trade facilitation measures and facilitate road connectivity with the regional inland waterway routes through Ashuganj, allowing vehicles, passengers and cargo to take more direct routes between Bhutan, Nepal, and Northeast India to Dhaka and Chittagong Port in Bangladesh and to Kolkata Port in West Bengal. 39 Project D: proposed FY17 Bhutan Regional Connectivity Project (P157726). US$45 million in national and regional IDA financing to Government of Bhutan to support investments in a dry port/ICD that reduces transport costs and facilitates trade with India, Bangladesh and third countries; and improves telecommunications connectivity/redundancy through India and Bangladesh. Project E: proposed FY16 Bangladesh Regional Waterway Transport Project 1 (P154511). US$360 million in national and regional IDA financing to Government of Bangladesh to support improving navigability along the highest priority regional waterways including Chittagong-Dhaka-Ashuganj Corridor used by Indian, Bhutanese, and Bangladeshi trade, and in future Nepalese trade. Project F: proposed FY17 India: Capacity Augmentation of National Waterway 1 Project (P148775). US$200 million in Bank financing to Government of India to support enhancing the transport capacity and reliability of National Waterway 1 (the Ganga/Padma, a Bilateral Protocol Route) and augmenting institutional capacity for the development and management of India's inland waterway transport system. Project G: proposed FY17 India: Assam Inland Water Transport Project (P157929). US$150 million in Bank financing for Phase 1 to facilitate passenger transport in Assam (the Brahmaputra, a Bilateral Protocol Route), and to facilitate bilateral, international and transit trade and cargo transport along NW2 and Bilateral Protocol Routes to and through Bangladesh. Project H: proposed FY17–18 Bangladesh Regional Waterway Transport Project 2. US$400–US$500 million in regional and national IDA financing to Government of Bangladesh to support investments based on the outcome of the 53-route study (financed by the Bangladesh Trade and Transport Studies RETF Project, P148881) to prioritize regional inland waterways in Bangladesh for investment, including all remaining feasible Bilateral Protocol Routes that are not part of investments in Project 1 (for example, Jamuna, Padma). Foreseeable investments include improvements in river navigability to additional routes; investment in modal change infrastructure, last mile connectivity; sector reform; PPP and continuing institutional and capacity development leading to expansion of cargo and passenger transport on inland waterways, including along the Bilateral Protocol Routes. 40 Figure 3.1. Map—BBIN Regional Multimodal Connectivity Program 41 Detailed Description of Project Components 3. The Project will finance interventions aimed at improving IWT for cargo and passengers along the heavily-trafficked Chittagong-Dhaka-Ashuganj river routes, and in so doing, stimulating traffic growth on the waterways and away from the already heavily congested roads along these routes. These fall under the jurisdiction of the Bangladesh Inland Water Transport Authority (BIWTA), a Government authority mandated to oversee sector development. Main interventions include: navigation channel maintenance and improvement; navigation safety improvements; the construction, rehabilitation, and modernization of select river terminals; development of River Information Systems; institutional capacity development; and, funding for research and development to enable continuing sector improvement and sustainability. This includes work on sector policies and strategies needed to: improve revenue collection and management; incentivize public and private sector investments especially related to container transport; and, mitigate and improve IWT’s impact on the social and physical environment. The Project consists of three components as follows: Component 1: Improved Inland Waterway Navigation (IDA financing: US$235 million) 4. This component shall include work to guarantee advertised depths and widths of navigation channels on select river routes (see table 3.2). The work also includes provision of aids to navigation. The work is to be done on a Performance-based Contracting method designed to increase the efficiency and effectiveness of river asset management and maintenance. It is designed to ensure that the physical condition of the rivers under contract are adequate for the need of river users, over the entire period of the contract which is six to seven years. This type of contract significantly expands the role of the private sector, from the simple execution of works to the management and conservation of river assets. This is a departure from the traditional river maintenance contracts used in Bangladesh which have been less-than-optimal. Even where works have been carried out according to plan, the nature of the rivers has meant that advertised depths, aids to navigation and other river infrastructure do not last as long as they should because of deficiencies in the original design, aggravated by inadequate maintenance. The beneficiaries of the new concept are expected to be the river users. In a wider sense, future generations will be able to benefit from a better maintenance of past investments. River users will be able to know the Service Level they can expect in return for the payments they make for the use of the infrastructure (tolls, tariffs, user fees, taxes, and so on). The River Administration shall also benefit by obtaining better overall river conditions with reduced levels of expenditure. 5. Also included in Component 1 is work to provide safe harbors (storm shelters) whereby users can seek shelter from stress of weather in the Meghna Delta area during tropical cyclones. The Bay of Bengal is responsible for the formation of some of the strongest and most destructive tropical cyclones in the world. Adverse wave conditions, heavy rainfall and associated storm surges from these cyclones are a major cause of loss of life and infrastructure damage in the maritime delta area. It is intended that the storm shelters shall be constructed and maintained under the same Performance-based Contract, since the works will primarily consist of dredging close to the bank to create a safe harbor area and breakwater system, and few to no permanent onshore structures. 6. Activities to be financed under this component include: (a) bathymetric and other surveys to determine the extent and types of dredging required, river training, environmental protection or 42 other works; (b) visual aids for day and night navigation such as light buoys, radar beacons, leading lines and other aids; (c) limited and selected performance-based dredging to achieve guaranteed advertised Least Available Depth; (d) development of six vessel shelters within remote cyclone areas equipped with mooring buoys to ensure safety for the vessels. In addition, Design, Supervision, Safeguards Services, and Other Activities relating to Navigation Improvement will also be financed including: (e) provision of supervision and performance monitoring consulting services for the works carried out under for this component; (f) carrying out of land assessments to identify suitable land for the activities under this component, including the allocation and acquisition of land and the provision of resettlement and rehabilitation compensations to Displaced Persons; and, (g) carrying out environmental mitigation measures for this component in accordance with the EMP, including supervision and management of the Dredged Material Disposal Plan and for biodiversity conservation activities. Component 2: Improved Services at Priority Inland Waterway Terminals and Landing Stations (IDA financing: US$75 million) 7. In addition to BIWTA’s function to provide river conservancy works including river training works for navigational purposes and for provision of aids to navigation, BIWTA is also responsible to develop, operate and maintain facilities for the landing of goods and passengers. Currently there are some 24 river ports of varying size, the largest in the Dhaka area which extends some 40km along the length of the Buriganga River. Within these BIWTA manage some 448 river terminals/stations. Outside the port limits, BIWTA is also responsible for the provision of 448 riverine stations, 374 landing ghats, 23 coastal stations, 8 ferry terminals, 24 pilot stations. This component is focused on assisting BIWTA to develop and grow some of these facilities, including 2 common user cargo terminals, 4 passenger terminals and 14 landing ghats. The design of the river terminals and landing stations will improve intermodal connectivity by improving landward river access and improved facilities for ships. For passengers, the works will include improvement of the security, safety and the waiting environment in remote rural locations, with suitable passenger and luggage handling, sanitation and other facilities. The facilities shall specifically incorporate the needs of women users and small traders (such as toilet facilities for women, women-only waiting rooms) and address safety-related issues for women users. BIWTA will also make suggested changes to operational guidelines to improve women’s safety and experiences using inland water transport services. All investments under this component will also aim to enhance the climate change resiliency of terminals and landing stations, such as through design adaptations to account for the expected increased variation in river flows, more intense or frequent extreme storm events, and so on. Subcomponent 2A: Improvement and Development of Selected Cargo Terminals. 8. This subcomponent supports the (a) development of a new common user (public) general cargo terminal with access infrastructure at on the Buriganga River adjacent to the existing Pangaon container terminal; and (b) Rehabilitation and modernization of the existing general cargo terminal at Ashuganj. Included are all upfront design and other studies to ensure efficient transfer of forecast cargo from various design vessels to the in-country land transport networks. Rehabilitation at Ashuganj shall include work to prevent river bank erosion, the replacement of pontoons, gangways and other dilapidated marine structures, the extension of berthing space, yard paving and access improvement. 43 Subcomponent 2B: Improvement and Development Selected Priority Passenger Terminals. 9. This subcomponent supports: (a) construction of a new passenger terminal at Shashanghat downstream of the existing terminal at Sadarghat where landside congestion preclude the development of additional berths; (b) rehabilitation works for the passenger terminal at Narayanganj; (c) construction works for the new passenger terminal at Madrashaghat, Chandpur near the existing terminal; and, (d) extension of the existing passenger terminal at Barisal. The passenger terminal at Sadarghat is heavily congested. On a daily basis over 60 thousand people use the facility, which has run out of space for expansion. The new passenger terminal is located on land owned by BIWTA, downstream on the Buriganga River. The new facility shall be on the landward side. Studies have already been commissioned to determine various design options which include the development of multi-level passenger terminal (of approximately 20,000m2), access roads, car and bus parking and waiting areas. On the riverside, it shall include works to improve the berth basin, bank and provision of floating pontoons together with link-span and other arrangements. Rehabilitation works at the other terminals will focus on structural repair and modernization/expansion of existing terminal facilities, including car/bus and passenger access and waiting areas. Subcomponent 2C: Rehabilitation works or new construction of up to 14 Existing Landing Stations/Ghats. 10. The 14 landing stations/ghats are mainly located in the lower Meghna River, especially on remote chars or river islands where facilities are either in very poor condition or non-existent. These facilities are often the only means of landing passengers and goods to communities without other transport alternative. Subcomponent 2D. Design, Supervision, Safeguards Services, and Other Activities relating to River Port Terminals and Landing Stations. 11. Activities include: (a) Provision of supervision and performance monitoring consulting services for the works carried out under Components 2A, 2B and 2C of the Project; (b) Carrying out of land assessments to identify suitable land for the activities to be carried out under Part 2.A, 2.B and 2.C of the Project, including the allocation and acquisition of land and the provision of resettlement and rehabilitation compensations to Displaced Persons; and, (c) Carrying out environmental mitigation measures under Component 2 of the Project in accordance with the EMF, and site-specific EMPs to be developed. Component 3: Institutional Capacity Development and Sector Sustainability (IDA financing US$50 million). 12. A series of activities are proposed that will support BIWTA’s overall enhancement of its management systems and human resources capacity for modern, efficient, and high quality management of the IWT sector in line with international standards, and to help BIWTA achieve long-term operational and financial sustainability, and enhance the climate resilience of the IWT sector. Activities to be supported include: (a) Supporting the development of River Information Systems to improve data collection for the planning, maintenance and development of inland water transport and which help improve revenue and institutional sustainability, including the collection and dissemination of hydrographic data and electronic nautical charts; provision of an aid-to- navigation monitoring system; provision of vessel and terminal maintenance plans; provision of a 44 traffic monitoring system for passengers and cargo; conducting a Tariff Review to look into how both infrastructure and service charges are levied—with a view to reducing dependence on Government subsidies; conducting an Organizational Review to look into mechanisms to reduce expenditure; and, conducting an Operations Review to ensure dredging delivers results in solutions that provide best value (rather than lowest cost) including investment in new technology and work processes. . b) improvement of Human Resources capacity for better management of the IWT sector through upgrading and modernizing the IWT Deck and Engine Personnel Training Centre into a regional IWT Training Center with open access to all users in the Region and the world; (c) financing of feasibility, surveys, design and safeguards studies for continuous sector development; and, (d) support for the Project Implementation Unit, including the provision of equipment, systems and consulting services.. Subcomponent 3A: Revenue & Institutional Sustainability. 13. Organizational Review, Operational Review, Development of River Information Systems (Hydrographic Data System and Electronic Nautical Charts, Aids-to-Navigation Monitoring System, Traffic Monitoring System). This subcomponent will help BIWTA improve data collection for the planning, maintenance and development of IWT, as well as enhance climate resiliency of the IWT sector in Bangladesh by creating a more systematized baseline understanding of river hydrology and navigational implications (which is necessary to underpin modeling and prediction of future effects with climate change, for long-term planning). It consists of:  Hydrographic Data System and Electronic Nautical Charts - the most fundamental of all aids to navigation. This part includes the supply of new survey vessels (for operation in coastal and inland water areas), modern survey and charting technologies (including multi- beam echo-sounders and LIDAR technology), new Differential Global Positioning System (DGPS) capacity, river gauge stations, and a system to produce and disseminate Electronic Nautical Charts for the main priority routes along the Chittagong-Dhaka-Ashuganj IWT Corridor, as well as paper charts and river navigation notices on other important routes. This subcomponent also includes possible development of crowd source technologies to obtain important (and changing) bathymetric information through procurement and installation of equipment on select commercial vessels regularly operating on various river routes; procurement of coastal survey vessels (with multi-beam survey capacity), procurement of inland survey vessels (with multiple single beam survey capacity), procurement of small speed boats (with single beam survey capacity for cross lining and bank survey works) and procurement of new topographic survey technologies for survey of banks, chars and other important navigation features. Remaining work to complete surveys for all remaining Bilateral Protocol and High Priority routes (from 53- route study currently financed under the Bangladesh Trade and Transport Studies RETF Project) will also be financed.  Provision of an Aid-to-Navigation Monitoring System - allowing BIWTA to maintain the availability of the same in accordance with International standards. This part shall include the use of remote Supply an AtN Monitoring System for BIWTA, which will use electronic signals to monitor Aids to Navigation. BIWTA staff will be trained to monitor this system, and the PBC contractor and Monitoring/Supervision Consultant can access this system to monitor the installed Aids to Navigation. 45  Provision of traffic monitoring system for passengers and cargo - allowing BIWTA to establish mechanisms to control and manage revenue and cost, which is an essential tool in the development of sustainable user pay principal and cost-recovery framework. Subcomponent 3B: Improved Human Resources Capacity for Management of IWT sector. 14. A Regional IWT Training Institute will be supported in this component. The Deck and Engine Personnel Training Centre, located at Sonakanda, Narayanganj will be upgraded and modernized into a Regional IWT Training Institute. The DEPTC was established in 1971 and currently provides various courses for both deck and engine personnel, with on cadet (pre-sea) training for the merchant fleet, as well as some in-service training for inland matters (Class 1, 2 and 3). In total it trains some 100 cadets annually and some 1,200 in-service personnel on up to 20 different short courses. Most of the facilities are very dated and the center lacks modern teaching aids, including essential equipment such as computers, bridge and other simulators, modern workshops, equipment for life saving and other drills, a modern library and other essential training aids. This subcomponent shall modernize the training facility into a comprehensive training facility on all IWT-related subjects, with open access to all. It shall include a review of all existing legislation that affects the way the institute functions, with the aim of aligning the institute to the general principals contained in the International Convention on Standards of Training, Certification and Watchkeeping for seafarers as amended by the Manila Protocol in 2010 (STCW- 2010) - that are appropriate for the operation of inland waterway vessels (and vessels making short coastal voyages). Based on a training needs assessment, the work shall also include upgrading the institute to academy standard, possibly overseen by a board of governors and managed by an executive committee with an academic and development council (drawn from Government and industry). A program to recruit and train the trainers shall be undertaken and the facility shall be equipped with modern training aids. This shall include: facilities for instruction in survival at sea; fire-fighting; first aid; and other short courses. Included in this subcomponent shall be provision of a life boat station, fire-fighting facilities, bridge and navigation simulators, radar stations, marine radio and equipment for the instruction of deck officers and personnel, facilities for the instruction of engine room personnel, upgrade of workshops, libraries, classrooms and computer stations. A sediment and water quality analysis laboratory is also proposed. A Train the Trainers Program for selected staff. Support the capacity development of selected staff who will become trainers in their departments on international standards in different aspects of sustainable management of the IWT sector. About 100 senior staff (or 20 per year over 5 years) including senior staff from Dredging, Hydrography, Piloting, Planning, and Finance Management departments will be trained in Europe on 2–4 week programs. When the trained staff return they will be required to set up a training program and train staff in their departments on the relevant skills that they have learned. Subcomponent 3C: Continuous Sector Development - Feasibility, Surveys, Design and Safeguards Studies for Continuous Sector Development. 15. This subcomponent will support preparation and design activities as needed to support future investments and continuous sector improvement, including preparation studies for prioritized investments as determined by the current ongoing 53-route study financed by the Bangladesh Trade and Transport Studies RETF Project, and Origin-Destination studies. These prioritized investments include routes that support regional trade with India and Bhutan. Foreseeable studies include: (a) a feasibility and design study to examine options for Ship-to-Ship 46 trans-shipment at or near Chittagong to avoid dwell time at Chittagong Port for containerized and bulk cargo; (b) Feasibility, design, surveys and safeguards studies for improvement of Dhaikawa/Chilmari River Terminal and Customs Station (on Jamuna/Brahmaputra) for transport of goods to/from Bhutan and Northeast India; and, (c) Feasibility, design, surveys and safeguards studies for improvement of navigability and river terminals along other Bilateral Protocol routes and high priority routes. Subcomponent 3D: Project Implementation Unit Capacity Support. 16. This component will support the hiring of a project manager, procurement, financial management, technical, and environmental and social safeguards specialists needed for implementation of the Project. The costs relating to internal audit, selected IT and monitoring systems and equipment will also be procured to support the work of the PIU. The Government will finance office space, meeting sitting fees, honoraria, deputized civil servant salaries, vehicles, fuel and other transport costs. 47 Table 3.2. Project River Routes Route Channel width Dredging Route No. River Name From/To Class m (no slope) depth m Buriganga, Dhaka (Zinzira River 1 and 2 Dhaleshwari 1 76 -4.3 Ghat)/Munshigang and Meghna 2 (South of Meghna Munshigang/Chittagong 1 76 -4.3 Chandpur) Shitalakshya 3 and 4 Munshiganj/Gorashal 1 76 -4.3 and Meghna 5 Meghna Munshiganj/Ashuganj 1 76 -4.3 6 Meghna Nabinagar Loop 1 76 -4.3 Meghna and Approach via Hijlai upto 14 1 76 -4.3 distributaries Barisal 18 Bishkhali Barisal Jhalokati 2 76 -2.8 19 Meghna Chandpur/Shariatpur 2 76 -2.8 20 Meghna Lakshmipur/Bhola 2 76 -2.8 21 Tentulia Beduria/Laharhat 2 76 -2.8 22 Meghna Boddarhat/Daulatka 2 76 -2.8 Nasingindi Northen and 7 and 8 Meghna 2 76 -2.8 Southern Approachws 12 Chandpur Chandpur/R-140 Bridge 2 76 -2.8 Approach from Alubazar Meghna and 13 North of Batamara up-to 2 76 -2.8 Arial Khan At Hazar Looping Route Inside 13a Meghna 2 76 -2.8 Char Hijla Bancharampur Homa 9 Meghna 3 30 -2.1 Loop 10 Meghna Homna/Daukandi 3 30 -2.1 Mehhna, 15 and 16 Mehendiganj/Beduria 3 30 -2.1 Tentulia Beduria/Route 14 (North 17 Tentulia 3 30 -2.1 of At Haza) 48 Annex 4: Implementation Arrangements BANGLADESH: Bangladesh Regional Waterway Transport Project 1 Project Implementation Arrangements Project Administration Mechanisms 17. BIWTA will be the Implementing Agency for the Project. It plans to set up a separate Project Implementation Unit (PIU) at the main office building headed by the Project Director reporting to the Chairman, BIWTA who is also Chair of the Project Implementation Committee (PIC) of BIWTA. The PIC, consisting of members from MoS and other agencies, will be supporting project implementation, monitoring implementation progress, and guide decisions at the implementation level. A Project Steering Committee (PSC) chaired by the Secretary, MoS with members from ERD, Ministry of Finance (MoF), Planning Commission, and BIWTA will be providing high-level guidance and monitoring especially at the policy level, and make decisions on high-value contracts above defined thresholds. The PSC will meet every six months or more often on an as-needed basis. The PIU shall be fully responsible for planning, procurement, implementation, monitoring, reporting, and coordination with the Bank. The Project Director of the PIU will be supported by an Additional Chief Engineer as Deputy Project Director. The PIU includes a Procurement and Contract Management Cell, Safeguards Cell, Civil Works Cell, Finance and Administration Cell, and a Planning and Monitoring Cell (see figure 4.1. Project Implementation Institutional Arrangements). Twenty-four (24) positions will be hired or deputed by the Government. In addition, consultants will supplement the capacity of the PIU as needed. 18. Considering the multi-disciplinary project components requiring special skills and knowledge on Hydrology and Hydrography, Dredging, Terminals, Landing Stations, Navigation, Rescue and Safety, and Capacity Development, the PIU will also be supported by the Technical Divisions of BIWTA. Technical support will be provided from the Hydrography Department, Dredging Department, Civil Engineering Department, Mechanical and Marine Engineering Department, Deck and Engine Personnel Training Center, and Conservancy and Pilotage Department of BIWTA when required by the PIU. 49 Figure 4.1. Project Implementation Institutional Arrangements Project Steering Committee chaired by Secretary, MoS Technical support from BIWTA technical Divisions:  Hydrography Department  Dredging Department Project Implementation Committee  Civil Engineering Department (PIC) chaired by the Chairman,  Mechanical and Marine BIWTA Engineering Department  Deck and Engine Personnel Training Center Project Director  Conservancy and Pilotage Department Procurement/ Environmental and Civil Works (Dredging, Finance and Admin. Planning and Contract Mgt Cell Social Cell Terminals, Training Cell Monitoring Cell Centre) Deputed Positions (3) Deputed Positions (6) 1 Deputy Director Deputed Positions (4) Deputed Positions (8) Deputed Positions 1 Deputy Project 1 Environment 1 SE 1 Joint Director (2) Director Specialist 1 EE 1 Assist. Director 1 Joint Director 1 SE 1 Social Specialist 2 AEs 2 Accounts Officers 1 Asst Director 2 EEs 1 Accountant 2 AEs Consultants Consultants 3 Computer Operators Consultants Environment Expert Dredging Expert Surveys/M&E Consultants Social Specialist Surveys Expert Consultants Specialist Procurement Specialist Communications and River Ports Engineer Finance Specialist GRM Specialist  Design and Supervision Consultants for Terminal Construction, Rehabilitation, and Improvement Works;  Monitoring and Supervision Consultant for Dredging Works;  Consultants for Training Needs Assessment and various studies;  Contractors for Dredging Works, Terminal Works, Training Center, and so on. 50 Financial Management, Disbursements, and Procurement Financial Management 19. Financial management assessment summary. BIWTA is an autonomous body established under the Ministry of Shipping that came into existence after independence as successor of the erstwhile East Pakistan Inland Water Transport Authority accredited under E.P. Ordinance of 1958. The East Pakistan Inland Water Transport Authority Ordinance 1958 has been amended several times including under the Act of 1997. The authority is functioning for the development, maintenance and operations of inland water transport and waterways in Bangladesh. The institution functions through a formal structure of Board of Directors which is headed by Chairman at the rank of Additional Secretary and supported by senior officials of Government of Bangladesh mostly at the rank of Joint Secretary. To oversee core functions of financial management, BIWTA has three separate departments, that is, Finance (planning and budgeting), Central Accounts (for the Head Office and nine field offices), and Audit. The institution earns substantial revenue through port and dredging operations and proceeds are utilized to fund expenditures. The budget estimates for Development Project Proposals (DPPs) are prepared annually by the Planning Department of BIWTA in close coordination with Ministry of Shipping after which approval from the Planning Commission and endorsement from Ministry of Finance are required. Budget funds are released/ transferred quarterly into the bank account of BIWTA. Physical and financial progress of project implementation are monitored by MoS and revisions to the budgets (RE) are made at the middle of the financial year. The accounting and payment function for development projects is centralized at the Head Office. Revenue expenditures are decentralized and operated through regional (field) offices (which have their own bank accounts), which maintain manual books to record accounting and financial transactions following double-entry bookkeeping principles. The Treasury and General Financial Rules issued by Ministry of Finance are used for transaction/financial controls. Internal audits are conducted by the Audit wing of BIWTA. The annual External Entity Audit is carried out by a firm of chartered accountants appointed by the Board. Audits are completed through the financial year ending June 30, 2014. Audit reports reviewed by the Bank team are unqualified with no serious accountability and internal control issues identified by the auditor. 20. Risk analysis and mitigation. BIWTA has implemented Bank-financed project decades ago (during the 1990s). The financial management performance was affected due to frequent changes of key professional staff at BIWTA and MoS. There were delays in the implementation of action plans and submission of audit reports, including timely resolution of audit issues which resulted in suspension of disbursements. There were also problems associated with GoB budget allocations with regard to adequacy and timeliness which led to delayed payments to contractors affecting overall project implementation. While carrying out the assessment and designing financial management arrangements for this project, the lessons learnt in the earlier project were taken into account. BIWTA over many years has developed some financial management capacity to implement government programs and schemes in the area of port development and dredging operations. However, it lacks institutional capacity and experience to manage large contracts of infrastructure projects. The risk assessment and mitigation measures are tabulated in table 4.2 below: 51 Table 4.2. Financial Management Risk Matrix Potential Risk Area of Risk Risk Mitigation Rating Concern The present system of manual accounting The accounting function will be both at Head Office and regional offices centralized at PIU and there will be no pose significant risk in carrying out funds that will be advanced by PIU to appropriate accounting and financial field divisions and training centers. For reporting functions (for example, the Project, a computerized accounting possibility of posting incorrect system will be procured by BIWTA. The accounting entries and mis-classification chart of accounts shall be appropriately Accounting of expenditures in accounts, possible Substantial configured and training shall be delay/non-reconciliation of inter unit and provided to finance staff. The agency bank reconciliations, advances reported will also hire a competent and qualified as expenditures and delay in settlement accountant to support the Project in of advances, and so on). The inefficiency carrying out accounting and financial may result in delay in submission of reporting functions. Interim Financial Reports, and incorrect disbursement claims to the Bank. The Bank is in the process of finalizing a Financial Management Guidebook which comprises of GFRs, latest BIWTA has an age old accounting circulars issued by MoF, gazette manual for transaction and financial Internal notifications of GoB and so on. The controls and to guide staff on internal Substantial Control guidebook was prepared so that it can be control principles. The manual require used as an effective tool to implement significant update. development programs in Bangladesh. BIWTA will customize its accounting manual using this guidebook. To satisfy Bank’s fiduciary requirements, a firm of internal auditors will be hired to conduct internal audits The internal audit is done by the Audit of the Project. The ToR of the firm will Wing of BIWTA and is mainly focused also include providing technical Internal on traditional methods of transactional assistance to BIWTA’s internal audit Substantial Audit auditing. It lacks institutional capacity, department by exposing the audit staff to professional skills and exposure to the new audit tools and techniques. conduct risk-based performance audits. Additionally, an Integrated Fiduciary Review will be carried out periodically by a consulting firm appointed by the Bank to identify issues. To improve governance and oversight At present, statutory audits of BIWTA arrangements and enhance objectivity are conducted by a private firm of and independence in the audit function, chartered accountants. The firm is the external audit of the Project shall be External selected using least-cost method. There Substantial conducted by FAPAD in CAG Audit are significant delays noted in the according to the Terms of Reference appointment of statutory auditors by agreed with the Bank and the report will BIWTA and issuance of Entity audit be issued within 6 months from the end reports and financial statements. of the fiscal year. 21. Project financial management arrangements. The PIU formed under BIWTA will have the overall accountability of planning, implementation, management and monitoring of the Project. The PIU will maintain the financial management system for the Project and will ensure that these 52 are carried out in accordance with the Project’s legal agreements. These activities would include: (a) adequate annual budget provision, effective utilization and periodic monitoring; (b) cash management and timely payment for eligible Project activities; (c) maintenance of adequate and competent financial management staff; (d) appropriate accounting of Project expenditures, (e) preparation and timely submission of Interim Financial Reports (IFRs); and (f) timely submission of audit reports and project financial statements to the Bank. The following arrangements will govern the Project’s financial management: 22. Budget. BIWTA has prepared a Development Project Proposal for the Project detailing out nature of activities and associated costs that will be financed from IDA and GoB. The budget has been submitted by Ministry of Shipping to the Planning Commission for concurrence and inclusion in Annual Development Program (ADP). The utilization of the budget will be closely monitored by GoB and any deviation from original budget will be met through supplementary approval by revision in the Annual Development Program. 23. Accounting, payment and internal control. BIWTA does not have a computerized accounting system. It maintains manual books to record accounting and financial transactions following double entry book keeping principles. For the Project, an off the shelf accounting system will be purchased and chart of accounts will be appropriately configured to the accounting system. The accounting and payment function will be centralized at the PIU and there will be no funds that will be advanced by PIU to field divisions and training centers. The financial transactions will be supported by approved vouchers and all the payments (except for petty cash expenditures) will be made through electronic bank transfers using the country banking systems. The assets procured under the Project will be appropriately recorded in the accounting systems and will be subject to annual physical verification by the auditors and Bank staff. The ledger accounts and expenditure statements generated from the accounting system will be used for the preparation of Interim Financial Reports. The field offices will maintain adequate subsidiary records (that is, measurement books, and so on) for the ongoing works and will submit bills periodically to the PIU. A technical supervision consultant shall be engaged for regular monitoring and certification of the payments. BIWTA has an age old accounting manual to guide staff on internal control principles that require significant update. The Bank is in the process of finalizing a Financial Management Guidebook which comprises of GFRs, latest circulars issued by MoF, gazette notifications of GoB and so on. The guidebook was prepared so that it can be used as an effective tool to implement development programs in Bangladesh. BIWTA will customize its accounting manual using this guidebook. 24. Quarterly financial reporting. The Interim Financial Reports will provide financial information on the sources and uses of funds according to disbursement categories and project components. They will report actual expenditures incurred by the Project and will be prepared by the PIU from underlying accounting records and expenditure statements generated from the accounting system. The IFR will be submitted to the Bank within 45 days from the end of each calendar quarter. The IFR will form the basis of subsequent disbursement into the Designated Account. 25. Finance staffing. In the previous project with BIWTA, the financial management performance was largely affected due to frequent changes of key professional staff. The availability of professionally qualified finance and accounting staff is essential for successful implementation of this project. It is therefore agreed with BIWTA that one Deputy Director (accounts), accounts 53 officer and cashier having rich experience in government transactions will be fully committed for the Project. The Deputy Director will provide overall financial management oversight for the Project. A Financial Management Specialist with extensive experience on donor funded projects will be additionally recruited from the market and will be retained throughout the Project duration to provide support to the PIU on financial management matters. It has been agreed with BIWTA that the person will be hired along with other PIU staff and will join project office within 30 days from signing of Financing Agreement. The job description and requisite qualification of the person will be specified in the Terms of Reference. The Finance Wing of the PIU will be provided adequate training in financial management and disbursement-related aspects to meet the Bank’s requirements. 26. Internal audit. There is an internal audit department in BIWTA headed by Director (Audit) to conduct internal audit of BIWTA’s financial transactions. The financial management assessment indicates that the department lacks professional skills, capacity and exposure to conduct audits of large infrastructure projects. To satisfy Bank’s fiduciary requirements and to enhance objectivity and independence in the internal audit function, an accounting firm will be externally engaged for doing internal audits of the Project. The firm will be selected through a competitive process following Bank procurement procedures. The internal audit will be conducted according to Terms of Reference agreed with the Bank and audit will focus on review of the Project’s financial management arrangements, internal control processes adopted by the PIU and field offices in processing project payments, assess functioning of accounting system, and procurement and contract management functions. The internal audit will be conducted annually and will provide feedback to management on control weaknesses and issues that require management attention. The internal audit reports along with the corrective actions taken by the Project to address the control weaknesses (if any) will be shared with the Bank. The ToR of the internal audit firm will also include providing technical assistance to BIWTA’s internal audit department. The professional expertise of internal auditor will be used to strengthen the knowledge and capacity of internal audit department by exposing the audit staff to the new audit tools and techniques. The training and capacity building of the staff shall be organized through a series of workshops. During the first few years of project implementation, internal audit will be conducted by the audit firm and audit reports will be shared with the Bank. Once the capacity is developed within BIWTA, the Bank will rely on the internal audit reports issued by internal audit department. 27. Integrated fiduciary review. The Bank will carry out an Integrated Fiduciary Review to assess the governance and oversight arrangements which the Project will undergo at least three times during the implementation phase that is, year 2, 5 and 7. An external firm will be engaged by the Bank and the scope will include a comprehensive review of procurement and financial transactions. A formal report will be issued to the Project and any ineligible expenditures that arise of this review will be refunded to the Bank by GoB. 28. External audit. The statutory audit of BIWTA is carried out by a firm of chartered accountants appointed by the Board of BIWTA. Audits are conducted according to the accounting standards prescribed by Institute of Chartered Accountants of Bangladesh. There are significant delays noted in the appointment of statutory auditors by BIWTA and issuance of Entity audit reports and financial statements. The audit report for the Financial Year 2014–15 has not been issued yet. The Bank therefore cannot not rely on the Entity audit reports for its fiduciary assurance purposes. 54 The Comptroller and Auditor General of Bangladesh (C&AG)14 has a separate mandate to conduct external audits for all donor-financed projects in Bangladesh. The audit reports issued by C&AG for other Bank-financed programs were mostly timely and it conducts and issues audit reports according to the agreed Statement of Audit Needs (SAN).Therefore for the Project, the annual external audit will be carried out by C&AG through its Foreign-Aided Project Audit Directorate (FAPAD). A Statement of Audit Needs (SAN) will be agreed with CAG during the first year of implementation. It will require auditors to provide a professional opinion on the true and fair view of project financial statements and additionally provide an opinion on (a) adequacy of project accounting and internal control systems; (b) adequacy of documentation maintained for the Project transactions to support disbursement claims to the Bank; (c) eligibility of expenditures incurred for Bank financing; and, (d) whether procurement under the Project has been undertaken according to agreed norms/Bank guidelines. The annual project audit report would consist of: (a) audit opinion; (b) project financial statements; and, (c) management letter highlighting significant weaknesses. The PIU will be responsible for providing the Project Audit Report to the Bank within six months from the end of each fiscal year (July 01 to June 30). The expenditures that were considered as ineligible by C&AG and reported in the audit report will be refunded to the Bank by GoB. The Bank would require BIWTA to share its entity audit reports reflecting Project transactions for information purposes. Table 4.3 shows the audit reports that will be monitored in the PRIMA (Public Risk Management) system by the Bank. Table 4.3. Audit Reports Monitored in PRIMA Agency Audit Report Auditor Year Due Date BIWTA Project Audit Report FAPAD, C&AG July 01–June 30 December 31 of each year 29. Oversight by Project Audit Committee. A Project Audit Committee will be constituted to ensure that Project audit issues and recommendations raised by Internal Audit, Entity Audit and Project Audit are periodically reviewed, addressed and closed satisfactorily. The Audit Committee will meet at least twice a year and will function as a sub-committee of the Implementation Support Committee. It has been agreed that Member Finance of BIWTA will act as Chairman with support from two additional members that is, Director (Audit) and Deputy Secretary nominated by Ministry of Shipping. The Financial Management consultant appointed by PIU will provide administrative support for the committee meetings. 30. Retroactive financing. There is no retroactive financing provided to the Project. 31. Public disclosure. The IDA funds received and spent by BIWTA, ledger balances and assets created under the Project will be reflected in the forming schedules and entity financial statements and will be available on the external website of BIWTA. Additionally, the Project Audit Report issued by C&AG will be posted on the external website of BIWTA. 32. Risk and supervision plan. The financial management risk of the Project is Substantial. To support project implementation, essential institutional capacity will be provided by contracting accounting firms and professionals. An accounting system will be procured to support project in timely submission of financial reports. The accounting and payment function will be centralized from the PIU and internal control aspects will be documented in the Accounting Manual which will 14 Supreme Audit Institution of Bangladesh. 55 serve as a reference document to Project staff. The oversight arrangements, that is, for internal and external audits, will provide reasonable assurance on use of Bank funds for Project activities. During the first year of project implementation, the Bank will undertake semi-annual implementation support missions, including field visits to ensure that agreed financial management arrangements are understood and appropriately followed by the PIU. As implementation progresses; financial and audit reports will be reviewed. The financial management arrangements proposed under this Project are considered to be adequate to account for and report on project expenditures, and satisfy the fiduciary requirements of OP/BP 10.00. Disbursements 33. Disbursement and fund flow. BIWTA will open two separate bank accounts for this Project. One Designated Account, Convertible Taka Account (CONTASA) in Nationalized Commercial Bank of Bangladesh will be opened exclusively for receipt of funds from the Bank and for payment of Bank-funded activities. The Advance will be transferred by the Bank into the Designated Account after the Project is declared Effective based on receipt of the Interim Financial Report providing expenditure forecast of the next two quarters. The Designated Account will be jointly operated by the Project Director and head of Finance Cell deputed to PIU (that is, Deputy Director). The subsequent disbursement into the Designated Account will be made by the Bank on submission of withdrawal applications (Interim Financial Reports) by the PIU. The Project will be given flexibility to use the Direct Payment, Reimbursement, and Special Commitment methods to withdraw funds from the Credit. BIWTA will open another bank account for receipt of counterpart funds from GoB. This funding arrangement will avoid comingling of Project funds and will ensure that Bank funds are not used to finance counterpart activities. BIWTA has prepared a Development Project Proposal for the Project detailing out nature of activities and associated costs that will be financed from IDA and GoB. The taxes under the Project are presently estimated at SDR 15.22 million which is approximately six percent of total Project cost. The taxes will be initially financed from the GoB allocation for taxes of SDR 13.12 million equivalent, and subsequently IDA funds of SDR 2.10 million. During Project implementation, if the actual expenditure on taxes exceeds SDR 15.22 million equivalent, IDA funds available under the Unallocated category may be used to finance the additional taxes. However, under no circumstances will IDA financing of taxes exceed 15 percent of the total IDA financing. Table 4.4 lists the IDA financing by disbursement categories. Table 4.4. IDA Financing by Disbursement Categories Disbursement Category Amount of IDA Financing Percentage of Expenditures to Allocated (expressed in SDR) be Financed (1) Works 201,100,0000 100% exclusive of taxes (2) Goods (excluding motor 15,250,000 100% exclusive of taxes vehicles) and non-consulting services (3) Consultant’s services 15,500,000 100% exclusive of taxes (4) Training 500,000 100% exclusive of taxes (5) Taxes 2,100,000 100% (6) Unallocated for 19,550,000 100% contingency 56 TOTAL AMOUNT 254,000,000 Environmental and Social (including safeguards) 34. For the purpose of managing the necessary Environmental and Social safeguards compliance issues associated with Project activities, the PIU shall have an Environmental and Social Cell headed by a Deputy Director, an Environment Specialist and a Social Specialist, and individual consultants employed under the Project for environmental, social and communications support. The Environmental and Social Cell shall be fully responsible to coordinate with Project activities and ensure the compliance of inclusion, safeguards and communications requirements in planning and implementation of Project interventions following the legal and policy framework of the GoB and the Bank. The Environmental and Social Cell shall also coordinate the launching of the grievance management system for the project, and will also oversee implementation of value- added sustainability activities under Component 3 of the Project which go beyond risk management. In addition, to ensure the long term sustainability of project investments and to mainstream climate resilience and climate sensitivity across the organization, the Project will support the establishment and initial capacity building of a permanent Environmental, Social, and Climate Change Unit (ESCCU) within BIWTA’s permanent organigram. The Environmental and Social Cell within the PIU will provide training to the permanent unit, and will integrate permanent unit staff once appointed into the ongoing management of the Project. In particular, preparatory studies for a potential follow on investment project, as well as diagnostic, modeling and planning studies on climate change in the IWT sector, will be closely overseen by the new permanent Unit, with in coordination with the PIU’s Environmental and Social Cell. Monitoring & Evaluation 19. The Project Director and Project Manager will be responsible for overall project monitoring and evaluation (M&E) including data for monitoring achievement of Project results. The Project Implementation Committee will review and discuss the M&E reports on a monthly basis. In addition, the Project Steering Committee will monitor project performance and make decisions on high-value contracts above defined thresholds and make key policy decisions. The high-value performance-based contract for navigability maintenance will require independent monitoring in addition to the capacity within BIWTA. A separate contract for a Monitoring/Supervision Consultant for the PBC has been planned, and this Consultant will also train staff within BIWTA, in the Dredging, Hydrography and Conservancy and Pilotage departments, to continually monitor and evaluate the performance of the PBC contractor and other navigation improvement contracts. 20. Obtaining reliable historic data has been a challenge for the sector. In response, the Project is financing multiple River Information Systems including for data development and maintenance, especially for the Hydrographic Department, as well as systems for tracking cargo and passenger traffic, revenues, accidents, passenger and user complaints, contractor performance, and fiduciary systems for improvement of financial management and procurement. Role of Partners 21. The U.K. Department for International Development (DFID) has financed many of the analytic and preparatory studies and technical assistance that informed the preparation of the proposed Project and proposed follow on projects. 57 Procurement 22. A Procurement/ Contract Management Cell headed by the Deputy Project Director and supported by one Superintending Engineers (SE), two Executive Engineers, and two Assistant Engineers (AEs). The Cell will coordinate and be responsible for planning and managing the entire procurement process and oversee the contract management issues of Project works. To enhance the capacity of the Cell, procurement experts/ consultants will be hired for the Project. Staff of this Cell and persons involved in procurement evaluation and approval will be provided necessary training and capacity development on procurement and contract management issues. 23. Procurement significance. Out of the total project cost of US$400.0 million, IDA contribution is expected to be US$360.0 million. Out of this, nearly all funds will be utilized through procurement processes. Procurement under this project will largely involve works (including a large performance-based contract), goods, consulting services and some non-consulting services. Most contracts have estimated costs in excess of US$1 million owing mainly to works and services with large scopes, and procurement of technologically advanced high priced equipment. 24. The Project involves one performance-based contract for dredging, and installation and maintenance of navigational aids and six storm shelters according to international standards— spanning 6 to 7 years and a consultancy for supervision and performance monitoring of the works performed under the PBC. These two contracts together represent about 56 percent of the total project cost and therefore entail special provisions for quality assurance and risk mitigation in contract award and contract management. 18. Procurement responsibility. The Project Implementation Unit (PIU) at BIWTA will carry out the processes related to all procurement. The Ministry of Shipping (MoS) will carry out oversight functions as provided for in the respective laws and regulations of the country and in the Financing Agreement (FA) of the Project. 25. Procurement capacity. BIWTA has experience and capacity in processing donor-funded and Government-funded projects, but does not have recent experience of implementing Bank- financed projects or any experience of processing performance-based contracts. Since the single PBC of this project represents about 63 percent of the total value of procurement under the Project, the procurement capacity of BIWTA will require to be supplemented substantially through practical and adequate measures. 26. Individual departments within BIWTA like Dredging, Marine and Mechanical Engineering, Civil Engineering, Conservancy and Pilotage, Hydrography, Deck and Engine Personnel Training Center, and so on have their own setup for monitoring and evaluation of contract performance. A fair number of BIWTA’s personnel have received formal procurement-related training. The existing procurement capacity of BIWTA should be adequate to process the other contracts in its procurement plan. 27. Procurement risks. Bangladesh operates in a challenging procurement environment. Procurement risks arise out of many factors like weak capacity, unfavorable market, and weak governance. The last one manifests itself in the form of fraud, corruption, collusion and coercion. BIWTA deals with a limited number of specialized suppliers, which has kept its procurement environment free from fraud, corruption, and collusion. There have been some attempts at coercion, 58 mainly from politically connected entities trying to influence contract award decisions that is symptomatic of the governance context of the country, but BIWTA effectively resisted those. The works contracts involving civil construction could experience some governance issues as bidders for those types of contracts are known to have a tendency for collusion and coercion. The PBC on the other hand is large and specialized to the extent that the critical mass required for collusion does not exist within the country. In the backdrop of the of the unsupportive country governance context, and weak procurement capacity in relation to PBC and somewhat weak contract management capacity in the implementing agency, overall procurement risk is rated as High. 28. Managing procurement risks. The following measures have been agreed upon with BIWTA (and MOS) to minimize the risks associated with procurement. Parts of these measures are already in place, while the remaining will be implemented during project supervision. (a) General measures (i) Procurement cell in the agency. BIWTA shall establish a Procurement Cell composed of at least a procurement focal person for the Project and a local procurement expert having sufficient experience in Public Procurement Act 2006 (PPA-2006), Public Procurement Rules 2008 (PPR-2008), and Bank’s guidelines on procurement. The focal person will help the PIU in day-to-day procurement follow-up and preparation of periodic procurement reporting. The procurement cell will serve for the entire duration of the Project. (ii) Bid/Proposal Evaluation Committee. BIWTA shall ensure that its bid / proposal evaluation committees are formed of at least three members representing procurement, finance, and technical specialties. Its final composition will be agreed with the Bank which is a requirement for any future alteration thereto. (iii) Introducing STEP system. Systematic Tracking of Procurement Exchanges system (STEP) will be introduced to prepare and manage procurement plan and procurement transactions under the Project. (iv) Project procurement strategy. BIWTA will develop procurement strategy in agreement with the Bank and in line with the Bank’s New Procurement Framework, considering the volume of items to be procured, prevailing market conditions, activity level risks, and so on. Emphasis will be given to designing the procurement packages in a manner that will reduce their number and increase their size without compromising competitiveness—thus ensuring adequate due diligence and control by the implementing agency and the Bank. (v) e-Procurement for NCB contracts. BIWTA has set up the necessary infrastructure to utilize the e-Government Procurement (e-GP) system of the country. BIWTA can expect to be connected to the e-GP system by the time project implementation would begin. The e-GP is currently designed only for NCBs. All NCB contracts of the Project will be processed through e-GP to achieve a high level of efficiency, transparency, effectiveness, and governance in procurement. 59 (vi) Due-diligence measures. Procurement and implementation arrangements will include: (a) all bid evaluation reports will include verification of recommended bidders’ post- qualification information; (b) BIWTA will make bidders aware about issues and regulations relating to fraud and corruption; (c) preserve records and all documents regarding procurement (including correspondences with the potential bidders as well as complaints / clarification requests, and so on), in accordance with Bank guidelines and PPA / PPR, to facilitate smooth procurement audit and post-review; and, (e) publish contract award information on CPTU and BIWTA websites—and in UNDB online for ICBs or international consultancies—within two weeks of contract award. (b) Special measures for critical contracts (i) Independent Procurement Panel. Recognizing the inherent risks associated with the procurement of large and complex contract packages, a panel of experts will be employed by the Bank to provide oversight and assurance of the procurement of high- risk and complex contracts. Their services will be intermittent, as and when necessary, and staggered over the initial period of two years of the Project within which it is expected that major contracts’ procurement will be completed. It will comprise three members: one international dredging expert; one international procurement expert; and one local procurement expert. It is to be noted that the IPP’s role will be advisory in nature and BIWTAA will make the final decision. The detailed terms of reference of the IPP is attached as appendix to this annex. (c) Special measures for International Competitive Bid (ICB) contracts (i) Extra due diligence for the local agents. BIWTA will carry out extra due diligence on the local agents of bidders. Bidding documents of the Bank have explicit requirements for disclosure regarding local agents, if any. As part of bid evaluation, the implementing agency will carefully look at who the proposed local agents are and what their roles are with respect to the particular bidding. (d) Special measures for National Competitive Bid (NCB) contracts: (i) Bid Evaluation Committee. BEC for NCB contracts will be formed in accordance with PPR-2008. As stated before, formation of all evaluation committees shall be subject to Bank’s acceptance; (ii) Electronic government procurement (e-GP). All NCB contracts under this project shall be processed using the e-GP system of the country; (e) Other measures: (i) Advanced procurement actions. The performance-based dredging contract (BRWTP- W1), the consultancy for supervision and monitoring of the PBC (BRWTP-S1), consultancy for environmental and social assessment, feasibility study, detailed survey, design, and supervision of new construction / upgradation of passenger terminals / cargo terminals / launch ghats / vessel storm shelters (BRWTP-S3, BRWTP-S4, BRWTP-S5), National Procurement Specialist (BRWTP-S28), and Financial Management Specialist 60 (BRWTP-S29) will be subject to advance actions so that the contracts can be awarded immediately after credit effectiveness. 29. Procurement guidelines. Procurement financed under the Project shall be carried out in accordance with the World Bank’s Guidelines: Procurement of Goods, Works and Non-consulting services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers published in July 2014 (procurement guidelines) in the case of goods, works, and non-consulting services; and Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers, July 2014 version (Consultant Guidelines) in the case of consulting services. These provisions shall be stipulated in the Financing Agreement. 30. Procurement plan. For each contract to be financed under the Project, estimated costs, procurement methods, consultant selection methods, prior review requirements, whether bidders are to be pre-or post-qualified, and time frame would be agreed between the implementing agency and the Bank in the procurement plan. All expected major procurements will be announced in the General Procurement Notice (GPN)—published in the Bank’s external website and in United Nations Development Business (UNDB). The procurement plan will be updated semi-annually (or as required) using the online STEP system of the Bank. 31. Particular methods of procurement of Goods, works and non-consulting services. Except as otherwise agreed in the procurement plan, goods and works will be procured through International Competitive Bidding. Contracts of goods and works having estimated costs within the respective ceilings stipulated in the procurement plan may be processed through National Competitive Bidding (NCB), Framework Agreement, and Shopping (Request for Quotations) methods. Direct Contracting is permissible under special circumstances with prior concurrence of the Bank. NCBs will follow Open Tendering Method (OTM) described in PPA-2006 (1st amendment 2009) and PPR-2008 (as amended in August 2009)—governed by the Bank’s procurement guidelines and using model tender documents (MTD) agreed with the Bank. Shopping will be carried out based on a model document acceptable to the Bank. For NCB the following shall apply:  Post-bidding negotiations shall not be allowed with the lowest evaluated or any other bidder.  Bids shall be submitted and opened in public in one location immediately after the deadline for submission.  Lottery in award of contracts shall not be allowed.  Bidders’ qualification / experience requirement shall be mandatory.  Bids shall not be invited on the basis of percentage above or below the estimated cost and contract award shall be based on the lowest evaluated bid price of compliant bid from eligible and qualified bidder.  Single-stage two-envelope procurement system shall not be allowed. 32. Methods of procurement of consulting services. Selection of Consultants will follow the Bank’s consultant guidelines and use the Bank’s standard documents under all selection methods. The following methods will apply for selection of consultants: Quality and Cost based Selection (QCBS), Quality-based selection (QBS), Fixed Budget Selection (FBS), Selection Based on 61 Consultants’ Qualification (CQS), Least Cost Selection (LCS), and Single Source Selection (SSS). SSS is permissible under special circumstances with prior concurrence of the Bank. Shortlist of consultants for services estimated to cost less than US$500,000 equivalent per contract may be composed entirely of national consultants. The procurement plan will specify the circumstances and thresholds under which specific methods will apply, as well as the Bank’s review and implementation support requirements. 33. Use of standard procurement documents. For procurement through ICB and for selection of consultants, the Bank’s Standard Bidding Documents (SBD) and Standard Request for Proposals (SRFP) will be used, including the form of contract attached with SBDs and SRFPs. For all NCB, Shopping, and Framework Agreements the implementing agencies will use MTDs agreed with the Bank. 34. Incremental operating costs. ‘Incremental Operating Costs’ means the reasonable costs required for the day-to-day coordination, administration and supervision of Project activities to be financed by the Recipient, including leasing and/or routine repair and maintenance of vehicles, equipment, facilities and office premises, fuel, office supplies, utilities, consumables, communication expenses, translation, printing, photocopying and postal expenses, bank charges, advertising expenses, insurance, Project-related meeting expenses, Project-related travel, per diem, allowances and honorarium of officials of the Recipient’s civil service and/or other sitting allowances and honorarium of any other nature. 35. Training. ‘Training’ means the reasonable costs required for the participation of personnel involved in training activities, workshops and study tours under the Project which have been approved by the Association in writing on annual basis, including: (a) travel, hotel, and subsistence costs for training, workshop and study tour participants provided that such allowances are paid directly to the eligible recipient using the banking system; and (b) costs associated with rental of training and workshop facilities, preparation and reproduction of training and workshop materials, costs of academic degree studies, costs directly related to training course, workshop or study tour preparation and implementation; but excluding salaries of civil servants and sitting and workshop allowances, cash per diem, fuel, and honorarium of any other nature. 36. Prior review thresholds. The Procurement Plan shall set forth those contracts which shall be subject to the Bank’s prior-review. All other contracts will be subject to post-review by the Bank. Based on BP 11.00, Annex C – Maximum Prior Review Thresholds for High Risk Implementing Agency, the initial procurement plan agreed with the agency indicate the following prior review thresholds (table 4.5_. These will be updated annually based on the review of the capacity and performance of the procuring entity and will be reflected in the updated procurement plan as appropriate: Table 4.5. Prior Review Thresholds Contract Value Procurement Contracts Subject to Prior Expenditure Category (Threshold) Method Review All contracts valued Goods >=US$2,000,000 ICB US$500,000 or more. All contracts valued = US$10,000,000 ICB Installation of Plant and Equipment US$5,000,000 or more. All contracts valued = US$2,000,000 ICB All contracts. Services All contracts valued < US$2,000,000 NCB US$500,000 or more. RFQ / National <=US$6,000 Post review. Shopping All contracts valued Consulting Services >=US$500,000 QCBS / QBS US$200,000 or more. All contracts valued