Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB5766 Project Name LIFELINE ROADS IMPROVEMENT PROJECT - 2ND ADDL. FIN. Region EUROPE AND CENTRAL ASIA Sector Roads and highways (96%);Public administration- Transportation (4%) Project ID P121287 Borrower(s) REPUBLIC OF ARMENIA Republic of Armenia Armenia Implementing Agency Ministry of Transportation and Communication 28 Nalbandyan Street Yerevan 375010 Armenia Tel: (374-10) 563-391 Fax: (374-10) 560-528 minister@mts.am Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared May 19, 2010 Date of Appraisal Authorization May 26, 2010 Date of Board Approval July 15, 2010 1. Country and Sector Background Armenia is experiencing one of the most severe economic crises since early 1990s. Although the Government prioritized expenditures that would save or create jobs in the short-term and protect the poor, the Gross Domestic Product (GDP) declined by 14.4 percent and the fiscal deficit increased to 7.5 percent of the GDP in 2009. As a result of the crisis, extreme poverty rose by 3.1 percent and official unemployment rose by 6.9 percent in 2009. The economic contraction was due to a fall in remittances (by about 35 percent), decline in exports (by about 34 percent) and the collapse in commodity prices. Construction activities – a key engine of growth over the past several years – fell significantly leading to major job losses. In real terms, construction declined by 42.3 percent accounting for about 1.6 percent of the overall economic decline. As a result, poverty is expected to increase by about 5.2 percent between 2008 and 2010. This means that more than 147,000 people fell below the poverty line in 2009 and another 25,000 will do so in 2010. The projected poverty incidence is expected to be about 28 percent in 2010, which is higher than the 2006 level of 26.5 percent, implying that the poverty reductions recorded between 2006 and 2008 would be more than fully offset by poverty increases due to the crisis. The increase in the poverty gap is becoming more pronounced as those already poor became poorer. A mild recovery is forecasted for 2010. Although the banking situation appears to have stabilized, the economy and job market are not expected to return back to the pre-project level, requiring the Government to continue with various crisis mitigation measures in order to Page 2 protect the poor. However, the capacity of the Government to implement public works to create temporary jobs remains limited because, even though the Government managed to avoid sharp falls in total revenue and tax revenue in 2008 and 2009, spending levels increased and revenue decreased, adding pressure on the fiscal space. The poor conditions of roads – the bulk of which are classified as the LRN 1 – hamper the rural poor’s ability to cope with the economic downturn. It is reported that rural communities lose over 40 percent of agricultural harvest because of difficulty getting produce to market, with losses as high as 80 percent in the worst served communities 2 . While precise data are not available, the poor condition of rural roads also constrains the rural poor’s basic access to external markets and to social services not available locally. Rehabilitation of the LRN, which provides many rural poor’s only access to social services and livelihood opportunities, will therefore not only help create temporary jobs and partially ameliorate the worsening job market but also reduce transport costs and support economic activities in rural Armenia. 2. Objectives The Project Development Objective is the same as under the original project, which is to upgrade selected sections of the Lifeline Road Network and create temporary employment in road construction. 3. Rationale for Bank Involvement On February 19, 2010, the Prime Minister requested the World Bank to provide a second Additional Financing to expand the implementation of the Project by rehabilitating a further 190km of the LRN, including some 178km for which civil works were started but terminated due to shortage in donor financing. Detailed designs have already been prepared for about 50km of road sections, allowing civil works to start in August 2010 and be completed within the current construction season. Supporting the proposed activities would contribute to the Government's continuing efforts to mitigate the impact of the financial crisis on rural poor by creating about 19,000 person/ months of temporary jobs. 4. Description The proposed LRIP-AF2 would mainly finance the rehabilitation of about 190km of the LRN. The results framework and the monitoring indicators have been updated to include the additional investments (Annex 1). Retroactive financing of up to US$8 million of the loan would be applied for selected contracts signed between June 2010 and August 2010 when the loan signing is expected to happen. The LRIP-AF2 would have two components. Component 1: Rehabilitation of 190km of selected sections of lifeline roads (US$45.8 million including contingencies, out of which the Bank finances US$36.6 million). About 190km of lifeline roads would be rehabilitated under the LRIP-AF2. This includes about 178km road sections for which rehabilitation works were terminated some two years ago due to a shortage in donor funding, and a 12km section of the H46 road up to the town of Halidzor. This component comprises civil works for the rehabilitation of the roads; supervision of the works; technical 1 The LRN roads are rural road links that connect rural communities in the country to an interstate road; they comprise some 3,014 kilometers of Armenia’s 7,704 kilometers (39.1 percent) of nonurban roads. 2 World Bank, 2004, Rural Infrastructure in Armenia: Addressing Gaps in Service Delivery. Washington, D.C. Page 3 auditing of rehabilitation works; and project implementation expenses including, but not limited to, funding technical and financial audits, monitoring and evaluation, and incremental operating costs. This operation will not require any land acquisition. Component 2: Technical assistance (US$1.1 million, out of which the Bank finances US$0.9 million). This component would finance the development of new geometric standards, feasibility studies and designs of future investments and the procurement of data collection equipment. 5. Financing Source: ($m.) Borrower 10 International Bank for Reconstruction and Development 40 Total 50 6. Implementation Activities under the LRIP-AF2 would be implemented by the same Transport Project Implementation Unit (PIU) and the Armenian Roads Directorate (ARD) under the Ministry of Transport and Communication (MOTC) which are implementing the ongoing project. The PIU implemented the World Bank –financed Transport Project (2000-2004) and two Grants to prepare projects, and has shown experience in implementing Bank-financed projects. The PIU would continue using the financial management systems and procurement and reporting mechanisms of the LRIP. The closing date would be extended by two years. The new closing date would be December 31, 2013. 7. Sustainability The project is considered sustainable because of the Government’s commitment to improving the lifeline road network. This is being done not only through donor support, but also with the Government’s own funds. The Government is also committing budget support to the maintenance of roads. Performance based maintenance contracts have been adopted, which offer improved efficiency and cost effectiveness for maintenance. By providing technical assistance to the Government to explore low cost pavement options, the project will assist the ARD to adopt more cost-effective designs. 8. Lessons Learned from Past Operations in the Country/Sector Government commitment to rural connectivity agenda remains strong The government shows a clear commitment to the rural connectivity agenda. Some 3,014km of road links that connect rural communities in the country to an inter-state road had been identified as the Lifeline Road Network (LRN), and financing has been sought from various donors, including Asian Development Bank and the Bank, to rehabilitate the LRN. Despite the significant reduction in tax revenues due to the financial crisis, the Government managed to minimize reductions in funding for the maintenance of LRN. Page 4 Targeted technical assistance is needed Technical support especially in the area of low-cost pavement options to help rehabilitate more roads cost-effectively and create more jobs has proven to be effective in improving rural connectivity and helping alleviate the current economic hardship among the rural poor. Support to road safety has also proven to be important to mitigate the potential negative impact of rehabilitating rural roads. The proposed additional financing will continue to support improving road safety in rural areas through the “safe village” program which combines small civil works for the safety of pedestrians, especially children, with awareness campaign for road safety. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP 4.01) [X] [ ] Natural Habitats ( OP / BP 4.04) [ ] [X] Pest Management ( OP 4.09 ) [ ] [X] Physical Cultural Resources ( OP/BP 4.11 ) [ ] [X] Involuntary Resettlement ( OP / BP 4.12) [ ] [X] Indigenous Peoples ( OP / BP 4.10) [ ] [X] Forests ( OP / BP 4.36) [ ] [X] Safety of Dams ( OP / BP 4.37) [ ] [X] Projects in Disputed Areas ( OP / BP 7.60) * [ ] [X] Projects on International Waterways ( OP / BP 7.50) [ ] [ v] Site-specific EMPs will be prepared for each road section under LRIP-AF2 according to the Environmental Management Framework (EMF) which was updated in April 2010 to reflect changes due to the second Additional Financing. All EMPs will be completed prior to the beginning of works and disclosed to, and discussed with, local stakeholders. The EMPs will be included as part of the bidding documents to ensure that contractors are aware of their responsibilities. 10. List of Factual Technical Documents 1. Emergency Project Paper, Lifeline Roads Improvement Project, February 6, 2009 2. Project Paper, Lifeline Roads Improvement Project First Additional Financing, July 30, 2009 3. The Armenia National Road Safety Strategy, 2008 11. Contact point Contact: Olivier Le Ber Title: Lead Transport Specialist Tel: (202) 458-7666 Fax: (202) 614-1066 Email: oleber@worldbank.org * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 5 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop