Document of The World Bank FOROFFICIAL USEONLY ReportNo: 47133-AM EMERGENCY PROJECT PAPER ONA PROPOSED EMERGENCY FINANCINGCREDIT INTHEAMOUNT OFSDR 16.1MILLION (US$25 MILLIONEQUIVALENT) TO THE REPUBLIC OF ARMENIA FOR A LIFELINEROADS IMPROVEMENTPROJECT February6,2009 SustainableDevelopmentDepartment SouthCaucasusCountryUnit Europeand CentralAsia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bankauthorization. CURRENCY EQUIVALENTS (Exchange Rate Effective December 31,2008) Currency Unit = Armenian Dram (AMD) US$l.OO = AMD307.63 US$l.OO = SDR0.64 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ADB AsianDevelopment Bank IDA InternationalDevelopment Association ARD Armenian Roads Directorate IFC InternationalFinance Corporation ARR Armenia Railway Restructuring Project I S N Interim Strategy Note ASRA Accounting Standards o f the Republic of LRN Lifeline RoadNetwork Armenia LRIP Lifeline Roads Improvement Project BEEPS Business Environment and Enterprise M C A MillenniumChallenge Account Armenia Performance Survey (State Non-Commercial Organization CAS Country Assistance Strategy implementing M C C programfor Armenia) CFFA Country Financial Accountability MCC Millennium Challenge Corporation Assessment MOF MinistryofFinance CIS Commonwealth o f Independent States MOTC MinistryofTransport andCommunications COC Constitution of the Chamber of Control P A Project Account CPAR Country Procurement Assessment Review PEFA Public Expenditure and Financial DA Designated Account Accountability ECA Europe and Central Asia PFM Public Financial Management EIRR Economic InternalRate ofReturn P I U Transport Project Implementation Unit EMF Environmental ManagementFramework PHRD Japanese Policy and HumanResource EMPs Environmental ManagementPlan POM Project Operational Manual EFC EmergencyFinancing Credit PP Procurement Plan EU European Union PPIAF Public Private Infrastructure Advisory FA Financing Agreement Facility FDI ForeignDirect Investment PRSC Poverty Reduction Support Credits FM Financial Management RPF Resettlement Policy Framework FMM Financial ManagementManual SME Small and Medium Enterprises FMS FinancialManagement Specialist SNCO StateNon-Commercial Organization GDP Gross Domestic Product SWECO Sverige AB Consulting Firm GOA Government of Armenia TA Technical Assistance GPN General Procurement Notice YUTP Previously PlannedYerevan Urban ICB International Competitive Bidding Transport Project Vice President: Shigeo Katsu Country Director: Asad Alam Country Manager Aristomene Varoudakis Sector Director: Peter D.Thomson Sector Manager Henry G.Kerali (Acting) Task Team Leader: ChristoDher R.Bennett FOR OFFICIAL USE ONLY ARMENIA LIFELINEROADS IMPROVEMENTPROJECT CONTENTS Page A. Introduction ........................................................................................................................... 1 B Emergency Challenge: Country Context. Recovery Strategy and Rationalefor . Proposed Bank Emergency Project .................................................................................... 2 C BankResponse: The Project . ................................................................................................. 4 D Appraisal of ProjectActivities . ............................................................................................. 7 E ProjectRisks andMitigatingMeasures . ............................................................................ 15 F Terms andConditions for Project Financing . ................................................................... 17 Annex 1 Description of Project Components . ........................................................................... 18 Annex 2: Results Framework andMonitoring ......................................................................... 20 Annex 3 Summary of Estimated Project Costs . ........................................................................ 22 Annex 4 Financial Management and Disbursement Arrangements . ...................................... 23 Annex 5 ProcurementArrangements . ....................................................................................... 31 Annex 6 Implementation and Monitoring Arrangements . ..................................................... 38 Annex 7 Project Preparation and Appraisal Team Members . ................................................ 40 Annex 8 Environmental and Social Safeguards Framework . ................................................. 41 Annex 9 Economic and FinancialAnalyses . .............................................................................. 43 Annex 10 Documents inProject Files . ....................................................................................... 45 Annex 11 Statement of Loans and Credits . ............................................................................... 46 Annex 12: Country at a Glance .................................................................................................. 48 Annex 13 M a p . ............................................................................................................................. 50 This document has a restricted distributionandmay be usedbyrecipients only inthe performance o f their official duties Its contents may not otherwise be disclosed without World Bank . authorization . This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. ARMENIA LIFELINEROADS IMPROVEMENT PROJECT EMERGENCY PROJECT PAPER DATA SHEET EUROPEAND CENTRAL ASIA ECSSD Date: February 6,2009 Team Leader: Christopher R. Bennett Country Director: Asad Alam Sectors: Roads and highways (100%) Sector ManagedDirector: Peter D.Thomson Themes: Rural services and infrastructure (P);Other rural development (S) Project ID: P115486 Environmental screening category: Partial Assessment LendingInstrument: Emergency Recovery Loan Project Financing Data [ ]Loan [XI Credit [ ]Grant [ ]Guarantee [ ]Other: Source Local Foreign Total BORROWEWRECIPIENT 5.40 0.00 5.40 International Development Association 25.00 0.00 25.00 (IDA) Total: 30.40 0.00 30.40 Borrower: Republic ofArmenia MinistryofFinance 1Melik-AdamyanStreet Yerevan Armenia 0010 Tel: (+374 10) 59 53 04 Fax: (+374 10) 52 42 82 minister@,minfin.am - ResponsibleAgency: MinistryofTransport andCommunication 28 Nalbandyan Street Yerevan Armenia 0010 Tel: (+374 10) 59 00 01 Fax: (+374 10) 56 05 28 mintranscom@,mtc.am FY 2009 2010 2011 Annual 6.00 18.00 1.00 Cumulative 6.00 24.00 25.00 Expected effectiveness date: March 16, 2009 Expected closing date: December 31,2010 Does the project require any exceptions from Bank policies? Re$ EPP D.62 [ ]Yes [XINO Havethesebeen approved by Bank management? [ ]Yes [ IN0 Does the project include any critical risks rated "substantial" or "high"? Re$ EPP E.80 [ ]Yes [XINO Project development objective Re$ EPP C.22 The project development objective is to upgradeselectedsections ofthe Lifeline RoadNetwork andcreatetemporary employment inroad construction. Project description Re$ EPP C.23 and 27, TechnicalAnnex 1 Component 1:Rehabilitation o f approximately 100kmof the Lifeline RoadNetwork (US$30.0 ~~ mincluding contingencies). Component 2: Technical assistancefor strengtheningo fthe Armenian Roads Directorate's capacity (US$0.4 mincluding contingencies). Which safeguardpolicies are triggered, if any? Re$ EPPD.55, TechnicalAnnex 8 Environmental Assessment (OP/BP/GP 4.01) A. Introduction 1. Inresponse to the Republic of Armenia's request for Bank assistance to mitigate the impact of the global financial crisis, it is proposed to provide an IDA credit in an amount of SDR 16.1 million (US$25 million equivalent) to finance implementation o f a Lifeline Roads Improvement Project (LRIP). 2. Armenia's economy has already been severely affected by the crisis through slower direct investments, reduced remittances, falling commodity prices, reduced tourism receipts, reduced availability of credit, and other financial contagions that have decreased economic growth and increased local unemployment. The Government of Armenia (GOA) recognized the implications of the emergency and acted swiftly to begin addressing strategic macro, public investment and expenditure choices. As part o f the recovery strategy it requested rapid support from the Bank and the LRIP i s part o f the requestedprogram. 3. Improving the road network for rural communities has been one of the key objectives o f the GOA in the transport sector since 2004. The GOA decided that each community should at least have one connecting roadto an interstate road. Theseroads are called the "Lifeline Road Network" (LRN) and comprise some 3,014 km of Armenia's 7,704 km of non-urban roads. Lifeline roads are defined as the optimal road network connecting rural communities to the interstate highways. The LRN includes roads with lengths from one to 59 km, and traffic volumes from 50 to 2,500 veWday. About 60 percent of the length i s or was asphalthiturnen surface; however a lack o f maintenance funding has led to significant deterioration and loss of accessibility. The poor condition of rural roads results in agricultural losses of over 40 percent to rural communities, with losses as high as 80 percent o f the harvest for the worst served communities, due to difficulties ingetting crops to market on time. 4. LRIP responds to the GOA'Srequest to provide financial resources in support of job-creation through investments inpublic works. The principal component of the project i s the rehabilitation of approximately 100 km of the LRN located in the seven different Marzes around the country (see map inAnnex 13). The implementation o f the civil works will commence in spring 2009 and be completed during the calendar year 2009. This would provide an immediate economic stimulus to rural communities by providing employment as well as longterm benefits from animproved LRNinfkastructure. 5. The proposed project is being processed under the recently approved "IDA Financial Crisis Response Fast-Track Facility" utilizing OP 8.0, Rapid Response to Crises and Emergencies. The use o f streamlined procedures under OP 8.0 will allow for public works under the project to commence and be completed within the calendar year 2009. 1 B. Emergency Challenge: Country Context, RecoveryStrategy and Rationale for Proposed Bank Emergency Project Country Context and Emergency Challenge 6. Armenia i s a land-locked country in the South Caucasus region with about three million inhabitants. The early 1990s were marked by post-independence fiscal crises, hyperinflation, and the devastating consequencesof an armed conflict with Azerbaijan. 7. The GOA carried out successful stabilization and structural reforms resulting in economic recovery with macroeconomic stability and low inflation. Therefore, Armenia has strong economic fundamentals going into the crisis. It has had the highest policy reform (CPIA) ranking of all IDA countries for the past several years. GDP growth has averaged above 10 percent per year and poverty has fallen from 55 percent to 26 percent over the past decade. Fiscal deficits and public debt remain quite modest in relation to GDP, amongthe lowest inthe Commonwealth o f IndependentStates (CIS). 8. Strong economic fundamentals have shielded the economy from the initial effects of the global output slowdown and the financial crisis, but economic vulnerabilities have been accentuated by the financial crisis and global recession, and the situation i s deteriorating. Although Armenia entered the crisis from a relatively robust position, the crisis may affect Armenia through three main channels: labor markets (through a decline in remittances), product markets (through a decline in trade), and capital markets (through a decrease in foreign direct investment (FDI) and bank borrowing). Consequently, Armenia will require significant support from its development partners to helpwithstand the economic shocks inamanner that does not undermine its development agenda and considerable gains inpovertyreduction. 9. GDP growth i s likely, at best, to be negligible in 2009. The real estate sector has already begun to experience a severe contraction, as has metallurgy, and signals are emergingthat other sectors are also under stress. Unemployment rose sharply inthe last quarter of 2008, as numerous gold and molybdenum mines closed. Agricultural growth also slowed substantially toward the end o f 2008. Inflation i s estimated to have declined to 5.2 percent. A marked slowdown in remittances-a major fiscal transmission mechanism i s occurring as a result o f the close economic and investment linkages with Russia. Remittances, an estimated US$1.6 billion in 2008, accounted for nearly 20 percent of GDP and are expected to decline sharply. FDI is also expected to drop significantly in2009 to 4.9 percent o f GDP, down from 7.6 percent in2007. 10. Exports will be affected by sharply decliningprices of non-ferrous metals coupled with plummeting external demand. Exports are estimated to have declined by about 6.3 percent in 2008 (in US$ terms) and are projected to decline further in 2009. The current account deficit widened substantially from 6.4 percent o f GDP in 2007 to 13 percent in 2008, and it i s projectedto worsen further in2009. 11. The global financial crisis poses serious challenges for maintaining the robust economic growth and poverty reduction that Armenia enjoyed for much of the past 2 decade. Economic growth has been generally pro-poor. Consequetly, the vulnerable may be disproportionately affected by the economic downturn. Poverty simulations show that for every percentagepoint reduction inthe GDP growth rate, national poverty incidence increases by 0.6 percentagepoints. The crisis, which i s coming on the heels of the food and fuel price increases in 2007 and the early part of 2008, could have a wide ranging impact on the poor and vulnerable through its effects on employment and remittances. Recovery Strategy 12. The GOA recognized the implications o f the emergency and acted swiftly to begin addressing strategic macro, public investment and expenditure choices. Specifically, it has created a temporary committee, chaired by the Prime-Minister (who was former Central Bank president), tasked with acceleration of donor assistance and devising counter-cyclical, rapid adjustment measures. The GOA has made decisions to establish strict control over public spending and to increasethe level of the existingfiscal bufferinthe Treasury Single Account. 13. The authorities have announced support to the private sector by expanding the scope o f state guarantees and providing selected subsidies, if they can be well justified. Finally, they are intensifjmg consultations with the World Bank Group, ADB and IFC to obtain additional financial resources. 14. The GOA'S strategy recognized that a financing gap in the 2009 budget arises from three factors: (i) revenue shortfalls in a weaker economy; (ii) need for some the counter-cyclical spending on rural infrastructure, social protection and possible support to the bankingsystem-the fiscal deficit will widen further to about 3.5 percent; and, (iii) the possibility for reduced demand for government internal debt. The GOA recognized that the emerging vulnerabilities could potentially be serious. As part o f its recovery strategy, the GOA requested significant support from the Bank to help it in weathering these economic shocks in a manner which does not undermine its development agenda, considerable gains inpoverty reduction, and strong reformperformance. RationalFor Bank Emergency Project 15. Inresponseto the global financial and economic developments, the Association's Executive Directors have approved an IDA Financial Crisis response fast-track facility to accelerate the processing of development policy and investment operations which would behelpfulto IDA countries inconfrontingsome ofthese shocks. Armenia's eligibility for use o f this facility i s justified by: (i) the significant impact of the financial crisis on its economy as assessed by the Bank; (ii)country demand for assistance; (iii)high performance prior to the crisis and continued government commitment; and (iv) appropriateness o fthe govenunent policy response. 16. To help respond to recent developments in Armenia, the authorities have requested support on three fronts: (i) SME credit line, to support real sector activity; an (ii)budgetary support; and (iii) support for small-scale infrastructure that will urgent generate increased employment. The requested interventions seek to facilitate an early 3 spending stimulus to counter the already evident increase inunemployment arising from job losses inconstruction, metals andmining, andthe IT sectors. 17. LRIP i s part o f this requested program. The project will improve road conditions and decrease transport costs for rural communities. This will help reduce their poverty levels. According to the 2004 World Bank report `Rural Infrastructure in Armenia: Addressing Gaps in Service Delivery', the poor condition o f rural roads resulted in significant losses of produce in42 percent of rural communities, with some 24 percent o f communities reporting output losses o f 30 percent or more. In some communities, the losses resulting from the inability to bring crops to market in time amounts to 70 to 80 percent of the total harvest. The rehabilitation of the LRNwill therefore help farmers and small businesses in rural areas bring their products to market more easily at lower cost, ameliorating the external shock due to the recent financial crisis. 18. The project's counter-cyclical effect will help address the deterioration of rural livelihood by directly creating employment and improving basic access to services through the rehabilitation o f about 100 km of the LRN. Discussions with contractors during appraisal indicated that, depending upon the designs, up to 20 percent of contractor fees can be spent on labor related expenses. As described in Section D, the project could potentially create some 7,650 person-months o f direct and indirect employment. C. BankResponse: The Project Brief description of Bank's strategy of emergency support 19. The proposed project i s a new lending activity via an Emergency Financing Credit (EFC). It will fund investments to support local public works on approximately 100 km of the LRN which will provide improved infrastructure while increasing employment opportunities inseven Marzes inArmenia and a small amount of technical assistance. 20. The improvement of the LRN was identified as an important investment opportunity in the 2004 World Bank report `Rural Infrastructure inArmenia: Addressing Gaps inService Delivery'. Itwas subsequently decided by the GOA that the Millennium Challenge Account Armenia (MCA) would rehabilitate around 943 km o f the LRN. However, due to unfavorable changes inthe dollar-dram exchange rate, and construction material price increases, the Millennium Challenge Corporation (MCC) grant financing o f US$67 m allowed for the rehabilitationo f only 330 km o f LRNroads. The LRIP's 16 Lifeline road segments were selected from those not funded in the MCA's original program, and which would allow for rapid implementation and completion o f construction inthe calendar year 2009. 21. The 16 sections included in LRIP were deliberately selected based on their: (i) having been identified as priorities in the M C A program; (ii) located in areas facing increasing unemployment as a consequence of the impacts o f the global crisis on Armenia (e.g. regions where local construction and mining companies are currently 4 laying off many staff; and (iii)having sufficient economic returns to justify the investment'. Project Development Objective 22. The project development objective is to upgrade selected sections of the Lifeline RoadNetwork and create temporary employment inroad construction. Summary of Project Components Theproject hastwo components: 23. Component 1: Rehabilitation of the Lifeline Road Network (US$30.0 m including contingencies): Rehabilitation of approximately 100km of the LRN. The road sections are located in the seven different Marzes o f the country and their lengths vary between 1and 14km.The component includes: (i) civil works for roadrehabilitation; (ii) consultancy services for the construction supervision, design author supervision2, and technical auditing o f rehabilitation works; (iii) updating o f the original MCA-financed 2007 designs and environmental documents to meet the requirements of the project; and (iv) project implementation expensesincluding, butnot limitedto, fimdingproject audits, incremental operational implementation costs and additional costs for intensified project supervision. 24. Component 2: Technical Assistance (US$0.4 m including contingencies): The project will also include technical assistance for strengthening o f the Armenian Roads Directorate's (ARD)capacity, includingbut not limitedto: (i) a study to review low cost pavement options for Armenia which will explore options for different pavement types and ways to increase labor based activities; (ii) updating o f designs for approximately 100km of LRNroads for a potential future project; (iii)vehicle for field supervision; a and (iv) related training3. 25. The total project cost for all components i s US$30.4 m, includingcontingencies. Eligibility for Processing under OPBP 8.0 26. LRIPis beingprocessedunder OP/BP 8.0 becauseit provides a rapid responseto support measures to mitigate or avert the potential effects of imminent emergencies or future emergencies or crises in countries at high risk (OP 8.0, para 4(g)). An operation under OP 8.0 allows the Bank to apply higher levels of delegation and thus enables greater speed inproject preparation to address an emergency situation. 'TheMCCused the criteria that the EIRRwas > 12.5 percent. According to the legislation o f the Republic o f Armenia, a fee of up to 0.6 percent o f the construction costs will be paid to the original designers to ensure compliance with the designs, as well as updating o f designs to reflect any changes field conditions. In addition to the dedicated training activities, the international supervision consultant will adapt an overseas guide and provide training on traffic management at construction sites. This will ensure the introduction o f good practices which will to minimize delays and risk to road users and construction staff. 5 27. Under OP 8.0, the rapidprocessingis acceleratedthrough streamlined procedures: (i) reviewrequirementstoasingledecisionreviewmeeting,andthussequential reduced clearances are eliminated; (ii) assisting a borrower in satisfying all requirements in the form o f legal documentation for signature: first disbursements are possible at the point of negotiation; (ii)applying shortened turnaround standards; (iv) using simplified documentation templates; and (v) applying simplified procedures for assessment o f financial management andprocurement capacity o f counterparts and designing simplified arrangements and risk mitigation measures. The use of streamlined procedures under OP/BPS.O helps to ensure rapid processing o f the project and management of procurement insuch a mannerthat all civil works under the project can commence andbe finalized within the calendar year 2009. 28. The designs and safeguarddocuments for 14 of the 16 sections were prepared in 2007. The safeguard documents were updated to reflect the requirements o f the project prior to negotiations. The designs were being updated at the time of appraisal to reflect the Bank's comments and will be completed in time for the bidding for civil works to commence inMarch2009. Construction shall start inMay 2009. 29. All civil works and technical assistance activities will be completedby December 31,2009. There will be a 12month defect liabilityperioduntilDecember 31,2010 within which the contractor's 5 percent retention will be paid. This has been adopted as the closing date so that the payment can be made by the project and not by the GOA. The Implementation Completion Report (ICR) will be deliveredby the team by the Project's closing date4. 30. The proposed operation i s aligned with the Bank's ongoing development program and objectives in Armenia. The Bank will ensure appropriate oversight arrangements. Specifically, a co-Task Team Leader, procurement, environmental and the fiduciary staff are based in the field (in the South Caucasus region) which will facilitate continuous close monitoring and supervision o f project implementation. An intensive field supervision program will be adoptedto ensure that the goals o f the LRIP are met andthat there i s acceptable construction quality. Consistency with Country Assistance Strategy 31. The proposed operation is consistent with the 2004-08 Country Assistance Strategy' (CAS) for Armenia and addresses one o f the three strategic objectives of CAS, namely "promoting private sector growth by strengthening the financial sector, improving public sector management, and reducing infrastructure bottlenecks". To this end, the CAS and the 2007 CAS Progress Report specifically include improving road transport infrastructure as a key outcome indicator. The Bank continues to support Armenia's development priorities through focusing its program on: (i) promoting private sector led economic growth; (ii) making growth more pro-poor; and (iii) reducing non- incomepoverty. December 312010. Report28991-AM, ApprovedbyIDABoardonJune 10,2004. 6 32. It should be noted that in addition to helping address problems arising from the current economic crisis, the project will have a longer term impact on economic and social opportunities for rural communities through improvedquality of infrastructure. 33. Preparation o f a new Country Partnership Strategy (CPS) for FY09-12 i s currently underway, within the framework of Armenia's new Sustainable Development Program (SDP - the country's PRSP), which was approved in October 2008. One of the main themes of the SDP concerns second generation economic growth and diversification, deepening competition, and fostering private sector development. Investment in the road network is one of the instruments in the SDP for achieving this strategic objective. It i s also anticipated that the CPS will place a heavy emphasis, at least inthe earlier years, on supporting the country inmitigatingimpacts of the current global crisis and the proposed project will contribute to achieving that objective. ExpectedOutcomes 34. The expected outcomes of the project include: (i) improved conditions o f the LRN. This will be measured by the average travel time improvement over current situation; and (ii)the creation of temporary employment in road construction. The number o f person-months o f jobs created will be monitored by the construction supervision consultant. 35. All construction activities are expected to be completed in calendar year 2009. Progress towards outcomes will be monitored by at least three supervision missions in 2009. D. Appraisal ofProjectActivities 36. Economic Analysis: The M C A economic analysis was done by the Sverige AB Consulting Firm (SWECO) in March 20086. SWECO undertook detailed traffic studies, as well as determiningthe economic returns from investments using the model HDM-4. A rapid reconnaissance of the roads with moving traffic surveys in January 2009 confirmed the general appropriateness o f the traffic counts, and suggestedthat for many links the observedtraffic was higher than that reported inthe feasibility study. The M C A indicated during appraisal that traffic counts undertaken during their work program suggestedtraffic levels as much as six times higherthanreported inthe feasibility study. 37. Itwas necessaryto repeat the economic analysis becauseofthe muchlower short- term GDP growth as a consequenceof the contraction o f the economy inthe wake o f the global crisis, as well as the likely continuing slow growth over the next few years which would lead to lower traffic demandthan used inthe original analysis. As shown inAnnex 9, using the same HDM-4 file with reduced traffic demand, all roads except one had economic returns with EIRR > 12 percent. The overall program EIRR was 20.3 percent with anNPV ofUS$9.9 m.Withthe recent decreases inthe costs ofbitumen, cement and SWECO Feasibility Study for Lifeline Roads. SWECO Consultants inAssociation with Dorproject. 2008. 7 other materials, as well as different pavement designs, it i s anticipated that the cost of roadconstruction will be lower, so the returnshould potentiallybehigher. 38. This analysis was done only considering travel time and vehicle operating cost savings. Had the additional social benefits from the project been included, the returns would likely be higher. 39. Technical Considerations: The roads included in the project are currently in poor to very poor condition, many suffering from severe pavement failure. Drainage, which is vital to the longevity o f a road, was inadequate or missing in most locations; much of the deterioration appears to be related to environmental factors, exacerbated by poor drainage design and practice. 40. The project will repair the road pavements on the existing alignment. This will include provision of safety features such as guardrails, pavement markings, sidewalks in urbanareas, etc. The project will also repair and/or upgrade the drainage facilities within the alignment as well as small bridgedculverts ifnecessary. 41. Detailed designs for the roads were completed in 2007, but due to MCC funding limitations they were never used. The Ministry of Transport and Communications (MOTC) arranged for the designs to be updated to reflect the current condition o f the roads, as well as the specific requirements for Bank financing by the local design institute who did the original work. This included conducting new field surveys, which were completedprior to the roads being covered with snow. 42. The MOTC agreedthat: The designs and specifications would be targeted towards maximizing the potential for job creation through using labor-based activities where appropriate; 0 Particular attention would be paid to drainage design as this was a major contributing factor to the failure ofmany o fthe existing pavements; 0 The designs would hlly consider road safety issues; and 0 Universal design principles (Le. ensuring the designs allow for use of facilities by the handicapped) would be applied where practical. 43. The current Armenian design standards call for the same minimum pavement design for all roads carrying below 1,000 veh/day. These were applied on the previous MCC and ADB financed projects but during appraisal it was considered that the design was excessive for the traffic demand on some roads7. The MOTC therefore agreed to Republic o f Armenia Construction Norms IV-11.05.02-99 for reconstruction calls for two asphalt concrete surface layers o f 3 cm and 6 cm, on top of a 4 cm bituminous base, which is on top o f additional layers fiom 8 cm upwards.This was applied using a 20 year design life, with a single maintenance activity. By comparison, other countries with similar climates, traffic loading and maintenance assumptions are often able reduce the amount of asphalt inthe pavement. 8 include inthe project legal agreement a covenant permittingthe project to use standards recommended by the European Committee for Standardization on design and construction of roads and highways, inaddition to the national standards. This allows for more flexibility with regard to selecting an appropriate pavement type and thickness for the traffic demand, future maintenance likelihood, and will result in more cost-effective pavements. 44. A study to review low cost pavement options for Armenia which will explore options for different pavement types and ways to increase labor-based activities will be undertaken during the project. It i s anticipated that this study will identify potential changes to Armenian practices which would result in lower life-cycle costs for investments, considering the initial capital cost and future maintenance. 45. Impact on Employment:The project will create employment andincome for the rural population. Based on discussionswith some o f the A R D ' s current road maintenance contractors, some 7,200 person-months of labor will be created directly to work on road rehabilitation. It i s customary in Armenia for contractors to hire local villagers near construction sites for manual labor due to their lower cost than importing laborers from elsewhereinArmenia. On average, about US$500 will be paidper month to eachworker, makingthe total amount of income transfer to workers approximately US$3.6 m. This is likely a conservative estimate-according to contractors interviewed, they usually provide bonuses to highly performing workers in addition to regular wages, which will result inan increaseinthe total income that will accrue to local workers. 46. The project will also create employment in the production o f materials. Gravel and sand are both procured locally through existing commercial operations, and their extraction, processing and transportation will create local jobs. Overall, it i s estimated that additional 450 person-months of employment will be created for the production and processing of materials for the approximately 100 km o f project roads. The total income transfer to workers will amount to about US$0.13 m. In addition, bitumen will be imported, creating employment for drivers and storage workers. Due to the difficulty in estimating the employment related to transportation, the value has not been estimated here. 47. It is thus estimated that the direct and indirect employment generation impact of the project amounts to some 7,650 person-months of employment, with a value of approximately US$3.73 million. The actual job creation impact may well be greater than this estimate which was computed based on the conservative assumptions on the costs and amounts of inputs. According to the contractors interviewed, local practice is that labor cost accounts for about 20 percent of contract fees for the type o f works planned under the project8. If,as contractors estimated, 20 percent o f the cost o f civil works i s to be used to hire labor, as much as US$5.6 million may be used for construction related employment. This is consistent with the Project Paper for the Emergency Additional Financing (EM) for the Armenia ASIF I11Project which notes that an analysis o f existing activities found an average share o f labor cost amounting to 23 percent o f direct cost o f construction. Since road construction requires large amounts o f materials and is more mechanized thanmost ASIF I11activities, the direct labor requirements are less. 9 48. The project will also create local mid-tern employment through road maintenance. The roads inthe LRNwere recently reclassified as Republican roads, and their management responsibility in 2010 will be transferred from the Marzes to MOTC and therefore will be funded through the state budget allocations for roads under the responsibility of the MOTC. While there are shortages of the state budget allocations to Marzes, the budget for the maintenance o f Republican Roads i s currently largely sufficient. Winter maintenance will cost about US$7,500 per kilometer annually whereas the annual cost of routine maintenance ranges between US$1,500 and US$4,000 per kilometer. Local contractors normally hire local villagers living nearby for routine and some winter maintenance activities. Using the conservative estimate and assuming half the cost o f routine maintenance i s used to hire local labor, the project will generate mid- term income in the range of $75,000 to $200,000 in project villages. It should be noted that maintenance contractors are all regionally-based and maintenance fees that they receive from the MOTC for project roads will remaininthe regions. 49. Fiduciary Review: The Transport Project Implementation Unit (PIU) has successfully implemented grants under the previously planned Yerevan UrbanTransport Project (YUTP) and Armenian Railway Restructuring (ARR) projects. There were no significant weaknesses identified at the PIU. The PIU needs to update its Financial Management Manual (FMM) as well as accounting software to reflect the activities o f LRIP. This will be done prior to implementation. 50. Fiduciary Risk at the Project Level. The financial management arrangements o f the PIU have been reviewed as part o f the active projects supervision and have always been foundto be satisfactory. 51. An assessment of the financial management arrangements to be used for LRIP was undertaken in June 2008 during the Financial Management (FM) assessment o f previously plannedYUTP project and the FM supervision o f the PIU. Based on the FM assessment, it was established that the PIU has acceptable FM arrangements in place, particularly: (i) accounting and reportingi s performed in 1C accounting software, which i s a reliable and flexible system to record the accounting data; (ii) filing system the allows keeping all supporting financial documentation relating to the project in a well systematized manner; (iii) the PIU's financial manager has extensive experience in the Bank procedures for disbursement and financial management, including Interim Un- audited Financial Reports (IFRs) preparation; (iv) the internal control system i s adequate; and (v) the results of the FM supervision and annual audits of the grants under the previously planned YUTP and ARR projects were satisfactory. The overall financial management risk for the project before mitigation measures i s moderate and, after mitigationmeasures, the risk i s low. 52. Fiduciary Risk at the Country Level. The 2005 Country Financial Accountability Assessment (CFAA) report concluded that the overall fiduciary riskg in Armenia i s significant. The key reasons are: (i) inadequate capacity of core control and supervisory fisk of illegal, irregular or unjustified transactions not being detected, measured on a four point scale according to the CFAA Guidelines (low, moderate, significant or high). 10 agencies performing the audits within the public sector; and (ii) although most of the basic laws are in place with respect to various entities' (private sector and public enterprises, including state non-commercial organizations) financial reporting and compliance remains a problem and authorities need to improve the quality o f auditing, monitoring and supervision. The Public Expenditure and Financial Accountability (PEFA) assessment report published in October 2008 also found that several critical Public Financial Management (PFM) elements including internal controls, internal and external auditing, and financial reportingare still weak. 53. Based on the above assessments of the country PFM system, no elements of country FM systems are currently planned to be used under the project. The use of the country PFM systems for the project implementation may be considered as the GOA progresseswith the on-going PFMreforms. 54. The project Designated Account will be with the HSBC Bank Armenia, which i s the only bank in Armenia eligible for IDA-financedprojects, and the arrangements with HSBC have been found to be satisfactory onprevious projects. 55. EnvironmentalImpact: Based on the nature and scope of the proposed project activities, the project i s classified through environmental screening as Category B. Expected impacts on the humanhealth and natural environment are minor, because the project will finance rehabilitation o f the LRN roads only, excluding highways and other large infrastructure. Furthermore, project activities will be confined to rehabilitation works on the existing alignment and will not include construction o f new roads or widening. Therefore, the project does not carry any considerable risk of destroying important habitats, damaging forest stands, or affecting other ecosystems inany tangible and/or irreversible ways. 56. Project activities will causetemporary disruption o f traffic inthe sections ofroads under rehabilitation. Theymay generate noise and dust typical for roadworks and leadto accumulation of construction waste. Pollution from fuel and lubricants associated with the deployment of transportation and construction machinery i s also possible. All of these possible negative impacts are modest given the small scale o f the planned works, the effects will be confined to the immediate area of project intervention, and will be mitigated through application o f standardgood environmental practices. 57. An Environmental Management Framework (EMF) was developed for the project, which provides general guidelines for applying environmentally sound practices to Lifeline road rehabilitations. The EMF was disclosed through the national media in Armenian and Englishlanguages and a stakeholder consultation meetingwas held on 22 January 2009. The document was re-disclosed in-country and was posted in the Bank's InfoShop with minutes of the public discussion attached. Site-specific Environmental Management Plans (EMPs) were prepared for each project road section. These EMPs specify environmental risks associated with rehabilitation works to be carried out at the respective locations, recommend respective mitigation measures, and provide monitoring schemes for tracking adherence to the mitigation plans. The EMPs will also be disclosed inboth languagesand discussedwith local communities. Consultations on EMPs will be 11 heldin several locations across the country to ensure due representation andparticipation of the affected rural communities. Adherence to the EMPs in the course of civil works will be sufficient for keeping environmental impacts of the project at the acceptable minimumlevel. 58. Social Impact: The project rehabilitation works will be implemented on the existing road alignment so there will not be any land acquisition. This was confirmed through a careful review o f the current designs, and reconnaissance visits by the Bank task team to eachproject road. 59. Factors Considered inProject Design: Inaddition to being economically viable, the project roads were selectedbased on readiness to be implemented rapidly, completed in the calendar year 2009, and to have a geographical spread around Armenia. Roads were deliberately selected in regions where local construction and mining companies have been laying off workers as a result of the economic contraction in Armenia and sharp drop ininternational mineralprices. 60. As noted earlier, the project roads had designs prepared in 2007 which were updated to reflect the current road and traffic conditions as well as the specific requirements for Bank financing. Particular attention was paid towards: (i) maximizing the potential for job creation; (ii)adopting cost effective pavement designs; (iii) improving drainage facilities; and (iv) ensuring the roads are safe for all road users, particularlypedestrians. 61. The technical assistanceprogram i s modest, but reflects specific areas where the project can rapidly add value to the institutional capacity o f the ARD. It includes updating o f 2007 designs for additional LRN roads for a potential future project. In addition, the international supervision consultant will adapt an overseas guide and provide training on traffic management at construction sites. This will ensure the introduction of good practices which will minimize delays and risk to road users and construction staff. 62. Exceptions to Bank Policies: There areno exceptions to Bank policies. E. Implementation Arrangements and Financing Plan 63. The MOTC, as owner o f the LRNwith policy making authority, will have overall responsibility for implementation o fthe project. 64. Project Organization: The MOTC will delegate the project implementation to the ARD and the PIU. An implementation agreement satisfactory to the Bank was signed by all three parties clearly outlining the roles and responsibilities of each party prior to negotiations. 65. The ARD was established by the GOA as a State Non-Commercial Organization (SNCO) attached to the MOTC, providing services to the MOTC. It assists the MOTC in the management of interstate and republican roads, including that part of the rural road network reclassified as republican. The ARD i s organized into divisions for: (i) planning 12 and feasibility studies; (ii) procurement; (iii) construction monitoring; (iv) road road maintenance monitoring; and (v) road safety. The road safety group i s also responsible for traffic surveys, analysis and safety audits. 66. The PIU was establishedin2000 as a state institution under the legislation of the Republic of Armenia to implement World Bank financed transport projects. The PIU i s governed by the Project Management Board (PMB) chaired by the Minister of Transport and Communication and comprised of stakeholder ministries and government agencies. The PIU director reports directlyto MinisterofTransport and Communication. 67. The PIU recently implementeda PHRD grant for the previously planned YUTP. It is currently implementing PHRD and PPIAF grants for the ARR project. It is adequately staffed and has the capacity required for project implementation. The Bank assessments confirm that the current PIU team possesses the management, technical and administrative skills required to ensure effective use of the project funds. The PIU has demonstrated satisfactory performance in procurement, disbursement and financial management. 68. Roles and Responsibilities: The ARD will have responsibility for the technical aspects of project implementation, namely preparation and review o f technical specifications, terms o f reference (TORS), review and approval of road rehabilitation designs, review and evaluation of technical parts o f bids, supervision of civil works contracts, review and approval of works' monthly certificates and requests for variation orders. They will be actively involvedinthe implementation o fthe TA component. 69. Reporting to the MOTC, the PIU will have the responsibility for the overall project coordination, reporting, procurement and financial management functions. The PIU will also act as a liaison for any project related issues between the Bank and the GOA. 70. The PIU will be responsible for project monitoring during implementation. This will entail updating ofthe project monitoringindicators on aregular basis for the duration of the project. The PIU will maintain close monitoring, through the ARD, o f the supervision consultant o f the civil works and the consulting services under the project, as well as project financial statements. Follow-up on the gathering of data for the monitoring indicators will be particularly important to ensure timely completion o f the project and to flag any delays. The project reports will be prepared by the PIU on a quarterly basis and after review by the ARD and the MOTC, submitted to the Bank for review. The PIUhas adequate capacity to collect the required monitoringindicators since ithasexperiencewith Bank financedprojects. 71. Project Procedures: Prior to negotiations, the MOTC formally adopted the Project Operational Manual (POM) describing procedures for implementation of the project, which include procedures governing all implementation arrangements, targets to be achieved under the project, and a sample format o f project reports. The PIU will update its FMM to accommodate the activities o f the project, as well as the accounting software, prior to the project implementation. 13 72. The PIU will open and manage a Designated Account (DA) and a Project Account (PA) specifically for LRIP in a comniercial bank acceptable to the Bank. The Treasury currently uses commercial banks for the transfer o f Government Counterpart Funding.Project funds will flow from: (i) Bank, either via a single DA, which will be the replenished on the basis of full documentation or using Statement of Expenditures (SOEs), or by usingthe direct payment method or Special Commitment. Further details on this are providedinthe DisbursementLetter; or (ii) Government, via the PA where the uponimplementation the Government shall deposit 30 percent of its contribution to the Project and replenish it on a regular basis. Both Bank and Government funds will be managed solely by the PlU. Withdrawal applications for the replenishments o f the DA will be sent to the Bank on a quarterly basis. Local beneficiary communities and municipalities are not required to contribute to project costs. The risk associated with funds flow and disbursementis considered low. 73. The initial deposits to the DA and the PA will need to be sufficient to cover mobilization payments of 30 percent for all contractors since they are expected to mobilize and commenceworks duringthe month of May. 74. Contract Execution: In all contracts for civil works as well as for design and supervision the MOTC will berepresentedjointly by the ARD andthe PIU. 75. Supervision Arrangements: For civil works activities, a qualified road engineer from the ARD will be nominated as a Project Engineermanager. Similarly, a highly qualified road design engineer from the ARD will be nominated as the MOTC's coordinator for design contracts. Prior to negotiations, an implementation agreement, clearedby the Bank, was madebetween the MOTC, ARD and PIUdefining the enhanced supervision activities to beundertakenbythe ARD on the project. 76. An international consulting firm will be selected to supervise the engineering works and report to the ARD on a daily basis. Along with other responsibilities the consulting firm will: (i) assigned to track compliance by the civil works contractors be with the EMPs; (ii) undertake training on enhanced safety practices at road works sites; and (iii) employment generation through the project. The PIU will pay for the monitor contractors/consultants only after final acceptanceof works bythe ARD. 77. The original design institute will be contracted inaccordance with the Republic of Armenia legislation as design authors to monitor compliance with the designs andupdate them as necessaryto reflect changedconditions inthe field. 78. An independenttechnical auditor will be hired for the project to audit all aspects o f the civil works and their implementation. The project proposes to use the same auditor as the MCA, who has been performing satisfactorily, to ensure consistency between the programs. 79. Implementation Program: Construction will start inApril/May 2009. All project civil works and technical assistance are expected to be completed by December 31,2009. The project closing date is December 31,2010, includingthe deliveryo f the ICR. 14 E. Project RisksandMitigatingMeasures 80. Overall Project Risk Rating: The overall risk rating for the project i s moderate. This is based on an assessment of the implications o f (i) accelerated processing the timetable; (ii)potential construction risks; (iii) risks; (iv) fiduciary risks; and (v) sector the proposed mitigationmeasures. 81. Emergency Processing Timetable: The principal risk i s that the project's preparation and implementation are takingplace under very difficult economic conditions inthe country. The time periodfrom project initiationto Board approval is less thantwo months and the civil works component i s expected to be completed inthe calendar year 2009. The expedited time schedule increases the risk for project design, environmental, social and fiduciary safeguards and procurement oversights. These risks are mitigatedby the following: 0 The bulk of the project was prepared for the M C A by an international consulting firm. The team reviewed the feasibility report, spoke with the lead consultant and completed in-country due diligence and i s satisfied that the project preparation with modifications and updates complies with Bank guidelines. The project i s a category B environment project and there i s no landacquisition. 0 The PIU responsible for the implementation i s currently in operation, has capable and experienced staff and i s experienced in the preparation and implementation ofBank projects. 0 The economic risks for the LRIP are low. The EIRR for these type of road projects (based on experience in other countries) i s usually well above the Bank's threshold rate of 12 percent, particularly when social and other benefits are includedinthe analysis. 82. Construction Quality: There i s amoderate risk o f construction quality problems. This will be mitigated inpart by having key members at the Bank project team (co-TTL, environment, financial management, operation and procurement staff) based inthe South Caucasusand who will bereadily available duringproject supervision. 83. To further mitigatethis risk, the project will: (i) an international consultant to hire beresponsible for day-to-day supervision of the works; (ii) an independent technical hire auditor; (iii) cover additional costs to the ARD for intensified project supervision; and (iv) the task team's highway engineer and other key members will conduct three supervision missions over the construction period at approximately two-month intervals to closely monitor performance. The Bank's Country Management Unit recognizes that intensive technical supervision will be requiredduring calendar year 2009 and the budget will beallocated accordingly. 84. Construction Constraints: The 16 civil works contracts will be procured with the objective o f starting construction inApril/May 2009. Due to weather constraints, the 15 construction season i s relatively short in Armenia so all construction must be completed by December 2009. There is a moderate risk that all contracts may not be completed within this time frame. This risk will be mitigated by: (i)proper qualification of contractors to ensure they have sufficient equipment for the size o f the contract; (ii) ensuring that the designs adequately reflect the current road conditions; and (iii) completing the procurement o fthe contractors by April. 85. The Government's Decree #765 dated 22/12/1999 stipulates that all tender results with contract award value exceeding $US1 m must go through special governmental approval. The Prime Minister confirmed during negotiations that as the project i s an emergency operation andthere is a limitedtime period when road construction i s possible all contracts approvals would be streamlined so as to avoid the few weeks delays normally associatedwith applying this decree. 86. CrucialSector Issues Not Addressed: The Bank recently completed a transport sector policy note which highlightedthe major issues and proposed an agenda to advance sector reform. To reduce the very high transportation costs inherent in Armenia's geopolitical situation, among the recommendations are: (i) to develop a coherent strategy for roads, based on sound asset management principles, with a balance between capital and recurrent expenditures and funding mechanisms that ensure the sustainability of ongoing and planned investments at the national and local levels; and (ii) to address the continuous worsening ofroadsafety andthe increaseinaccidents and fatalities. 87. Given the emergency nature o f this project and the short timeframe for implementation, there i s limited opportunity to assist the GOA on sector reform. However, there i s a small technical assistance component to strengthen the ARD's capacity through exploring low cost labor-based pavement options. In addition, the international supervision consultant will adapt an overseas guide and provide training on traffic management at construction sites. This will ensure the introduction o f good practices which will to minimize delays and risk to roadusers and construction staff. 88. Should this project be followed by further Bank support for a scale-up, the technical assistance will have laid the groundwork for a more in-depth and broader technical effort inaddressingthese two critical sector issues. 89. CorruptionRisk:According to the recent Business Environment and Enterprise Performance Survey (BEEPS) report, corruption inArmenia i s significant with about 30 percent ,of businesses indicating corruption i s an impediment to doing business. Mitigation measures are incorporated in the project include, but are not limited to: (i) detailed review o f designs and agreements on changes during appraisal; (ii) second a review to confirm changes were correctly implemented prior to bidding; (iii) publication o f the documents on the Armenia public procurement web site; (iv) publishing the procurement plan with cost estimates to ensure that there i s no asymmetric information; (v) selection of an independent technical auditor to monitor the construction and supervision activities; and (vi) an independent supervision consultant to monitor the construction quality and activities. Finally, the Bank staff will undertakeintensified field supervision to be supplementedbyFMS missions duringimplementation. 16 90. As described inAnnex 7,the country risk is significant but the residual risk after mitigation was assessed to be moderate. This is because, in addition to the country's public financial management being strengthened: (i)the PIU will maintain an independent FMS; (ii) the use of private auditors; and (iii) use of a commercial bank the for the DA. F. Terms andConditions for Project Financing 91. The project will have the following terms and conditions: (i) Recipient, through MoTC, shall: (a) maintainthe Implementation The Agreement in form and content satisfactory to the Association, shall duly perform all its obligations under the Implementation Agreement and shall not assign, amend, abrogate or waive the Implementation Agreement without obtaining the prior approval of the Association; and (b) maintain the Operational Manual in form and content satisfactory to the Association, shall duly perform all its obligations under the Operational Manual and shall not assign, amend, abrogate or waive the Operational Manual without obtaining the prior approval ofthe Association. (ii) Recipient, through MoTC, shall ensure that civil works on any The particular road section will not start, unless the EMP for respective road section, satisfactory to the Association, has been approved by Recipient, and shall not assign, amend, abrogate or waive any provision of EMP without prior review and approval o fthe Association. (iii)The Recipient shall ensure that adequate budgetary resources are made available to the road sector for maintenance of Interstate and Republican roadsinthe Recipient's annual budget. (iv)The Recipient shall permit the use o f standards recommended by the European Committee for Standardization on design and construction o f roads and highways (in addition to the national standards) in the design and construction of roadworks under the Project. (v) The Recipient shall ensure that the Project activities will neither support nor result in the involuntary taking o f land, nor will it support or result in the involuntary restriction o f access to parks and protected areas. Any questions concerning the meaning of these terms will be determined based uponWorld Bank Operational Policy 4.12 on InvoluntaryResettlement. (vi)The Recipient, through MoTC, shall ensure that before the start o f the Project implementation activities: (a) the Project Account i s opened a bank, acceptable to the Association, and 30 percent of Recipient's contribution to the Project i s deposited; (b) the Financial Management Manual, acceptable to the Association, i s approved; and (c) the financial managementsoftware, acceptableto the Association, i s updated. 17 Annex 1.Description of Project Components ARMENIA: Lifeline Roads Improvement Project Component 1:Rehabilitation of the Lifeline Road Network: 92. As shown in Table A1.lthe LRN roads to be rehabilitated under the project are , located in seven Marzes throughout the country. Those roads are important from the standpoint of promotion of rural livelihood as most of the population in the areas are dependent on agriculture. Table Al.1: Road Sections inLRIP Road Project Sect- Road Name Length Marze Region Immediately 2008 ion (W Region Population affected AADT population 1 Vardenut-linkto M3 Highway 3.5 Amgatsotn Aparan 22,200 1,220 363 2 Aygeshat-Janfida 3.5 Armavir Armavir 120,800 4,842 NIA 3 Lemakert-linkto M1Highway 3.8 Shirak Aaik 49,200 4,3 11 NIA 4 Voskehask-link to M7 Highway 2.0 Shirak AkhUrian 46,300 9,464 180 l2 Zorakert-Ardenis-Aghvorik- Tavshut-linkto MI Highway Shirak Amasia-Ashotsk 17,500 744 249 13 L.Karmiraghbyur-Berd 7.2 Tavush Tavush 3 1,300 12,414 190 14 Chochkan-PokrAyrum 7.9 Lori Tumanyan 47,800 2,715 151 15 Kurtan-Gy~lakarak 8.1 Lori Stepanavan 33,000 4,711 181 16 Aghavnadzor-link to M2 6.0 Vayots-Dzor Yeghegnadzor 35,800 1,948 186 Highway 18 93. The component includes: 0 Civil works for road rehabilitation: The existing pavements will be rehabilitated to improve their condition, creating temporary employment in the construction industry. The pavement surfacing will depend upon the traffic loading and standards recommended by the European Committee for Standardization on design and construction o f roads and highways will be applied inaddition to the national standards. All works will be conducted on the existing alignment so there will be no land acquisition. The works will pay particular attention to drainage so as to ensure that the final pavements are o f appropriate quality. 0 Consultancy services for the supervision of works: An international consulting firm shall be hired for the day-to-day supervision of the construction works. They will mobilize prior to the start o f civil works. The original design institute will act as design author supervisors to monitor compliance with the designs and update as necessary. A technical auditor shall independently review the civil works and supervision. The project will finance enhanced supervisionby the ARD. 0 Updating of 2007 designs and environmental documents: Using retroactive financing, the costs of updating the 2007 designs to meet LRIP's requirements will be financed. This also includes updating/preparation of the EMPs andpreparation of the EMF. 0 Project implementation expenses: The incremental operational implementation costs, PIU costs, and project audits will be financed. Component 2: Technical Assistance Low cost pavement options for Armenia: An individual consultant shall be hired to advise the ARD on options for design, construction and maintenance of LRIP roads. Particular emphasis will be placed on the opportunities to increasethe labor basedactivities. 0 Updating of LRN Designs: The updating o f the 2007 MCC designs for approximately 100kmfor apotential future project. 0 Equipment: The procurement o f avehicle for supervision purposes. Training: A training program related to the design, construction and/or maintenance o f LRIP roads. 19 Annex 2: Results Framework and Monitoring ARMENIA: Lifeline Roads ImprovementProject Results Framework PDO Project Outcome Indicators Use of Project Outcome Information The project development objectives (PDO) are: (i)upgradeselectedsectionsof to Travel time reductions on project The informationwill be the lifeline roadnetwork roads. usedbyMOF and MOTC to refme fiscal stimulus and to (ii)createtemporary to Number o f person-months o f local develop road sector policy employment inroadconstruction jobs created ~~~ Intermediate Outcomes Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring Component 1 Component 1 Component 1 Rehabilitation o f about 100kmo f Number o fkmimproved The informationwill be lifeline roadnetwork usedby MOTC for improvement o f lifeline and other roads. Component2 Component2 Component2 Strengthening o froadsector Low cost pavement options Usedby the ARD to developed, including increased use o f improve efficiency through labor. implementing cost effective pavement designs and more Capacity building through training eficient/transparent procurement 94. Arrangements for results monitoring: The PIU will be responsible for project monitoring during implementation. This will entail updating of project monitoring indicators on a regular basis for the duration o f the project. With the assistance of the ARD and the supervision consultant, the PIU will report on the progress and quality of works. The PIU will report on consulting services under the project, as well as project financial statements. Close follow-up o f the monitoring indicators will be particularly important to ensure a timely completion of the project and to flag any delays. The project reports will be prepared by the PIU on a quarterly basis and submitted to the Bank for review. 20 0 0 0 Annex 3. Summary of Estimated Project Costs ARMENIA: Lifeline Roads Improvement Project Project Cost By Component and/or Activity Local Foreign Total us$ US$ m US$ m Civil Works 4.63 22.47 27.10 Consulting Services 0.40 1.92 2.32 Equipment 0.01 0.04 0.05 Incremental Operating Costs 0.03 0.17 0.20 Total Baseline Cost 29.67 Contingencies 0.33 0.40 0.73 Total Project Costs 5.40'' 25.00 30.40 loInclusive of local taxes o ~ u s $ ~ million . o ~ 22 Annex 4. FinancialManagement and Disbursement Arrangements ARMENIA: Lifeline Roads Improvement Project Country Issues 95. According to the latest Doing Business Survey 2009, Armenia was among the top-rated CIS countries and scored well vis-&vis many other developed and developing countries (44th out of 181). At the same time, in the latest Business Environment and Enterprise Performance Survey (BEEPS) report, about 30 percent of businesses have indicated that corruption i s a problem in doing business. A Country Procurement Assessment Review (CPAR) done in 2004 also concluded that based on the analysis o f the legislative framework, procurement practices, institutional capacity and the opportunity for corruption, the environment for conducting public procurement in Armenia was one o f highrisk at that time. The 2005 Country Financial Accountability Assessment (CFAA) report concluded that the overall fiduciary risk" in Armenia i s significant. 96. The key reasons are: (i) inadequate capacity o f core control and supervisory agencies performing the audits within the public sector; and (ii) although most of the basic laws are in place with respect to various entities' (private sector and public enterprises, including state non-commercial organizations) financial reporting, the compliance remains a problem and authorities need to improve the quality o f auditing, monitoringand supervision. The PEFA assessment report publishedinOctober 2008 also demonstrates that several critical PFM elements including internal controls, internal and external audit, and financial reporting are still weak. Based on the above assessments o f the country PFM systemno elements of the country FMsystems are currently planned to be used under the project. The use of the country PFM systems for the project implementation will be considered, as the government progresses with the below PFM reforms. 97. Since the CFAA and the CPAR reports were delivered, some reforms were initiatedregardingthe PFM. Specifically, following the amendment to the Constitution of the Chamber o f Control (COC -Armenian Supreme Audit Institution), it gained more independence from the Parliament, and the new Law on COC, which needs further improvement to realign it with international standards and best practices, has been adopted. The internal audit reform i s under implementation, with the GOA strategy in place supported by PRSC Ito I11programs and the InternalAudit IDF grant provided to support implementation of the strategy. The MOF also adopted an action plan for implementation of the IPSAS inthe GOA sector and now i s designinga detailed timeline for the transfer to cash basis IPSAS and then to accrual. The reforms in adopting IPSAS inthe public sector are also supportedbythe Bank via aseparateIDFgrant. Risk of illegal, irregular or unjustified transactions not being detected, measured on a four point scale according to the CFAA Guidelines (low, moderate, significant or high). 23 98. Inspite of the above, the fiduciary risk of the stand-alone financial management arrangements for Bank financed investment projects in Armenia is considered low. The GOA counterpart fundingis already assessedto be adequate for a number o fyears. 99. Specific procedures are adopted by the project to secure proper financial accountability o f this project and to minimize project financial management risks. Additional financial management arrangements in the project will include the audit of project financial statements by independentauditor acceptable to the Bank, inaccordance with term o freference acceptable to the Bank. 100. The project Designated Account will be with the HSBC Bank Armenia, which i s the only bank in Armenia eligible for IDA-financed projects, and the arrangements with HSBC were found to be satisfactory on previous projects. RiskAssessment andMitigation 101. The overall financial management risk for the project before mitigation measures i s assessed to be moderate and after mitigation measures, the risk i s low. Although the project will be implemented in an environment of high perceived corruption, adequate mitigation measures are in place to ensure that the residual risk i s acceptable. The table below summarizes the financial management assessment and risk ratings o f this project: FM RiskMitigatingMeasures Residual I N S * Risk INHERENTRISKS I Country level BEEPS report identified corruption as 1 Chamber o f control has become independent an issue. andis being strengthened. Internal audit reforms under way. Public sector accounting standardsbeing improved. M elements as weak 3 P I Ui s to maintain an independent financial Weak PFM institutions (additional management system, use o fprivate auditors information is included incountry anduse o f commercial banks for designated issuesinthe previous section) accounts. -..... .. .. Entitv level Riskofpolitical interference inentity's II M Boardcomposition and structure ofPIUwill L management I provide for independence o f the entity. Implementation arrangements that allow close L commercial banks usedby the Treasury monitoring o f activities under the project (including for flow o f funds f?om GOA with risk flow o f funds) by the Bank. o f inefficiency o f the operations on the Treasury resulting slow funds disbursement. 24 - OVERALLINHERENTRISK M L G.CONTROL RISKS Budgeting No additional mitigation measure required L GoodBudgeting system. Budget is preparedinmuch detail which is necessary for monitoring the project Accounting. PIUwill update the accounting software to reflect L The accounting staff has extensive the activities of LRIP project. experience in the Bank procedures for disbursement and financial management, including IFRs preparation. The PIU utilizes adequate accounting software. Internal Controls L PIUwillupdate its FMMto reflect the activities of L The PIU's Internal Control system is LRIP project. adequate. - Fundsflow L Noadditional mitigationmeasurerequired L GOA andthe Bank funds will flow through commercial bank designated accounts. Financial Reporting L Noadditional mitigationmeasure required L All IFRsofactive projectswere always received on time and found to be acceptable to the Bank. No issueshave arisen inthe audits of the active Bank financed projects (grants) implemented bythe P I U - Auditing M Noadditional mitigationmeasurerequired M The audit will be carried out by independent auditors acceptable to the Bank. - OVERALLCONTROLRISK L L - - OVERALLFMRISK M H-High S - Substantial M-Moderate L-Low Strengths 102. The significant strengths that provide a basis for reliance on the project financial management system include: (i)significant experience o f PIU financial manager in implementingBank financed projects for past several years (including work exposure at different PIU implementing several Bank financed projects); (ii)adequate accounting software utilized by PIU; (iii)FM arrangements similar to the active projects implemented by the PIU and found to be adequate; (iv) no issues arisen in the audits of the active Bank financed projects (grants) for the preparation ofYUTP and ARR projects 25 implemented by the PIU; and (v) IFRs on the active projects (grants) always received on a time and found to be acceptableto the Bank. Weaknesses and Action Plan 103. There were no significant weaknesses identified at the PIU. The PIU needs to update its FMMas well as the accounting software prior to the project implementation to reflect the activities of LRIP project. ImplementingEntity 104. The residual risk associated with the PIU i s low with little likelihood o f external intervention to modify the structure and staff o fthe organization. Budgetingand Planning 105. PIU i s capable of preparing relevant budgets.The annual budget i s based on the procurement plan, which i s prepared by the procurement specialist, who collects the necessary information from other specialists. The final draft o f the procurement plan i s discussed and agreedwith the PIU director, and approved by the Bank.All changes to the procurement plan are reviewed by the PIU director and approved by the Bank. The PIU director, the financial manager and the procurement specialist are involved in the preparation o f the annual budget. The final plans and budgets are submitted to the MOF for approval. When the budget i s endorsed by MOF, it i s submitted to the Project Management Board approval. The budget i s preparedinmuch detail, which i s necessary for monitoring of the project. It i s classified by categories, components and sub- components, sources o f funds. All contracts (ongoing and planning) are included in budget separately. The PIU agrees all variation from the budget with the Bank and the GOA and then makes changes in the annual budget. The risk associated with planning andbudgetingis assessedas low. Accounting Staffing 106. The PIU financial management staff consists of a full-timefinancial manager and a part-timedisbursement specialist. The financial manager has significant experience in Bank financed project financial management as she previouslyworked as a disbursement specialist at FFPMC (another PIUunder the MOF implementingBank-financed projects). The major responsibilities of the financial manager include budgeting, reporting, managing disbursement operations, while the responsibilities of the disbursement specialist are preparation of payroll and the documentation for Withdrawal Applications and payments, bank transactions recording and general accounting. The financial manager participated in the regional Joint Disbursement and Financial Management Workshop organized in Yerevan in June 2007. The disbursement specialist has taken accounting and taxation courses recently, and currently pursues a master degree in Management at the Yerevan State University. The risk associated with staffing i s assessed as low. 26 Information Systems 107. PIUutilizes 1C accountingheporting software. The software i s currently inuse by a number of Armenian PIUs implementing Bank-financed projects and i s found to be adequate. InApril 2008, PIU upgraded the accounting software and added functionality for generating payrolls, calculating income taxes, generating new forms of IFR, reports to the State Treasury, balance sheets and other reports to the Tax Authorities, and for tracking Profit Tax and VAT o f non-resident contractors. Back-up copies of the database are monthly produced and recorded on CDs. Inorder to ensure adequate accounting, the financial manager duplicates data tracking in Excel spreadsheets. The PIU needs to update the accounting software to reflect the activities o f LRIP project. The risk associatedwith information systems i s assessed as low. Accounting Policies and Procedures 108. The accounting system of PIU is maintained according to Accounting Standards o f the Republic of Armenia (ASRA). The IFRs on YUTP and ARR projects' grants are prepared and submittedon cash basis IPSAS. It has been agreed to change the reporting basis to IFRS to synchronize it with the accounting basis currently applied. The current chart of accounts is adequate to ASRA and will be adapted to LRIP's requirements, taking into accountthe PIU's accounting system features and requirementsofthe project. The risk associatedwith accountingpolicies and procedures after mitigation i s considered as low. Internal Controls and InternalAudit 109. The internal control system of PIU was found to be acceptable to the Bank and capable of providing timely information and reporting on the projects. The financial manager i s experienced in implementingBank projects. The reconciliation o f the Bank disbursement data and commercial bank balances with the accounting records i s conducted regularly. The PIU will update its FMM to reflect the activities o f LRIP project. 110. All staff members have employment contracts. There are also contracts with services providers, e.g. internet, phone, vehicle maintenance. The financial manager i s responsible for processing of invoices which are approved by the PIU director before any payment is made. There i s no cashbox at the PIU and all the payments are made via bank transfers. The fixed assets (FAs) o f PIU are the property of the Ministryof Transport and Communication (MOTC) and are included in off-balance accounts of PIU. All FAs are registered in 1C system by description o f assets, receipt date and costs. Inthe PIU budget appropriate funds for vehicle insurance are envisaged. The recent FA stocktaking was conducted in December 2008. The PIU financial management system is adequate to process and maintain SOE documentation to the Bank's satisfaction. The withdrawal applications and relating documentation are prepared by the finance manager and approved by the PIU director and the Deputy Minister o f Finance - Chief Treasurer. The bank account reconciliation is prepared by the disbursement specialist and is reviewed andapprovedbythe financial manager. Consideringthe small size ofthe PIU, no internal 27 audit function i s required neither exists. The risk associated with internal controls and internal audit after mitigationi s considered as low. Financial Reporting 111. Project management-oriented Interim Un-audited Financial Reports (1FRs)- previously known as Financial Monitoring Reports (FMRs) - will be prepared under LRIP project. The PIU will produce a full set of IFRs every three months throughout the life of the project. The format of IFRs has been agreed during the assessment which includes: (i) Project Sources and Uses o f Funds; (ii) o f Funds by Project Activity; Uses (iii)Project Balance Sheet; (iv) Designated Account Statements; and (v) SOE Withdrawal Schedule. These financial reports will be submitted to Bank within 45 days o f the end o f each quarter. The first quarterly IFRs will be submitted after the end of the first full quarter following the initial disbursement.Those requirements and IFR formats are incorporated in the FMM. The PIU also submits monthly and quarterly reports for GOA by sources of funds showing project financing and expenditures by categories. The risk associated with reporting and monitoringi s assessed as low. ExternalAudit 112. The audit of LRIP will be conducted (i)by independent private auditors acceptable to the Bank, on terms of reference (TOR) acceptable to the Bank and procured bythe PIU; and (ii) according to the International Standards on Auditing (ISA) issuedby the International Auditing and Assurance Standards Boardof the International Federation of Accountants (IFAC). The PIU's current auditing arrangements are satisfactory to the Bank, and it has thus been agreed that similar audit arrangements will be adopted for LRIP, to cover the LRIP financial statements (including SOEs and Designated Account Statement). The sample TOR acceptable to the Bank and to be used for the project audit was providedto the PIU. The annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year and also at the closing of the project. The contract for the audit awardedduringthe first year o fproject implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost o f the audit will be financed from the proceedso fthe credit. 113. The following table identifies the audit reports that will be required to be submitted by the project implementation agency together with the due date for submission. Audit Report DueDate Continuing Entitv financial statements NIA Project financial statements 1PFS)). Within six months of the end of each fiscal year and also The PFS includes: (i) Balance Sheet; (ii)at the closing of the project Project Sources and Uses of Funds; (iii) of Funds by Uses Project Activity; (iv) SOE Withdrawal Schedule; (v) Designated Account Statement; (vi) Notes to the financial statements; and (vii) Reconciliation Statement. 28 114. In addition, the Armenian Chamber of Control, the country's supreme audit institution, performs ad hoc external audits of the PIU and the project under its implementation. The risk associatedwith external audit i s consideredmoderate. FundsFlow andDisbursementArrangements 115. The financial manager has previously worked with the Bank's disbursement procedures. The PIUwill open and manage a DA and a PA specifically for this project in a commercial bank acceptable to the Bank. The Treasury currently uses commercial banksfor transfer of Government Counterpart Funding.Project funds will flow from: (a) the Bank, either via a single DA, which will be replenished on the basis of full documentationor usingSOEs or byusingthe direct payment method or the Special Commitment. Further details on this are provided in the DisbursementLetter; or, (b) the Government, via the PA where, as part of the implementation arrangements, the Government shall deposit its 30 percent of its contribution to the Project and replenish it on a regular basis. Both Bank and Government funds will be managed solely by the PIU. Withdrawal applications for the replenishments of the DA will be sent to the Bank on a quarterly basis. No beneficiaries are required to contribute to the project costs. The risk associatedwith funds flow and disbursementi s considered as low. 116. Retroactive financing. Disbursements from the Credit will only be made for eligible expendituresmade on or after December 15,2008. Retroactive financing i s not to exceed an aggregate amount of SDR 2.57 m (US$4 m equivalent) and will be reimbursed promptlyupon effectiveness ofthe Credit. 117. Allocation of Credit Proceeds. The expected Credit disbursement period i s two years (CY2009 - early CY2011). Disbursement will follow transaction-based credit disbursement procedures made against eligible expenditures. Table below shows allocation of the Credit proceeds. Allocation of ProposedCredit Expenditure Category Amount inSDR m Financing Percentage Works, goods, consultancy services, 16.11L 82 percent training andincremental operating costs l2Approximately US$25 m. 29 Conditions 118. None Financial Covenants 119. The Recipient, through MoTC, shall ensure that before the start of the Project implementation activities: (a) the Project. Account i s opened a bank, acceptable to the Association, and 30 percent of Recipient's contributionto the Project i s deposited; (b) the Financial Management Manual, acceptable to the Association, i s approved; and (c) the financial managementsoftware, acceptableto the Association, i s updated. 120. The Recipient, through MoTC, shall prepare and furnish to the Association not later than forty five (45) days after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, inform and substance satisfactory to the Association. 121. The Recipient, through MoTC, shall have its Financial Statements audited in accordance with the provisions of Section 4.09 (b) of the General Conditions. Each audit o f the Financial Statements shall cover the periodo f one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the Association not later than six (6) months after the end o f such period. Supervision Plan 122. As part of its project supervision missions, the Bank will conduct risk-based financial management supervisions within a year since the project effectiveness, andthen at appropriate intervals. During project implementation, the Bank will supervise the project's financial management arrangements in the following ways: (i) review the project's quarterly IFRs as well as the project's annual audited financial statements and auditor's management letter and remedial actions recommended in the auditor's Management Letters; and (ii) duringthe Bank's on-site supervision missions, review the following key areas (a) project accounting and internal control systems; (b) budgeting and financial planning arrangements; (c) disbursement management and financial flows, including counterpart funds, as applicable; and (d) any incidences of corrupt practices involving project resources. As required, a Bank-accredited Financial Management Specialist will assist inthe supervision process. 30 Annex 5. Procurement Arrangements ARMENIA: Lifeline Rqads ImprovementProject General 123. Procurement for LRIP will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006 (Procurement Guidelines); and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006 (Consultant Guidelines) and the provisions stipulated in the FA. For each contract to be financed under the FA, the various procurement or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame were agreed between the Borrower and the Bank in the PP. A General Procurement Notice (GPN) was publishedon December 24, 2008 in UNDB on-line and inits printedversion as well as indgMarket online. Specific Procurement Notices (SPN) will be published for all ICB procurement and Consulting contracts as per Guidelines as the corresponding bidding documents and Request for Proposals (RFPs) become ready and available. Assessment of the Agency's capacity to implement procurement 124. An assessment of the capacity of the PIU under the Ministry of Transport and Communication to implement project procurement was carried by Bank staff and their capacity i s satisfactory. 125. During2000-2004, the PIU successfully implemented the US$40 m IDA-funded Transport Project and gained valuable experience inprocurement according to the Bank procurement and consultants' selection guidelines. The PIU i s currently implementing two grant-fundedprojects. Procurement activities inthe PIU are performedby its director andtwo procurement specialists experienced inthe Bank's financed procurement starting since 1998 and 2000, respectively. The technical part of the procurement documentation (technical specifications and TORS) will be prepared by the ARD. The ARD, which implementedthe Bank-fundedHighwayProject during 1995-2000 and Transport Project 2000-2005, hasproject implementation andprocurement experience. Procurement risk assessment 126. The overall procurement risk before mitigationmeasuresi s assessed to be "high", and after mitigation the risk is rated "moderate". The risks associated with procurement andthe mitigationmeasureswere identified andsummarizedinthe table below: 31 TableA5.1: SummaryRiskAssessment Description of risk Rating of Mitigationmeasures Rating of risk residual risk Lack o f competition for civil works H PIUto take measuresto encourage M contracts domestic contractors from all regions to participate inNCB bidding for civil works. For this purpose, the P I Uto hold, withthe support ofBankstaff, short awareness seminars on civil works procurement for domestic contractors, and to expand advertisement o fbidding opportunities, including the national press, official procurement web site (www.tx-ocurement.am ), Low bidpreparation capacity o f H Bidpreparationtraining for M construction companies. representatives o fthe construction companies expressed an interest to the project to be conducted by the PIU Delays with preparation o f the design H Single Source Contract with design M updates company was signed andis effective Delayed project completion caused by H Thebidders will beprovided30 days M the short roads construction season for bidpreparation Ad submission-of bids incase o fICB and21days inthe case ofNCB, and the PIU andARD will take measures to complete bid evaluation ina timely manner. Average H M H:High; M:Moderate andL:Low. Procurementimplementationand arrangements 127. The PIU will carry out all procurement activities with technical support o f the ARD. The PIUwill preparebiddingdocuments for procurement of goods andworks, and request for proposals (based on Bank's standard RFP) for consultant services, obtain internal approvals, and Bank's no objections, as needed, advertise bidding opportunities in local/international media and on the web site with an open access. Technical Specifications for goods and works and TOR for consultant services will be prepared by the ARD. Evaluation o f bids/proposals will be carried out by the Evaluation Committee(s) which will be established by the Minister o f Transport and Communication. The PIU and ARD will jointly sign the contracts and act as ClientIEmployer. The ARD will be responsible for contracts administration (work progress day-to-day oversight, approval o f completed works/deliverables, preparation of proposals for contract extension and/or change orders). The PIU will be responsible for timely payments as well as for communication with the Bank on contract related issues. The PIUwill make contractual payments only after the ARD has acceptedthe works. 32 128. The day-to-day technical supervision of the works will be carried out by an international consulting firm to be hiredunder the project usingQCBS. The selectedfirm will also ensurecompliance with the safeguardsdocuments, specifically the EMPs. 129. The original design institute will act as design author supervisors to monitor compliance with the designs and update as necessary. 130. A technical auditor will be hired to independently audit all aspects of the civil works and supervision. It i s proposed to use the same technical auditor as the M C A program so as to ensure consistency. 131. The project will financed enhanced supervision by the ARD. 132. The POM, adopted by the MOTC prior to negotiations, presents in detail the allocation of the project implementation responsibilities between PIU and ARD. This is confirmed through the signed implementation agreement between the MOTC, ARD and PIU. 133. The Bank's standard bidding documents for goods and works, and standard RFP for services, will be used. Domestic preference in accordance with clause 2.55 and Appendix 2 of the guidelines will apply to works contracts. Taking into account the emergency nature of the project and short construction season bidders will be provided 30 days for bidpreparation and submission in ICB procurements and 21 days inthe case o f NCB. The country's national procedure may be used for procurement of Goods and Works under the Project, providedthat the following provisions are compliedwith: Entitiesinwhich the Republic o f Armenia owns a majority shareholding shall not be invitedto participate intenders for the GOA unless they are and can be shown to be legally and financially autonomous and they operate under commercial law. Pre-qualification shall be conducted for large works projects (but none i s foreseen); The pre- and post- qualification criteria shall only pertain to past contract performance, financial, managerial andtechnical capabilities ofbidders. Joint venture partners shall bejointly and severally liable for their obligations. Estimated contract prices shall be advertised through the procurement plan. No bids canberejected at bidopening. N o bids shall be rejected solely becausethey exceed the estimated price. Bids canbe cancelled and new bids invited, only ifthe conditions o f clause 2.61 of the GuidelinesProcurement under IBRD Loans and IDA credits, are met. 33 (viii) All bid evaluation criteria shall be quantifiable inmonetary term or expressed as pass fail criteria. (ix) Advance Bank approval i s required for any modifications in the contract scope/conditions duringimplementation. 134. The NCB biddingdocuments currently beingusedfor civil works inArmenia and satisfactory to the Bank canbe found inthe POM and project file. 135. Procurementof Works: Works contractsprocuredunderthis project will include rehabilitation o f roads. Since the project i s beingprepared under OP 8.0 as an emergency project, to speed up the bidding process it was agreed as an exception to increase the NCB threshold from US$ 2 m to US$ 4 m. Since the works are not complex, prequalification will not be used. To attract the interest of both small and big firms the large contracts will sliced so to have several lots estimated to cost inthe range not more thanUS$(2.0-2.5) m. 136. Procurementof Goods: Goods contracts procuredunder this project will include vehicle which will beprocuredthrough Shopping. 137. Selection of Consultants: Consultants' services contracts procured under this project will include (i)Road Design; (ii) Supervision of Rehabilitation Works; (iii) DesignAuthor Supervision; and (iv) Technical Audits. 138. Shortlists for consultants' services for contracts estimated to be less than US$lOO,OOO equivalent may be composed entirely o f national consultants. In addition to QCBS, the following selection methods o fprocurement will beused. Selection Method (a) Quality-based Selection; (b) FixedBudget selection; (c) Least Cost Selection ~(d) SelectionbasedonConsultants' Qualification (e) Single-source Selection ( f ) Procedures set forth in paragraphs 5.2 through 5.4 of the Consultant guidelines for the Selection of IndividualConsultants 139. The Procurement Plan shall specify the circumstances under which such methods maybeused. 140. Operating Costs: These expenditures will cover PIU staff salaries, ARD supervision engineer's remuneration, vehicle maintenance and fuel, utility and communication costs, translation cost, bank charges, office supplies, advertisement cost, photocopying, mail, etc. which would be financed by the project as per annual budget approved by the Bank and would be procured using the implementing agency's 34 administrative procedures which were reviewed and found acceptable to the Bank. Operating cost will not include salaries of civil servants. 141. Filing and records keeping: The PIU will be responsible for the filing and records keeping o f the project documentation. Agreed reporting format are included in the project Operation Manual. 142. Procurement Plan: The PIU developed an initial Procurement Plan (PP) for the entire project scope consistent with the implementation plan, which provides information on procurement packages, methods and Bank review method. The Procurement Plan will be agreeduponbetween the Borrower and the Bank project team at negotiations, andwill be available at the implementing agency's project database and on the Bank's external website. The PP will be updated in agreement with the Bank project team as required to reflectthe actual project implementation needs. 143. Frequency of Procurement Supervision: In addition to the prior review o f procurement contracts to be carried out by the Bank team, 20 percent o f goods, works and services contracts will be subject to post review. It i s expected that a supervision missioninthe field will be conducted every six months duringwhich post reviews will be conducted. As a minimum one post review report which will include physical inspection o f sample contracts including those subject to prior review will be prepared each year. Not less than 10percent of the contracts will bephysically inspected. 144. Anti Corruption Measures: These include broader advertisement of contracting opportunities, bid preparation training for representatives o f the construction companies conductedby PIU, post reviewsand site visits conducted bythe Bank's team. 35 ProcurementPlan Dated:26 January2009 Armenia: Lifeline Roads Improvement Project a) Works and Goods - % Expected Package Description/Location Bid- Contract No. 4zk Opening Award Date $ Date I I - I I A I B - C D I E 1 F G H I K ,WORKS for rehabilitationofroads: ..................................................................................................................................................................... .................................................................... ............................................................................ 1 Geghanist-Horom(section9) ................................................................................................................................................................................................................................................. 3.42 ........... .................................................................... 3 NCB Prior 4-Mar-09 26-Mar-09 17-Apr-09 4-May-09 ............................ ............................... ............................................................................... 30-Nov-09 2 Aygabats-Gyumri(section 11) Post 4-Mar-09 26-Mar-09 17-Apr-09 4-May-09 30-Nov-09 ................................................................................................................................... ............................................................................................ 2.89 3 ........... .................................................................................... NCB ............................ ................................. ............................................................................... ................................ 30-Nov-09 .................................................................................. 0.97 1 NCB Post 4-Mar-09 26-Mar-09 17-Apr-09 4-May-09 .................................................................................................................................. ............ .................................................................................. ................................ ......................................................................... 4 Voghji-link to 3.95 ......... 3 NCB Post 5-Mar-09 27-Mar-09 17-Apr-09 4-May-09 30-Nov-09 ............................................ .......................................................................................................................................................... .................................................................................... ................................ ................................. ...................... 1 NCB Post 5-Mar-09 27-Mar-09 17-Apr-09 4-May-09 ................................ 30-Nov-09 ............................................. ............................................................................................................................................................ 0.97 ............. .................................................................................... ................................ .............................................................................. o M1Highway(section3) 1.06 1 NCB Post 5-Mar-09 27-Mar-09 17-Apr-09 4-May-09 30-Nov-09 ........................................... .............................................................................................................................................................................. ............. ...................................................................................... ............................... .............................. .............................................................................. denis-Aghvorik-Tavshut-link to M1 Highway 2,8 3 NCB Post 5-Mar-09 27-Mar-09 22-Apr-09 4-May-09 30-Nov-09 .................................. ................................................................................................................................................................................. ............ ................................................................................ ............................................................................... 2-Apr-09 22-Apr-09 .......... 1 22-Apr-09 4-May-09 I 30-Nov-09 ............. 2 2-Apr-09 I ........... 2 2-Apr-09 22-Apr-09 4-May-09 30-Nov-09 2-Apr-09 22-Apr-09 4-May-09 I 30-Nov-09 ........... 2 2 2-Apr-09 22-Apr-09 .......... 1 1 22-Apr-09 .......... 1 8-Apr-09 .................................. 1 8-Apr-09 22-Apr-09 ............ ................................ 22-Apr-09 ........... ................................................................................. 1 NCB Post 18-Mar-09 8-Apr-09 ................................ - 1 NCB Post 18-Mar-09 8-Apr-09 22-Apr-09 I Total 1.for works I 27.18 - I GOODS I For works contractsvaluedat or morethanUS$4.0 m .................................. :................................................................................................................................................................................................................................................................ì NCB=INational Competitive Bidding (inaccordancewith section3.3 ofthe Guidelines) j For works contractsvalued lessthanUS$4.0m ................................. ,.......................................................................................................................................................................................... SH=Ishopping (inaccordancewith section3.5 ofthe Guidelines) ....................................................................................................................................................................................................... Ire ?ua!,Ecatio.n=....................................... [NotAnticipated ................................................................................................................................................................................................................................................................} ! Preference- Domestif/wllapply to works contracts only 36 b) ConsultingServices Adverti- Expected Conh.act Comple- Package No. sement Proposal Start Descriptionof Assignmend Location Prior I for EO1 Submission Award Date tion W Post Date Date Date Date 3. CONSULTANTS' SERVICES ..................................................... ................................................................ .;,j ..................................................................... ;......................................... ;........................................ I .............................. ~ i 1 Of existing and Of EFand 0.20 Prior : 30-Dec-08 9-Jan-09 15-Jan-091 16-Jan49 15-Feb-09 ~ , SSS ..................................................... IEMP : ......................................................................................................................................................................................... i .................................................................. ................................... i i * ....................................... i ..; ......................................... i 1.50 OCBS Prior ' 22-Apr-09 I........................................... 31-Dec-09 ................................................................................................................................................................................................................................................ 2 !SUperviSiOnOfCiVilWOrksforroads Rehabilitation j I........................................ ................................ ........................................... ~ . . ~ I.................................................. - + i .................................................................. i ............................................................................................. 1-Feb-09 15-Mar-09 1-Apr-09 I......................................... a = . L .i 3 /DesignAuthor Supervision I ..................................................... ..................................................................................................................................................................................... +................................... I 0.17 ............................. SSS ......................................... '............................................................................ Prior 1-Mar-09 15-Mar-09; 15 09 22-Apr-09 j........................................... 31-Dec-09 ~ ~ 6 i I i 4 ,IndependentTechnical Audit 1 0.10 j IC i Prior 20-Mar-09 06-Apr-09 : 5-May-09 i 15-May-09I 30-Nov-09 !................................................................................. ' 5 l Audit of Proiect accounts 005 QCBS Pnor 2-Oct-09 30-Oct-09 27-Nov-09 20-Jan-10 3 20-Feb-10 'Reviewofthe low cost maintenanceoptions for i I I 'Armenia 0.05 IC Prior 9-Jun-09 30-Jun-09 27-Jul-09 1-Sep-09 30-Oct-09 ................................................................i ; 4 I............................................ ~ ~ ................................... ; .............................. i .................................................................................................................. ........................................ ......................................... i j 0.20 CQS .................................................................................................................................................................................. i ................................... *.............................. +......................... Prior........;i17-April-09iL 15-May-09j29-May-091 1-June-09 30-Aug-09 t........................................" " ........................................ i ........................................ ....................... 8 'Training j 0.10 SOE I Prior I........................................ 9-Jun-09 30-Jun-09 27-Jul-09 I j I-Sep-09 I 30-Oct-09 ~ , Total 3. For Consultancy Services j 2.32 I i j ..................................................... ................................................................................................................................................................................................................................... ......................................................... *........................................ *......................................... : ......................... ........................................................ i ~ ..................................................... Legend.......................................................................................................................................................................................... j i ................................... ii................. ! .................................................................................................................... ........................................ * i.......................................... * ........................................... QCBS =/Quality andCost-basedSelection(inaccordancewith sections2.1 2.28 of the Consultant's Guidelines) - ..................................................... CQS '/Selection basedonConsultant's Qualification (inaccordancewith section3.7-3.8 ofthe Consultant's Guidelines) ................................................................................................................................................................................................................. ~ SSS=iSinale source Selection(inaccordance with section 3.9-13 of the Consultant's Guidelines) IC =i IndividualConsultant(inaccordancewith section V ofthe Consultant's Guidelines) 'nor Review ................................................................................................................................................................................................................................................................é ...................... /Foriirms: All contractsabove US$lOO,OOO. All SSS contract. lFor individualconsultants: All contractsaboveUS%50,000. 37 Annex 6. Implementation and MonitoringArrangements ARMENIA: Lifeline Roads Improvement Project 145. The MOTC as owner of the LRN and policy making authority will have the overall responsibility for implementation ofthe project. 146. The MOTC will delegate the project implementation to the ARD and the PIU. An implementation agreement was signed by all three parties clearly outlining the roles and responsibilities of eachpartyprior to negotiations. 147. The ARD was established by the GOA as a State Non-Commercial Organization (SNCO) attached to the MOTC, providing services to the MOTC. The ARD will have the responsibility for the technical aspects of the project implementation, namelypreparation andreview of technical specifications, TORS,review and approval of road rehabilitation designs, review and evaluation o f technical parts of bids, supervision of civil works contracts, review and approval of works' monthly certificates and requests for variation orders. 148. Inall contracts for civil works as well as for design and supervision the MOTC will berepresentedjointly bythe ARD andthe PIU. For civil works activities, a qualified road engineer from the ARD will benominated as a Project EngineedManager. Similarly, a qualified road design engineer from the ARD will be nominated as the MOTC's coordinator for design contracts. A consulting firm will be hired to supervise the engineering works and report to the ARD on daily basis. The PIU will pay for the contractors/consultants only after final acceptanceof works bythe ARD. 149. The PIUwas establishedas a state institution (legal status) underthe legislation of the Republic o f Armenia. The PIU i s governed by the PMB chaired by the Minister of Transport and Communication and comprised o f stakeholder ministries and government agencies. The PIU director reports directly to Minister o f Transport and Communication. 150. The PIU will have the responsibility for the overall project coordination, reporting, procurement and fiduciary functions and assisting the ARD with implementation of TA component, The PIU will also act as a liaison for the project relatedissues between the Bank and the GOA. 151. The MOTC adopted the POM describing procedures for implementation o f the Project, which includes procedures governing all implementation arrangements and aspects; targets to be achieved underthe project; and a sample format o fproject reports. 152. The PIU is adequately staffed and has the capacity required for the project implementation. The Bank assessments confirm that the current PIU team possesses the management, technical and administrative skills required to ensure effective use o f the project funds. The PIU had fully satisfactory performance in procurement, disbursement and financial management on previous Bank financed projects and grant financed activities. 38 153. The PIU will be responsible for project monitoring during the implementation. This will entail updating ofproject monitoringindicators on regular basis for the duration of the project. The PIU will maintain close supervision o f the works and consulting services under the project, as well as project financial statements. Close follow-up of the monitoring indicators will be particularly important to ensure a timely completion of the project and flag any delays. The project reports will be preparedby the PIU on quarterly basis and submitted to the Bank's review. The PIU has adequate capacity to collect the requiredmonitoringindicators since it has experience with Bank financed projects. 39 Annex 7. Project Preparation and Appraisal Team Members ARMENIA: LifelineRoads Improvement Project Christopher R. Bennett Task Team Leader Tamara Sulukhia Co-task Team Leader Asif Faiz Consultant (Engineer) Alexander Astvatsatryan Procurement Officer Anarkan Akerova Counsel Anders Bonde Consultant (Engineer) Ani Balabanyan Operations Officer ArmanVatyan Senior Financial Management Specialist Arthur Kochnakyan Consultant (Financial Analyst) Coral Bird ProgramAssistant DarejanKapanadze Environmental Specialist Elizabeth C. Wang Senior Financial Officer Garik Sergeyan Consultant (Financial Management) Gibet Camos-Daurella Junior Professional Associate HannahM.Koilpillai Senior Finance Officer Satoshi Ishihara Economist / Social Development Specialist 40 Annex 8. Environmental and Social Safeguards Framework ARMENIA: Lifeline Roads Improvement Project 154. The project i s not expectedto have significant impact on the environment. Overall long term social and environmental impacts will be positive, while negative impacts will be of minor scope and duration, and typical for any small scale road rehabilitation activity. Therefore, the project triggers OP/BP 4.01 Environmental Assessment and is assignedto the environmental assessment Category B. 155. Expected impacts on the human health and natural environment are minor, because the project will finance rehabilitation o f the lifeline roads only, excluding highways and other large infrastructure. Furthermore, project activities will be confined to rehabilitation works on the existing alignment andwill not include construction of new roads. Therefore, the project does not carry any considerable risk o f destroying important habitats, damaging forest stands, or affecting other ecosystems in any tangible and/or irreversible ways. Hence, no environmental safeguards other than OP/BP 4.01 are triggered. 156. According to the requirements of OP/BP 4.01, an EMF was developed for the project, which provides general guidelines for applying environmentally sound practices to lifeline roads rehabilitation. Site-specific EMPs were preparedfor the sections ofroads covered by the project. These site-specific EMPs specify environmental risks associated with rehabilitation works to be carried out in the respective locations, recommend respective mitigation measures, and provide monitoring schemes for tracking adherence to the mitigationplans. Project activities may cause temporary disruption o f traffic inthe sections o f roads under rehabilitation. They may generate noise and dust typical for road works and lead to accumulation of construction waste. Pollution from fuel and lubricants associated with the deployment o f transportation and construction machinery i s also possible. All of these possible negative impacts are modest provided the small scale of the planned works; confined to the immediate area o f project intervention; and could be mitigated through application o f standard good environmental practice, which are outlined inthe EMF document and specified inthe site-specific EMPs. Adherence to the EMPs inthe course o f civil works will be sufficient for keepingenvironmental impacts of the project at the acceptableminimumlevel. 157. The project will be implemented by the MOTC. The ARD will be responsible for the civil works, which will be supervised on a day-to-day basis by an international consulting firm. Along with other responsibilities, this firm will be assigned to track compliance if civil works contractors with the EMPs and will monitor implementation of the prescribed mitigation measures. The PIU will include reports on safeguards compliance inits progress reports to the Bank. 158. There will be no land acquisition related to the implementation of the Project. The Financing Agreement provides that the Project activities will neither support nor result in the involuntary taking of land, nor will it support or result in the involuntary restriction o f access to parks and protect areas. The FinancingAgreement also has the 41 usual safeguards provisions that the Project shall be carried out in accordance with the provisions of the EMF and that the Government shall ensure the complete implementation ofthe EMP. 42 Annex 9. Economic and Financial Analyses ARMENIA: Lifeline Roads Improvement Project 159. The economic analysis was initially conducted for 14 o f the 16 project road sections in March 2008 as part of the feasibility study funded by the MCA. Two new road sections were addedto the project that hadnot been includedinthe M C A study.The M C A analysis found an EIRR of 24.4 percent and an NPV of US$24.4 m for the fourteen LRIP roads. 160. Given the recent economic slow down, and the significant reduction inthe GDP inArmenia, the economic analysis was redone to account for the possibility of reduced traffic levels13. Since the LRIP pavement designs were not completed at the time o f appraisal, the same cost estimates and design standards usedunder the M C A study were used. Recent declines inthe price of bitumen and other inputs, as well as the adoption of revised design standards in LRIP, means that this i s a conservative approach for the economic analysis. Table A9.1 shows the key assumptionsused inthe analysis. Table A9.1: Key assumptions of the economic analysis MCA LRIP 2007-2010: 9 percent 2009: 0 percent ' 2011-2015: 7 2010: 4 percent GDP growth rate percent 2011: 5 percent 2016-2026: 5 2012: 6 percent percent Average growthrate of traffic 7.10 percent 2011: 5.5 percent 2012: 6.6 percent Discount rate I 12uercent I 12uercent 161. The main economic benefits of the project are vehicle operating cost and travel time savings. The main economic costs o f the project are road capital and maintenance costs. The vehicle operating cost savings were estimated using the consumption of resources for each component o f vehicle operating cost based on the surface condition and geometry o f each road section, and the characteristics of representative vehicles. Travel time savings are obtained when road improvements lead to an increase invehicle speeds, thus reducing the journey times o f passengers. The passenger travel time savings l3 shouldbenotedthat It the lifeline road network is fundamentally different to the main road network insofar as it provides core connectivity and basic access for the local population. I t can therefore be expected that traffic levels are much less dependent on the economic conditions than the main road network. 43 for freight traffic were not included since the freight traffic drivers are already paid for their time. 162. The economic analysis yielded an NPV of US$9.9 m with the EIRR at 20.3 percent, which i s lower than the original MCA estimated NPV of US$lS.O m and EIRR at 24.4 percent. This reflects the impact of the reduced traffic growth rates on the economic returns. Should economic recovery achieved more quickly or higher than expected, the economic return from the project will be greater. The project will also have benefits in the form of accident cost savings, reduction o f cargo delay costs, producer surplus, and better access to social and other services, which cannot be quantifiable and are not included inthe analysis. Table A9.2: EconomicAnalysis Results LRIP MCA Link Roadsection EIRR NPV EIRR NPV percent (US%m) percent (US% m) 1 Vardenut-linkto M3 Highway 27.2 1.23 32.3 1.48 4 Voskehask-link to M7 Highway 14.9 0.08 18.5 0.15 5 Karchaghbyur-linkto M11Highway 14.3 0.05 17.7 0.10 6 Akunk-Vardenis 18.8 0.14 23 0.20 7 Chkalov-link to M6 Highway 21.6 0.25 26.1 0.32 8 Dzoragyugh-linkto M10 Highway 13.4 0.07 16.7 0.21 9 Dzoragyugh-linkto M10 Highway 21.0 1.17 25.9 1.58 15.2 0.30 19 0.61 11 Aygabats-Gywmi 17.4 0.37 20.7 0.54 20.2 2.56 24 3.38 12 Zorakert-Ardenis-Aghvorik-Tavshut-linkto M1 Highway 23.3 0.13 28.2 0.17 27.6 1.86 33.3 2.25 13 L.Karmiraghbyur-Berd 16.3 0.45 19.4 0.71 14 Chochkan-PokrAYIWII 15.5 0.30 19 0.54 15 KUrtan-GyUlakruak 20.2 0.71 24.8 0.98 16 Aghavnadzor-link to M2 Highway 7.6 -0.46 7.6 -0.18 Program 20.3 9.9 15.0 24.4 44 Annex 10. Documents inProject Files ARMENIA: Lifeline RoadsImprovement Project 1. SWECO Feasibility Study for Lifeline Roads. SWECO Consultants in Association with Dorproject, 2008. 2. Rural Infrastructure inArmenia: Addressing Gaps inService Delivery. The World Bank,2004. 3. Transport Policy Note. The World Bank.2007 4. Country Assistance Strategy for Armenia. June 30,2004, N28991. 5. Government Decree 1720-N, dated December 2, 2004, on establishment o f the Armenian Roads Directorate. 6. The Statute ofthe ArmenianRoadsDirectorate. 7. Government Decree 1930-N, dated December 28, 2006, on establishment o f the Transport PIU. 8. Republic o fArmenia ConstructionNorms. 9. Project Paper for the Emergency Additional Financing (EM) for the Armenia ASIF I11Project. 45 Annex 11.Statementof Loans andCredits ARMENIA: LifelineRoadsImprovementProject Difference between expected andactual OriginalAmount inUS$ Millions disbursements ProiectID FY Puruose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO63398 2008 Additional Financefor MUNWATER & 0.00 20.00 0.00 0.00 0.00 20.00 ww P104467 2007 HLTH SYS MOD(APL2) 0.00 22.00 0.00 0.00 0.00 19.62 2.98 0.00 PO99630 2007 JudicialReformProject2 0.00 22.50 0.00 0.00 0.00 16.95 -4.46 0.00 PO94225 2007 SIF 3 0.00 25.00 0.00 0.00 0.00 8.29 -5.96 0.00 PO99832 2006 AVIAN FLU - AM 0.00 6.25 0.00 0.00 0.00 3.21 2.64 0.00 PO87011 2006 RUR ENT & AGRIC DEVT 0.00 20.00 0.00 0.00 0.00 4.92 -1.89 0.00 PO83352 2006 RENEWENERGY 0.00 5.00 0.00 0.00 0.00 2.05 0.18 0.00 PO57880 2006 URBANHEAT 0.00 15.00 0.00 0.00 0.00 3.66 -0.76 0.00 PO87641 2005 YEREVAN WATER/WW SERVS 0.00 20.00 0.00 0.00 0.00 12.82 12.61 0.00 PO60786 2004 PUB SECTMOD 0.00 10.15 0.00 0.00 0.00 5.04 4.71 0.00 PO63398 2004 MUNWATER &WW 0.00 23.00 0.00 0.00 0.00 19.45 -0.91 0.00 PO88499 2004 IRRIGDAMSAFETY 2 0.00 6.75 0.00 0.00 0.00 2.98 1.88 0.00 PO87620 2004 SOC PROTADMIN 0.00 5.15 0.00 0.00 0.00 0.64 0.28 0.28 PO73974 2004 HEALTH SYS MOD(APL #1) 0.00 19.00 0.00 0.00 0.00 4.06 3.33 2.72 PO74503 2004 EDUCQUAL & RELEVANCE(APL #1) 0.00 19.00 0.00 0.00 0.00 4.77 3.52 -0.77 PO57847 2002 NAT RES MGMT 0.00 8.30 0.00 0.00 0.00 1.02 -0.81 0.00 PO55022 2002 IRRIGDEVT 0.00 24.86 0.00 0.00 0.00 2.02 -5.78 -3.56 PO64879 1999 IRRIGDAMSAFETY 0.00 26.60 0.00 0.00 0.00 2.98 2.29 2.38 Total: 0.00 298.56 0.00 0.00 0.00 134.48 13.85 1.05 46 ARMENIA STATEMENTOF IFC's HeldandDisbursedPortfolio InMillions ofUS Dollars Committed Disbursed IFC IFC FYApproval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ACBA Leasing 2.00 0.27 0.00 0.00 2.00 0.27 0.00 0.00 2004 Armeconombank 2.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2000 HotelArmenia 0.00 0.00 3.57 0.00 0.00 0.00 3.57 0.00 2004 Hotel Armenia 0.00 0.00 1.25 0.00 0.00 0.00 1.25 0.00 2006 Inecobank 3.00 1.30 0.00 0.00 3.00 0.00 0.00 0.00 2006 NAREK 5.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total aortfolio: 12.20 1.57 4.82 0.00 7.00 0.27 4.82 0.00 Approvals PendingCommitment FYApproval Company Loan Equity Quasi Partic. Total pendingcommitment: 0.00 0.00 0.00 0.00 47 Annex 12: Country at a Glance ARMENIA: Lifeline Roads Improvement Project Europe (L Lower. I POVERTY and SOCIAL Central mlddie- >evelopment dlamond' Armenia Asla Income 2007 Population,mid-year(millions) 3.0 445 3,437 Lifeexpectancy GNlpercapita (Atlasmethod, US$) 2,640 6,052 1887 GNI(Atlas method, US$ billions) 7.9 2,694 6,465 Average annual growth, 2001-07 Population(sa) -0.4 0.0 1.1 Laborforce (%) -0.3 0.5 15 Gross primary M o s t recent estlmate (latest year available, 2001-07) capita enrollment Poverty (%ofpopulation belownationalpo vertyline) 51 Urbanpopulation (%oftota/population) 64 64 42 Lifeexpectancyat birth(flars) 72 69 69 Infant mortaiity(per 10001ivebirths) 21 23 41 Childmalnutrition (%ofchildrenunder5) 4 25 Access to improvedwatersource Access to an improvedmter source (%ofpopulation) 98 95 68 Literacy(%ofpopulation age 159 99 97 89 Gross primaryenroilment (%of school-age population) 98 97 in -Armenia Male 96 98 lt? Lowr-middle-income group Female XI0 96 x)9 KEY ECONOMIC RATIOS and LONG-TERM TRENDS I ' 1987 1997 2006 2007 Economic ratlos. GDP (US$ billions) .. 16 6A 9.2 Gross capitalformationlGDP 8.1 33.6 317 w o r t s of goods andservices/GDP Trade 20.3 22.0 8.0 Gross domestic savings/GDP -18.9 19.2 6.9 Gross nationalsavings/GDP ........ 0.3 316 29.1 Currentaccount balance/GDP .. -18.7 -3.8 6.7 Domestic Capital Interestpayments/GDP .. 0.8 0.3 savings formation Total debt/GDP .. 38.9 32.5 Total debt service/exports .. 5.1 7.0 Present value of debt/GDP 23.0 Present value of debt/exports 619 indebtedness 1sa7.97 1997.07 2006 2007 2007-11 (average annualgrowih) GDP -8.9 XI.? 0.3 0.7 7.6 -A rmenie GDP percapita -5.1 112 0.6 14.0 7.6 lowr-middle-incomeorouo w o r t s of goods andservices -28.4 6.5 -4.3 9.1 0.3 STRUCTURE of the ECONOMY II 1987 1997 2006 2007 Growth o f capital and GDP (Oh) (%of GDP) Agriculture .. 32.0 19.6 6.3 40 T Industry .. 33.2 43.6 43.6 Manufacturing .. 24.4 6.8 15.1 Services .. 34.8 36.8 36.1 Householdfinalconsumptionexpenditure .. 137.7 69.5 73.8 02 03 04 05 06 07 Generalgov't final consumption expenditure .. n 2 11.3 9.2 -GCF -GDP Imports of goods andservices .. 58.3 38.5 33.8 1987-97 l997-07 2006 2007 (average annualgrowih) Growth of exports and imports (Oh) Agriculture -13 6.2 0.4 2.5 Industry -25.9 0.7 18.5 118 Manufacturing -8.9 6.5 -11 3.0 Services 7.3 117 P.4 24.3 Household finalconsumptionexpenditure -3.9 6.8 14.1 6.4 Generalgov't final consumptionexpenditure -2.0 8.7 19.8 77.4 Gross capitalformation -9.8 77.8 25.0 9.6 -Exports -Imports Imports of goods andservices -19.8 9.6 6.7 77.1 Note:2007data are preliminaryestimates. This tabiems producedfrom the Development Economics LDB database. 'The diamondsshowfour keyindicators in the country(in bold) comparedwith its income-group average.Ifdataare missing,the diamondwiii hm inrnmnlafn 48 Armenia PRICES and GOVERNMENT FINANCE 1987 1997 2006 2007 Inflation (Yo) Domestic prices I (%change) 8 Consumer pnces 14.0 2.9 3.4 6 ImplicitGDP deflator 17.7 4.6 3.9 4 Government finance 2 (%of GDP, includes currentgrants) Current revenue 8.7 6.0 8.3 f 02 03 04 05 06 0 Current budgetbalance -17 2.6 2.4 Overallsurplus/deficit -5.8 -15 -2.0 TRADE 1987 1997 2006 2007 (US$ millions) Export and import levels (US$ mill.) Totalexports (fob) 232 985 1253 Gold,jewlry,andother preciousstones 55 301 I Machineryand mechanicalequipment 32 21 Manufactures XI0 3m 349 Total imports (cif) 892 2,82 2,449 Food 273 341 Fuelandenergy 208 351 I Capitalgoods 1% 501 647 Export price index (2000-WO) x)4 18 01 02 03 04 05 06 07 Import priceindex(20OO-XlO) a 2 a 5 0 Exports IImports Terms of trade (200O=WO) 85 86 BALANCE of PAYM ENTS 1987 1997 2006 2007 ICurrent account balance to GDP (YO) 1 (US$ millions) Eqortsof goods andsewices 330 1,407 1708 Imports of goods andsewices 953 2,328 3,032 Resource balance -822 -921 792 Net income 99 99 m4 Net currenttransfers 277 580 822 Current account balance -307 -242 178 Financingitems (net) 354 614 -1423 Changesinnet reserves -47 -372 -306 Memo: ReSeNeSincludinggold (US$ millions) 239 1,072 1365 Conversion rate (DEC,local/US$) 490.6 46.0 342.1 EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 mill. (US$ millions) Composition of 2006 debt (US$ Total debtoutstanding anddisbursed 638 2,073 I iBRD m 6 5 IDA 240 841 965 1 G 298 A Total debtsewice 24 167 IBRD 1 1 1 IDA 1 23 14 B 841 Compositionof net resourceflows Official grants 34 56 Official creditors XI0 66 F R 6 Private creditors 0 a 8 Foreign direct investment (net inflows) 52 343 Portfolio equity(net inflows) 1 1 E I31 c 164 Wotld Bank program D 57 Commitments XI7 57 96 A IBRD - E - Bilaierd Disbursements 77 64 93 B IDA - D Other multilateral - F Private - Principalrepayments 0 7 8 Netflows 77 57 85 Interestpayments 2 7 7 Net transfers 76 50 78 Note.This tablewas producedfrom theDevelopment Economics LDB database. 9/24/08 49 MAP SECTION IBRD 36703 44° To Shulaveri 45° 46° 47° 48° To Dmanisi 12 GEORGIA Bagrateshen Bagrateshen GEORGIA To Bagdanovka 14 DzoramutDzoramut NoyemberianNoyemberian Bavra Bavra Tashir ashir Zorakert Zoraker A R M E N I A Tavshut avshut AlaverdiAlaverdi To Kazakh AshotskAshotsk LIFELINE ROADS IMPROVEMENT PROJECT 41° S H I R A K Step'anavanStep'anavan 15 41° AmasiyaAmasiya Verdaghbiur erdaghbiur Toumanian oumanian L O R R I 7 13 PROJECT ROADS 4 SpitakSpitak IjevanIjevan BerdBerd PRIMARY ROADS (DUAL CARRIAGEWAYS) GyumriGyumri PRIMARY ROADS (OTHER) 10 Vanadzor anadzor T A V U S H RAILROADS To Kars 11 9 Dilijan Dilijan RESERVOIRS AkhuritAkhurit NATIONAL CAPITAL ArtikArtik Tsakhkahovit sakhkahovit Artsvashen Artsvashen MARZ (PROVINCE) CAPITALS MaralikMaralik AparanAparan Krasnosel'skKrasnosel'sk 3 Sevan Sevan MAIN TOWNS/VILLAGES Tsakhkadzor sakhkadzor AZERBAIJAN RIVERS AragatsAragats 1 HrazdanHrazdan INTERNATIONAL BOUNDARIES Akhurian Verin Talin erin alin ARAGATSOTNARAGATSOTN AragatsAragats Yegvard egvard KOTKOTAY MARZ (PROVINCE) BOUNDARIES LAKE GavarGavar R. AshtarakAshtarak No. MARZ REGION ROAD SECTION LENGTH (KM) AbovianAbovianYK'K' SEVAN 1 ARAGATSOTN APARAN VARDENUT - LINK TO M3 HIGHWAY 3.5 G E G H A R K ' U N I K ' Mets Mets Mazra Mazra 2 ARMAVIR ARMAVIR AYGESHAT - JANFIDA 3.5 Echmiadzin Echmiadzin OktemberjanOktemberjan YEREVANYEREVAN 8 3 SHIRAK ARTIK LERNAKERT - LINK TO M7 HIGHWAY 3.8 BagaranBagaran A R M A V I R YEREVANYEREVAN GarniGarni Vardenis ardenis 5 4 SHIRAK AKHURIAN VOSKEHASK - LINK TO M7 HIGHWAY 2 ArmavirArmavir DzhraratDzhrarat MartuniMartuni 6 Karakala Karakala 5 GEGHARKUNIK VARDENIS KARCHAGHBYUR - LINK TO M11 HIGHWAY 1.3 2 Markara Markara 40° Araks Massis Massis 6 GEGHARKUNIK VARDENIS AKUNK - VARDENIS 2.1 R. 40° Artashat Artashat A R A R A T 7 LORI TUMANYAN CHKALOV - LINK TO M6 HIGHWAY 2.4 Vedi edi V A Y O T S ' 8 GEGHARKUNIK MARTUNI DZORAGYUGH - LINK TO M10 HIGHWAY 5 AraratArarat Jermuk Jermuk 9 SHIRAK ARTIK GEGHANIST - HOROM 12.3 T U R K E Y D Z O R 10 SHIRAK AMASIA-AKHURIAN VOGHJI - LINK TO M1 HIGHWAY 14.2 Yeraskh eraskh 16 Yegegnadzor egegnadzor 11 SHIRAK AKHURIAN AYAGABATS - GYUMRI 10.4 Getap Getap 12 SHIRAK AMASIA-ASHOTSK ZORAKERT - ARDENIS - AGHVORIK - 10.1 Vaik aik TAVSHUT - LINK TO M1 HIGHWAY To Shusha 13 TAVUSH TAVUSH L. KARMIRAGHBYUR - BERD 7.2 To Shakhtakhty Araks Angekhakot Angekhakot 14 LORI TUMANYAN CHOCHKAN - POKR AYRUM 7.9 Zabukh Zabukh 15 LORI STEPANAVAN KURTAN - GYULAKARAK 8.1 R. SisianSisian Vorot an GorisGoris 16 VAYOT-DZOR EGEGNADZOR AGHAVNADZOR - LINK TO M2 HIGHWAY 6 To Nakhichevan ARMENIA R. TOTAL 99.8 AZERBAIJAN Tatev atev S Y U N I K ' KapanKapan ISLAMIC Kadzh Kadzh To Zangelan Kajaran Kajaran This map was produced by the REPUBLIC 0 10 20 30 40 Miles 39° Map Design Unit of The World Bank. The boundaries, colors, denominations 39° and any other information shown on OF IRAN this map do not imply, on the part of 0 10 20 30 40 50 60 Kilometers The World Bank Group, any judgment To Ordubad MegriMegri on the legal status of any territory, or To Zangelan any endorsement or acceptance of such boundaries. Araks R. 44° 45° 46° 47° 48° JANUARY 2009 IBRD 36722 44° To Shulaveri 45° 46° 47° 48° GEORGIA To Dmanisi BagrateshenBagrateshen GEORGIA A R M E N I A To Bagdanovka DzoramutDzoramut NoyemberianNoyemberian ARMENIA 2009 EMERGENCY BavraBavra Tashir ashir ZorakertZoraker Tavshut avshut AlaverdiAlaverdi To Kazakh PROJECTS LOCATION AshotskAshotsk 41° S H I R A K Step'anavanStep'anavan LRIP LIFELINE ROADS IMPROVEMENT PROJECT (LRIP) 41° AmasiyaAmasiya Verdaghbiur erdaghbiur L O R I Toumanian oumanian RESCAD ADDITIONAL FINANCE FOR RURAL ENTREPRISE AND SMALL SCALE COMMERCIAL AGRICULTURE DEVELOPMENT PROJECT (RESCAD) LRIP RESCAD SIF-3 LRIP RESCAD SIF-3 IjevanIjevan BerdBerd SIF-3 ADDITIONAL FINANCE FOR THE SOCIAL INVESTMENT FUND-3 (SIF-3) Gyumri Gyumri SpitakSpitak TAV U S H PRIMARY ROADS (DUAL CARRIAGEWAYS) Vanadzor anadzor LRIP RESCAD SIF-3 PRIMARY ROADS (OTHER) To Kars AkhuritAkhurit DilijanDilijan RAILROADS RESERVOIRS ArtikArtik Tsakhkahovit sakhkahovit ArtsvashenArtsvashen AZERBAIJAN MaralikMaralik AparanAparan Krasnosel'skKrasnosel'sk NATIONAL CAPITAL SevanSevan Tsakhkadzor sakhkadzor MARZ (PROVINCE) CAPITALS AragatsAragats HrazdanHrazdan MAIN TOWNS/VILLAGES Akhurian ARAGATSOTNARAGATSOTN RIVERS Verin Talin erin alin K O TAY K LAKE AragatsAragats LRIP RESCAD SIF-3 Yegvard egvard INTERNATIONAL BOUNDARIES SIF-3 GavarGavar SEVAN R. AshtarakAshtarak MARZ (PROVINCE) BOUNDARIES AbovianAbovian G E G H A R K U N I K MetsMets MazraMazra Additional Finance for Echmiadzin Echmiadzin Lifeline Roads Rural Entreprise and Additional Finance for OktemberjanOktemberjan YEREVANYEREVAN LRIP RESCAD SIF-3 Marz Improvement Small Scale Commercial the Social Investment BagaranBagaran A R M A V I R YEREVANYEREVAN GarniGarni Vardenis ardenis MartuniMartuni Project (LRIP) Agriculture Development Fund-3 (SIF-3) ArmavirArmavir DzhraratDzhrarat SIF-3 Project (RESCAD) LRIP Markara Markara SIF-3 A R A R AT ARAGATSOTN YES YES YES 40° Araks MassisMassis R. 40° Artashat Artashat SIF-3 ARARAT YES Vedi edi ARMAVIR YES YES GEGHARKUNIK YES YES YES AraratArarat VAY O T S - LRIP JermukJermuk KOTAYK YES T U R K E Y D Z O R SIF-3 Yeraskh eraskh LORI YES YES YES Yegegnadzoregegnadzor SHIRAK YES YES YES GetapGetap SYUNIK YES YES Vaik aik To Shusha TAVUSH YES YES YES To Shakhtakhty Araks AngekhakotAngekhakot VAYOTS-DZOR YES YES ZabukhZabukh R. SisianSisian Vorot YEREVAN YES an GorisGoris To Nakhichevan ARMENIA R. AZERBAIJAN Tatev atev S Y U N I K RESCAD SIF-3 KapanKapan ISLAMIC KadzhKadzh To Zangelan KajaranKajaran This map was produced by the REPUBLIC 0 10 20 30 40 Miles 39° Map Design Unit of The World Bank. The boundaries, colors, denominations 39° and any other information shown on OF IRAN this map do not imply, on the part of 0 10 20 30 40 50 60 Kilometers The World Bank Group, any judgment To Ordubad MegriMegri on the legal status of any territory, or To Zangelan any endorsement or acceptance of such boundaries. Araks R. 44° 45° 46° 47° 48° FEBRUARY 2009