ASIAN DEVELOPMENT BANK RRP:CAM 34207

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO THE

KINGDOM OF CAMBODIA

FOR THE

NORTHWESTERN RURAL DEVELOPMENT PROJECT

November 2001

CURRENCY EQUIVALENTS(as of 15 October 2001)

Currency Unit – Riel (KR) KR1.00 = $0.00026 $1.00 = KR3,835

For the purpose of calculations in this report, a rate of $1.00 = KR3,835 is used, the rategenerally prevailing at the time of loan appraisal.

ABBREVIATIONS

ADB – Asian Development BankAPS – agricultural production surplusAusAID – Australian Agency for International DevelopmentCARERE – Cambodia Rehabilitation and Regeneration ProjectCBO – community-based organizationCDC – commune development committeeEFRP – Emergency Flood Rehabilitation ProjectEIA – environmental impact assessmentEIRR – economic internal rate of returnExCom – Executive CommitteeGIS – geographic information systemha – hectareIEE – initial environmental examinationIFAD – International Fund for Agricultural DevelopmentILO – International Labour OrganizationIRAP – integrated rural accessibility planningKfW – Kreditanstalt fur Wiederaufbau (German Bank for Reconstruction)km – kilometerLBAT – labor-based appropriate technologyLPP – local planning processm – meterM&E – monitoring and evaluationMEF – Ministry of Economy and FinanceMFI – microfinance institutionsMPWT – Ministry of Public Works and TransportMRD – Ministry of Rural DevelopmentNGO – nongovernment organizationNRDP – Northwestern Rural Development ProjectO&M – operation and maintenancePDRD – provincial department of rural developmentPIU – project implementation unitPMU – project management unitPRDC – Provincial Rural Development CommitteeRIIP – Rural Infrastructure Improvement ProjectSEDP – socio-economic development planTA – technical assistanceTOT – training of trainersTRIP – Tertiary Roads Improvement Project

UNDP – United Nations Development ProgrammeUNICEF – United Nations Children's FundUXO – unexploded ordnanceVOC – vehicle operating costWFP – World Food Programme

NOTE

In this report, "$" refers to US dollars.

CONTENTS

Page

LOAN AND PROJECT SUMMARY ii

MAP vi

I. THE PROPOSAL 1

II. INTRODUCTION 1

III. BACKGROUND 1

A. Sector Description 1B. Government Policies and Plans 6C. External Assistance to the Sector 8D. Lessons Learned 9E. ADB's Sector Strategy 11F. Policy Dialogue 12

IV. THE PROPOSED PROJECT 14

A. Rationale 14B. Objectives and Scope 14C. Cost Estimates 19D. Financing Plan 20E. Executing Agency 20F. Implementation Arrangements 20G. Environmental and Social Measures 28

V. PROJECT JUSTIFICATION 31

A. Economic Analysis 31B. Impact on Poverty 33C. Risks 34

VI. ASSURANCES 35

A. Specific Assurances 35B. Condition for Loan Effectiveness 37

VII. RECOMMENDATION 37

APPENDIXES 38

LOAN AND PROJECT SUMMARY

Borrower The Kingdom of Cambodia

Project Description Northwestern Cambodia is one of the most war-affected andpoorest regions of the country. It is critically in need of post-conflictreconstruction. What limited rural infrastructure exists is in poorcondition and needs rehabilitation. The Project will provide ruralinfrastructure to support socioeconomic development. It will extendthe network of rural roads to improve access to isolated rural areas.Once year-round access has been secured, the Project will alsofund other social infrastructure at district and village levels (schools,health facilities, markets, water supply and sanitation schemes, ricedrying and storage facilities, community buildings, etc.). It will givepriority to pro-poor public infrastructure investments identified by thebeneficiaries who will be involved them in the construction,maintenance, and operation of these civil works. It will enhance thecapacity of those associated with the planning, design, construction,maintenance, and ongoing monitoring of impact from theseinitiatives, from both the private and public sectors. The Project willhelp the vulnerable groups to benefit from these interventions sothat their livelihood conditions and income-generating opportunitieswill be enhanced.

Classification Primary: Poverty interventionThematic: Human development

EnvironmentalAssessment

Category BAn initial environmental examination (IEE) was undertaken.

Rationale After nearly three decades of armed conflict, northwesternCambodia is now in transition from a region requiring humanitarianrelief and emergency interventions to one requiring investment forsustainable long-term development. One legacy of war is a fracturedsociety that is progressively resettling into formerly occupied andnew areas where basic infrastructure is limited. The incidence ofpoverty, however defined, is higher in northwestern rural Cambodiathan in most parts of the country. Even though the region isfrequently mine contaminated, it still attracts many new settlers(internally displaced persons, repatriated refugees, internalmigrants, and formally or informally demobilized soldiers) becauseof its abundant land resources. A necessary prerequisite toaddressing the causes of poverty in rural Cambodia in general, andthe northwestern provinces in particular, is access. A functional roadnetwork is the lifeblood of the rural economy and socialdevelopment. It is a precondition to the provision of socioeconomicdevelopment initiatives that will, in turn, provide the rural populationwith access to social infrastructure, markets, income-generatingopportunities, and social services.

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Objectiveand Scope

The primary objective of the Project is to support the Government’seffort to reduce poverty through accelerated rural development byestablishing physical infrastructure, improving socioeconomicconditions, and enhancing rural livelihood in northwesternCambodia. To achieve this objective, the Project will (i) plan,rehabilitate or establish, and maintain public rural infrastructure thatwill contribute to the improvement of the living conditions of the ruralpopulation; (ii) strengthen the capacity of communities andinstitutions to identify, prioritize, plan, implement, coordinate,monitor, and maintain infrastructure investments and developmentinitiatives; and (iii) support and facilitate access to appropriatesavings and credit mechanisms for enhancing livelihood andincome-generating activities at village and commune levels. TheProject has three components: (i) rural infrastructure development–extending the rural road network and establishing socialinfrastructure at district level (schools, health facilities, and markets);(ii) capacity building–enhancing the capacity of those in both theprivate and public sectors associated with the planning, design,construction, maintenance, and ongoing monitoring of projectactivities; and (iii) rural livelihood enhancement–involving andempowering the beneficiaries, establishing small-scale ruralinfrastructure at village level (water supply and sanitation schemes,rice drying and storage facilities, community meeting halls, etc.), andestablishing savings and credit initiatives at village and communitylevels.

Cost Estimates The total project cost is estimated at $34.73 million equivalent,comprising $11.85 million (34 percent) in foreign exchange andapproximately $22.78 million equivalent (66 percent) in localcurrency costs.

Financing Plan ($ million)

Source ForeignExchange

LocalCurrency

Total Cost Percent

Government - 7.40 7.40 21.30AsianDevelopmentBank

11.80 15.30 27.20 78.30

Beneficiaries 0.05 0.08 0.13 0.40 Total 11.85 22.78 34.73 100.00

Loan Amount andTerms

The loan will be the equivalent of $27.2 million in Special DrawingRights from the Asian Development Bank's (ADB’s) Special Fundsresources, with a maturity of 32 years including a grace period of 8years, and an interest charge of 1 percent per annum during thegrace period and 1.5 percent per annum thereafter.

Period of Utilization Until 31 December 2007

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Executing Agency The Ministry of Rural Development

ImplementationArrangements

The overall project implementation period is five years. The Projectimplementation arrangements will conform with the decentralizationand deconcentration policy adopted by the Government. A projectmanagement unit (PMU) will be established in Sisophon, the capitalof Banteay Meanchey Province. The PMU will be responsible forday-to-day management of the Project. In the provincial departmentof rural development, in each of the four project provinces, aprovincial implementation unit (PIU) will be established and will beresponsible for day-to-day management of project activities at theprovincial level. The Project is multisectoral in nature; coordinationwill be achieved through the respective provincial rural developmentcommittees already established in each target province. A team ofinternational and domestic consultants will support both the PMUand PIUs.

Procurement Civil work contracts for rural roads and other large-scaleinfrastructure will be awarded on the basis of local competitivebidding (LCB) procedures among prequalified private localcontractors in accordance with ADB’s Guidelines for Procurementand other government procedures acceptable to ADB. For small-scale civil works of less than $10,000, procurement on the basis ofcomparison of at least three quotations from local contractors willbe followed. Vehicles, equipment, and material will be procured byinternational competitive bidding where the cost is more than$500,000 equivalent, or by international shopping where the cost isfrom $100,000 to $500,000. Equipment or materials valued at lessthan $100,000 equivalent, and for which there are several localsuppliers with satisfactory service facilities, may be procured underLCB procedures, or by comparing at least three quotations fromlocal suppliers, where the cost is less than $50,000.

Consulting Services A total of 129 person-months of international and 333 of domesticconsulting inputs will be required to support project implementationand capacity building. The consultants financed by ADB will berecruited in accordance with ADB’s Guidelines on the Use ofConsultants and other arrangements satisfactory to ADB forengaging domestic consultants. The Project will also contract outservices to prequalified international and local nongovernmentorganizations (NGOs) and other local institutions. To the extentpossible, procurement will be done on the basis of competitiveprocedures, but where the number of service providers is limited,direct negotiation may be applied, with the prior approval of ADB.

Estimated ProjectCompletion Date

30 June 2007

Project Benefits andBeneficiaries

The Project’s target population is the rural poor in an estimated 400villages in 50 communes of 14 districts in the northwesternprovinces. Approximately 105,000 households comprising about

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560,000 people are expected to benefit from the Project throughincreased participation and empowerment in prioritizing andimplementing development initiatives, and improved access to (i)the rural transportation network, (ii) education and health facilitiesand services, (iii) clean domestic water supply, (iv) village-levelsocial infrastructure, and (iv) credit and savings facilities as aprecursor to enterprise development. A wide array ofnonquantifiable benefits will also result from the Project, such asincreased earning opportunities and incomes, better socialcohesion and community organization, and greater access toproductive assets and markets. Capacity building provided by theProject at government and agency levels will impact on povertythrough improved targeting and the use of participatory, needs-based, demand-led planning for development initiatives. TheProject will have further strategic impact on poverty as it will openthe way to further investment projects, particularly in agriculture andirrigation, that are expected to follow.

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I. THE PROPOSAL

1. I submit for your approval the following Report and Recommendation on a proposedloan to the Kingdom of Cambodia for the Northwestern Rural Development Project.

II. INTRODUCTION

2. The proposed Northwestern Rural Development Project is included in the 2001 CountryAssistance Plan of the Asian Development Bank (ADB) for Cambodia. In response to a requestfrom the Government of Cambodia, ADB provided technical assistance (TA) to prepare a projectto reduce poverty and enhance socioeconomic and livelihood conditions in selected rural areasof the northwestern region of the country.1 Four target provinces–Battambang, BanteayMeanchey, Oddar Meanchey, and Siem Reap were selected on the basis of (i) the highincidence of poverty; (ii) the need for postconflict reconstruction; (iii) the large number ofinternally displaced persons, repatriated refugees, demobilized soldiers, and other vulnerablegroups; (iv) the prospect for cross-sectoral synergies in ADB’s country program; and (v) theopportunity for complementarity with activities supported by other aid agencies. Earlydiscussions with central and provincial governments resulted in understanding that the Projectwill focus on 14 districts in the four provinces. The project design was based on asocioeconomic data review, on the results of qualitative and quantitative surveys carried out intargeted villages, and on the outcomes of intensive consultation with stakeholders, including theGovernment, nongovernment organizations (NGOs), and other aid agencies. A series ofparticipatory workshops were also held in each project province and in Phnom Penh, to developthe project framework and discuss the project design with central and local governmentrepresentatives, external aid agencies, NGOs, and other stakeholders. A Loan Fact-FindingMission was conducted during 1-22 July 2001 and an Appraisal Mission during 22 August-8September 2001. The project framework is in Appendix 1.

III. BACKGROUND

A. Sector Description

1. The Project Area

3. The project area comprises two contiguous geographic blocks adjoining the Thai-Cambodian border located in some of the most isolated parts of northwestern Cambodia. Itincludes 14 districts: 4 in Battambang (Rattanak Mondol, Moung Roessei, Samlot, and KoasKrolor), 4 in Banteay Meanchey (Phnom Srok, Phreah Net Phreah, Svay Chek, and ThmarPuok), 3 in Oddar Meanchey (Chongkhal, Samraong, and Banteay Ampil), and 3 in Siem Reap(Angkor Chum, Varin, and Svay Leur). These districts are broken down into about 50communes, which are further broken down into 400 villages, with a combined population of560,000 people (105,000 households). Altitude ranges from 10 meters (m) above mean sealevel at Tonle Sap's edge to around 800 m along the Dangkret Escarpment in the north and inthe foothills of the Cardamom Mountains in the southwest. Between the forested hills on theborder and the lowlands adjoining Tonle Sap, there is a mixed area of low, undulating hillsinterspersed with broad flat valleys. Drainage lines run in a southeasterly direction toward TonleSap from the Thai border in the north and west. The high and seasonal rainfall (1,200-1,600millimeters per annum), flat topography, and sparse vegetation cover result in extreme peakrunoff flows that create complex hydrological conditions. What little forest cover remains is

1 TA 3489-CAM: Rural Development Project, for $600,000, approved on 29 August 2000.

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primarily secondary regrowth, as the region has been subjected to considerable degradationthrough timber concessions and illegal logging activities. Even so, forest areas still provide up to50 percent of household incomes, in remote areas. Rainfed agriculture is the predominantsource of income based mainly on subsistence production. Large areas of existing and potentialagricultural land are dotted with mines.

4. Rural settlements are found along watercourses or roadsides. One legacy of the armedconflict that persisted in the area for nearly three decades is the capacity of entire villages torelocate in search of economic opportunities or to find areas where farmland is more abundant.As a consequence, new settlements are common throughout the area.

2. Rural Poverty in Northwestern Cambodia

5. Poverty is widespread throughout northwestern Cambodia and, to a large degree, isrelated to extended conflict and instability, and the resultant harm to the population and theirliving environment. Most of the country experienced peace and economic growth after 1993, butonly since 1998 have the northwestern provinces enjoyed their first real respite from war. Manyinternally displaced persons, repatriated refugees, internal migrants, and formally or informallydemobilized soldiers are busy reestablishing their livelihood systems in what remains afractured society. They are trying to reinsert themselves into either established communities orrecently resettled villages. Social cohesion between the groups is low and community structureis weak.

6. Livelihood systems are not secure for most of these communities, which comprisepredominantly subsistence farmers. An estimated 60 percent of households in rural areas sufferfrom food deficits. Some villages have access to areas of good forest and are able to forage andhunt, or collect timber and nontimber forest products for immediate household consumption orsale. Others are able to supplement food crops with fish, but, in general, life is extremelydifficult. Food stocks begin running out for many families just four months after harvest. Copingmechanisms for villagers without access to good forest areas are even more tenuous anddifficult. Food production is constrained by lack of water for dry season cropping, lack ofinvestment capital for better technology or improvements, while livestock are prone to highmortality due to widespread disease and lack of a viable veterinary system. Governmentagencies rarely deliver extension services in the more remote villages for reasons of access andbudgetary constraints. Health and agriculture, the two most needed services, are generallylimited to communes and villages in the vicinity of district centers. Access to savings and creditfacilities is severely limited in the communes and villages as the formal financial system doesnot extend this far and the informal financial system (usually NGO-directed) is underdeveloped.Several international and local NGOs, however, have been successfully implementingmicrofinance projects in some areas of northwestern Cambodia. For example, Catholic ReliefServices is reaching over 31,000 clients nationwide, including 6,300 in 188 villages inBattambang Province (the only northwest province in which it is currently working); Cooperativefor Assistance and Relief Everywhere (CARE) serves about 4,000 clients in the northwest;Action Nord Sud reaches about 10,000 clients; and World Vision reaches 17,000 clientsnationwide, including 5,000 in the northwest. On a larger scale, Acleda Bank, which is still theonly specialized bank to be licensed by the National Bank of Cambodia as a microfinanceinstitution, reaches over 60,000 clients nationwide. However, it does not take savings, and itsclientele comes exclusively from the relatively richer provincial and district centers. NGOs areeager to extend their outreach in the poor northwest provinces, and have been successful inboth mobilizing savings and delivering credit with high repayment rates, but limited access tovillages prevents an expansion of their activities.

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7. Around 50 percent of villages have 40-60 percent of households living below the officialpoverty line.2 Household savings are normally held in the form of assets such as livestock andland, and, less often, gold and jewelry. These assets are often lost through forced sale due toeconomic shock such as serious health problems in families. Average household incomes varywidely, but the majority in the rural areas range from $300 to $700 per annum. With an averagefamily size of just over five in rural households, this equates to an annual per capita income ofbetween $60 and $140.

8. Lack of access to health facilities and drinking water are major issues related to poverty,especially in isolated rural areas. Most villages have problems with either insufficient or badquality water, and often both. Some 6 percent of people obtain domestic water from boreholes,48 percent from dug wells, 38 percent from surface sources such as ponds and rivers; 2 percentpurchase drinking water, and the other 6 percent obtain water from other sources such as roofcatchment. Only 8.5 percent of the population have access to safe drinking water, and these arepredominantly in the district towns, compared with the national average of 29 percent.Conditions are particularly difficult in the dry season when water from wells and surface watersources is frequently contaminated with livestock waste and other foreign matter. Water isusually not boiled before drinking, and there is little awareness of hygiene and sanitation. Only 4percent of households have latrines, compared with 14.5 percent nationally. Family planning,reproductive health, and infant vaccination services are all lacking in the remote areas. Thegeographically dispersed nature of rural settlements and the condition of the road network forcemany to travel more than six hours to reach health services.

9. Many rural inhabitants in the northwestern provinces receive little or no schooling andthere is a high level of illiteracy, particularly among women. Official statistics report an adultliteracy rate of 46.2 percent (a figure considered to be inflated as it includes the partially literate)compared with the national average of 63 percent. The school attendance of children aged 5-14 years is only 63 percent, compared with the national average of 67 percent. Lack ofeducation has an immediate impact on the general level of awareness and understanding.People are unable to recognize or take advantage of opportunities. They lack vocational choiceand are unable to prepare themselves for the future. Lack of education and literacy has alsocontributed to low community capacity. In most villages, the community’s capacity to participatein development has yet to be established.

10. Vulnerable groups throughout northwestern Cambodia include widows and other femaleheads of households, the physically and mentally handicapped, the orphaned, the landless, andthe aged without young to support them. There are also a considerable number of demobilizedand demobilizing soldiers. Poverty does not distinguish gender but households headed bywomen, or those that lack male labor, are disadvantaged and have limited opportunitiescompared with poor households headed by men. In such situations, widows not only have tosatisfy all or most of the household’s needs on their own account, but also care for their youngchildren. This group alone represents 14.6 percent of total households in rural northwesternCambodia. Poverty in the target area is further described in Appendix 2.

3. Rural Infrastructure

11. The long period of conflict and insecurity in northwestern Cambodia has resulted inphysical destruction, total lack of maintenance of infrastructure, and lack of exposure to

2 The per capita expenditure needed to secure an intake of 2,100 calories per day.

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development activities. Rural infrastructure is inadequate, with extremely poor transport links,insufficient clean water supplies, and lack of public facilities and services. Schools, healthfacilities, markets, and agricultural facilities are often nonexistent or in complete disrepair. Manypeople are isolated due to the difficulty in reaching the main road network, particularly in therainy season. The rural economy is fragmented into small localized units operating on the basisof a semisubsistence economy.

12. The poor road network hinders not only economic, but also social development because,without roads, social services such as schools, health care, agricultural extension and credit,are not accessible. Most national (primary) and provincial (secondary) roads throughout thenorthwestern provinces are severely degraded. Those critical within the project area have beenaccorded high priority for rehabilitation under the five-year plan 2001-2005 of the Ministry ofPublic Works and Transport (MPWT) and the ADB-financed Emergency Flood RehabilitationProject (EFRP).3 Others have already been rehabilitated with external assistance or have beenupgraded by the army. A few short sections of rural (tertiary) roads have been rehabilitated orrepaired under aid-agency-funded projects, but are scattered throughout the area. Theremainder of the rural road network is in disrepair and these roads are frequently impassable,especially in the wet season. In addition, many of these rural roads pass through heavily minedareas that can also have unexploded ordnance (UXO).

13. Lack of clean domestic water is a major problem for most rural people of the northwestregion, especially in the dry season. Most rely on shallow dug wells or nearby rivers forhousehold water and many have to travel long distances to the closest source of supply.Sanitation facilities are scarce even in provincial and district centers, and are often inadequatewhere they do exist. This contributes to the problem of water contamination. In the course ofintensive social surveys undertaken during project preparation and confirmed during loanprocessing, rural inhabitants generally gave higher priority to the improvement of road access toexisting district health centers with improved staffing and a better drug supply, than to theconstruction of new health facilities. However, those living in more isolated communities givepriority to construction of smaller-scale health facilities at the commune or village level.

14. School attendance is low, and where schools exist, class sizes are frequently large–50children per class or more. Often, two or three shifts a day are needed due to the limitednumber of classrooms. Schools are frequently dilapidated, old buildings or very simple wooden-framed, open-sided structures with thatch or corrugated iron roofs. In some places, classes areheld in private houses in the absence of other facilities.

15. Most villages lack public buildings, such as village offices or community meeting rooms,beyond, perhaps, a dilapidated classroom. There is a case for supporting the construction ofsmall community facilities. A multipurpose building can be used for village meetings and publicawareness campaigns, as well as provide a venue where visiting medical teams can carry outprimary health care, mother and child health clinics, and vaccination campaigns. In many areas,rice is threshed and dried on makeshift surfaces. Farmers can be helped to construct simpleconcrete drying slabs as an alternative. Footbridges can give pedestrians a safer means forcrossing streams and rivers in the wet season in some villages. A simple structure, such as abridge, culvert or drift, can make a village road or trail passable year-round. Formal marketsexist in the districts but rarely in the communes or villages.

3 Loan 1824-CAM(SF): Emergency Flood Rehabilitation Project, for $55 million, approved on 21 December 2000.

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4. Sector Issues

16. Maintenance of Rural Roads. The resources that the Government currently allocates tothe maintenance of rural roads are well below requirements. With an increasing number of suchroads being rehabilitated or constructed countrywide, still more will be needed. Where roadmaintenance is undertaken, it is usually dependent on aid agencies or ad hoc payments fromthe central Government in response to individual requests. It is also unreasonable to expect thatmaintenance can be achieved solely from local participation and the collection of user charges,which were attempted in isolated cases with mixed success. There is a need for greaterallocation of a recurrent budget and for the establishment of an institutionally and financiallysustainable mechanism for maintaining of rural roads.

17. Rural Road Network Planning. Rural roads in the project area have often beenrehabilitated on relief and humanitarian grounds, and the planning approach adopted has oftenbeen piecemeal or ad hoc rather than attending to the network, using a more strategicapproach. With the exception of the Upstream Project,4 all other projects5 supporting theMinistry of Rural Development (MRD) in the rural road subsector have focused on rehabilitatingalignments–an appropriate objective–but have not attended to institutionalizing a planning andprioritization process to rehabilitate and maintain the tertiary network. A strategic developmentapproach should now be contemplated as the emergency relief period is concluding.

18. Institutional Capacities. Due to the limited number and capabilities of national humanresources following decades of civil turmoil as well as a lack of motivation associated with lowcivil service salaries, the Government agencies at all three levels–ministry (national),department (provincial), and offices (district)–are weak in technical skills, project management,and implementation capacities. Few staff have technical qualifications above secondary leveland those that do are found working elsewhere (most public servants hold two jobs, theirattendance in their government position being proportional to the respective remuneration) or inaid-agency-funded projects (agencies often encourage the secondment of their permanent staffto such projects in related fields of operation). The situation is made worse by the fact that theGovernment has committed itself to an ambitious decentralization program, intended to givegreater powers to provinces and lower administrative units where human resources requirefurther strengthening and capacity building if they are to assume increased responsibilities.Extensive capacity building with a special focus on technology transfer within the responsibleagency for rural development will be provided under the Project together with operational fundsand salary incentives to enable trained individuals to conduct field operations effectively.

19. Private Sector Capacity . The capacity of the private sector involved in the ruralinfrastructure development sector (both construction contractors and consulting engineers) isalso weak. With limited funds available for civil work programs and the dominance of foreigncontractors operating in the country, there has been little incentive to develop the expertiseamong private operators. The adoption of labor-based appropriate technologies (LBAT) requiresadditional training in labor management and production techniques that will be attended tounder the Project using the training programs developed by the International Labour

4 The Swedish International Development Agency-funded and International Labour Organization (ILO)-implemented

Upstream Project introduced the integrated rural accessibility planning (IRAP) tool in Siem Reap and has trainedprovincial department or rural development staff in Banteay Meanchey Province.

5 Loan 1385-CAM(SF): Rural Infrastructure Improvement Project, for $25.1 million, approved on 28 September1995. Loan 1824-CAM(SF): Emergency Flood Rehabilitation Project. The Tertiary Roads Improvement Projectfunded by the Kreditanstalt fur Wiederaufbau (Germany), operating in Kompong Thom, Prey Veng, KompongChhnang, and Kratie provinces.

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Organization (ILO) and the ADB-funded Rural Infrastructure Improvement Project (RIIP)(footnote 5), supplemented by additional technical inputs.

20. Security of Land Tenure. Lack of secure tenure or land rights is a recognized source ofvulnerability for the rural poor, and security of land tenure is one of the keys to sustained ruralpoverty reduction. Upgrading the rural road improves accessibility and is often followed byprivate investment in agriculture and a consequent increase in the value of surrounding land. Inthe northwestern provinces, a rehabilitated road can also act as a magnet for the mobilepopulation in search of economic opportunities. Given this pattern, there may be increased landdisputes due to market dynamism engendered by any rural development project, and the targetbeneficiaries may be alienated if they are not provided with formal documentation certifyingownership or right of occupancy.

B. Government Policies and Plans

21. The Government's overall socioeconomic development strategy is to achieve broad-based, sustainable growth with equity at a rate of 6-7 percent per year through fiscal reform andmaintenance of political stability; private sector development; agricultural development and off-farm income generation; and improved access of the poor to natural assets (especially land),health and education services, appropriate technology, and credit. The focus on the country'sagriculture sector and poverty reduction recognizes the dominant position the sector occupiesfor most people's livelihoods and the high incidence of poverty within this sector. The draftSocio-Economic Development Plan II (SEDP II, 2001-2005) prepared with the assistance ofADB is also directed at increasing investment in rural areas. The Government has also adoptedan Interim Poverty Reduction Strategy Paper that gives the framework for public sectorinvestment, including increased investment in rural infrastructure. That strategy seeks to (i)promote decentralization and community participation in project identification, design, andimplementation so as to increase the efficiency and equity of rural development interventions;(ii) improve agricultural productivity through greater public investment in rural infrastructure soas to enhance the incomes of the rural poor; and (iii) increase rural access to affordable socialservices, particularly for women and vulnerable groups.

1. Rural Infrastructure

22. In December 1999, MRD issued a policy for rural roads that described the delegation ofresponsibility for road maintenance to the provinces, communes, and villages, based on theprinciple that users and beneficiaries pay. MRD indicated its role in this policy as providingadvice on maintenance and mobilization of local resources to fund maintenance programs.MRD encourages the establishment of rural road maintenance committees that collect tolls andlocal contributions from businesses and communities. This policy has been put into effect only ina few local cases6 and reports limited success. Subsequently, the ADB-funded RIIP proposedan alternate mechanism for funding road maintenance through the establishment of a districtmaintenance fund. The fund has been established, but is still to be resourced. TheGovernment’s policy for rural road maintenance retains the principle of user pays but alsorecognizes that this policy cannot be applied across the board as local resource mobilization willnot cover routine and periodic requirements.

6 The Action Nord Sud-funded road from national route No. 6 northward in Chi Kreng District of Siem Reap

Province.

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23. In recognition of the valuable contribution to local incomes, MRD also adopted the policyof using LBAT for rural road construction in accordance with the Government's policies onemployment creation and poverty reduction, with emphasis on creating opportunities and, whereappropriate, giving priority to disadvantaged groups. MRD is committed to developing anefficient private sector and contracts out all construction work to private contractors that havereceived training beforehand in LBAT. MRD retains the role to plan, design, and manage ruralinfrastructure development.7

2. Decentralization and Deconcentration

24. The Government is carrying out broad-ranging reforms to the state apparatus–coveringareas of public administration and finance, legal and judicial reform, reforms in the military, andsubnational reforms, notably, commitments to decentralization (the election of communecouncils in February 2002) and deconcentration (the delegation of central ministry functions toprovincial authorities). Under present deconcentrated arrangements, there is generally pre-auditcontrol of spending, where ministries must seek the approval of the Ministry of Economy andFinance for spending requests. This has helped maintain tight control of social spending, butoften leads to disruptive delays. As a result, three pilot deconcentrated expenditure systems arein use in selected provinces and sectors: Accelerated District Development (in 27 districts, forsmall health expenditures), the Seila Program8 (in six provinces, including the four target ones),and the Priority Action Programs (in the health and education sectors). A forthcoming organiclaw is expected to increase the powers of the provincial governors to coordinate provincialdepartments and will determine which line ministry powers will be devolved to provincialdepartments.

25. Devolution of certain powers to elected commune councils will begin next year, buildingon the experiences of pilots such as the Seila Program. The Law on Commune AdministrativeManagement empowers a National Committee to Support the Commune Councils (NCSCC),comprising representatives from six ministries and the Council of Ministers, presided over by theMinistry of Interior and supported by a technical secretariat. The NCSCC’s role includesoverseeing the completion of the necessary regulations, and coordinating programs forstrengthening local institutions (communes, districts, and provinces). The NCSCC will have fiveyears to promote the elected commune councils as primary agents of local development;emphasize the province governors’ functions as main coordinators and promoters of provincialdevelopment; and determine which other departments at provincial level have which roles insupporting the commune councils. Under the Seila Program, commune developmentcommittees (CDCs), chaired by a commune chief and including representatives from all villages,are responsible for developing the commune. After the February 2002 elections, communecouncils will replace the CDCs. The commune councils will have 4-8 elected representativeswith a five-year mandate. It is expected that for at least the first year, planning and prioritysetting mechanisms already in place for the CDCs will be carried forward by the communecouncils, including the local planning process, commune development plans and commune

7 Second Five Year Socio-Economic Development Plan of MRD, August 2000.8 Seila (a Khmer word meaning foundation stone) originated as United Nations Development Programme's

(UNDP’s) Cambodian Area Rehabilitation and Regeneration Project. With the continued support of UNDP andother aid agencies, Seila has evolved into a national program operating in Banteay Meanchey, Battambang,Pursat, Siem Reap, Oddar Meanchey, and Ratanakiri provinces under the coordination of a task force (chaired bythe senior minister of economy and finance and including representation from the main line ministries involved inrural development) at national level. It has piloted decentralized systems of provincial planning, managingprovincial funds, coordinating provincial line departments, and testing a model for executive management ofprovincial development work.

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investment plans and budgets. The Project will actively support this process by training theincoming commune councilors, and progressively involving them in project implementationactivities. The Project will also remain flexible to adjustments in its implementationarrangements in view of the evolving process of decentralization.

26. MRD already supports the decentralization process by establishing and supportingvillage development committees and provincial rural development committees (PRDCs). TheProject will also support this process by, among others, the use of PRDCs to approveinfrastructure investments. The project design also incorporates successfully tested features ofthe Seila Program such as its bottom-up planning approach and the multisectoral coordinationmechanism at provincial level.

C. External Assistance to the Sector

27. From 1992 to 2000, ADB provided Cambodia with 16 loans totaling $467.36 million and79 TA projects amounting to $56.9 million. Four loans totaling $91.1 million were in agricultureand natural resources, two of them specifically targeting rural infrastructure ($31.1 million)excluding the loan funds allocated to rehabilitation of tertiary roads under the EFRP (footnote 3).Some 13 TAs were provided in the agriculture and natural resources sector, of which 5 ($1.7million) were directed at rural infrastructure. The ADB country lending assistance has beendirected equally across agriculture, transport, and the social sectors, with approvals of about$100 million to each and a smaller allocation to energy ($30 million).

28. The ADB-funded RIIP is being implemented in six provinces in south Cambodia. It hasfour components: (i) rural road rehabilitation, (ii) market development, (iii) critical small civilworks, and (iv) capacity building for MRD and its provincial departments. The project isperforming satisfactorily and has generated many appropriate designs, standards, andprocedures for incorporation in the Project. Assistance to rural infrastructure outside the projectarea has been provided under the Tertiary Roads Improvement Project (TRIP) funded byKreditanstalt fur Wiederaufbau (German Bank for Reconstruction). A summary list of externalassistance within the sector is in Appendix 3.

29. Rural infrastructure projects implemented in the target provinces gathered momentumonly with the establishment of peace and have been undertaken in response to differentobjectives. The ADB-funded EFRP will rehabilitate both secondary and tertiary roads damagedby the 2000 floods in three of the target provinces adjacent to Tonle Sap. The World FoodProgramme (WFP) has rehabilitated or established tertiary and subtertiary roads under its food-for-work program, but to date has been oriented toward providing basic access for theemergency distribution of food supplies. That program is currently under review and itsextension9 will adopt a “food for development” philosophy. WFP has also been responsible forrehabilitating or constructing rural infrastructure including roads, schools, health facilities; andfor other social support interventions such as basic health and education services, skills training,and community outreach activities. Support has also been provided under Upstream Projectfunded by the Swedish International Development Agency. Its main focus has been on capacitybuilding for provincial department of rural development (PDRD) staff and local contractors, andintroducing the integrated rural accessibility planning (IRAP) tool for planning and prioritizinginfrastructure investments on a needs and accessibility basis. Pilot contracts using LBAT havealso been funded under that project.

9 The Protracted Relief Recovery Operations Program.

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30. The Seila Program has four key areas of influence in the target provinces including (i)poverty reduction through the provision of rural infrastructure, (ii) institutional strengthening, (iii)piloting a possible model to support the Government's decentralization and deconcentrationpolicy, and (iv) the introduction of a needs-based, demand-driven, local planning process. TheProgram has attracted significant aid agency (United Nations Development Programme andbilateral) funding, resulting in the investment of some $32 million in infrastructure in the targetprovinces since 1996. Most of the infrastructure investments funded under the Program areidentified through the local planning process (LPP)–a commune-based, participatory, bottom-upprocess–and then progressively aggregated (coordinated at district facilitation workshops) intoprovincial strategic development and investment plans. The Program provides limited funding(local development funds) for investments identified through the LPP as well as for provincialinitiatives, including rural roads, health centers, schools, water supplies, and in the fields ofincome generation and natural resource management. The Program has developed a provincialimplementation capability under the PRDC, including an executive committee (ExCom)responsible for implementation. ExCom comprises a secretariat and associated local capacity-building unit, monitoring and evaluation unit, contracts administration unit and finance unit, allfunded by aid agency contributions through the Seila Task Force. The ExCom is not responsibleto any line ministry. Through substantial external technical assistance, the Program supports thecommittee and has improved the capacities, mobility, and resources of many provincially basedgovernment employees that have been seconded to staff the committee on a contractual(including supplementary salaries) and competitive basis. None of ExCom appointments occupypublic servant positions even though they may be contracted public servants. The identificationand prioritization of rural road rehabilitation under the Seila Program is done through the LPP,which lacks the larger geographic planning vision desirable for attending to the road networkand often leads to a more piecemeal or ad hoc approach. The Program also favors mechanizedtechniques for most of its road rehabilitation activities, and adopts technical specifications andconstruction standards that do not conform with those developed by MRD and are seldomappropriate for situations where they have been applied, often with poor quality outcomes.

31. Other aid-agency-funded rural development programs in northwestern Cambodia notspecifically targeting infrastructure but relating to poverty reduction (through agriculturalproductivity) include the Agricultural Development Support to Seila, funded by IFAD, theCambodian Australian Agricultural Extension Project, funded by AusAID, and the Economic andSocial Relaunch of the Northern Provinces Project soon to be funded by the European Union.ADB has a number of rural development initiatives in the pipeline covering this area, including aRural Water and Sanitation Project, a North West Cambodia Irrigation Sector Project, and a TAto MRD for developing a rural development strategy–all included in the 2003 CountryAssistance Plan. In addition, the Belgium bilateral agency is contemplating education and healthsector infrastructure investments in Siem Reap, and the World Bank is currently designing acomplementary provincial and rural infrastructure project based primarily on secondary roads inSiem Reap and Oddar Meanchey among others, outside the project area. A number of NGOshave also contributed to the construction, operation, and maintenance of rural infrastructure aspart of their overall rural development activities, significantly improving access to social servicesin these more remote areas.

D. Lessons Learned

32. The 2000 ADB Portfolio Review Mission concluded that the Government has beensuccessful in eliminating many systematic issues hampering efficient project implementation.There remain weaknesses in specific areas, most of them related to (i) the acute shortage ofskilled and experienced staff assigned to project implementation; and (ii) the lack of delegation

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of authority within line ministries, and to project implementation offices. Both technical andproject management skills are found wanting in most development projects, and capacitybuilding remains an indispensable project component. Adoption of decentralized projectimplementation arrangements facilitates delegation of authority. But such delegation, especiallyto the lowest echelon, needs to be gradual and again complemented by adequate capacitybuilding to ensure sufficient absorptive capacity.

33. Given the enormity of the task of infrastructure rehabilitation and reconstruction in mostrural areas of Cambodia, especially in the northwestern provinces, there is a need to prioritizeinvestments so as to achieve the maximum impact from available investment funds. It is clearfrom rural infrastructure projects, particularly the Upstream Project implemented by ILO and theADB-funded RIIP, that selecting road alignments to be rehabilitated is an importantconsideration in maximizing the potential benefit. Prioritized rural roads must connect with theestablished provincial or district road network and provide development corridors to be followedby other infrastructure and socioeconomic development initiatives. Planning tools utilized inprioritizing investments need to involve the participation of beneficiaries, including the poor andvulnerable groups, to have the desired impact on poverty and to contribute to their sense ofownership. Villager participation in assigning priorities to investments at the commune or villagelevel is desirable and is being practiced to a certain extent, notably the LPP. With their narrowergeographic planning vision, villagers cannot relate to the larger framework of district, andultimately, province that is necessary in prioritizing rural roads where strategic considerationsmust be given to the overall road network.

34. Villager participation in decision making is still a new concept in rural Cambodia, as it iswith Government staff who facilitates participation. Villagers often believe that it is inappropriatenot to follow majority opinion. What is referred to as the “consensus strategy” is an importantfeature of traditional local attitudes and villagers tend to leave decisions to higher authorities.Government staff's understanding of real participation is sometimes lacking and they oftenconfuse participatory processes with data-gathering exercises. As a result, priority investmentsmay not reflect the real priorities within the villages, particularly when considering the needs ofthe poor. Finally, all project implementers recognize that the participatory process is necessary,but costly and time-consuming.

35. The lessons learned regarding operation and maintenance (O&M) of rural infrastructure,especially rural roads, are obvious, but the solutions are less clear. Both routine and periodicmaintenance are needed on all road alignments if they are to remain useful to the public. Theestimated life of a rural road with adequate routine maintenance is about 4-5 years before itrequires periodic maintenance (grading and resurfacing). Involving communities along theroadside in routine maintenance has worked in some isolated cases where population densitiesare high, where most road users are from within the area served by the road, and wherecontinued community-organizing efforts are provided by a project or an NGO. Those livingalongside rehabilitated roads view maintenance as the responsibility of the Government andcannot be convinced to assume responsibility, especially when a far wider community benefits.Beneficiaries often view the requirement of contribution in kind as forced provision of labor. Caremust be taken to ensure that the burden of maintenance does not fall unfairly on the poorestmembers of the community. Under the ILO, TRIP, and RIIP projects, maintenancearrangements involve the use of a petty contract system in which the beneficiaries whoparticipated in the rehabilitation of the roads are trained and paid to maintained them. Materials,tools, and wages are provided under the projects. The system is cost-effective and hasdemonstrated satisfactory results. However, arrangements for sustainable maintenancefinancing and a legal framework to support them still need to be developed.

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36. The advantages of using LBAT in rural road construction are well documented,especially from the ILO, TRIP, and RIIP projects. In particular, using local village laborresources that are relatively underutilized in the dry season injects valuable cash to the villageeconomy and has a direct impact on the poverty status of villages. It is not always the mosteffective method in sparsely populated areas where the supply of local labor is limited. Underthese conditions, it is found more appropriate to utilize mechanized road constructiontechniques together with LBAT around village settlements. The level of management andsupervision required under labor-based techniques is greater and the time taken to completeconstruction is longer.

37. The incidence of inappropriately designed road structures is significant in rural areas ofCambodia. Many road structures have been badly located and designed due to limitedexperience and design skills, and lack of consideration of local hydrology. Frequently, suchdesigns impose recurrent commitments that cannot be assured. MRD, with the support of ILOand the RIIP, has developed appropriate and cost-effective design, specifications, andconstruction standards for rural roads and structures. Introducing and using these features aspart of improving technical capacities within the responsible provincial agencies, as well aswithin the private consulting sector, should be a priority consideration for the Government.

38. In the area of microfinance and small-scale economic activities in isolated rural areas,more effective preliminary interventions in capacity building, such as community awareness andempowerment in preparation for longer term planning and introduction of a savings discipline,need to be undertaken before starting microfinance and microenterprise development initiatives.

39. Finally, one of the most important observations from projects reviewed is that projectdesign should be realistic in scope and phasing. Some designs have expected too much in tooshort time. For this reason, there should be regular reviews and progress reporting so thatdesigns may be modified to accommodate local capacities and conditions. Time must beallocated to establishing management systems and procedures as well as gaining the support oflocal communities.

E. ADB's Sector Strategy

40. ADB's strategy as outlined in the country operational strategy supports theGovernment's goal of poverty reduction as a means of reuniting the country by promoting (i)pro-poor sustainable economic growth through broad-based, labor-intensive economicdevelopment in populous rural areas where 90 percent of the country's poor live; (ii) basichuman or social development by boosting labor productivity while improving the distributioneffectiveness of economic growth and improving the quality of life indicators; and (iii) privatesector participation in development, addressing key institutional and infrastructure weaknessesthat will improve the geographic balance of economic growth and strengthen the linkagesbetween the rural and urban areas. Sectorally, ADB has also made a long-term commitment–contingent on Government action to implement necessary reforms–to play a lead facilitatory rolein the critical areas of water resource management, education, and transport.

41. ADB recognizes that the transport network is vital to the socioeconomic development ofCambodia, specifically, to poverty reduction in the rural areas. The Government and aidagencies agree that restoring the primary road network needs to be given priority. ADB hasfinanced the rehabilitation of national route no. 5 between Battambang and Sisophon10 and is

10 Loan 1697-CAM(SF): Primary Road Restoration Project, for $68 million, approved on 21 September 1998.

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contemplating financing the upgrade of national route no. 6 from Siem Reap westward to PoiPet11 on the Thai border, a critical road for the Project. Without this network in place, the countrywill remain fragmented and rural roads will, at best, lead to small provincial towns, isolating thepoor population and limiting the benefits of trade available to them. With RIIP, the Stung ChinitIrrigation and Rural Infrastructure Project,12 and this Project, ADB recognizes and supports theimportance of the rural roads linking rural areas to the primary and secondary network.

42. Consistent with its commitment to broad-based economic development in the populousrural areas, ADB will also support production-oriented initiatives through an agriculture sectordevelopment project and a north west irrigation sector project, proposed for 2003, that willcomplement the activities undertaken in other bilateral and multilateral aid-agency-fundedprojects in agriculture. Through an integrated natural resources sector development project,proposed for 2002, ADB will also demonstrate its commitment to a geographic focus in theinundation zone of Tonle Sap where poverty incident is high and community-based integratedmanagement systems need support. This synergy between ADB-funded projects in the areareinforces the impact compared with what might be achieved from a single investment.

F. Policy Dialogue

43. Rural Road Maintenance. To support the maintenance of rural roads, there is a need toensure a reliable, adequate, and sustainable financing mechanism from increased recurrentbudgetary allocations from the Government. At provincial level, the most effective means ofensuring that such maintenance is performed appears to be through the allocation of centraland provincial government funds to a maintenance account, which may also be complementedby user charges. The Project will support, on a pilot basis, the establishment of such an accountat the provincial level. In addition to maintenance funds financed from fuel taxes, theGovernment is examining alternate revenue-raising activities such as a tax on vehicleregistration, neighborhood participation in maintenance works, and road tolls. With ADB supportthrough the RIIP and the Transport Sector Strategy Study,13 the Government is in the process ofdeveloping and establishing the institutionally and financially sustainable mechanism requiredfor rural road maintenance throughout the country.

44. Rural Road Network Planning. MPWT and MRD recently agreed that planning oftertiary and subtertiary roads is the responsibility of MRD although they recognize the need toliaise closely to ensure that rural roads extend from the existing primary and secondarynetworks. It is well understood that the road network has a wider geographic impact than can beaddressed through conventional, grassroots, participatory planning processes. Only recentlywas IRAP14 adopted as MRD's preferred planning tool to address the network integrationaspect. Staff within MRD and the PDRDs are still inexperienced with this planning tool and donot have the resources to attend to this activity. The Project recognizes the need for a broader-

11 Road Network Improvement II Project, proposed for 2003.12 Loan 1753-CAM(SF): Stung Chinit Irrigation and Rural Infrastructure Project, for $16 million, approved on 5

September 2000.13 TA 3651-CAM: Transport Sector Strategy, for $850,000, approved on 27 April 2001.14 IRAP is a local participatory planning process based on the concept that lack of access of rural people to goods

and services is the fundamental constraint to development and that improving access is a major tool in povertyreduction. IRAP as an integrated tool encompasses all the household’s access needs and considers the full rangeof possible interventions to improve access depending on local conditions. The process has five main stages: (i)primary data collection at village level, (ii) assessment of accessibility through data analysis and development ofindicators, (iii) identification and prioritization of villages for possible interventions, (iv) detailed planning andmapping exercise at the priority village level, and (v) costing and development of a local action plan and program.

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planning framework and will support the institutionalization of IRAP within the Department ofRural Roads15 being established in MRD and PDRDs.

45. Decentralization, Deconcentration, and Good Governance . These are central to thenational public administration reform process currently being implemented in Cambodia. Theyare also an essential component of the Government's poverty reduction strategy outlined in theSEDP II (2001-2005) and the Interim Poverty Reduction Strategy Paper. The decentralizationand deconcentration policy has an impact on all rural development initiatives throughout thecountry that require improved public sector financial management and the delegation of thedecision-making process to the provinces, after such initiatives are identified throughparticipatory processes. The Project is consistent with the government policy in that it drawsheavily on participatory procedures in identifying, prioritizing, constructing, and managing ruralinfrastructure investments. It also involves provincial and communal entities in prioritizing andapproving investments to be funded, implementing activities, disbursements, and liquidatingADB loan funds. Furthermore, the project design incorporates successfully tested features ofpilot decentralized expenditures systems such as the Seila Program or the Priority ActionPrograms (para. 24). While the Project incorporates project-specific good governance features,ADB is actively addressing governance issues at sector and national levels through ongoing orplanned assistance.16

46. Land Tenure. Lack of secure land tenure or land user rights is a possible source ofvulnerability for the rural poor in the project area, especially those settled alongside the ruralroads to be rehabilitated under the Project. The Government’s Land Law, prepared with ADBassistance, was promulgated in August 2001 and addresses many outstanding issues on landpolicy. Detailed subdecrees are now needed to implement the law, and ADB is assisting17 inpreparing the necessary ones. Nevertheless, the law already includes provisions to the effectthat persons who can prove peaceful and uncontested possession of the land for a certainperiod of time before the law was passed can, on that basis, obtain title to the land as anexception to the ordinary rules for prescription (which would require a much longer period ofpossession). The Project will assist beneficiaries to document their claims to uncontestedpossession (para. 61).

47. Public-Private Sector Partnership. The Government’s draft SEDP II (2001-2005)recognizes that enhancing private sector development is a key to sustainable economic growthand poverty reduction. The Project will support private-public sector partnership through project-specific initiatives such as (i) training local entrepreneurs in labor-based technology, (ii)establishing a laboratory for materials and soil testing to be operated by the private sector, and(iii) upgrading public market infrastructure to be operated by private market committees.

15 Subdecree No. 51 of 21 July 2001 amends Subdecree no. 78 of 1 December 1997 and establishes (Article 12) the

Rural Roads Department within MRD and describes its mandate (Article 17).16 TA 3634-CAM: Strengthening Public Financial Management, for $1.2 million, approved on 22 February 2001.

Proposed project preparatory TA (PPTA) for 2002: Local Governance and Decentralization, to be followed by aloan in 2003. Proposed PPTA for 2003: Governance Action Plan. Proposed advisory TA for 2004: StrengtheningDecentralized Public Financial Management; and several others.

17 TA 3577-CAM: Implementation of Land Legislation, for $600,000, approved on 13 December 2000.

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IV. THE PROPOSED PROJECT

A. Rationale

48. Nearly three decades of war have left behind a fractured society that is progressivelysettling back into previously occupied and new areas, where basic infrastructure is limited andwhat does exist is in poor condition and needs rehabilitation. The incidence of poverty, howeverdefined, is higher in northwestern rural Cambodia than in most parts of the country. The region,with its abundant land resources (even though frequently contaminated by mines and UXO), stillattracts many new settlers (internally displaced persons, repatriated refugees, internal migrants,and formally or informally demobilized soldiers). A necessary prerequisite to addressing thecauses of poverty in rural Cambodia in general, and the northwestern provinces in particular, isaccess. Access to an adequate and functional road network, the lifeblood of the rural economyand social development, is a necessary prerequisite to socioeconomic development, as roadswill give the rural population access to social infrastructure, markets, income-generatingopportunities, and social services.

49. Beneficiary participation in identifying, planning, implementing, and subsequentlymaintaining this infrastructure is critical if full impact is to be achieved. Access must be providedin response to community-identified needs. In isolated communities, participation, especially bypoor and vulnerable groups, has been minimal because they have been isolated from decision-making processes. This reflects their recent history and cultural practices. To increaseparticipation, community development directed at the poor and vulnerable groups is an integralpart of the overall project design.

50. The Project is consistent with both ADB's and the Government’s strategy for povertyreduction and is seen as a major contribution to reducing the isolation of rural communities fromdevelopment opportunities. The Project will not only rehabilitate the vital arteries that accessrural areas, but also construct or rehabilitate other small-scale village infrastructure, improveaccess to microfinance services, and provide for significant capacity building for theimplementing agencies and community groups. The Project is consistent with and supports theGovernment initiative of decentralization and deconcentration, which will in turn lead toimproved governance, one of ADB's priority areas of concern in Cambodia. The Project will alsoassist the development of the private sector in rural areas, as small- and medium-sizeenterprises can be expected to flourish, given the improved market access made possible bythe Project.

51. The Project will build on the successful and tested approach adopted by previousassistance for rural infrastructure projects supported by ADB and other aid agencies, such asILO and KfW. It will also complement and link with other planned projects to be financed by ADBand other aid agencies18 in the area.

B. Objectives and Scope

52. The overall objective of the Project is to support the Government’s effort to reducepoverty through accelerated rural development by establishing physical transport and social

18 The World Bank-financed Provincial Rural Infrastructure Project , planned for 2002, will support rehabilitation of

provincial and district roads. The European Union-funded Economic and Social Relaunch of the NorthernProvinces (EcoSorn), planned for 2003, will focus on economic activities that generate food security, employment,and income for the poor (more specifically small-scale irrigation with human resource development and agriculturalextension).

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infrastructure, improving socioeconomic conditions, and enhancing rural livelihoods innorthwestern Cambodia. The immediate objectives are to (i) plan, rehabilitate or establish, andmaintain public rural infrastructure that will improve the living conditions of the targeted ruralpopulation; (ii) strengthen the capacity of communities and institutions to identify, prioritize, plan,implement, coordinate, monitor, and maintain infrastructure investments; and (iii) support andfacilitate access to appropriate savings and credit mechanisms for livelihood enhancement andincome-generating activities in the villages and communes (Appendix 1).

53. The Project has three components: (i) rural infrastructure development–extend the ruralroad network and establish social infrastructure in the districts (e.g., schools, health facilities,and markets); (ii) capacity building–enhance the capacity of both private and public sectorsassociated with the planning, design, construction, maintenance, and ongoing monitoring ofproject activities; and (iii) rural livelihood enhancement–involve and empower the beneficiaries,establish small-scale infrastructure at the village level (e.g., water supply and sanitationschemes, rice drying and storage facilities, community buildings), and establish savings andcredit initiatives in the villages and communes.

1. Rural Infrastructure Development

54. Two categories of rural infrastructure will be financed under the Project. The first isinfrastructure with a provincial or district impact and includes rural road rehabilitation, marketfacilities, and larger public civil works such as health facilities and schools. Infrastructure in thesecond category is smaller, with a more localized impact at the commune or village level, and ispart of the rural livelihood enhancement component of the Project (para. 69).

55. Identification and Prioritization. The most appropriate method for identifying andprioritizing the larger-scale rural infrastructure investments is IRAP, a participatory planning toolapplied at the district level and adopted by MRD as its preferred planning approach. Since otherrelevant line agencies have their own planning procedures and standard requirements forschools19 and health facilities, these investments will be eligible for funding under the Projectonly if they are also confirmed in other line agency development plans with establishedbudgetary support for their staffing and operation.

56. Although only three of the five districts of Oddar Meanchey Province are included in theproject area, a special case will be made for the provision of small bridges, culverts, and drifts tothe two other districts in view of (i) the current low level of development and substantial need forpostconflict reconstruction, and (ii) the extremely poor road network and lack of access duringthe wet season that hinders development efforts and leads to the depopulation of some areas.Limited funds will be made available to Anlong Veng and Trapaeng Prasat districts for theconstruction of road structures in support of, and complementary to, ongoing developmentinitiatives.20

57. Scope of Rural Infrastructure . It is estimated that the Project will fund the rehabilitationof some 600 kilometers (km) of rural roads (tertiary roads) where economic, environmental, andsocial justification can be demonstrated. These tertiary roads are low-cost and surfaced withlocally available materials, usually laterite. Other rural infrastructure to be funded includes

19 The Ministry of Education, Youth and Sport recently adopted a priority facilities development plan that will be

supported by the ADB-financed Education Sector Development Program, planned for 2001. The Project willcomplement and coordinate with that Program.

20 The WFP food-for-work road construction program, and UNICEF Community Action for Child Rights (CACR) andChildren in Need of Special Protection (CNSP) programs.

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schools (estimated at 250 classrooms including the rehabilitation of existing premises), healthfacilities (estimated at one per project district), and market facilities (estimated at one per projectdistrict).

58. Survey and Design Considerations . Rural roads will be constructed using thestandard adopted by MRD (adequate compaction over a carriageway of 5 m wide, 15centimeters of laterite surfacing, side drainage, turfing of the side slopes, etc.). Markets will alsobe upgraded or constructed to standard designs developed and adopted by MRD. Publicfacilities such as school and health facilities will be rehabilitated or constructed to existingstandard designs acceptable to the responsible line agency. Sufficient capacity exists, or can bedeveloped through training in the PDRDs and departments of public works and transport21 of theproject provinces to undertake the survey, design, and tender documentation of infrastructure tobe financed under the Project. In the case of more complex rural road sections, and largerbridges and road structures, it will be necessary to engage domestic consultants. Littlehydrological information exists on the project provinces; and roads, bridges, and culverts havefailed due to the use of poor ad hoc designs resulting from limited understanding of localhydrology. A road engineer, qualified and experienced in hydrology, will be recruited to conducthydrological studies and apply the findings to the design of roads, especially structures to beadopted under the Project.

59. Construction Technology . Given the poverty reduction focus of the Project, it isexpected that at least 60 percent of the road rehabilitation or reconstruction work will be carriedout using LBAT to ensure that the surrounding rural population, including the poor, are givenpriority for jobs. Some project areas, however, are sparsely populated, particularly during thedry season when some people either migrate temporarily in search of work or forage for food inthe forest. While the road work will provide an alternative source of employment for thepopulation, the possibility of low labor supplies may be a constraint on LBAT, and equipment-based construction methods will then be considered.

60. De-Mining Activities . The high incidence of mine and UXO contamination in thenorthwestern provinces of Cambodia is one of the legacies of years of conflict. Sections of ruralroads to be rehabilitated under the Project will require de-mining prior to survey, design, andconstruction. Similarly, sites, pathways to, and the immediate surroundings of socialinfrastructure to be constructed in the communes and villages and other public areas may bemine contaminated and require clearance. De-mining of the rural road alignment to a width of 20m on each side of the road centerline will be the responsibility of the Government, which hasdemonstrated capacity to do it. This activity will be financed under the counterpart contributionto the Project. De-mining before rehabilitating or constructing public or community buildings inthe communes and villages will be funded by the Project and contracted out to recognizedhumanitarian de-mining organizations licensed to operate in Cambodia.

61. Land Tenure Security . Lack of secure tenure or land rights is a recognized source ofvulnerability for the rural poor in the project area. Improving and securing land tenure and rightsis a key to sustained rural poverty reduction. To ensure positive outcomes for beneficiaries, theGovernment will support beneficiaries along the rehabilitated road alignments in obtainingownership title or other occupancy rights in accordance with the Land Law. Neither landacquisition nor involuntary resettlement is expected in the context of infrastructure rehabilitationor construction, apart from a few isolated minor cases that will require the preparation of a short

21 The minister of Public Works and Transport has agreed that provincial engineers can be seconded to PDRD to

assist with road surveys and design.

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resettlement plan to be submitted to ADB for approval.

2. Capacity Building

62. This component is considered essential to ensure efficient and effective projectimplementation in view of the limited technical and managerial capacities and the limited budgetat the provincial level. Three aspects of capacity building are proposed under the Project.

63. The first is directed at technical and managerial skills of PDRD staff, in terms ofidentifying, planning, supervising construction, and monitoring and evaluating rural infrastructureinterventions, and in terms of preparing, implementing, and monitoring community developmentactivities. The Project will support PDRDs to upgrade rural infrastructure planning andimplementation skills. This will include technical training in planning techniques, survey, design,costing, management, and supervision of infrastructure construction. It will also include trainingin gender-sensitive community participatory approaches. The Project will also train PDRD staffin the use of established standard designs and specifications for rural roads and associatedstructures.

64. At commune and village levels, the Project will support the incoming commune councilsin prioritizing, planning, and implementing small-scale village infrastructure. Through extensiveinvolvement in participatory screening and prioritizing of the potential village infrastructureinvestments (para. 69) and in implementing them, the commune council members will be trainedin leadership, participatory approaches, roles and responsibilities, and other skills as requested.

65. The second aspect is directed at improving the management skills of prequalified localNGOs and the private sector associated with the Project at the provincial level. It will give NGOstaff specialized training in the areas of participatory approaches, roles and responsibilities,procedures for screening prioritized investments, and other community development topics.Skilled and experienced contractors in LBAT are still few. Training for small-scale contractors,similar to that conducted by ILO in the project provinces, will be continued and expanded underthe Project, particularly in Oddar Meanchey Province, which has no trained contractors atpresent. In addition, private consulting engineers will be trained in supervising infrastructureconstruction and in quality control. The Project will also assist establishing a materials testinglaboratory by identifying and training local entrepreneurs capable of establishing and operatingthe laboratory. As part of its commercial operation, the laboratory will perform soil and concretetesting required by the project implementation units (PIUs) in their construction supervisionactivities. Roads rehabilitation contracts issued under the Project will provide the necessarysecurity to facilitate access to existing credit sources to fund the laboratory operation.

66. The third aspect concerns the institutionalization of IRAP planning and managementcapabilities within MRD and its provincial departments. The Project will support theestablishment of a mapping unit under the Rural Road Department established within MRD andsupport the operations of its offices in each of the PDRDs. The support will include training incomputer operations, geographic information systems (GIS), IRAP procedures, and datamanagement systems.

3. Rural Livelihood Enhancement

67. This component addresses the need to enhance the livelihoods of the people in thetarget communities and assist them in strengthening social cohesion. Three subcomponents areproposed.

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68. Community Development. This subcomponent will promote social cohesion,strengthen capacities in the community, and support the empowerment of common interestgroups, with emphasis on the poor and disadvantaged so that they will feel confident to expresstheir views and are not overlooked when priority development investments in the community aredetermined. The process will provide the participatory mechanism necessary to screen potentialvillage infrastructure investments (para. 69) to be financed by the Project at the commune andvillage levels. The means of identifying and prioritizing these investments will be on a pro-poorand community demand-led basis, and will use as an entry point the commune investment plansprepared through the LPP introduced by the Seila Program. The list of priority investmentsgenerated through this process will be screened using tailored participatory procedures that willinvolve poor and vulnerable groups so as to establish a revised priority list of investmentseligible for funding under the Project, complying with its pro-poor focus. This process will takeplace in the villages in the impact area of a road alignment immediately after its rehabilitation,and the village infrastructure works will be constructed the following year.

69. Village Infrastructure Investments. Eligible items for small-scale village infrastructureinvestment include water supply and sanitation schemes, culverts, footbridges, rice drying padsand storage facilities, community meeting halls, and similar community facilities. The Project willfund the installation of some 170 village wells (hand-dug ring wells and mechanically drilledboreholes) and 60 ponds, and will provide for the construction of other village infrastructurebased on an annual allocation to participating communes. Standard templates for a range ofvillage infrastructure including wells, ponds, latrines, and community buildings have beendeveloped and are currently being applied by PDRDs.

70. Microfinance. The third subcomponent will promote a savings and credit discipline atthe village level and will prepare and facilitate beneficiaries’ access to the formal financialsystem that, at present, rarely extends beyond provincial or district towns or peri-urban areas.The microfinance subcomponent will utilize the skills and experience of NGOs that have beensuccessfully implementing poverty-focused microfinance activities and supporting village-basedmicrofinance groups for several years in northwest Cambodia. Several of these NGOs are in theprocess of transforming themselves into formal registered and regulated microfinanceinstitutions (MFIs), which will link informal and semiformal village-based savings and creditgroups to the formal financial system in the future.22 The Project will not provide a separatecredit line, but will support NGO and MFI outreach activities to strengthen existing village-basedmicrofinance groups and create new groups in the project area. Contingent on the strength andcapacity of the village groups to absorb external credit, they will then be free to pursue accessto external loans through the NGO/MFI program or other programs of their choice. The Projectwill take a flexible approach to the model of village-based microfinance groups used, as differentNGOs are successfully implementing different models.23 Benefits will take the form of increasedmobilization of local savings and access to credit, that can be used for productive investment orprovide a buffer against economic shocks (e.g., medical emergencies), or both. The poor’saccess to the microfinance activities will be enhanced through the poverty focus of the

22 Loan 1741-CAM(SF): Rural Credit and Saving Project, for $20 million, approved on 27 April 2000, is supporting

delivery of effective rural financial services through MFIs (and some key NGOs on an interim basis prior to theirtransformation to MFI status) operating in most of the country. Close coordination will be sought with this ongoingproject to ensure complementarity.

23 Among the models being used are a credit union approach, which currently is only mobilizing local savings withoutusing external credit lines, and a village bank approach, which both mobilizes local savings and makes loans fromexternal credit lines. However, both are based on group management and group guarantees, and both providetraining to the group and its leaders in credit, savings, management, bookkeeping, etc. Even the credit unionmodels have plans to begin accessing external loans to meet the great demand for credit. The main difference inapproaches is therefore the timing of access to external loans.

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NGO/MFI outreach methodology and the transparent nature of group decision making, as wellas the use of group guarantees rather than physical collateral. The Project will provideadditional training to trainers in the NGOs/MFIs to strengthen outreach, management, andaccess to external credit lines. Provincial and district staff of PDRD will also be encouraged toattend this training, and will receive additional training in microfinance to ensure their capacity tomonitor implementation of the NGO/MFI service contracts.

C. Cost Estimates

71. The project cost, inclusive of contingencies and taxes and duties, is estimated at $34.8million equivalent, consisting of a foreign exchange cost of $11.8 million (34 percent) and localcurrency cost of $22.8 million equivalent (66 percent). No recurrent costs, other than theincremental annual operating costs of management support and infrastructure maintenance inthe initial years of implementation, will be financed under the Project (summary cost tables arein Appendix 4).

Table 1: Cost Estimates($ million)

Component ForeignExchange

LocalCurrency

TotalCost

A. Base Cost1. Rural Infrastructure Development2. Capacity Building3. Rural Livelihood Enhancement

a. Village Infrastructure b. Other Livelihood Initiatives

4. Project Management Subtotal (A)

4.80.8

0.91.12.09.6

13.41.6

1.52.21.820.5

18.22.4

2.43.33.830.1

B. Contingencies1. Physical Contingencies a

2. Price Contingencies b

Subtotal (B)

0.80.51.3

1.41.12.5

2.21.63.8

C. Interest Charge 0.9 — 0.9 Total 11.8 23.0 c 34.8

Note: Figures may not add up to totals due to rounding.a Based on 5 percent of base cost for civil works and 10 percent of base cost for other expenditures.b Based on an annual inflation of 2 percent (foreign) and 4 percent (local) for goods, and 1.5 percent (foreign) and 2

percent (local) for services over the project period.c Includes duties and taxes estimated at $4.2 million equivalent.

72. The detailed cost estimates of the project management component include all costsrelated to the support provided by the Project to MRD and the project liaison office in PhnomPenh, and to the project management unit (PMU) in Sisophon (para. 76) for (i) incrementalpersonnel, communications, office premises (PMU in Sisophon and PDRD in Samrong, OddarMeanchey Province), office equipment, travel, transport, administration, and accounting; (ii)consulting services (international assistant project manager) to assist the PMU in projectimplementation and coordination; (iii) establishment of an IRAP Planning Unit in the rural roaddepartment of MRD, and consulting services (international and domestic IRAP specialists) toassist MRD in institutionalizing IRAP.

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D. Financing Plan

73. The proposed ADB financing is for a loan of $27.2 million equivalent (78 percent of totalproject cost), including $15.3 million equivalent of the local currency cost (Table 2). ADBfinancing of the local currency cost is justified on the basis of the low level of national income($257 per capita estimated in 2000) and savings (11 percent of the national income in 2000) aswell as the Government's fiscal deficit (5.5 percent of gross domestic product). The balance of$7.5 million will be financed by the beneficiaries and the Government. The ADB loan will befrom the Special Funds resources with a term of 32 years including a grace period of 8 years.The annual service charge will be 1.0 percent during the grace period and 1.5 percentthereafter. The Borrower will be the Kingdom of Cambodia.

Table 2: Financing Plan($ million)

Source ForeignExchange

LocalCurrency

TotalCost Percent

Asian Development Bank 11.80 15.30 27.20 78.30Government 0.00 7.40 7.40 21.30Beneficiaries 0.05 0.08 0.13 0.40 Total 11.85 22.78 34.73 100.00Note: Figures may not add up to totals due to rounding.

E. Executing Agency

74. MRD will be the Executing Agency on behalf of the Government as this is the ministrywith a mandate for rural development and the one with the best network of representation inrural areas of the northwestern provinces. MRD has increased its technical and projectmanagement skills considerably through practical experience in projects financed by ADB24 andothers. It has also demonstrated satisfactory performance in executing these projects,particularly in complying with the financial covenants for the timely submission of auditedreports, the release of counterpart funds and overall financial accountability.

F. Implementation Arrangements

75. The Project will adopt implementation arrangements that conform to the Government'sdecentralization and deconcentration policy, utilizing successfully tested aspects of the pilotSeila Program currently operating in the target provinces. The Project differs from previousADB-funded projects that utilized centralized implementation units based in the national capitalwith responsibility for provincial activities. A small project liaison office will be established withinMRD in Phnom Penh, comprising a project coordinator, an assistant coordinator, and asecretariat. The office will liaise with the other project management and implementation unitsestablished at the provincial level and will provide the necessary coordination with the Ministryof Economy and Finance (MEF) for the release of funds to all project imprest accounts.

76. A PMU to be established in Sisophon, the capital of Banteay Meanchey Province, will beresponsible for day-to-day management of the Project and will accommodate the technicalspecialists recruited in support of project activities. The PMU will be staffed with (i) a project

24 Loan 1385-CAM(SF):Rural Infrastructure Improvement Project (footnote 5). Loan 1824-CAM(SF): Emergency

Flood Rehabilitation Project (footnote 3). Loan 1753-CAM: Stung Chinit Irrigation and Rural Infrastructure Project(footnote 12).

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director; (ii) four staff covering administration, procurement, and accounting; and (iii) a sufficientnumber of support staff. Technical support will be provided by four international specialists(assistant project manager, hydrologist, engineer/trainer, and community developmentspecialist) plus three project technical staff (training coordination, monitoring and evaluation,and information systems). The PMU will be responsible for (i) project-wide management issuessuch as coordinating training, negotiating service contracts, providing consulting services,monitoring and evaluation, and preparing annual work plans and budgets; (ii) coordinating andgiving technical and management support to PIUs established in the provinces; (iii) managingthe project imprest account and reporting the liquidation of funds through this account to MEFvia the Executing Agency; and (iv) replenishing funds to the second-generation imprestaccounts managed in the provinces.

77. A PIU will be established within PDRD in each of the four project provinces and will beresponsible for day-to-day management of project activities at the provincial level including (i)preparing and supervising contracts for civil works, (ii) preparing provincial work plans andbudgets, and (iii) reporting progress of the various components under its management. EachPIU will be staffed by six government employees, four (manager, engineer, technician, andfinancial administrator) already appointed under the Working Group established to implementthe ADB-funded EFRP (footnote 3), plus two incremental staff (contract manager and oneadministrative assistant) to be assigned from PDRD. Being based in PDRD, the PIU will alsohave access to in-house expertise and technical specialists from other sections on an as-required basis. The PIU will (i) accommodate the local community development specialist andlocal infrastructure engineer assigned to each province to support project initiatives, and (ii) beresponsible for managing the second-generation imprest account and reporting liquidation offunds through this account to the PMU.

78. The fact that the Project will fund schools, health facilities, and other small-scale villageinfrastructure highlights its multisectoral nature and the need for coordination betweengovernment agencies with responsibility for those sectors. Coordination is required to ensurenot only consistency with the respective development plans but also allocation of funds forongoing operation and maintenance. Coordination will also be required with other projects beingimplemented in the provinces and other independent NGO activities. The PRDC chaired by theprovincial governor and with representation from all provincial line agencies (Appendix 5), hasresponsibility for coordinating these programs through the formulation of the provincial strategicdevelopment plan and the provincial investment plan. As such, PRDC is ideally placed toachieve the necessary coordination with other program activities. Project coordination willtherefore be achieved through the respective PRDCs in the target provinces. All qualifyinginvestments (screened and confirmed as pro-poor, financially viable, sustainable in the longterm, and environmentally sustainable by the PIU) will be referred by the PIU to PRDC forfunding approval. Approval will be granted for project financing only if the recommendedinvestment is proposed as high priority in terms of its potential impact on the poor andvulnerable groups, its viability, its sustainability, and consistency with sector plans. Projectmanagement and implementation structures are presented in diagrams in Appendix 5.

79. A strategic approach that will be adopted during project implementation will dictate therate at which initiatives can be introduced to rural villages. The Project will progressively extendaccess by rehabilitating the tertiary road network starting from the provincial or secondarynetwork and extending it to the isolated rural areas of the Project. As year-round access issecured, community development activities, including establishment of small-scale community-based infrastructure, will be initiated in communes and villages in the impact area of the road(referred to as “intensive villages”). Similarly, larger-scale investments other than roads will be

22

undertaken only after roads have been rehabilitated so that the responsible departments andbeneficiaries can use the structures established under the Project.

1. Project Component

a. Rural Infrastructure Development

80. PIUs will be responsible for implementing this component, which involves civil works forrehabilitating or constructing rural roads, markets, schools, and health facilities. The full-timelocal infrastructure engineer in each PIU and the international infrastructure engineer and thehydrologist based in the PMU will give support in technical aspects and in managing contracts.After investments have been identified and prioritized for funding using IRAP and confirmed aspriority investments by PRDC, the PIUs will be responsible for the survey and design of civilworks and the preparation of bid documents, including specifications and all necessarydocumentation. The PIUs will invite tenders from an approved list of prequalified contractors forconstruction of civil works under local competitive bidding. Supervision and quality control ofconstruction works will be carried out by the PIUs assisted by the PDRD, or will besubcontracted to consulting engineers as part of the construction costs and followingprocedures acceptable to ADB. Labor inspectors will monitor labor-based contracts.

81. The Project will support the issuance of land titles and occupancy rights through suitablearrangements with the Ministry of Land Management, Urban Planning, and Construction25 toprotect the interests of project beneficiaries occupying house and agricultural plots along therehabilitated road alignments. Land titles will be issued in accordance with proceduresestablished under the Land Law promulgated in August 2001. Currently, about 70 percent ofland titles issued to married couples are registered in the name of both husband and wife. TheProject will ensure that this practice continues in the project area.

82. Any market upgrading will be subject to prior ADB approval of an economic and socialfeasibility study (including a short resettlement plan if needed) according to establishedguidelines (Appendix 6). Before any construction or upgrading activities are implemented, acommittee for the market concerned will be established, and market user fees will be agreedupon between MRD and the market committee.

b. Capacity Building

83. Three categories of capacity building have been identified under the Project: (i)government agency capacities, (ii) private sector and NGO capacities, and (iii) planningcapacities in MRD and PDRDs (institutionalization of IRAP).

84. Capacity building in the technical areas, including infrastructure design and hydrology,will be delivered by the international and domestic specialists funded by the Project and will becoordinated by the PMU and PIUs. Agency staff will also receive extensive training in (i) theirapproaches to communities; (ii) project planning, supervision, and monitoring; (iii) environmentalassessments; and (iv) other topics as appropriate. This training will be complemented with on-the-job training alongside NGOs that are more familiar with participatory approaches in

25 The Ministry of Land Management, Urban Planning, and Construction is assisted in executing its mandate to

implement the new Land Law (August 2001) and to issue land titles by ADB: TA 3577-CAM: Implementation ofLand Legislation for $600,000, approved on 13 December 2000; and an incoming project to be funded jointly byWorld Bank, GTZ and the Government of Finland to support land management, cadastral survey and land titlingactivities.

23

communities. Most training-of-trainers activities will be coordinated by the PMU through thetraining coordinator, whereas lower-level training activities will be coordinated by PIUs andNGOs, as appropriate.

85. Capacity building directed at the private sector and local NGOs will be coordinated bythe PMU. Training for the private sector will be directed toward construction contractors, thefledgling consulting engineering industry, and the materials testing laboratory to be supported bythe Project. Such training will be implemented under contractual arrangements by competentinstitutions or consulting services provided under the Project.

86. Capacity building, especially in IRAP planning procedures and techniques, will beprovided for the Department of Rural Roads recently established in MRD and its provincialdepartments. It will be achieved through a combination of formal training courses available fromcommercial trainers and from on-the-job training obtained under a contractual arrangement witha suitably qualified organization such as ILO with experience in this technical area.

c. Rural Livelihood Enhancement

87. NGOs will implement community development initiatives. Prequalified NGOs will becontracted by the PMU to provide an agreed-upon range of services to achieve the identificationof priority investments and support community development activities. Such expertise existswithin international and domestic NGOs currently operating in Cambodia, some of which haveexpressed interest in cooperation.26 This component will be supported and coordinated by aninternational community development specialist (based in the PMU) and four local provincialdevelopment officers, one attached to each PIU.

88. After the commune councils have identified and prioritized small-scale ruralinfrastructure investments at commune and village levels through participatory screening of thecommune investment plans, the PIU will involve the councils and the local community-basedorganizations in implementation to further develop their capacity. Ultimately, these local bodieswill be responsible for contracting out any construction works to small local contractors orpieceworkers from the province on a negotiated basis. The beneficiary commune developmentcommittee, in cooperation with the PIU, will monitor construction and certify completion of small-scale works, which will form part of the certification for payment to contractors.

89. The microfinance subcomponent will be phased in intensive villages as the road networkis progressively upgraded and access is improved. It will be implemented in the target districtsin accordance with the strategic approach adopted for infrastructure development as the roadnetwork is expanded. The PMU will contract out savings and credit activities in participatingvillages to prequalified NGOs and MFIs with the appropriate skills and experience inmicrofinance. Each PIU will assume a coordination, support, and monitoring role. TheNGOs/MFIs will be assisted through a short-term savings and credit specialist who will helpwith initial program design, technical input, and training for NGO/MFI staff as required. The PMUwill be responsible for managing NGO/MFI service contracts, and PIUs will have a supportingrole in contract administration and reporting of the NGO/MFI activities in their respectiveprovinces.

26 CARE International, ZOA Refugee Care, Norwegian People’s Aid (NPA), Catholic Relief Services (CRS),

Australian Volunteers International, and several domestic NGOs active in the project area.

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2. Project Implementation Schedule

90. The Project will be implemented over five years. In the first two years, essentialinfrastructure (PMU, PIUs, and PDRD premises in Oddar Meanchey) will be constructed; projectmanagement structures, procedures, and arrangements will be developed; and capacitybuilding (IRAP planning, orientation, and other incremental technical training of agency staff andcontracted NGOs) will be initiated. Initial identification and planning of larger-scale ruralinfrastructure will be undertaken so that rehabilitation of rural roads can commence in the dryseason of the second year of implementation. This relatively long period of preparation isnecessary to allow (i) significant capacity building to ensure sound implementation, (ii)identification of priority road alignments for rehabilitation, (iii) issuance of land titles or certificateof occupancy for holdings within the zones adjoining the roads to be rehabilitated, and (iv) de-mining of prioritized alignments. Within each project district, intensive activities such asscreening of investment plans and village microfinance activities will be initiated as the roadnetwork is progressively rehabilitated. These intensive activities are estimated to start in 9, 15,and 15 communes in years two, three, and four, respectively. This is equivalent to 40, 68, and66 incremental villages in each year when intensive activities will be initiated. Theimplementation schedule is in Appendix 7.

3. Procurement of Goods and Services

91. Goods and services to be financed from the proceeds of the ADB loan will be procuredin accordance with ADB's Guidelines for Procurement. Vehicles, equipment, and materials willbe procured by international competitive bidding where the cost is valued at more than$500,000 equivalent, or by international shopping where the cost is valued from $100,000 to$500,000. Where there are several local suppliers with satisfactory service facilities, equipmentor materials valued at less than $100,000 equivalent may be procured under local competitivebidding (LCB) procedures, or on the basis of a comparison of at least three quotations fromlocal suppliers, where the cost is less than $50,000. Final details regarding packages forprocurement will be determined during project implementation (a tentative procurement packageis in Appendix 8).

92. The civil works to be financed from the proceeds of the ADB loan, including all eligibleitems identified through the Project's screening procedures, will be procured in accordance withLCB procedures among prequalified private local contractors acceptable to ADB. Given thesmall and scattered nature of the civil works, individual contracts are unlikely to attractinternational bidders. Domestic contractors have the capacity and capability to undertake therequired contracts. For contracts to be undertaken using LBAT, contractors will be prequalifiedby the PIUs, provided that the contractors attend a training workshop at project commencementand comply with required performance and financial criteria. Each PIU will updateprequalification annually, based on contractor performance and the reports of the laborinspectors engaged under the Project. Domestic contractors for mechanized civil workscontracts will be prequalified by the PMU in consultation with PIUs, using governmentprocedures acceptable to ADB. Small-scale civil works valued at less than $10,000 may beprocured after comparing at least three quotations from local contractors.

93. As project initiatives will be approved at the provincial level and implementation will becarried out by PIUs, national steering and/or coordination committees will not be established, asthey would only add to the management difficulties and introduce potential delays indisbursement. With PRDCs being chaired by provincial governors, who have the power to directdepartment directors, the necessary authority exists to achieve inter-sector coordination.

25

4. Consulting and NGO Services

94. For successful implementation of the Project, consulting services are required in theareas of project management, civil works design, hydrology, regional planning, IRAP andaccessibility mapping, community development, microfinance, and environmental assessment.The relatively high input of consulting services identified under the Project is considerednecessary in view of the low level of human resource capacity and technical expertise availablein the Government at both central and provincial levels, the limited domestic specialistresources, and the importance of ensuring comprehensive participatory planning andimplementation in project activities. Specialist inputs will be needed to introduce new technologythrough the Project and will also be used extensively to conduct much of the training outlined inthe capacity-building component.

95. The Project will provide about 333 person-months of specialized services of domesticconsultants and about 129 person-months of international consultants in both long- and short-term appointments through consulting firms (summary consulting services and packaging are inAppendix 9). The consultants will be selected and engaged in accordance with ADB'sGuidelines on the Use of Consultants and other arrangements satisfactory to ADB for engagingdomestic consultants. For consulting services related to IRAP activities, a contract may benegotiated directly with ILO, which has the experience in this technical area and has beenproviding it in the context of a similar project in Cambodia for the last three years. The Projectwill also engage local institutions for technical training through competitive bidding according toADB procedures. Where the number of suitably qualified institutions is limited, directnegotiations may be applied with prior approval of ADB.

96. The services of international and domestic NGOs are required in screening priorityinvestments, community empowerment and development activities, and establishing village-based savings and credit schemes. To the extent possible, prequalified NGOs will be contractedon the basis of competitive procedures. Where the number of prequalified NGOs is limited,direct negotiations may be applied, with prior approval of ADB.

5. Advance Action

97. ADB has approved the Government’s request for advance action in recruitingconsultants and preparing for construction of the PDRD premises in Oddar Meanchey and thePMU premises in Sisophon. Advance action will also facilitate capacity building in the initialstages of implementation and identification of activities to be financed, and ensure thecommitment of counterpart funds required early for de-mining of road alignments. TheGovernment has been informed that approval of advance action does not commit ADB toapprove or finance the Project, and does not include retroactive financing.

6. Operation and Maintenance

98. Rural roads to be rehabilitated under the Project and some selected strategic existingalignments will require routine and periodic maintenance27 during and after the Project. Bothloan funds and counterpart funds will be provided for maintenance activities during

27 Routine maintenance, including activities such as filling potholes, must be done on a regular basis to ensure the

continued operation of roads. This is carried out at relatively low cost ($350 per year per km) using the LBATmodel. Periodic maintenance involves overlaying of surface material once every 3-5 years at a maximum cost of$4,000 per km.

26

implementation. Loan funds will be provided on a declining share over time (100 percent foryear 1 after loan effectiveness, 75 percent for year 2, 50 percent for year 3, 25 percent for year4, and none afterward), while counterpart funds will increase proportionally to meet fullmaintenance requirements by project completion. The Project will also (i) assist in establishingrural road maintenance committees at the district level, similar to the ones recently establishedin seven districts of Siem Reap Province, to gradually take responsibility for coordinating,organizing, and managing maintenance of roads improved under the Project; (ii) in areas of highpopulation density, train local maintenance groups with workers paid a daily rate (as under theRIIP project); and in less populous areas, use small local contractors or pieceworkers formaintenance; (iv) provide technical support and training in maintenance procedures to PDRDrural roads offices and to district road maintenance committees; (v) introduce preventivemeasures that restrict the size of vehicles permitted to use rehabilitated roads and traffic on wetroads; and (vi) explore the introduction of alternative low-cost labor-based technologies for moredurable road surfacing materials (e.g., bamboo reinforced concrete, dressed stone paving,hand-laid bituminous surface dressing, etc.) that are being tested in the project area by ILO.

99. The Project will also provide funds for maintaining schools and health facilities through adeclining loan funding arrangement similar to the one adopted for rural road maintenance. TheO&M of village infrastructure, such as water supplies and other facilities, will be theresponsibility of the beneficiaries, who will be assisted through community developmentactivities, appropriate training, and associated awareness campaigns. For constructed orupgraded markets, the established market committees will be responsible for O&M of marketfacilities, and will finance these activities with market user fees so as to enhance cost recovery.

100. To ensure effective and timely disbursement for maintenance of the rural infrastructurerehabilitated or constructed under the Project, the Government will establish in each projectprovince a separate maintenance account. This account will be regularly replenished fromcounterpart funds (disbursed from government budgetary allocation–i.e., the recentlyestablished national rural road funds, and from other available/planned national or provincialsources) provided for the O&M activities of the Project (Table A8.3 in Appendix 8).Disbursement from these maintenance accounts will be jointly managed and monitored by therespective PDRDs and PIUs and regularly reviewed by the PMU and ADB. The accounts will besubject to a separate audit opinion (as part of the overall project annual external audit) to ensurethat the funds deposited in them are strictly applied to the purpose for which they were intended.

7. Disbursement Procedures

101. The Government will make available through budgetary allocation the proceeds of theloan to MRD and PMU to be applied to finance project expenditures.

102. To expedite disbursements, MRD and PMU will each establish a first-generation imprestaccount with a recognized commercial bank acceptable to ADB immediately after loaneffectiveness. Payments will be made to and from these accounts for eligible expendituresunder the Project. Four second-generation imprest accounts will also be opened by PIUs atrecognized commercial banks acceptable to ADB in the project provinces. These accounts willbe used to meet eligible expenditures under the Project incurred by the four PIUs. Each imprestaccount will be managed by MRD, PMU or the concerned PIU, in accordance with ADB’s LoanDisbursement Handbook (January 2001), and detailed arrangements agreed upon by theGovernment and ADB. The initial combined total amount in all imprest accounts will not exceedsix months of estimated expenditure and not more than 10 percent of the total loan. ADB’sstatement of expenditures procedure will be followed to reimburse expenditures and liquidate

27

imprest accounts for payments below the ceiling of $50,000. The fund flow mechanism isdiagrammatically presented in Figure A5.4 of Appendix 5.

103. During project processing, ADB's anticorruption policy was explained to governmentofficials, particularly the section on fraud and corruption, as stated in ADB's Guidelines forProcurement and Guidelines on the Use of Consultants.

8. Reporting, Accounts, and Audits

104. The PIUs will provide the PMU with concise quarterly progress reports during each yearof implementation, detailing the physical and financial progress of activities against agreed-upontargets and summarizing benefit monitoring and evaluation results. In turn, the PMU will submitto MRD consolidated quarterly progress reports and a comprehensive annual progress report,and MRD will forward these reports to the Government and ADB. Within three months of projectcompletion, a project completion report in the standard ADB format will be prepared by the PMUand submitted to ADB. Progress reports will include a follow-up of the progressive Governmentimplementation of its decentralization and deconcentration policy and the consequentinstitutional change in the project provinces.

105. The PMU and PIUs will maintain separate records and accounts adequate to identify thegoods and services financed from loan proceeds, the financing resources received,expenditures incurred for the Project, and the use of local funds. Accounts will be establishedand maintained in accordance with generally accepted accounting principles and following theguidelines in the Project Accounting Manual of MEF as amended from time to time.Consolidated project accounts and related financial statements will be compiled by thePMU/MRD and audited annually by independent external auditors acceptable to ADB. Theaudited accounts, audit report, and related financial statements will be submitted to ADB notlater than twelve months after the end of the fiscal year to which they relate.

106. During the initial three years of the Project, ADB will carry out semiannual reviews. Initialreviews will (i) determine if all proposed implementation arrangements are appropriate and inplace, (ii) assess the progress of infrastructure screening activities, (iii) review the constructionprogram for civil works, (iv) review the poverty focus of the different components, and (v) reviewthe conduct and outcome of the capacity building and training programs. During the third year,ADB and the Government, will undertake a comprehensive midterm review. The midterm reviewwill evaluate the actual physical and financial progress of the Project, community-basedapproach, implementation procedures, procurement performance, PMU effectiveness, andperformance of the consultants. Before the midterm review, the PMU will prepare acomprehensive report identifying issues for the mission’s consideration. On the basis of theresults of the midterm review, and especially in view of the expected progressiveimplementation of the Government's decentralization and deconcentration policy and theinstitutional changes that are likely to occur during the project period, changes in project designand implementation arrangements will be considered.

9. Benefit Monitoring and Evaluation

107. Outputs of the Project will be monitored and evaluated in terms of efficiency (quantitiesdelivered) and effectiveness (quality of the goods/services delivered and their impact on thebeneficiaries). Gender-sensitive participatory approaches will be adopted in monitoring villageand commune activities. The services required under NGO contracts will include facilitation ofparticipatory monitoring in the construction of village infrastructure, as well as its use by the

28

various vulnerable groups in the community. To generate data on the immediate effects and thebroader impacts of the project investments on socioeconomic development, poverty reduction,and the empowerment of vulnerable groups, a baseline survey will be conducted at the start ofintensive activities in each commune and village. The communities will develop their ownpoverty indicators that will be used during subsequent impact assessments. This will establishthe control against which the project impact will be assessed. Subsequent comprehensiveassessments will be undertaken two years after intensive activities have been initiated and atproject completion to assist in impact assessment in addition to annual socioeconomic dataupdates undertaken by PDRD and information generated by WFP, LPP, and IRAP on anongoing basis.

108. One of the key areas for impact monitoring will be the incidence and length of foodinsecurity in the project area. This will be monitored, drawing on information generated by WFPand outputs from participatory monitoring conducted under NGO contracts. Similarly, the extentof village savings mobilization will be monitored by cooperating NGOs and its impact on incomegeneration activities will be reported regularly as required under NGO contractual obligations tothe respective PIUs. Construction contractors will be required to monitor and report the person-days used in construction and the wages paid for such services. The impact of improved accesswill be monitored through farm input and output prices as well as through NGO-facilitatedannual reviews using participatory techniques involving the poor and vulnerable groups.Qualitative assessments will indicate how improved access has contributed to changing thesocial services available in the areas. The effects of project activities to increase beneficiaryparticipation and to increase the institutional capacity of local government bodies will bemonitored through participatory evaluation exercises facilitated by the technical specialistsprovided under the Project. Key indicators that will be used to monitor the performance of theProject in achieving its overall objective are in Appendix 1.

G. Environmental and Social Measures

1. Environmental Measures

109. An initial environmental examination (IEE) carried out for the Project concluded that therisk of a negative impact on the environment is minor. In accordance with ADB requirements28

and Cambodian law, selected road alignments will require individual IEEs and, in some cases,may further require an environmental impact assessment (EIA). Similarly, road rehabilitation willrequire environmental monitoring. Incremental deforestation and incremental use ofagrochemicals due to agriculture intensification are other environmental risks that wereexamined. They are unlikely to cause any significant impact, but will require monitoring wheresuch impact is expected. The current environmental assessment and monitoring capabilities ofthe Provincial Environmental Department (PED) and the PDRD in the four project provinces areweak due to limited experience. The Project will provide appropriate environmental training forselected staff from these departments in the project provinces. The training will require aninternational environmental assessment trainer for two months at the start of the Project. Adomestic environment consultant will be employed for two months to work with the internationalenvironmental assessment trainer and subsequently for two months in years 2 and 3 and onemonth in years 4 and 5 to check the work of the four PDRDs and PEDs in preparing the IEE/EIAfor the next year’s proposed road alignments. The domestic environment consultant also will

28 ADB's Environmental Guidelines for Selected Infrastructure Projects, 1993; and Environmental Guidelines and

Environmental Assessment Requirements, 1998.

29

review the PDRD’s and PED’s environmental monitoring of the implementation of roadalignment for quality assurance.

2. Social Measures

110. The Legacy of War. Poverty in the project area can be attributed to the extended periodof conflict. A significant part of the population has suffered extreme conditions such asdeprivation, refugee camps, internal displacement, famine, and family disruption. Socialcohesion, especially in the newly established villages, is low.29 Persistent food insecurity andcontinued exposure to land mines further compound the desperate living conditions. Poorfarmers obtain livelihood from farming, herding, hunting, and collecting forest products, even inmined areas. The implications for people’s ability to work, plan for the future, and solveproblems are rarely discussed and poorly understood. The current state of communitydevelopment can, in part, be attributed to trauma-related stress, highlighting the need forgreater inputs in training, encouragement, and follow-up activities. The Project will takeadequate account of these characteristics through its strategic phased approach.

111. Mines and Unexploded Ordnance . Years of armed conflict have led to anunprecedented degree of mine and UXO contamination in Cambodia, with some of the highestconcentrations found in the northwestern provinces. Villagers have often resettled before de-mining was completed. They tend to clear individual house lots, farmland, and the pathways toaccess common property such as forestland or water sources. Adult males make up 53 percentof casualties, which reflects their higher involvement in clearing land for cultivation, andcollecting timber and nontimber forest products. Casualties among women are 6 percent andchildren under 18 years old, 41 percent. The high incidence of child casualties seems to be aresult of their tampering with mines and UXOs and their lack of awareness of the dangers. TheProject will take adequate account of these dangers, with de-mining to be done according tointernational standard operating procedures and in adequate response to the needs of the ruralpopulation (paras. 60 and 138-iv). The use of community minefield marking teams will beincluded, as there is a need to clear pathways to safely access village infrastructure, healthfacilities, and schools constructed under the Project. Mine awareness training will be given tothe population, specifically targeting children and following an improved, more people-centered,and needs-based approach.

112. Lack of Infrastructure and Access to Services. In the course of intensive socialsurveys undertaken during project preparation and confirmed during loan processing, villagersidentify the improvement of roads as their number one priority. Other infrastructure (schools,health services, markets, clean water supplies, and rice drying and storage facilities) are oftennonexistent or in complete disrepair. Their lack limits access and hinders economic and socialdevelopment. In partnership with NGOs, the Project will put procedures in place to ensure thatbeneficiaries, including the poor and vulnerable, are consulted during the identification,prioritization, planning, survey, and design stages. Securing their livelihood occupies the poorand very poor throughout the year and does not leave them time for voluntary work. The twogroups have to be paid adequately. Wherever possible every effort will be made to ensure thatthe poorest local people are given priority for jobs through LBAT. The Project will engage laborinspectors to ensure that poor members of communities, especially women, are informed of job

29 A project funded by a grant from the Japan Fund for Poverty Reduction (JFPR), Reducing Trauma-Induced

Poverty in Northwestern Cambodia, aimed at the most vulnerable groups in the project area, is being developed inconjunction with the Project. The JFPR project will be implemented over a three-year period and will enable thewar-affected poor to participate in village development and to access government services. The JFPR proposal willbe presented to the Government of Japan in December 2001.

30

opportunities and that workers are paid in full and on time at current market rates. Road safetycampaigns will be carried out in communities along the roads rehabilitated under the Project.Children should be specifically targeted through the schools. Speed breakers will be installed invillages to reduce dust and as an additional safety measure (Table A2.3).

113. Previously, villagers experienced problems in managing small-scale infrastructure due tolack of participation in prioritizing and decision making. The Project will consider longer timespans for preparing villagers, making sure that the technologies used are appropriate; thatlocation and designs are adequate; that prioritization of small infrastructure includes the poorand vulnerable groups, especially women; and that local capacities to manage the facilities arestrengthened. Constructing latrines and improving access to water will go hand in hand withawareness-raising campaigns and thorough training in maintenance, hygiene, and preventivehealth care.

114. Security of Land Tenure. The provinces of Battambang, Banteay Meanchey, and SiemReap report high incidences of land disputes, which have often disadvantaged the poor.Infrastructure development, particularly the road improvements, will further increase the value ofland along those roads and increase the risk of land disputes. The Project will ensure thatproject beneficiaries will be supported in obtaining ownership title or other occupancy rights inaccordance with the Land Law (para. 61). No new roads will be constructed, the existing roadalignments will not be widened, and no land acquisition and involuntary resettlement areexpected except for a few isolated cases that will require the preparation of a short resettlementplan to be submitted to ADB for approval. Land acquisition and involuntary resettlement will notoccur in the context of constructing social infrastructure, as public land is available and theconstruction sites will be identified in consultation with the communities. There are isolatedcases where a few households have settled on market premises. Any decision on the upgradingof such markets will be subject to submission of an economic and social feasibility study,including a short resettlement plan for ADB's approval if the need arises.

115. Lack of Social Cohesion. New settlements and resettlements are located along roadsto be rehabilitated under the Project and comprise former internally displaced persons,repatriated refugees, and internal migrants in search of better economic opportunities. A highnumber of formally or informally demobilized soldiers reside in the target area. They areintegrated into the villages and earn their living through farming. They will benefit equally fromthe Project as other villagers. Social cohesion between the different groups is lacking; tensionsexist along political lines and between groups, particularly regarding favoritism in the distributionof development assistance. The Project will consider the situation and will contract selectedNGOs for the community development activities using participatory processes and a transparentand open community decision-making process. No ethnic minorities live in the project area.

116. Gender Issues. Women form the majority of the working age population in the projectarea (51.4 percent). Generally, the Khmer system provides equal rights to males and femaleswith regard to property, ownership, and inheritance. In practice, these norms have beenmoderated by traditions and an environment that values men more than women. Women’s rolesstill tend to be seen as being good wives, which means being submissive, docile, and assuminghousehold duties. Their role in decision making at the village, commune, and higher levelsremains weak and needs strengthening. Their workload is considerable, comprising householdmanagement; caring for children, the sick, and elderly; and also agricultural work such as landclearing and hunting. Women heads of households are forced to take on men’s roles andresponsibilities, and the absence of men increases the disparities in income. Such women areunable to clear and prepare the same amount of land and therefore produce less food. If they

31

seek wage labor, they are often paid less than men.

117. The Project will take women’s roles and different economic and social conditions intoconsideration. The strategy to address their needs, constraints and participation includes (i)specifically targeting women heads of households for employment and equal pay in the labor-intensive road construction works; (ii) training in management and maintenance of smallinfrastructure; (iii) encouraging women to expand their income-generating activities throughmembership and active involvement in the savings and credit groups (at present 75-80 percentof beneficiaries reached in similar schemes are women); (iv) organizing women-only discussionand planning groups to allow them to speak freely; (v) timing the training, discussions, andplanning sessions according to women’s availability; (vi) providing functional literacy, particularlynumeric literacy training; (vii) supporting and training female members of village developmentcommittees, other community-based organizations, and the future commune councils to allowfull participation in public meetings; (viii) specific awareness campaigns for men and women onjoint registration and land titling; and (ix) information and awareness-raising campaigns usingwomen-specific information channels.

118. Through improved access to water and sanitation and improved hygiene and health,women’s workloads will be reduced to enable them to participate more actively in decisionmaking in village development activities. The cooperation of the provincial and district personnelof the Ministry of Women and Veterans’ Affairs will be sought. The four community developmentspecialists under the Project will have a proven track record in gender and developmentactivities, and will coordinate and supervise the implementation of the strategy.

V. PROJECT JUSTIFICATION

A. Economic Analysis

119. The Project was formulated as part of the Government's objective of poverty reduction inthe rural areas of northwestern Cambodia. SEDP II (2001-2005) not only provides for aredistribution of public investment in the social sectors (health and education), but alsorecognizes the key role that the transport network plays in providing access to facilitate thedelivery of social sector services and to stimulate economic activity. The Project supports theGovernment's focus in these sectors with the overall goal of poverty reduction, with some 70percent of total costs being allocated to infrastructure establishment and rehabilitation. Theamount will be directed primarily at road rehabilitation, health and education facilities, and small-scale infrastructure to be established in the communes and villages of the target area. Theimproved access and incremental social services made available through these publicinvestments constitute the necessary prerequisites for economic growth in northwestern ruralCambodia. The Project will also attend to the needed capacity building in government agencies,in beneficiary communities, and in the private sector to ensure efficient implementation.Furthermore, it will promote a savings discipline among vulnerable groups and others in thetarget villages as a precursor to accessing formal credit facilities to finance production activitiesat district and provincial levels.

1. Benefits

120. The impact of the Project will be evident at several levels. The benefits from an improvedrural road network will be realized by all inhabitants throughout the project area, totaling580,000 people or 114,000 rural families, of whom 40 percent live below the poverty line.Additional benefits will be received by communities within the area of influence of the rural road

32

network from further investments in small-scale infrastructure where the impact will be morelocalized. An estimated 40 communes or about 180 villages will benefit from these investmentsfollowing the establishment of year-round access along rehabilitated roads.

121. Benefits identified from the project interventions all relate to improved access. In thecase of the rehabilitation of rural roads, farmers will have improved access to production inputs(e.g., seed and other planting material) and to government extension services to support thenew technologies. With better market access, they will be able to consider productionalternatives and higher-value crops. They will benefit from reduced transport costs for inputsupplies and the marketing of production surpluses. With reduced transport costs, farmers willrespond to production incentives through the price mechanism that will further stimulate ruralfood production and contribute to reducing the extensive periods of food insecurity in the targetareas.

122. In addition to these production-oriented benefits, inhabitants of rural communities willhave better access to health and education services. The cost of seeking medical treatment willbe reduced and the time spent traveling to reach these facilities will be reduced significantly.With year-round road access, the services will be available during the wet season when malariais an area-wide problem. Vehicle operating costs (VOC) and people’s travel time will also bereduced. One of the direct benefits during the construction phase is the use of LBAT on some60 percent of the 613 km to be rehabilitated. Based on the estimated labor input of 2,000person-days per km achieved in the RIIP, some $0.75 million will be directly injected into thelocal economy, which will stimulate economic activity, where there is already a high propensityto spend.

123. Benefits identified from investing in small-scale village infrastructure will be received byfewer individuals, but will still represent a significant outcome for the Project. Water remains oneof the primary concerns expressed by villagers during project preparation. The Project willrespond to this concern with the construction of an estimated 170 wells and some 60 ponds.Training in public health and hygiene associated with the provision of water facilities will have asignificant impact on the villagers' capacity to work and pursue their livelihoods. The Project willalso assist in establishing small local businesses to produce the squatting slabs for pit latrinesand, possibly, concrete rings, further contributing to increasing economic activity in the area.

124. Economic evaluation cannot capture all benefits described, but has estimated thosearising from the anticipated agricultural production surplus, savings in VOC, and value of traveltime saved. Details for the analysis of each component are in Appendix 10.

125. The base case economic internal rate of return (EIRR) for the road rehabilitation andmicrofinance components is 19.79 percent. The analysis is based on conservative assumptions.Sensitivity analysis indicates that only in two combination scenarios does the EIRR fall below 12percent. The highest risk is if the funding for road maintenance does not materialize asprogrammed. If funding is only 50 percent of what was planned, benefits will fall substantiallyand reduce the EIRR to 7.17 percent.

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Table 3: Summary of Sensitivity Analysis

Item Change EIRR (%) Switching Value (%)Base case 0 19.79Agricultural producer surplus -20% 17.82 -68VOC and times savings -20% 16.37 -46All benefits -20% 14.25 -28All costs +20% 15.21 +38Delay in Benefits 2 years 12.67Combination 1:All benefitsAll costs

-20+20

10.26

Combination 2:Funding of maintenance costsAll benefits years 2 to 5All benefits years 6 onward

-50%-30%-50%

7.17

2. Nonquantifiable Benefits

126. Benefits that are less easily measured include the impact from capacity-buildingactivities. These will be directed at improving the technical and management skills of PDRD,which will be institutionalized within government structures and as such, will continue to beavailable for development activities in the future. Similarly, a significant investment will be madein MRD planning capacity and its provincial offices with the establishment of IRAP, the Ministry'spreferred planning tool. This tool will provide the capacity to rationalize rehabilitation plansbased on poverty reduction criteria and will be extended countrywide over time.

127. In terms of community development, the Project will assist in strengthening the self-reliance of the poor and vulnerable groups in communities by giving them a voice in determiningfuture community development activities. It will also support the Government's decentralizationinitiatives by strengthening the village and commune leaders to enable them to carry out theirtasks more effectively.

B. Impact on Poverty

128. Poverty is widespread in the project area with its causes and characteristics largelyattributed to the long period of conflict and instability. It is evident in (i) people’s lack of access torural roads and markets, (ii) limited access to social services, (iii) persisting food insecurity, and(iv) low levels of social cohesion.

129. The most immediate project impact will be in providing employment for the people,especially the poor and vulnerable groups that will receive priority in working on the rural roadrehabilitation works. Documented benefits reported from labor-based road construction inCambodia by ILO and NGOs include increased availability of daily necessities at lower prices(up to 50 percent), increased sales of local produce at higher prices (up to 100 percent), andreduced prices of consumer goods. Furthermore, enhanced access to agricultural extension andinputs, and to health and education services will increase household incomes and contribute topoverty reduction. The rehabilitated markets will give farmers better opportunities to sell theirproduce for higher prices, and will offer better sanitary facilities that will reduce health anddisease problems. Markets also facilitate social interaction, including information dissemination,

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which will positively impact on social cohesion. The construction of primary schools will improveeducation levels in villages and reduce distances children have to walk to school, thus reducingschool dropout rates. The improved access to water and sanitation facilities at the village levelwill improve hygiene and reduce the incidence of waterborne diseases. It will also reducewomen’s workload as they are responsible for collecting drinking water as well as for taking careof the sick.

130. The adoption of an inclusive process of prioritization where the needs and priorities ofpoor and vulnerable groups are considered and project activities related to enhancement ofrural livelihood will contribute considerably to trust and confidence building among these groups,to their recognition within the communities, and further social cohesion. Participatoryapproaches in identifying needs and subsequent training in the management and use offacilities will also ensure beneficiaries’ appreciation of the value of these investments andcommitment to their sustainability.

131. The savings and credit initiatives will considerably contribute to trust and confidencebuilding, the gain of self-esteem, and a protection against economic shocks particularly for thepoor and vulnerable. The provision of land titles to people settling along road alignments willassure poor people of ownership and an additional assurance in times of extreme shocks.

C. Risks

132. De-mining of rural road alignments to be rehabilitated under the Project is a criticalactivity in implementing the rural infrastructure development component. It is the financialresponsibility of the Government, and untimely release of the counterpart funds for theseactivities may result in implementation delays. This issue is being addressed by timely reportingon the release of counterpart funds following the approval of annual work plans. It is alsocovered in a specific assurance given by the Government.

133. The major risk associated with rural roads is inadequate maintenance. Under the RIIPand earlier projects implemented by ILO, systems and procedures for routine and periodicmaintenance of rural roads that were developed and tested have demonstrated satisfactoryresults and cost-effectiveness. Sustainable financing arrangements and a legal framework tosupport such arrangements still need to be developed. The RIIP is currently assisting MRD inaddressing this issue. The ADB-funded Transport Sector Strategy study is also addressing theissue of road network maintenance. The project design provides a component for rural roadmaintenance and requires the Government to shoulder a substantial share of maintenanceexpenditures during the investment period. The Government has given specific assuranceregarding the timely availability of the counterpart funds.

134. A common cause of implementation delay in Cambodia is the lack of qualified trainedcounterpart staff with experience in aid-funded projects. This should not present a problem forthe Project, as MRD has generally performed satisfactorily in implementing ADB projects. Tofurther mitigate the risk, (i) the PMU and PIUs will be supported by expertise in technical andfinancial project management, (ii) capacity building will be provided for government agenciesserving the rural development sector in the project area, and (iii) NGOs and local institutions willbe contracted to provide a mix of services to facilitate implementation.

135. For small-scale village infrastructure investments, the Project is dependent on communeinvestment plans generated under the LPP as its point of entry in prioritizing eligibleinvestments. This, in turn, is dependent on the LPP activities funded by the Seila program. It is

35

recognized that the Seila program has not achieved full coverage of the target project districts.While there are plans to achieve 100 percent coverage (whereby all communes will havecommune investment plans) by the start of the Project, the rapid expansion of the Seila programposes a risk that the communes may not possess investment plans by the time access roadshave been rehabilitated and intensive activities under project financing are ready to begin.Should this situation arise, the screening process planned under the Project will have to beupgraded to a more comprehensive facilitation, identification, and prioritization process, stillworking with the poor and vulnerable groups to achieve the desired outcome of infrastructureinvestments.

136. The overall project goal of poverty reduction will be addressed through the provision ofinfrastructure in support of rural development. It is recognized that the road network is thenecessary prerequisite for socioeconomic development in isolated rural areas–and is the mainoutput of the Project. Spontaneous development cannot be expected immediately after roadaccess is achieved, as a road alone is not a sufficient condition for development. There needsto be further investment in production-oriented or income-generating initiatives, in developingsocial services, in strengthening local governance, and in enhancing community cohesion. Arisk is that such investments will not eventuate, which will reduce the Project's potential impact.The Government, aid agencies, and NGOs recognize northwestern Cambodia as one of themore needy regions. The international community has given high priority to developmentassistance in this area, as has ADB. With the likelihood of further development projects beingdirected in this area, the risk is considered minimal.

VI. ASSURANCES

A. Specific Assurances

137. The Government has given the following assurances, in addition to the standardassurances, which have been incorporated in the legal documents.

(i) The Government will ensure that (a) LBAT will be used for rural roadrehabilitation under the Project wherever possible; (b) the poor and very poorpopulation (50 percent of them being women, subject to availability) will beoffered employment in road rehabilitation work; and (c) labor inspectors will beengaged to confirm gender equity in the contractor’s employment practices andpayment to the workers of the appropriate market wage rate in a timely manner.

(ii) The Government will (a) ensure that during the implementation period,government counterpart funds required for maintaining rehabilitated orconstructed rural infrastructure are made available on a timely basis and at anincreasing rate to match the declining provision of funds from the proceeds of theloan (Appendix 7, and Table A8.3 in Appendix 8) and are deposited with themaintenance accounts (para. 100) established at the provincial level; and (b)following project completion, make available necessary funds for fullmaintenance of the rural infrastructure rehabilitated or constructed under theProject.

(iii) The Government will be responsible for de-mining the alignments along tertiaryroads to be rehabilitated under the Project. For that purpose, the Government will(a) carry out or authenticate a level-one survey of the project area; (b) contractrecognized and accredited de-mining organizations to clear the road alignmentsof any land mines and UXOs, according to accepted international practices,

36

following a sequence to be agreed upon by the PMU, the concerned PIU, and thede-mining teams; and (c) engage the services of a reputable and experiencedmine security organization, acceptable to ADB, to confirm whether the respectiveroad alignments are clear of mines. The Government will ensure that no roadrehabilitation will be undertaken until required de-mining has been completed andcertification on that is obtained. The Government will also ensure that counterpartfunds are made available on a timely basis (Appendix 7, and Table A8.3 inAppendix 8) for such de-mining activities.

(iv) The Government will engage a reputable and experienced mine securityorganization acceptable to ADB to (a) carry out, in accordance with acceptedinternational practices, de-mining of areas where community facilities will beconstructed; and (b) in conjunction with the physical de-mining, clearly demarcatesafe areas adjacent to the community facilities and conduct appropriate mineawareness training among the local population.

(v) The Government will ensure that high priority will be given to further mineclearance in lands suitable for settlement and agriculture, which are renderedaccessible by the roads rehabilitated under the Project.

(vi) The Government will give all necessary support to persons who were lawfuloccupants of the Project area on the date of promulgation of the 2001 Land Law,to obtain titles of possession and subsequently titles of ownership to the land inaccordance with the provisions of the Land Law. The Government will ensurethat persons who will migrate to, and settle in previously uninhabited areasadjacent to roads rehabilitated under the Project, and who pursuant to criteria tobe developed under the Land Law and its implementing legislation andregulations can be given the right to occupy such areas, will be given legalevidence of such right before completion of the Project.

(vii) MRD will make available office space and facilities within the Department of RuralRoads in Phnom Penh to accommodate the establishment of IRAP and other GISmethods to be used under the Project. In addition, MRD will provide thenecessary staff and basic office equipment to support provincial IRAP activities.

(viii) The Government will ensure that, wherever possible, public markets will beconstructed only on existing market sites or public land that is not occupied orused otherwise by private persons. In selecting markets for upgrading, theGovernment will take into account the views of target beneficiaries throughsurveys and meetings at the village, commune, and district levels.

(ix) The Government will ensure that adverse environmental impact resulting from thecivil works under the rural infrastructure component of the Project, as identified inthe relevant IEE or EIA or both, is mitigated through measures acceptable to ADBand in accordance with the relevant environmental laws and regulations.

(x) The Government will ensure that the poor and vulnerable people in the projectarea will be able to participate in prioritizing, planning, implementing, andmonitoring village-based infrastructure and that gender-sensitive participatoryapproaches will be employed, as described in ADB’s Framework forMainstreaming Participatory Development Processes.

(xi) The Government will ensure that special measures will be undertaken topromote the participation of women in the project activities. To such end, in eachproject district (a) training in management and maintenance of small

37

infrastructure will have at least 30 percent women; (b) functional literacy andparticularly numeric literacy training will be given; (c) supported community-based organizations will consist of at least 30 percent female members who willreceive special support and training to allow them full participation in publicmeetings; and (d) awareness campaigns will be organized for men and womenon joint land registration and titling.

B. Condition for Loan Effectiveness

138. Prior to loan effectiveness, Government’s evaluation of proposals from shortlistedconsulting firms for all the consultants to be engaged following competitive bidding procedureswill be submitted to ADB for its concurrence.

VII. RECOMMENDATION

139. I am satisfied that the proposed loan would comply with the Articles of Agreement ofADB and recommend that the Board approve the loan in various currencies equivalent toSpecial Drawing Rights 21,292,000 to the Kingdom of Cambodia for the Northwestern RuralDevelopment Project, with a term of 32 years, including a grace period of 8 years, and with aninterest charge at the rate of 1 percent per annum during the grace period and 1.5 percent perannum thereafter, and such other terms and conditions as are substantially in accordance withthose set forth in the draft Loan Agreement presented to the Board.

TADAO CHINOPresident

2 November 2001

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APPENDIXES

Number Title Pa ge Cited on(page, para.)

1 Project Framework 39 1, 2

2 Summary Poverty Reduction and Social Strategy 44 3, 10

3 External Assistance to the Sector 51 8, 28

4 Summary Cost Estimates 53 19, 71

5 Project Management, Implementation Structures, and Funds Flow 57 21, 78

6 Markets Upgrading and Resettlement 61 22, 82

7 Implementation Schedule 63 24, 90

8 Tentative Procurement Arrangements 64 24, 91

9 Summary Project Consulting Services 66 25, 95

10 Economic and Financial Analyses 67 32, 124

SUPPLEMENTARY APPENDIXES(available on request)

A Detailed Cost Tables

B Detailed Terms of Reference for Consulting Services

C Summary Initial Environmental Examination

D Institutional Structures

Appendix 1, page 1

PROJECT FRAMEWORK

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

Overall Aim (Project Goal)Support government policy on povertyreduction in rural areas through theprovision of physical infrastructure,improvement of socioeconomic conditions,and enhancement of rural livelihood in thefour northwest provinces of Cambodia

• Number of villages with year-roundaccess to commune centers, healthservices, education facilities

• Incidence of poverty reduced from 43percent to 33 percent in the target area

• Average household income of targetbeneficiaries raised by 30 percent fromthe baseline

• Provincial department of ruraldevelopment (PDRD ) village

and commune database of vital statistics

• Ministry of Planning (MOP)socioeconomic surveys andcompletion report

• MOP socioeconomic surveys andproject completion reports

• Government commits the necessaryresources to ensure that road accessis maintained in an operationalcondition.

• Government continues reform effortswith a focus on good governancethrough public sector reform.

Immediate Objective

1.0 Rural Infrastructure Development

Implement rural infrastructure interventionsthat will contribute to the improvement ofliving conditions of people in the projectarea

• Time spent transporting goods to/frommarkets and accessing social services

• Numbers attending schools• At least 613 kilometers (km) of ruralroads, 250 classrooms, 14 healthfacilities, and 14 markets rehabilitated orconstructed

• Participatory monitoring ofinfrastructure utilization

• Project-generated reports• Project completion report

• Product surpluses are available inthe target areas.

• Government budgets for operationand staffing of infrastructurecontinue.

• Government takes on responsibilityfor de-mining road alignments andmaintaining infrastructure.

Output

1.1 A network of rural roads rehabilitated orreconstructed to the Ministry of RuralDevelopment (MRD's) standards withestablished operational and maintenanceprocedures in place

• Length (km) of road rehabilitated

• Maintenance fund operative

• Quarterly project reports

• Annual budget allocation

• Counterpart funds for de-mining ofroad alignments and maintenance ofrehabilitated roads are available ontime.

1.1.1 Identify priority roads to be rehabilitatedusing integrated rural accessibility planning(IRAP) procedures

• 14 sets of IRAP district maps generated • Direct observation and projectquarterly reports

1.1.2 Design and construct rural road subprojects • Designs prepared and contractspecifications detailed

• 613 km of rural roads constructed

• Contracts awarded• Project-generated reports

• De-mining is completed on identifiedalignments.

1.1.3 Establish supervision, monitoring, andevaluation procedures

• Procedural manual produced• Participatory monitoring undertaken bycommunities

• Supervision, monitoring, andevaluation procedures under theProject

1.1.4 Establish operation and maintenanceprocedures and provide training in the useof the roads (safety awareness)

• Length (km) of rural roads beingmaintained

• Number of accidents

• Community and Project-generated reports

• Commune records1.1.5 Provide for consulting services and other • Contracts awarded • Project-generated reports

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Appendix 1, page 2

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

technical support

Output1.2 Larger-scale social infrastructure

constructed at district level with operationaland maintenance procedures established

• Number of items constructed- Schools classrooms (250)- Health centers (14)- Markets (14)

• Quarterly project reports • Provincial Rural DevelopmentCommittee (PRDC) can achievecross-sectoral coordination forstaffing and operation of facilitiesconstructed.

1.2.1 Identify and prioritize larger-scale socialinfrastructure projects using IRAPprocedures

• 14 sets of IRAP district maps generated • Inspection of plans

1.2.2 Design and construct larger-scale socialinfrastructure projects

• Civil works projects completed • Project-generated reports

1.2.3 Establish supervision, monitoring, andevaluation procedures for construction

• Manuals prepared • Project-generated reports

1.2.4 Provide for consulting services and othertechnical support

• Number of consulting services contractsexecuted

• Disbursement on contracts

2.0 Capacity Building

Strengthen the capacity for projectidentification, implementation, andmanagement/maintenance of publicinfrastructure investments

• Infrastructure projects being identifiedand implemented at district, commune,and village levels.

• Quarterly progress reports andparticipatory monitoring andevaluation (M&E).

• Monthly reports of PDRD

• Government commitment todecentralized/devolution planningcontinues.

Output2.1 Improved capacity of PDRD staff to respond

to community-identified developmentinitiatives

• Interest group opinion and staffassessments

• Capacity survey conducted bythe project management unit(PMU)

• Budget support is maintained forsalaries of project-associated staff.

2.1.1 Train PDRD staff in participatory techniquesand work methodologies

• Number of PDRD staff trained • Project training reports• Training evaluation reports

2.1.2 Train PDRD staff in data analysistechniques and resource inventory surveymethodologies

• Number of PDRD staff trained • Project training reports • Databases on resources and othervariables are made available to theProject.

2.1.3 Support participatory workshops in villagesto confirm pro-poor priority investments

• 36 pro-poor investment plans generatedin intensive communes

• Participatory workshopreports/records

2.1.4 Support district facilitators in undertakingvillage- and commune-level meetings

• Nongovernment organizations (NGOs)appointed and meetings facilitated

• Project-generated contracts • District facilitators are identified andcommitted to the Project.

2.1.5 Incorporate community-identified and pro-poor initiatives into village and communedevelopment plans

• Pro-poor/community-responsivedevelopment plans developed/generated

• Reports of communityworkshops/meeting minutes

• Active participation of the poor andvulnerable groups is achievedthrough NGO facilitation.

2.1.6 Train PDRD rural economic developmentbureaus in microfinance schemes

• Number of training courses and numberof PDRD staff trained

• Project-generated reports

40

Appendix 1, page 3

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

Output2.2 Improved project implementation and

management capabilities at provincial level• Number of training courses in projectmanagement

• Staff performance andassessment reports

• Suitable qualified staff are appointedto project implementation units(PIUs) in the provinces.

2.2.1 Train and strengthen capacity of personnelof PRDC, PDRD, and concerned agenciesin project and financial management

• Number of training activities undertaken • Project-generated reports • PRDC remains as coordinating andapproving body of rural developmentactivities/initiatives/ projects.

2.2.2 Train local contractors in biddingprocedures and project implementation

• Number of contractors trained andnumber of courses conducted

• Training completion reports

2.2.3 Train private consulting engineers in projectsupervision and quality assessment

• Number of consultants trained andnumber of courses conducted

• Performance reports of privateconsulting engineers

2.2.4 Establish materials testing laboratory in theproject area

• A laboratory established, equipped, andoperational

• Observations• Procurement contracts

• Qualified and interested privatesector operators are identified.

Output2.3 Improved capacity of MRD/PDRD

to plan and prioritize rehabilitation andmaintenance of rural roads

• Number of district and provincial ruralroad development plans generated

• IRAP-generated district andprovincial plans viewed

• MRD establishes and staffs the ruralroads departments at both centraland provincial levels.

2.3.1 Train MRD and PDRD staff in IRAPprocedures and geographic informationsystem (GIS) activities

• Number of training courses• Improved skills of staff

• Project-generated reports• Training evaluation studies

2.3.2 Train MRD and PDRD engineers in surveyand design of roads and other civil works asrequired

• Number of training courses• Improved skills of staff

• Project-generated reports• Training evaluation studies

2.3.3 Equip and train the planning unit withinMRD's Rural Roads Department to supportthe provincial planning of rural roads

• Planning unit established and equipped,staff appointed

• Provincial maps generated of the targetarea with road maintenance planned

• Project-generated reports• Observations of materials inRural Roads Department

2.3.4 Strengthen the capacity of MRD staff tomanage rural development projects

• Number of contracts awarded • Project-generated reports

2.3.5 Provide other technical training as required(road and civil works, construction, etc.)

• Number of training courses conducted• Evaluation of effectiveness of training

• Project-generated reports

3.0 Rural Livelihood Enhancement

Support livelihood enhancement byinvolving and empowering the projectbeneficiaries, establishing small-scalevillage infrastructure at the village level, andestablishing savings and credit initiatives atvillage and commune levels

• Poor and vulnerable groups activelyparticipating in decision making and incommon interest groups

• Community awareness and sense ofownership with management and usercommittees established

• Project-generated reports• Project completion report

• Community group managementminutes

• Government recognizes the need toenlist the assistance of NGOs toimplement the communitydevelopment aspect of the Project.

• The formal credit facilities remainbeyond the reach of villages andcommunes.

Output3.1 Poor and vulnerable groups actively

participating in determining development• Common interest groups formed andfunctioning

• Project-generated reports • Parallel programs aimed atdecreasing food shortages are

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Appendix 1, page 4

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

priorities for infrastructure investments • At least 36 commune investment plansmodified to reflect the needs of the poor

• Commune investment plans implemented in participating villages.

3.1.1 Enhance local planning processes invillages and communes to incorporate theinterests of the poor and vulnerable

• NGO contracts awarded• Screened investment plans

• Project-generated reports• Progress and monitoring reports

• The target groups feel empoweredand understand the usefulness ofparticipatory decision making.

3.1.2 Train existing and prospective community-based organizations (CBOs) (communecouncils/ commune developmentcommittees/village developmentcommittees) in leadership skills and literacy,where appropriate

• People from relevant CBOs/ beneficiarycommunities trained

• Training records

3.1.3 Train members of CBOs of their roles andresponsibilities of office/membership

• 960 members of CBOs trained• Number of village or commune meetingsconducted

• Training reports• Training impact assessments

3.1.4 Support for capacity building of CBOs, asrequired (technical support), in the use andmaintenance of facilities

• Consultants appointed and posted to PIUand PMUs

• Technical service contracts/agreements

• Project-generated reportsOutput3.2 Water supplies established in target villages

with user access and maintenanceprocedures in place

• 220 water sources/points established• Associated water management groupsoperating

• Quarterly generated reports• Group meeting records

• Suitable water sources can beidentified for development fordrinking purposes.

3.2.1 Identify and implement water supply micro-projects

• 220 water points constructed, operatedand maintained

• 2,500 additional households havingaccess to safe water

• Project-generated reports

• Participatory monitoring of small-scale village investments

• Suitable location for construction ofwater points are identified.

3.2.2 Carry out health education to improve levelsof hygiene and encourage construction oflatrines in villages

• Number of courses and workshopsconducted

• Decrease in incidence of illnesses• 2,500 or 10 percent of households intarget areas having latrines and living inhygienic conditions

• Project-generated reports.

• Annual health records• Village statistical returns• Health centers’ records/ reports

3.2.3 Establish supervision, and M&E procedures • Number of user groups established• Number of training of user groups

• Project-generated reports• Progress and monitoring reports

3.2.4 Establish operation and maintenanceprocedures and provide training in the useof the facility (hygiene, etc.)

• Number of user groups established• Number of training of user groups

• Project-generated reports• Progress and monitoring reports

3.2.5 Provide for consulting services and othertechnical support

• Number of consultant contracts issued forwater establishment

• Project-generated reports• Disbursement records

Output3.3 Small-scale social infrastructure established

in target communities with operational andmaintenance procedures established

• Number of items constructed forcumulative value of $10,000 percommune per year

• Quarterly project reports • PRDC can achieve cross-sectoralcoordination to staff and operatefacilities.

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Appendix 1, page 5

Design Summary Performance Targets Monitoring Mechanism Assumptions and Risks

3.3.1 Identify and prioritize small-scaleinfrastructure using local planning process(LPP) procedures

• Modified commune development plans • Inspection of plans

3.3.2 Design and construct small-scaleinfrastructure microprojects

• Small-scale civil works microprojectscompleted

• Project-generated reports

3.3.3 Establish supervision, and M&E proceduresfor construction

• Manuals prepared • Project-generated reports

3.3.4 Establish operation and maintenanceprocedures and provide training in the useof the investment

• Number of user groups established • Project-generated reports

3.3.5 Provide for consulting services and othertechnical support

• Number of consulting services contractsexecuted

• Disbursement on contracts

Output3.4 Village-based savings and credit schemes

established andoperating in communities

• Number (180) of savings and creditgroups established and operational

• Funds committed to savings activities• Number and volume of loansadministered

• NGOs/ microfinance institutions(MFIs) participatory grouprecords and project reports

• NGOs/MFIs participatory grouprecords and project reports

• NGOs/MFIs reports of savingsand credit groups

• Beneficiaries identify income-generating activities.

• Markets are identified for productionactivities.

• Beneficiaries choose to establishsavings and credit schemes, andform groups.

3.4.1 Train provincial and district agency andNGO staff in informal microfinancemodalities and aspects of savings andcredit group establishment and operations

• Number of agency staff trained • Staff performance/assessmentreports

• Project-generated reports

• Interested NGOs are identified forparticipation in the project.

3.4.2 Undertake community awareness training atvillage/commune level in concepts ofinformal and formal savings and creditschemes

• NGO training contract• Number of courses conducted

• Project disbursement records• Project-generated reports

3.4.3 Prepare operational guidelines withstandardized accounting forms, passbooks,and record maintenance procedures etc.

• Manuals prepared• Procedures prepared

• Guidelines, forms, andprocedures viewed

3.4.4 Support the establishment and operationsof village-based savings and credit groups

• Group meetings conducted • NGO monthly reports

3.4.5 Provide training for elected office bearers inscheme operations, basic accounting, loanmanagement, and auditing

• Number of training conducted

• Records maintained

• Project-generated reports.

• Village observations3.4.6 Improve linkages between informal and

formal credit facilities at provincial, district,commune, and village levels.

• Number of villager groups using theformal credit system

• MFI records in provincial centers • Formal credit facilities remain, andborrowing from formal sector isfeasible and attractive.

3.4.7 Support biannual coordination meetingsbetween credit institutions and communitydevelopment agencies in order to assistemerging microenterprises

• Number of meetings conducted• Number of enterprises gaining access toMFI funding

• Project-generated reports• MFI records

• Efforts and commitment of allstakeholders prevail for assistance tothe emerging microenterprises.

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Appendix 2, page 1

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Poverty in Cambodia 1. Cambodia ranks 137th out of 174 countries in poverty and is among the poorest countries inSoutheast Asia according to the United Nations Human Development Report. Only the Lao People’sDemocratic Republic (PDR) ranks lower at 140. Life expectancy at birth is 53.4 years, the lowest inSoutheast Asia. The adult literacy rate (66 percent) is lower only than the Lao PDR’s (58.6 percent).Infant mortality (106 per 1,000 live births) and maternal mortality rates (900 per 100,000 live births)are the highest in the region. 2. Poverty is severe and extensive, with pronounced inequality in consumption. It seems that alarge percentage of the population is grouped close to the poverty line so that economic events orpolicy changes could significantly alter the percentage of people below the poverty line.1 Theconsumption-based absolute poverty line for Cambodia has been defined as adequate income to buya daily 2,100-calorie food basket plus a small allowance for nonfood expenditure. In 1997 it wasestimated that about 36 percent of the population, over 4 million people, were below this poverty line.Urban areas are relatively better-off than the rural areas. About 90 percent of the poor (3,700,000) livein rural areas. 3. The causes and characteristics of poverty to a large degree can be attributed to the longperiod of conflict and instability, the damage and hardships done to the population who experiencedkilling and death, forced labor, and displacement. The execution of educated Cambodians during theKhmer Rouge era certainly contributes to the low levels of human capital, greatly hamperingdevelopment efforts. Huge damage has been done to the infrastructure. 4. The Cambodian poor, as the Cambodia HDR 1999 reports, tend to have less access toproductive resources. They live in villages with less access to markets, infrastructure, and economicservices; and no access to educational or basic health services. As a result they often suffer fromfood shortages, which can lead to indebtedness and the loss of farm assets. Poorer villages havehigher illiteracy rates and higher levels of gender disparity in literacy. B. Rural Livelihood and Poverty in the Northwestern Provinces

1. Legacies of the War 5. Postconflict Trauma. The four provinces in northwestern Cambodia comprising the projectarea2 only recently emerged from 30 years of warfare and massive displacement. Whereas most ofCambodia had begun to enjoy peace by the early 1990s, fighting continued in the northwest until1998. The far more recent experiences related to violence and displacement add another dimensionto poverty in the project area. The majority of the population has suffered extreme conditions such asdeprivation, refugee camps, internal displacement, famine, and disruption of families, rape, andtorture. Many have witnessed violence to the extreme, including death or killing since the 1970s.Social cohesion in the villages, especially the newly established ones, is low. Persisting foodinsecurity and continuing threats to life due to the high incidence of land mines further compound thedesperate living conditions. To secure their livelihood, poor villagers are forced to farm, herd, hunt,and collect products even in these mined areas. The implications of the past traumatic experiencesand the continuing dangers for the development of the individual and the community–such aspeople’s ability to work, to plan for the future and to solve problems–are rarely discussed and littleunderstood. But the extremely slow community development and the need for high inputs in terms of

1 Asian Development Bank (ADB). Country Operational Strategy, Cambodia, July 2000. 2 Banteay Meanchey, Battambang, Oddar Meanchey, and Siem Reap.

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Appendix 2, page 2

effort, training, encouragement and follow-ups in the project area can be partly attributed to trauma-related stress and have to be considered. 6. Mines and Unexploded Ordnance. Years of armed conflict have led to an unprecedenteddegree of mine and unexploded ordnance (UXO) contamination in Cambodia with some of the highestconcentrations in the northwestern provinces. Nine of the 14 districts in the project area rank amongthe 30 most affected districts (out of a total of 183 districts in the country) for mine casualties as theseareas experienced the most protracted conflicts between the Khmer Rouge and the governmentforces. Mine accident rates are highest in districts where returning refugees from the Thai border haveopened new land. Villagers have often resettled before de-mining was done. Usually, the villagersclear individual plots for housing, farming, and the pathways to access common property such asforestland or water sources. Adult males make up 53 percent of casualties, which reflects their higherinvolvement in clearing land for cultivation, and collecting timber and nontimber forest products.Casualties among women are 6 percent and children under 18 years, 41 percent. The high incidenceof child casualties result, of their tampering with mines and UXO, and their lack of awareness of thedangers. 7. Displacement and Migration. Displacement, which started in the late 1960s was caused bybombing along the eastern part of Cambodia. In 1975, the Khmer Rouge forced inhabitants of cities tojoin the agriculture revolution in the countryside. In 1978, many Cambodians were also forced to fleethe country when the Vietnamese invasion drove the Khmer Rouge from power. Thousands fled toThailand and settled in camps along the border. In 1989, the Vietnamese troops withdrew fromCambodia. The rebels resumed fighting and gained ground, resulting in the internal displacement of190,000 Cambodians in 1989-1991. The displaced originated mainly in the northwestern provinces.By 1991, some 360,000 refugees were repatriated, and resettled mostly in the northwesternprovinces. In 1997, the resurgence of fighting generated a new wave of displacement, 54,000internally and 48,000 to new camps along the Thai border. In 1998, refugees returned from the Thaiborder camps and most settled back in their villages of origin. 8. Lack of Social Cohesion. In 1999, the population in the targeted districts was 517,689 andaverage household size was 5.1 (Table A2.1). Female heads of households comprised 14.4 percent,lower than the national average of 19.5 percent. The population in the project area is young, withchildren forming 42 percent of the total. The number of disabled people (1.95 percent) is higher thanthe national average (1.51 percent). Only 59 percent of the children aged 5-14 years attend school.The reported literacy rate for adults in the project area is 33.4 percent for women and 42.9 percent formen. 9. New settlements and resettlements along roads to be rehabilitated under the Project compriseformer internally displaced persons, repatriated refugees, and internal migrants in search of bettereconomic opportunities. A high number of formally or informally demobilized soldiers reside in thetarget area. They are integrated into the villages, earn their living through farming, and will equallybenefit from the Project as the other villagers. Social cohesion in the groups is lacking; tensions existbetween groups, particularly due to favoritism in the distribution of development assistance. No ethnicminorities live in the project area. 10. Labor Shortage–Food Insecurity. Labor shortage is the number one constraining factor forhigher food production in the project area. The high loss of the male population during the war has leftan unbalanced sex ratio and a deficit of male labor needed for agricultural work. In the majority of thesettlements, the people’s main preoccupation and investment are in clearing and preparing land forhouse lots and cultivation. They are reestablishing their livelihood systems, which is a slow process.The collection of timber and nontimber forest products, as well as hunting and fishing are importantlivelihood activities to supplement the poor people’s survival. According to the World FoodProgramme (WFP), more than 40 percent of the population in the target districts do not have food

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Appendix 2, page 3

security. Where villages have re-established themselves and people resumed normal farmingactivities, most are planting one wet season rice crop per year.

Table A2.1: Overall Demographic Information

Demographic Indicator Cambodia 4 Provinces 14 Districts Population 1999 11,182,468 2,246,490 517,689

Percent of country representation 100 20 4.6

Estimated population 2001 11,737,000 2,358,000 543,000

Number of households 1999 2,110,000 423,015 101,120

Average household size (persons) 5.30 5.31 5.13

Percent households with female heads 19.5 14.8 14.4

Age dependency ratio 76.8 83.5 84.5

Sex ratio 93.6 94.3 95.6

Disabled persons prevalence (per 1,000) 1.51 1.66 1.95

Adult literacy rate 62.8 46.2 38.1

School attendance (5-14 years old, %) 66.5 63.1 59.0

Population with access to safe drinking water (%) 29 17.7 6.5

Population with access to latrine (%) 14.5 12.5 3.8

Source: Data compiled from National Census 1998 and other sources. 11. Land Tenure. Before 1960 the land belonged to the god-king with usufruct rights for theindividual farmer. The attempt of the French administration to introduce French land law was notsuccessful. Under Pol Pot and the Vietnamese administration, all land was state-owned. Privatizationof land started in 1986 and an increase in poverty was observed. Significant parts of the landbelonged to the military, were regarded as spoils of war, and would not be released without monetarycompensation. Returnees were disadvantaged during the 1993 and the 1998 repatriation. If land wasgranted, it was of poor quality and heavily mined. As land was distributed on a first-come first-servebasis, internally displaced persons arriving earlier than the returnees from the camps had anadvantage. The provinces of Battambang, Banteay Meanchey, and Siem Reap are considered areaswith a high incidence of land conflicts, which often disadvantaged the poor people in the past.

2. Community-Recognized Categories of Poverty 12. The results of the qualitative investigation undertaken under the project preparatory technicalassistance (TA) show that the rural population distinguishes four poverty groups within the village: thevery poor, the poor, the medium-poor, and the better-off families. Decisive categories for well-beingare (i) a certain state of mind; (ii) the level of food security; (iii) economic characteristics like theavailability of labor, draft animals; and (iv) material assets (Table A2.2). By these categories ofpoverty, about 45 percent of the population in the older established villages and 75 percent of thepopulation in new settlements in the investigated area characterize themselves as poor and verypoor. Old established villages appear to comprise relatively more families belonging to the medium-poor and better-off strata, whereas new settlements and resettlements do not have better-off familiesat all. Only the medium-poor and better-off families would belong to the group above the nationalpoverty line.

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Appendix 2, page 4

3. Access to Infrastructure and Services 13. Transport Infrastructure. Road infrastructure in the project area is poor. Most of the villagesin the target districts cannot be accessed during rainy season, some are cut off for several months peryear. Some roads are little more than cart tracks or footpaths. The entire province of Oddar Meancheyis inaccessible during 2-3 months of the rainy season. Villagers indicate that they receiveconsiderably lower prices per kilogram (kg) of paddy sold than in villages with better road access.Poor road access is the cause of the lack of important economic and social services. Access to thedistrict is important because, in areas with low population density, most services are not availablebeyond this level. Villagers identify improvement of roads as their number one need. 14. Social Infrastructure. A number of villages have no access to school facilities within or at areasonable distance from the village. About 50 percent of existing school facilities in the villages are inneed of repair. Existing health centers lack staff, equipment, and drugs. More than 96 percent of allhouseholds lack toilet facilities. The main sources of water are unprotected hand-dug wells (46percent) and rivers, ponds, and streams (41 percent). Only 6.5 percent of the households haveaccess to safe drinking water.

4. Community Decision Making 15. Village development committees (VDCs) have been established in the project area. Theyrepresent the villagers in the commune development committee (CDC), organize participatoryplanning, and coordinate the management of development programs at village level. In the past,villagers’ involvement in decision making was either limited or non-existent, the selection of the VDCoften predetermined by commune, district, and provincial authorities. As bottom-up planning usingparticipatory approaches is a new concept, the community-based organizations are in need of furthersupport and strengthening. 16. The local population is also not used to participation. They have only experienced beingordered and told what to do. In addition, development assistance to the villagers is emergency innature and relief oriented, and does not require them to participate in decision making.

5. NGO Activities in the Project Area 17. Due to Cambodia’s severely devastated human resources, and the embargo that mostWestern governments imposed with the Vietnamese military takeover, aid agencies were preventedfrom establishing themselves in the country. Providing assistance to the Cambodian Government wasleft to international nongovernment organization (NGOs). Although bilateral agencies have returned,the number of international NGOs is still high; currently more than 250 are active in the country.3

Some of them are in the process of transforming into local organizations, but due to the lack ofnational skilled and professional managers, this process is slow.

18. More than 100 NGOs are found in the project area, where they contribute substantially to therehabilitation and reconstruction of the communities. The number is higher in the provinces ofBattambang and Siem Reap, than in Banteay Meanchey. In Oddar Meanchey, only few NGOs areactive at present. Some of them are emergency relief organizations, but quite a number combine theprovision of most needed small-scale village infrastructure with livelihood programs, or cooperate withWFP in food for work. Many combine their activities with de-mining efforts in cooperation with trustedde-mining companies like Cambodian Mine Action Center, Mine Advisory Group, and Halo Trust.Most of them use participatory approaches and their target population is the poor and very poor,returnees, the internally displaced, war widows, female heads of households, disabled persons, andmine victims.

3 ADB. 1999. A Study of NGOs, Cambodia. (For discussion purposes only).

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Appendix 2, page 5

Table A2.2: Community Recognized Categories of Poverty

Item Very Poor Poor Medium-Poor Better-OffState Of Mind • No hope, no way

out• Some hope in life• Can cope with

difficulties• Have to struggle veryhard

• More prepared tochallenge the market• Problems and risksexisting, but can cope

• Courageous and happy• More advanced tochallenge the market

Food Security Daily basis Up to 6 months/ year 9-10 months/year Marketable surplusEconomicCharacteristics

• Numerousagricultural andnonagriculturaleconomic activitiesas coping strategies• High dependencyon forest products• High dependencyon wage labor• High dependencyon production andsale of simpleproducts• No adult malelabor• No access tocredit

• Rice production• Numerous agriculturaland nonagriculturalactivities as copingstrategies• At least one adult malelabor available• High dependency onforest products• Low dependency onwage labor• Limited access tomoneylenders

• Rice production• Horticulture• Livestock production• No dependency on forestproducts• Hiring labor• Access to credit

• Rice production• Horticulture• Livestock production• No dependency onforest products• Trading of surplus• Access to credit

Material Assets • No land or just 0.5ha• No draft animals• No cattle• Small thatch house• Few householdutensils

• 05-2 ha have rice land• May have draft animal• Small wooden orthatch house• May have fishing boatand tools

• 2-5 ha have rice land• Draft animals and cattle• Thatch or wooden house,good condition• TV, motorcycle, bicycle,radios• Rice mill• Fishing tools of highquality

• More than 5 ha rice land• More than 5 cattle• Wooden house in goodcondition• TV, radio, motorcycle• Access to fertilizer• Hand tractor

Distribution inRecentlySettledCommunity

15% 55-60% Less than 30% Few, if at all

OlderEstablishedCommunity

Less than 15% Less than 30% 45% 10-15%

19. Some of them have savings and credit programs, like CARE International. This program wasrecently evaluated and is considered successful, functioning without external capital injections andallowing the small groups to grow slowly and according to their own capacities. Many NGOs operatethrough the VDCs and respond to the prioritized needs that were identified in the local participatoryplanning approach. Some of them, however, cross-check the priority needs, because there arereservations regarding the extent to which the very poor, the poor, and women have participated inthe planning exercises. The NGOs provide skills training; education, health, family planning, waterand sanitation services; and training for HIV/AIDS4 awareness or mine awareness.

6. Gender Issues 20. Women form the majority of the working age population in the project area (51.4 percent).Generally, the Khmer system regarding property ownership and inheritance is rather bilateral, andwomen and men have equal rights. In practice, the norms have been moderated by tradition and anenvironment that values men more than women exists. Women’s role still tends to be that of being

4 Human immunodeficiency virus/acquired immunodefficiency syndrome.

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Appendix 2, page 6

“good wives” which means being submissive and docile, and assuming household duties. In reality,women have become primary income earners in many households and started undertaking activitiesand assuming roles in the communities previously assigned to men. However, their role in decisionmaking at the village, commune, district or higher levels is severely restricted. Even if women aremembers of the VDCs (30 percent is mandatory), they do not speak out. Poor and very poor womencannot afford to attend meetings due to their numerous chores in managing the household andearning a livelihood. 21. In the household, women have a stronger position in decision making. They are in charge ofthe family’s cash; this, however, is a burden in those households where scarce resources have to bemanaged. Larger economic transactions are executed by the husband, but he usually gets theconsent of his wife. Land clearing, cutting timber, plowing, constructing the house, and tending largelivestock are men’s tasks. Women are responsible for nursing and tending the young, the old, and thesick. They do the household chores, replenish water, and fetch firewood. In agriculture, Cambodianwomen share in land preparation, and do the planting, transplanting, weeding and harvesting,selecting seeds and storing them. They thresh and mill grain.

C. The Project’s Poverty and Social Strategy

22. The overall project approach to addressing social and poverty issues include (i) improvingremote rural villages’ access to transport and social infrastructure through the construction of ruralroads and small rural infrastructure; (ii) applying a sequential approach wherein the poor and verypoor population’s rights to land along the roads are assured prior to road improvements; (iii) providingcapacity building for all levels of stakeholders to assure inclusive participation in project planning,implementation, monitoring and evaluation; (iv) targeting the poor and very poor for employment andadequate payment in labor-intensive construction to close the food security gap; and (v) introducing asavings and credit scheme that is appropriate and adjusted to the poor population’s needs. Effects ofroad improvements on the population and mitigation measures were incorporated into the projectdesign (Table A2.3).

Table A2.3: Road Improvements, Their Effects on the Population and Mitigation Measures

Assumed Negative Effects Mitigation MeasuresHealth hazard for village population isincreased due to higher dust incidence(laterite surface).

Alternative surfaces (e.g., bamboo-concrete) currentlyexperimented in Cambodia will be used in settlementareas. Speed breakers in villages will reduce dust.

Higher speed of vehicles may lead to moreaccidents.

Road safety campaigns will be held, targetingespecially children; speed reducing measures in settledareas will be applied.

The value of land along the improved roadsand the risks of land conflicts will increase.

A sequential approach, including identifyingbeneficiaries, land use planning, land titling, and de-mining, will be used to assure land titling prior to roadimprovements.

Opening up of areas will increase access tomine areas, resulting in further clearing ofland, which will be done especially by the poorand very poor.

As the Project will provide alternative incomes to thepoor and very poor, the pressure to clear land or tocollect timber and nontimber products will be reduced,thus the danger of exposure to mined land.Mine awareness campaigns will be intensified,targeting children to deter them from tampering withunknown objects. Public land around improved ornewly built social infrastructure will be de-mined,pathways to newly built infrastructure will be de-minedand marked to allow safe access.

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Appendix 2, page 7

23. Stakeholder Participation. The Project was prepared with the extensive participation ofstakeholders at all levels, including beneficiaries. Project implementation will address the directparticipation of villagers by (i) using local-level planning and the already existing prioritized villagedevelopment plans, but thoroughly rechecking the poor and very poor population’s consent andpriority needs, with women being separately met to make sure their voices are considered; and (ii)building capacity and increasing the VDCs’ and commune, district, and province authorities’understanding of participation and empowerment.

24. Security of Land Tenure. The Project will start road improvements only after the beneficiariesalong the road alignments have been identified, registered, and received land titles. The Ministry ofLand Management will be responsible for this, supported by the Project. Mechanisms already existingin two and, until the end of the year, three provinces, the land use planning units/land usemanagement units will also be supported by the Project to assure participatory processes.

25. Gender Strategy. The Project will take women’s roles into consideration. Women are primaryincome earners; users of the infrastructure, especially the social infrastructure; and key persons tomanage the family budget. The strategy to address their needs, constraints, and participation includes(i) women-only discussion and planning groups to allow them to speak freely; (ii) timing the training,discussions, and planning sessions according to women’s availability; (iii) providing functional literacyand particularly numeric literacy training for women; (iv) support and training to women members ofVDCs to allow full participation in village meetings; (v) specific awareness campaigns for men andwomen on joint registration and land titling (the target is to achieve 75 percent joint land titles); (vi)information and awareness-raising campaigns using women as specific information channels; and(vii) targeting women particularly for the savings and credit groups (at present already 75-80 percentof women are reached in similar schemes). All activities will be done in close cooperation with theprovincial and district personnel of the Ministry of Women’s and Veterans’ Affairs. The four communitydevelopment specialists under the Project will coordinate and supervise the implementation of thestrategy.

26. Project Management Support. The Project will provide four community developmentspecialists, one to each province to support project implementation and ensure participatoryapproaches are used and the poor and the very poor are involved. Two of the four specialists will bewomen. All four will be gender-sensitive and have specific qualifications for gender analysis andgender-sensitive approaches in community development. The labor inspectors will ensure that poorpeople have access to information on employment and are given preference for employment in labor-intensive road construction and for the required training. Community-based participatory monitoringwill be carried out, using simple indicators identified by the community (Table A2. 2).

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Appendix 3, page 1

EXTERNAL ASSISTANCE TO THE SECTOR

Project Name Executing Agency Aid Agency Amount Duration LocationGrant AssistanceLabor-Based Rural InfrastructureProgram - Upstream Project

ILO and MRD SIDA/DFID $3 million Jul 2000-Jun 2002 Siem Reap Province

Protracted Relief and RecoveryOperations

WFP in collaboration withMRD

Multiple sources $18.8 million (annualbudget)

Jan 2001-Dec 2003 Country-wide

Seila Program

CARERE II Governance Project

Seila Task Force, ExComand PDRDs

UNDP/CAREREand other bilateralsources

$32 million Ended June 2001, buthas been extended for afurther 5 years

Initially in 5 provinces of thenorthwestern area, but nowexpanded to 12

LoansRural Credit and Savings Project(Loan 1741-CAM)

RDB and National Bankof Cambodia

ADB $20 million Mar 2001 to Mar 2006 Country-wide

Emergency Flood Relief Project(Loan 1824-CAM)

MPWT and MRD (ruralroads)

ADB $55.7 million Dec 2000-Jun 2004 All provinces around theTonle Sap (excludes OddarMeanchey)

Rural Infrastructure ImprovementProject (Loan 2059-CAM)

MRD ADB $31.4 million 1996-2002 Southeast of Cambodia

Agricultural Development Support toSeila (Loan 513 KH)

Ministry of Agriculture,Forestry and Fisheries, CDC,PRDC, STF and VDC

IFAD $11.6 million 1999-2005 Siem Reap, BanteayMeanchey, Battambang, andPursat

NGO ActivitiesCARE CARE in collaboration with

CMAC and provincial anddistrict line agencies

AusAID, CARE,ECHO, USAid,WFP

$1 million (annualbudget)

Ongoing Battambang, Siem Reap,Oddar Meanchey, and 6others

Action Nord Sud (ANS) ANS in collaboration withPDRD

AusAID, AFD,ECHO, EU, DFID,HI, Belgium,Canada, France,Spunk Fund,UNHCR andothers

$3.5 million (annualbudget)

Ongoing Battambang, and Siem Reap

Vocational Education IntegrationMethods for Rural Cambodia

Chantiers-Ecoles deFormation Professionale

AFD, France, EC $1.4 million 1998 to 2001 Siem Reap

Ockenden International Programs Ockenden International incollaboration with PDRD andthrough LNGOs

CIDA, DFID, andThe Netherlands

$0.5 million (annualbudget)

Ongoing Banteay Meanchey

ZOA Refugee Care Programs ZOA Refugee CarePrograms in collaborationwith PDRD

ECHO, UNHCR,ZOA RefugeeCare, ICCO,WFP/FFW, andother sources

$1.3 million (annualbudget)

Ongoing Banteay Meanchey, andOddar Meanchey

Norwegian People's Aid (NPA)Programs

NPA in collaboration withPDRD, and CMAC

NORAD, Norway,and TheNetherlands

$1.5 million (annualbudget)

Ongoing Banteay Meanchey

Oxfam GB Local NGOs PACT, CIDSE,Novib, and DCA

$0.5 - 1 million (annualbudget)

Ongoing Battambang

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Appendix 3, page 2

Project Name Executing Agency Aid Agency Amount Duration Location

World Vision International (WVI)Programs

WVI Multiple sources $4.2 million (annualbudget)

Ongoing Phnom Penh, Kandal, Takeo,Kompong Speu, KompongChhnang, Battambang, andKompong Thom

Lutheran World Service (LWS)Programs

LWS ALWS, DCA, EZE,and other sources

$3.6 million (annualbudget)

Ongoing Battambang, KompongChhnang, Kompong Speu,Kandal, and Takeo

Church World Service (CWS) CWS AusAid, CCA,CWSW, DIA,ICCO, NCC andother sources

$1.7 million (annualbudget)

Ongoing Battambang, BanteayMeanchey, Kompong Thom,Kandal, and Svay Rieng

Catholic Relief Service (CRS)Programs

CRS CAFOD,CORDAID,DEVCAP, ECHO,USAid, McKnightFoundation, andCRS Funds andother sources

$1.7 million Ongoing Battambang, BanteayMeanchey, Phnom Penh,Kandal, Kompong Speu,Takeo, Kampot, Kratie, andSvay Rieng

International Organization for Migration(IOM)

IOM in collaboration with lineministries

Canada, USA, NZ,Australia, andothers sources

Not available Ongoing Banteay Meanchey, and otherprovinces

Caritas Cambodia Caritas Cambodia Caritas memberorganizations, andother sources

$0.8 million (annualbudget)

Ongoing Battambang, Siem Reap, and7 others

ADB = Asian Development Bank, AFD = Agence Francaise de Developpement, ALWS = Australian Lutheran World Service, AusAID = Australian Agency for InternationalDevelopment, CAFOD = Catholic Agency for Overseas Development, CARE = Cooperative for Assistance and Relief Everywhere, CARERE = Cambodia Rehabilitation andRegeneration Project, CCA = Christian Conference of Asia, CDC = community-based organization, CIDA = Canadian International Development Agency, CIDSE =Cooperation Internationale pour le Developpement et la Solidarite (International Cooperation for Development and Solidarity), CMAC = Cambodian Mine Action Center,CORDAID = Catholic Organization for Relief and Development, CWSW = Church World Service and Witness, DCA = Danchurchaid, DEVCAP = Development Capital, DFID= Department for International Development, DIA = Dutch Interchurch Aid, EC = European Commission, ECHO = European Commission’s Humanitarian Aid Office, EU =European Union, ExCom = Executive Committee, EZE = Evangelische Zentralstelle Für Entwicklungshilfe (Protestant Association for Cooperation in Development), FCA =Farm Credit Administration, FFW = Food for World, HI = Handicap International, ICCO = Interchurch Organization for Development Cooperation, IFAD = International Fundfor Agricultural Development, ILO = International Labour Organization, MPWT = Ministry of Public Works and Transport, MRD = Ministry of Rural Development, NCC =National Council of the Church of Christ, NGO = nongovernment organization, NORAD = Norwegian Agency for Development Cooperation, Novib = NetherlandsOrganization for International Development Cooperation, NZ = New Zealand, PACT = Private Agencies Collaborating Together, PDRD = provincial department of ruraldevelopment, PRDC = provincial rural development committee, RDB = Rural Development Bank, SIDA = Swedish International Development Agency, STF = Seila TaskForce, UNDP = United Nations Development Programme, UNHCR = United Nations High USAID = United States Agency for International Development, Commissioner forRefugees, VDC = village development committee, WFP = World Food Programme.

52

Appendix 4, page 1

SUMMARY COST ESTIMATES

Table A4.1: Project Cost by Expenditure Account($'000)

ItemLocal

CurrencyForeign

Exchange Total% ForeignExchange

% BaseCosts

I. Investment CostsA. Civil Works

1. Rural Road Rehabilitation 8,918.4 2,952.6 11,871.0 25 392. Other Larger Scale Civil Works

a. School Facilities 1,215.3 546.2 1,761.5 31 6b. Health Facilities 267.4 120.2 387.5 31 1c. Market Centers 145.8 65.5 211.4 31 1

Subtotal Other Larger Scale CivilWorks

1,628.5 731.9 2,360.4 31 8

3. Small-Scale Village Infrastructure 1,100.0 494.4 1,594.4 31 54. Government Premises 80.2 10.1 90.3 11 0

Subtotal Civil Works 11,727.2 4,188.9 15,916.1 26 53B. Office Equipment 32.1 121.5 153.6 79 1C. Motor Vehicles 444.9 388.7 833.6 47 3D. Consulting Services

1. International Specialists 522.5 2,961.1 3,483.6 85 122. Domestic Specialists 1,391.2 162.1 1,553.3 10 5

Subtotal Consulting Services 1,913.7 3,123.2 5,036.9 62 17E. Operating Costs of a Capital Nature 396.2 245.1 641.3 38 2F. Training

1. Training - General 1,193.7 63.2 1,256.9 5 42. Training of Trainers 20.0 13.4 33.4 40 03. Workshops 113.3 170.9 284.2 60 1

Subtotal Training 1,327.1 247.5 1,574.6 16 5G. Service Contracts

1. Nongovernment Organization Contracts 1,006.1 112.4 1,118.5 10 42. Other Services Contracts 1,658.7 475.8 2,134.5 22 7

Subtotal Service Contracts 2,664.8 588.2 3,253.0 18 11Total Investment Costs 18,506.0 8,903.1 27,409.0 32 91II. Recurrent Costs

A. Incremental Staff1. National Personnel 15.1 0.0 15.1 0 02. Province Personnel 203.6 0.0 203.6 0 1

Subtotal Incremental Staff 218.7 0.0 218.7 0 1B. Maintenance

1. Road Maintenance 1,185.5 0.0 1,185.5 0 42. Civil Works Maintenance 31.7 0.0 31.7 0 0

Subtotal Maintenance 1,217.2 0.0 1,217.2 0 4C. Operating Expenses

1. Vehicle Operating Costs 140.0 562.4 702.4 80 22. Office Operating Expenses 331.1 222.2 553.3 40 2

Subtotal Operating Expenses 471.1 784.6 1,255.7 62 4Total Recurrent Costs 1,907.0 784.6 2,691.6 29 9Total Baseline Costs 20,413.0 9,687.6 30,100.6 32 100

1. Physical Contingencies 1,380.7 754.5 2,135.2 35 72. Price Contingencies 1,054.8 532.5 1,587.3 34 5

Total Project Costs 22,848.4 10,974.6 33,823.0 32 112

Note: This table does not include interest charge ($921,700).

53

Appendix 4, page 2

Table A4.2: Expenditure Account by Component($'000)

Rural LivelihoodsEnhancement

OtherRural Capacity Small-Scale Livelihood Project

Item Infrastructure Building Infrastructure Initiatives Management Total I. Investment Costs

A. Civil Works1. Rural Road Rehabilitation 13,272.2 0.0 0.0 0.0 0.0 13,272.22. Other Larger Scale Civil Works

a. School Facilities 1,921.8 0.0 0.0 0.0 0.0 1,921.8b. Health Facilities 422.0 0.0 0.0 0.0 0.0 422.0c. Market Centers 230.2 0.0 0.0 0.0 0.0 230.2

Subtotal Other Larger ScaleCivil Works

2,574.0 0.0 0.0 0.0 0.0 2,574.0

3. Small-Scale Village Infrastructure 0.0 0.0 1,739.4 0.0 0.0 1,739.44. Government Premises 0.0 0.0 0.0 0.0 97.0 97.0

Subtotal Civil Works 15,846.3 0.0 1,739.4 0.0 97.0 17,682.7B. Office Equipment 0.0 39.3 0.0 0.0 134.8 174.1C. Motor Vehicles 0.0 95.3 0.0 0.0 842.4 937.7D. Consulting Services

1. International Specialists 1,281.7 714.7 0.0 958.3 1,017.7 3,972.42. Domestic Specialists 841.9 135.4 0.0 768.9 0.0 1,746.2

Subtotal Consulting Services 2,123.6 850.1 0.0 1,727.2 1,017.7 5,718.6E. Operating Costs of a Capital Nature 210.7 228.4 271.0 29.8 0.0 739.9F. Training

1. Training – General 176.6 772.1 30.5 369.1 0.0 1,348.42. Training of Trainers Training 0.0 3.5 0.0 32.7 0.0 36.23. Workshops 0.0 0.0 0.0 328.2 0.0 328.2

Subtotal Training 176.6 775.6 30.5 730.0 0.0 1,712.8G. Service Contracts

1. Nongovernment OrganizationContracts

0.0 0.0 97.6 1,169.5 0.0 1,267.1

2. Other Services Contracts 653.3 660.2 522.1 42.0 555.9 2,433.6Subtotal Service Contracts 653.3 660.2 619.7 1,211.5 555.9 3,700.7

Total Investment Costs 19,010.5 2,648.9 2,660.6 3,698.6 2,647.8 30,666.4II. Recurrent Costs

A. Incremental Staff1. National Personnel 0.0 0.0 0.0 0.0 16.2 16.22. Province Personnel 0.0 0.0 0.0 0.0 218.8 218.8

Subtotal Incremental Staff 0.0 0.0 0.0 0.0 234.9 234.9B. Maintenance

1. Road Maintenance 1,412.8 0.0 0.0 0.0 0.0 1,412.82. Civil Works Maintenance 37.5 0.0 0.0 0.0 0.0 37.5

Subtotal Maintenance 1,450.2 0.0 0.0 0.0 0.0 1,450.2C. Operating Expenses

1. Vehicle operating costs 0.0 0.0 0.0 0.0 821.3 821.32. Office operating expenses 0.0 0.0 0.0 0.0 650.1 650.1

Subtotal Operating Expenses 0.0 0.0 0.0 0.0 1,471.5 1,471.5Total Recurrent Costs 1,450.2 0.0 0.0 0.0 1,706.4 3,156.6Total Project Costs 20,460.7 2,648.9 2,660.6 3,698.6 4,354.2 33,823.0

Taxes 2,404.0 275.5 297.5 441.7 767.5 4,186.0Foreign Exchange 5,435.6 889.1 1,046.7 1,262.2 2,341.0 10,974.6

Note: This table does not include interest charge ($921,700).

54

Appendix 4, page 3

Table A4.3: Project Component Cost by Year($’000)

Totals Including ContingenciesComponent 2002/03 2003/04 2004/05 2005/06 2006/07 Total

A. Rural Infrastructure Development 1,749.6 5,571.8 6,370.5 5,121.7 1,647.1 20,460.7

B. Capacity Building 764.8 746.7 605.5 354.5 177.4 2,648.9

C. Rural Livelihoods Enhancement

1. Small-Scale Village Infrastructure 90.9 326.7 576.4 850.7 816.0 2,660.6

2. Other Livelihood Initiatives 344.7 880.5 922.6 907.4 643.3 3,698.6

Subtotal Rural LivelihoodsEnhancement

435.6 1,207.2 1,499.0 1,758.1 1,459.3 6,359.2

D. Project Management 1,621.0 1,005.2 603.6 577.9 546.5 4,354.2

Total Project Costs 4,571.1 8,530.9 9,078.5 7,812.1 3,830.4 33,823.0

NNote: This table does not include interest charge ($921,700).

Table A4.4: Project Component Cost by Financier($’000)

AsianThe Development Beneficiary

Component Government Bank Contribution Total

A. Rural Infrastructure Development 5,460.7 14,992.5 7.5 20,460.7

B. Capacity Building 275.5 2,373.5 0.0 2,648.9

C. Rural Livelihoods Enhancement

1. Small-Scale Village Infrastructure 297.5 2,234.6 128.6 2,660.6

2. Other Livelihood Initiatives 441.7 3,256.9 0.0 3,698.6

Subtotal Rural Livelihoods Enhancement 739.1 5,491.5 128.6 6,359.2

D. Project Management 968.7 3,385.5 0.0 4,354.2

Total Disbursement 7,444.0 26,242.9 136.1 33,823.0

Note: This table does not include interest charge ($921,700).

55

Appendix 4, page 4

Table A4.5: Expenditure Account by Financier($’000)

Item Government ADB Beneficiary Total

I. Investment CostsA. Civil Works

1. Rural Road Rehabilitation 3,846.2 9,426.1 0.0 13,272.22. Other Larger Scale Civil Works

a. School Facilities 224.8 1,696.9 0.0 1,921.8b. Health Facilities 49.4 372.7 0.0 422.0c. Market Centers 26.9 203.3 0.0 230.2

Subtotal Other Larger Scale Civil Works 301.2 2,272.9 0.0 2,574.03. Small-Scale Village Infrastructure 203.5 1,535.9 0.0 1,739.44. Government Premises 11.4 85.7 0.0 97.0

Subtotal Civil Works 4,362.2 13,320.5 0.0 17,682.7B. Office Equipment 36.4 137.7 0.0 174.1C. Motor Vehicles 423.4 514.2 0.0 937.7D. Consulting Services

1. International Specialists 595.9 3,376.5 0.0 3,972.42. Domestic Specialists 261.9 1,484.3 0.0 1,746.2

Subtotal Consulting Services 857.8 4,860.8 0.0 5,718.6E. Operating Costs of a Capital Nature 74.0 537.4 128.6 739.9F. Training

1. Training - General 0.0 1,348.4 0.0 1,348.42. Training of Trainers Training 0.0 36.2 0.0 36.23. Workshops 0.0 328.2 0.0 328.2

Subtotal Training 0.0 1,712.8 0.0 1,712.8G. Service Contracts

1. Nongovernment Organization Contracts 190.1 1,077.0 0.0 1,267.12. Other Services Contracts 444.6 1,989.0 0.0 2,433.6

Subtotal Service Contracts 634.7 3,066.0 0.0 3,700.7Total Investment Costs 6,388.5 24,149.4 128.6 30,666.4II. Recurrent Costs

A. Incremental Staff1. National Personnel 0.0 16.2 0.0 16.22. Province Personnel 0.0 218.8 0.0 218.8

Subtotal Incremental Staff 0.0 234.9 0.0 234.9B. Maintenance

1. Road Maintenance 878.4 534.3 0.0 1,412.82. Civil Works Maintenance 29.9 0.0 7.5 37.5

Subtotal Maintenance 908.4 534.3 7.5 1,450.2C. Operating Expenses

1. Vehicle Operating Costs 82.1 739.2 0.0 821.32. Office Operating Expenses 65.0 585.1 0.0 650.1

Subtotal Operating Expenses 147.1 1,324.3 0.0 1,471.5Total Recurrent Costs 1,055.5 2,093.6 7.5 3,156.6Total Disbursement 7,444.0 26,242.9 136.1 33,823.0

Note: this table does not include interest charge ($921,700).

56

Appendix 5, page 1

PROJECT MANAGEMENT, IMPLEMENTATION STRUCTURES, AND FUNDS FLOW

Figure A5.1: Implementation Structure

MINISTRY OF RURALDEVELOPMENT

PMU(in Sisophon,

Bantea y Meanche y)

PRDC

National

Provincial

TA Administration

PDRDOne in Each Province

PIU(Working Group)

Administration, etc.

Water andSanitation

Rural Roads

CommunityDevelopment

Local CapacityBuilding Unit

Dept ofEducation

Dept ofHealth

Dept ofE&F

Dept of…….

Beneficiaries -Villagers

E&F = Economy and Finance, PDRD = provincial department of rural development, PIU = project implementation unit, PMU =project management unit, PRDC = provincial rural development committee, TA = technical assistance

57

Appendix 5, page 2

Figure A5.2: Provincial Implementation Unit

Provincial Departm ent O f Rural Developm ent

C on trac t M an ag er (1 ) A d m in . A ss is tan t (1 )

F in an ce P rocu rem en t (1 )

P rovin c ia l P ro jec tIm p lem en tation U n it M an ag er

P art-Tim e 5 0 %

S . A d m in is tra tionS . P erson n elS . F in an ceS . L og is ticsS . P lan n in g & C on tro lle rS . M on itorin g & E valu ation

O ffice o f A d m in is tra tion

S . P otab le W aterS . S m all Irrig a tionS . M ic ro-E n erg y P ro jec tS . L ab oratory o f W ater

Q u ality

O ffice o f R u ra lW ater S u p p ly

S . N u trit ionS . F am ily H ealth C areS . H ealth E d u cationS . M ob ile H ealth U n it

O ffice of R u ra lH ealth C are

S . H ou seh old F ood S ecu rityS . V illag e D evelop m en tS . In form al Tra in in g

O ffice o f C om m u n ityD evelop m en t

S . R u ra l C red itS . S m all B u s in ess A ssoc ia tionS . M arketin gS . S tatis tics

O ffice o f R u ra lE con om ic

D evelop m en t

S . P lan n in gS . D es ig nS . M on itorin g

O ffice o f R u ra lR oad s

PDRD

TA INPUTInfrastructureEngineerCommunityDevelopment

PDRD = provincial department of rural development, S. = service, TA = technical assistance,

58

Appendix 5, page 3

Figure A5.3: Project Management Unit

A ss t. P ro jec t M an ag er (I)

C om m u n ity D ev (I)

C om m u n ity D ev (4 D )(P rovin ce)

R eg ion a l P lan n er(O d d ar M ean ch ey)

H yd ro log is t

E n g in eer / Tra in er

E n g in eers (4 D )

Tech n ica l A ss is tan ce

P rocu rem en t

A ccou n tan t (2 )

S u p p ort S ta ff (5 ) - C lean ers (2 )

- D rivers (6 )

A d m in . M an ag er

A d m in is tra tion

Tra in in g C oord in ator

M on itorin g & E va lu ation

In form ation S ys tem s/G IS

P ro jec t S u p p ort

P ro jec t D irec tor (D )

D = domestic, GIS = geographic information system, I = international.

59

Appendix 5, page 4

Figure A5.4: Fund Flow Mechanism

Fund Flow

Liquidation

Monitored byAsian DevelopmentBank

Ministry of Economyand Finance

Ministry of RuralDevelopment

ProjectAccountwith NBC

First-GenerationImprest Account

Project ManagementUnit in Sisophon

First-GenerationImprest Account

ProjectImplementation Unitin Bantey Meanchey

ProjectImplementation Unit

in Battambang

ProjectImplementation Unit

in Siem Reap

ProjectImplementation Unitin Oddar Meanchey

2nd-GenerationImprest Account

2nd-GenerationImprest Account

2nd-GenerationImprest Account

2nd-GenerationImprest Account

NBC = National Bank of Cambodia.

60

Appendix 6, page 1

MARKETS UPGRADING AND RESETTLEMENT

A. Introduction

1. The reconstruction and rehabilitation of 14 commune and district markets is envisaged inthe Northwestern Rural Development Project (NRDP) to provide upgraded market facilities instrategic marketplaces as venues for economic activities and to reduce losses in the quality andquantity of produce. Many of the markets in the project area are in poor condition, and lackingproper drainage, provisions for garbage collection, or sanitary blocks and water supply. Noselection has yet been made as the development of a market hierarchy in the project area is stillat the very early stages. Identification and selection can only take place after the rehabilitation ofthe rural roads because transport infrastructure supports the function of a market andcontributes to justifying the investment. The impact of different types of markets on povertyreduction has to be considered as well. A screening and appraisal process will be needed priorto any decision.

B. Rationale

2. Since the NRDP aims to contribute to poverty reduction in the four northwesternprovinces, the project activities include upgrading the local rural markets. These are basicproducer markets with producers directly selling small quantities of perishable andnonperishable products to either local traders or to local consumers. These markets alsofacilitate farmers’ diversification into vegetables, fruit, and small livestock as they provide outletsfor such products. A focus on this kind of market will therefore have a greater impact on poorfarmers in the project area. Rehabilitating of such markets will (i) increase the physicalcapacities of the markets; (ii) improve marketing conditions for fresh produce, fish, andlivestock; (iii) reduce losses of goods; and (iv) improve hygiene by providing water and latrines.

C. Market Selection Criteria

3. Markets will be selected using the following criteria: (i) transport infrastructureimprovement exists (including roads to be rehabilitated by the Project); (ii) efficiency and publichealth conditions are seriously limited; (iii) substantial level of trade in fresh produce exists (atleast 30 percent traders are farmer-sellers); (iv) a formal agreement with the relevant authoritiesstates that upgrading will be implemented through established market management committees(including wholesalers, retailers, farmer-sellers, and local authority representative) that willsubsequently manage the upgraded market so as to ensure sustainability and cost recovery; (v)priority is given to upgrading the existing markets owned by the local government, and only inexceptional and justifiable circumstances will the development of a new market site beconsidered; and (vi) a socioeconomic study has been undertaken and comprises a rapidassessment of social conditions, including potential beneficiaries of improvements, potentialnegative impact on poor groups of farmers-sellers, an estimate of the number of settlers stayingon the market premises, and a rapid assessment of the financial and economic viability of themarket, and cost recovery expectations.

D. Expected Scope of Resettlement

4. The Appraisal Mission has rapidly assessed the scope of resettlement. Determining theexact number of people settling on the market premises has been difficult since in the absenceof proper fencing, alignments, or concrete surfaces, market boundaries are often notestablished and trading activities spill over to adjacent areas. It has been found that

61

Appendix 6, page 2

occasionally such cases occur in the project area.1 Those people will be affected by anyplanned market reconstruction and rehabilitation and will need to be resettled. The number ofaffected people is estimated to be about two families per market. In accordance with AsianDevelopment Bank’s (ADB’s) involuntary resettlement policy such resettlement is not significantand does not require a full resettlement plan. In cases where a limited number of settlers isidentified as residing within market boundaries, ADB’s involuntary resettlement policy calls for ashort resettlement plan to be prepared.

D. Short Resettlement Plan

5. At present there is no legally documented resettlement policy in Cambodia. But theGovernment recognizes that regardless of legal status, negatively affected settlers are entitledto compensation.

6. The main principles of the resettlement plan follows: (i) minimize negative impacts asmuch as possible; (ii) carry out resettlement and compensation so as to improve or at leastrestore the preproject living standards of the affected people; (iii) fully inform and consult closelywith affected people on compensation options and resettlement plan design; and (iv) provideasset compensation at replacement rates. The disbursement for each market to be rehabilitatedwill be subject to ADB’s approval of the socioeconomic feasibility study. A loan covenant makesthe start of civil works conditional on satisfactory implementation of the resettlement plan.

7. The resettlement plan should contain the following parts: (i) description of thesocioeconomic conditions of the affected people; (ii) discussion with potential affected people toinform the market rehabilitation and the need for relocation; and (iii) information for affectedpeople about resettlement/compensation options. Attempts will be made during detailed designto avoid or minimize adverse social impacts on the settlers. Wherever possible, marketboundaries will be adjusted in a way that settlers do not need to be relocated.

8. Compensation will be at replacement value for lost assets. Transportation and asubsistence allowance will be paid to cover any loss of income during the resettling period. Amaximum transport allowance estimated at $40 per household or assistance in kind will beprovided. The subsistence allowance is estimated at $50 per household. All unit prices forcompensation will be fixed before payment of compensation.

9. The Project Implementation Unit (PIU) and representatives from a nongovernmentorganization (NGO) working in the project area will monitor resettlement plan implementation aspart of their regular monitoring activities. Grievance may be expressed to this NGO and theconcerns raised will be included in the monitoring report. The international communitydevelopment specialist will assist the project management unit (PMU) and the PIUs inpreparing, monitoring, and evaluating resettlement plan implementation. ADB review missionswill monitor the issue. Evaluation of resettlement plan implementation will be part of PMU’sregular reports to be submitted to ADB.

10. Resettlement activities will commence at the earliest in 2004. The PMU will providetimely implementation schedules that indicate resettlement activities as they relate to the civilworks for market improvement on a case-by-case basis.

1 This has been confirmed by a socioeconomic study conducted for ADB Loan 1385-CAM(SF): Rural Infrastructure

Improvement Project , for $ 25.1 million, approved on 28 September 1995, where in 6 out of 12 markets studied, alimited number of settlers were found within the market boundaries.

62

Preparator y Phase1. Establish PMU in Sisophon2. Appoint national staff and Asst. Manager3. Appoint TA specialists4. Procure equipment and vehicles5. Establish PIU offices- BT and BM6. Establish PIU offices - OM and SR7. Negotiate and appoint NGO contracts8. Commence IRAP mapping BT and BM9. Commence IRAP mapping OM10. Prepare annual work plan

1. Community capacity building2. Investment screening in intensive villages3. De-mining of road alignments ($'000) $331.0 $508.2 $641.64. Design and tendering for civil works5. Road rehabilitaion activities (km) (120) (130) (95)6. Road maintenance (govt. contribution- $'000) $23.7 $6.1 $29.0 $82.6 $412.47. Other civil works construction8. Microfinance activities9. Villages where intensive activities begin 17 32 36

1. Community capacity building2. Establish PDRD premises3. Regional planner (TA) in OM4. Investment screening in intensive villages5. De-mining of road alignments ($'000) $455.1 $444.7 $216.86. Design and tendering for civil works7. Road rehabilitation activities (115) (100) (50)8. Road maintenance (gov't contribution- $'000) $60.7 $35.2 $87.4 $141.49. Other civil works construction

10. Microfinance activities11. Villages whre intensive activities begin

Dry2005/06

Intitiatives in OM and SR

Dry2002/03 2003/04

Rainy Dry

IMPLEMENTATION SCHEDULE

2004/05Rainy

Initiatives in BT and BM

Rainy Dry Rainy Dry2006/07

Rainy

BM = Banteay Meanchey, BT = Battambang, IRAP = integrated rural accessibility planning, NGO = nongovernment organization, OM = Oddar Meanchey,PDRD = provincial department of rural development, PIU = project implementation unit, PMU = project management unit, SR = Siem Reap, TA = technicalassistance.

Appendix 7

63

Appendix 8, page 1

TENTATIVE PROCUREMENT ARRANGEMENTS

Table A8.1: Procurement Packages($’000)

Procurement MethodNational

Competitive Direct Consultin g NBFItem Bidding Purchase Services Total

A. Civil Works 13,912.4 1,594.4 0.0 3,600.6 19,107.4(1,832.3) (210.0) (3,207.3) (5,249.7)

B. Equipment 174.1 0.0 0.0 0.0 174.1(36.4) (36.4)

C. Vehicles 1,060.4 0.0 0.0 0.0 1,060.4(435.7) (435.7)

D. Consulting Services 0.0 0.0 5,718.6 0.0 5,718.6(857.8) (857.8)

E. NGO Contracts 1,267.1 0.0 0.0 0.0 1,267.1(190.1) (190.1)

F. Other Service Contracts 5,916.6 0.0 0.0 578.9 6,495.5(420.4) (254.0) (674.4)

Total 22,330.5 1,594.4 5,718.6 4,179.5 33,823.0(2,914.8) (210.0) (857.8) (3,461.4) (7,444.0)

NBF = non bank financed, NGO = nongovernment organization.Note: Figures in parenthesis are the respective amounts financed by the Government.

Table A8.2: Procurement of Vehicles and Equipment

QuantityItem 2002/03 2003/04 2004/05 2005/06 2006/07 TotalA. Motor Vehicles

1. Motor vehicles (no.) 13 4 - - - 17

2. Motorbikes (no.) 16 8 - - - 24

B. Other Equipment1. Furniture (sets) 34 - - - - 34

2. Computers (no.) 37 18 - - - 55

- = not applicable.

64

Appendix 8, page 2

Table A8.3: Schedule of Government Contribution to De-Mining and Maintenance($’000)

Item Year 1 Year 2 Year 3 Year 4 Year 5 TotalRoad Maintenance

Battambang 11.9 3.0 14.5 41.3 206.7 277.3Banteay Meanchey 11.9 3.0 14.5 41.3 205.8 276.5Oddar Meanchey 0.0 30.3 16.6 44.5 82.7 174.0Siem Reap 0.0 30.3 18.6 42.9 58.7 150.6

Total Road Maintenance 23.7 66.7 64.2 170.0 553.8 878.4

Other Infrastructure MaintenanceBattambang 0.0 0.0 0.0 0.3 8.1 8.4Banteay Meanchey 0.0 0.0 0.1 0.3 8.1 8.5Oddar Meanchey 0.0 0.0 0.0 0.2 7.0 7.0Siem Reap 0.0 0.0 0.0 0.0 6.0 6.1

Total Other Maintenance 0.0 0.0 0.1 0.6 29.2 30.0

De-Mining Road AlignmentsBattambang 165.5 254.1 325.1 0.0 0.0 744.7Banteay Meanchey 165.5 254.1 316.5 0.0 0.0 736.0Oddar Meanchey 206.9 254.1 216.8 0.0 0.0 677.7Siem Reap 248.2 190.6 0.0 0.0 0.0 438.8

Total De-Mining 786.0 952.8 858.3 0.0 0.0 2,597.2

Total 809.7 1,019.6 922.6 170.7 583.0 3,505.6

Note: Figures may not add up to totals due to rounding. All figures include taxes and duties (11.7 percent).

65

Appendix 9

SUMMARY PROJECT CONSULTING SERVICES(person-months)

QuantityItem 2002/03 2003/04 2004/05 2005/06 2006/07 Total

A. Consulting Services1. International Expertise

a. Assistant project managera 12 9 4 3 2 30

b. Microfinance specialista - 1 1 1 1 4

c. Community development specialista 2 4 4 4 2 16

d. Engineer/Trainera 6 9 9 6 - 30

e. Hydrologist/Engineera 8 2 2 - - 12

f. Regional plannera 6 6 - - - 12

g. IRAP specialistb 9 6 5 3 - 23

h. Environmentalista 2 - - - - 2

Subtotal International Expertise 44 37 26 17 5 1292. Domestic Expertise

a. Community development specialistsa 12 48 47 12 - 119

b. Infrastructure engineera 24 48 46 24 - 142

c. Microfinance specialista - 4 4 4 4 16

d. IRAP specialistb 12 24 12 - - 48

e. Environmentalista 2 2 2 1 1 8

Subtotal Domestic Expertise 49 125 113 41 5 333 Subtotal Consulting Services 93 162 139 58 10 462

- = not applicable, IRAP = integrated rural accessibility planning.a First package of consulting services.b Second separate package of consulting services.

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ECONOMIC AND FINANCIAL ANALYSES

1. About 90 percent of the poor in Cambodia live in rural areas, where poverty is generallyassociated with large families, low educational levels or illiteracy, and a high ratio of nonworkingto working household members. The rural poor are heavily handicapped in terms of (i) landownership, housing, and other productive assets; (ii) access to basic social services such ashealth, education, water supply, and sanitation; and (iii) access to financial services. Decades ofinternal armed conflict, low agricultural productivity, high indebtedness, and isolation due toseverely degraded access roads are often cited as causes of poverty in the rural areas. Theproject area shares all these characteristics.

2. The northwestern provinces also have many internally displaced persons who haveelected to settle there after years of voluntary and forced exile as refugees in Thailand. This isalso an area where informally demobilized soldiers have settled, close to their former units.Some internal migration to these relatively land-rich provinces by families originally from thesouth and east also occurs despite the widespread danger of unexploded ordnance. Years ofcivil unrest throughout the northwestern provinces have had a severe impact on the humancapital of the area as well as on the physical infrastructure. Consequently, the basic minimumneeds of communities are not satisfied and the incidence of food insecurity averages threemonths each year. The survival strategies adopted by households during the extended periodsof conflict, particularly in the northwestern provinces, have also resulted in unsustainableincome-generating activities from the exploitation of natural resources, to the extent that theseare now significantly depleted.

3. The Government's major objectives are to establish the rule of law, ensure economicstabilization with structural reform, strengthen capacity building, initiate protection of the naturalenvironment, and foster the rehabilitation and construction of physical infrastructure andfacilities. The aim is to integrate Cambodia's economy into regional and world economies in asustainable manner. The Government's poverty reduction strategy has three elements:

(i) decentralization and promotion of community participation in project selection,design, and implementation to increase the efficiency and equity of ruraldevelopment interventions;

(ii) improvement of agricultural productivity, notably through greater public investmentin rural infrastructure and establishment of rural financial services, to enhance theincomes of the rural poor; and

(iii) promotion of access to affordable rural social services, particularly for women andvulnerable groups.

The Project is built around these objectives and strategic elements, and its overall evaluationmust be made in the context of the well-documented fundamental needs of the project area.

A. Assumptions on Project Costs

4. The detailed costs were prepared according to the Asian Development Bank’s (ADB)standards using the COSTAB software package. All costs were denominated in 2001 USdollars. The individual costs were based on either field inquiries in 2001 or interpolations fromprior studies, adjusted by appropriate currency conversion and inflation series. An exchangerate of KR3,850 per dollar was assumed for current costs. Physical contingencies wereestimated for individual items based on Mission estimates, other ADB project data, and datacontained in the International Fund for Agricultural Development (IFAD) Appraisal Report-

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Agricultural Development Support to Seila.1 International price contingencies were based on theWorld Bank's Commodity Outlook. Local inflation was estimated from data supplied by theMinistry of Economy and Finance (3.5 percent per year, 2002-2006). Taxes and duties wereapplied at rates supplied by the ministry and are netted out of the economic analysis.

B. Expected Impact of the Main Components

1. Capacity Building

5. The proposed capacity-building component is extensive and recognizes thatcommunities in the project area have been badly affected by civil disruption and are thereforeless familiar with participatory development processes than rural communities in other parts ofthe country. The component supports the government policy to promote the empowerment ofcommunities through decentralized planning. While a start has already been made through theSeila process of preparing commune investment plans, both technical and awareness trainingare required at the community and government agency levels. In view of the limited resourcesavailable to the Government to achieve the participatory approach, much of the capacitybuilding will be delivered through the services of a suitably qualified nongovernmentorganization (NGO) under a service contract agreement with the Project. The benefits of theproposed comprehensive and integrated program of technical assistance are expected toprovide widespread and sustainable benefits through the more effective focusing ofdevelopment investment, harnessing of community participation, and strengthening of capacityat the grassroots.

6. The Project will support the Ministry of Rural Development (MRD) and its provincialdepartments to upgrade infrastructure planning and implementation skills. There are obviousneeds for technical training in a wide range of skills (e.g., engineering survey and design,project management, supervision and evaluation, accessibility mapping and infrastructureallocation, computer training, etc.). The Project will address these needs within both theprovincial departments of rural development (PDRD) and the private sector. The proposedassistance for developing the capabilities of the local contracting and consulting industries isalso expected to provide immediately tangible and long-term sustainable benefits. The Projectwill provide much-needed technical support and training in maintenance procedures to thePDRD rural roads office, which will be responsible for monitoring and supervision, and to thedistrict road maintenance committees.

2. Large-Scale Infrastructure

7. The Project includes the construction of an estimated 613 kilometers (km) of rural roadsat an estimated capital cost of $15,000 per km, or an estimated total cost of $9,195,000. Theestimated average capital cost is based on substantial experience gained during the upstreamInternational Labour Organization (ILO) technical assistance (TA) to MRD for the Labor-BasedInfrastructure Works Program. The exact length of roads to be built cannot be determined at thisstage as all proposals will be screened, and possibly revised or rescheduled, following fullevaluation using the integrated rural accessibility planning (IRAP). However, the total is notexpected to differ substantially from the initial estimate. In addition, approximately $9,800,000

1 Seila, (a Khmer word meaning foundation stone) originated as UNDP’s Cambodian Area Rehabilitation and

Regeneration Project. With the continued support of UNDP and other aid agencies, Seila has evolved into anational program operating in Banteay Meanchey, Battambang, Pursat, Siem Reap, Oddar Meanchey, andRatanakiri provinces.

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has been allocated for construction of provincial and district infrastructure and facilities (e.g.,health facilities, schools, and markets) and strategic maintenance of roads. The need for suchfacilities is readily apparent and the planning process is essentially one of ranking and rationing.

8. The ILO-TA has established that significant effects stem from rehabilitating orreconstructing rural roads that are otherwise impassable in the wet season. These includeincreases in cropping intensities and yields (resulting from improved access to markets andagricultural inputs), and the growth and diversification of trade and traffic. There are certainlyalso less tangible but important benefits from exposing the rural population to new ideas andsources of information. Consistent with the reconstruction of the economy as a whole, there is asense that rural areas are ripe for rejuvenation and modernization, given the provision ofappropriate transport links. The use of labor-based appropriate technology (LBAT) will alsogenerate an estimated 2,000 days of employment per km of road. The road component of theProject has been subjected to a full economic analysis (paras. 12-22).

3. Livelihoods Enhancement

9. The livelihoods enhancement component will stimulate economic activity at all levels ofthe local economy: the province, district, commune, and village. The mechanisms through whichthis may be achieved vary at each level–an informal savings and credit program at the villageand commune levels, and formal credit access at the provincial and district levels. Theseelements will be combined within an integrated strategy. Agency staff will be provided with on-the-job training through NGO contracts to improve participatory processes at the village andcommune levels. At the village and commune level, savings and credit groups will beestablished, and provincial and district staff will receive training in credit planning and delivery.Communities will be made aware of linkages between the formal and informal credit markets,and credit group members will be trained in such basic areas as cash management, accounting,management, and group leadership. The overall benefits of the component will include thedevelopment of the savings discipline in communities, encouragement of community andindividual initiative, fostering of private sector development and household income-generatingactivities, boosting of new productive capacity, and creation of new job and work opportunities.

10. The Project will also fund small-scale village facilities such as crop drying and storagefacilities, and multipurpose community buildings. The benefits of such investments in suchfundamentally deprived communities will undoubtedly be substantial. These pro-poorinvestments will be established through a participatory process undertaken with the assistanceof community development specialists during implementation. There is also a special case forthe provision of small bridges, culverts, and drifts in Oddar Meanchey Province in view of itsvery low level of development and the small number of international and local agenciesproviding support. Poor roads and lack of access during the wet season are hinderingdevelopment efforts and leading to depopulation of some areas.

11. Villagers have identified water supplies as priority investments and the project willprovide funds for establishing both hand-dug ring-wells and mechanically dug boreholes (up to adepth of 80 meters). These wells will be fitted with hand pumps if requested by communities.User groups will be formed for each well and will be expected to raise funds for maintenance.Two or three group members will be trained to maintain the pump and an initial set of basicspare parts will be provided together with training in health education to improve hygiene andencourage the construction of latrines. Again the benefits of initiatives of this type areincontrovertible in the case of communities that are both very poor and have experiencedmassive social dislocation. The Project will also assist in establishing small local businesses to

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produce the squatting slabs for pit latrines and, possibly, concrete rings. Interested villagers willbe provided with the necessary technical training, assisted to identify the nearest sources ofsupplies, and assisted to access credit.

C. Economic Analysis

12. Economic analysis was limited to measuring the costs and benefits of the rural roadcomponent and the microfinance component. Benefits from the capacity-building componentand the small-scale village infrastructure, while expected to be significant, were not includedbecause of the difficulty in quantifying the benefits. In all of the following, prices are expressedin the world price numeraire.

13. The benefits of the road component were assessed at two levels: (i) expected increasein agricultural production surplus (APS), and (ii) reduction in vehicle operating costs (VOC) andvalue of time saved.

1. Agricultural Production Surplus

14. In the first Socioeconomic Development Plan (1996-2000), the Government aimed toachieve food security through a gradual increase in rice productivity. It was estimated thatduring the last five years, the country achieved a surplus in rice production every year rangingbetween 100,000 tons and 250,000 tons, or an average of about 8 percent of the totalproduction.2 The Government also lifted a ban on rice exports in December 1995, and openedexternal markets for the Cambodian rice exports. In 2000, the volume of the rice export wasabout 120,000 tons which is still about a quarter of the volume of rice exports in the 1970sbefore the long civil war.

15. As in other regions of Cambodia, agriculture in the project area is characterized by rainfedlowland agriculture with a large number of small farm households. There are good potentials foran increase in yield and cropping intensity in areas with medium to high soil productivity,particularly in the provinces of Battambang and Siem Reap. With the provision of market supportinfrastructure such as rural roads and market facilities, a gradual increase is expected inincremental agricultural production, primarily rice production for both domestic and externalmarkets. According to the current commune database data and project preparatory technicalassistance (TA) survey data, households in the project area are at present engaged primarily insubsistence agriculture, and trade surpluses are still negligible. There is a small surplusbetween paddy output (57,878 tons in 1999) and paddy consumption (57,678 tons). Theanalysis was restricted to the development and marketing of surplus paddy.3 Furthermore,because in practice microfinance loans in the project area are generally used for agriculturalpurposes, separate microfinance benefits are not included to avoid double counting. The costsof microfinance outreach financed by the Project are included, however, as they will contributeto agricultural productivity increases.

16. The economic prices for traded inputs and outputs were determined using the latestWorld Bank commodity prices. Because rice is traded in both directions across the border withThailand, an arithmetic mean of the prices of rice of varying quality (the higher quality mainly

2 The Ministry of Planning, the Royal Government of Cambodia. March 2001. The Second Five-Year Socio-

Economic Development Plan 2001-2005. Chapter 7, Draft. Phnom Penh.3 The provision of all-weather road access should also advance the development of a wide range of secondary crops

and livestock activities that will lead to further increases in farm incomes. Restricting the analysis to paddysurpluses is therefore a conservative approach.

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traded for export) was used as a basis, adjusted for internal transport, milling, and tradingmargins. Input prices were estimated in the same manner. The economic prices of nontradablegoods were based on local price information, with the application of ADB's current standardconversion factor for Cambodia (0.90). A shadow wage rate of 0.75 was used for farm andunskilled labor. The relative contributions of taxes and tradable and nontradable goods andservices to the economic prices of composite goods were determined.

17. The currently cultivated area is about 44,000 hectares (ha), and current yield usingsimple production techniques and low-quality seeds is about 1.3 tons of paddy per ha. Using a1-ha rice production model, at the current input and output levels (adjusted to economic values),the gross margin is $47.44 per ha. With increased road access, it is assumed that productionwill increase for several reasons. First, with lower costs to reach the market due to improvedroads, the net profit to farmers from increased production will increase. Farmers are expected torespond to these price incentives. Second, improved road access will increase farmers’ accessto improved technology (including improved seeds) and extension services that currently havedifficulty reaching them. The public agricultural extension services in the project area are beingsupported and expanded under the Agricultural Development Support to Seila project financedby IFAD, and the Second Cambodia-Australia Agricultural Extension Project. Further expansionof outreach in agricultural extension in Battambang Province is being proposed by the EuropeanUnion and the Government of Japan. With better road access, farmers will increasingly benefitfrom improved technology and information provided under these programs.

18. Data from the IFAD Agricultural Development Support to Seila Project indicate thatproduction per ha with improved technology and seeds can conservatively be expected to reach2.1 tons4 (Table A10.1), with a gross margin per ha of $74.46 (indicating an increase in grossmargin of $74.46 - $47.44 = $27.02 per ha). The analysis assumes that the amount of landfarmed using new technology will increase gradually, starting with 10 percent of land in year 3,and increasing by 10 percentage points each year until it reaches 80 percent in year 10.Adoption of the new technology is then assumed to increase more gradually, reaching 100percent of cultivated land in year 15. The analysis also assumes that 1,050 ha of land currentlynot cultivated will be brought into cultivation as existing farmers expand their cultivated area inresponse to price incentives and as new settlers relocate into the project area.

Table A10.1: Current and Potential Farm Gross Margins($)

Item Without Pro ject With Pro jectOutput (tons) 1.30 2.10Value of output ($) 145.16 228.91Value of inputs ($) 97.73 154.45Gross margin ($) 47.44 74.46Increase in gross margin ($) 27.02

19. The road rehabilitation component will benefit about 228,500 people in 263 villages in 31communes. They will be distributed between 10 communes in Battambang Province, 5 inBanteay Meanchey Province, 7 in Oddar Meanchey Province, and 9 in Siem Reap Province.The Project will rehabilitate and reconstruct 206 km of road in Battambang, 142 km in BanteayMeanchey, 122 km in Oddar Meanchey, and 143 km in Siem Reap. The largest shares of theincrease in agricultural surplus will occur in the poorer provinces. In the case of Siem Reap,

4 By comparison, in neighboring provinces of Thailand output is 6 tons/ha, and in the Lao People’s Democratic

Republic output is 3.1 tons/ha.

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Appendix 10, page 6

which has a relatively high average per capita income (due largely to the development of thetourist industry), the expected output will occur in the most remote areas (in Siem Reap, all-yearroads to the irrigated areas have already been built).

2. Vehicle Operating Costs and Value of Time Saved

20. Reductions in VOC and time traveled will be seen primarily in motorized vehicles.5

Following improvement in road surface conditions, VOC savings can be manifested by directreduction in carriers' costs as a result of lower levels of wear and tear on vehicles, and fuelsavings (which may be passed on to users in the form of fare and freight rate savings). Lowercharges and costs can also improve vehicle utilization rates and additional benefits can comefrom shorter journey times and shifts to less expensive modes of transport. The analysis wasdone in two stages. First, reductions in VOC and travel time were calculated for existing motorvehicle traffic (nonincremental benefits); second, benefits were calculated for induced traffic(incremental benefits). Calculations were based on data collected during the project preparatoryTA and by ILO.6 Table A10.2 presents key data and the calculations of VOC and value of timetraveled without the Project. The base data was calculated from a representative survey thatwas extrapolated to the project area. In calculating the value of time traveled, two adjustmentswere made to the wage rate. First, a conversion factor of 0.75 was used to convert the dailywage of $1 to an economic value of $0.75. Second, because surveys have shown that peoplegenerally value their travel time at 25-45 percent of their wage, the value of travel time wastaken to be 30 percent of the shadow wage rate of $0.75, or $0.23.

Table A10.2: VOC and Value of Time Traveled Without Project

Item Motorbike MotorTrailer

Car Pickup Ko yun Truck

Vehicle trips/week 50,416 130 398 5,413 1,552 1,441Average time/trip (min) 84 60 228 202 148 274Average distance/trip (km) 21.10 9.92 56.90 50.45 12.35 68.43Passengers/vehicle/trip 3 2 9 12 14 5Road use (weeks/year) 35 35 35 35 35 35Total travel time/year (person-days) 837,725 1,301 56,115 915,918 226,422 138,060Wage/day (economic cost, $) 0.75 0.75 0.75 0.75 0.75 0.75Value 1-day travel time (30% of

wage, $)0.23 0.23 0.23 0.23 0.23 0.23

Value yearly travel time ($) 188,488 293 12,626 206,082 50,945 31,063VOC ($/km) 0.07 0.10 0.06 0.15 0.24 0.36VOC ($) 2,749,748 4,585 50,979 1,409,813 161,394 1,227,039km = kilometers, Koyun = small-size tractor, min = minutes, VOC = vehicle operating cost.

21. Calculating the reduction in VOC due to improved roads is an imprecise science at best.However, some indications given by the World Bank 1994 study show that, for every $1 notinvested in road maintenance, VOC increases by $2 to $3. A study in Battambang showed that,when 10 km of road was rehabilitated, taxi fare for that 10-km route fell from $4.09 to $1.14. Forthe purposes of this analysis, it was conservatively estimated that VOC will fall by 20 percent

5 To avoid double counting of increases in APS due to reduced transport costs, the following analysis refers only to

passenger costs.6 “Vehicle Operating Cost Study”, ILO Upstream Project CMB/97/MO2/SID, presented in a seminar in Sisophon,

August 2001.

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per km traveled for each vehicle type. It was also assumed, depending on the type of vehicleused, that travel time will decrease on improved roads, leading to time savings valued as inpara. 20. Table A10.3 presents the nonincremental benefits.

Table A10.3: VOC and Value of Time Traveled—Nonincremental Benefits

Motorbike MotorTrailer

Car Pickup Ko yun Truck

Vehicle trips/week 50,416 130 398 5,413 1,552 1,441Average time/trip (min) 42 40 114 101 74 137Average distance/trip (km) 21 10 57 50 12 68Passengers/vehicle/trip 3 2 9 12 14 5Weeks 35 35 35 35 35 35Total travel time/year (person -days) 418,862 868 28,058 457,959 113,211 69,030Wage/day (economic value, $) 0.75 0.75 0.75 0.75 0.75 0.75Value 1-day travel time (30%, $) 0.23 0.23 0.23 0.23 0.23 0.23Value yearly travel time ($) 94,244 195 6,313 103,041 25,472 15,532Nonincremental value time saved 94,244 98 6,313 103,041 25,472 15,532VOC ($/km) 0.06 0.08 0.05 0.12 0.19 0.28VOC ($) 2,199,798 3,668 40,783 1,127,850 129,115 981,631Nonincremental VOC saved 549,950 917 10,196 281,963 32,279 245,408Koyun = small-size tractor, VOC = vehicle operating cost.

22. Incremental usage and benefits are expected to occur as people currently using non-motorized modes of transportation (e.g., bicycles, ox carts, and walking) switch to motorizedtransport, and as existing users of motorized transport increase their usage. Calculation ofincremental benefits was based on the foregoing parameters and on the projections ofincreased usage of various modes of transport as follows:

Vehicle T ype Increased Usa ge Pro jected (%) Motorbike 22% Motor trailer 17% Car 40% Pickup 28% Koyun 24% Truck 32%

It is also assumed that there is a linear demand curve for road travel, so the incremental userswill gain a net benefit equal, on average, to half that of the nonincremental users.

3. Results

23. The base case shows an economic internal rate of return (EIRR) of 19.79 percent. TableA10.4 presents the full analysis and the EIRR for the base case. Table A10.5 presents theresults of sensitivity analysis. The analysis shows that all costs would have to increase by 38percent, or benefits alone would have to be reduced by 28 percent, to reduce the EIRR to 12percent. Only in the two combination scenarios does the EIRR fall below 12 percent. In the casein which all benefits are reduced by 20 percent and all costs are increased by 20 percent, theEIRR falls marginally below 12 percent, to 10.26 percent. Clearly, the worst case scenario in theproject is if the funding for road maintenance does not materialize as programmed. If funding is

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only 50 percent of the planned, it is projected that benefits will fall substantially and reduce theEIRR to 7.17 percent.

Table A10.4: Calculation of EIRR—Base Case ($)

Cost Benefits

Year Road andMicrofinance

Costs

Travel Time Savings

VOCSavings

AgriculturalProducers

Surplus

Net Benefits

2002 0 0 0 0 02003 3,440,932 85,644 435,976 0 (2,962,911)2004 4,173,605 187,063 952,263 35,792 (3,093,712)2005 3,790,679 276,313 1,406,596 143,413 (2,105,016)2006 343,348 276,313 1,406,596 371,072 1,569,9732007 731,745 276,313 1,406,596 600,271 1,410,7752008 830,970 276,313 1,406,596 831,010 1,542,2892009 754,425 276,313 1,406,596 1,063,290 1,851,1142010 193,095 276,313 1,406,596 1,297,110 2,646,2642011 731,745 276,313 1,406,596 1,531,497 2,342,0012012 830,970 276,313 1,406,596 1,728,714 2,439,9932013 754,425 276,313 1,406,596 1,850,454 2,638,2782014 193,095 276,313 1,406,596 1,886,976 3,236,1312015 731,745 276,313 1,406,596 1,960,020 2,770,5252016 830,970 276,313 1,406,596 2,118,283 2,829,5622017 754,425 276,313 1,406,596 2,191,327 2,979,1522018 193,095 276,313 1,406,596 2,313,068 3,662,2222019 731,745 276,313 1,406,596 2,313,068 3,123,5722020 830,970 276,313 1,406,596 2,313,068 3,024,3472021 754,425 276,313 1,406,596 2,313,068 3,100,892

EIRR 19.79%

EIRR = economic internal rate of return; VOC = vehicle operating cost.

Table A10.5: Results of Economic and Sensitivity Analyses

Item Change EIRR (%) Switching Value (%)Base case 0 19.79 -Agricultural producers surplus -20% 17.82 -68VOC and time savings -20% 16.37 -46All benefits -20% 14.25 -28All costs +20% 15.21 +38Delay in Benefits 2 years 12.67 -Combination 1:All benefitsAll costs

-20+20

10.26 -

Combination 2:Funding of maintenance costsAll benefits years 2-5All benefits years 6 onward

-50%-30%-50%

7.17 -

- = not applicable, EIRR = economic internal rate of return, VOC = vehicle operating cost.

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D. Financial Analysis

24. The 1-ha farm model was used to analyze the incentives that farmers have for switchingto improved agricultural technology and increasing production once improved roads haveincreased access to markets. The financial gross margin per hectare increases by $24.23, from$35.67 to $59.90 (an increase of 68 percent). Hence, farmers have a strong incentive tobehave as projected in the analysis. The financial internal rate of return under the differentscenarios is in Table A10.6.

Table A10.6: Results of Financial and Sensitivity Analyses

Item Change FIRR (%) Switching Value(%)

Base case 0 18.68 -Agricultural producers surplus -20% 16.97 -68VOC and time savings -20% 14.95 -36All benefits -20% 13.08 -24All costs +20% 14.04 +31Delay in Benefits 2 years 11.79 -Combination 1:All benefitsAll costs

-20+20

9.03 -

Combination 2:Funding of maintenance costsAll benefits years 2 to 5All benefits years 6 onward

-50%-30%-50%

6.12 -

- = not applicable, FIRR = financial internal rate of return, VOC = vehicle operating cost.

75