World Bank Funds KP Roads Recovery

Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 61615-PK
EMERGENCY PROJECT PAPER
ON A
PROPOSED GRANT
IN THE AMOUNT OF US$ 8.0 MILLION
UNDER THE KP/FATA/Balochistan Multi Donor Trust Fund
TO THE
ISLAMIC REPUBLIC OF PAKISTAN
FOR A
KHYBER-PAKHTUNKHWA EMERGENCY ROADS RECOVERY PROJECT (KP ERRP)
July 21, 2011
This document has a restricted distribution and may be used by recipients only in the
performance of their official duties. Its contents may not otherwise be disclosed without World
Bank authorization.
PublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorizedPublicDisclosureAuthorized

CURRENCY EQUIVALENTS
(Exchange Rate Effective May 23, 2011)
Currency Unit = Pakistan Rupees (Rs.)
85.5731 = US$ 1.00
US$ 0.011686 = Rs. 1.00
FISCAL YEAR
July 31 – June 30
ABBREVIATIONS AND ACRONYMS
AADT Average Annual Daily Traffic
ACS Additional Chief Secretary
ADB Asian Development Bank
B/C Benefit Cost Ratio
BP Bank Procedure
C&WD Communications and Works Department
CPS Country Partnership Strategy
CQS Selection Based on Consultants’ Qualifications
DA Designated Account
DFID Department For International Development
DNA Damage Needs Assessment
DPD Deputy Project Director
EA Environmental Assessment
EIRR Economic Internal Rate of Return
EMP Environmental Management Plan
EPA Environmental Protection Agency
ERKP Economic Revitalization of KP and FATA Project
ERRP Emergency Roads Recovery Project
ERP Emergency Recovery Project
ESSAF Environmental and Social Screening and Assessment Framework
ESFP Environmental and Social Focal Point
ESMPs Environmental and Social Management Plans
FATA Federally Administered Tribal Areas
FBS Fixed Budget Selection
FHA Frontier Highways Authority
FIDIC International Federation of Consulting Engineers
FIU Field Implementation Unit
FOI Freedom of Information
FY Fiscal Year
GEF Global Environment Facility
GoB Government of Balochistan
GoKP Government of Khyber-Pakhtunkhwa
GOP Government of Pakistan
GPS Global Positioning System

GRC Grievance Redressal Committee
HQ Headquarters
IA Implementing Agency
IBRD International Bank for Reconstruction and Development
ICB International Competitive Bidding
ICR Implementation Completion Report
IDA International Development Association
IDP Internally Displaced Persons
IED Improvised Explosive Device
IFC International Finance Corporation
IFRs Interim Financial Reports
IRI International Roughness Index
Km Kilometer
KP Khyber-Pakhtunkhwa
LAC Land Acquisition Collector
LCS Least Cost Selection
M&E Monitoring and Evaluation
MD Managing Director
MDTF Multi Donor Trust Fund
NAS Narcotics Affairs Section
NCB National Competitive Bidding
NDMA National Disaster Management Authority
NGO Non Governmental Organization
NHA National Highways Authority
NPV Net Present Value
NWFP North West Frontier Province
OCC Opportunity Cost of Capital
OP Operational Policy
ORAF Operational Risk Assessment Framework
PAP Project Affected Persons
PaRRSA Provincial Rehabilitation, Reconstruction and Settlement Authority
PC Planning Commission
PC-1 Planning Commission Performa 1
PCNA Post Conflict Needs Assessment
PD Project Director
PDO Project Development Objective
PIO Project Information Officer
PMU Project Management Unit
PSC Provincial Steering Committee
QCBS Quality and Cost Based Selection
QCS Quality Control Specialist
RP Resettlement Plan
RE Resident Engineer
RVP Regional Vice President
SA Social Assessment
SMEs Small and Medium Enterprises
SAR South Asia Region
SCF Standard Conversion Factor
SERF Standard Exchange Rate Factor

PAKISTAN
Khyber-Pakhtunkhwa Emergency Roads Recovery Project (KP ERRP)
CONTENTS
Page
A. Introduction.........................................................................................................................9
B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed
Bank Emergency Project.............................................................................................................9
C. Bank Response: The Project .............................................................................................11
D. Appraisal of Project Activities..........................................................................................15
E. Implementation Arrangements and Financing Plan..........................................................18
F. Lessons Learned and Reflected in the Project Design......................................................21
G. Project Risks and Mitigating Measures.............................................................................22
H. Terms and Conditions for Project Financing ....................................................................23
Annex 1: Detailed Description of Project Components...........................................................24
Annex 2: Results Framework and Monitoring.........................................................................25
Annex 3: Summary of Estimated Project Costs.......................................................................27
Annex 4: Operational Risk Assessment Framework (ORAF) ................................................29
Annex 5: Financial Management and Disbursement Arrangements.....................................32
Annex 6: Procurement Arrangements ......................................................................................36
Annex 7: Implementation and Monitoring Arrangements .....................................................41
Annex 8: Project Preparation and Appraisal Team Members...............................................47
Annex 9: Environmental and Social Safeguards Framework.................................................48
Annex 10: Economic and Financial Analysis............................................................................53
Annex 11: Documents in Project Files.......................................................................................63
Annex 12: Statement of Loans and Credits ..............................................................................64
Annex 13: Country at a Glance..................................................................................................67
Annex 14: Maps...........................................................................................................................68

Basic Information
Country Director: Rachid
Benmessaoud
Sector Manager/Director: Michel
Audigé/John Henry Stein
Team Leader: Zafar Iqbal Raja
Project ID: P125584
Expected Effectiveness Date: July 31,
2011
Lending Instrument: Multi-Donor Trust
Fund (MDTF)
Sectors:
TA Roads & Highways (73%)
JB Other Social Services (18%)
BV Public Administration –
Transportation (9%)
Themes:
58 Conflict Prevention and Post-
Conflict Reconstruction (100%)
Environmental Category: B
Expected Closing Date: June 30, 2014
Project Financing Data
[ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other:
Proposed terms:
Financing Plan (US$m)
Source Total Amount (US $m)
Total Project Cost:
Multi-Donor Trust Fund:
Borrower:
Total Project Financing:
US$ 8.0
8.0
-
8.0
Client Information
Recipient: Government of Pakistan
Responsible Agency: Frontier Highways Authority (FHA)
Contact Person: Mr. Zahid Arif, Managing Director, FHA
Telephone No.: 92-91-9210557
Fax No.: 92-51-9210434
Email: zahidArif1@hotmail.com
Estimated disbursements (Bank FY/US$m)
FY FY12 FY13 FY14
Annual 3.0 4.0 1.0
Cumulative 3.0 7.0 8.0
Project Development Objective and Description
Project development objective: The Project Development Objective (PDO) is to enable the population
along the Project corridor to benefit from year round improved access and mobility through
reconstruction of priority damaged roads and bridges in the conflict hit areas.
Project description:
The project aims to rehabilitate priority corridors or segments of the main roads in the Swat District of
the province of Khyber-Pakhtunkhwa (KP) with a view to improve access and mobility. The Project has
the following two components:

Component 1: Infrastructure Rebuilding – this consists of civil works along the provincial highway S-
3B (Chakdara-Madyan on the Right Bank of River Swat) comprising:
a. Reconstruction and widening of about 10.5 km of highway, including related structures from
Sharif Abad (Km 30+424) to Kanju (Km 40+924); and
b. Associated relocation of utilities, land acquisition and resettlement.
Component 2: Project Management – this includes support for:
a. Contract administration & construction supervision consultant services;
b. Environmental & social safeguards consultant services; and
c. Incremental operating costs.
Safeguard and Exception to Policies
Safeguard policies triggered:
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Forests (OP/BP 4.36)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Indigenous Peoples (OP/BP 4.10)
Involuntary Resettlement (OP/BP 4.12)
Safety of Dams (OP/BP 4.37)
Projects on International Waters (OP/BP 7.50)
Projects in Disputed Areas (OP/BP 7.60)
[X]Yes [ ] No
[ ]Yes [X] No
[ ]Yes [X] No
[ ]Yes [X] No
[ ]Yes [X] No
[ ]Yes [X] No
[X]Yes [ ] No
[ ]Yes [X] No
[ ]Yes [X] No
[ ]Yes [X] No
Does the project require any exceptions from Bank policies?
Have these been approved by Bank management?
[X]Yes [] No
[X ]Yes [] No
Conditions and Legal Covenants:
Grant Agreement Reference Description of Condition/Covenant Date Due
Section 5.01 of the Grant
Agreement
Unless the Project Implementing Entity
has prepared, submitted to the World
Bank for review and approval, adopted,
and locally disclosed an Environmental
Management Plan and a Resettlement
Plan in accordance with the provisions of
Section I.D.2 of the Schedule to the
Project Agreement.
By Effectiveness
Section I.A.9 of the Schedule to
the Project Agreement
The Project Implementing Entity shall
appoint and thereafter maintain,
throughout Project implementation, a
Project Engineer, with qualifications,
experience, and terms of reference
satisfactory to the World Bank for
purposes of Project implementation, for
purposes of contract management and
construction supervision in relation to
works under the Project.
not later than one (1)
month after the Signing
Date

Section I.D.6(a) of the
Schedule to the Project
Agreement
appoint a consultant, with qualifications,
experience, and terms of reference
satisfactory to the World Bank for
purposes of Project implementation, for
purposes of independent monitoring of
the following environmental quality
parameters at locations identified in the
Environmental Management Plan:
(i) ambient air quality; (ii) ground and
surface water quality; and (iii) noise
levels
not later than one (1)
month after the Signing
Date
Section I.D.6(b) of the
Schedule to the Project
Agreement
appoint a consultant each, with
qualifications, experience, and terms of
reference satisfactory to the World Bank
for purposes of Project implementation,
for purposes of independent monitoring
and validation of implementation of the
Environmental Management Plan and the
Resettlement Plan, respectively.
not later than eight (8)
months after the Signing
Date
Section IV of the Schedule to
the Project Agreement
prepare and furnish to the Recipient and
the World Bank, progress reports
covering the month, in form and
substance satisfactory to the World Bank,
on the implementation of works under
the Project.
not later than two (2)
weeks after the end of
each calendar month
Standard Financial Management,
Procurement and Monitoring and
Evaluation Covenants

9
A. Introduction
1. This Project Paper seeks the approval of the Regional Vice President (RVP) to provide a GRANT
under the Multi Donor Trust Fund (MDTF) in an amount of US$ 8.0 million to THE ISLAMIC
REPUBLIC OF PAKISTAN for KHYBER-PAKHTUNKHWA EMERGENCY ROADS
RECOVERY PROJECT.
2. The proposed GRANT would help respond to the post-conflict situation by carrying out
emergency rebuilding of priority roads infrastructure damaged during the conflict in the Province
of Khyber-Pakhtunkhwa (KP). The proposed project focuses on early recovery priorities agreed
between the Government of Khyber-Pakhtunkhwa (GoKP) authorities and the World Bank as the
administrator of the MDTF. The Project supports the Pillar1: Restoration of Damaged
Infrastructure and Disrupted Services of the MDTF Financing Strategy. Given the deep crisis
situation, exacerbated by the 2010 devastating floods, the main focus of the first set of priorities is
restoration/improvement of pedestrian and vehicular access to some of the KP’s poorest
neighborhoods in the Swat Valley.
3. The proposed project consists of: Component 1 – Infrastructure Rebuilding involving
reconstruction/improvement of strategic roads and bridges; and Component 2 – Project
Management providing support for contract administration/construction supervision and
safeguards related consultant services and incremental operating costs. The expected outcome is
improved traffic flow resulting in reduced vehicle operating costs and travel time for beneficiaries
using the road. For measurement of the output, length of roads reconstructed (km) and number of
bridges reconstructed/repaired has been identified as the key indicators. The anticipated results
will support Governmental efforts to help maintain minimal economic activity and improve social
and political stability in the province. The project will be implemented by the Frontier Highways
Authority (FHA), an autonomous roads organization of the GoKP.
B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed Bank
Emergency Project.
4. Pakistan’s strategic location at the crossroads of South Asia, Central Asia, China and the
Middle East has also brought its own set of challenges in the form of overlapping religious
and national identities, contested geographical boundaries and sharply contrasting
ideological orientations – factors which have sometimes contributed to generating conflicts
that have deeply affected Pakistan. The provinces of Balochistan, Khyber-Pakhtunkhwa and
Federally Administered Tribal Areas (FATA) are strategically located along the Pakistan-
Afghanistan border. The region presents the challenges of arduous mountainous terrain with
equally difficult access. Tribalism is rooted deeply in this region. During the last two hundred
years of colonialism, the region became a buffer zone in the struggle between global powers in
Central Asia to the North and those in the Subcontinent to the South and was, as a result, further
isolated and remained severely under-developed. For these reasons, the post-9/11 war against
terrorism that started in Afghanistan has also been localized in this region. Some militants from
Afghanistan were pushed into the region and attempted to establish themselves as a local power
in collaboration with indigenous ideological partners. Over time, militant groups tried to push
further east across the settled districts of KP.
5. In early 2009, the Government of Pakistan (GOP) launched major military operations to
root out the local pockets of militants’ support in the KP Province and FATA. Starting from
the valley of Swat, bordering the tribal areas, the military operations have gradually moved
westward and now seem poised to take on the last strongholds of the militancy in the Waziristan

10
agencies. The inadvertent consequences of routing out militancy with military operations led to
large scale internal population displacement. An immense cost has been exacted from the local
economy as large numbers of people have lost their homes and livelihoods; and significant
damage has been caused to the physical and social infrastructure.
6. The military operation led to displacement of about 3 million individuals in KP and FATA.
About 7 percent of displaced families moved to camps, the rest occupying schools, public buildings and
living with host families mostly in FATA, Swabi and Mardan. While the majority of the internally
displaced persons (IDPs) have returned to their places of origin, many have lost their homes and
livelihoods. Those who stayed behind have suffered equally and tend to be just as poor and vulnerable as
the IDPs.1
The conflict has imposed a huge economic cost, on top of the obvious human tragedy. The
crisis affected areas constitute 15% of the combined area of KP and FATA, are home to about 18% of the
population, and account for some 17% of the value added.
7. Even after successful completion of military operations, large parts of FATA and KP still
await major economic activity which is essential for building people stakes in sustainable
peace. Geographical location of the area gives it added advantage to reap the benefits of regional
trade by acting as a gateway to Central Asian Republics. Importance of transport infrastructure
and services is a must in realization of these goals.
8. The transport sector in the crisis area of KP solely depends on the road network. In KP, the
road network in the five crisis affected districts consists of 198 km of National Highways and 145
km of Provincial Highways managed by the respective National Highway Authority (NHA) and
Frontier Highway Authority (FHA). The remaining road network consists of 5,156 km of district
roads of which about 2,000 km are paved and managed by Works and Services Department
(W&SD) and Local Government. Due to maintenance neglect, about three quarter of these roads
have poor to bad condition. In addition to aforementioned road network in KP, there are streets in
urban areas and community roads in rural areas. Swat district in KP has the lowest road density
(0.2 km/sq.km) amongst the affected areas.
9. The military operations led to significant damage to roads infrastructure. The damage
during the conflict crisis in road sector consists of damages to (a) bridges, cross drainage
structures, retaining and slope protection structures; (b) potholes and ditches in pavement due to
shelling or Improvised Explosive Devices (IEDs); (c) road formation damage due to tracks of
tanks; and (d) pavement damage due to temporary blockades on roads.
10. The roads infrastructure has also been severely damaged by the recent floods – worst in
over 80 years. According to the National Disaster Management Authority (NDMA) the
rains/floods had affected over 20 million people with over 1,800 reported deaths. Damages to the
road infrastructure vary from the mountainous northern region to the plains in the southern
provinces. In KP, the damages are dramatic and much more visible due to strong flow of rivers
that washed away sections of roads, embankments, and structures including bridges. The high
speed water-flow eroded riverbanks and bridges, widened rivers that now require longer bridges,
and caused landslides that washed away sections of roads requiring realignment.
Government Response, Damage and Needs Assessment and Partnership Arrangements
1
Based on the household survey data analysis reported by ‘Food Security and Market Assessment in Crisis Affected
Areas of KP and FATA’, World Food Program, 2010.

11
11. In the face of the crises that have confronted KP and FATA, the federal and provincial
governments have embarked on rapid post-crisis recovery and reconstruction efforts in
collaboration with international and national humanitarian agencies. Since the beginning, donor
support has been coordinated by the Planning Commission (PC) at the Federal Level, while, the
Provincial Rehabilitation, Reconstruction and Settlement Authority (PaRRSA) was established to
coordinate and implement these initiatives for both KP and FATA.
12. The GOP also has launched various assessments for strategic medium to long term support for
the region. A Damage and Needs Assessment (DNA) was completed in 2009 with the Asian
Development Bank (ADB) and World Bank support covering the areas first affected by the GOP’s action
to combat the militants2
and a subsequent Post Crisis Needs Assessment (PCNA) was completed in
October 2010 with the assistance of ADB, European Union (EU), United Nations (UN) and WB. The
PCNA assessed and quantified the short and medium term social and economic needs of the region.
13. The PCNA provides the underpinning for long term peace building in KP and FATA. Drawing
on extensive stakeholder consultations, the Report identifies key crisis drivers and the consequent priority
areas that need to be addressed to support a coherent and durable peace-building strategy. The key
strategic objectives of the PCNA are: (i) enhance responsiveness and effectiveness of state to restore
citizen trust; (ii) stimulate employment and livelihood opportunities; (iii) ensure provision of basic
services; (iv) counter-radicalization and reconciliation. The Project builds on the third strategic objective
of the PCNA.
14. The PCNA also suggested the establishment of a PCNA Federal Steering Committee with the
Prime Minister as the Chair. The PCNA assessment itself was completed through an institutional
structure led by the Strategic Oversight Council (SOC) chaired by the Prime Minister3
. The SOC
continues as the strategic apex, with the KP and FATA Secretariats represented by the respective
Additional Chief Secretaries, over and above the Chief Minister, the Governor other political, civil and
military representatives. Furthermore, the Secretariats have developed two respective Steering
Committees, one for KP and the other for FATA, also referenced in the PCNA implementation
institutional framework.
C. Bank Response: The Project
Brief description of Bank’s Strategy of Emergency Support
15. In order to respond to the KP-FATA 2009 DNA, and subsequent PCNA 2010 Report, the Bank
has established, with support from a variety of development partners, the MDTF for the crisis
affected areas of KP, FATA and Balochistan. The MDTF is supporting the implementation of a
program for reconstruction and development aimed at facilitating rapid recovery from the impact of the
armed conflict and reducing the potential for escalation or resumption. The MDTF is mobilizing donor
support to finance critical investments in support of reconstruction and peace building in crisis affected
areas. To date ten donors have contributed a total of US $140.0 million for the MTDF (Australia,
Denmark, European Union, Finland, Germany, Italy, Sweden, Turkey, UK, and USA). The MDTF
provides flexibility to finance stand-alone projects or program activities, including those co-financed by
the government, bilateral or multilateral agencies.
16. There are four MDTF financing strategy pillars:
a. Restoring Damaged Infrastructure and Disrupted Services
2
Swat, Upper and Lower Dir, Buner, Shangla, Mohmand, and Bajaur.
3
Supported by a Steering Committee and PCNA Secretariat

12
b. Improving Governance and Service Delivery
c. Supporting Livelihood and Creating Employment Opportunities
d. Building Capacity and Institutional Strengthening.
17. The Government and the Bank as administrator of the MDTF have agreed on the first set of
priorities and allocations amongst sectors as well as within the crisis affected areas. Allocations
under pillars are: 15% Pillar-I, 20% Pillar-II, 49% Pillar-III, and 16% Pillar-IV. And, allocations within
the crisis affected areas are: 53% KP, 35% FATA and 12% Balochistan. There are nine projects to be
financed from Round-1 resources of the MDTF.
18. A US$ 20.0 million ‘Economic Revitalization of KP and FATA Project’ (ERKF) has been
approved. It is supporting the GOP in the economic recovery and revitalization of the crisis affected
areas of KP province and FATA, by creating sustainable employment opportunities through rehabilitation
of Small and Medium Enterprises (SMEs), investment mobilization, and institutional capacity building. In
parallel, the Bank provided an IDA Credit of US$ 250.0 million – supplemented by US$ 35.0 million
MDTF Grant through the KP-FATA ‘Emergency Recovery Project’ (ERP) to finance cash transfer to
conflict-affected households in the KP and FATA.
19. The proposed US$ 8.0 million ‘Emergency Roads Recovery Project’ (ERRP) is financing the
reconstruction of priority road infrastructure in the Swat Valley of KP. The ERRP is supporting the
Pillar1: Restoration of Damaged Infrastructure and Disrupted Services of the MDTF Financing Strategy.
Given the deep crisis situation, exacerbated by the recent devastating floods, one focus of the first set of
priorities is restoration of access to crisis affected areas in KP.
20. The following Project is also at advanced stages of preparation: Governance Support Project
(US$ 6.0 million).
21. Five projects are under discussion: (a) Balochistan Education Support Project (US$ 10.0 million);
(b) FATA Micro-Enterprises and Urgent Community Needs (US$ 8.0 million); (c) FATA Rural Roads
Project (US$ 12.0 million); (d) Strengthening Health Services in Crisis affected Districts of KP (amount
to be decided); and (e) FATA Urban Centers Project (FUCP) Program (US$ 7.0 million).
22. The MDTF Secretariat has been asked to lead an initiative to develop a 3-5 year costed work
plan to operationalize PCNA recommendations. At the Second Steering Committee Meeting held on
April 27, 2011, the Steering Committee requested that further assistance to be channeled through the
MDTF be based on a 3-5 year costed work plan to operationalize the PCNA recommendations, which will
become the PCNA Program.
23. Finally, the Bank as administrator of the MDTF will continue to provide advisory support,
critical for the success and sustainability of the overall response to the crisis. This includes sharing
best practices in terms of institutional arrangements to ensure the best possible delivery mechanisms and
sound governance arrangements including tracking of fund flows, procurement practices, grievance
mechanisms, and monitoring and evaluation systems, to ensure accountability and transparency.
Rationale for Proposed Emergency Project
24. The GOP has requested MDTF assistance to help respond to the emergency situation resulting
from the militancy. The challenges of the emergency require mobilization of a significant amount of
resources in a timely manner to limit the negative effects of the shock and to immediately revive
economic activities in the crisis-affected areas.

13
25. Floods in the Swat River have destroyed seven bridges on National Highway N-95 from
Chakdara to Kalam and have washed out a 27 km stretch from Madyan to Kalam, which requires
realignment and reconstruction. N-95 which is on the left bank of the Swat River links Saidu Sharif
(the capital of Swat) with rest of the country and serves as economic lifeline for people of Swat who are
presently cut-off. Efforts are underway to construct a jeepable track. From Km 93 (Madyan) to Km 106
(Bahrain) and from Km 125 to Km 135 (Kalam) a jeepable track has been completed. Work is underway
to complete the remaining portion from Km 106 to Km 125. The GOP is exploring funding for
reconstruction of this National Highway through the ADB as well as the World Bank.
26. The proposed Project is on a Provincial Highway S-3B which is on the right bank of the Swat
River, which is the area of significant war damage caused by the militants. The United States
Government is providing US$ 15.0 million4
for reconstruction of about 42 kms of S-3B from Kanju to
Madyan. The proposed Project is financing about 10.5 kms from Kanju to Sharif Abad. The proposed
ERRP aims to rehabilitate priority damaged roads and bridges in the conflict hit areas of the Swat District
of KP to fully operational conditions that guarantee 24 hours and 7 days (24/7) access with a view to
improve access and mobility. The expected outcome is improved traffic flow resulting in reduced vehicle
operating costs and travel time for beneficiaries using the road. For measurement of the output, length of
roads reconstructed (km) and number of bridges reconstructed/repaired has been identified as the key
indicators.
27. As an administrator of the MDTF, the Bank is well placed to help Pakistan cope with these
challenges due to its substantial international and regional experience (including in post conflict
situation response) in generating immediate and long term sustainable job opportunities through
economic growth initiatives. The World Bank has designed infrastructure rebuilding projects in
conflict/flood/tsunami affected areas in the region and globally. For example, in Republic of Togo
(Emergency Infrastructure Rehabilitation and Energy Project), Republic of Liberia (Emergency
Infrastructure Project), Republic of Haiti (Infrastructure and Institutions Emergency Recovery Project),
Sri Lanka (Transport Emergency Recovery Project) and Pakistan (Additional financing for reconstruction
of Road Damaged By 2005 Earthquake). These are all examples where the Bank Group has quickly
responded to the needs of the emergency.
Project Development Objectives
28. The Project Development Objective (PDO) is to enable the population along the Project corridor
to benefit from year round improved access and mobility through reconstruction of priority
damaged roads and bridges in the conflict hit areas.
Summary of Project Components
29. Component 1: Infrastructure Rebuilding – this consists of civil works along the provincial
highway S-3B (Chakdara-Madyan on the Right Bank of River Swat) comprising:
a. Reconstruction and widening of about 10.5 km of highway, including related structures from
Sharif Abad (Km 30+424) to Kanju (Km 40+924); and
b. Associated relocation of utilities, land acquisition and resettlement.
30. Component 2: Project Management – this includes support for:
4
Cost of ERRP is about 21% higher than the US-NAS project which was contracted out last year. Since then
petroleum and bitumen prices have increased significantly.

14
a. Contract administration & construction supervision consultant services;
b. Environmental & social safeguards consultant services; and
c. Other Project management activities through the financing of incremental operating costs.
Eligibility for Processing under OP/BP 8.0
31. ERRP is in line with the guiding principles under the Bank’s operational policy/business process
OP/BP 8.00 and addresses adverse economic impact on KP resulting from the crisis. The project is
adapted to the emergency's particular circumstances and takes into account the Bank’s assistance strategy
for the country, which highlights under the Fourth Pillar, ‘Improving Security and Reducing the Risk of
Conflict’ that the Bank will support Government to implement its strategy to promote broader and deeper
development in the conflict-affected areas of Pakistan and enhance the presence and responsiveness of the
state to citizens in these areas.
32. Moreover, the ERRP is in line with the core development and economic mandate, including peace-
building objectives and reconstruction and rehabilitation activities. For the overall MDTF, there is close
coordination and establishment of appropriate partnership arrangements with other development partners
in line with the comparative advantage and core competencies of each such partner. Additionally, there
are appropriate oversight arrangements, including governance and fiduciary oversight.
Rapid Resolution for Results
33. The Project Team may, if needed, shall utilize the newly established ‘help-desk facility’ to assist
managers and staff in resolving policy and procedural bottlenecks that they may face as they tackle
operational challenges in fragile and conflict-affected situations (FCS). The Rapid Resolution for Results
(RR4R) is now available to all staff.
Consistency with the MDTF
34. The ERRP is within the mandate and strategy of the MDTF designed to restore infrastructure,
services and livelihoods while addressing governance and other challenges that contribute to conflict.
More specifically, the proposed Project supports the Pillar1: Restoration of Damaged Infrastructure
and Disrupted Services of the MDTF Financing Strategy.
Consistency with Country Partnership Strategy (CPS)
35. The Pakistan CPS for FY10-13 recognizes that conflict and insecurity represent major obstacles to
economic development and poverty reduction. The operation is fully aligned with the CPS, falling under
both Pillar 2 – ‘Improving Infrastructure to Promote Growth’ – and Pillar 4 – Improving Security and
Reducing the Risk of Conflict’. Under Pillar 2, the CPS seeks to ‘improve efficiency and reliability of the
transport and logistics network’. And, under Pillar 4, the CPS supports ‘increased responsiveness and
effectiveness of the state’. The CPS acknowledges that coping with the causes and consequences of the
ongoing conflict in the Northwest Border region is an urgent priority for the Government and Pakistan’s
development partners. Conflict centered in KP and FATA has had severe human and economic
consequences in areas ranking amongst the poorest in Pakistan. The persistence of conflict in KP and
FATA poses a threat to some of the most vulnerable and marginalized populations in Pakistan, while also
challenging economic stability across the country.
Expected Outcomes

15
36. The proposed Project aims to rehabilitate priority damaged roads and bridges in the conflict hit
areas of the Swat District of KP to fully operational conditions that guarantee 24 hours and 7 days
(24/7) access with a view to improve access and mobility. The Project would benefit about
300,000 persons.
37. The expected outcome is improved traffic flow resulting in reduced vehicle operating costs and
travel time for beneficiaries using the road. For measurement of the output, length of roads
reconstructed (km) and number of bridges reconstructed/repaired has been identified as the key
indicators.
D. Appraisal of Project Activities
Economic and Financial Analysis (Annex-10)
38. The cost-benefit analysis was carried out using the “Discounted Cash Flow Technique”.
Economic measures like “Net Present Value (NPV)”, “Benefit Cost Ratio (B/C Ratio)” and
“Economic Rate of Return (EIRR)” have been worked out. The results indicate that the proposed
investment is economically justified:
a. NPV = US$ 13.98 million (Rs 1,196.89 million)
b. B/C Ratio = 3.14:1
c. EIRR = 29.87%
39. These results are robust to the sensitivity analysis that has been carried out.
Technical
40. The civil works proposed under the Project are based on proven engineering designs and
construction techniques that are well within the capability of the implementing agency and the
private sector. Designs, technical specifications and procurement documents have been prepared
under the guidance of experienced consultants working in close coordination with FHA. Civil
works will be constructed to internationally accepted standards and supervised by experienced
consultants.
Fiduciary
41. Financial Management (Annex-5): FHA has implementation experience of one ADB funded
Project. However, FHA has no prior experience of implementing a World Bank or MDTF
financed Project. Therefore, the inherent risk for the Project is “High”. The Finance Section of the
FHA will carry out Project financial management. FHA’s Finance Section is headed by a Deputy
Director (Finance) and is supported by an Assistant Director (Account) and five accounts
assistants. FHA’s Finance Section shall be further strengthened by hiring a dedicated Accountant
with foreign-aided project(s) experience. The Internal Auditor already in place shall start
reporting to the Managing Director, FHA instead of reporting to Deputy Director, (Account).
Separate books of account, on cash basis, will be maintained by FHA for the Project activities
using the New Accounting Module – Chart of Accounts. Sufficient subsidiary records will be
kept to facilitate preparation of quarterly financial reports and annual financial statements
providing details of receipts and expenditures by Project component and activities. FHA has
computerized accounting system (Peach Tree) for reports generation. Manual books are also
maintained. The accounting procedures of FHA have been reviewed and approved by Controller
General of Accounts. Segregation of duties amongst existing staff strengthened by experienced

16
Project Accountant to be recruited from the market and direct reporting of Internal Auditor to the
MD, FHA shall strengthen the internal controls. In accordance with the revised accounting
procedures for Revolving Fund Accounts (Foreign Currency Assignment Account) referred as the
Designated Account (DA) by the World Bank, issued by the Finance Division, Government of
Pakistan on June 30, 2010, a segregated DA would be opened by FHA in which the funds would
be received from the MDTF to be used for exclusively for the ERRP eligible expenditures. The
account would be jointly operated by two senior officials of the FHA. Initial advance into the DA
will be provided by the Bank on the basis of forecast for the first two quarters, which will be
replenished quarterly on the basis of actual expenditures incurred from the DA and cash forecast
for the following two quarters. Withdrawals for the Project would be ‘Report – Based’ (Interim
Financial Reports – IFRs), which will allow for adequate funds to be at the FHA’s disposal based
on its cash forecast for two calendar quarters in advance. The quarterly IFRs shall be provided
within forty five days of end of each quarter. The format of IFRs shall be agreed during
negotiations of the project. Internal audit of the Project will be carried out by the Internal Auditor
who will report directly to the Principle Accounting Officer i.e. MD, FHA. The head of Finance
Department will keep the track of the actions taken on the audit opinions/observations and
regularly (at least quarterly) report the progress to the Principle Accounting Officer with a copy
to the Bank. External audit of the project will be conducted by the Supreme Audit Institution, i.e.,
the Office of the Auditor General of Pakistan which is acceptable to the Bank. Acceptable audited
financial statements will be submitted within 6 month of the close of each financial year.
Intensive FM supervision of the Project will be required. This will include training to the FHA
financial staff on the Bank requirements. Keeping in view the security situation, substantial
portion of the FM supervision activities would consist of desk review of the quarterly financial
reports, fixed assets physical verifications reports, internal and external audit reports
supplemented by the dialogue with the FHA staff.
42. There are nine IDA-financed projects in Pakistan which have not refunded or provided
documentation on the use of Designated Accounts/Special Accounts (DA/SA) after the deadline
of two months after the end of the “grace period” (i.e., the “lapsed loan” date, normally six
months after the Closing Date). Under Bank policy (OP 12.00, disbursement paragraph 12),
failure to refund unused Designated Accounts/Special Accounts balances results in the Bank not
permitting the use of DA under new loans, which term includes recipient-executed grants
financed from trust funds. Management endorsement for a waiver of the requirements of OP
12.00 has been secured for a period of 12 months ending on October 31, 2011 to allow for
continued use of DAs for loans and credits to Pakistan.
43. Procurement: (Annex-6): Procurement arrangements for the project are simple. There are two
large contracts; civil works contract estimated to cost US $ 5 m and supervision consultancy
contract estimated to cost about US $ 200,000. A very small contract for environmental
monitoring could be taken up by any commercial consulting firm, NGO or academia depending
upon the market situation. Few individual consulting contracts are also envisaged. FHA is the
implementing agency with set procurement practices, and the approving authority for all
procurements rests with MD FHA. As FHA has recently not done any Bank funded project,
procurement risk is assessed as High.
Environmental and Social Safeguards (Annex-9)
44. Environmental Aspects: Restoration of the key road link in the area and the associated increase
in long-term economic activity and the improvement in the standard of life of the people are
visualized as the major positive impacts of the proposed Project. The potentially negative impacts
are mostly related to the construction stage and include soil erosion, air quality deterioration,

17
improper disposal of spoil, contamination of soil and water, loss of natural vegetation, damage to
wild- and aquatic life, displacement of population, disturbance to people, disruption of traffic,
impacts on the health and safety of general public and workers, issues related with longitudinal
and cross-drainage, and slope stabilization. The potential impacts during the operation phase of
the road include an increase in green house gasses emissions due mainly to the increased volume
of traffic. However, most of these impacts are not likely to be irreversible, wide-spread, or
unprecedented, and can be addressed with the help of appropriately designed and effectively
implemented mitigation plan. Therefore the proposed project has been classified as Environment
Category B, in accordance with the WB Operational Policy 4.01. No other environmental
operational policy is triggered.
45. To address the potentially negative environmental and/or social impacts associated with the
projects under MDTF, the Bank has prepared an Environmental and Social Screening and
Assessment Framework (ESSAF), in accordance with the OP 8.0 for emergency operations. Since
the ERRP is being proposed under MDTF, ESSAF is applicable to this project also. The ESSAF
specifies the environmental and social assessment requirements the implementing agency will
need to fulfill before any Project under the MDTF can be implemented. The Framework also
describes the generic environmental/social monitoring and reporting requirements to be fulfilled
during the Project implementation, in addition to defining the broad institutional arrangements
required for environmental and social safeguard aspects associated with the individual projects
under the MDTF. The ESSAF has been shared with the FHA. It has been disclosed locally by the
FHA on May 17, 2011 and also at the InfoShop.
46. In accordance with ESSAF requirements, the FHA has conducted a project-specific
Environmental Assessment (EA)/Environmental management Plan (EMP) which is being
reviewed by the Bank. The EA identifies the negative environmental impacts that are likely to be
caused by the Project during its various phases, and also proposes mitigation measures to address
these impacts. The EA/EMP also proposes the institutional arrangements to manage the
environmental aspects of the project, identifies environmental monitoring requirements to ensure
the effective implementation of the mitigation measures, describes the environmental training
needs, and also specifies the reporting and documentation requirements.
47. Social Aspects: Following the requirements of ESSAF, a Social Assessment (SA)/Resettlement
Plan (RP) is being undertaken. A screening study conducted by FHA has revealed that a total of
498 persons will be directly affected and about 4,900 persons shall be indirectly affected by the
Project. Major potential adverse impacts of the Project are expected from acquisition of about 30
kanals of (mostly productive) land in rural areas to improve road curves, loss of about 1,000 trees
and crops on 40 kanals associated with land (30 kanals of land to be acquired and 10 kanals
encroached by the farmers). In urban areas the project will remain within its existing right of way
but structures constructed within the right of way will be affected. It includes 158 permanent
structures of small businesses/shops (123 structures will be affected partially and 35
significantly). It will also temporarily disrupt businesses of 358 vendors and squatters. 46 houses
will be affected (37 partially and 9 significantly), 38 boundary walls of commercial buildings will
be affected (21 partially, 13 significantly and 4 fully).
48. SA will provide a detailed inventory survey of project impacts and a census survey of the project
affected household and a social economic survey of affected population. During the SA,
extensive consultations will be carried out with affected persons/communities and other
stakeholders to take their views over the Project impacts, discuss resettlement options and
formulate compensation entitlement, relocation and rehabilitation policy for the project, and
integrate their concerns and recommendations in the highway construction. A Resettlement Plan

18
(RP) shall be developed for the Project following the Pakistan Land Acquisition Act (1894) and
the World Bank OP 4.12 on Involuntary Resettlement, in the light of broader principles laid down
in ESSAF. The RP shall take into account feedback from the consultations with the affected
communities and other stakeholders. It will provide inventory of affected assets and their
ownership status, project entitlement policy, the resettlement and rehabilitation program,
mechanisms for timely disclosure of information to the affected person and other stakeholders,
regular and meaningful consultations with affected persons and general public, their effective
participation, and grievance redress. It shall also provide detail of institutional arrangements, cost
estimates, implementation schedule, and internal and external monitoring mechanisms.
49. In addition to the Bank’s internal procedures of safeguard documents disclosure, the draft RP,
having summary of the WB Involuntary Resettlement Policy and principles, will be disclosed by
the FHA on its website. It will be shared with the stakeholders including the Revenue
Department, local Non-Governmental Organizations (NGOs), Community Support Organizations
(CSOs) and Project Affected Persons (PAPs) through their representatives and location specific
meetings. After the approval of RP by the Bank, the FHA shall again disclose it on its website,
translate it into Urdu/Pashto and share a copy of it with Affected Persons Committees. A
summary of RP will be shared with each affected House Hold (HH) through registered mail in the
form of a pamphlet in local language. Final RP will also be shared with other government
agencies involved in the resettlement especially the Revenue Department and local NGOs/CSOs.
Following the Land Acquisition Act, FHA will ensure that the Revenue Department will carry out
a step-by-step procedure of information disclosure and consultation with the affected persons
losing land, as per provisions in the law.
E. Implementation Arrangements and Financing Plan
50. Implementation Period – 3.0 Years: Estimated Construction Period – 2.0 Years; Implementing
Agency – The project has been prepared by Frontier Highways Authority (FHA) and shall be
implemented by FHA. The Authority was established under the Ordinance Notification dated
August 29, 2001. The Frontier Highways Council consists of 8 members, headed by the Chief
Minister of KP Province and meets at least once a year. The Management Board of the FHA is
headed by a Chairman, who is the Managing Director (MD) of FHA and comprises three other
members appointed by the Council. FHA is custodian of 15 Provincial Highways with a total
length of 2177 Kms.
51. Overall Oversight Arrangements. The GoKP will manage implementation of the Project through
a Provincial Steering Committee (PSC) which will provide overall guidance and oversight for the
Project and technical and administrative recommendations and/or advice as necessary. The PSC
will be headed by Additional Chief Secretary (ACS) and its core members will comprise: the
Secretary, Finance Department, Secretary, Communications and Works Department (C&WD),
Commissioner, Malakand Division, Director General, Provincial Rehabilitation, Reconstruction
and Settlement Authority (PaRRSA), Managing Director (MD), FHA, and Project Director
(ERRP) who will also act as the secretary of the PSC. Other members may be co-opted for
discussing/addressing issues as needed. The PSC will initially meet every quarter during the first
year to oversee ERRP progress. Following that, the PSC will meet every six months. The PSC
shall ensure that the KP ERRP is reflected in the KP’s FY 11/12 Annual Development Plan
(ADP) and in subsequent fiscal years budgets. The PSC shall also facilitate opening of a
segregated Designated Account (DA) in US$ at the National Bank of Pakistan in accordance with
accounting procedures for Revolving Fund Accounts (Foreign Currency Assignment Account)
issued by the Finance Division, Government of Pakistan on June 30, 2010.

19
52. In addition, a Project Steering Committee headed by MD, FHA and comprising Project Director
(ERRP), Deputy Director (North), Deputy Director (Headquarters) and Deputy Director (Finance)
will be responsible for ensuring timely and successful implementation of the Project.
53. Project Management Unit. There shall be a Project Management Unit (PMU) at FHA
Headquarters in Peshawar, headed by the Project Director (ERRP) and supported by Deputy
Director (Headquarters) and Deputy Director (Finance). The PMU functioning as the Project
Secretariat shall support the Project Steering Committee. The PMU will be responsible for overall
coordination, internal/external processing of all approvals including PC-I, procurement and
implementation of civil works, procurement and management of consultant services.
54. Field Implementation Unit. A ‘Field Implementation Unit’ (FIU) headed by Deputy Director
(North) and supported by Deputy Director (Environment) and Assistant Director (Resettlement)
shall be responsible for general administration, land acquisition, handing over of sites,
coordination with other authorities to ensure timely relocation of various utility services,
oversight of environmental safeguards, management of social safeguards, and performance
monitoring of civil works implementation.
55. Project Engineer. A professional consulting firm will be responsible for Contract Administration
& Construction Supervision. The firm will be fully empowered as the ‘Engineer’ in accordance
with International Federation of Consulting Engineers (FIDIC) stipulations. FHA will act as the
Employer. The Project Director will be designated as the Employer’s Representative. The
Resident Engineer (RE) will act as the Engineer’s Representative.
Financing Plan
56. The Project will be financed by a Grant of US$ 8.0 million from MDTF.
Years Ending June 30
US$ Million
Year 1 Year 2 Year 3
Project Costs
Investment Costs 3.0 4.0 1.0
Recurrent Costs 0.0 0.0 0.0
Total Project Costs 3.0 4.0 1.0
Financing
Government 0.0 0.0 0.0
MDTF 3.0 4.0 1.0
Total Project Financing 3.0 4.0 1.0
Bank Supervision, Monitoring, and Evaluation (M&E) Arrangements:
57. The Project’s supervision plan has been developed considering the limitation of Bank staffs’ access to
the Project area, in light of gradual deterioration in the law and order situation in various parts of KP.
Increased challenges for the Bank’s task team requires alternative ways for field supervision and
monitoring of ongoing operations, while there is limitation in supervision budget. The CPS (FY 2010-
2013) also recognizes this challenge and emphasizes that the Bank needs to find ways to enhance
supervision while mitigating the risks associated with a challenging security environment. Following the
United Nations (UN) decision to raise its security risk levels to Phase III for KP, the Bank teams have
adopted several innovative measures to continue supervision and monitoring of projects in these areas.

20
58. For the ERRP, proposed supervision mechanisms include:
a. Supervision Missions in FHA and/or Bank Premises: Six-monthly regular supervision missions
shall be fielded in the FHA Headquarters at Peshawar and/or Bank premises at Islamabad.
Participants shall include the Bank’s Task Team, FHA officials, Project Manager of the civil
works Contractor, Resident Engineer of the Construction Supervision Consultant and two
representatives of the Project Affected Persons.
b. Third Party Monitoring. For quality assurance and cross verification, a third party monitoring
team will be hired after the initial six months of implementation for an independent
assessment of the reported progress. The experience of employing third party monitoring and
the promotion of sustained beneficiary participation in projects, in collaboration with civil
society organizations, offers a viable alternative and necessary complement to Bank’s
supervision.
c. Possible Innovative Measures5
: The recently initiated pilots of the South Asia Region (SAR)
Innovation Team funded by the Governance Partnership Facility grant concluded that in the
face of emerging security conditions in several SAR countries, the Bank task teams need to
find creative ways to address challenges of field supervision. The ERRP will therefore
consider using technology such as geo-referencing through Global Positioning System (GPS)
enabled cameras for physical asset verification and mobile phones based voice messaging for
beneficiary participation, tracking and verification. While these measures cannot fully replace
the utility of actual field visits, they provide a useful alternative in crisis affected areas where
access is an issue.
d. Project M&E System: The progress in achieving the Project's objectives against the performance
indicators will be measured through a comprehensive M&E system (details are provided in
Annex 2).
e. Financing for the Supervision: To ensure the availability of sufficient resources for
implementation support, the MDTF has committed sufficient resources (about US$ 350,000)
for project preparation and supervision over three years. The Bank’s supervision team will be
led by a Senior Specialist, based in the local office, and supported by local and international
technical specialists to oversee implementation of the Project.
Communications Strategy
59. Freedom of Information Ordinance 2002 (FOI) has become effective in Pakistan since 26 October
2002. The manifested purpose of the FOI-2000 is to “provide for transparency and freedom of
information to ensure that the citizens of Pakistan have improved access to public records and for the
purpose to make the Federal Government more accountable to its citizens and for matters connected
therewith or incidental thereto.”
60. FHA has developed a draft disclosure policy (see Appendix-1 to Annex-7). FHA’s Project Director
(ERRP) will also be the Public Information Officer (PIO). The main responsibilities of PIO will include:
a. To ensure that as much information is provided suo motu to the public and project affected
persons (as per mechanism of ESSAF and RP) at regular intervals through various means of
5
Similar measures are being tried out by DFID for its ongoing projects in KP and FATA.

21
communications, including (but not limited to) C&WD web-site, notice boards, newspapers,
public announcements, media broadcasts, and any other means.
b. To deal with requests from persons seeking information and render reasonable assistance to the
persons seeking such information.
c. To ensure that PIO name, postal and street address, phone and fax numbers, and, if any,
electronic mail address are available on the website of C&WD for the general public to reach
him/her with requests for information.
61. The Project entails land acquisition and resettlement. Extensive consultations will be carried out with
local communities and project affected persons over the Project impacts, design options to avoid or
minimize resettlement impacts, compensation entitlement, relocation and rehabilitation policy for the
Project as well to incorporate their concerns and recommendations for the highway construction. The
feedback from the consultations will be taken into consideration in the resettlement planning and
implementation. Meaningful public consultations will continue through the detailed planning and
implementation process.
62. Following the grievance redressal mechanism, a Grievance Redressal Committee (GRC) will be
created and established at the Project site, which will look into all the grievance cases. The main objective
of the grievance redressal mechanism shall be to investigate charges of irregularities and complaints
received from the affectees and provide an early, transparent and fair resolution. The Project will maintain
a community complaints-management register to record grievances brought forward by affected
communities, and ensure that these are appropriately addressed.
63. The Bank will be involved in monitoring of implementation of the arrangements and particularly
actions related to the Bank supported Project, through inter alia, the following:
a. Disclosure of information will be supervised mainly through: (a) checking the frequency and
comprehensiveness of website updates, and (b) checking the distribution of materials to key
participating civil society groups & villages; and (c) checking the comprehensiveness of
information available at Public information kiosks.
b. Functioning of the complaints handling system and the system of sanctions and remedies will be
supervised mainly through: (a) periodic review of statistics based on records kept on the website
of FHA; and (b) field level checks to ensure that problems are being reported and acted upon.
F. Lessons Learned and Reflected in the Project Design
64. The Bank Group has a long history of similar projects in places like Aceh (Indonesia), Afghanistan,
Congo, South Eastern Europe, and West Bank Gaza, often in close cooperation with other parts of the
Bank Group (IDA, IFC and MIGA) and donors. This rich history of projects provides many valuable
design and implementation lessons:
a. The most critical factor for success is government commitment and ownership. Activities
proposed under the project have been identified in the PCNA, but at the same time were
separately identified by the KP and FATA authorities as initiatives they wanted to undertake as
part of their development strategies6
.
6
KP- Comprehensive Development Strategy (CDS) (2009-2015); FATA- Sustainable Development Plan (2006-
2015)

22
b. In post crisis situations, grant financing tends to be more successful than credits. With grant
financing it is possible to align incentives and outcomes, particularly when done in a "matching"
way to facilitate risk-sharing. Conversely, credit financing requires firms to be willing to assume
all the risk, in an environment that is highly uncertain.
c. The project design must be simple and flexible: Too many components can overwhelm the client
and their ability to implement the Project, and the Bank’s ability to support project
implementation can be challenged, particularly in an insecure environment.
d. Implementation capacity is often limited in post crisis scenario. This Project addresses capacity
challenges by strengthening existing capacity of FHA through outsourcing and dedicated staffing
for the Project.
65. The main lessons to date from the on-going Highways Rehabilitation Project and incorporated in the
project design include:
a. Unanticipated and unprecedented hike in international oil prices has caused a cost overrun of
US$ 110.0 million – realistic cost estimates based on latest market rates with a premium,
appraisal upon receipt of bids, 12% price contingencies to adequately cover price escalation
during civil works implementation.
b. Construction industry constraints – the local contractors’ capacity is heavily overstretched and
foreign contractors are tending to avoid Pakistan mostly on account of security situation – invite
bids through comprehensive advertisements, appraisal upon review and clearance of bids
evaluation report7
.
G. Project Risks and Mitigating Measures
Risks Risk Mitigation Measures
Risk Rating
with
Mitigation
To project development
objective
Capacity of implementing
agency and lack of timely
decision making
A dedicated Project Management Unit adequately
staffed with competent professionals shall
implement the Project. The risk of delays due to
departmental/governmental procedures remains
present. The Provincial Steering Committee shall
ensure that any such bottlenecks are promptly
addressed.
Medium-I
Project design The Project design reflects key lessons learned from
previous highway projects in Pakistan. The Project
design is simple and flexible, with manageable
components and a single implementing agency.
Low
To component results
Insufficient capacity within the
project setup to implement the
Environmental Management
The Project requires land acquisition and the civil
works contract will not be awarded unless RP/EMP
has been cleared with the Bank. The Project
Medium-I
7
The Bank has reviewed and cleared the BER. Three bids were received. FHA is ready to sign the Contract
Agreement with lowest responsive bidder.

23
Plan (EMP) and Resettlement
Plan (RA) and address relevant
issues during their
implementation leading to
delays of site-handover
includes arrangements for:
d in the Supervision Consultant and Civil Works
In addition, the Bank shall carry out training and
capacity building.
Project delivery quality A professional consulting firm will be responsible
for Construction Quality. The firm will be fully
empowered as the ‘Engineer’ in accordance with
International Federation of Consulting Engineers
(FIDIC) stipulations.
Medium-L
Overall risk rating Medium-I
H. Terms and Conditions for Project Financing
66. The proposed project will be financed by a US$ 8.0 million MDTF grant.
67. The Closing Date is June 30, 2014.

24
Annex 1: Detailed Description of Project Components
PAKISTAN: Khyber-Pakhtunkhwa Emergency Roads Recovery Project
Component 1: Infrastructure Rebuilding (US$ 6.417 million)
1. Civil Works (US$ 5.142 million): This sub-component will finance widening and reconstruction of
about 10.5 km of the provincial highway S-3B (including structures) from Sharif Abad (Km 30+424)
to Kanju (Km 40+924) located along the right bank of River Swat. The civil works involve
reconstruction of a 7.3 meter wide asphalt concrete 2-lane single carriageway with 1.0 meter wide
paved shoulders. The road section in urban areas varies from 10 to 12 meters and includes 1.22 meter
wide covered drains which will be 0.50 meter elevated above the finished road level to be used as
footpaths. The pavement comprises of up to 20 cm Sub Base Course, 15 cm Aggregate Base Course,
7 cm Asphaltic Concrete Base Course, and 5 cm Asphaltic Concrete Wearing Course. The Right of
Way (ROW) shall be 15 meter (49.2 feet) from the centre of the road (7.5 meters or 24.6 feet on each
side). The contract spans a construction period of 24-months, and a post construction defect liability
period of 12-months. These works have been be bid as ad-measured, item rate contracts with
provisions for price escalation, on the basis of designs and bid documents prepared by FHA through
consultants. The contract is being procured under National Competitive Bidding (NCB) procedures.
2. Relocation of Utilities, Land Acquisition and Resettlement (US$ 1.275 million): This sub-component
will finance relocation of 220 high tension electricity poles and 130 telephone poles with cables, land
acquisition – about 30 kanals and resettlement costs associated with compensation for removal of 158
permanent structures of small businesses/shops, 46 houses, 38 boundary walls of commercial
buildings, loss of about 1,000 trees and crops on about 40 kanals, transitional period allowance and
shifting charges for 358 vendors and squatters.
Component 2: Project Management (US$ 0.613 million)
1. Contract Administration & Construction Supervision Consultant Services (US$ 0.188 million): This
sub-component will finance a professional firm engaged as the ‘Engineer’ responsible for Contract
Administration and Construction Supervision. The firm would be fully empowered as the ‘Engineer’
in accordance with FIDIC stipulations.
2. Environmental & Social Safeguards Consultant Services (US$ 0.053 million): This sub-component
will also finance costs associated with independent monitoring of environmental parameters and 3rd
Party Validation of implementation of the EMP/RP activities.
3. Other Project management activities through the financing of incremental Operating Costs (US$
0.373 million): This sub-component provides support to cover incremental staff salaries, allowances,
per diem, operation and maintenance cost of office buildings, office equipment, bank charges,
advertising expenses, temporary lodgings and vehicles for the purposes of the Project.

25
Annex 2: Results Framework and Monitoring
Program Development
Objective
Program Outcome Indicators Use of Results Information
The Project Development
Objective is to enable the
population along the Project
corridor to benefit from year
round improved access and
mobility through
reconstruction of priority
damaged roads and bridges in
the conflict hit areas.
1. 34%, 26% and 5% decrease in
vehicle operating costs of 2-
axle truck, 3-axle truck and
passenger buses
2. 50% increase in operating
speeds of commercial traffic.
3. Favorable response by trade:
customer satisfaction level = 3
(scale High = 4, Low = 1).
1. Assess decrease in vehicle
operating costs and increase
in trip speeds.
2. Determine if strategy needs
to be changed.
Intermediate Results
One per Component
Results Indicators for Each
Component
Use of Outcome Monitoring
Component One:
Infrastructure Rebuilding
About 10.5 km of the provincial
highway S-3B from Sharif Abad
(Km 30+424) to Kanju (Km
40+924) constructed and
operational
Low kms may flag project
implementation issues such as
non-performing contractor,
significant price escalation or
changes in exchange rate; lack of
strong leadership, and transparent
and timely decision making.
Component Two:
Project Management
Satisfactory performance of
construction supervision and
contract administration activities
and environmental and social
safeguards activities.
Poor performance may indicate
lack of professionalism,
commitment and/or incapable
staff.

26
Arrangements for results monitoring
Target Values Data Collection and Reporting
Project Outcome
Indicators
Baseline YR1 YR2 YR3 Frequency
and Reports
Data Collection
Instruments
Responsibility for
Data Collection
4. 34%, 26% and 5%
decrease in vehicle
operating costs of
2-axle truck, 3-
axle truck and
passenger buses
5. 50% increase in
operating speeds
of commercial
traffic
6. Level of customer
satisfaction (High
= 4.0, Low = 1.0)
Rs 23.89,
Rs 24.76
and Rs
12.09
20
km/hour
-
-
-
-
-
-
-
Rs 15.84,
Rs 18.33
and Rs
11.47
30
km/hour
3.0
End-of-
Project
Implementati
on
Completion
Report (ICR)
Traffic Count
and Travel Time
Surveys,
Customer
Satisfaction
Survey
FHA
Results Indicators for
Each Component
Component 1: About
10.5 km of the
provincial highway S-
3B from Sharif Abad
(Km 30+424) to Kanju
(Km 40+924)
constructed and
operational
- 3 km 10.5 km - Monthly
Construction
Supervision
Reports;
Quarterly
Interim
Financial
Reports
(IFRs)
Certification of
Quantities by
the Engineer
Construction
Supervision
Consultant; FHA
Component 2: Project
Management
- Consultant
services
procured
Satisfactory
performance of
construction supervision
and contract
administration and
environmental and social
safeguards activities.
- Consultants
Inception and
Progress
Reports,
Mid-Term
Report and
ICR
Reports Consultants; FHA

27
Annex 3: Summary of Estimated Project Costs
Project Cost By Component
Local
US$ Million
Foreign
US$ Million
Total
US$ Million
A. Infrastructure Rebuilding
(a) Reconstruction and Widening of 10.5 km of S-3B
(b) Relocation of Utilities, Land Acquisition &
Resettlement
B. Project Management
(c) Contract Administration & Construction Supervision
Consultant Services
(d) Environmental & Social Safeguards Consultant
Services
(e) Incremental Operating Costs
Total Baseline Cost
Physical & Price Contingencies
2.571
1.275
0.188
0.053
0.373
4.460
0.969
2.571
-
-
-
-
2.571
-
5.142
1.275
0.188
0.053
0.373
7.031
0.969
Total Project Costs 5.429 2.571 8.00
Front-end Fee - - -
Total Financing Required 5.429 2.571 8.00
1
Identifiable taxes and duties are US$ 0.42 million, and the total project cost, net of taxes, is US$ 7.58
million. Therefore, the share of project cost net of taxes is 95.2%.

29
Annex 4: Operational Risk Assessment Framework (ORAF)
Project Development Objective
The Project Development Objective is to enable the population along the Project corridor to benefit from year round improved access and mobility
through reconstruction of priority damaged roads and bridges in the conflict hit areas.
1. 28%, 24% and 9% decrease in vehicle operating costs of 2-axle truck, 3-axle truck and passenger buses
2. 50% increase in operating speeds of commercial traffic.
PDO Level Results
Indicators:
3. Favorable response by trade: customer satisfaction level = 3 (scale High = 4, Low = 1).
Risk Category Risk Rating Risk Description Proposed Mitigation Measure
Project Stakeholder Risks
Medium-I
The Project includes a key section of the
Provincial Highway S-3B on the right Bank
of River Swat that provides vital access to
remote and disaster-prone communities in
Khyber-Pakhtunkhwa (KP). Delays in
implementation may invite criticism from the
road users, inhabitants and businesses along
the Project reaches, which can potentially be
a reputational risk for both Government and
the Bank.
Extensive stakeholder consultations. Engage both print
and electronic media to publicize work activities in
advance. Manage traffic at construction sites: road signs,
service roads, effective coordination with traffic police.
Proactively work to expeditiously complete the
remaining civil works. The Provincial Steering
Committee shall ensure that any departmental and/or
governmental procedure related bottlenecks are
promptly addressed.
Implementing Agency Risks Medium-L
Implementing Agency (IA) is exposed to
three key risks: (a) capacity, (b) governance,
and (c) fraud and corruption.
a. FHA has implemented a number of Projects since its
creation in 2001 with a satisfactory track record.
Presently, FHA is custodian of 15 Provincial
Highways with a total length of 2177 Kms. FHA
staff is technically competent. A dedicated Project
Management Unit adequately staffed with
competent professionals shall further augment the
FHA capacity.

30
b. FHA has implemented an ADB financed project and
is aware of multilateral donor’s fiduciary
systems/requirements. ‘”‡‘˜‡” –Š‡ ˆ‹ƒ…‡ •–ƒˆˆ
•ŠƒŽŽ „‡ ˆ—”–Š‡” •–”‡‰–Š‡‡† „› Š‹”‹‰ ƒ
†‡†‹…ƒ–‡† ……‘—–ƒ– ™‹–Š ˆ‘”‡‹‰ ƒ‹†‡†
’”‘Œ‡…– • ‡š’‡”‹‡…‡
c. FHA operates within three sets of guidelines: those
of the Pakistan Procurement Regulation Authority
(PPRA), its own Code and Freedom of Information
Ordinance-2002. All provide mechanisms to
enhance transparency of the decision processes
during the preparation and implementation,
including those for procurement, financial and
safeguards by enhancing disclosure of information,
introducing oversight mechanisms, and setting up an
effective mechanism for handling comments,
suggestions and grievances. Free web access is
available on procurement information. Bank’s
guidelines are applicable and barring a few
smaller ones, civil works and construction
supervision consultant services contracts have
been prior reviewed.
Project Risks
• Design
Low
Too many components can overwhelm the
client and their ability to implement the
Project, and the Bank’s ability to support
project implementation can be challenged,
particularly in an insecure environment.
The Project design reflects key lessons learned from
previous highway projects in Pakistan. The Project
design is simple and flexible, with manageable
components and a single implementing agency.
• Social Environmental
Medium-L
Inadequate capacity to implement the
Resettlement Plan (RP) and Environmental
Management Plan (EMP) and oversee their
execution is a risk.
The Project includes arrangements for:
ion of RP and EMP

31
d in the Supervision Consultant and Civil Works
ds trainings
.
• Program Donor
Low
There could be delays in seeking approvals
from the GOP on various actions including
clearance of PC-I for the commencement of
activities under the Project.
MDTF Secretariat is housed in the Bank’s Country
Office in Islamabad. The services of the Secretariat will
be requested to pursue desired approvals and actions
from the GOP on fast track basis. Bank’s internal
procedures have already been streamlined under OP 8.0
to enable Project Preparation and approval on fast track
basis.
• Delivery Quality
Medium-L
Poor quality of construction resulting in low
service life of assets created.
A professional consulting firm will assure quality of the
works during construction, carry out independent
testing, and approve or disapprove and certify the works
that conform to the specifications. The Consultant will
also give notice to the Contractors of any defects and
deficiencies, and issue instructions for the removal and
substitution of the improper works, where provided
under the contract.
Overall Risk Rating:
Preparation
Overall Risk Rating:
Implementation
Comments
Medium-L Medium-I
This is a technically simple Project. FHA is an established road agency which has
successfully implemented many projects in the past. Preparation stage risk is rated as
Medium driven by likelihood based on capacity issues and country environment.
Implementation risk is rated Medium driven by Impact risk rating while taking into
account country environment, possible governance and stakeholder risks.

32
Annex 5: Financial Management and Disbursement Arrangements
Inherent Risk
1. The inherent risk is “High”. Country level risk is “Substantial to Moderate”. Keeping in view the
FHA’s not having any past experience of implementing the Bank projects and has implementation
experience of only one foreign (ADB) funded project closed in 2006, added by security situation which
restrict travel to field, the inherent risk for the Project is “High”.
Control Risk
2. The control risk is assessed as “High”, but when a dedicated Accountant is hired from the market,
accounting procedures in place are tested and regular Internal Audit is conducted, the control risk is
expected to come down to at least “Substantial”.
Residual Risk
3. The residual risk rating of the Project is considered “High”.
Risk Analysis
Risk
Initial FM
Risk
Risk Mitigation
FM Risk
After
Mitigation
Inherent Risk
Country Level Substantial
Adhering to the financial management
policies and procedures. Moderate
Control Risk
- Staffing High
Addition of a dedicated Accountant to
the FM team of FHA
Substantial
- Budgeting Substantial
Realistic and timely preparation,
approval and monitoring of budget
Moderate
- Accounting High
Following the accounting procedures
and maintenance of books of accounts.
Substantial
- Internal
Controls
High
Segregation of duties amongst
accounting staff, regular internal audit
Substantial
- Funds Flow Substantial
Timely and realistic preparation of cash
forecast
Moderate
- Financial
Reporting
High
Recruitment/training of FM staff
ensuring timely and accurate
preparation of financial reports
Substantial
- Auditing Substantial
Timely drafting of the financial
statements by FHA and getting account
audited
Moderate
- Detection Risk High
Restricted and limited movement in the
projects areas to review activities shall
be mitigated by regular interaction with
FHA and desk reviews.
Substantial
Residual Risk High Substantial

33
Staffing
4. The Finance Section of the FHA will carry out Project financial management. FHA’s Finance Section
headed by the Deputy Director belonging to Audit and Accounts services with 26 years experience and
also passed SAS (Subordinate Accounts Services) of Auditor General of Pakistan in 1991. The Deputy
Director is supported by Assistant Director Accounts, who is M. Com and has also passed Part I and II
relating to Defense and Civil Audit, also carries 21 years experience of audit and accounts. The Finance
Section of FHA is supported by five Accounts Assistants. However, the finance staff shall be further
strengthened by hiring a dedicated Accountant with foreign-aided project(s) experience as soon as
possible but no later than grant negotiations. Once the Accountant is in place, the FM staffing of FHA
shall be adequate for carrying out the Project activity.
5. The Internal Auditor already in place shall start reporting to the Managing Director, FHA instead of
reporting to Deputy Director, (Account).
Budgeting
6. FHA has two separate nonlapsable funds known as “FHA Development Fund” and “Frontier
Highways Authority Road Maintenance Fund”. The budget is formulated in under three Heads, firstly
“Construction/Development Budget”, secondly “Operational Budget” and thirdly “Repairs and
Maintenance Budget”. In addition to regular budget monitoring through trial balance, 6-monthly meetings
are also held at the Planning and Development Department to review the budget utilization. Any
reappropriation of budget amongst these three heads requires recommendation of the Council and
approval of Provincial Cabinet.
7. KP ERRP will be included in the development budgets of the KP and Federal Governments. The
proposal for the budget shall be prepared by FHA and go thru the normal approval processes.
Accounting
8. Separate books of accounts, on cash basis, will be maintained by FHA for the Project activities using
the New Accounting Module - Chart of Accounts. Sufficient subsidiary records will be kept to facilitate
preparation of quarterly financial reports and annual financial statements providing details of receipts and
expenditures by Project component and activities.
FHA has computerized accounting system (Peach Tree) for reconciliation and reports generation.
Internal Controls
9. The accounting procedures of FHA have been reviewed and approved by Controller General of
Accounts. Segregation of duties amongst existing staff strengthened by experienced Project Accountant to
be recruited from the market and direct reporting of Internal Auditor to the MD, FHA shall strengthen the
internal controls.
Funds Flow Arrangement
10. In accordance with the revised accounting procedures for Revolving Fund Accounts (Foreign
Currency Assignment Account) referred as the Designated Account (DA) by the World Bank, issued by
the Finance Division, Government of Pakistan on June 30, 2010, a segregated DA in US$ would be
opened at the National Bank of Pakistan by FHA. The funds received from the MDTF into DA shall be

34
used for the KP ERRP eligible expenditures. The account would be jointly operated by two senior
officials of the FHA.
11. Initial advance into the DA will be provided by the Bank on the basis of forecast for the first two
quarters, which will be replenished quarterly on the basis of actual expenditures incurred from the DA
and cash forecast for the following two quarters.
12. Withdrawals for the Project would be ‘Report – Based’ (Interim Financial Reports), which will allow
for adequate funds to be at the FHA’s disposal based on its cash forecast for two calendar quarters in
advance. The quarterly IFRs shall be provided within forty five days of end of each quarter. The format
of IFRs shall be agreed during negotiations of the project.
Allocation of MDTF Proceeds
Disbursement Category
Amount of Allocation
(Expressed in US Dollars)
Percentage of
Expenditures to be
Financed
1. Civil Works including Relocation of
Utilities, Land Acquisition and
Resettlement, Consultant Services, and
Incremental Operating Costs for the
Project
8,000,000 100%
The Project will be 100% financed by the MDTF, inclusive of import duties and taxes.
13. Incremental operating costs under the Project, incurred by the Recipient and the Project Implementing
Entity for purposes of the implementation, management, and monitoring and evaluation of the Project, on
account of office supplies and consumables, utilities, bank charges, communications, mass media and
printing services, vehicle rental, operation, maintenance, and insurance, office space rental, building and
equipment maintenance, domestic travel, lodging, and subsistence allowances, and salaries of contractual
and temporary staff, but excluding salaries, fees, honoraria, and bonuses of members of the Recipient’s
civil service.
Audit
14. External audit of the project as well as Entity Audit (FHA) will be conducted by the Supreme Audit
Institution, i.e., the Office of the Auditor General of Pakistan which is acceptable to the Bank.
Acceptable audited financial statements will be submitted within 6 month of the close of each financial
year.
Audit Report Due Date
Project Financial Statements for the Financial Year
ended June 30 each year
December 31 each year
Entity (FHA) Financial Statement for Financial
Year ended June 30 each year
December 31 each year
15. Internal audit of the Project will be carried out by the Internal Auditor who will report directly to the
Principle Accounting Officer i.e. MD, FHA. Terms of Reference (TOR) of the Internal Auditor shall be
shared with the Bank by July 31, 2011 for comments. The head of Finance Department will keep the track
of the actions taken on the audit opinions/observations and regularly (at least quarterly) report the
progress to the Principle Accounting Officer with a copy to the Bank.

35
16. Since this is Bank’s first engagement with FHA, therefore, there is no outstanding audit report or
ineligible expenditure.
17. Agreed Actions:
S.
No.
Agreed Action By Whom Completion Date
1 Hire Accountant for KP ERRP FHA July 15, 2011
2 Internal Auditor to Report to Chairman/MD,
FHA
Chairman, FHA July 15, 2011
3 TORs of the Internal Auditor to be shared with
the Bank for comments.
Chairman, FHA July 31, 2011
18. Supervision plan: Intensive FM supervision of the Project will be required. This will include
training to the FHA financial staff on the Bank requirements. Keeping in view the security situation,
substantial portion of the FM supervision activities would consist of desk review of the quarterly financial
reports, fixed assets physical verifications reports, internal and external audit reports supplemented by the
dialogue with the FHA staff.
Note: The FM assessment is based on information/documents obtained through meetings with FHA’s
FM staff in Islamabad.

36
Annex 6: Procurement Arrangements
1. Procurement for the proposed Project would be carried out in accordance with the World Bank’s
“Guidelines: Procurement Under IBRD Loans and IDA Credits” dated January 2011; and “Guidelines:
Selection and Employment of Consultants by World Bank Borrowers” dated January 2011, as well as the
provisions stipulated in the Grant Agreement. The general description of various items under different
expenditure categories are described below. For each contract to be financed by the Grant, the different
procurement methods or consultant selection methods, estimated costs, prior review requirements, and
time frame are to be agreed between the Borrower and the Bank Project team in the Procurement Plan.
The borrower has prepared a draft procurement plan, which shall be finalized by negotiations. The
Procurement Plan will be updated at least annually or as required to reflect the actual Project
implementation needs and improvements in institutional capacity. A General Procurement Notice is not
deemed essential for publication as no contracts have been identified which would require international
competition.
Procurement of Works
2. One contract of civil works is identified which costs about US $ 6 m for the reconstruction of the
provincial road Sharifabad to Kanju. Given the size of the contract, the law and order situation of the
project area and the presence of ample number of national contractors working in the vicinity, this
contract shall be awarded based on national competitive bidding. No ICB contracts are envisaged in this
project, and contracts up to the cost of US $ 200,000 may be procured through shopping procedures.
Direct contracting may be used to carry out emergency works (if any), after prior approval of the Bank.
The Bank’s agreed bidding document for NCB shall be used.
Procurement of Goods
3. There are no goods procurements envisaged in this project.
Additional Provisions and Procedures for National Competitive Bidding (NCB)
4. When procuring works pursuant to the provision of rules 18 through 22, 24, 31, 35 and 36 of the
NWFP Public Procurement rules (SO)FR)/9-7/2002 for KP, it shall be ensured that the following
additional provisions are applied:
(i) Invitations to bid shall be advertised in at least one (1) national newspaper with a wide
circulation, at least thirty (15) days prior to the deadline for the submission of bids.
(ii) Bid documents shall be made available, by mail or in person, to all who are willing to pay
the required fee.
(iii) Foreign bidders shall not be precluded from bidding and no preference of any kind shall
be given to national bidders in the bidding process.
(iv) Bidding shall not be restricted to pre-registered firms.
(v) Qualification criteria shall be stated in the bidding documents.
(vi) Bids shall be opened in public, immediately after the deadline for submission of bids.
(vii) Bids shall not be rejected merely on the basis of a comparison with an official estimate
without the prior concurrence of the World Bank.
(viii) Before rejecting all bids and soliciting new bids, the World Bank’s prior concurrence
shall be obtained.
(ix) Bids shall be solicited and works contracts shall be awarded on the basis of unit prices.

37
(x) Contracts shall not be awarded on the basis of nationally negotiated rates.
(xi) Single bids shall also be considered for award.
(xii) Contracts shall be awarded to the lowest evaluated and qualified bidder.
(xiii) Post-bidding price negotiations shall not be allowed with the lowest evaluated or any
other bidders.
(xiv) Draft contracts would be reviewed by the World Bank in accordance with the prior
review procedures.
(xv) State-owned enterprises shall be eligible to bid only if they can establish that they are
legally and financially autonomous, operate under commercial law, and are not a
dependent agency of the Recipient
(xvi) A firm declared ineligible by the World Bank, based on a determination by the World
Bank that the firm has engaged in corrupt, fraudulent, collusive, coercive or obstructive
practices in competing for or in executing a World Bank-financed contract, shall be
ineligible to be awarded a World Bank-financed contract during the period of time
determined by the World Bank.
(xvii) The World Bank shall declare a firm ineligible, either indefinitely or for a stated period,
to be awarded a contract financed by the World Bank, if it at any time determines that the
firm has, directly or through an agent, engaged in corrupt, fraudulent, collusive, coercive,
or obstructive practices in competing for, or in executing, a contract financed by the
World Bank.
(xviii) Each contract financed from the proceeds of the Grant shall provide that the suppliers,
contractors and subcontractors shall permit the World Bank, at its request to inspect their
account and records audited by auditors appointed by the World Bank. The deliberate and
material violation by the supplier, contractor or subcontractor of such provision may
Procurement of non-consulting services
5. No such requirements are identified at this stage. If any such procurement is agreed, the Banks
sample documents for such procurements shall be used.
Selection of Consultants
6. The major consultancy assignments would be for supervision consultancy and possibly of the third
party monitoring of the environmental safeguards. The latter could be either through a consulting firm,
and NGO or academia. Contracts with consulting firms will be procured in accordance with Quality and
Cost Based Selection procedures or other methods given in Section III of the Consultants’ Guidelines.
Consulting services selection would be carried out through Quality and Cost Based Selection (QCBS) for
contracts with consulting firms costing more than US $300,000 equivalent, and through Consultants
Qualification (CQ) for contracts costing up to US $300,000. Other methods as mentioned in Section III of
Consultants’ Guidelines shall be used as required.
Individual Consultants
7. This is envisaged to include any full-time or part-time technical assistance required for the Project.
Currently the identified individual consultancies are for review of social safeguards and environmental
safeguards. Services for assignments that meet the requirements set forth in paragraph 5.1 of the
Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance
with the provisions of paragraphs 5.2 through 5.3 of the Consultant Guidelines, which stipulate that the
selection should be made through comparison of at least 3 CVs that meet the requirements of the Terms
of Reference including those for qualifications and experience. Under the circumstances described in

38
paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a
sole-source basis.
Operational Costs
8. Costs related to the implementation of the Project will be financed by the Grant.
Assessment of the Agency’s Capacity to Implement Procurement
9. The identified risks for procurement and contract implementation and mitigation measures are
provided below. Given the readiness status of the project the overall Project risk for procurement is High.
Capacity of Implementing Agency
10. FHA will be responsible for project implementation. The procurement processes of FHA are defined.
Procurement responsibilities are rested with the director. The evaluation committees are formed
comprising Project Director (ERRP), Deputy Director (Environment) and Deputy Director (HQ). MD
FHA is the approving authority for all the procurement decisions. The DD HQ is the procurement focal
point for the project. There is no requirement to hire any additional staff.
11. The Bank held detailed procurement discussions with the concerned project staff on Feb 10 and
March 16. Earlier MD FHA attended a two day workshop on Banks procurement procedures on Jan 10
and 11 held in Islamabad.
Procedural Clarity
12. Given the emergency nature of the project, quick turnaround in procurement decisions is essential.
FHA has informed that after approval of the PC-I, the approving authority for all the procurements is MD
FHA. Given the simple nature of the implementation arrangements where one works and two consultancy
contacts are to be procured by FHA, separate documentation of the recipient’s internal procurement
procedures is not required.
Market Constraints
13. There is a concern that a limited number of contracting and consulting firms would participate in this
project given the law and order situation. However in the procurement process of an adjacent contract
some xx firms participated. It is hence expected that the response would be reasonable. The pool of firms
shortlisted for the parallel contract was used as a long list for the supervision consultancy. Innovative
arrangements for third party validation of environmental aspects shall be explored including NGOs,
academia or hiring of individuals etc. Wide circulation shall be ensured for better participation.
Transparency
14. The official websites of FHA shall have a specific procurement link for adequate dissemination. All
procurement notices, bid documents /RFPs, evaluation reports, and award data shall be posted on the
website. These websites shall also be used for posting of grant evaluations, awards, and performances.
Bank’s guidelines on publication of award paragraph 2.31 of consultancy guidelines and 2.60 of the
procurement guidelines shall be followed for disclosure.
Complaints

39
15. FHA shall manage the complaint handling system. This system would include documentation and
addressing of complaints within a period of 7 days. FHA shall keep the Bank informed by forwarding to it
any complaints within 3 days of the receipt. A second tier for appeals for the complainant shall also be
identified.
Table 1: Procurement Actions (Summary of the above identified issues and agreed actions)
Issues Action Timeline Responsibility
i. Capacity of PCU
and Project Cell
Training session of Project
staff
Jan 10-11 2011; Feb 10
2011, Mar 16 2011
(done)
Bank
ii. Procedural clarity Agreement on Recipients’
internal approval procedures
Feb 10, 2011; March 16,
2011 (done)
FHA
iii. Market Constraints Adequate packaging
Wide circulation
Mar 16, 2011 (done)
Ongoing
FHA
FHA
v. Transparency Functional web site
Disclosure on website
Exists for FHA; Update
(May 31, 2011)
May 31, 2011
FHA
FHA
vi. Complaints Independent complaint
redressal mechanism
May 31, 2011 FHA
Procurement Plan
16. The Recipient has developed a Procurement Plan for Project implementation which provides the basis
for the procurement methods. Procurement plan will be made available in the Project’s database, Project
website, and the Bank’s external website. The Procurement Plan will be updated in agreement with the
Project Team annually or as required to reflect the actual Project implementation needs and improvements
in institutional capacity Frequency of Procurement Supervision.
17. In addition to the prior review supervision to be carried out from Bank offices, the capacity
assessment of the Implementing Agency has recommended frequent supervision missions to visit the field
to carry out post review of procurement actions.
Review of Procurement by the Bank
18. Thresholds for prior review of contracts under eligible expenditures are given in the table below. All
other contracts will be subject to Post-Review by the Bank. FHA will send to the Bank a list of all
contracts for post-review on a quarterly basis. Post-reviews as well as the implementation reviews would
be done six monthly. Such review of contracts below threshold will constitute a sample of about 15-20
percent of the contracts.
Table 2: Thresholds for Procurement Methods and Prior Review
Aligned with The Rapid Response to Crisis and Emergencies: Streamlined Procurement
Procedures.
Prior Reviews Identified in Approved Procurement Plan
Expenditure
Category
Contract Value
(Threshold)
US $
Procurement
Method
Contracts Subject to
Prior Review
US$ thousand
1.Civil Works 200,000 NCB First contract

40
200,000 Shopping First contract
Regardless of value Direct Contracting All
2. Consulting Services All TORs and Training
Programs to be reviewed
by Bank’s TTL
2.A Firms QCBS,CQS,
QBS,FBS,LCS,
First contract by any
process and thereafter as
provided in Proc. Plan
Regardless of value Single Source All
Individual
Consultants
Comparison of 3 CVs First contract
Note: ICB = International Competitive Bidding; NCB = National Competitive Bidding; QCBS =
Quality- and Cost-Based Selection; QBS = Quality-Based Selection; FBS = Fixed Budget Selection; LCS
= Least-Cost Selection; CQS = Selection Based on Consultants' Qualifications; TOR = Terms of
Reference.
19. Details of the Procurement Arrangement for major contracts
a. Works.
(a) List of contract Packages which will be procured following ICB and Direct contracting:
Re
f
No
.
Contract
Descriptio
n
Estimated
Cost
(US$)
Procureme
nt Method
PQ Domestic
Preferenc
e
Review
by Bank
(Prior /
Post)
Expecte
d
Bid-
Opening
Date
Comment
s
1 Civil works US $ 6 m NCB no No prior May 16,
2011
b. Consulting Services.
(a) List of Consulting Assignments with short-list of international firms.
1 2 3 4 5 6 7
Ref.
No.
Description
of Assignment
Estimated
Cost
Selection
Method
Review
by Bank
(Prior / Post)
Expected
Proposals
Submission
Date
Comments
1. Supervision Consultancy US $ 0.3 m QCBS prior April 15,2011
2. Environmental monitoring US $ 0.03 m CQS/SSS Post/prior Aug 2011

41
Annex 7: Implementation and Monitoring Arrangements
1. Implementation Period – 3.0 Years: Estimated Construction Period – 2.0 Years; Implementing
Agency – The project has been prepared by FHA and it will be implemented by FHA.
2. Overall Oversight Arrangements. The GoKP will manage implementation of the Project through a
Provincial Steering Committee (PSC) which will provide overall guidance and oversight for the
Project and technical and administrative recommendations and/or advice as necessary. The PSC will
be headed by Additional Chief Secretary (ACS) and its core members will comprise: the Secretary,
Finance Department, Secretary, Communications and Works Department (CWD), Commissioner,
Malakand Division, Director General, Provincial Rehabilitation, Reconstruction and Settlement
Authority (PaRRSA), Managing Director (MD), FHA, and Project Director (ERRP) who will also
act as the secretary of the PSC. Other members may be co-opted for discussing/addressing issues as
needed. The PSC will initially meet every quarter during the first year to oversee ERRP progress.
Following that, the PSC will meet every six months. The PSC shall ensure that the KP ERRP is
reflected in the KP’s FY 11/12 Annual Development Plan (ADP) and in subsequent fiscal years
budgets. The PSC shall also facilitate opening of a segregated Designated Account (DA) in US$ at
the National Bank of Pakistan in accordance with accounting procedures for Revolving Fund
Accounts (Foreign Currency Assignment Account) issued by the Finance Division, Government of
Pakistan on June 30, 2010.
3. In addition, a Project Steering Committee headed by MD, FHA and comprising Project Director
(ERRP), Deputy Director (North), Deputy Director (Headquarters) and Deputy Director (Finance)
will be responsible for ensuring timely implementation of the Project.
4. Project Management Unit. There shall be a Project Management Unit (PMU) at FHA Headquarters in
Peshawar, headed by the Project Director (ERRP) and supported by the Deputy Director
(Headquarters) and Deputy Director (Finance). The PMU functioning as the Project Secretariat shall
support the Project Steering Committee. The PMU will be responsible for overall coordination,
internal/external processing of all approvals including PC-I, procurement and implementation of civil
works, procurement and management of consultant services. FHA’s finance section augmented by a
dedicated Accountant with foreign-aided project(s) experience shall be responsible for the financial
management of the Project.
5. Field Implementation Unit. A ‘Field Implementation Unit’ (FIU) headed by Deputy Director (North)
and supported by Assistant Director (North), Deputy Director (Environment) and Assistant Director
(Resettlement) shall be responsible for general administration, land acquisition, handing over of sites,
coordination with other authorities to ensure timely relocation of various utility services, oversight of
environmental safeguards, management of social safeguards, and performance monitoring of civil
works implementation.
6. Project Engineer. A professional consulting firm will be responsible for Contract Administration
Construction Supervision. The firm will be fully empowered as the ‘Engineer’ in accordance with
International Federation of Consulting Engineers (FIDIC) stipulations. FHA will act as the
Employer. The Project Director will be designated as the Employer’s Representative. The Resident
Engineer (RE) will act as the Engineer’s Representative. The Consultant will administer the civil
works contracts, make engineering decisions, be responsible for quality assurance, provide general
guidance and furnish timely responses to the Contractors in all matters relating to the civil works, and
ensure that all clauses of the Contract Agreement between the civil works Contractors' and FHA are

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