Report and Recommendation of the President to the Board of Directors

Project Number: 43912 March 2011

Proposed Loan Bangalore Metro Rail Transit System Project (India)

In accordance with ADBs public communications policy (PCP, 2005), this abbreviated version of the Report and Recommendation of the President excludes confidential information and ADBs assessment of the project or transaction risk, as well as other information referred to in paragraph 126 of the PCP.

CURRENCY EQUIVALENTS (as of 31 January 2011) Currency Unit Re1.00 $1.00 = = Indian rupee/s (Re/Rs) $0.0218 Rs45.9 ABBREVIATIONS ADB ASI BMRC CPS DMC DMRC EBITDA EIRR ha IEE JICA km ODA PAU PPP Asian Development Bank Archaeological Survey of India Bangalore Metro Rail Corporation country partnership strategy developing member country Delhi Metro Rail Corporation earnings before interest, tax, depreciation, and amortization economic internal rate of return hectare initial environmental examination Japan International Cooperation Agency kilometer official development assistance project administration unit publicprivate partnership NOTES (i) The fiscal year (FY) of the Bangalore Metro Rail Corporation ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2010 ends on 31 March 2010. In this report, "$" refers to US dollars.

(ii)

Vice-Presidents Directors General Directors

L. Venkatachalam, Private Sector and Cofinancing Operations X. Zhao, Operations 1 P. Erquiaga, Private Sector Operations Department (PSOD) S. H. Rahman, South Asia Department (SARD) M. Barrow, Private Sector Infrastructure Operations 1, PSOD B. Carrasco, Public Management, Financial Sector and Trade, SARD H. Hoshi, Investment Specialist, PSOD A. Mehta, Senior Finance Specialist (Infrastructure), SARD R. Barba, Safeguards Specialist, SARD M. Greenhow, Counsel, Office of the General Counsel E. Gregori, Unit Head, Project Administration, PSOD S. Gupta, Principal Investment Specialist, PSOD A. Huang, Finance Specialist, SARD M. Mahurkar, Principal Treasury Specialist, Treasury Department J. Perera, Principal Safeguards Specialist, SARD R. Peri, Principal Private Sector Development Specialist, SARD A. Sharma, Senior Director, Office of Regional Economic Integration

Team leaders Team members

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page PROJECT SUMMARY I.

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THE PROPOSAL
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II.

BACKGROUND AND RATIONALE A. B. C.

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Project Identification and Selection Sector Background Alignment with ADB Strategy and Operations
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III.
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THE PROJECT
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A. B. C. D.
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Project Description Development Impact Environment and Social Dimensions Implementation Arrangements
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IV.
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THE PROPOSED ADB ASSISTANCE

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A. B. D.
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The Assistance Justification for ADB Assistance Assurances

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V.
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RECOMMENDATION
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APPENDIXES 1. Design and Monitoring Framework 2. Summary Poverty Reduction and Social Strategy

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PROJECT SUMMARY Borrower Classification Bangalore Metro Rail Corporation (BMRC) Targeting classification: General intervention Sector (subsector): Transport, and information and communication technology (urban transport) Themes (subthemes): Economic growth (promoting economic efficiency and enabling business, widening access to markets and economic opportunities); environmental sustainability (urban environmental improvement) Location impact: Urban (high), national (medium), regional (low) Environment: Involuntary Resettlement: Indigenous Peoples: B C C

Environmental and Social Safeguards Classification Project Description

The project is the development and operation of an urban metro rail transit system in Bangalore city (also known as Bengaluru) comprising two intersecting corridors (northsouth and eastwest). The project includes the development of 42.3 kilometers (km) of metro rail corridors, 40 stations (1 at-grade, 32 elevated, and 7 underground stations), 2 station depots, signaling, electromechanical system, and all ancillary facilities and rolling stock.

Impact, Outcome, and Urban centers in India suffer from a lack of mass transit public transportation systems. With increased urbanization, this can be a Benefits barrier to equitable and widespread economic growth and is leading to increased private vehicle use. This stimulates traffic delays, environmental degradation, inefficient fuel consumption, and economic losses through time wastage. The project directly addresses these challenges to Bangalores growth and environment by creating a modern mass transit system that supports economic growth, employment generation, and equitable connectivity. It also mitigates environmental pollution by providing an alternative to private vehicles. The project will establish an ultimately sustainable urban transport company with sound institutional and governance structures, based on an innovative urban transport financing model. This is a first for India and could become a model for infrastructure development in other states and cities. The focus is on creating a commercially viable and bankable project that can successfully attract commercial debt, and which holds the potential for future wider private sector participation. The project structure, which uses sovereign loans and support to leverage commercial lending, creates a self-sustaining model for financing urban transport projects. These projects are typically amongst the most difficult infrastructure projects to finance, and are the ones which least lend themselves to up front private sector

ii participation. The public sector approach, with private sector structures and discipline and possible future private sector direct participation, is viewed as the best model for this sector at this stage of development in India. It is also one which should help catalyze commercial debt and private sector participation on a much wider basis across the country in future. Implementation of the project will result in a modal shift toward public transportation and lower levels of congestion with a substantial reduction in the number of buses and use of private vehicles. This will lead to fuel savings, improvements in air quality and public health, time savings, and less accidents and fatalities. Project Sponsors Proposed ADB Assistance Implementation Arrangements The Government of India and the Government of Karnataka. ADB will provide a direct secured loan (without sovereign guarantee) to BMRC of up to $250,000,000. BMRC has been constituted as a special-purpose vehicle with both sponsors having an equal shareholding. Given the importance of the project and the impossibility of financing it on a stand-alone basis, the sponsors have committed significant support to the project in the form of equity and subordinated debt. The sponsors have drawn together experts from various agencies and have engaged an external technical consultant to carry out the design of the metro rail transit system and assist BMRC with procurement, construction, and commissioning of the project, as well as the training of operation and management personnel. Procurement of goods and services is being undertaken by BMRC through international competitive bidding. Around 80% of construction contracts have been awarded and about 33% of physical construction has been completed as of end December 2010. ADB support provides crucial credibility to the project which has several pioneering features, including lending and institutional structures. Successful implementation will set the precedent for similar financing models for urban transport as well as provide cost-effective connectivity solutions for middle-sized and large Indian cities, which are suffering from public transport gaps and exponential private vehicle growth leading to increased pollution, accidents, and travel delays. The projects compliance with ADBs requirements will help promote strong governance, financial sustainability, robust institutional accountability, and overall efficiency in operations. ADBs participation, capital structuring, and due diligence will help mobilize long-term debt funding and catalyze domestic financial institutions to consider long-term loans for the project and other similar projects.

Justification / ADB Value-Added

I.

THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the Bangalore Metro Rail Corporation (BMRC) for the Bangalore Metro Rail Transit System Project. II. A. BACKGROUND AND RATIONALE

Project Identification and Selection 1. Project Development

2. Given the need for effective public transport solutions to meet the increasing urbanization-driven challenges in the city, the Government of India and the state government (sponsor(s)) examined a number of possible urban transport solutions for the city, including different modalities. The rail-based mass transit system was viewed by the sponsors as most appropriate for the city. 2. Government Financing Approach and Asian Development Bank Involvement

3. Unlike the Delhi metro that is fully funded by government equity and sovereignguaranteed debt, the national and state governments decided to create a new financing model for the project which would only partly rely on government funds (through a mix of government equity, government subordinated debt, and onlending from the national government of the Japan International Cooperation Agency (JICA) official development assistance (ODA) loan, and leverage these so as to also raise commercial debt from banks and/or private financing sources. The Asian Development Bank (ADB), through a number of technical assistance programs, 1 has been assisting the national government since 2007 in developing bankable infrastructure project models able to access new financing sources without recourse to sovereign government guarantees, whether through commercial nonrecourse debt or publicprivate partnerships (PPPs). The possible use of ADBs new lending modalities, i.e., nonsovereign public sector loans, was a factor in this structuring decision.
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4. Initial discussions were held with the national and state governments and BMRC in early 2009 with a view to including the project under this proposed assistance modality. Due diligence and structuring assistance to BMRC to help develop a bankable and leveraged financing model for the project was provided by the ADB team and consultant financial modeling specialists. Discussions were also held with the national governments Ministry of Urban Development on possible financing models. After preliminary national government approval of the initial structuring model for BMRC and the acceptance of nonsovereign public sector lending modalities for the project, a final phase of technical, social, and environmental impact assessments was undertaken. B. Sector Background 1. Metro Rail Systems

5. Urban transport is a critical component of urban services. Apart from allowing direct and efficient travel, it also creates a better urban environment by reducing congestion and pollution.
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ADB. 2007. Pilot Projects Initiative: Mainstreaming PPPs in India. Manila; and ADB. 2009. Developing Urban Bankable Projects. Manila.

Economic benefits of rail systems are significant and include savings in travel time, reduced operating costs, safer transportation with lower levels of accidents and related fatalities, and lower levels of local pollution. The higher level of connectivity and efficiency makes the rail system more attractive to businesses and tourists, thereby attracting investments and contributing to economic growth. Rail-based urban transit systems have an advantage over roadbased systems in terms of efficiency and carrying capacity, especially when catering to heavy passenger traffic in densely populated areas. In developed countries, most large cities have railbased mass transit railways as the core of their transport systems. However, in developing countries there has not been enough emphasis on mass transit or integrated city planning, with the result that many metropolitan cities depend predominantly on private transport modes. With increasing road congestion and pollution, cities are being forced to examine and develop better means of transportation. Therefore, rail-based metro systems, with their substantial carrying capacity, are a mode of choice for large cities with high passenger traffic densities. 6. In India, Mumbai and Chennai had the legacy of a suburban rail system, but the city of Kolkata developed Indias first new metro rail system implemented by Indian Railways. The Delhi Metro Rail Corporation (DMRC) developed its large metro system for Delhi as a stand-alone project. Subsequent to this, Bangalore proposed a metro system through a joint-venture initiative between the national and state governments. Chennai is following a similar model in collaboration with the national government. Mumbai and Hyderabad have awarded metro systems through a PPP approach as buildoperatetransfer projects. Jaipur, Kochi, and other cities are examining development of metro rail systems. 7. The development of urban rail systems, previously under the ambit of the Indian Railways Act 1989, has seen city administrations taking increasing responsibility for urban transport development under the Indian Tramways Act of 1909 and other subsequent acts. The Delhi Metro Railway (Operation and Maintenance) Act 2002 was specifically enacted to address the needs of a metro system in Delhi, and a subsequent amendment to this act in 2009 extended its reach to other metropolitan cities such as Bangalore, Mumbai, and Chennai. The implementation, operation, maintenance, and safety aspects of metro systems are covered under this act. 2
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Performance Gaps

8. The lack of a public transport system that efficiently and economically services all parts of the city seriously impacts the poor. While those using personal vehicles (such as cars and twowheelers) are also affected, the proportionate impact on urban poor people is possibly far higher due to their not having access to personal vehicles. While public buses are generally available, travel by buses through congested urban areas takes more time and is also not comfortable over longer distances, given the fact that most of the buses are not air-conditioned. 9. Road vehicles are a significant source of air pollution and their proliferation leads to a degraded urban environment and attendant diseases. A white paper on pollution in Delhi, prior to the changeover to compressed natural gas for buses, showed that pollution by road vehicles accounted for more than 60% of total air pollution. 3 The proliferation of personal modes of transport (such as cars and two-wheelers) is therefore an immediate concern, since most cities in India have a modal share of public transport of only about 50%.
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The act deals with the implementation, operation, tariff fixing, and safety regulations for metro systems. Government of India, Ministry of Environment and Forests. White Paper on Pollution in Delhi, With an Action Plan. http://envfor.nic.in/divisions/cpoll/delpolln.html.
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10. While a metro system cannot by itself address all of these severe problems, it will provide a high-capacity transport corridor along specific arteries of the city, which will draw a large proportion of users from the roads. A well-planned intermodal transit system combining buses and rail-based systems will also need to be built across the city; generally the rail-based systems cater to the higher traffic density corridors, while the buses act in the proximate areas as feeders to the rail system. Without such a system, the effectiveness of the metro would be much lower. In the case of Bangalore, at the planning stage, the Bangalore Metropolitan Transport Corporation was closely involved with the BMRC for planning the bus schedules and routes, taking the metro as the high-density traffic corridor. Key stations such as Majestic and Byappanahalli are being developed as intermodal centers where the public transport for rail and road are closely integrated. 11. One reason why many cities in developing countries have not built metro systems has been the high initial cost. Since most funding has to come from governments and resources are constrained, the focus has traditionally been on small-scale urban transport improvements such as widening roads, constructing grade separators, or adding buses to the fleet. Such improvements have not been able to address or catch up with the escalating scale of the problems. While most large cities and governments have realized the importance of having a metro system as a key element of any urban transport system, the funding constraints remain. There is, therefore, a clear opportunity and growing desire for commercial finance to step in and bridge some of the gap. 3. Financing Constraints for Metro Rail Systems

12. The few metro systems developed in India have been funded by the government, either directly or through sovereign-guaranteed loans. However, investment requirements are accelerating beyond government financing capacity and the Ministry of Urban Development has estimated a Rs2,070 billion ($45 billion equivalent) need for urban transport infrastructure investment in cities with populations of 100,000 or more in the period 20082028. With these rising needs, governments are no longer in a position to finance all such projects. The need therefore for other solutions such as commercial debt, private funds, and PPPs is critical to build and operate metro systems. However, given the very substantial up front capital investment requirements for metro projects and the social and economic limitations on fares and passenger trips, especially in the initial years of operations, short-term financial viability of metro systems worldwide is rarely achievable. Leveraging of government grants, revenue support schemes, land development rights on additional land given to the project, and/or other revenues from commercial development of land in the station areas are seen as essential to ensure viability and bankability. 13. While a number of cities have developed plans for metro projects, the significant funding constraints have yet to be addressed. The gradual shift from government direct funding to sovereign-guaranteed loans and then commercial finance is illustrated by the cases of Kolkata, Delhi, and other cities such as Bangalore and Mumbai. The Kolkata metro was taken up by the Ministry of Railways as a national government project, while in Delhi, the national and state governments set up a joint venture and the national government provided sovereign-guaranteed debt. The most recent projects are seeking commercial finance through debt (Bangalore) or debt and equity (Mumbai and Hyderabad), with viability support coming from the national and state governments. In the case of Bangalore, the national government has agreed to participate in a joint venture with the state government (owned equally), and also to support the project by way of equity, subordinated debt, and the onlending of the JICA ODA loan.

C.

Alignment with ADB Strategy and Operations 1. Consistency with Strategy 2020
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14. As stated in Strategy 2020, 4 ADB investment in infrastructure is fundamental to achieving poverty reduction and inclusive growth and also contributes to environmentally sustainable growth and regional integration. ADBs infrastructure operations are not to be limited to building physical assets, but will also include improving the delivery of infrastructure services through, for example, building the capacity of developing member countries (DMCs) for better infrastructure management, and promoting institutional and policy reforms that enhance the operational efficiency and sustainability of infrastructure projects. Under Strategy 2020, ADBs infrastructure operations will promote private sector engagement in financing infrastructure to augment the supply of capital for infrastructure. Development of urban transport is one of the focus areas of urban infrastructure under Strategy 2020. The strategy also envisages ADB helping DMCs move their economies onto low-carbon growth paths by modernizing public transport systems. ADB can assist DMCs and their municipalities address a range of environmental problems resulting from rapid urbanization. This includes supporting cleaner modes of transport. 2. Consistency with the Country Partnership Strategy

15. The country partnership strategy (CPS) 20092012 is in line with the national government's aims for infrastructure development, requiring over $500 billion over a 5-year period (20072012). 5 The project strongly supports the CPS, which emphasizes infrastructure development (e.g., transport, energy, urban, agriculture, and water resources management); catalyzes investment; and facilitates private sector participation in infrastructure development, including support for inclusive and environmentally sustainable growth. The project enables better leveraging of scarce sovereign resources, and spurs private sector and commercial funding for infrastructure projects.
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16. Crosscutting themessuch as private sector development, gender and development, and environmental sustainabilityhave been mainstreamed within the sector road maps in the CPS. Given the challenges facing India and the world due to climate change and degradation of the environment, the environmental focus of the CPS includes a program to lower pollution and greenhouse gas emissions by strengthening rail and urban transport infrastructure. The project is, therefore, consistent with meeting the objectives of infrastructure development in an environmentally sustainable manner through nonsovereign participation. III. A. Project Description 1. The Borrower and Sponsors THE PROJECT

17. The proposal for a metro system in Bangalore was cleared by the state government in March 2005 and the national government in April 2006. The national and state governments proposed that the project should be implemented through a special-purpose company. BMRC, an entity incorporated in India under the Companies Act 1956, will be the borrower for the project. BMRC is a public sector entity wholly and jointly owned (50:50) by the national and state
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ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 20082020. Manila. ADB. 2009. Country Partnership Strategy: India, 20092012. Manila.

governments. BMRCs board is chaired by the secretary of urban development of the national government, and the managing director is a senior civil servant from the Indian Administrative Service. 2. Project Design

18. The DMRC has been actively involved in assisting BMRC in planning, design, and procurement. The planning, design, and supervision of the works are the responsibility of a technical consultant engaged by BMRC (general consultant). The general consultant is a consortium of RITES (India), Oriental Consulting Company (Japan), Parsons Brinckerhoff International (United States), and SYSTRA (France), procured under the JICA guidelines through a transparent process.
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19. The metro rail transit system has been designed to meet a capacity of 40,000 peak-hour peak direction traffic. The operations plan envisages a 3.0-minute gap between trains with 31 trains on the northsouth line, and a 3.3 minute gap with 25 trains on the eastwest line. End-toend travel time is 33 minutes on the northsouth line and 44 minutes on the eastwest line. The scheduled speed is 32 km per hour, with a maximum of 80 km per hour.
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20. Procurement in relation to all the construction contracts has been conducted through open tenders on a transparent basis. BMRCs procurement processes are dictated by the Karnataka Transparency in Public Procurement Act (1999). Karnataka is one of the few states in India to have specific legislation for transparent procurement processes and penalties for violation thereof. In addition, the JICA ODA loan also has procurement covenants and therefore all procurement, including that of the general consultants, has been carried out transparently through open tenders. BMRCs audit is carried out by the comptroller and auditor general of India, and is a rigorous third-party examination. 3. Project Outputs and Outcome

21. The project will develop the physical infrastructure for a metro rail system for Bangalore and will operate the system as per the design parameters. The major components of the project are as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) An eastwest corridor of 18.1 km, including a 4.8 km underground portion. A northsouth corridor of 24.2 km, including a 4.0 km underground portion and interconnection between corridors at Majestic. One at-grade station, 32 elevated stations, and 7 underground stations. Electrical works consisting of 750 volts direct current third rail traction and power supply. A signaling and telecommunications system consisting of continuous automatic train control with cab signaling, a centralized train control system comprising automatic train protection, and automatic train supervision. An automatic fare collection system with 69 ticketing gates per station. Initially 168 rolling stock units (cars) for initial operations, comprising 56 trains of 3 coaches each. Subsequently, in line with projected demand, this will be increased to 56 trains of 6 coaches each with a total of 336 cars. Depots at Byappanahalli and Peenya.

22. The project outcome will be an efficient, well-used, environmentally friendly, and financially stable urban transport system for Bangalore. Better connectivity and efficiency in the

transport systems will make the city more attractive for business investments and contribute to economic growth. The project will increase the share of public transport in total intracity passenger movements and improve the environmental quality of the city. It is estimated that by 2021 usage will be around 2 million passenger trips per day, and the underlying modal shift from private to public modes is expected to be 10%15% for BMRC alone (not factoring in any new line developments). B. Development Impact 1. Contribution to Economic Growth and Poverty Reduction

23. India's economic growth over 20012008 has spurred rapid urbanization, with 28% of the total population living in urban agglomerations; this is expected to reach 40% of the total population, or around 590 million people, living in urban areas by 2030. 6 Forty metropolitan cities 7 with a population of more than 1 million account for 35% of the urban population. It is expected that by 2030, 60 metropolitan cities will have populations exceeding 1 million. Urban India contributes 58% of gross domestic product, and this is expected to reach 70% by 2030 and generate 70% of new employment. The number of urban households is expected to increase from 22 million in 2010 to 91 million in 2030, with a fourfold increase in average national income. Growth of the urban areas is therefore vital for India's economic growth and for an equitable distribution of growth, but it brings enormous challenges, not least to effective transportation.
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24. To contribute to growth, urban areas require adequate and suitable infrastructure, of which public transportation is an essential component. Public transportation networks (i) enable access to more productive urban space usage and improved densification patterns; (ii) mitigate environmental pollution in areas where vehicular emissions are significant; (iii) save fuel; and (iv) provide connectivity solutions for all, especially the poor and middle-income groups. Efficient transport systems save travel time, making city workforces more productive, improving the image of a city, and making a city a more attractive place for investment and business. Evidence indicates a direct cost of congestion of around 2% of gross domestic product per year, which public transportation systems can help alleviate. The projects direct development impact is that it creates a mass transit system that supports economic growth, employment generation, and equitable connectivity. It also mitigates environmental pollution by providing an alternative to private vehicles. The project will demonstrate the functioning of a sustainable urban transport company with adequate institutional and governance structures and an innovative urban transport financing model. It will provide a successful modality for public transport which can be replicated in other cities.
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Widening Access to Markets and Economic Opportunities

25. The focus of the project is to create a commercially viable and bankable project vehicle that can successfully attract commercial debt. The project structure, leveraging sovereign equity and loans with commercial lending, creates a self-sustaining model for financing urban transport projects. The successful implementation of the project should lead to its replication and catalyze commercial debt and private sector participation in the sector in other places.

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McKinsey Global Institute. 2010. India's Urban Awakening: Building Inclusiveness, Sustaining Economic Growth. http://www.mckinsey.com/mgi/reports/freepass_pdfs/india_urbanization/MGI_india_urbanization_fullreport.pdf. Of 5,161 urban agglomerations.
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Economic Sustainability

26. Implementation of the project will result in a modal shift toward public transportation, lower levels of congestion with a substantial reduction in the number of buses, and lower use of private vehicles, leading to fuel savings, improvements in air quality, time savings, and lower levels of accidents. Many of these benefits are difficult to quantify, but BMRC has proposed the creation of an environmental and social management division that will ensure not only project compliance with ADBs environmental and social safeguards but also the development of emissions monitoring for the city over the long term. C. Environment and Social Dimensions 1. Environment

27. The project is expected to contribute to significant environmental improvements for Bangalore city. A decrease in noise and air pollution along with reduced average fuel consumption is expected because of reductions in projected traffic growth volumes on the transit corridors (in a without-project scenario). 28. Temporary adverse environmental impacts are expected largely during the construction phase of the project involving elements such as the elevated and underground sections of the metro rail alignment, stations, maintenance depots, and casting yards. The project management has ensured that adequate mitigation measures have been taken to reduce these impacts. 29. According to initial environmental impact assessments, BMRC has already incorporated several measures to mitigate any environmental impacts, including noise reduction measures through installing soundproof walls and soundproofing pads, and air quality monitoring equipment placed all along the alignments. The Indian Institute of Science in Bangalore was appointed to monitor the groundwater level and quality during construction. 30. The project has been classified as category B for environment under ADBs Safeguard Policy Statement. In accordance with ADBs Safeguard Policy Statement (2009), an initial environmental examination (IEE) was carried out. 31. Some of the significant impacts and mitigation measures related to the project alignment are as follows: (i) Proximity (about 40 meters) of one of the underground sections to the Tipu Sultan Palace, which is a heritage structure as per the Archaeological Survey of India (ASI), has been addressed on the basis of mitigation measures to minimize vibration impacts as recommended by the National Physical Laboratories and the ASI clearance conditions. The ASI has already accorded a formal clearance to BMRC to go ahead with the construction based on the National Physical Laboratories study findings. Tree cutting along the alignment has been addressed through better route planning to avoid or bypass areas with thick vegetation and the implementation of compensatory forestation programs (on a 1:10 basis) in pre-identified public areas. The plantation program was verified and found satisfactory in terms of native species, density, and survival rates. Debris, spoil generation and disposal from tunneling of underground sections will be mitigated by sound disposal in low-lying areas in the south of the city approved

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by the Bruhat Bengaluru Mahanagara Palike (civic administration). Other mitigation measures on transportation of soil have been factored into the IEE. BMRC has mainstreamed environmental mitigation into its contractual agreements such that all contractors involved in construction of the metro will be obliged to implement the environmental management plan and ambient monitoring programs, conduct environmental, health and safety audits, and provide periodic reports to BMRC. Noncompliance and defaults will be followed up with necessary action. BMRC has its own environmental and social institutional capacity to coordinate and supervise the implementation of environmental management plan measures.

32. Public consultation has been carried out by BMRC and suggestions and comments from the community have been incorporated in the project design and execution. The IEE prepared for the project captures all the above and will be disclosed on the ADB website in accordance with ADBs Safeguard Policy Statement. 2. Social Dimensions

33. Land acquisition for the project was initiated in 2006 and has been completed in accordance with the Karnataka Industrial Area Development Board Act. The total length of the project corridor (metro line) is about 42.3 km connecting the northsouth and eastwest ends of Bangalore city. The total land requirement for the project was 124 hectares (ha). Of this, 30 ha of land was private land and the remaining 94 ha of land was government land. There were 875 land parcels affected, of which 811 were private and the remaining 64 were government land. The total number of affected households is 1,838. A detailed break up of land requirement for each corridor is available. 34. BMRC adopted a transparent approach for the acquisition of land and properties, cash assistance for rehabilitation, and appropriate compensation packages. The rehabilitation packages were developed and have been implemented and cash compensation has been paid to the affected households by BMRC. The cash assistance included a shifting allowance, inconvenience allowance, right to salvage material, transitional allowance, rental income loss allowance, business premises reestablishment allowance and a business loss allowance. In addition, BMRC is meeting the cost of restoring the affected portions of public property, including a school, hospital, park and religious structure. Rehabilitation packages, designed for the benefit of persons who suffered loss of land, properties and income and livelihoods, have been paid simultaneously with the compensation. Additionally, affected slums were rehabilitated through a new housing scheme developed in the Peenya area where the slum dwellers have been allotted housing. BMRC has allotted and registered new houses for the slum dwellers in the name of women of the household which is in compliance with international best practices. 35. A social due diligence audit has been carried out to assess whether land acquisition and resettlement processes and their implementation complied with ADBs Safeguard Policy Statement and government guidelines. The social due diligence audit included consultations with affected local people to assess views on property acquisition, resettlement, and compensation packages and processes. These have been found to be largely favorable towards the BMRC processes, which have also been positively highlighted in the local media. The compensation was paid at replacement value. BMRC has developed a rehabilitation package dealing with assistance to affected local people with eligibility and entitlements for various losses being, in principle, at par with the ADBs requirement under ADBs Safeguard Policy Statement. This is consistent with international best practices.

36. Due diligence also identified eight pending cases of litigation related to compensation and resettlement. However, BMRC has already taken all necessary advance action steps, including depositing compensation amounts with the court which will determine the grievance claims. Similar cases have in the past been resolved quickly and amicably and generally in BMRCs favor, since BMRC has remained committed to providing strong compensation and rehabilitation packages. 37. The project, initially categorized A for involuntary resettlement based on preliminary publicly available information, has been recategorized as category C following ADBs detailed safeguards assessment and detailed due diligence. This established that land acquisition and resettlement and rehabilitation processes have been completed (in compliance with ADBs Safeguard Policy Statement) and affected persons have all received compensation (excluding the eight cases noted in para. 36). 38. The social due diligence report assessed the impacts on indigenous peoples; there are no indigenous peoples affected by the project. The project is categorized C for indigenous peoples. D. Implementation Arrangements 1. Management

39. The project is being implemented by BMRC, the special-purpose company established by the national and state governments for the project in 1994. BMRC will also carry out the project operations and management once the metro is functioning. BMRC's board comprises 13 directors, which includes five from the national government (urban development, railways, and the DMRC). The chair of BMRC is the secretary of urban development of the national government. There are five board members from the state government, including the managing director and principal secretary finance, and three functional directors who are experts in railway development and operations or transport engineering. The company has been operating as an independent entity for several years and will agree in the ADB loan agreement to comply with sound corporate governance requirements. 2. Construction Arrangements

40. BMRC has made good progress and the project is in an advanced stage of construction as reflected by the following milestones: (i) land acquisition is completed; (ii) reach 1 8 is nearing completion and proposed for opening by early 2011; (iii) 80% of the contracts have been awarded, and the balance are under bid; (vi) train manufacture has commenced, with the first train having rolled out in the Republic of Korea in September 2010. 9
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3.

Operations Arrangements

41. BMRC will be the project operator responsible for recruiting operation and maintenance staff. The operations manual, safety manual and requirements, procedures, and staff training will be provided by the general consultants. This is in line with the practice followed by the DMRC for
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The project is divided into four reaches and underground portions. Reach 1 of 6.5 km with six stations extends from Cricket Stadium to Byappanahalli station. The procurement followed a global tender, in which four international consortia were short listed prior to obtaining competitive price quotations. The tender also had a technology transfer element to an Indian domestic company.

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Delhi. Indian Railways has a large pool of trained traffic controllers and these may also be seconded to BMRC for train operations. BMRC has proposed that noncritical functions should be outsourced through suitable contracts. 4. Anticorruption Policy

42. BMRC was advised of ADBs Anticorruption Policy (1998, as amended to date) and policy relating to the Combating of Money Laundering and the Financing of Terrorism (2003). Consistent with its commitment to good governance, accountability, and transparency, ADB will require BMRC to institute, maintain, and comply with internal procedures and controls following international best practice standards for the purpose of preventing corruption or money laundering activities or the financing of terrorism, and covenant with ADB to refrain from engaging in such activities. The loan documentation between ADB and the BMRC will further allow ADB to investigate any violation or potential violation of these undertakings. 5. Project Performance Monitoring, Reporting, and Evaluation

43. BMRC will report to ADB on the progress of the project procurement, construction, and initial operation, as well as the financial statements, business plan, and indebtedness plan. Construction and procurement progress and initial operations will be reviewed by the lenders technical consultant and assessed against the projects schedule, specifications, and budget. Disbursements of ADBs loan will be conditional upon receipt by ADB of reports from the lenders technical consultant satisfactory to ADB. BMRC will provide, among other things, semiannual unaudited financial statements, audited financial statements, and annual business plans which include projected financial statements, a capital expenditure plan, and confirmation of compliance with financial covenants for the next financial year. BMRC will submit the annual indebtedness plan for ADBs approval, and BMRC is obliged to comply with the annual indebtedness plan for the next financial year. BMRC also will provide an annual review of compliance with environmental and social safeguards pursuant to ADB's Safeguard Policy Statement. IV. A. The Assistance 1. Instrument and Amount THE PROPOSED ADB ASSISTANCE

44. The proposed ADB loan is of up to $250 million to BMRC, a special-purpose company established to develop, operate, and maintain the project. The loan will be provided from ADBs ordinary capital resources without government guarantee. B. 45. Justification for ADB Assistance ADBs support for the project is justified based on the following: (i) Urban infrastructure development is often financed mainly by grants from the government, contributions from municipal government finances, or by multilateral finance institutions backed by sovereign government guarantees. The capital investment for financing urban infrastructure in India is estimated at $1.2 trillion

11

(ii)

(iii)

from 2011 to 2030 and $2.2 trillion 10 if operating expenditures are included. To meet such volumes of investment, a paradigm shift is required in sourcing financing, including exploring new sources, the efficient application of these funds, and efficient management of assets created so as to minimize operating costs (or overall life cycle costs) to ensure sustainability. To effect this shift in financing, institutional accountability, good corporate governance, planned urban development, and effective leveraging of government grants are a prerequisite. ADBs participation, and compliance with ADBs requirements, will help promote strong governance, robust institutional accountability, and overall efficiency in operations. Few financial institutions have the ability to structure appropriate financial models and the appetite to lend long-term funds to capital-intensive public service projects. The creation of a dedicated institutional vehicle for managing life cycle costs of public infrastructure with due accountability, good governance, and leveraging government grant funds or viability gap funding support will help to catalyze additional finance for the project. ADBs participation, capital structuring, and due diligence will help mobilize long-term debt funding and catalyze domestic financial institutions such as banks and insurance funds to consider long-term loans for this project. Similar structuring for other projects with viability gap funding can effectively replicate this model. Compliance with ADBs environmental and social safeguards will ensure proper resolution of social issues and mitigation of adverse environmental impacts, if any.
PF FP

C.

Assurances
TPF FPT

46. Consistent with the Agreement Establishing the Asian Development Bank (the Charter), 11 the Government of India will be requested to confirm that it has no objection to the proposed assistance to BMRC. ADB will enter into suitable finance documentation, in form and substance satisfactory to ADB, following approval of the proposed assistance by the ADB Board of Directors. V. RECOMMENDATION

47. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank and recommend that the Board approve the loan of up to $250,000,000 to the Bangalore Metro Rail Corporation for the Bangalore Metro Rail Transit System Project from ADBs ordinary capital resources.

Haruhiko Kuroda President 9 March 2011

Mckinsey and Company. 2010. India's Urban Awakening: Building Inclusiveness, Sustaining Economic Growth. http://www.mckinsey.com/mgi/reports/freepass_pdfs/india_urbanization/MGI_india_urbanization_fullreport.pdf. 11 ADB. 1966. Agreement Establishing the Asian Development Bank. Manila.
TP PT TP PT

10

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Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Impact 1. Improved urban infrastructure supports economic growth in urban centers through better connectivity and access Share of urban Bangalore GDP increases from 33% in 2008 to 38% in 2020 Emergence of similar mass public transit systems in at least three of India's large cities with a population of over 2 million by 2015 At least three public transport systems have private sector, foreign direct investment, and commercial financial support by 2018 Publication of macroeconomic indicators by the Government of India and the Government of Karnataka Assessment reports on urban transport in the country from MOUD Performance Targets and Indicators Data Sources and Reporting Mechanisms

2. Crowding-in of private sector investment and commercial non-recourse finance into large urban transport projects Outcome An efficient, well utilized, environmentally friendly, and financially sustainable urban rail transport system is developed for Bangalore city.

Share of public transportation in Bangalore increases from 46% in 2009 by at least 5% by 2019 and another 5% by 2023. Average reduction in passenger travel times at peak hours by at least 15 minutes for an average journey of 8 km by 2015 Reduction of vehicular emissions of carbon monoxide, nitrous oxide, and hydrocarbons by at least 2.5% by 2020 from 34 mg/m3 of nitrous oxide and 4 mg/m3 of carbon monoxide in 2006

MOUD reports on urban transport and on BMRC Monitoring and progress reports by BMRC Independent audits by environmental agencies

Outputs 1. Infrastructure for phase 1 is completed 2. Well functioning institutional and operational arrangements for managing the MRT system 3. Financially bankable structure is developed and implemented EastWest Corridor: 18.1 km including 4.8 km underground portion and depot at Byappanahalli is in operation by October 2013. NorthSouth Corridor: 24.2 km including 4.0 km underground portion and interconnection between corridors at Majestic and depot at Peenya is in operation by October 2013. State government and BMRC progress reports and online posting of construction progress BMRC minutes on meetings and formally approved institutional arrangement reports Audited financial statements of BMRC ADB review mission reports

Appendix 1

13

Design Summary

Performance Targets and Indicators Inclusion of commercial and other financing into project structure for financial closure by 2013 ADB's social and environmental safeguards are complied with in full. During operations, the project employs 1,640 key operations and 70 management staff for managing the MRT system in place by 2013

Data Sources and Reporting Mechanisms

ADB = Asian Development Bank, BMRC = Bangalore Metro Rail Corporation, GDP = gross domestic product, JICA = Japan International Cooperation Agency, km = kilometer, MRT = mass rail transit, MOUD = Ministry of Urban Development. Source: Asian Development Bank.

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Appendix 2

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title : India: Bangalore Metro Rail Transit System Project South Asia Department/ Public Management, Financial Sector and Trade Division Private Sector Operations Department/ Infrastructure Finance Division 1

Lending/Financing Modality:

Direct Loan (Nonsovereign public sector loan)

Department/ Division:

I.

POVERTY ANALYSIS AND STRATEGY

A. Link to the National Poverty Reduction Strategy and Country Partnership Strategy Consistent with the country partnership strategy (CPS) for India's 3-year assistance program (20092012)a and specifically with the CPS emphasis on environmental improvement and Climate Change Implementation Plan (2009 2011) and recommended financing of "MRT [mass rapid transit] projects in medium sized Indian cities," the project has a positive impact on economic growth for poverty reduction. The project aims at (i) environmental improvement through clean transport, (ii) effective urban transportation for economic growth, and (iii) the development of a bankable project structure as a model for catalyzing private sector funding, all of which are regarded as central goals of Strategy 2020 of the Asian Development Bank (ADB).b The project supports ADB's private sector development strategy by establishing a bankable financial model for a large infrastructure project without sovereign guarantee, which will catalyze private sector participation and attract financing from commercial financiers into other such projects in India. The project strongly supports the CPS for India by supporting the transport sector (a priority area), as well as other thematic priority areas noted in the CPS such as environmental sustainability, private sector development, and private sector operations. Consistent with ADB's urban sector, financial sustainability, and social safeguards focus, the project supports self-sustainability of urban sector projects, which is in line with ADBs urban transport strategy for local governments to self-finance and sustain urban development projects without dependence on central government finances. ADB support provides crucial credibility for the project, which has several pioneering aspects: (i) new public transport modality, (ii) institutional development, and (iii) project financing structures. The project supports implementation of metro rail-based public transport systems. These are crucial for providing costeffective connectivity, especially in middle-sized Indian cities currently suffering from public transport gaps and exponential private vehicular growth leading to growth in pollution, accidents, and travel delays. Overall, successful project implementation will catalyze similar projects in other local municipal governments, leading to better public transport development in Indian cities and, crucially, spurring commercial finance into the sector, thus effecting a better use of limited government funds.
P P P P

B.

Poverty Analysis

Targeting Classification: General intervention

1. Key issues. The prime impact of the project is on developing effective mass connectivity solutions for urban centers and thus aiding overall economic growth. By providing a sustainable public urban transport modality in Bangalore city, the Metro Rail Transit System Project has an indirect impact on poverty reduction through both cost and time savings which can be factored in at various levels, including (i) reduced average travel costs per km versus private vehicular transport, (ii) reduced time delays in travel due to a dedicated travel corridor, and (iii) improved health costs over a longer period due to anticipated lower vehicular emissions in the city. In addition, through the development of a citywide transport grid, the project covers a large catchment area of the city providing accessibility to both low- and middle-income workers to attractive labor markets in the developing industrial and commercial parts of the city. The project's key outcomes will be the implementation of a metro rail system in the city and the limited recourse finance model. Benefits include (i) the provision of sustainable public transport for the city's 8.5 million population by 2012, providing an alternative to private vehicles; (ii) traffic decongestion and faster travel times versus the status quo of growing private vehicle traffic, aiding in improving traffic accident rates, time saving for commuters, increased productivity and hence economic growth; (iii) environmental improvement by providing a more energy efficient mass urban transport system (energy requirements estimated to be a fraction of the comparable road-based systems) as well as through reducing fuel consumption and pollution impacts from private vehicles, considered to be a key factor in urban pollution growth in recent years; (iv) the demonstration of sustainable financial and operations management through a dedicated urban transport company; (v) demonstration of bankability structuring through the limited recourse financing model and credit enhancement mechanisms able to catalyze further commercial financing; and (vi) demonstration of the use of property realizations to provide an innovative revenue source for financing infrastructure, linked to land use planning and efficient spatial development. The project benefits the urban poor and middle class by providing a cheaper, safer, and more efficient public transport system.

Appendix 2

15

2. Design features. No direct impact on poverty is envisaged as a result of the implementation of this project. Nonetheless, the project will have indirect impacts on Bangalore, Karnataka, and India as a whole. II. A. Findings of Social Analysis A social impact assessment was conducted as part of the preparation of environmental impact assessment reports. Bangalore city has a population of 5.70 million according to the census statistics for 2001, as against the citys earlier population of 2.92 million in 1981 and 4.13 million in 1991. This shows that the population has nearly doubled in the last 20 years, and the growth rate is currently around 3.8% annually. The geographical boundaries of the city are also expanding rapidly, as evident from the census data, which showed the city area as 386 square kilometers (km2) in 1981, 446 km2 in 1991, and 531 km2 in 2001. With increasing population and reduced available land area, the citys population density was 7,983 persons per km2 in 1981, 9,260 persons per km2 in 1991, and 10,710 persons per km2 in 2001. It is further projected that the population size of the Bangalore urban agglomeration will be around 7.8 million in 2011 and 11.0 million in 2021. A city of this size with a rapidly rising population of the above magnitude demands a whole range of civic services, including the vital transportation sector. The per capita income at current prices in urban areas only is Rs28,305; 83.91% of the people are literate. There are 77 hospitals, 31 dispensaries, 2,772 primary schools, 1,177 high schools, 209 pre-university schools, 24 engineering colleges, and 4 universities. Onequarter of the people sampled in the eastwest corridor and 41% in the northsouth corridor are from lower economic backgrounds. The higher-income group is the smallest group, and the middle- and lower-income groups are the biggest; 75% of the people sampled in both the eastwest and northsouth corridors are business people. In terms of educational background, 6.25% of the people sampled in the eastwest corridor are illiterate; in the northsouth corridor there were no illiterate people in the sample; 29% of the people sampled in the eastwest corridor and almost 45% in the northsouth corridor are graduates.
P P P P P P P P P P P P

SOCIAL ANALYSIS AND STRATEGY

B.

Consultation and Participation

Consultations were carried out with all the stakeholders during the preparation of the project. As an integral part of land acquisition, affected communities and affected people were directly and fully involved in the project. All stakeholders were informed and the stream of information will continue during the implementation of the project. Consultations were held to ensure participation and minimization of the negative impacts. Different techniques of consultation with stakeholders were used during project preparationpublic opinion, public meetings, group discussions, and interactive sessions, etc. Given the chaotic urban road traffic, public opinion makers were asked whether a metro rail system would be a viable alternative to the existing modes of transport; 91% of the sample felt that it could be a viable, quick, comfortable and safe means of transport, and thus should be welcomed. To understand the socioeconomic profile of the affected persons, questionnaires were designed and information was collected from the 788 households. An interactive meeting was held with members of the public, media, and concerned environmental groups at Bangalore University Senate Hall, when the salient features of the metro rail project for Bangalore along with its projected benefits to the community and environmental and socioeconomic impacts were explained by the project proponents. This was followed by intense discussions and a question and answer session. On the basis of deliberations, a consensus emerged from the meeting that the metro rail project implementation would result in a better mode of transport with a wide range of benefits to the community. Additionally, consultations were held during the due diligence study after the land acquisition period, and these showed peoples support for the project and the smooth process of land acquisition. Consultation will be continued during project implementation. 2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment 3. Was a C&P plan prepared? Yes No If a C&P plan was prepared, describe key features and resources provided to implement the plan (including budget, consultant input, etc.). If no, explain why. C&P was considered as a part of the more extensive resettlement planning exercise. Local communities and affected people were consulted throughout the preparation process to minimize impacts, ensure social acceptance, and increase equitability. The process will continue during the implementation of the project. Views and concerns of all stakeholders will be taken into consideration and addressed whenever feasible. Finally, local customs, religious practices, and traditional activities have been considered as a fully integrated part of the preparation process to avoid discrimination and/or disruption of activities. The executing and implementing agency (Bangalore Metro Rail Corporation [BMRC]) will ensure that essential participation process will be continued throughout the project implementation.

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Appendix 2

C. Gender and Development 1. Key issues. No particular issue is expected to arise from the implementation of the project. The project will have a positive impact on women. Gender impacts of transport projects are generally favorable. It is evident that availability of a better metro rail system and safe connectivity with better transport services will benefit the women of the area. Their mobility will be improved in terms of access to social services, higher levels of schooling, and better health facilities, etc. Additionally, during the project implementation, efforts will be made by the project authority for women to receive preferential treatment for employment in the civil works, with proper health safeguards. The executing agency will ensure that affected women are consulted and invited to participate in group-based activities to enable them to gain access to and control over resources. 2. Key actions. Measures included in the design to promote gender equality and womens empowermentaccess to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures No action/measure III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Significant/Limited/ Strategy to Address Issue Plan or Other No Impact Measures Included in Design No impact Land acquisition had already been Resettlement plan completed before the intervention of Resettlement ADBs finance. The land was framework already in the possession of BMRC and the land was acquired as per Combined the Karnataka Industrial Area resettlement plan Development Board. Additionally, a and indigenous rehabilitation package was peoples plan developed by BMRC to be provided Combined to the affected people in addition to resettlement the compensation. Therefore, social framework and due diligence was carried out to indigenous peoples gauge the compliance of the land planning framework acquisition and resettlement process Environmental and as per the national and state laws social management with that of ADBs policy. system arrangement None Indigenous peoples
HT TH

Issue
Involuntary resettlement
HT TH

No impact Indigenous peoples plan Indigenous peoples planning framework Combined indigenous peoples plan and resettlement plan Combined resettlement framework and indigenous peoples planning framework Indigenous peoples plan elements integrated in project design with a summary Environmental and social management

Appendix 2

17

system arrangement Environmental and social impact matrix None Labor Employment opportunities Labor retrenchment Core labor standards Affordability Other risks and/or vulnerabilities HIV/AIDS Human trafficking Others(conflict, political instability, etc.), please specify Job opportunities will open for skilled and unskilled labor during project implementation. No particular issue is expected. There is no other risk foreseen. However, the implementing agency through its civil contractor will ensure appropriate health, safety, and sensitive issues during the implementation of the project. IV. MONITORING AND EVALUATION Specific assurances will be added for the Borrower to require its contractors to comply with the core labor standards on the work camps/sites. Plan Other action No action

Action No action Plan Other action No action

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No ADB = Asian Development Bank, BMRC = Bangalore Metro Rail Corporation, CPS = country partnership strategy, MRT = mass rail transit. a ADB. 2009. Country Partnership Strategy: India, 20092012. Manila. b ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 20082020. Manila. Source: Asian Development Bank.
P P P P