ASIAN DEVELOPMENT BANK RRP:BAN 32467

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO THE

PEOPLE’S REPUBLIC OF BANGLADESH

FOR THE

CHITTAGONG HILL TRACTS RURAL DEVELOPMENT PROJECT

October 2000

CURRENCY EQUIVALENTS(as of 2 October 2000)

Currency Unit – Taka (Tk)Tk1.0 = $0.0196$1.0 = Tk53.83

The value of the taka is fixed in relation to a basket of reference currencies with the USdollar as the intervention currency. For the purpose of calculations in this Report, anexchange rate of $1.00=Tk51.00 is used.

ABBREVIATIONS

ADB – Asian Development BankBME – benefit monitoring and evaluationBMS – benchmark socioeconomic surveyCHT – Chittagong Hill TractsCHTRC – Chittagong Hill Tracts Regional CouncilCIF – Community Investment FundDAE – Department of Agricultural ExtensionDanida – Danish International Development AgencyDPMU – district project management unitFRB – feeder road type BGDP – gross domestic productHDC – Hill Tracts District CouncilHES – household expenditure surveyIA – implementing agencyIEE – initial environmental examinationIPDP – indigenous peoples development planLCS – labor contracting societyLGD – local government divisionLGED – Local Government Engineering DepartmentMCHTA – Ministry of Chittagong Hill Tracts AffairsNGO – nongovernment organizationO&M – operation and maintenancePKSF – Palli Karma-Sahayak FoundationPMU – project management unitRCC – regional coordinating committeeRIDP – rural infrastructure development projectSCO – savings and credit organizationSOE – statement of expenditureTA – project preparation technical assistanceWFP – World Food Programme

WEIGHTS AND MEASUREMENTS

ha – hectarekm – kilometerm – meter

NOTES

(i) The fiscal year (FY) of the Government of Bangladesh is from 1 July through 30 June.(ii) In this report, “$” refers to US dollars.

CONTENTSPage

LOAN AND PROJECT SUMMARY ii

MAP vi

I. THE PROPOSAL 1

II. INTRODUCTION 1

III. BACKGROUND 1

A. Sector Description 1B. Government Policies and Plans 6C. External Assistance to the Sector 7D. Lessons Learned 8E. ADB’s Sector Strategy 10F. Policy Dialogue 10

IV. THE PROPOSED PROJECT 13

A. Rationale 13B. Objectives and Scope 13C. Cost Estimates 17D. Financing Plan 17E. Executing Agency 18F. Implementation Arrangements 19G. Environmental and Social Measures 26

V. PROJECT JUSTIFICATION 28

A. Economic and Financial Analysis 28B. Social Dimensions 32C. Project Impact on Poverty 32

VI. ASSURANCES 33

A. Specific Assurances 33B. Conditions for Loan Effectiveness 34

VII. RECOMMENDATION 34

APPENDIXES 35

LOAN AND PROJECT SUMMARY

Borrower People’s Republic of Bangladesh

ProjectDescription The Chittagong Hill Tracts (CHT) is a unique geographical and

cultural section of Bangladesh, with a mix of tribal peoples from 13distinct groupings, and Bengalis, most of who have recentlysettled from the adjoining plains’ districts. The area has beendevoid of significant externally financed development interventionsfor the last two decades due to a 20-year insurgency, whichresulted in a general deterioration in the quality of life of the CHTpopulation. Basic socioeconomic indicators for the CHT reveal aregion suffering from both low income and poverty, especiallyamong the rural population. The Project has been designed tocontribute to a reduction in the incidence of absolute poverty in theCHT and to provide a confidence-building environment tounderpin the 1997 peace accord in which local communities willbe empowered to decide on their own development priorities andactively participate in the subsequent investments. The Project willincrease employment and income generating opportunities for thepopulation, and result in a general improvement in the quality oflife of the target population.

Classification Primary: Poverty Reduction

Environment Category BAssessment An initial environmental examination was undertaken.

Rationale Rural poverty and lack of resources epitomize economic life in theCHT. A large percentage of the rural community consists ofpeople who do not have secure rights to land use, clearly adisincentive to their investing in improved farming techniques andresource management. Additionally, the CHT’s infrastructure ispoor, markets are underdeveloped, and the institutional supportsystem is not structured to address the needs of the rural poorand landless. The Project will be among the first majordevelopment initiatives in the CHT for over two decades. It willcontribute to efforts to reduce the incidence of poverty among therural population in the CHT through developing the basic physicalinfrastructure and income-generating opportunities that will (i)substantially raise the standard of living of the landless and smallmarginal farmers, and (ii) encourage women to become widelyinvolved in community decision-making and enterprisedevelopment in the rural areas. These developments willrecognize the unique and fragile physical environment and willincorporate sound sustainable management practices. Thisapproach is consistent with the Government’s rural developmentstrategy. It also directly supports the emerging collaborationbetween the Government and nongovernment organizations

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(NGOs) in the provision of services, including microfinance, to therural poor.

Objectivesand Scope The objective of the Project is to help reduce the incidence of

absolute poverty in the CHT. A supporting objective will be toprovide a confidence-building environment to underpin the peaceaccord. These objectives will be achieved through (i) increasingemployment and income-generating opportunities throughimproved rural infrastructure; (ii) providing access to training andimproved on- and off-farm productive technology; (iii) increasingthe availability of microfinance services to expand productiveactivities; and (iv) strengthening the capacity of local governmentinstitutions, NGOs, and beneficiaries to plan and implement localdevelopment activities, thus providing a sound institutionalcapability for further development initiatives. The Project scopeincludes (i) upgrading basic rural infrastructure of feeder roads,rural roads, and trails (including bridges and culverts); (ii) acommunity development component that will establish acommunity investment fund in each subdistrict to providematching funds for small-scale activities at the village level; (iii)provision of microfinance to enable the poor to improve theirincome generation capacity through development ofmicroenterprises; and (iv) project management support.

Cost Estimates The total cost of the Project is estimated at $60.3 million, inclusiveof physical and price contingencies, taxes, and duties. The totalforeign exchange cost is $11.0 million and the local currency costis $49.3 million equivalent.

Financing Plan ($ million)

SourceForeign

ExchangeLocal

CurrencyTotalCost Percent

ADB 8.3 21.7 30.0 50Danida 2.7 12.3 15.0 25PKSF 0 3.6 3.6 6Beneficiaries 0 2.6 2.6 4Government 0 9.1 9.1 15

Total 11.0 49.3 60.3 100ADB = Asian Development Bank, Danida = Danish International DevelopmentAgency, PKSF = Palli Karma-Sahayak Foundation.

Loan Amount andTerms The loan will be the equivalent in various currencies of SDR

23,251,000 ($30.0 million) from ADB’s Special Funds resources,with a maturity of 32 years including a grace period of 8 years andan interest charge of 1 percent per annum during the grace periodand 1.5 percent per annum thereafter to be paid semiannually.

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Period ofUtilization Until 30 September 2008

ImplementationArrangements The CHT Regional Council will be the lead Implementing Agency

for the Project and, therefore, will coordinate and supervise overallproject implementation. The agencies responsible forimplementing the individual components are (i) the LocalGovernment Engineering Department (LGED) for the ruralinfrastructure component, (ii) the three hill district councils forcommunity development activities, (iii) an apex institution throughlocal NGOs for the microfinance component, and (iv) the projectmanagement unit (PMU) for project management. A nationalproject steering committee will be established to help resolve anynational policy and implementing constraints on the Project. Aregional coordinating committee will be established in the CHT tooversee implementation and progress of the Project. Communitydevelopment committees will be established to work with groupsof villages under the community development component.

Executing Agency The Ministry of Chittagong Hill Tracts Affairs

Procurement Civil works contracts for rural roads and ancillary infrastructureimprovement and community development will be awarded on thebasis of local competitive bidding procedures among prequalifiedlocal contractors in accordance with ADB’s Guidelines forProcurement and other government procedures acceptable toADB. Organized community groups’ representatives willparticipate through the community development committees inselecting contractors and procurement of materials. Vehicles andequipment will be procured through direct purchase for packagesnot exceeding $100,000 and the rest will be procured throughinternational shopping.

ConsultingServices ADB has approved advance action for the recruitment of

consultants and the procurement of equipment and vehicles tofacilitate the timely implementation of the Project. TheGovernment has been informed that the approval of advanceaction does not commit ADB to approve or finance the Project,and does not include retroactive financing. The Government hasrequested, and ADB agreed, that ADB will assist the Governmentto carry out the advance action for the recruitment of consultants.A total of 112 person-months of international and 232 person-months of domestic consulting inputs will be required under theProject to support project implementation. NGOs will becontracted for community mobilization, skills training, and capacitybuilding, and to provide microfinance services to village savingsand credit organizations. NGOs will be engaged by the PMU on adirect contractual basis.

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Estimated ProjectCompletion Date 31 March 2008

Project Benefitsand Beneficiaries The Project’s target population is the rural poor of the CHT. The

Project is expected to provide direct benefits to about 52,000households comprising about 338,000 people through increasesin incremental household incomes due to improved ruralinfrastructure, use of improved technology for on- and off-farmproductive activities, and employment in public works. A widearray of nonquantifiable benefits will also result from the Project.Successful implementation of the Project will benefit the targetpopulation through their acquisition of new or improved skills;increased earning opportunities and incomes; better communityorganization; and greater access to productive assets,infrastructure, and economic and social services. They also willbenefit more broadly from improvements in the abilities of localgovernment bodies to deliver services in response to demand.

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I. THE PROPOSAL

1. I submit for your approval the following Report and Recommendation on a proposedloan to the People’s Republic of Bangladesh for the Chittagong Hill Tracts Rural DevelopmentProject.

II. INTRODUCTION

2. The proposed Chittagong Hill Tracts Rural Development Project (the Project) is includedin the 2000 country assistance plan of the Asian Development Bank (ADB) for Bangladesh. Inresponse to a request from the Government of Bangladesh, ADB provided technical assistance(TA) to prepare a rural development project to contribute to reducing poverty in the ChittagongHill Tracts (CHT).1 Work under the TA began in September 1999. A final report was submittedin April 2000. ADB is streamlining its business processes, and this year is conducting a trial runby processing two agriculture loans in Bangladesh, including the Chittagong Hill Tracts RuralDevelopment Project. In keeping with the new business processes, no fact-finding mission wasprogrammed for the proposed Project. A loan appraisal mission was conducted during 2-14 July2000.2 Extensive consultation between the consultants, stakeholders in Bangladesh, and ADBhave taken place during the preparation of the Project to ensure that key issues will be properlyaddressed. Identification of project components was based on (i) a benchmark andsocioeconomic survey carried out under the TA; (ii) a series of participatory rural appraisals; and(iii) discussions with target communities, local government bodies, and other stakeholders,including nongovernment organizations (NGOs). Subsequent ADB project processing missionsvisited the proposed project area and undertook extensive consultations with local institutions,stakeholders, and beneficiaries. The project framework is presented in Appendix 1.

III. BACKGROUND

A. Sector Description

1. The Chittagong Hill Tracts

3. The CHT is a unique geographical and cultural section of Bangladesh.3 It coversapproximately 13,300 square kilometers (km2), about 8 percent of Bangladesh’s total area, andsupports under 1 percent of the national population. The CHT consists of three districts—Bandarban, Khagrachari, and Rangamati—and unlike most of Bangladesh, is dominated bysteep hills and narrow valleys, many of which are remote and difficult to access. The region’spopulation is made up of tribal peoples from 13 distinct groupings, and Bengalis—most of whohave recently settled from the adjoining plains' districts. The population of the CHT is estimatedto be about 1.2 million, resulting in a population density ranging from 60 people per km2 inBandarban District to 147 per km2 in Khagrachari District. The ratio of tribal to nontribalpopulation is 51:49, with the Chakma, Marma, and Tripura accounting for approximately 88

1 TA 3213-BAN: Chittagong Hill Tracts Rural Development Project, for $500,000, approved on 30 June 1999.2 The mission consisted of Donneth Walton, Rural Development Specialist-Mission Leader; Dimyati Nangju, Lead

Agronomist; Clare Wee, Senior Counsel; and John Graham, Staff Consultant-Economist.3 Bangladesh is one of the poorest countries in the world, with a per capita income of approximately $373

(Tk19,023). The country is a predominantly low-lying, flat, alluvial flood plain with some hilly area in the northeastpart of the country and in the Chittagong Hill Tracts. The population was about 129 million in 1999, and althoughpopulation growth has declined in recent years it is still high at 1.7 percent per annum. With about 885 personsper square kilometer, Bangladesh is one of the most densely populated countries in the world.

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percent of the tribal population. Two major events in the last 40 years—the construction of LakeKaptai and the insurgency war—have had a profound impact on the lives of the CHT peoples.

4. In 1960 a hydroelectric dam was constructed at Kaptai village within Rangamati District,inundating about 20,000 hectares (ha) or 40 percent of the prime cultivable lands in the CHT. Atthe time, the population of the CHT was estimated to be about 385,000 of which about 100,000people, mainly from the Chakma, were displaced by the reservoir. Some attempts were madeby the then East Pakistan government to monetarily compensate the affected people, but thedestruction of such a large area of the best agricultural land and the forced resettlement of thedisplaced people was to have a far reaching impact on the social and physical environment.Although some of the displaced farmers migrated to India, where they became statelessrefugees, many were forced to take up shifting cultivation on the hill slopes, where soils are oflow fertility. No accurate economic data is available that quantifies the loss of the productiveagricultural area but it was significant and it changed the CHT from being self-sufficient incereals to a food deficit area, a situation that remains. The hydroelectric project is not likely tohave been built today, given the present Government’s concern with social and environmentalissues; and it has created land occupancy and ownership problems that were aggravated bysubsequent settlement policies and law changes.

5. The land resources of the CHT and their capability are vastly different from those inother areas of Bangladesh. Because the CHT’s limitations were not recognized, theGovernment sponsored in-migration of people from some of the heavily populated plainsdistricts during the late 1970s and early 1980s. About 250,000 in-migrants (Bengalis fromneighboring plains districts)4 were encouraged to settle during this period and they wereprimarily located on land that was already occupied or claimed by the indigenous residents. Aspart of the settlement policy the migrants were provided with food rations, cattle, and land titledeeds. The pressures of these land policies and their associated ethnic confrontations furtheraggravated an insurgency that spanned almost 20 years and finally ended with the signing of apeace accord in December 1997. The economic impact of the insurgency has not beenquantified, but anecdotal evidence consistently emphasizes that all CHT residents wereeconomically adversely affected, with the standard of living of the population steadilydeteriorating during the insurgency period.

6. The lives of the people in the CHT have been little changed for the past two decades.The insurgency resulted in a general deterioration of the rural infrastructure and the surveyedcommunities indicated that no new rural facilities, except some military access roads, weredeveloped. From the subdistrict level down, the communities estimate that less than 5 percentof their roads are paved and only a few are of durable construction. Roads and trails are in poorcondition or nonexistent; many trails and paths in the remote areas are unsuitable for carts.People in the remote areas of the CHT often take 1-2 days walking to and returning from amarket.

2. Rural Livelihood and Poverty in Bangladesh and the CHT

7. Bangladesh is primarily a rural society with 80 percent of the population living in ruralareas. Agriculture dominates the rural economy. It contributes about 23 percent of grossdomestic product (GDP)5 and provides about 60 percent of all employment. Crop production

4 Roy, Raja Debasish. 1997. The Population Transfer Program of the 1980s and the Land Rights of the Indigenous

Peoples of the Chittagong Hill Tracts.5 Bangladesh Bureau of Statistics. 1998.

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accounts for about 52 percent of agricultural output, with livestock and fisheries accounting forabout 20 percent each and forestry about 8 percent. Land in the plains districts is planted mainlywith rice complemented by other food grains (wheat and millet), pulses, oilseeds, vegetables,potatoes, sugarcane, spices, and fruit. Jute is a principal cash crop. About 70 percent of thetotal area is cultivable and land is predominantly fertile. Cropping intensity is about 170 percentand no unsettled land is left to exploit. Agricultural production since 1996 has grown at almost 4percent per annum, reflecting the continuing adoption of improved varieties, better fertilizer use,and the further development of minor irrigation practices. Forests and fisheries are allintensively exploited. Other rural economic activities include agro-processing, small and cottageindustries, construction, and service enterprises.

8. Poverty is widespread in the country, especially in the rural areas (Appendix 2).Although in recent years poverty throughout Bangladesh has declined in both rural and urbanareas, the incidence of poverty is still higher in rural areas than in urban areas. About 45percent of the rural population lives below the poverty line6 and about half of the poor areconsidered to be the hard-core poor. Rural poverty is characterized by extreme landlessness,over dependence on subsistence agriculture, underemployment due to underdevelopment ofthe rural nonfarm sector, low savings, and poor access to credit and savings facilities. Womenand ethnic minorities, in particular, are among the most disadvantaged groups in the country,and are especially so in the rural areas. Reducing their poverty remains a massive challenge forthe country.

9. A review of basic socioeconomic indicators for the CHT reveals a region that suffersfrom both income and human poverty, especially among the rural population. On average, percapita income is about 40 percent lower than the national average. The rural population has aliteracy rate lower than the national average and less access to education. This is a result ofthe limited income of the parents, poor access to schools, nonavailability of teachers, and theextensive involvement of children in household and income generating activities. Water suppliesare of variable quality, is generally scarce, and people lack knowledge about what is safe water.Contaminated water is a major threat to health. Distances from water supplies are commonlyover 0.5 kilometer (km). Sanitation systems are poor and over 80 percent of the households useopen latrines or open spaces. The availability of health services is variable. Generally,government hospitals and clinics are close to subdistrict headquarters, but 65 percent of thehouseholds are further than 5 km from these facilities. Traditional doctors and traditionaltreatment of diseases are common in the remote areas. Communication and transport aregenerally reported as being difficult. Almost 90 percent of households have very difficult or noaccess to vehicle transport. Family income and expenditure was similar in all ethnic groups.Approximately 80 percent of surveyed households earn less than Tk25,000 (about $500) perannum (an income equivalent to the Government’s food poverty line). The main occupation ofthe CHT’s rural population is agriculture (including horticulture and livestock) on flat and mildlysloping land, and shifting cultivation on hilly land. Additional sources of rural livelihood includeagricultural labor, service, trade, and general business. Over 60 percent of the rural householdsare involved in agriculture and agricultural labor, and only a small number of households have asecondary income. About 40 percent of all families do not own their homestead land and ofthose who do own land, only 35 percent owned cultivatable cereal land.

6 Asian Development Bank (ADB). 2000. Bangladesh Country Performance Indicators. Manila: ADB.

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10. A key indicator of poverty is food security. A recent study on livelihood security in CHT7

arrived at similar results. The study indicated that the population experiences moderate tosevere food shortages on a seasonal basis, with nearly 65 percent of households havingsufficient quantities of food from their own production for less than six months per year. Amongthe three CHT districts, Bandarban appears to be the most severely food insecure, with 75percent of households having food security for six months or less; the corresponding numbersfor the other two districts are 61 percent of households in Rangamati and 59 percenthouseholds in Khagrachari. Food shortages are often seasonal and reflect a dependence onagricultural cycles.

11. The reasons for this extreme poverty are several. The CHT’s lands are visually attractivebut they are not economically productive. While about 70 percent of the nation’s soils arecultivatable and have few production limitations, only 6 percent of CHT land is cultivatable andits generally poor soils and steep contours severely limit production enterprise options. Thecreation of Lake Kaptai in 1960 took about 20,000 ha of the area’s best agricultural land andpermanently left the CHT as a cereal deficit area (para. 4). In-migration of people (para. 5)exacerbated the pressures on the remaining agricultural land. The insurgency internallydisplaced many families who are still in the process of reestablishing themselves. Much of thehilly land that could offer income generation opportunities in social forestry, either is under theexclusive control of the Forest Department or is subject to forestry regulations that act as adisincentive to private forestry investments. This situation has forced poor CHT households toadopt a range of coping strategies to address food insecurity, including borrowing from relativesor moneylenders at high rates of interest, reducing the number of meals or the amount of foodconsumed, consuming wild foods during certain times of the year, substituting less nutritiousfoods for consumption, selling livestock and other assets that are difficult for them to replace,and seeking alternative employment often on a low daily wage.

3. Land Use in CHT

12. A land-use capability survey in 19668 designated four classes of land in the CHTaccording to productive capability, and assigned land areas to each of the classes.9 The surveyresults indicated that the predominance of severely sloping land places limits on developmentoptions available to land users. Only about 21 percent of the land can sustain agriculturalproduction. The vast majority of the land area—79 percent has slopes of over 40 degrees—is,by international standards, unsuitable for sustained agricultural production. Unlike the rest ofthe country, the CHT will be unable to achieve cereal self-sufficiency and will likely remain afood deficit area. The traditional farming systems have long responded to these land-uselimitations by evolving a mix of cropping alternatives, which include food, cash, and tree crops.

13. Despite the resource limitations on expanding basic agriculture, there are considerableopportunities for developing horticulture and rearing livestock. Farmers in the CHT havetraditionally grown a range of tree crops and have integrated these into their shifting cultivation

7 CARE Bangladesh. 2000. Livelihood Security in the Chittagong Hill Tracts: Findings from a Rural Assessment.

April.8 Forestal Forestry and Engineering International Ltd. 1966. Land Capability Classification Survey of the Chittagong

Hill Tracts.9 Land with few limitations (Class A) and with under a five degree slope occupied about 3 percent of the total area;

land with moderate limitations (Class B) and with a slope of up to 20 degrees also occupied about 3 percent; landwith severe limitations (Class C) occupied about 15 percent of the total area; and land with very severe limitations(Class D) and with slopes of over 40 degrees occupied about 73 percent of the remaining area. Lake Kaptai andthe few main towns covered the remaining balance of land, approximately about 6 percent.

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practice. Traditional shifting cultivation as practiced up to the 1960s was in mainly forestedlands where a long resting phase was possible, allowing trees to grow before lands werereused. The original cycle began with clearing enough land for a year’s food in small andnoncontiguous areas near water and on low slopes. At the beginning of the monsoon, a mix ofseeds was planted in holes cut into the soil surface. Principal crops included hill rice, maize,millet, sorghum, vegetables, melons, gourds, pumpkin, hill cotton, spices, and tobacco. Plantingbegan in April on the first rains and harvest lasted from July to December to close a cycle. Thiswas essentially a sustainable system supported by trapping, gathering, and hunting in the upperslope forests where the forest trees had a spiritual value for the communities. This systemprovided food and a surplus for barter. As population and land pressures mounted, the sameareas of land have been intensively used for up to three years and the fallow periods haveshortened considerably. Although the same annual subsistence crops remain in the system,longer-term cash crops such as turmeric, ginger, papaya, banana, and pioneer forest trees havebeen introduced in the plantings.

14. Since only small areas are available for cultivation, the more productive flat and lowersloping lands have been used for intensive cereal, fruit tree, and vegetable production, with asteady development of existing crops and the introduction of new ones. These farming systemsare very varied but usually include some flat land or in the beds of seasonal streams for cerealproduction. Farmers suggested that there is further scope for expanding fruit tree and vegetableproduction, if basic road communication can be improved. Better use of the available improvedtechnology will follow if the extension outreach systems can be broadened through the use oflocal NGOs. Similarly, livestock production could be expanded. Despite the lack of cereals,homestead-based poultry and small animal enterprises could be developed. Many of the smalllivestock enterprise options could be run by women, activities that have had a major influence inthe empowerment of women in other areas of the country. Such activities have been initiated byNGOs, which have provided an integrated technical training, feed supply, credit, and marketassistance package and it is important that the CHT take advantage of these production optionswith a similar NGO involvement�

15. By far the largest natural resource in the CHT is forest, and about 325,000 ha (about 25percent of the total CHT area) is exclusively controlled by the Forest Department. These“reserve forests” have been managed according to a succession of forest management plansthat have set targets for timber extraction and reforestation. Their principal objectives have beento (i) replace abnormal and less productive forest with more commercially valuable andproductive species, (ii) manage the forests on the basis of sustained yield, (iii) keep sufficientforest cover in the watersheds to prevent denuding of the hills and the consequent erosion, and(iv) derive the highest possible financial return and ensure the maximum use of produce fromthese forests. However, the welfare of the people living in and around the forest areas wasoverridden by the commercial aims and these in turn have led to unsustainable forestrypractices. Forest diversity and habitat have been sacrificed and unsustainable monoculturalpractices have resulted in serious pest and erosion problems. Most of the forest products havenot been sold through competitive commercial markets but rather have been supplied to state-owned industries where the feedstock is provided at uneconomic prices.10 The situation inunclassified forestland, which is theoretically the remainder of the land area not under ForestDepartment control, is unclear. However, considerable quantities of timber and bamboo areproduced from this area and it potentially offers the opportunity for individual landowners todevelop small forest-based social forestry projects.

10 USAID. 1990. Bangladesh: Environment and Natural Resource Management. WRI. Washington D.C.

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4. Governance Structure of the CHT

16. The governance structure of the CHT districts is unique in Bangladesh. A specialministry, the Ministry of Chittagong Hill Tracts Affairs (MCHTA) has authority over the principaladministrative councils (regional and hill district councils ) and development agencies. Under thepeace accord of 1997, the CHT Regional Council (CHTRC) was created to (i) coordinate alldevelopment activities under the direction of the hill district councils (HDCs), including overallsupervision and coordination of matters under the jurisdiction of the HDCs; (ii) coordinate andsupervise the local councils, including municipalities; (iii) coordinate and supervise the generaladministration, law and order and matters related to the development of the three CHT districts;and (iv) provide direction in disaster management and relief programs, including coordination ofNGO activities. The CHTRC was formally established through an act of 1998. However, theCHTRC has yet to be fully staffed and lacks the requisite finances to successfully meet itsmandate.

17. The HDCs were provided with special authorities under the act of 1998. Among otherpowers, the act provided the HDCs with administrative authority over the staff of many of theline ministries in their area. Among these transferred departments are agricultural extension,health, family planning, primary education, cottage industries, cooperatives, social welfare,fisheries, livestock, and the tribal cultural institute. This arrangement is not viewed assatisfactory by the line ministries or their staff. Although nominally in control of thesedepartments, the HDCs do not control the local development budgets of these departments andhave little or no influence on the design of programs or their execution. The HDCs’ revenue anddevelopment allocations from the Government are meager and they are expected to meet thegreater proportion of their revenue budget from local taxes and income from market leases.

18. The only level of elected rural local government is the union council, of which there are111 in the CHT. A union is a group of about 25-35 villages. The responsibilities of the unioncouncil have been progressively increased to include revenue collection and maintenance ofrural roads and small infrastructure projects. To improve coordination among union councils, theUpazila (subdistrict) Development Coordination Committee (UDCC) was created, with the unioncouncil chairpersons as voting members and the subdistrict level officials of the centralgovernment ministries as nonvoting members. While the union councils are democraticallyelected bodies, they have weaknesses, such as few permanent staff and very limited financialresources. The union councils have access to additional sources of revenue for infrastructureactivities through the annual Government Block Grant for Union and Subdistrict Development,channeled through the HDCs. Lastly, the CHT has an important traditional governing structureadministered through three circle chiefs. The outreach authority of the chiefs is throughheadmen and further down through karbaris, who are village-level traditional land administratorsand land revenue officers that were recognized by the civil government. They still perform thesefunctions, but their role in land allocation has been considerably lessened in the last 20 years.These traditional leaders still resolve social problems and provide a valuable and trustednonpolitical form of guidance for local communities.

B. Government Policies and Plans

19. The Government’s strategy for development of the rural sector is enunciated in a seriesof five-year plans. The current Fifth Five-Year Plan (the Plan), for fiscal year (FY) 1998-2002,identified the following objectives for development of the rural sector: (i) poverty alleviation andimprovement in the quality of life for the rural poor through increasing their income generatingand employment opportunities; (ii) empowerment of the rural poor through increasing their

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access to productive resources; (iii) attainment of food security; (iv) development of ruralinfrastructure, including market outlets, for improved marketing of rural products within andoutside the locality; (v) development of neglected areas including the CHT; (vi) closing of thegender gap by giving priority to women’s education, training, and employment, and providingspecial support for education of girls; and (vii) putting in place of effective local governmentinstitutions with the responsibility for design, formulation, and implementation of local-leveldevelopment programs and projects, with the active participation of the rural population.

20. The strategy to achieve these objectives include (i) the provision of skills training for self-employment in the nonfarm sector; (ii) formal and informal group formation and groupdevelopment for cooperative activities; (iii) resource mobilization through individual/groupsavings; (iv) creation of an enabling environment for sustainable microfinance; (v) general ruralinfrastructure development including roads (and related bridges and culverts), small irrigationand flood control related infrastructure, and continued support for the rural maintenanceprogram aimed at the poorest of the poor; (vi) land reform; and (vii) strengthening of localgovernment institutions. The budget allocation in the current five-year plan for rural developmentis approximately Tk87 billion, more than five times the Tk16 billion provided in the previous five-year plan. The majority of the budget (Tk56 billion) is allocated for infrastructure development. Amajor focus of the plan is local-level participatory planning and integration of the local-leveldevelopment programs/projects with those at the national level. Capacity building ofimplementing agencies is also emphasized, and local government is to be closely involved inpoverty alleviation and rural development. The plan also envisages a partnership between thepublic sector and NGOs, with the latter complementing development efforts of the former, andsupports the development of microfinance through government and nongovernment creditagencies to increase income generating opportunities in the rural sector.

21. The plan identified three regions in the country, including the CHT, for special attentionwith development interventions aimed at, among other things, improving the region’sinfrastructure and telecommunication facilities, facilitating horticultural development, increasingthe provision of safe drinking water, preventing further soil erosion, and expanding agriculturalextension services. Ongoing efforts at reducing poverty in the CHT are limited to a group ofpublic expenditure programs associated with the development of rural infrastructure. Theseprograms (including Food-for-Work, Vulnerable Group Development, and Rural Maintenance)serve both transfer payment and human capital accumulation objectives. Food-for-Workprovides wheat in exchange for work on rural infrastructure projects, Vulnerable GroupDevelopment provides food grains and training to disadvantaged women, and RuralMaintenance employs destitute women in labor intensive rural road maintenance.

C. External Assistance to the Sector

22. External agencies continue to provide substantial support to the Government’s ruraldevelopment efforts through a wide range of projects supporting agricultural development andincome and employment generation (Appendix 3). Since 1984, nearly $2.2 billion in externalassistance has been provided for such projects with ADB and the World Bank being the majorfunding sources. Since 1990, the Government and external agencies have financed a series ofinvestment projects that directly target the rural poor, and 16 projects in this category areongoing, valued at about $400 million in this category. Many of these projects involvegovernment and NGOs, and are part of a growing trend in public-private sector partnerships.

23. Similarly, investments in physical infrastructure have been substantial and the combinedvalue of the ongoing externally financed rural infrastructure development projects since the

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strategy’s inception in 1984 is about $900 million. Most of the rural infrastructure developmentprojects financed by external agencies are geographically based, and there is coordination,through the Government, of the various investments with the aim of achieving nationwidecoverage. In more recent projects, the Government and the external agencies have givengreater emphasis to key sector, policy, and institutional issues alongside the investments inphysical rural infrastructure. ADB has financed advisory TA for institutional capacity building inthe Local Government Engineering Department (LGED)11 through its Management CapabilityStrengthening Project (MANCAPS), which has an action plan and detailed recommendations tostrengthen LGED’s management structure and capacity to reflect its existing and future range ofresponsibilities.12 The recommendations are being implemented with coordinated externalfinancing support.

24. Only limited externally-assisted programs have been undertaken in the CHT during thelast 20 years because of the insurgency. Among the first was the ADB-financed Chittagong HillTracts Development Project,13 a traditional integrated rural development project, which began in1979 and consisted of seven major components.14 The Project covered one of the three CHTdistricts (Khagrachi), and was completed in 1992. The two-phase Integrated CommunityDevelopment Program supported by the United Nations Children’s Fund (UNICEF) was initiatedin 1980 and tested in two pilot projects over five years. Phase 1 of the main project was begunin 1985 and completed in 1995. This phase covered about 18,000 families in the three districtswith the main activities being preschool education, youth training, water supply installation,distribution of seedlings and seeds, and microcredit. A five-year second phase of the program,which began in 1996, aims at expanding education through the formal and nonformal systems,preventing waterborne diseases caused by fecal matter, and reducing malnutrition and mortalityin mothers and children. The project has been notably successful in improving education at thepreschool level and in improving the general health situation. However, its credit managementperformance has been disappointing with recovery rates averaging between 10-15 percent,attributed to poor loan supervision procedures. World Food Programme (WFP) activities in theCHT have been principally supported by the Australian and Canadian governments. In additionto the Vulnerable Group Development and Food-for-Work schemes, WFP in 1998 began theExpanded Food Assistance Program to cope with the return of displaced persons to the CHTfollowing the peace accord.

D. Lessons Learned

25. A 1997 ADB study of completed, postevaluated projects in Bangladesh,15 as well aslessons learned from several ADB-financed rural development projects highlights theimportance of (i) institutional strengthening to ensure institutional capacity of the executingagencies and regional/district entities and beneficiary groups; (ii) the need to ensure beneficiaryparticipation as early as possible, in the design and implementation of the project, and inoperations and maintenance (O&M) after project completion as well; (iii) effective sector 11 TA 1809-BAN: Strengthening LGED's Management Capability, for $740,000, approved on 21 December 1992.1122 1995. MANCAPS Action Plan: Directions in Management Development of LGED.13 Loan 404-BAN: Chittagong Hill Tracts Development Project, for $28.5 million, approved 28 June 1979.14 The seven components included (i) settlement of about 2,000 shifting cultivators’ households and marginal

farmers with corresponding development of horticultural plots and rubber plantations; (ii) afforestation andsettlement of an additional 300 shifting cultivators and landless farm families; (iii) construction of a major roadnetwork; (iv) agriculture support services, including research and extension; (v) promotion of cottage and ruralindustries; (vi) upgrading of health services through the provision of civil works and equipment; and (vii)strengthening of the Project Executing Agency.

15 Operations Evaluation Office. 1997. Country Synthesis of Postevaluation Findings in Bangladesh. AsianDevelopment Bank, Manila.

9

analysis and project preparation prior to appraisal; (iv) a flexible project implementation systembased on a process-oriented approach with frequent, focused, and proactive supervisorymissions in the early stages of project implementation, particularly for multicomponent projects;and (v) the need for the project management team to be located within the project area, andmechanisms for regular contact with beneficiaries (extension activities, focal farms, andtraining). Situating the project management team in the project area affords it the opportunity tobetter understand beneficiary constraints and aspirations, and to adjust project components andimplementation arrangements as required.

26. Lessons learned from the completion of the ADB-financed Rural Women EmploymentCreation Project16 indicate that where NGOs are used to provide services in a project a clearexit strategy should be defined so that the development of beneficiary organizations and thecapacity to replace NGO involvement is not stifled. The results of the project also highlight theimportance of training for developing microenterprises and for expanding small and mediumbusinesses. Training schedules and duration should be carefully designed and adjusted to theabsorptive capacity of microentrepreneurs. Long-term training programs involving multiple shortbut frequent training events, and refresher training is more effective than a single long-termprogram.

27. ADB’s Rural Infrastructure Development Project,17 completed in 1997, found that peoplewithin the influence area of the improved infrastructure obtained easier access to agriculturalinputs at reduced prices, increased their use of high yielding varieties, enhanced theiragricultural production and had easier access to health and education facilities. Small-scaleindustries and trading activities also increased. Among lessons learned from this and othersimilar projects relevant to the proposed intervention are that (i) greater attention must be givento maintaining the improved infrastructure to sustain the flow of benefits; (ii) the role andcapacity of local government institutions in rural infrastructure planning, implementation, O&M,and financing should be strengthened; (iii) more participatory approaches should be adopted inrural infrastructure development projects to derive larger benefits; (iv) procurement of essentialequipment, recruitment of consultants, and appointment of project staff should be advanced sothat project implementation will commence as soon as the loan becomes effective; and (v) hightechnical standards for infrastructure works should be assured by technical and managementtraining of prequalified local contractors, strict supervision of works by LGED staff supported byconsultants, adequate laboratory facilities for quality control testing, and sufficient LGED staffcapacity at the field level. A lesson from an earlier ADB-financed CHT Project (footnote 13) wasthat the project design should take into account local patterns of social organization, religiousbeliefs, and resource use of the indigenous population living in the project area and that theinvolvement of tribal leaders from village to district level is important for project implementation.

28. Lessons learned from an ADB evaluation study18 indicated that a participatory planningapproach involving stakeholders and facilitation by NGOs would improve the outcome ofagriculture and natural resource projects in Bangladesh. Thus, there is a need for ADB tosupport a more participatory approach for project preparatory TAs in the agriculture and naturalresource sector. A 1999 joint ADB and World Bank country portfolio review mission identified anumber of implementation issues that could have relevance to the Project. These include: (i)frequent transfers of project directors and other key staff, (ii) cumbersome procedures and lack

16 Loan 1067-BAN: Rural Women Employment Creation Project, for $8.0 million, approved on 13 December 1990.17 Loan 908-BAN: Rural Infrastructure Development Project, for $99.8 million, approved on 13 October 1988.18 Operations Evaluation Office. 1998. Evaluation Study on The Impact of Bank Project Preparatory Technical

Assistance on the Agriculture Sector in Bangladesh, Asian Development Bank. Manila. December 1998.

10

of delegation and accountability in decision making, and (iii) long delays in procurement andconsultant selection.

E. ADB’s Sector Strategy

29. ADB’s new country operational strategy for Bangladesh19 has identified povertyreduction as its overall strategic objective. This will be accomplished through (i) promoting fasterprivate sector-led economic growth; (ii) creating better development opportunities for the poorby assisting the Government to invest in and encourage community and private sectorparticipation in rural development including rural infrastructure and credit; (iii) improving humandevelopment by increasing the productivity of the poor including primary health and primary,secondary, and nonformal education and through increasing equitable access of women tosocial services; (iv) improving and protecting the environment in all projects; and (v) raising andsustaining the growth of agricultural productivity, acknowledging the importance of (a) improvingrural roads to provide all-weather access to production and market centers, and (b) developingmarket infrastructure. A key feature of this strategy is an emphasis on promoting ruraldevelopment, including rural roads, small irrigation projects, crop/agro business credit, andmicrofinance, which should have a direct impact on the poor and improve income distribution.

30. The poverty reduction objective of ADB's operational strategy for Bangladesh was alsoemphasized in a recently signed partnership agreement on poverty reduction between ADB andthe Government. The partnership agreement sets long-term and medium-term goals based onthe Government's vision and plans for poverty reduction—both the income and nonincomeaspects. It also guides ADB's medium-term operations to support the Government's medium-term priorities through pro-poor growth, social development, and good governance. To make thegrowth more pro-poor, the strategy would be to adopt an area approach to target assistance toareas of high poverty concentration. The strategy identified measures to enable agriculturalgrowth through rural infrastructure, community development, microfinance, and NGO/privatesector participation in rural areas, among other things. The Project is consistent with ADB’scountry operational strategy and the partnership agreement in that it aims at reducing poverty inone of the poorest areas of the country through improving rural infrastructure, communitydevelopment, microfinance, and NGO participation in rural areas.

F. Policy Dialogue

1. Land Tenure Security

31. Land tenure issues have been at the root of the civil unrest that has affected the CHTover the last two decades and the peace accord proposed two specific measures to address theproblems: (i) a land commission was to be established to review and rule on all the disputedtitles, and (ii) a new and comprehensive land ownership survey was to be undertaken. Little orno progress has been made in either of these areas. During the benchmark survey and theparticipatory rural appraisals, all ethnic groups expressed concern over the land ownershipissue. There was a general comment that individual enterprise development and thesubsequent improvement in incomes would not gain momentum while land issues remainedunresolved. Much of the disputed land is flat or of low contour and is able to support a full rangeof agricultural enterprises. The tribal community also sees the activities of the land commissionand the land ownership survey as an important process in recognizing ownership in traditionaltribal land areas and providing individuals with a secure title for enterprise development. Little

1199 ADB Country Operational Strategy for Bangladesh, August 1999.

11

progress has been made toward establishing a fully-functioning land commission. A retiredjudge has been appointed by the Government to chair the commission. However, until a casepending in the Supreme Court over rightful appointment to the commission of one of the tribalex-officio members is resolved, the commission will not be fully formed and cannot begin itsactivities. The activities of the land commission are integrally linked to the undertaking of a fairand comprehensive land survey in the CHT in light of concern that the survey would be used tostrengthen the case for settlers against the indigenous population, many of whom havetraditionally never held paper evidence of title to land.

32. ADB, through this Project and the CHT Region Development Plan20 TA currently underimplementation, will continue to encourage the Government to seek ways for the landcommission to be formed and become functional in a way that would be satisfactory to theCHT’s population. The Project will also assist through providing legal literacy training to promoteawareness among stakeholders (beneficiaries, traditional leaders, and local elected governmentofficials) of their legal rights and providing training and information to empower them to exercisethose rights. The goal of such training is to provide local communities with basic awareness ofthe law and concept of rights. The Project will use the strategies for the delivery of legal literacydeveloped under ADB's TA 5856.21

2. Sustainability of Investments in Rural Infrastructure

33. A critical policy issue in rural infrastructure development in Bangladesh is the need toensure sustainability of the benefits derived from the investments. In this regard, continuingassistance is required to encourage the Government and LGED to improve the system andarrangements for maintenance. ADB’s policy dialogue with the Government has focused on thisissue through implementation of the following�

(i) Action for Maintenance of Rural Infrastructure under the first Rural InfrastructureDevelopment Project (RIDP). — LGED prepared a plan for budgetary allocationsrequired to maintain rural infrastructure improved under the first RIDP and hasbeen providing sufficient funds for routine and periodic maintenance of feederroads in accordance with the plan.

(ii) Institutional and Financial Action Plan for Maintenance of Rural Infrastructure. —This plan is being implemented under the Second RIDP22 to increase thecapacity of local governments for adequate maintenance of rural infrastructure.Under the plan, LGED established a rural infrastructure maintenance cell inDecember 1992 and completed a comprehensive inventory of feeder roads andrural roads in May 1993.

(iii) Action Plan for Directions in Management Development of LGED. — This plan,which aims at strengthening the management capacity of LGED in ruraldevelopment activities including maintenance of rural infrastructure, wasprepared under the MANCAPS TA (footnotes 11 and 12) and was adopted inMarch 1995 by a national workshop involving many external agencies. A numberof the recommendations are being implemented through ongoing projects. The

20 TA 3328-BAN: CHT Region Development Plan, for $1.0 million, approved on 8 December 1999.21 TA 5856-REG: Legal Literacy for Supporting Governance, for $500,000, approved on 24 August 1999.22 Loan 1215-BAN: Second Rural Infrastructure Development Project, for $83.4 million, approved on 21 December

1992.

12

Project will carry out the remaining recommendations, including those related toresource mobilization at the local level.

34. In FY1993 the Government, for the first time, allocated a specific budgetary line item toLGED for the maintenance of rural infrastructure for the whole country. The amount was Tk250million. This allocation has gradually been increased and totaled Tk1 billion in FY1999.However, the Government funds need to be supplemented by resource mobilization at the localgovernment level and the financial performance of the union councils requires substantialimprovement. Many of the roads to be upgraded under the Project will require a high level ofmaintenance and in future will impose a significant increase in the annual road maintenancecosts for the area. The existing work programs alone are unlikely to be able to accommodatethis incremental cost beyond the life of the Project. ADB received Government assurance thatthe requisite financial allocations will be made to LGED through the Rural InfrastructureMaintenance Program and to the lower tiers of the local government structure to ensureadequate maintenance of the improved infrastructure. Upgraded rural infrastructure also will bemaintained through local labor contracting societies. In addition, local community groups andunion councils also will be responsible for subsequent maintenance of structures upgradedunder the Project. The beneficiaries will be instrumental in the selection, design, andimplementation of village infrastructure activities, and therefore will be responsible formaintaining most of the village infrastructure provided under the Project.

3. Access to Forest Land for Social Forestry Activities

35. Most forestland is unclassified but offers the potential for social forestry activities(para. 15). Difficulties are being faced in these lands as permits to cut and transport forestproducts are required and issued by the Forest Department.23 The procedure to gain a permit isvery difficult to follow. Additionally, several Forest Department checkpoints on the major roadsleading out of the CHT, which are ostensibly placed to intercept the illegal timber trade, act as adisincentive to the development of agro-forestry. There are many options for participatory forestprojects involving joint ventures between the Forest Department and local communities, but theForest Department has been unwilling to accept this activity as part of an overall developmentstrategy. Forestry development opportunities that could be developed under the proposed loanwould be limited by the above constraints. Satisfactory resolution of these issues will require aclear forestry policy, including clarification of land classification, and a review of the system ofpermit allocation with the aim of developing appropriate regulation for allocation of permits toindividuals and communities for forest exploitation. Under the Forestry Sector Project,24 theGovernment is making an effort to increase access of local communities to forestland for socialforestry activities. Parliament passed on 10 April 2000 the Forest Act Amendment 2000, whichproposes a set of draft rules aimed at establishing regulatory framework conducive forimplementing social forestry activities in the country. The Government is currently undertakingstakeholder consultations to secure input on the draft rules. The Project will liaise with theForestry Sector Project to continue the dialogue with the Government on this issue.

23 The Forest Transit Rules of 1973 and the Forest Act of 1927 govern the issuance of permits.24 Loan 1486-BAN: Forestry Sector Project, for $50 million, approved on 21 November 1996.

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IV. THE PROPOSED PROJECT

A. Rationale

36. For the 20 years prior to the 1997 peace accord, the CHT had been under a state ofinsurgency, the rural infrastructure had substantially deteriorated, and the lives and livelihoodsof the rural population had been severely disrupted. Despite the cessation of hostilities, little haschanged for the region’s rural population. Rural poverty and lack of resources epitomizeeconomic life in the CHT. A large percentage of the farming community consists of people whodo not have secure rights to land use, but who work as tenant farmers, clearly a disincentive totheir investing in improved farming techniques and resource management. These people sufferfrom seasonal food insecurity. Additionally, the weak institutional support system is unable toaddress the needs of the rural poor, landless, and tribal population, and is still in the process ofconsiderable change and reorganization.

37. The Project will be the first major development initiative in the CHT since the peaceaccord. The Project has been designed to upgrade the socioeconomic infrastructure in the CHTand to increase employment and income generating opportunities for the rural population. Thedesign of the Project has taken into consideration (i) the impact of completed and ongoingprojects in Bangladesh, and the recommendations in the impact evaluation study includinglessons learned (paras. 25-28); (ii) promotion of development that is sustainable in terms of thenatural environment and the capabilities of the target groups; (iii) the overall capacity of theexecuting and implementing agencies, and the need for clear lines of authority, delegation, andcoordination between concerned government agencies; (iv) the adequate provision for futureO&M of upgraded facilities; (v) the fragile political environment in the CHT, and the complexinterrelationships between line agencies, the regional council and HDCs; (vi) the importance ofconfidence building among beneficiaries, particularly among the tribal population (includingreturnees from India), poor landless groups, and women; and (vii) appropriate structures for theoverall management of the Project and expected contributions from beneficiaries.

B. Objectives and Scope

38. The primary objective of the Project is to reduce the incidence of absolute povertyamong the rural population of the CHT through developing the basic physical infrastructure andexpanding income and employment-generating opportunities that will substantially raise thestandard of living of the landless and small marginal farmers. These developments willrecognize the unique and fragile physical environment and will incorporate sound sustainablemanagement practices. This approach is consistent with the thrust of the Government’s ruraldevelopment strategy. It also directly supports the emerging collaboration between theGovernment and the NGOs in the provision of services, including microfinance, to the ruralpoor. A supporting objective will be to provide a confidence-building environment to underpinthe peace accord in which all the ethnic groups in the local communities will be empowered todecide on their own development priorities and take on ownership of the subsequentinvestments. These objectives will be achieved through initiatives in the following areas: (i)technology, to improve infrastructure and on- and off-farm productivity, and to facilitate village-level productive activities; (ii) organization, to improve local and institutional capacity to build,implement, operate and support project activities, and to address structural and institutionalconstraints; and (iii) sustainability, to (a) improve the levels of participation and inclusion of theintended beneficiaries, including women and the tribal population; (b) enhance food and incomesecurity; and (c) build supportive economic mechanisms, and social and political institutions.

14

39. The project scope includes (i) upgrading of feeder roads, rural roads, trails, bridges, andculverts; (ii) a community development component that will establish a community investmentfund to provide funds for small-scale activities at the village level; (iii) improved and increasedproductivity through better access to microfinance, training, and other support services toenable the poor to improve their income generating capacity; and (iv) project managementsupport. The project area includes the three CHT districts: Bandarban, Khagrachari, andRangamati.

40. The target beneficiaries will be (i) poor shifting cultivators who are unable to meet theirbasic consumption needs and whose main source of income is manual labor; (ii) poor landlessfarmers who have less than 0.2 ha of cereal production land, including homesteads, anddepend on manual labor as their main source of income; and (iii) the absolutely poor marginalfarmers with less than 0.45 ha of cereal production land. Data in the CHT on household caloricintake is generally inadequate. Target beneficiaries have a family income of less than Tk20,000per annum and are below the food poverty line in the Government’s poverty index. The primaryproject beneficiaries will be about 52,000 rural families, which is about 40 percent of the totalrural farm families in the CHT. Given the opportunity, farmers and householders in the abovecategories respond successfully to well focused agricultural, horticultural, and livestock andother credit schemes and technical services, and are able to cope with the new enterpriseresponsibilities. A range of secondary target beneficiaries may include farmer groups, producerassociations, and small local entrepreneurs. In addition, the Project will provide institutionalstrengthening for planning and implementing agencies, which could involve public sectorentities, union councils, NGOs, and village/community management groups. The physicaltargets for the infrastructure and credit components are indicative given the demand-driven andconsultative process approach to implementation of the Project. Flexibility is required in thescheduling and achievement of the implementation targets. In practice, achievements willdepend on the demand from the communities.

1. Upgrading and Rehabilitation of Rural Infrastructure

41. The inadequate road and trail network is a major deficiency in the CHT, andimprovements are needed to connect the scattered rural communities with the existing growthcenters. The rural infrastructure component of the Project targets improvements for feederroads and rural roads and construction of bridges and culverts. These improvements willincrease the access of remote communities to health and education facilities, lower the costs oftransport, and result in higher prices for agricultural outputs and lower costs of inputs. Indicativerural infrastructure targets proposed under the Project include improvement of (i) up to 75 km offeeder roads type B and up to 350 km of rural roads; (ii) construction of about 6,069 meters ofbridges and culverts needed for these roads and to fill gaps in some existing roads; and (iii)provision of vehicles, large machinery, equipment and consulting services to successfullyimplement the component. With the exception of the municipal areas, road distribution fundinghas been allocated on the basis of population. Construction priorities will be established througha consultative process with the involved communities. Standard LGED designs, specifications,and implementation procedures will be used for the roads. Much of the work will be carried outusing labor intensive procedures through local labor contracting societies.

42. LGED has identified potential rural roads for improvement under the Project. Theprioritization and final selection of rural roads will be done through further study of district

15

indicative development potential maps25 and district rural road inventory maps26 to be developedby LGED’s Geographic Information System (GIS) Unit, and further discussions with targetcommunities and union councils. Site selection for small road structures (bridges, crossingsand culverts) will be carried out during project implementation through local participation and willreflect local priorities. The following criteria will be applied in reviewing proposals for suchstructures: (i) investment will be limited to spanning of gaps or replacement of badly damagedstructures; and (ii) investment should increase the connectivity of the rural road network bymaking lengths of road that connect rural areas into a higher level of network, or to an importantplace, continuously passable by wheeled vehicles. These participatory procedures are familiarto LGED and have been used successfully in the ongoing ADB-financed Third RuralInfrastructure Development Project.27

2. Community Development

43. Community-specific efforts are needed to fill gaps in the social and economicinfrastructure. Unlike their counterparts in the plains districts, communities in the CHT areusually small and scattered. They are characterized by the absence or poor state of basicamenities such as infrastructure for drinking water, drainage, sanitation, markets, andcommunity buildings. The Project will respond to the needs for priority small-scalesocioeconomic infrastructure to be identified and prioritized by the communities. A communityinvestment fund (CIF) will be established and managed by the project management unit (PMU)at the regional level to provide block grants of approximately $70,000 to each union council areafor community development activities. The CIF will finance demand-driven, community-basedinvestments in small-scale civil works or other socioeconomic infrastructure, on a directpayment basis between the PMU and the contractors. Each investment could be for anindividual village or for a group of villages.

44. Examples of investments eligible for financing include (i) economic infrastructure such asmini-irrigation works, solar paneling, and small markets; and (ii) social infrastructure such asvillage health posts, community water/sanitation schemes, literacy centers, and communitycenters. Items that will not be eligible for financing under this component include purchase orleasing of land, rehabilitation or construction on private land, completion of unfinishedconstruction projects, and facilities that do not directly or indirectly increase the productivity ofthe poor.

45. A significant indicator of “demand” under this component will be the extent to whichcommunities are willing to contribute to investments and to the O&M of the completed projectfacilities. A community’s contributions to an activity will be an important criterion for its eligibilityfor funding. Contributions could include cash, labor, or beneficiary participation in planning,implementation, and O&M. The communities are to base their level of contribution on what isaffordable, with some flexibility to accommodate especially difficult circumstances. Investmentsmade from the CIFs will attract differing percentage contributions, but in general will be 10-25percent of a subproject cost. To facilitate this process, project staff, especially the communitydevelopment organizers, will work with LGED and other service providers to produce a “menu”

25 An indicative map indicates large settlements, areas of extensive agricultural/livestock production, forest areas,

important water bodies (rivers, lakes, ponds, etc.), existing socioeconomic infrastructure (markets foragricultural/livestock products, bazaars, administrative centers, health centers, schools, etc.), and any otherrelevant existing and potential areas where economic and/or development activities are in progress or planned.

26 A rural road inventory map indicates the existing network of rural roads and the link to higher-class road networks.27 Loan 1581-BAN: Third Rural Infrastructure Development Project, for $70.0 million, approved on 20 November

1997.

16

of small-scale socioeconomic infrastructure investments. LGED already has photographs andcost estimates of a range of such sample investments. Development and use of the menu willgive communities ideas about what could be done and cost. The communities and unioncouncils will be required, as far as possible, to contribute labor to the subproject and maintain itwhen completed.

3. Microenterprise Development

46. The generation of additional income through the expansion and/or development ofmicroenterprises at the farm and household level can significantly reduce poverty among theProject’s target beneficiaries. Despite its resource constraints, the CHT has opportunities forinvestments that can be practically implemented. Capital to access better agriculture inputs isneeded to enable farmers to improve their farming systems. Capital is also needed fordiversification into other income generating activities to supplement the income from crops.Specifically, this includes investment in fertilizer and improved seeds for staples and horticulturecrops (fruit trees and vegetables). Capital also will be required to develop small privatenurseries to provide seedlings required by farmers. Households will need credit to purchasesmall animals such as chickens, ducks, and goats, where appropriate, and to invest in otheractivities such as fishponds and small-scale agro-processing. Households also will require creditto diversify and/or supplement their income sources through off-farm activities such as weaving,tailoring, small machinery maintenance facilities, bicycle/tricycle repair, and petty trading.

47. Formal credit providers have a long history of involvement in the CHT. Their services,however, have not been targeted at the poor, predominantly rural population. Some NGOs havebeen providing very limited microfinance services to the CHT population since implementationof the 1997 peace accord, with limited success. Strong consideration will be given to usingNGOs to establish savings and credit groups at the village level and to provide short- andmedium-term credit for a range of on-farm and off-farm enterprises, and supporting services forthe target population. The microenterprise development component will be targeted athouseholds with annual incomes of less than Tk20,000, and will primarily focus on supplyingservices to women, who are expected to make up at least 70 percent of project borrowers. Tosupport the credit provision through the NGOs, the Project will fund a concurrent program totrain potential borrowers in credit use awareness and skill development. Prior to obtainingfinancing under the Project, prospective borrowers must have taken part in the training program.

4. Project Management Support

48. A PMU will be established in Rangamati (para. 54) and one district project managementunit (DPMU) each in Bandarban, Khagrachari, and Rangamati districts (para. 57). The PMU willbe responsible for the overall management of the Project, coordination of the work of theimplementing agencies, and carrying out of the Project’s capacity building and training program.A team of international and domestically recruited consultants and locally contracted NGOs willsupport the PMU in these tasks. To facilitate the successful implementation of the Project,vehicles, office equipment, and furniture will be provided to the PMU and DPMUs. Training ofthe project staff, CHTRC, HDCs, local NGOs, and project beneficiaries will also be provided aspart of the capacity building activities under this project component. A small project liaisonoffice, to be headed by an assistant project director, will be established in Dhaka to facilitatecommunication between the PMU and relevant Dhaka-based ministries and agencies andfollow-up procurement and budget-related activities for the Project.

17

C. Cost Estimates

49. Total project cost, inclusive of contingencies, taxes, and duties, is estimated at $60.3million equivalent, comprising a foreign exchange cost of about $11.0 million equivalent (18percent) and local currency cost of about $49.3 million equivalent (82 percent). No recurrentcosts, other than the annual operating costs for project management support, will be financedunder the Project. A summary of the cost estimates is in Table 1 and detailed cost estimates arein Appendix 4.

Table 1: Project Cost Estimates($ million)

ComponentForeign

ExchangeLocal

Currency aTotalCost

A. Base Cost1. Upgrading of Rural Infrastructure 4.96 24.08 29.04 2. Community Development 0.78 8.05 8.833. Microfinance 0.00 5.20 5.204. Project Management 2.88 4.39 7.27

Subtotal (A) 8.62 41.72 50.34

B. Contingencies1. Physicalb 0.47 2.58 3.052. Pricec 0.93 4.97 5.90

Subtotal (B) 1.40 7.55 8.95

C. Interest Charge 1.01 1.01

Total 11.03 49.27 60.30

a Includes taxes/duties of about $3.28 million.b Physical contingency includes 10 percent for civil works and office operating costs, 7.5 percent for training, and

5 percent for infrastructure maintenance.c Price escalation is based on an annual rate of 2.4 percent for foreign content and 4.5 percent for local costs with a

constant purchasing parity exchange rate used.

D. Financing Plan

50. It is proposed that ADB provide a loan of $30.0 million equivalent from its Special Fundsresources to finance 50 percent of the total cost of the Project. The loan will finance $8.3 millionequivalent of the foreign exchange cost and $21.7 million equivalent in local currency costs.Loan proceeds will finance civil works associated with the rural infrastructure and communitydevelopment components of the Project, procurement of vehicles and equipment and theiroperating costs, consulting services, beneficiary and NGO training, institutional strengtheningand capacity building, and project management costs. The Danish International DevelopmentAgency (Danida) has agreed in principle to provide parallel grant financing of the costs ofupgrading the rural infrastructure in Khagrachari District, in an amount not exceeding $15million. The Government will contribute approximately 15 percent of total project costs,amounting to nearly $9.1 million in local currency cost, while beneficiaries are expected tocontribute in cash or kind nearly 4 percent of project costs in the amount of $2.6 million. The

18

remainder of about $3.6 million will be met by the Palli Karma-Sahayak Foundation (PKSF)28 tofinance the credit line under the microenterprise development component of the Project. Theproposed ADB loan will have a term of 32 years, including a grace period of 8 years with aninterest charge of 1 percent per annum during the grace period and 1.5 percent per annumthereafter to be paid semiannually. The Borrower will be the People’s Republic of Bangladesh.A summary of the proposed Project financing plan is provided in Table 2 and details areprovided in Appendix 4.

Table 2: Financing Plan($ million)

SourceForeign

Exchange LocalCurrency

TotalCost Percent

ADB 8.3 21.7 30.0 50.0Danida 2.7 12.3 15.0 25.0PKSF 0.0 3.6 3.6 6.0Beneficiaries 0.0 2.6 2.6 4.0Government 0.0 9.1 9.1 15.0

Total 11.0 49.3 60.3 100.0

51. The provision of financing for local currency cost is considered justified under ADB’slocal currency financing policy. The Project includes upgrading of rural infrastructure, communitydevelopment, and microenterprise development, which have high proportions of local costitems. This is especially so for the upgrading of rural infrastructure which includes significantamounts of labor-intensive construction work. In addition, because a low level of per capitaincome and general fiscal difficulties constrains domestic savings, assistance is required tomeet the local currency cost of some development projects. Since the early 1990s, theGovernment has been carrying out a comprehensive program of structural reforms to liberalizethe foreign trade and exchange rate regimes, restructure the industrial sector, strengthen fiscaland monetary management, and encourage private sector investment. A degree ofmacroeconomic stability has been achieved and maintained by conservative economicmanagement. Nonetheless, the pace of reforms is slow, and macroeconomic stability remainsfragile. The floods in 1998, the most severe in over a century, significantly damagedinfrastructure and agriculture lands, and negatively affected short-term economic growth bywidening fiscal and current account deficits and increasing the rate of inflation. Last, ADB hassigned a partnership agreement with the Government for poverty reduction. Since this Project isclassified as a poverty intervention, ADB should support all Government efforts in this area ofactivity in a manner that is fiscally prudent. With these considerations and the overall lack ofdomestic budgetary resources in the sector, ADB assistance for local currency expendituresrelated to the Project is considered justified.

E. Executing Agency

52. The MCHTA will be the Executing Agency and will be responsible for (i) overallcoordination and management of the Project at the national level, including coordination with

28 PKSF is an apex financial institution that provides collateral-free funds at a nominal charge to organizations

(primarily NGOs) for their microfinance program. PKSF’s funding sources include the Government, bilateral andmultilateral agencies, and income from its own activities.

19

external funding and Government agencies; (ii) ensuring timely budgetary allocations to thePMU for the purposes of the Project; and (iii) ensuring the necessary national-level approvalsare timely obtained for carrying out the Project.

F. Implementation Arrangements

1. Project Management and Organization

53. The CHTRC will be the lead Implementing Agency, and therefore will coordinate andsupervise overall project implementation, including overall supervision of activities carried outunder the Project by the HDCs, LGED, participating NGOs, and PMU. The Project’simplementing structure will be based in the CHT to help ensure the Project will be sociallyresponsive to the ethnic diversity of the project area. This proposal is consistent with theCHTRC’s mandate, which was established under the peace accord and subsequently defined inthe Regional Council Act of 1998. The act provides for the CHTRC’s leadership role incoordinating community development activities and supervising their implementation. TheCHTRC has a clear mandate to provide direction for the work of all other local developmentagencies including those in the nongovernment sector.

a. The Project Management Unit

54. To assist the CHTRC in implementation and management, a PMU will be establisheddirectly under the CHTRC in Rangamati to undertake the overall implementation andmanagement of project activities. The main responsibilities of the PMU will be to (i) select therelevant consultants and NGOs to participate in implementation of the project components; (ii)supervise, monitor, and manage consultants and NGOs; (iii) implement, monitor, and reviewskill development and training activities; (iv) procure equipment and vehicles for the PMU,DPMUs, and the liaison office in Dhaka; (v) manage the relevant financial allocations; and (vi)carry out the Project’s reporting responsibilities. The PMU also will identify local policy issues tobe resolved by the regional coordinating committee, and identify any national policy and/orimplementation issues for resolution by the national project steering committee (NPSC)(paras. 65 and 66). While specifically formed to manage the proposed Project, the PMU hasbeen structured to provide a project management entity for future development initiatives.

55. A project director will be recruited under a competitive selection process to direct thePMU. The director will have a proven track record in successful project management andadministration, and will be fully knowledgeable and sensitive to the ethnic diversity in the projectarea. A senior administration officer and a senior accountant will support the project director inthe day-to-day management of the Project. A monitoring and evaluation officer will beresponsible for recording and assessing the Project’s performance and its impact. Directlyassisting the project director and other staff will be a team of international and nationalconsultants. The international and national consultants will operate under the direction of theproject director. The PMU’s professional staff will be contracted for the duration of the Project,subject to their satisfactory performance, and will be recruited from either the public or,preferably, private sectors.

56. Through its consulting support, the PMU will be responsible for planning the training oftrainers and beneficiary training subcomponents. For the training of trainers, suitable localconsulting firms or NGOs will be contracted to train the staff of local NGOs, participatinggovernment agencies, traditional leaders, and local community groups. Under the PMU’sdirection, these organizations, agencies, and groups will train beneficiaries in the field. A

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domestic consultant familiar with ADB procedures and systems will be recruited to provideproject and financial management support to the PMU during the first two years of projectimplementation. Additional systems training and support will be provided by staff of ADB’sBangladesh Resident Mission.

57. The project director will select staff for the three DPMUs and the project liaison office inDhaka. Each DPMU will be managed by a deputy project director, who will report to the projectdirector on overall project-related activities for their district, and will also report to the districtcouncil chairperson on activities under the community development component of the Project.The deputy directors will have a comprehensive knowledge of the district and its ethnicstructure, and will have good communication skills and a proven ability to work with governmentand nongovernment agencies. The assistant project director who will head the PMU liaisonoffice (para. 48) will (i) have the proven ability to work effectively with government agencies; and(ii) will be based primarily in Dhaka, but may be required to travel to Rangamati for extendedperiods of time to assist the PMU as necessary.

58. During project implementation, an interactive process will be followed with beneficiaries.Particular attention will be given to ensure that tribal and women beneficiaries are included inthe process. For such a process to be meaningful, the quantitative component of the proposedactivities should be regarded as indicative. Annual work plans will be developed based ondiscussion between the implementing agencies, project staff, and the communities, to establishlocal priorities and capture changes in community needs. These discussions are likely to lead tocomponent targets and activities being changed, and may result in a need to reallocateresources within or between components. Project component performance and achievementsalso will be reviewed with beneficiaries in workshops at the end of each year.

b. Rural Infrastructure

59. The Implementing Agency for the rural infrastructure component will be LGED, whichhas established a reputation for the efficient implementation of road and other infrastructureprojects at the local community level. LGED has in place three fully equipped district offices, acomprehensive permanent staffing structure in every CHT subdistrict, and is cognizant of theparticular local conditions in the project area. However, to implement a project component ofthis size, LGED will establish a specific project management cell headed by its own projectdirector, designed to facilitate for project purposes, the use of LGED machinery and qualitycontrol resources and to provide supporting engineering services. LGED’s project managementcell will work in close cooperation with the PMU and DPMUs.

60. Danida will finance the rural infrastructure component in Khagrachari District using thesame implementation arrangements as in the other districts. The PMU will work closely with theDanida implementation team to ensure that the agreed targets of the rural infrastructurecomponent are achieved. ADB and Danida will share knowledge, information, and lessonslearned during implementation, and conduct joint reviews.

61. The indicative rural infrastructure targets reflect discussions between LGED subdistrict-level staff and affected communities. However, to establish a priority ranking of proposedactivities and to accommodate any changes of community needs, LGED will conduct meetingsin all proposed work areas prior to finalizing each year’s work plan. The meetings will involve allaffected groups and a full record of attendees and minutes of the meetings will be kept by LGEDand copies sent to the relevant DPMUs. PMU staff may attend and participate in the meetings.Additionally, if requested by the CHTRC, LGED will permit a representative of the CHTRC to

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attend and participate in the meetings. LGED will advise the PMU on the results of the meetingsand their impact on the LGED work plan. Follow-up workshops will be conducted with theparticipating communities at the end of each year, where the following year’s work plan will bediscussed and finalized. The PMU and consultants will, if requested, provide assistance toLGED in this interactive process.

c. Community Development

62. The three HDCs will be the Implementing Agencies for the community developmentcomponent. Each HDC will be strengthened with a project office, and the HDCs will use theiradministrative links at the subdistrict level through the subdistrict executive officer to assist inthe establishment of community development committees (CDCs). A CDC will be formed foreach union council of the CHT. The CDC membership will be made up from the union councils,the traditional and other leaders of local tribal groups, local elite including school teachers anddoctors, and local organizations and households. Community development staff from the PMUand DPMUs, with the subdistrict executive officer and local NGOs contracted under the Project,will help form CDCs and ensure that they represent a full cross section of the local ethnicpopulation.

63. Local NGOs trained and engaged by the PMU under the Project will act as communityfacilitators to provide information to communities about the Project and organize communitygroups among target beneficiaries. With the community facilitators’ assistance, the groups willprepare subprojects to meet identified community development priorities. The CDCs will beresponsible for the selection of subprojects, their implementation, and arrangements for thesubsequent maintenance and management of the investments. The subprojects will be financedfrom the CIF. The PMU will manage the CIF and DPMUs will be responsible for validatingpayments for district subprojects. The payments will be executed by the PMU. Group formation,proposal formulation, community decision-making and management, representation of the localethnic population and women, and community contributions will be key aspects for monitoringand evaluation of the component’s implementation.

d. Microenterprise Development

64. The thrust of the microenterprise development component of the Project will be on (i)building the capacity of a select number of local NGOs to enable them to provide efficient andcost-effective microfinance services, and (ii) generating income and savings opportunitiesamong poor project beneficiaries. The main target population for these services will be poorrural women who are not being served by other sources of rural finance for asset creationthrough the provision of credit for funding small on- and off-farm enterprises and to facilitatesavings generation among the target population. Lending will be provided under two models: thegroup-based approach and through savings and credit organizations (SCOs). The group-basedapproach is effective in areas near to roads and highways and has been successfullyimplemented in the CHT. SCOs are an alternate approach under which SCO members aretrained to become responsible for the affairs of their organizations. This approach is popular inhilly and remote areas where the population is dispersed and/or accessibility is limited. PKSFhas agreed in principle to provide a line of credit from its small NGO window to local NGOs thatmeet PKSF’s criteria to become a partner organization.29 Based on an analysis of demand in

29 Borrowing from PKSF’s Small NGO Window will be at a rate of 4.5-5.0 percent, with a repayment period of about

three years.

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the CHT, approximately 60,000 new members will be reached over the project period. Savingsgeneration and other asset creation also will be important under the component.

2. Project Coordination

65. A NPSC will be established in Dhaka by the Government to be chaired by the Minister,or his/her designee, of MCHTA, with members from the CHTRC and ministries of finance; localgovernment; rural development and cooperatives; LGED; agriculture, fisheries and livestock;women and children’s affairs; environment and forests; and the planning commission, and willinclude a representative of the CHT circle chiefs, Danida, and the project director. The NPSCwill provide assistance to the project in resolving any national policy and implementingconstraints. It will meet semiannually or as needed and minutes of each meeting will beforwarded to ADB within two weeks of each meeting.

66. A regional coordinating committee (RCC) will be established in Rangamati and chairedby the CHTRC chairman or his or her representative. The RCC’s membership will include thethree HDC chairmen, the project director, the three circle chiefs, LGED representatives, as wellas representatives of NGO and other institutions participating in the Project, and Danida. TheRCC will review annual work plans, oversee overall progress of the Project, resolve anydisputes between districts on project activities, play a role in communicating information aboutproject activities and processes to stakeholders, and refer any major interagency problems tothe NPSC. The RCC will meet bimonthly during the first year of the Project and on a quarterlybasis thereafter. RCC minutes will be forwarded to ADB within two weeks of each meeting.The project organization chart is in Appendix 5.

3. Project Implementation Schedule

67. The project implementation period will be seven years, commencing in April 2001 andending in March 2008 (Appendix 6). The first year activities will include (i) establishment of theProject’s imprest account, (ii) a series of rapid appraisals to verify previously identified needs,(iii) development of the annual work plan for the first year of project implementation, (iv)contracting of NGOs to be involved in service delivery, (v) preparation and possible launching ofa project public information program, (vi) procurement action for civil works contracts, (vii)procurement of requisite equipment and vehicles, (viii) recruitment of consultants and remainingproject staff, and (ix) establishment of a project benefit monitoring and evaluation (BME)system.

4. Operation and Maintenance

68. The LGED will have overall responsibility for O&M of upgraded roads, bridges, andculverts financed under the Project and has given assurances that sufficient funds would beallocated to its Rural Infrastructure Maintenance Fund to cover maintenance costs. The LGEDhas assured ADB that, if available, additional resources will also be provided through the RuralMaintenance Program (supported by the World Food Programme), and disadvantaged/destitutewomen will be employed for O&M activities. O&M costs of small markets financed under thecommunity development component of the Project will be met by union councils using a fixedproportion of the proceeds of market stall leases specifically set aside for this purpose. O&M ofproject facilities to be constructed under the community development component will be theresponsibility of the community, with financial support from local government.

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5. Benefit Monitoring and Evaluation

69. The Project outputs will be monitored and evaluated in terms of quality and quantity.BME will generate data on the immediate effects and the broader impacts of project investmentson socioeconomic development, poverty reduction, and the empowerment of women.Benchmark data has been collected as part of project formulation, and the need for additionalbenchmark data will be decided on at the first six-month review of project progress. BME willcomprise the following main elements:

(i) The direct effects of rural infrastructure improvement will be monitored toestimate the actual economic benefits from reductions in transport charges,increases in traffic flows, changes in transport modes, changes in turnover ofbusinesses served by upgraded infrastructure, and changes in market leasevalues. The impact of road construction on induced agricultural production andother economic activities will be assessed. As part of the establishment of aplanned maintenance process, regular traffic counts (twice a year) will be carriedout by LGED on all improved roads, while union councils will provide annualreturns on changes in market use and lease values.

(ii) The effects of the Project on poverty will be monitored through collection of time-series data on employment created and the characteristics of the personsemployed, use of markets by poor women for trading, and increases in numbersof microenterprises in the vicinity of project investments. In addition, participatoryrapid appraisals will be carried out at sample locations to assess the perceptionsof different categories of poor people within the vicinity of project investments onwhether and how they have benefited.

(iii) The effects of project measures to increase beneficiary participation and toincrease institutional capability of local government bodies will be monitored. Theproject framework defines the key indicators that will be used to monitor theperformance of the Project in achieving its objectives.

6. Procurement of Goods and Services

70. Goods and services will be procured in accordance with the Guidelines for Procurementunder Asian Development Bank Loans. The civil works related to the rural infrastructurecomponent of the Project to be financed by ADB, including civil works for the improvement andupgrading of feeder roads type B and rural roads, will be procured in accordance with localcompetitive bidding procedures acceptable to ADB. Given the small and scattered nature of thecivil works, they are unlikely to attract international contractors. In addition, the local capacity toundertake such works is adequate. Contractors for inclusion in a roster for the civil works will beprequalified by LGED at the start of the Project and updated regularly. Vehicles, machinery, andoffice equipment will be procured in accordance with international shopping proceduresbecause the amounts involved will not exceed $500,000 for each package. Equipmentpackages estimated to cost less than $100,000 equivalent, and for which there are several localsuppliers with satisfactory service facilities, may be procured under local competitive biddingprocedures. Where the number of suppliers is limited, procurement may be made by directpurchase. Details of packages for procurement will be determined during projectimplementation. An indicative list of equipment and vehicles to be procured is set out inAppendix 7. Civil works to be financed under the community development component will be

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carried out by local contractors identified and recruited by community development committees,with assistance of local NGOs and project staff. These civil works are very small, andcommunity participation will increase the use of local abilities and materials, and contribute tothe sustainability of the Project.

7. Consulting Services and Training

71. A total of 112 person-months of international and 232 person-months of domesticconsultants from suitably qualified consulting firms will be required for project implementation(Appendix 8). International expertise will be required in rural development, engineering qualitycontrol, and institutional development. Domestic expertise will be required in communitydevelopment, specialty training, gender and development, communications development, legalcontracts preparation, BME systems development, legal literacy, and project managementsupport. Consultants will be recruited in accordance with ADB’s Guidelines on the Use ofConsultants and other arrangements acceptable to ADB for the engagement of domesticconsultants. The Project also will contract out services to local NGOs to help implement thecommunity development and microfinance project components.

72. The Project is designed to support capacity building and skill development of localgovernment and NGOs, CDCs and the target beneficiaries, particularly the local ethnicpopulation and women. The Project will fund an extensive program of skill development andtraining throughout the project period. The training program will have two parts: training oftrainers and training of beneficiaries. Domestic consulting firms and/or NGOs will be expected toprovide this first tier of training, and the PMU together with the project’s training specialist willidentify suitable agencies to participate in this activity. Local NGOs are likely to be the principalagencies to receive this type of training, along with CDCs, union council members, andtraditional leaders. Training courses will be primarily undertaken in technical subjects most likelyto help generate income for the target population. Indicative technical courses include slopingagricultural lands technology (SALT), horticulture development, social forestry, fishpondproduction, livestock development, sericulture, agro-processing, and home craft production. Arange of supporting management courses will include, at a minimum project implementation andmanagement, business development and management, produce marketing and promotion, andenvironmental management. Training will be identified and provided to beneficiaries in thecommunity and village areas by agencies such as the Bangladesh Agricultural ResearchInstitute (BARI) and the Department of Agriculture Extension. Courses will be designed to (i)enable beneficiaries to undertake successful income generating activities, and (ii) fit in withlivelihood commitments. Graduates of the training of trainers’ activity will undertake beneficiarytraining.

73. Under the Project's training activities, NGOs and a select number of community leaderswill be trained to provide participatory training programs for local communities to be educatedabout the law, government services, and legal processes. The goal of such training is toprovide local communities with basic awareness of law and concept of rights. The Project willuse the strategies for the delivery of legal literacy developed under ADB's TA 5856: TechnicalAssistance for Legal Literacy for Supporting Governance (footnote 21). An ADB project will beselected to pilot-test the strategies developed under TA 5856. If the Project is selected to pilot-test the strategies under TA 5856, the Project will benefit from the additional inputs ofconsultants under TA 5856. In such case, the training in legal literacy under this Project will becarried out in coordination with the activities under TA 5856.

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8. Advance Action

74. ADB has approved advance action for the recruitment of consultants and theprocurement of equipment and vehicles to facilitate the timely implementation of the Project.The Government has been informed that the approval of advance action does not commit ADBto approve or finance the Project, and does not include retroactive financing. The Governmenthas requested, and ADB agreed, that ADB will assist the Government to carry out the advanceaction for the recruitment of consultants.

9. Reporting, Accounts, and Audits

75. Progress monitoring will focus on the use of inputs; the participatory process, includingthe participation of the local ethnic population and women; the progress of activities; and theachievement of outputs. The Project will be monitored through regular reporting and review. ThePMU and DPMUs, in consultation with the Implementing Agencies, will produce annual workplans setting out the activities scheduled for the forthcoming year, their timing, the inputsrequired and the outputs expected to be achieved. The Implementing Agencies will provide thePMU with brief quarterly progress reports during each year of project implementation, detailingthe physical and financial progress of activities against the targets set in the work plans. In turnthe PMU, through the CHTRC, will furnish to the Government and ADB consolidated quarterlyprogress reports and a comprehensive year end annual report including the progress of BME.

76. During the first two years of the Project, ADB will carry out semiannual monitoringreviews. Initial reviews will (i) determine whether all the proposed implementation arrangementsare in place, (ii) assess the progress of physical works, (iii) critically review the arrangementsfor, and results of, the beneficiary participation process, and (iv) review the outcome of thecapacity building and training programs. Comprehensive project reviews will be jointlyundertaken by ADB, Danida, and the Government at the end of years 2 and 4 to evaluate theactual physical and financial progress of the Project, implementation procedures, procurementperformance, BME activities, PMU effectiveness, and performance of consultants. Prior to thecomprehensive reviews, the PMU will prepare a comprehensive report identifying issues inpreparation for the reviews. On the basis of the results of these comprehensive reviews, ADB,Danida, and the Government may consider changes in project design and implementationarrangements. Within three months of project completion, the PMU through the CHTRC willprepare a project completion report in the standard ADB format, for submission to ADB.

77. The PMU will maintain separate ledgers, records, and accounts of expenditures andloan disbursements under the Project. The PMU will install an accounting system consistentwith generally acceptable accounting principles acceptable to ADB. The project director willprepare an annual financial report on the Project’s accounts and submit these to the MCHTA.The accounts will be audited annually by an independent external auditor acceptable to ADB.The imprest account and statement of expenditures (SOEs) procedure will be audited as part ofthe regular audit of the Project’s account and financial statements and audit opinion on theimprest account and SOEs will be set out separately. The audited project accounts will beforwarded to ADB not later than six months after the close of each fiscal year.

10. Imprest Account and Statement of Expenditures Procedures

78. To ensure effective project implementation and timely disbursement of the loan, theGovernment will establish an imprest account in dollars in the name of the Project at theBangladesh Bank or at a commercial bank acceptable to Bangladesh Bank and ADB. A second-

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generation imprest account (SGIA) also will be established at a commercial bank in the CHT toreceive funds from the imprest account to meet project expenditures incurred by the PMU andDPMUs. The project director will manage the imprest account (Appendix 9). The initial amountto be deposited into the imprest account will not exceed the equivalent of $500,000 based on anestimate of expenditure in the first six months of project implementation. ADB’s SOE procedurewill be used to reimburse eligible expenditures and to liquidate advances provided to theImprest Account. The SOE procedure will be applicable to contracts not exceeding theequivalent of $100,000 and individual payments not exceeding the equivalent of $50,000 toconform to ADB’s simplified procedure on procurement and disbursement. The imprest accountwill be established and maintained in accordance with the Loan Disbursement Handbook datedJune 1996 and detailed arrangements between ADB and the Government.

G. Environmental and Social Measures

1. Environmental Measures

79. The Project has been classified in ADB’s Environment Category B, and an initialenvironmental examination (IEE) has been prepared in accordance with ADB’s EnvironmentalAssessment Requirements and Environmental Review Procedures. The selection criteria undereach project component were established, specifying exclusion of any sites of ecological,archaeological, or historic importance. Although the Project will cover a wide geographical areaand involve interventions in several sectors, there will be no major impacts, owing largely to thesmall scale of the investments, and the low technology and the low intensity of the constructionworks. The IEE finds that the Project will not create any significant changes in the social,physical, or biological environment.

80. The potential impacts of two of the three major components of the Project are primarilyconstruction related. The type of road construction will be either rehabilitation or improvement ofexisting alignments and will fall within the existing road reserves. Little if any land acquisition isexpected. Mitigation measures to be taken to address any potentially minor adverse impacts inroad construction and rehabilitation have been detailed in the monitoring plan of the IEE. Small-scale construction under the community development component will have no significantadverse impacts and the communities, through the CDCs, will select sites. The small-scaleimproved water management structures and water supplies will be selected in a similar fashionand will serve to make the best use of the natural run-off into the lake and the scarce inlandgroundwater resources. Microenterprises developed by the Project through credit provision willalso have no significant adverse impacts. Several enterprises (e.g., social forestry, sloping landsagriculture development, and horticultural development) should, however, enhance watershedmanagement and reduce natural soil erosion.

2. Social Measures

81. An initial social assessment carried out for ADB during project identification showed thatthe rural population in the CHT was likely to be among the poorest in Bangladesh. To confirmthis finding and establish data and key indicators on ethnic composition, land-use patterns andownership, health, education, employment, gender issues, and social structures, a benchmarkand socioeconomic survey was carried out during project preparation. The survey covered 619households in 12 villages or communities in all three CHT districts. The surveyed householdsrepresented all ethnic groups and were proportional to the ethnic composition of the total CHTpopulation. The data collected was similar to that from other area surveys carried out since1997 and the results indicate the conditions prevailing throughout the rural areas in the CHT.

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Following the survey, 12 participatory rural appraisals were carried out in similar communities inthe three CHT districts. The appraisals involved 399 people from a wide cross-section ofoccupations within the communities.

82. About 70 percent of the surveyed families had incomes below the government’s foodpoverty level, placing them in the poorest of the poor category. Similar levels of poverty werefound across all ethnic groups. Agriculture was the main occupation, but many families had noaccess to good quality flat land and were obliged to farm on the less fertile hilly land usingshifting cultivation techniques. Crop yields were low and off-farm labor earnings supplementedagricultural income. Low child education levels and a high incidence of malaria and waterbornediseases were common. The overall situation is one of extreme poverty where many familieswho were displaced by the insurgency have yet to rebuild their livelihoods. The rehabilitationand reconstruction of infrastructure in rural areas has been slow and in most communities littlehas changed since signing of the peace accord.

83. The Project has been designed to have a measurable impact on reducing poverty in therural areas through providing improved rural infrastructure, community facilities, and newincome generating opportunities. The Project is expected to reach about 52,000 families (about40 percent of rural families) and will use a participatory process where beneficiaries will formpart of all planning and implementing activities. This process and the potential projectcomponents were discussed at three project formulation workshops with prospective projectbeneficiaries and likely Implementing Agencies. The workshops produced an agreed consensuson the project approach.

3. Gender Analysis

84. The gender analysis in the benchmark and socioeconomic survey showed that womenare disadvantaged in terms of financial opportunities and participation in community leadership.For households headed by women (about 20 percent of surveyed households), the problemsare more severe and their low social status excludes them from most community activities. Thesurvey found that women generally are fully responsible for the household work program and itsfinancial management. They also participate in agricultural tasks and are usually responsible forhomestead enterprises, which may include livestock rearing and intensive fruit and vegetablecultivation. However, until the recent introduction of NGO credit programs, women have hadgreat difficulty in obtaining loans to develop their own microenterprises. This problem appears tobe inherent in the traditional banking services and is the principal reason for the emergence andsuccess of NGOs among women.

85. From discussions held during the survey and in the follow-up participatory rapid ruralappraisals, women considered that the development priorities should be the provision of morereliable and cleaner water supplies, and better road and trail access to schools, health centers,and markets. The majority of women indicated that they would take advantage of incomegenerating programs, especially those that provided support for enterprises that were managedfrom the homestead. They identified enterprises such as poultry, goat, and other livestockrearing and sericulture as suiting their existing activities. Given the opportunity, women statedthat they would participate in community decision-making through membership in localorganizations and committees.

86. The Project has been designed to respond to these needs by improving ruralcommunication, which will provide for better access to education and health facilities, and small-scale community infrastructure projects, which improve village water supplies and other

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community facilities. Women will also be brought into the community decision-making processthrough membership in CDCs. In addition, they will be encouraged to expand their income-generating activities, many of which can be carried out in the home, through membership ingroup-based savings and credit schemes.

4. Indigenous Peoples Development Plan

87. ADB’s Policy on Indigenous Peoples does not state that all ethnic minorities are to betreated as indigenous people, but it does relate the concept of indigenous peoples to ethnicminorities, among others. An indigenous peoples development plan (IPDP) is necessary for thisProject, because (i) slightly over one-half of the population of the project area is made up ofethnic minority groups; and (ii) while there is significant diversity among the groups, there aretraditional patterns of resource use and social organization that are distinct from themainstream. The IPDP provides a framework for the full participation of all ethnic minoritygroups in the detailed planning and implementation of the Project and these mechanisms havebeen developed through extensive consultations with the communities and their representativesin the Project area. The main aims of the IPDP are to (i) improve the living conditions of all theethnic minority groups by improving the rural communication network, which will give betteraccess to education, health, and trading centers and decrease the costs of transportation andconsumables; (ii) create job opportunities in construction and road development works for thosegroups; (iii) offer skill development and credit to develop income generating microenterprises inthe remote areas; and (iv) facilitate empowerment of the ethnic minority communities throughstrengthening their participation in local development activities.

88. The objectives of the IPDP have been incorporated into the Project’s detailed planningand implementation framework and these will be addressed through (i) comprehensiveconsultations with the involved individual communities and villages, which will be a precursor tothe development of each annual plan for the rural infrastructure component; (ii) the CDCsformed under the Project to identify, implement, and manage small-scale infrastructure projectshaving all local ethnic minority groups represented in their membership; (iii) where possible,local NGOs representing specific ethnic minority groups carrying out the skill development andtraining activities in their tribal groups; (iv) local indigenous NGOs being employed to work withthe NGO credit providers; and (v) where roads are upgraded in a particular area, ethnic minoritygroups in that area being given priority for job opportunities associated with the construction.The PMU will be responsible for BME of the IPDP. The data gathered during the benchmarkand socioeconomic survey on each of the ethnic minority groups will be used as base lineindicators to monitor the Project’s impact on each group.

V. PROJECT JUSTIFICATION

A. Economic and Financial Analysis

1. Introduction

89. Reviews of projects in Bangladesh in which there have been a significant roadimprovement component have identified three main direct benefits: (i) a reduction in goodstransport costs of up to 40 percent as a result of reduced vehicle operating costs, (ii) a similarreduction in public transport fares, and (iii) a reduction in travel time. Savings in transport costshave in turn lead to lower farm inputs and an improvement in product prices, which havetogether resulted in an increase in agricultural production. In some areas, a change to moreintensive forms of land use has occurred. In the nonfarm sectors, economic activity has also

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increased as a direct result of road improvement. These activities have included a range ofservice enterprises (vehicle repair, for example), the supply of transport equipment reflecting achange from nonmotorized to motorized modes of transport and small enterprise developmentsupported by a growth in NGO-managed microfinance institutions.

90. While similar outcomes from investment in road improvement could be expected in theCHT, there are some important differences from the plains areas where most of the recent roadbuilding activity in Bangladesh has occurred. First, the CHT has many steep-sided valleysthrough which roads must pass. As a result, the area of good quality agricultural land, whichcan be influenced per unit of road, is quite small. In the Third Rural Infrastructure DevelopmentProject (footnote 27), for example, areas of influence per km of road ranging from 900 ha toover 1,400 ha are quoted while comparable figures for the CHT as assessed during field workare typically 30-50 ha/km. Second, there are serious constraints to expanded agriculturalproduction (para. 12). Furthermore, uncertain land tenure arrangements together with restrictivelegislative provisions covering forestry are likely to constrain the development of tree crops,which could add significantly to the effective command area of new roads (Appendix 10).

2. Beneficiaries

91. At full development, the Project will directly benefit about 52,000 households comprisingabout 338,000 people. Incremental household incomes have been estimated at Tk300 fortransport cost savings only, Tk6,400 for transport cost savings together with intensified cropproduction, Tk3,200 for egg production, Tk8,600 for poultry production, and Tk4,200 for pigfattening. The intensified crop production and livestock increments are very significant whencompared with typical current household incomes of between Tk20,000 and Tk30,000 perannum and should provide a strong incentive for beneficiary participation. As the livestockenterprises can be scaled to suit a range of labor and credit situations, and require limited landresources, landless households will have the opportunity to participate in these enterprises.

3. Quantifiable Benefits

92. The principle quantifiable outputs of the Project will be (i) increased agriculturalproduction (mainly rice, vegetables, and spices) resulting from more intensive input use andimproved access to supporting services such as credit and technical services; (ii) householdsavings on agricultural transport costs resulting from improved roads and market facilities; and(iii) increased livestock production (eggs, chickens, and pigs) arising from improved access tomarkets, credit, and technical services. Annual incremental crop and livestock production at fulldevelopment is estimated at 4,560 tons (t) of unhulled rice, 2,340 t of potatoes, 68 t of ginger,6.16 million eggs, 1.80 million chickens, and 14,250 fattened pigs. At full development, the netfinancial value of incremental crop and livestock production is estimated at Tk234.64 million($4.60 million). For beneficiaries who do not intensify output, transport cost savings fromagricultural activities are estimated at Tk5.14 million ($100,000).

4. Nonquantifiable Benefits

93. The Project will generate a wide range of nonquantifiable benefits. These will include (i)a saving in travel time, particularly for those currently using nonmotorized means of transport onearth surfaced tracks; (ii) improved delivery of development services such as health andeducation; (iii) a reduction in consumer goods prices (apart from agricultural inputs) resultingfrom reductions in transport costs; (iv) reduced spoilage in markets and easier access tomarkets; and (v) an improvement in the general business environment engendered by more

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reliable and cheaper transport services and improved access to microfinance services.Furthermore, the small-scale subprojects to be implemented by communities are expected toproduce a wide range of benefits. These will include improved access to safe water supplies,community meeting places perhaps lit with small-scale solar electricity systems, upgradedaccess tracks within villages, jetties, and school rooms. Community mobilization activities bycontracted NGOs will have long-term benefits in improved community decision makingprocesses and empowerment, and improved implementation and management capacity. At theinstitutional level, staff of the CHTRC and HDCs, as well as members of the union councils, willhave the opportunity to work closely with project management staff. This will provide anopportunity for them to upgrade their skills in project design and implementation, which will berelevant to their work in the CHT as a whole. Finally, NGO capacity-building under the Projectwill assist locally-based NGOs to improve their ability to deliver services to the wider community.

5. Economic Analysis

94. The economic evaluation draws together the investment costs of the Project (excludingthose for which benefits have not been estimated) during a seven-year implementation period,plus the recurrent costs needed to ensure sustainable benefits. These costs are then comparedwith the estimated direct benefits, over a 30-year period. As the analysis is expressed ineconomic prices at domestic price levels, tradable components have been adjusted by ashadow exchange rate factor of 1.10 to convert them to the domestic price level. The main finalincremental outputs of the Project as evaluated are crops (primarily rice and vegetables) andlivestock products (eggs, chickens, and fattened pigs). In addition, transport cost savings forbeneficiaries who do not intensify production or adopt new livestock enterprises are included inthe economic flows. Given the interdependence of the rural infrastructure and agriculturalproduction activities, separate evaluations of the various components of the Project have notbeen attempted.

95. As benefits from the community development component have not been assessed, thecost of this component has been excluded from the economic evaluation. Project managementcosts, estimated at 30 percent of the total, have also been excluded. These costs are assessedas being directly related to the implementation of the community development component andmore general capacity building. All rural infrastructure investment costs have been included.Eighty percent of the value of the proposed credit line has been excluded, as the costs thatwould be financed by term loans from this proportion of the credit line are included in the variouslivestock enterprise models that form part of the Project economic flows.

96. For the base case, the economic internal rate of return (EIRR) of the Project is estimatedat 11.9 percent. While this rate is below the assumed opportunity cost of capital (12 percent), itis judged to be acceptable when the nonquantifiable benefits are taken into consideration.Sensitivity tests show that if road construction costs rise by 10 percent, the EIRR falls to 10.7percent. If the area of land on which more intensive production technology is used and falls from30 percent of the total in the area of influence, as assumed in the base case, to 20 percent, theEIRR falls to 10.6 percent. The EIRR is also sensitive to changes in assumptions about the areaof land influenced by each km of road. If this falls by 10 percent, the EIRR falls to 11.5 percent.In the unlikely event that both the prices of eggs and chickens fall by 10 percent, the EIRRwould fall to 10.6 percent.

31

6. Subsidy and Recurrent Budget Implications of the Project

97. Apart from grants to be made under the community development component, there willbe no direct subsidies paid by the Project. Beneficiaries will, however, continue to draw on thefree advisory services currently provided by government agencies in the area. The interest ratesfor loans to be made under the microenterprise development component are expected to atleast cover the incremental lending costs of NGOs, including provisioning. O&M costs of smallmarkets that may be financed under the Project will be met by union councils using a fixedproportion of the proceeds of market stall leases specifically set aside for this purpose. O&Mcosts of facilities to be constructed under the community development component will be theresponsibility of the communities and community organizations established under the Project.Recurrent government budget costs extending beyond the seven-year project investment periodare limited to road maintenance.

7. Project Risks

98. Due to the limited development activity in the CHT during the insurgency, the capacityfor project design and implementation is limited (Appendix 11). New institutions were createdout of the peace accord, and empowered to take a lead role in development activities in theCHT. A local indigenous NGO movement has developed approximately seven NGOs that, withcapacity building support, could participate in project activities. To minimize the risk thatinstitutional weakness could seriously affect project implementation, the following specificinterventions have been incorporated in the project design: (i) recruitment of a domesticconsultant knowledgeable in ADB systems and procedures to provide project managementsupport to the MCHTA and the PMU; (ii) project management and local implementation staff willbe supported by domestic and international consultants with expertise in communitydevelopment, training, gender issues, engineering quality control, institutional development,communications, legal services, and BME; (iii) institutional strengthening for local NGOs to buildup their capacity; (iv) national NGOs that can provide a mix of services to facilitate effectiveimplementation of the Project; (v) only a limited amount of infrastructure is proposed for the firstyear; and (vi) training of trainers will start in the first year.

99. Although land ownership issues were key elements in the recent insurgency in the CHT,decisive action is not being taken to address these concerns. Inaction on a proposed landsurvey is delaying the preparation of a new voting list of land owners, which is required beforeelections for HDCs (and indirectly the composition of the CHTRC) can take place. Theimplications of a delayed survey and voting list will be a continued suspicion of Governmentintentions toward tribal development and a significant risk that the more radical tribal elementsmay return to armed conflict to achieve what they consider are their social and economic rights.Assurances have been sought that the Government remains committed to the land ownershipand disputes resolution provisions of the peace accord.

100. Participatory processes are an important element in the selection and prioritization ofmany project activities. These procedures may be new to government institutions in the CHTand a more prescriptive approach could easily eventuate. To provide an appropriate overview tothis process, ADB and the Government must carry out reviews every six months for at least thefirst two years of the Project, with more in-depth reviews at the end of the second and fourthyears of the Project. These reviews, and compliance with all ADB procedures and policies arekey to ensuring that the Project is successful. Given that the CHT has only recently emergedfrom a 20 year insurgency (paras. 3-6), that the CHTRC and HDCs are new organizations, and

32

that participatory processes are critical to progress in the CHT generally and to the Project inparticular, compliance with ADB procedures and policies must be accompanied by efforts toensure transparency and accessibility to information by all of the project beneficiaries. ThisProject will incorporate lessons offered from the Samut Prakarn Wastewater ManagementProject,30 and will include the establishment of a project web site as a tool by which to managethe demand for information on the Project. The web site will contain relevant documentation,such as this report, and will be regularly updated. In addition, an interdepartmental task force(headed by ADB’s Agriculture and Social Sectors Department [West], and including ProgramsDepartment [West], Office of the General Counsel, and Office of External Relations) will beformed to ensure that implementation and comprehensive ADB monitoring and review of theProject are carried out in accordance with the project design and ADB procedures and policies.The task force also will be responsible for addressing any queries from the public and fromNGOs.

101. Many of the roads to be constructed under the Project will pass through difficult terrain orwill be subject to local flooding and will have a high maintenance requirement. Overall, asignificant increase in the annual road maintenance budget for the CHT will be required forthese and other project-financed roads to be maintained satisfactorily. Part of the maintenancework will be carried out by labor contracting societies, which will need to be formed for thisspecific purpose. The Government has assured ADB that appropriate allocations will be madefor road maintenance. The Project will help communities form and operate labor contractingsocieties. Annual work planning under the infrastructure component will take into accountGovernment (national and local) resources available for O&M.

B. Social Dimensions

102. The Project has been designed to address some of the critical development needsidentified by communities during participatory meetings and the needs assessment survey. Mostsurveyed families had incomes below the Government’s food poverty line, placing them in thecategory of the poorest of the poor. Project interventions to help raise incomes include credit formicroenterprise development, training in a range of enterprise types, and provision of technicalservices. Investments in rural infrastructure are expected to lead to lower transport costs,improved access to markets and government services, and growth of small businesses withinthe CHT. Women will benefit from a number of targeted interventions. Poultry raising willprovide an opportunity for income generation, both for those with access to land and for thelandless. Women are priority borrowers in most NGO credit programs.

C. Project Impact on Poverty

103. Poverty reduction remains the overriding priority in Bangladesh. In rural areas, wherethe large majority of the poor live, poverty reduction requires (i) continued and increased growthin the on-farm and nonfarm sectors, (ii) generation of self-employment microenterprises for thepoor, (iii) more effective delivery of education and health services, and (iv) better protectionagainst natural disasters. The target population under the Project are (i) poor shifting cultivatorsunable to meet their basic consumption needs and dependent on the sale of manual labor asthe main source of income; (ii) poor landless farmers with less than 0.2 ha of cereal productionland, including homesteads, and dependent on providing manual labor as the main source ofincome; and (iii) the absolutely poor marginal farmers with less than 0.4 ha of cereal productionland. Successful implementation of the Project will benefit the target population who will acquire 30 Loan 1410-THA: Samut Prakarn Wastewater Management, for $150 million, approved on 7 December 1995.

33

new or improved skills; increased earning opportunities and incomes; better communityorganization; and greater access to productive assets, infrastructure, and economic and socialservices. They also will benefit more broadly from improvements in the abilities of district andlocal administrations to deliver services in response to demand.

VI. ASSURANCES

A. Specific Assurances

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

(i) Within three months of loan effectiveness, a suitably qualified project director,acceptable to ADB, will have been recruited using an open and competitiverecruitment process, to replace the interim project director.

(ii) Within six months of loan effectiveness, the DPMUs in Bandarban, Khagrachari,and Rangamati, will have been established and equipped with necessary officefurniture and equipment, including telephones, and staffed with key personnel,including the deputy project directors, as agreed with ADB.

(iii) The Government will ensure that the CHTRC and the HDCs receive their annualbudget allocations on time, including all allocations for staffing and theimplementation of this Project, and that such budget allocations are sufficient toenable the CHTRC and HDCs to remain fully staffed with appropriate personnel(officer and class III level staff in the Governments civil service classificationsystem), so as to properly discharge their responsibilities as executing agencyand implementing agencies under this Project.

(iv) Prior to the carrying out of any civil works under the Project, the (a) CHTRC willconfirm that it concurs with the site of the concerned civil works; and (b) theGovernment will confirm that the site for the concerned civil works is onundisputed land.

(v) The Government will ensure that the CHTRC, HDCs, PMU, DPMUs, LGED, andother participating agencies or organizations take the necessary steps to havethe local tribal population and women living in the project area participate fully inplanning and implementing project activities. The CHTRC will ensure that tribalwomen are appropriately represented in Project social mobilization and trainingprograms, and that preference is given to all women (tribal and nontribal) in theprovision of microfinance.

(vi) The CHTRC, HDCs, and PMU will ensure that the local NGOs primarily focus onsupplying services to the tribal population and women, and that at least 70percent of their subborrowers under the microfinance component of the Projectare women.

(vii) The Government will ensure that the Project facilities upgraded under the ruralinfrastructure component of the Project will be properly operated and maintainedas follows: (a) the LGED will carry out routine and periodic maintenance ofimproved feeder roads type B and rural roads using the Government's annual

34

maintenance fund; (b) the LGED will submit annually to the Government budgetsto cover the cost of routine and periodic maintenance of structures improvedunder the Project; (c) the Government will include in its annual budget adequateprovision for the LGED to carry out such maintenance; and (d) the LGED willprovide additional resources for O&M from its Rural Maintenance Program(supported by the World Food Programme) to the Project.

(viii) The LGED will ensure that adverse environmental impacts resulting from the civilworks financed under the rural infrastructure component of the Project will bemitigated, and appropriate ADB and Government environmental safeguards areadopted in relation to noise, dust, air pollution, safety standards, soil erosion, andsanitation measures, in accordance with the relevant governing environmentallaws and regulations.

B. Conditions for Loan Effectiveness

105. Prior to loan effectiveness

(i) the Government will have approved the project proforma for the Project, whichwill be prepared by MCHTA with the assistance of LGED;

(ii) the CHTRC will have established the PMU in Rangamati and equipped the PMUwith the necessary office furniture and equipment, including telephones;

(iii) all personnel (excluding the public relations officer, two surveyors, and thespeedboat driver) of the CHTRC as set forth in its approved organization chart,and as agreed with ADB, will have been appointed and will have commencedtheir duties to the CHTRC; and

(iv) the Government and Danida will have executed the Danida Grant Agreement.

VII. RECOMMENDATION

106. I am satisfied that the proposed loan would comply with the Articles of Agreement ofADB and recommend that the Board approve the loan in various currencies equivalent toSpecial Drawing Rights 23,251,000 to the People’s Republic of Bangladesh for the ChittagongHill Tracts Rural Development Project, with a term of 32 years, including a grace period of 8years, and with an interest charge at the rate of 1 percent per annum during the grace periodand 1.5 percent per annum thereafter, and such other terms and conditions as are substantiallyin accordance with those set forth in the draft Loan and Project Implementation Agreementspresented to the Board.

TADAO CHINOPresident

3 October 2000

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APPENDIXES

Number Title Page Cited on(page, para.)

1 Project Framework 36 1,2

2 Rural Poverty in Bangladesh and in the 41 3,8Chittagong Hill Tracts

3 External Assistance to Rural Development Sector 47 7,22

4 Cost Estimates and Financing Plan 49 17,49

5 Project Organization Chart 52 22,66

6 Implementation Schedule 53 22,67

7 Equipment and Vehicles for Procurement 54 23,70

8 Terms of Reference for Consulting Services 55 24,71

9 Project Funds Flow Chart 61 26,78

10 Economic and Financial Analyses 62 29,90

11 Strengths, Weaknesses, Opportunities, Threat 71 31,98Analysis of Chittagong Hill Tracts Organizations

SUPPLEMENTARY APPENDIXES(available on request)

A Nongovernment Organizations in the CHTB Detailed Cost TablesC Initial Environmental ExaminationD Benchmark Survey and Key IndicatorsE Tribal Development Plan

Appendix 1, page 1

PROJECT FRAMEWORK

Design Summary Performance Targets Monitoring Mechanisms Assumptions and Risks

1. Sector/Area GoalsTo reduce the incidence ofabsolute poverty amongthe rural population of theChittagong Hill Tracts(CHT).

- Reduction in the number ofpoor people, currentlyestimated at 70 percent ofthe CHT rural population,living below the foodpoverty line.

- Poverty analysis, benefitmonitoring and evaluation(BME), samplesocioeconomic surveys,and participatory ruralappraisals.

- Incompleteimplementation of thepeace accord, especiallyland tenure and security.

2. Purpose/Objectivesa. Improved incomes and

employment opportunitiesfor target beneficiaries,especially the tribalpopulation and women.

- Increase in the income ofa typical beneficiary by upto Tk10,000 within fiveyears of entering theProject.

- Project progress reports.- Project review missions.- BME surveys.- Socioeconomic surveys at

specific periods of projectimplementation.

- Project completion andproject-performance auditreports.

- Prices fall.- Uptake of new

technology slower thanexpected.

- Training of trainers notsuccessful.

- Beneficiary training notappropriate.

- Continuing inwardmigration reduces percapita availability ofsuitable agriculturalland.

- Delay in implementingthe road improvementcomponent.

- Marketing systemunresponsive.

- Equitable access of allrural people todevelopment benefits,particularly the poorestgroups.

b. Improved effectiveness oflocal institutionsresponsible for ruraldevelopment

- Implementation of theProject in accordancewith the implementationschedule.

- Increasedresponsiveness of localauthorities to communityneeds.

- Sustainability ofcommunity organizations.

- Improved capacity oflocal institutions andnongovernmentorganizations (NGOs).

- Project progress reportsand review missions.

- Institutions have sufficientrecurrent funding tosupport theiradministrative functions.

3. Project Components/Outputs

a. Rural roads upgraded andmaintained:• feeder roads type B,• rural roads,• bridges and culverts as

required to completeroute,

- Upgrade up to 75 km offeeder roads type B.

- Upgrade up to 350 km ofrural roads.

- Construct up to 6,069 m ofbridges and culverts.

- Project progress reportsand review missions.

- Periodic surveys tomeasure changes infreight costs andpassenger fares.

- Capacity of local constructioncontractors belowexpectations.

- Union councils unable tomobilize local people as

labor contracting societies.

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Appendix 1, page 2

Design Summary Performance Targets Monitoring Mechanisms Assumptions and Risks

• community organizationsassisted to participate inpriority and route settingprocess, and

• equipment procured, andrural road maintenancegroups established.

- Maintain 426 km of roadsand bridges annually byproject completion.

- Annual selection and reviewmeeting betweenImplementing Agency andcommunities for eachsubproject.

- Annual reports by projectcommunity developmentstaff.

- Local GovernmentEngineering Department(LGED) budget formaintenance inadequate

- Implementing Agencyproceeds withoutadequate communityparticipation.

b. Communities developed:• NGOs strengthened and

project selectionprocesses established,

• beneficiaries trained,• locally identified

community projectsoperational, and

• institutional structurefor operation andmaintenance of project-financed facilities inplace.

- Two NGOs in eachdistrict selected andstrengthened.

- Existing NGOs withappropriate capacityrecruited to providecommunity organizingservices.

- Block grants allocated onunion council area basis.

- Projects identified andimplemented in eachunion council area.

- Up to 280 trainingcourses for up to 5,700beneficiaries duringproject life.

- Reports by communitydevelopment staff ofproject management unit(PMU).

- Project progress reportsand review missions.

- Reports by PMU trainingspecialists.

- Communities unable toagree on priorities.

- Communitiesunwilling/unable tocontribute a proportion ofproject cost.

- Capacity of localconstruction contractorsbelow expectations andimplementationsupervision inadequate.

- Unable to identify suitableNGOs for strengthening.

- Beneficiaries are preparedto participate in trainingprograms.

c. Income-generating activitiesexpanded:• strengthened NGOs,• beneficiaries

trained,• community-based

microfinance institutionsestablished,

• agriculturalintensification anddiversificationfinanced, and

• nonfarmmicroenterprisedevelopmentfinanced.

- Up to two NGOs in eachdistrict identified andstrengthened.

- Up to 3,100 training coursesfor up to 60,000beneficiaries during projectlife.

- Up to 60,000 members ofsavings and creditorganizations and creditgroups.

- Up to 50,000 creditpackages disbursed.

- Project progress reportsand review missions.

- Reports of communitydevelopment and trainingstaff of PMU.

- NGOs with strong creditexperience unacceptablein project area.

- Recommended croppingpatterns unacceptable tofarmer.

- Availability of credit a keyfactor in influencingadoption of newtechnology or enterprises.

d. Implementation capacitybuilt:• improved capacity of

local government staffto identify andimplementdevelopmentinterventions,

• trained trainers, and• PMU established.

- Up to 100 trainingcourses for trainers withup to 2,000 trainees.

- PMU operational by loaneffectiveness.

- Consultants recruitedwithin 2 months of loanbecoming effective.

- Project progress reportsand review missions.

- Appropriate trainingproviders available.

- Bilateral funder can beidentified to financetechnical assistanceinputs.

- CHT Regional Councilagrees to implementProject.

37

Appendix 1, page 3

Design Summary Performance Targets Monitoring Mechanisms Assumptions and Risks

4. Activitiesa. Physical infrastructure

developed:• detailed land and road

use maps prepared;• routes and priorities

established:- annual participatory

consultations withaffected communitiesprior to the completionof work plans,

- incorporation ofoutcome of communitydiscussions withmapping information toassign priorities forcompletion of workplan, and

- presentation/agreement of workplan with the regionaland hill districtcouncils;

• rural roads constructed:- designs finalized,- feeder roads class B- rural roads classes 1-

3, and- labor contracting

societies organized;• bridges and culverts

constructed:- designs finalized,- labor contracting

societies organized;• maintenance:

- LGED to maintain allproject-financedroads following theending of thecontractor’sresponsibility.

- Component base cost$29.04 million.

- 48 person-months ofsupervisory consultingservices.

- Annual communityparticipatory meetings.

- Annual work plans agreedwith communities.

- 48 person-months ofsupervisory consultingservices shared withconstruction activities.

- Base cost of $0.95 millionfor road maintenancethroughout Project life.

- Project progress reportsand review missions.

- Random samplemonitoring by project staff.

- Delays in agreeing onpriorities.

- Insufficient contractingresources.

- Failure to organize laborcontracting societies.

- Government fails toallocate sufficient budgetresources to maintenancecell of LGED.

b. Communities developed:• NGO capacity building:

- up to two NGOs ineach district selectedfor capacity buildingsupport,

- contracts negotiatedwith service providersfor capacity buildingtraining services,

- capacity buildingimplemented, andcontracts negotiatedfor provision ofcommunity organizingservices;

- Block grants ofapproximately $70,000per union area to financelocal developmentinitiatives; 111 unionareas; $8.83 million basecost; $0.13 million forNGO capacity building.

- Project progress reportsand review missions.

- Independent social audit.

- Failure to identify andagree suitable subprojectsat local level.

- That local committees canprovide the checks andbalances needed forsuccessful implementationof this component.

- That communities canfinance (either in cash orkind) 25 percent of thecost of each subproject.

- Inability of communities toraise revenues required formaintenance of facilities.

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Appendix 1, page 4

Design Summary Performance Targets Monitoring Mechanisms Assumptions and Risks

• NGO services:- existing NGOs with

community organizingcapabilities selectedand contracted toprovide services tocommunities;

- $0.54 million forcommunity organizingservices.

• beneficiaries trained:- training courses

designed by projectstaff,

- service providerscontracted, and

- training programimplemented;

• union councilmultistakeholder projectcommittees formed withassistance fromcontracted NGOs;

• project priorities agreed;• local contributions

agreed;• user charges set where

appropriate;• designs prepared; and• projects constructed and

maintained.

- $0.40 million forbeneficiary training.

- Base cost ofapproximately $70,000per union council areaover life of Project.

c. Income-generating activitiesimplemented:• NGO capacity building:

- up to two NGOs ineach district selectedfor capacity buildingsupport,

- contracts negotiatedwith service providersfor capacity buildingtraining services,

- capacity buildingimplemented, and

- registration with PalliKarma-SahayakFoundation (PKSF)facilitated;

• NGO services:- NGOs who already

have partneragreements withPKSF establishmicrofinanceoperations in newareas asinfrastructuredevelopment programimplemented;

- $4.00 million line of credit;total component basecost of - $5.20 million.

- $0.13 million for NGOcapacity building.

- Socioeconomic surveys.- Project progress reports

and review missions.- Flow of funds to

participating NGOs.- Performance reports of

participating financialinstitutions.

- PKSF review.

- NGOs with strong creditmanagement capabilityexcluded from area.

- Limits placed on interestrates and spreads.

- That credit is a significantconstraint to adoption ofnew farming systems.

- That credit is a significantconstraint to growth in themicroenterprise sector.

39

Appendix 1, page 5

Design Summary Performance Targets Monitorin g Mechanisms Assumptions and Risks

• On-farm sector:- NGO funding

proposals agreed withPKSF;

- communitiesmobilized and creditgroups formed;

- training courses forbeneficiariesdesigned anddelivered;

- loans made for crop,livestock, fishery, andforestry activitiesonce capacity ofgroups established;and

• Microenterprise sector:- NGO funding

proposals agreed withPKSF,

- communitiesmobilized and creditgroups formed, and

- loans made for craftand other smallbusiness activities.

- $1.08 million forbeneficiary training.

- $4.00 million line of creditfor all enterprise types.

d. Project management:• Establish PMU, district

offices, and Dhakaliaison office;

• Appoint project staff;• Recruit consultants;• Procure vehicles and

equipment;• training for Executing

Agency staff;• training for PMU staff;• skills development

training for localagency staff;

• training for localgovernment and NGOstaff;

• project management;• implement regular

program ofparticipatoryworkshops for keyproject Executing andImplementation Agencystaff in all districts; and

• implement reviews andstudies.

- $7.27 million base cost

- 112 person-months (9.33person-years) ofinternationally recruitedand 232 person-months(19.33 person- years) ofdomestically recruitedconsulting services;$3.67 million base cost

- $0.18 million base cost

- $0.04 million base cost

- Project progress reportsand review missions.

Total base cost: $50.34 millionContingencies: $8.95 millionInterest charge: $1.01 millionTotal project cost: $60.30 million

40

Appendix 2, page 1

RURAL POVERTY IN BANGLADESHAND IN THE CHITTAGONG HILL TRACTS

A. Background

1. The most recent country-wide evidence on the poverty status1 shows that 36 percent ofBangladesh’s population was very poor and 53 percent was poor.2 The incidence of poverty hasdeclined since 1991-1992 as measured by both the lower and upper poverty lines. However, thedrop in poverty was larger in urban than rural areas. For the decade from 1985 through 1995,rural poverty remained much higher than urban poverty as measured with both the lower andupper poverty lines. The data from the household expenditure survey (HES) indicates there areseveral key social indicators which are correlated with poverty.

2. Education . Families in which the head of household did not have any education had ahigher probability of being poor. Nationally, the headcount index for very poor households was 48percent if headed by a person without schooling, and 7 percent if the head had completedsecondary schooling and above. Using the upper poverty line, 67 percent of households withheads with no schooling were poor across the country compared to 16 percent of householdswith heads who had completed the secondary certificate and above. Poverty falls as the level ofeducation of the household head rises, and it falls faster in urban areas than rural areas,suggesting higher returns to education in urban areas.

3. Occupation of the Head of Household . In the rural sector, owner-farmers had thelowest probability of being poor (20 percent within the lower poverty lines), followed by workers innonagricultural activities (38 percent); tenant farmers (42 percent); workers in fisheries, forestry,and livestock (45 percent); agricultural workers with family land (51 percent); and agriculturalworkers without family land (75 percent). In the nonagricultural sector, most high-level employees(executives, officials, professionals, and teachers) and most small businessmen and petty tradersescape poverty. Factory workers and artisans rank below them, followed by salespeople, serviceworkers, and transport and communication workers. Servants and day laborers had relativelyhigh poverty rates. Households where the head was not working do not fare so badly, probablybecause they had other sources of income or support that allowed the head not to work. Headswho had a second occupation tended to be in the poorer households, suggesting that the secondoccupation is pursued out of necessity. An exception was households whose heads have asecond occupation as an owner-farmer.

4. Rural Farm versus Nonfarm Workers . There has been debate in Bangladesh over theliving standards of the rural farm versus the nonfarm workers.3 The traditional view has held thatthe bulk of nonfarm activities are residual, low productivity occupations which the landless poorare pushed into. Therefore, the growth of the rural nonfarm sector is interpreted as a sign ofweakness rather than strength in rural development. If that were the case, rural nonfarm workerswould be employed in residual activities, receiving extremely low wages, and their poverty rateswould be higher than rural agricultural landless households. But the 1995-1996 HES showed thatrural households whose heads are landless agricultural workers are the poorest. This findingsupports the alternate view of the development of the nonfarm sector, which maintains thatgrowth of the nonfarm sector pulls people out of poverty in rural areas. Promoting the rural 1 Bangladesh Bureau of Statistics. 1998. Household Expenditure Survey (1995-1996).2 Bangladesh Bureau of Statistics uses a cost of basic needs (CBN) indicator which, expressed in taka per person

per month, sets three poverty levels (food, lower, and upper). The very poor are categorized as falling below thefood and lower poverty levels and the poor are categorized as falling below the upper poverty level.

3 World Bank. 1996. Bangladesh – Rural Infrastructure Strategy.

41

Appendix 2, page 2

nonfarm sector, including fisheries, livestock, and forestry is already a strong ingredient of themicrofinance programs of the nongovernment organizations (NGOs); therefore such promotionrepresents an attractive policy option for reducing poverty in rural areas.

5. Gender Disparities. Rural households headed by women had a higher probability ofbeing among the very poor than households headed by men (45 percent compared to 39percent). The headcount ratios for poor households were virtually identical for householdsheaded by females and males. Because households headed by females had smaller families andper capita consumption data was used as a welfare indicator, shown poverty among smallerfamilies was underestimated compared to larger families, and in households headed by women.And, if the distribution of consumption within households favors men, poverty among women islikely to be higher still.

6. While poverty is best measured by comparing per capita consumption to a poverty line,other dimensions of well-being are not captured by such measures. Women in Bangladesh lackaccess to health and education, and have a lower life expectancy than men at birth. Moreover, in1993 the ratio of female-to-male child mortality was 1.33, and the ratio of female-to-male childrenwho received no treatment for episodes of fever or acute respiratory infection was 1.19.Bangladesh’s gender performance in education is better: the ratio of female-to-male enrolment forchildren aged 11 to 14 was 0.93 in 1993, well above the South Asian median of 0.70. Yet girls stilllag behind boys, especially in secondary and higher education. Girls are less likely than boys toattend post-primary school, and they are less likely to complete school when they do attend.Moreover, women represent a small minority of teachers: 19 percent in primary education andonly 10 percent in secondary education.4

7. Attitudes Toward Women . Attitudes toward women are an important social determinantof equity, access to public services, and women’s well-being. The rural community module of the1995-1996 HES provides important information on village attitudes, of both men and women,toward women’s participation in income-generating activities, education, and family planning. Menand women have different attitudes toward women taking up income-generating activities: inalmost 75 percent of villages most women strongly favored doing so, but that view was held by amajority of men in less than half the villages. Support for female education is universally higherthan support for income-generating activities and is more even between men and women. Strongor very strong support for female education was the majority view of women in 90 percent of thevillages and the majority view of men in 84 percent of the villages. There are many villages (over20 percent) in which men oppose or strongly oppose women engaging in income-generatingactivities, but almost none where they oppose women’s education. Most men support familyplanning for women in 56 percent of the villages; most women do so in 65 percent of the villages.

B. Policies for Increasing Pro-Poor Economic Growth

8. Bangladesh’s economic growth has exceeded its population growth, especially since theearly 1990s. The gross domestic product (GDP) growth has averaged around 4 percent over thepast 12 years, and was 4.4 percent in the period 1991-1997, whereas the population growth wasabout 2 percent. This should have resulted in increased consumption and reduced poverty. Yetpoverty declined slowly, with no net gains between 1983 and 1992. Rural poverty in particular hasremained very high and the actual number of poor has increased over time.

4 World Bank. 1996. Bangladesh – Education Review.

42

Appendix 2, page 3

9. A recent analysis5 showed that a rising inequality had accompanied the growth in GDPand the actual pattern of growth in per capita consumption without the changes in equality wouldhave been about 10 percentage points lower in FY1995/96 than was observed. The analysishighlighted the need for a better understanding of the likely implications of various growthpatterns and the microeconomic determinants of inequality so that public policies may help toreduce inequality over time. It posed the following questions: How would different sectoralpatterns of growth affect poverty? How does the saving to finance investment affect poverty?The analysis examined three simple scenarios — one with steadily accelerating growth, one withhigher growth coming from services, and one with higher growth coming from agriculture.

10. A simulation of these scenarios suggested (i) if economic growth accelerates, it will lead tosignificant poverty reduction, even after taking into account the potential impact of risinginequality; (ii) to the extent that Bangladesh makes better use of the concessional foreign aid towhich it has access, the impact of higher growth on poverty would be large, and to the extent thatsafety nets better protect the consumption of the poorest, the impact of faster growth on povertywould be greater; and (iii) growth based on faster agricultural growth would bring additional gainsin poverty reduction, and reduce inequality.

C. Microeconomic Determinants of Poverty

11. In addition to broad-based economic growth, investment in the poor’s human and physicalcapital are widely recognized to reduce poverty. Further analysis by the World Bank of the 1995-1996 HES (para. 1) made the following conclusions and suggested certain policy implications.

12. Returns to Education . Holding other household characteristics constant, for a householdwhose head completes primary school, consumption rises 19 percent per capita in urban areasand 7 percent per capita in rural areas compared to a household head who had no education. Forsecondary school, the gain is 48 percent for urban areas and 17 percent for rural areas. Thegains are high for spouses. These figures have been relatively stable since 1983 and haveincreased for women. The gains from education have remained huge, despite recent increases inunemployment among the better educated, warranting greater investment in education. Theincreasing gains from education for spouses in rural households may denote greater participationof women in income-generating activities.

13. Returns to land ownership, occupation, demographics, wages, and employment.Landlessness increases the probability of being poor, as do certain occupations. In agriculture,owner-farmers are best off, followed by tenant farmers, workers in fisheries, forestry, andlivestock, and agricultural workers with land. Factory workers, artisans, salespeople, serviceworkers and transportation workers fare better than agricultural workers. Real wages haveincreased but agricultural wages have lagged behind other forms of employment. Whileunemployment is relatively low, underemployment remains high, especially in rural areas. Giventhe potential political and administrative constraints to land distribution, promoting the nonfarmsector, microfinance programs, and human capital investment is a good strategy to raise thestandard of living of landless agricultural workers. Nonfarm-related investments in the poorestregions would reduce poverty the most, although the absolute gains from joining the nonfarmsector may be greater in the better-off regions. The slower rise in agricultural wages is consistentwith the slower decline in rural poverty. Policies should be implemented to reduceunderemployment in rural areas, for example by providing better opportunities for women.

5 World Bank. 1998. Bangladesh-From Counting the Poor to Making the Poor Count.

43

Appendix 2, page 4

14. Area Determinants of Poverty . Differences in poverty between geographic areasdepend more on different area characteristics than on differences of households located in theseareas. Policing targeted investments to poor regions should be supported. These could includeinvestments in rural roads and bridges, marketing facilities, health and school facilities,microfinance, energy, and communications.

15. Determinants of Inequality . Land ownership drives inequality the most in rural areas. Inboth urban and rural areas, location is the second largest determinant of inequality. Occupationhas a lesser impact. Enabling the poor to complete primary education is inequality-reducing, as isinvesting in poorer regions and eliminating land-labor failures that further skew rural landdistribution. Transfer and skill building such as Food-for-Work and Vulnerable GroupDevelopment programs reduce inequality.

D. Public Expenditures and Government Safety Net Programs

16. Effective public spending, including spending on rural infrastructure in addition to socialsector programs and safety nets, can reduce poverty. Public social sector expenditures rose fromTk8 billion in FY1989/90 to Tk28.5 billion in FY1995/96 in constant FY1995/96 prices. Realeducation spending has increased the most, both in absolute and real terms from Tk3.14 billion inFY1989/90 to Tk5.85 billion in FY1995/96. Education and health represented 80 percent of theAnnual Development Plan (ADP) social spending in FY1995/96. Overall, the share ofBangladesh’s ADP devoted to education, health, social welfare, and family planning has morethan doubled since FY1989/90 from 10 to 24 percent.

17. Safety Nets in Bangladesh Serve Transfer Payment and Human CapitalAccumulation Objectives . There is a long tradition of safety nets established by external foodaid. The three biggest programs are Food-for-Work, which provides wheat in exchange for workon rural infrastructure projects, Food-for-Education which initially provided wheat and nowprovides wheat and rice to poor children in return for regular primary school attendance, andVulnerable Group Development, which provides food grains and training to disadvantagedwomen. Test Relief is a smaller program used to support activities like cleaning ponds andbushes, and making minor repairs to rural roads, schools, and mosques during the rainy season.Food-for-Work is by far the largest program but the fastest growing and second largest programis Food-for-Education, which started in FY1993/94 in selected rural villages.

18. Public safety net programs such as those mentioned above play an important role inprotecting the poor and in building rural infrastructure and human capital. Given the persistenceof high poverty rates and the observed increases in inequality, these programs should bepursued. Monetization of these programs could bring additional benefits by reducing costs andavoiding risks of distortions in food markets and in farmer decision-making of enterprises.

E. NGO Programs

19. Bangladesh is known internationally for its innovative NGOs, which have grown rapidly.The number of NGOs registered with the NGO Affairs Bureau has tripled since 1990 to about1,200 in 1997. In some areas the size of NGO programs is now on a par with the size ofgovernment programs. While the influence of NGOs and their reliance on foreign funding hasbeen a source of tension with the government in the past, the situation has improved andpartnerships with NGOs are now being more common.

20. Microfinance programs such as those provided by the Bangladesh Rural AgriculturalCooperative (BRAC), Association for Social Advancement (ASA), Proshika, and Grameen Bank

44

Appendix 2, page 5

are among the best known. The Grameen Bank had 2.06 million microcredit clients in 1996, andBRAC, Proshika, and ASA has 1.84 million, 1.30 million, and 0.57 million, respectively. This putsthe size of these organizations on par with the Bangladesh Rural Development Board (BRDB),the government’s microfinance agency. In addition to microfinance, NGOs provide skill training,education, health, family planning, and water supply and sanitation services. NGOs are alsoactive in managing common property resources, extending nontraditional agriculture, andinitiating income generating activities. For these activities as well, some NGO programs havereached the size of similar government programs. BRAC’s Non-Formal Primary Educationprogram operated 34,175 schools in 1996, enrolling 1.1 million students in 22,602 villages. Bycomparison, the Food-for-Education program served about 2 million children that year. NGOshave also diversified their activities: BRAC acts as a financial intermediary providing microcreditto landless women nationwide and, for example, supports research on plant tissue culture toimprove agribusiness opportunities in fruit and vegetable cultivation. Grameen operates theGrameen Bank and has sponsored Grameen Telecom, which provides cellular telephoneservices, and likewise Proshika, which acts as an internet provider.

21. Microfinance programs are effective in fighting poverty. The large NGO microfinanceinstitutions are becoming more sustainable over time because of their system of group-basedcollateral and high repayment rates. The vastly superior performance of NGO rural health andeducation services offers possibilities of partnerships with public agencies to broaden theirpoverty reduction successes.

F. Rural Poverty in the Chittagong Hill Tracts

22. No official data is available on the poverty status in the Chittagong Hill Tracts (CHT).However, the benchmark and socioeconomic survey conducted in all three districts during projectpreparation showed that about 70 percent of the 619 rural families surveyed from all ethnicgroupings, had incomes that were below the food poverty level,6 the lowest level in theGovernment’s poverty index. This figure is about twice the national average for rural areas inBangladesh (footnote 1). The BMS also determined that the principal perceived problems of therural communities were poor communications, a lack of drinking and irrigation water, and a lack ofincome-generating opportunities.

23. The reasons for this extreme poverty are several. The lands are not productive.Nationally, about 70 percent of Bangladesh soils are cultivatable and have few productionlimitations. The equivalent figure in the CHT is about 6 percent and its generally poor soils andsteep contours severely limit the production enterprise options. The creation of Lake Kaptai in1960, took about 20,000 ha of the CHT's best agricultural land and permanently left the CHT as acereal deficit area. The in-migration of people from the plains districts in the late 1970s to early1980s exacerbated the pressures on the remaining agricultural land and the resulting insurgencywar internally displaced many families. Much of the hilly land that could offer income generatingopportunities in social forestry, is either under the exclusive control of the Forestry Department oris subject to forestry regulations that deter private forestry investments.

24. Reducing poverty in the rural areas is directly addressed through a group of publicexpenditure programs associated with the development of rural infrastructure. These programsinclude Food-for-Work, Vulnerable Group Development, and Rural Maintenance and serve bothtransfer payment and human capital accumulation objectives. Food-for-Work provides wheat in

6 Seventy percent of surveyed families earned less than Tk30,000 per annum which is below the food poverty line

(poorest of the poor) figure of Tk35,000 per annum for Chittagong Division established in the Bangladesh Bureauof Statistics’ HES for FY1995/96 and updated to 1999.

45

Appendix 2, page 6

exchange for work on rural infrastructure projects, Vulnerable Group Development provides foodgrains and training to disadvantaged women, and Rural Maintenance employs destitute women inlabor intensive rural road maintenance. All of these programs are operating in the CHT and theymake a significant contribution to rural incomes.7

25. Supporting the public sector programs is a parallel set of NGO programs which arefocused on skills development backed up with microfinance. The national NGO operations ofBRAC, Integrated Development Foundation, and Proshika did not start in the CHT until 1997 andtheir activities have been limited by tribal leadership concerns about the potential erosion ofcultural values through the NGO development approach. There is an ongoing dialogue whichaims to resolve these outstanding issues.

7 World Food Programme Special Assistance to the CHT 1998-1999 – providing food assistance to 34,172 people.

46

Appendix 3, page 1

EXTERNAL ASSISTANCE TO RURAL DEVELOPMENT SECTOR(FROM 1990 – PRESENT)

Project Source of FundsAmount

($ million) Status

Smallholder Livestock Development IFAD-Danida 15.3 ClosedAgricultural Research Management Project IDA-World Bank 50.0 OngoingMarginal and Small Farm Systems Crop

Intensification ProjectIFAD-GTZ 8.0 Closed

Netrakona Integrated Agricultural Productionand Water Management Project

IFAD-WFP 6.4 Closed

Duckweed Research Project Netherlands 10.0 OngoingRural Development Project 3 IDB 33.4 OngoingRural Development Project 4 Sida 17.2 OngoingRural Development Project 14 GTZ 22.0 ClosedRural Development Project 16 Danida 65.0 ClosedNortheast Minor Irrigation ADB 73.0 ClosedSecond Bhola Irrigation ADB 39.8 ClosedRural Poor Cooperative ADB 28.9 ClosedSecond Rural Infrastructure Development

ProjectADB 83.4 Closed

Command Area Development ADB 30.0 OngoingForestry Sector ADB 50.0 OngoingParticipatory Livestock Development Project ADB-Denmark 38.0 OngoingThird Rural Infrastructure Development ADB 70.0 OngoingRural Livelihood ADB 42.6 OngoingHorticulture Development ADB 22.6 ClosedCrop Diversification Project Netherlands 18.0 OngoingNorthwest Fisheries Development Project DFID 4.0 OngoingVegetable Research USAID-Japan 1.0 OngoingIntegrated Soil Fertility and Fertilizer Denmark 3.2 Closed Management ProjectAgricultural Services Innovation and World Bank 14.0 Ongoing Reform Project DFID-FAOThana Cereal Technology Transfer and UNDP/FAO 4.0 Ongoing Identification ProjectStrengthening of Seed Certification Agency Denmark 4.0 OngoingStrengthening National Vegetable Seed

Production through Private Sector Participation

Denmark/Belgium/FAO

4.0 Ongoing

Bangladesh-German Seed Development Project

GTZ/EU 5.7 Ongoing

Agro-based Industries and Technology Development Project

USAID 26.0 Closed

Farm-to-Market Enterprise Development Project

Canada 14.0 Ongoing

47

Appendix 3, page 2

Project Source of FundsAmount

($ million) Status

Foodcrops Development Program Loan ADB 125.0 ClosedNational Minor Irrigation Project EU 88.0 ClosedConstruction of Bridge/Culverts through

Monetized USAID Food Aid Provided uunder PL-480, Title-III

USAID 26.5 Closed

Rural Maintenance Programme (3rd Phase) CIDA 59.9 ClosedIntegrated Food Assisted Development

ProjectEU 25.5 Closed

Growth Center Connecting Road Programme WFP 40.3 OngoingIntegrated Food for Development Project USAID 123.6 ClosedRural Training ADB 16.3 ClosedRural Women Employment Creation ADB 8.0 ClosedPoverty Alleviation Microfinance Project IDA 105.0 OngoingRural Development Project 5 (Phase III) NORAD 5.9 OngoingRural Bittaheen Project CIDA 9.7 ClosedPeople’s Participatory Capacity Building

ProjectUNDP 4.2 Ongoing

Kurigram Poverty Alleviation Project Norway 1.9 Ongoing

ADB = Asian Development Bank, CIDA = Canadian International Development Agency, Danida = Danish InternationalDevelopment Agency, DFID = UK Department for International Development, EU = European Union, FAO = Food andAgriculture Organization, GTZ = German Agency for Technical Cooperation, IDA = International DevelopmentAssociation (World Bank), IFAD = International Fund for Agricultural Development, NORAD = Norwegian Agency forInternational Cooperation, Sida = Swedish International Development Cooperation Agency, UNDP = United NationsDevelopment Programme, USAID = United States Agency for International Development, WFP = World FoodProgramme.

48

49

Appendix 4, page 1

(Tk million) ($ million)

Local Foreign Total Local Foreign Total

A. Rural Infrastructure

1. Feeder Roads Type B 241.8 51.3 293.1 4.74 1.01 5.75

2. Rural Roads 907.4 179.5 1,086.9 17.79 3.52 21.31

3. Maintenance 48.3 0.0 48.3 0.95 0.0 0.95

4. Equipment for LGED 30.7 21.9 52.6 0.60 0.43 1.03

Subtotal 1,228.2 252.7 1,480.9 24.08 4.96 29.04

B. Community Development 410.4 39.6 450.0 8.05 0.78 8.83

C. Microfinance 265.1 0.0 265.1 5.20 0.0 5.20

D. Project Management 223.9 147.1 371.0 4.39 2.88 7.27

Total Base Costs 2,127.6 439.4 2,567.0 41.72 8.62 50.34

Physical Contingencies 131.4 24.0 155.4 2.58 0.47 3.05

Price Contingencies 498.6 92.5 591.1 4.97 0.93 5.90

Total Project Costs 2,757.6 555.9 3,313.5 49.27 10.02 59.29

Interest Charge 0.0 55.3 55.3 0.0 1.01 1.01

Total Including Interest 2,757.6 611.2 3,368.8 49.27 11.03 60.30

LGED = Local Government Engineering Department.

Table A4.1: Components Project Cost Summary

COST ESTIMATES AND FINANCING PLAN

Local DutiesForeign (Excl. and

Amount % Amount % Amount % Amount % Amount % Amount % Exchange Taxes) Taxes

A. Rural Infrastructure

1. Feeder Roads Type B 4.05 58 1.59 23 - - - - 1.40 20 7.04 12 1.23 5.34 0.47

2. Rural Roads 9.23 35 13.12 50 - - - - 3.85 15 26.20 43 4.33 20.22 1.65

3. Maintenance - - - - - - - - 1.15 100 1.15 2 - 1.10 0.06

4. Equipment for LGED 0.60 56 0.26 24 - - - - 0.21 20 1.07 2 0.45 0.41 0.21

13.88 39 14.97 42 - - - - 6.61 19 35.46 59 6.01 27.07 2.39

B. Community Development 7.05 71 - - - - 1.73 18 1.10 11 9.89 16 0.87 8.38 0.65

50

Activities

C. Microfinance 1.13 19 - - 3.56 61 0.89 15 0.28 5 5.87 10 - 5.87 -

D. Project Management 6.93 86 - - - - - - 1.13 14 8.06 13 3.14 4.68 0.25

E. Interest Charge 1.01 100 - - - - - - - - 1.01 2 1.01 - -

30.00 50 14.97 25 3.56 6 2.62 4 9.13 15 60.30 100 11.03 45.99 3.28

Danida = Danish International Development Agency, LGED = Local Government Engineering Department, PKSF = Palli Karma-Sahayak Foundation.

Appendix 4, page 2

Subtotal

Total Disbursement

Table A4.2: Components by Financiers($ million)

ADB Danida BeneficiariesPKSF Government Total

51

Appendix 4, page 3

Foreign Local Total Danida PKSF Beneficiaries Govt Total

A. Rural Infrastructure - Rangamati/Bandarban

Design and Survey - 0.16 0.16 - - - 0.07 0.22Civil Works 2.70 9.22 11.92 - - - 3.80 15.72Vehicles and Equipment 0.31 0.29 0.60 - - - 0.15 0.75

Subtotal 3.00 9.67 12.67 - - - 4.02 16.69B. Rural Infrastructure - Khagrachari

Design and Survey - - - 0.32 - - 0.02 0.33Civil Works - - - 13.07 - - 0.88 13.95Vehicles and Equipment - - - 0.26 - - 0.06 0.32

Subtotal - - - 13.64 - - 0.97 14.61C. Community Development

Civil Works 0.86 5.20 6.06 - - 1.73 0.86 8.65NGO Capacity Building - 0.10 0.10 - - - 0.03 0.13Community Organizing and - 0.82 0.82 - - - 0.21 1.03 Training

Subtotal 0.86 6.12 6.98 - - 1.73 1.09 9.80D. Microfinance

NGO Capacity Building - 0.10 0.10 - - - 0.03 0.13Credit Line - - - - 3.56 0.89 - 4.45Training - 0.95 0.95 - - - 0.24 1.19

Subtotal - 1.05 1.05 - 3.56 0.89 0.26 5.77E. Project Management

Salaries and Allowances - 1.25 1.25 - - - 0.54 1.79Vehicles and Equipment 0.22 0.27 0.49 - - - 0.12 0.61Operating Costs 0.16 0.60 0.76 - - - 0.33 1.09Training - 0.19 0.19 - - - 0.05 0.23Consultants 2.74 1.39 4.13 - - - 0.06 4.19

Subtotal 3.12 3.70 6.82 - - - 1.09 7.91F. Recurrent Costs

Infrastructure Maintenance - - - - - - 1.10 1.10Subtotal - - - - - - 1.10 1.10

Unallocated 0.29 1.18 1.47 1.33 - - 0.61 3.41Interest Charge 1.01 - 1.01 - - - - 1.01

Total Financing 8.29 21.71 30.00 14.97 3.56 2.62 9.13 60.30

ADB = Asian Development Bank, Danida = Danish International Development Agency, NGO = nongovernment organization; PKSF = Palli Karma-Sahayak Foundation.

ADB

Table A4.3: Detailed Financing Plan($ million)

PROJECT ORGANIZATION CHART

Ministry of LocalGovernment, RuralDevelopment and

Cooperatives

Executin g AgencyMinistry of Chittagong Hill

Tracts Affairs

National ProjectSteering Committee

Lead Implementin gAgency

Regional Council

RegionalCoordinatingCommittee

Project Management UnitProject Director

ConsultantsNGOs

Local GovernmentEngineering Department

PKSFHill Tracts District

Council

District ProjectManagement Unit

Deputy ProjectDirector

Part 2

CommunityDevelopmentComponent

Part 4

ProjectManagement

SupportComponents

NGOs

Part 3

MicroEnterprise

DevelopmentComponent

Part I

RuralInfrastructureComponent

Project Beneficiaries

Appendix 5

PKSF = Palli Karma-Sahayak Foundation, NGOs = nongovernment organizations.

52

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Rural Infrastructure:Consultation on priorities

Design by LGED and consultantsTendering/contract signingFRB/bridge constructionRR/bridge constructionRoad maintenanceLGED equipment procurement

Community Development

Appoint NGOs

Form Community Development CommitteesPrepare training materialConduct training coursesGrant proposals calledGrants disbursed

Microfinance ActivitiesIdentify NGOs for capacity building

Prepare training material

53

Conduct training coursesNGOs accredited to PKSFBorrower groups formedLoans disbursed

Project Management:Appoint interim PDEstablish PMUProcure vehicles and equipmentAppoint permanent PDAppoint other PMU-DPMU staffRecruit consultantsEstablish DPMUsPrepare training materialConduct training coursesSupervise activitiesProject benefit monitoringMidterm reviewPCR preparation

DPMU = district project management unit, FRB = feeder road type B, LGED = Local Government Engineering Department, NGO = nongovernment organization, PCR = project completion report,PD = project director, PKSF = Palli Karma-Sahayak Foundation, PMU = project management unit, RR = rural road.

Appendix 6

IMPLEMENTATION SCHEDULE

Component/ActivityYear 4 Year 5 Year 6 Year 7Year 1 Year 2 Year 3

Appendix 7

EQUIPMENT AND VEHICLES FOR PROCUREMENT

Agency Vehicles/Equipment Number

Project Management Unit 4-wheel drive vehicles 2Motorcycle 1Computers and printers 3Office equipment 1 setOffice furniture 1 setAudio visual aids 1 setOffice renovation 1 lump sum

District ProjectManagement Unit 4-wheel drive vehicles 6

Motorcycles 3Computers and printers 6Office equipment 3 setsOffice furniture 3 setsAudio visual aids 3 setsOffice renovation 2 lump sum

Local GovernmentEngineering Department 4-wheel drive vehicles 4

Pick up vans 3Speed boat 1Motorcycles 12Scanner 1Digital mapping equipment 1Bulldozers 3Static Rollers 3Vibrating rollers 3Tractors and water tanks 3

Dhaka Liaison Office 4-wheel drive vehicle 1Motorcycle 1Computers and printer 1Office equipment 1 setOffice furniture 1 setOffice renovation 1 lump sum

Consultants 4-wheel drive vehicles 2Computers and printers 3Office equipment 1 setOffice furniture 3 sets

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Appendix 8, page 1

TERMS OF REFERENCE FOR CONSULTING SERVICES

A. Objectives and Scope of Work

1. The objectives of the consulting services are to (i) improve the capacity of the Project’simplementing and participating agencies in planning, implementing, monitoring and evaluatingthe Project’s performance; and (ii) assist the project management unit (PMU) and district projectmanagement unit (DPMU) in its overall implementation, supervision, and monitoring of theProject.

2. The consultants will be located in the PMU and DPMU. The consulting services willinclude, but not be limited to the following::

(i) assisting the PMU to establish the operating systems and procedures forsupervising and monitoring the Project’s performance;

(ii) assisting the PMU and the implementing and participating agencies in deliveringthe expected project outputs;

(iii) assisting the PMU in strengthening the capacity of implementing agencies (IAs)and participating institutions through training and workshops; and

(iv) undertaking other assignments as required by the project director.

B. Consulting Services

3. The consultants required by the Project are listed in Table A8.

Table A8: Consultants Required

Person-months

Expertise InternationalConsultants

DomesticConsultants

Total

Rural Development Specialist-Team Leader 54 54Engineering Quality Control Specialist-Deputy

Team LeaderTraining Specialist

48

42

48

42

Gender Specialist 20 20Institutional Development Specialist 10 10Communications Development Specialist 4 4Community Development Organizers (3) 99 99Legal Contracts Specialist 7 7BME Specialist 24 24Legal Literacy Advisor 12 12Project Management Advisor 24 24

Total 112 232 344

BME = benefit monitoring and evaluation.

55

Appendix 8, page 2

C. Specific Terms of Reference

4. The rural development specialist-team leader will

(i) work under the project director in planning, implementing, monitoring, andevaluating the Project;

(ii) develop operating procedures for supervising the IAs and providing an interactiveprocedure for solving delivery problems;

(iii) develop for the annual operating plan a schedule that ensures a full level ofbeneficiary participation in establishing component priorities;

(iv) develop, in conjunction with IAs, a responsive project monitoring process thatrapidly identifies constraints and provides a transparent view of componentachievements;

(v) develop a project reporting process that responds to the requirements of theGovernment, Danish International Development Agency (Danida), AsianDevelopment Bank (ADB), and provides for the National Steering Committee andthe Regional Council (RC) a clear picture of project performance and anyimplementing constraints and/or policy issues;

(vi) develop a review procedure that, within the scope of the Project’s indigenouspeoples development plan, assesses the impact of project components on tribalminorities and recommends any necessary changes in project approach; and

(vii) assist in formulating training programs to improve the ability of the "downstream"project delivery agencies, e.g., community development committees andnongovernment organizations (NGOs).

5. The engineering quality control specialist-deputy team leader will

(i) assist the Local Government Engineering Department (LGED) and particularly itsGeographic Information System Unit, in developing a practical methodology(exploitation of satellite imagery, aerial photos, and topographic maps, incombination with field investigations and checking) to produce appropriate andupdated district maps (base maps, district indicative development potential maps,district rural road inventory maps, and others) to serve as planning andmonitoring instruments for the rural infrastructure;

(ii) assist LGED with the prequalification and selection of contractors and ensurethat the contractors meet the recognized levels of competence for carrying outthe proposed subproject investments;

(iii) review detailed designs of selected roads and markets and advise LGED on anyrequired modifications and/or improvements;

(iv) review cost estimates and construction programs for roads and markets, givingspecial emphasis to cost effectiveness;

56

Appendix 8, page 3

(v) coordinate training programs for technical staff and labor contracting societies inconstruction management, rehabilitation, and maintenance of roads and markets;

(vi) review the progress of project implementation and recommend measures toavoid delays and improve contractor performance and quality of works;

(vii) assess the impact of the Project’s roads component on the target population asregards reduced vehicle operating costs, reduced costs of key commodities, andimproved output prices for rural households; and

(viii) assist LGED and the PMU in establishing a reporting mechanism and a financialmonitoring system for the rural infrastructure and community developmentcomponents of the Project.

6. The training specialist will

(i) prepare and organize a training program for training of trainers, which will providea group of locally skilled trainers for delivering the project training requirementsand a longer term training capability for the project area;

(ii) identify locally based NGOs and community groups to participate in the trainingof trainers program;

(iii) select and hire training providers for the training of trainers program;

(iv) prepare and organize a skills-development-training program to reach the targetbeneficiaries; its principal focus will be providing people with a wide range ofskills to expand their income generating enterprises;

(v) organize periodic reviews with training providers, trainers, trainees, and staff ofIAs to assess the adequacy and suitability of the courses and arrange for coursemodifications to be made to meet changing and/or new requirements; and

(vi) develop a monitoring and evaluation framework to assess the impact of theProject’s training program.

7. The gender specialist will

(i) develop with the IAs participatory mechanisms and procedures to ensure thatwomen are fully involved with project activities on an equal basis with men;

(ii) assist the DPMU with the establishment of the Community DevelopmentCommittees and ensure that the committees have an equal gender membership;

(iii) liaise with NGOs that are providing microfinance services under the Project toensure that at least 70 percent of the beneficiaries are women and that all ethnicgroups are represented;

(iv) prepare a monitoring and evaluation program for the PMU and DPMU to assessthe Project’s impact on women’s development and on their empowerment in thecommunity;

57

Appendix 8, page 4

(v) assist the training specialist to accommodate the special needs of women in thedesign of both the training of trainers and beneficiary training programs; and

(vi) identify other potential measures to raise the status of women in the ChittagongHill Tracts (CHT).

8. The institutional development specialist will

(i) assist the communications development specialist with developing an overallplan and structure for communications about the Project so that informationdissemination becomes sustainable through the regional and hill district councils(HDCs);

(ii) assist RC staff to prepare an approach to strategic plan development and workwith RC and HDC staff to develop suitable planning criteria and monitoringapproaches;

(iii) identify ways in which RC meetings can be more effective, and train senior staffin required processes;

(iv) identify ways in which RC and HDCs may become more effective in meeting theirroles and help develop training and procedures to bring this about;

(v) help establish mechanisms for handling community concerns, and discrepanciesin service provision across the three districts;

(vi) initiate discussions on accountability and transparency in developmentalactivities and work with the RC to develop mechanisms for transparency;

(vii) in consultation with the community development organizers, develop processesfor receiving feedback on project work and any community concerns; and

(viii) facilitate establishment of CHT processes for donor coordination within the CHT.

9. The communications development specialist will

(i) prepare a communications plan for advising the community of project activities;

(ii) develop processes whereby the community can advise the project office ofconcerns;

(iii) identify current mechanisms for communication in the CHT;

(iv) develop a strategy for communicating project news to all parts of the CHT;

(v) identify costs involved in this strategy;

(vi) work with regional and district council staff to develop mechanisms for ongoingcommunication about the Project and other activities, carry out any requiredtraining, and institute processes for monitoring and evaluating the effectivenessof the strategy; and

58

Appendix 8, page 5

(vii) implement and test the communications strategy.

10. The community development organizers will

(i) review, with the deputy project directors, whether appropriate community inputhas occurred through LGED processes;

(ii) work with LGED to expand their existing consultation and community structurewhere this is needed;

(iii) work with local communities to help establish community developmentcommittees where no suitable committee already exists;

(iv) conduct pilot exercises in remote areas to test the effectiveness of participationprocesses;

(v) review approaches in the light of the test, and to apply lessons learned with othercommunities; and

(vi) work with the institutional development specialist to advise the deputy projectdirectors on ways in which community concerns about project activities can beraised with the Project and responses made.

11. The legal contracts specialist will

(i) assist LGED to establish acceptable procedures for the preparation of tenderdocuments, prequalification of potential contractors, evaluation of bids, andsupervision of awarded contracts;

(ii) train project staff, local government officials, and NGOs; and

(iii) assist the PMU and DPMU in preparing contracts, as needed, for participatinginstitutions, including national and local NGOs.

12. The benefit monitoring and evaluation (BME) specialist will

(i) design and establish a BME system for the Project, to monitor project impactbased on project-specific indicators;

(ii) review baseline data gathered under the project preparatory technical assistance(TA), conduct rapid appraisal surveys, and update baseline data to prepare anaccurate poverty profile of the project area; and

(iii) collect and analyze information on household incomes, malnutrition, infantmortality, literacy, land ownership/tenure, and other relevant processes andtrends having significant impact on the livelihood of rural population.

13. The legal literacy advisor will

(i) assess the legal literacy needs and priorities of the indigenous and other peoplein the project area;

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Appendix 8, page 6

(ii) design activities for the training in legal literacy to achieve the goals; the activitieswill be designed using, where appropriate, the strategies developed under ADB’sTA 5856: Technical Assistance for Legal Literacy for Supporting Governance;

(iii) develop a set of indicators to asses the impact of legal literacy outreach activitiesunder the Project;

(iv) identify NGOs or other qualified institutions/agencies to deliver legal literacyactivities under this Project;

(v) organize workshops to train local NGOs and other qualified institutions/agenciesin the delivery of legal literacy programs;

(vi) prepare a report for submission to the Regional Coordinating Committee and thePMU on the delivery of legal literacy under the Project;

(vii) enable the program to investigate the land tenure problems of households thatwere internally displaced in the insurgency war and develop a framework underwhich affected households can be informed of their legal rights and have accessto information on necessary procedures for submitting claims;

(viii) facilitate training on legal literacy to union council members, communities, andtraditional leaders; and

(ix) prepare an advisory brief on the issue of land tenure and ownership for theRegional Coordinating Committee and the project director.

14. The project management advisor will

(i) assist the project director with all administrative and financial functions of theProject, including financial management, reporting system and administration;

(ii) prepare a draft operations manual for regional and district project managementstaff, including reporting formats both for progress reports and financial reports;

(iii) develop a human resources program for training of project and executing agencystaff in financial management and administration of ADB projects; and

(iv) assist the project director to establish requisite systems and procedures foreffective management and implementation of the Project.

60

ADB Ministry of Finance

Project ManagementUnit

Imprest Account

District ProjectManagement Units

Project ManagementSupport Component

LGED

CommunityDevelopmentComponent

Training Courses

NGOs

Consultants

Vehicles and Equipment

PKSF

NGOs

RuralInfrastructureComponent

PROJECT FUNDS FLOW CHART

MicrofinanceBeneficiaries

Appendix 9

ADB = Asian Development Bank, LGED = Local Government Engineering Department, NGOs = nongovernmentorganizations.

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Appendix 10, page 1

ECONOMIC AND FINANCIAL ANALYSIS

A. Background and Approach

1. Reviews of projects in Bangladesh in which there have been a significant roadimprovement component have identified three main direct benefits: (i) a reduction in goodstransport costs of up to 40 percent as a result of reduced vehicle operating costs, (ii) a similarreduction in public transport fares, and (iii) a reduction in travel time. Savings in transport costshave in turn led to lower farm input prices and an improvement in product prices, which havetogether resulted in an increase in agricultural production. In some areas, a change to moreintensive forms of land use has occurred.

2. In the nonfarm sectors, economic activity has also increased as a direct result of roadimprovement. These activities have included a range of service enterprises (vehicle repair, forexample), the supply of transport equipment reflecting a change from nonmotorized tomotorized modes of transport and small enterprise development supported by growth in creditprovision managed by nongovernment organizations (NGOs).

3. While similar outcomes from investment in road improvement could be expected in theChittagong Hill Tracts (CHT), there are some important differences from the plains areas inwhich most of the recent road building activity in Bangladesh has occurred. First, the terrain inthe CHT is characterized by many steep sided valleys through which roads must necessarilypass. As a result, the area of good quality agricultural land that can be influenced per unit ofroad is quite small. In the preparation of the Third Rural Infrastructure Development Project, forexample, areas of influence per kilometer (km) of road ranging from 900 hectares (ha) to over1,400 ha are quoted, while comparable figures for the CHT as assessed during field work aretypically 30-50 ha/km.

4. Second, there are serious constraints to expanded agricultural production. Areas of highquality soils are very limited and perennial irrigation sources are not widely available.Furthermore, uncertain land tenure arrangements together with restrictive legislative provisionscovering forestry are likely to constrain the development of tree crops that could addsignificantly to the effective command area of new roads.

5. Another important difference between the plains and the CHT is the availability of data.There is almost no traffic survey data for the CHT, and no CHT-specific vehicle operating costdata for the classes of roads to be upgraded under the project.

6. In the evaluation that follows, all of the benefits from the infrastructure investmentcomponent are assumed to be captured by agricultural producers, who will be supported byproject investment in credit and technical services.

7. Quantified benefits of the Project are (i) reductions in general goods transport costsresulting from improvements to the road network; (ii) intensification of crop production throughprovision of term and seasonal finance, technical services, and improved access to markets;and (iii) expanded output of livestock products, particularly table eggs, broilers, and fattenedpigs through provision of seasonal finance, technical services, and improved access to markets.Benefits from the community-based investments to be supported by the Project or from theinstitutional strengthening activities to be undertaken have not been quantified, neither have theinvestment costs directly related to these activities been included in the analysis.

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Appendix 10, page 2

B. Exchange Rate and Price Assumptions

8. Exchange Rate. A trade-weighted shadow exchange rate of Tk56=$1 has beenassumed giving a shadow exchange rate factor (SERF) of 1.10, which has been used in theeconomic analysis.

9. Price Assumptions. The economic analysis is presented using a domestic price levelnumeraire. Since the incremental output from participating households will be relatively smallcompared to total market volumes, price impacts are expected to be minimal.

10. For the major outputs, relevant price considerations are (i) incremental rice productionwill substitute for imports and prices have been determined on this basis (including allowancefor reductions in transport costs expected as a result of project investments) assumingcompetitive markets in the CHT; and (ii) potatoes, fruit, and poultry products are not, in general,traded although their prices are competitively determined — anecdotal evidence suggests thateggs do come across the border from India from time to time, introducing a further element ofcompetition in price determination.

11. Fertilizers are the main traded inputs and prices have been estimated at farmgateborder equivalents using medium term price projections. All other inputs have been valued attheir competitive local financial value.

12. As transport costs are competitively determined, it is expected that reductions in vehicleoperating costs resulting from road improvements to be carried out under the Project will bereflected in reduced charges. Based on the experience of other rural infrastructure projects inBangladesh, it is assumed that general goods freight costs will fall by 40 percent. Thesebenefits are expected to arise within a year of each section of road being completed.

13. Farm family labor has been costed in the financial analysis at Tk70 per day on the basisof actual wages found in the area. For the economic analysis, an opportunity cost of labor of 80percent of this rate has been assumed. Much of the work will be carried out by females whotypically earn a lower wage rate than males, which supports the assumption of an opportunitycost of less than market rates.

C. Financial Analysis

1. Benefit Area and Households

14. Data collected during the feasibility study indicate that each km of completed feeder roadtype B (FRB) will have an area of influence of about 48 ha. As rural roads will, in general, beconstructed in areas where agricultural land is interspersed with infertile land, their area ofinfluence is estimated at 41 ha/km. Table A10.1 shows areas of influence for each class of roadto be constructed together with an estimate of the number of households (24,000) in this area,assuming a household farm size of 0.75 ha.

15. Survey data also indicates that land use in a typical area of influence comprises rice atabout 77 percent of the total; vegetables such as potato and squash, 9 percent; spices such asginger and turmeric, 6 percent; and fruit crops about 8 percent. In addition, many householdssupplement their food production from settled agriculture with shifting cultivation on steeper hillssurrounding the area of influence. Many households also have livestock enterprises such aschicken and pig raising.

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Appendix 10, page 3

Table A10.1: Road Areas of Influence and Household Numbers

District Unit FRB RR Total

Area per km road ha 48 41

Road lengthBandarban km 20 73 93Khagrachari km 20 230 250Rangamati km 35 48 83 Total km 75 351 426

Area of InfluenceBandarban ha 960 2,993 3,953Khagrachari ha 960 9,430 10,390Rangamati ha 1,680 1,968 3,648 Total ha 3,600 14,391 17,991

Area per household ha 0.75

Households:Bandarban no. 5,271Khagrachari no. 13,853Rangamati no. 4,864 Total no. 23,988

FRB = feeder road type B, ha = hectare, km = kilometer, RR = rural road.

2. Producer Responses to Project Investments

16. Three broad patterns of response to project investments are expected within the projectarea:

(i) Seventy percent of existing households within the area of influence of roads to beconstructed under the Project will benefit from reduced transport costs but willnot intensify their agricultural production. There will be no incremental physicaloutput from these households. Financial benefits to these producers will bereflected in increased household savings or consumption.

(ii) Thirty percent of households in the same area will respond to reduced transportcosts, improved access to markets, availability of seasonal finance andavailability of technical services (all to be provided under the Project) byincreasing input use and output.

(iii) Within the project area as a whole, households will invest in new livestockenterprises including egg production, broiler production, and pig fattening.Improved access to credit and technical services will be important factors in this

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Appendix 10, page 4

growth. These households will include those both within the area of influence ofnew roads and in areas covered by existing roads.

17. Beneficiary numbers are shown in Table A10.2.

Table A10.2: Beneficiary Numbers

Enterprise No. of Households

Crop ProductionPrice changes only 16,800Price changes and new technology 7,200

Subtotal a 24,000Poultry Layerb 10,000Poultry Broilerc 13,000Pig Fattenerd 5,000

Total Households 52,000a

b

c

d

Total households from Table A10.1 above.Six local birds and 6 high yield value birds.150 high yield value broilers.Typical unit has three fatteners.

3. Financial Benefits to Crop Producers

18. With and without project gross margins for representative crops in the area of influencehave been estimated for both cost reduction and production increase options. For householdsthat intensify output, main changes with the project are an increase in fertilizer use together withvarietal changes. Incremental outputs (including those for livestock enterprises) are shown inTable A10.3.

Table A10.3: Incremental Production – Crop and Livestock Enterprises

Enterprise Unit No.

CropsAmman paddya kg/ha 1,100Boro paddya kg/ha 1,250Potato kg/ha 4,500Ginger (green) kg/ha 205

LivestockEggs no. 982Broilers no. 141Fattened pigs no. 2.85

a paddy is unhulled rice.

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Appendix 10, page 5

19. Incremental gross margins for representative crops are summarized in Table A10.4.

Table A10.4: Incremental Gross Margins and Return to Labor – Crop Enterprises

Crop

Incremental GrossMargin a

Incremental GrossMargin b

CostSavings

Only

Cost Savings and New

Technology

CostSavings

Only

Cost Savin gsand New

Technology

(Tk/ha) (Tk/ha) (Tk/ps da y) (Tk/ps day)

Amman rice 317 12,870 2 81Boro rice 427 14,294 3 88Potato 715 22,371 4 118Ginger 657 4,487 8 8Fruit 50 50 - -All cropsc 408 8,593 3 49

(Tk/hh) (Tk/hh) (Tk/ps da y) (Tk/ps day)All cropsd 306 6,400 2 36

hh = household, ps = personal savings. a Incremental output less the value of incremental input costs excluding the value of family labor. b Incremental gross margin per unit of incremental family labor. c Crop mix of rice (77%), potato (9%), ginger (6%), and fruit (8%) used as basis for estimating

overall margins per ha. d Average farm size of 0.75 ha assumed.

20. For a typical beneficiary household with 0.75 ha of land, the improvement in grossmargin where only transport cost savings are assumed is Tk306. Where output is intensified,the incremental gross margin is estimated at Tk6,400. This latter amount is very significantwhen compared with current incomes of between Tk20,000 and Tk30,000 per household andshould provide a strong incentive for beneficiary participation.

4. Financial Benefits to Livestock Producers

21. Financial models have been prepared for three livestock enterprises: (i) egg production,(ii) broiler production, and (iii) pig fattening. A typical egg producer would have a flock of 12layers comprising six locally bred and six improved birds while a typical broiler enterprise wouldcomprise 150 birds. A typical pig fattening unit would have three animals. A summary of theincremental gross margins from these enterprises, together with an indication of the creditrequired, is shown in Table A10.5.

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Appendix 10, page 6

Table A10.5: Incremental Gross Margins and Labor Return-Livestock Enterprises

Incremental Return to CreditEnterprise Gross Mar gin Labor Need FIRR

(Tk) (Tk) (Tk) (%)

Poultry Layer 3,220 88 2,100 >50%Poultry Broiler 8,613 328 7,500 >50%Pig Fattening 4,175 46 5,500 >50%

FIRR = financial internal rate of return.

22. Margins and return to labor from livestock enterprises are satisfactory when compared tohousehold returns from crop production enterprises, and therefore should be attractive tobeneficiaries. A further advantage is that these enterprises are very suitable for women, whilechildren can also help with activities such as poultry feeding. Production systems for smallholderpoultry are in widespread use in Bangladesh with the result that the technology is well tested.Both of the poultry enterprises can be reduced in size to fit the particular labor and financialresources of beneficiaries, as there are few fixed investments involved.

23. Credit requirements, including seasonal finance, range from Tk2,100 in the case of alayer enterprise to Tk7,500 for broilers. Enterprise cash flows can support a one-year repaymentperiod, which is the typical term for microfinance loans in Bangladesh.

D. Economic Evaluation

1. Introduction

24. The economic evaluation draws together the investment costs of the Project (excludingsubprojects for which benefits have not been estimated) during a 7-year implementation period,plus the recurrent costs needed to ensure sustainable benefits. These costs are then comparedwith the estimated direct benefits, over a 30-year period. With the exception of rice, triplesuperphosphate, muriate of potash, and urea, the prices for which have been estimated inborder-equivalent terms, the final inputs and outputs of the Project have been valued atcompetitive market prices, at farmgate, after adjusting for taxes and duties. As the analysis isexpressed in economic prices at domestic price levels, tradable components have beenadjusted by the shadow exchange rate factor to convert them to the domestic price level.

2. Final Incremental Outputs

25. The main final incremental outputs of the project as evaluated (Table A10.6) would becrops (primarily rice and vegetables) and livestock products (eggs, broilers, and fattened pigs).These increments are expected to result from reductions in transport costs and improvements inmarket access for existing crop producers, with these changes leading, in some cases, to moreintensive use of production inputs such as fertilizers. In addition, new livestock enterprises willarise as communications improve, transport costs change, and credit availability improves.Benefits for crop producers who do not intensify output will be limited to reductions in transportcosts.

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Appendix 10, page 7

26. Furthermore, there will be unquantified savings in travel time as transport modes changein response to road improvements, and passenger transport fares should decline in response toreduced costs of road use.

Table A10.6: Main Project Incremental Outputs

Commodity Unit No. of Units

Amman paddya t 1,660Boro paddya t 2,900Potatoes t 2,340Ginger t 68Table eggs m eggs 6.16Broilers m broilers 1.83Fattened pigs number 14,250

m = million, t = tons.a paddy is unhulled rice.

27. All incremental final output would be marketed domestically. The CHT is a rice deficitarea and it is expected that much of the increased rice output will be consumed locally.Vegetables will be marketed in Chittagong and in Dhaka after satisfying local demand. Livestockproducts will be sold locally and in Chittagong, with any surpluses being marketed further afield.

3. Costs

28. All costs are in constant mid-2000 terms. Investment costs used in the analysis are totalcosts less price contingencies and interest during construction. Unskilled labor used in roadconstruction has been valued at a shadow wage of 80 percent of the agricultural wage to reflectits opportunity cost. On-farm investments and vehicles and office equipment financed by theproject are assumed to have a zero residual value.

29. As benefits from the community development component have not been assessed, thecost of this component has been excluded from the economic evaluation. Project managementcosts, estimated as 30 percent of the total, which are assessed as being directly related to theimplementation of the community development component and more general capacity building,have also been excluded. All rural infrastructure investment costs have been included. Eightypercent of the value of the proposed credit line has been excluded, as the costs that would befinanced by term loans from this proportion of the credit line are included in the various livestockenterprise models. The balance of the credit line is included as seasonal finance for cropproducers and is salvaged at its original value at the end of the 30-year analysis term.

4. Agricultural Output Prices

30. Rice has been valued as an import substitute, using 2000 World Bank price projections.All other outputs have been valued at current domestic farmgate prices, adjusted by the SERF.

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Appendix 10, page 8

5. Agricultural Input Prices

31. The main tradable inputs used in agricultural production–urea (export parity), TSP, andMOP (import parity)–have been valued in border terms using World Bank 2000 priceprojections. All other base costs are expressed in late 1999 terms. Livestock feed ingredientsare imported free of duty and with minimal taxes and compound feeds have accordingly beenvalued at their domestic competitive market value adjusted by the SERF. All other farmproduction inputs (with the exception of family labor) have been valued using adjusted domesticprices.

6. Labor

32. Labor used in road construction and agricultural production has been valued at 80percent of its Tk70 per day (without food) financial value, reflecting its opportunity cost. All otherlabor, including consulting and other contract services, has been valued at its financial price.

7. Benefit Flows

33. Agricultural benefits arising from each section of newly completed road are assumed tobe realized in full in the following year. These benefits have been estimated on the basis ofincremental output per ha influenced by the completed road. Livestock benefit flows areassumed to follow a similar pattern. It has been assumed that the incomes of beneficiarieswould remain at present levels without the Project. Many of the intended beneficiaries do notcurrently have paid employment or receive limited employment with other farmers or in roadmaintenance work and it is unlikely that this would change significantly without the Project.

8. Economic Internal Rate of Return and Sensitivity

34. Taking the above assumptions as the base case, the economic internal rate of return(EIRR) of the project is 11.9 percent. While this rate is below the assumed opportunity cost ofcapital (12 percent), it is judged to be acceptable when the unquantified benefits are taken intoconsideration. If road construction costs rise by 10 percent, the EIRR falls to 10.7 percent. If thearea of land on which more intensive production technology is used falls from 30 percent of thetotal in the area of influence, as assumed in the base case, to 20 percent (but with acorresponding increase in the nonintensive production area), the EIRR falls to 10.6 percent. Ifmore intensive production technology is adopted on 40 percent of the available land, the EIRRrises to 12.8 percent. The EIRR is also sensitive to changes in assumptions about the area ofland influenced by each km of road. If this falls by 10 percent, the EIRR falls to 11.5 percent.

35. The EIRR is also sensitive to changes in price assumptions for livestock products. If thefeed price is assumed to rise by 10 percent, for example, the EIRR falls to 10.8 percent while ifthe price of eggs and broilers together falls by 10 percent the EIRR falls to 10.6 percent.

E. Unquantified Benefits

36. Benefits that have not been quantified include (i) a saving in travel time, particularly forpeople currently using nonmotorized transport on earth surfaced tracks, (ii) improved delivery ofdevelopment services such as health and education, (iii) a reduction in consumer goods pricesresulting from reductions in transport costs, (iv) reduced spoilage in markets and easier accessto markets, and (v) an improvement in the general business environment engendered by morereliable and cheaper transport services.

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Appendix 10, page 9

F. Subsidy and Recurrent Budget Implications of the Project

37. Apart from grants to be made under the community development component, there willbe no direct subsidies paid by the project. Beneficiaries will, however, continue to draw on thefree advisory services currently provided by government agencies in the area. It is expected thatthe interest rates for loans to be made under the microfinance component will at least cover theincremental lending costs of NGOs, including provisioning.

38. Operating and maintenance costs of small markets that may be financed under thecommunity development component of the Project will be met by union councils using a fixedproportion of the proceeds of market stall leases specifically set aside for this purpose.Operating and maintenance costs of facilities to be constructed under the communitydevelopment component will be the responsibility of community development committees to beset up under the Project.

39. Recurrent government budget costs extending beyond the seven-year projectinvestment period are limited to road maintenance. The estimated annual cost (Table A10.7) isTk27.53 m ($0.5 m).

Table A10.7: Recurrent Budget Implications of the Project

No. of Cost/unit Total

Item Unit Units (Tk'000) (Tk'000)

Road MaintenanceFeeder Roads Type B

Routine km 75 33.15 2,486Periodic km 75 71.40 5,355Subtotal 7,841

Rural RoadsRoutine km 351 15.30 5,370Periodic km 351 40.80 14,320Subtotal 19,691

Total 27,532

70

STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREAT ANALYSISOF CHITTAGONG HILL TRACTS ORGANIZATIONS a

Organization Strengths Weaknesses Threats Comments

Ministry of CHT Affairs • Tribal Minister• Formally has advisory

committee bringingtogether the members ofparliament (MP),Regional Council (RC),hill tract district councils(HDCs) and rajas

• Part of peace accord• Access to other ministries

and potential politicalsupport

• Can argue for specialneeds of CHT

• Potential for advocacyand watchdog role

• Dhaka-based• Lacks outreach• Appears to lack data

base, and technical andplanning staff

• Apparent inability toprovide good policyadvice

• Status within overallministry structure

• Advisory committee notyet established

• Does not appear to playstrong advocacy role

• Low status and careerappeal for staff

• Political differences withRC and some tribalorganizations

• Sensitivity of CHT issues• Duplication of

administrative structures• Perceptions of

organization by externalagencies

• Potential at national level,but appears ineffective

• Can block action• Lacks realism when

dealing with externalagencies

• Uncertain politicalcommitment to carrythrough peace accord

• Appears subservient toGovernment wishes

CHT Development Board • Long role in region• Institutional knowledge of

development• Supported by Ministry• Staff in three districts• Has some engineering

staff• Some past experience

with small projects• Implementing agency for

some projects begunprior to peace accord

• Historical involvementwith the past andGovernment treatment ofCHT

• Formed 1975-1976 andhence association withmilitary activities

• Few technical staff• Community attitudes and

perception• Failure in the past to

carry out its mandate toensure activeparticipation of tribalpopulation indevelopment

• Association with the pastnot the future

• Lack of trust in itscommitment toindigenous peoples

• Peace accord requiresthat it should be underthe general and overallsupervision of the RC

• Lack of tribal staff

• Redundant organizationfollowing Peace Accord

• Government failure totransfer its staff to otherorganizations to simplifyoverall administration

• Legislative repealoverdue

• Slowly being phased outin terms of externallyfunded activities

• Chair has status ofdeputy minister

a This is a brief overview of the strengths and weaknesses of the key organizations in the Chittagong Hill Tracts. It forms a modified SWOT (strengths,weaknesses, opportunities, threats) analysis. Supporting documentation was not always provided by the organizations (despite earlier requests for suchinformation). Failure to provide documents in a timely fashion has been interpreted as an organizational weakness.

Appendix 11, page 1

71

Organization Strengths Weaknesses Threats Comments

Regional Council • Outcome from peaceaccord

• Brings three districtstogether

• Potential for holisticstrategic planning

• Strong tribalrepresentation

• Provision for indirectelection from HDCs

• Social justice issues itsdirect jurisdiction

• Has formal power toresolve any conflictsbetween three HDCs

• Receives minutes fromHDCs

• Few staff, and lack ofplanning capacity

• Appointed not elected, asbasis for HDC electionstill lacking

• Based in Rangamati butdifficult logistics forBandarban andKhagrachari meetings

• No rotation of meetingsto other sites

• Low population densitygives it lower “voice” thanrest of country

• Has failed to organizeHDCs as combined voice

• Political andadministrative rivalry

• Lack of independentability to act (staff,resources)

• Salience of CHT issuemay diminish nationally

• Has the moral highground as overallcoordinating body forCHT, but lacks capacityto deliver at this stage onits role

• Government failure to acton its key demands

• Supported by externalagencies but remnants ofpast support toChittagong Hill TractsDevelopment Board(CHTDB)

• Could be seen astransitional institutionuntil CHT developmenthas progressed and fulldecentralization to HDCscan take place

Hill District Councils • In theory, democratic(elected)

• Connects region withlower levels

• Increased powerscompared to rest ofcountry as outcome topeace accord

• Chairmen meet monthlywith RC

• Monthly district planningmeeting with lineministries

• Potential for betterrepresentation ofcommunity views

• Send minutes to ministerand RC

• Chair may write to lineministers with copy toCHT Minister

• Appointed• Only four members• Scope for rivalry between

various HDC chairmen• No overall planning staff

and only limitedengineering capacitydeputed from LocalGovernment EngineeringDepartment (LGED)

• Large agenda for monthlymeetings

• Poor systems forprocessing monthlymeeting agency

• Dependent on deputycommissioners forplanning input

• Needs presence atbudgetary allocations

• Subject to politicalinfluence

• Can be replaced, whichlimits scope of action

• Line ministries controlmajor funds and hencecan direct developmenton national basis

• Elite pressures limitscope for action

• Hard terrain, so difficult tocontact all people

• Lack of trainedagricultural staffhampers capacity toassess developmentneeds.

• No agreed criteria forassessing relative needsof three HDC areas

• Each HDC hasmanageable populationbase to respond to localneeds

• Geography and tribaldifferences supportcontinuation

• Compete in effect withCHTDB for conduct ofsmall projects, andcontinuation of CHTDB isconfusing

Appendix 11, page 2

72

Organization Strengths Weaknesses Threats Comments

Upazila Executive Office • Overview of district andsubdistrict development

• Apparent coordinatingand interface role

• Access to all lineministries and CHTDB aswell as deputycommisioners;

• Upazila executive officersreceives training inplanning anddevelopmentadministration

• Not responsive to masspopulation

• No holistic planningframework

• Male only• Not responsive to district

councils• No direct link to RC

direction• Staff may not attend at

workplace

• Subject to political andother influences

• Self interest mayundermine capacity towork and cause reaction

• Could lose influence ifunion and district levelwork more effectively

• Few tribal staff

• Insufficient time andresearch to adequatelyassess its role,capabilities, andtrustworthiness

• Has a significant role forlocal communities

Union Councils • Directly elected• Also has appointed

women representatives• Local knowledge• Well established system

in Bangladesh• Can combine traditional

and democratic systemswhen headmen are unioncouncil chairmen ormembers

• Some training providedby National Institute ofLocal Government

• Deal with developmentprojects throughGovernment funding

• 2 staff or less• Limited training,

education• Limited discretionary

funds• Limited understanding of

planning processes• Limited capacity to set

priorities• May just respond rather

than initiate development• Not all members receive

training• women may not be given

voice• only relatively wealthy

can pursue issues

• Inability to deliverpromises made atelections

• Elections may givealmost complete turnoverso reducing knowledge ofpast processes

• Members may be tooclosely identified withMPs rather than localissues

• Traditional karbori maybe ignored but may bemore trusted

• Require clarification ongoals, roles, functions

• Lack of conceptualunderstanding ofgovernance

• May require bettercommunication systemsto be effective so can beaccountable

Local NongovernmentOrganizations (NGOs)

• Altruism for public good• Contact with local

communities• Cover a range of tribal

communities• Small geographic area

and potential to beextremely responsive

• Can link with nationalNGOs and learn frompast experience

• Most extremely new• Lack management,

planning, and reviewsystems

• Limited funds• Some derived from elites

and aim to captureexternal funding

• May have unrealisticexpectations of externalfunding

• Local NGOs may not beable to develop fastenough, and nationalNGOs may be supportedfor pragmatic reasons

• Insufficient experience toidentify alternativestrategies

• Fewer resources ofnational NGOs so mayalways struggle

• Capacity yet to be testedand proved

• Proposed guidelines oncredit interest rateindicates lack ofunderstanding for long-term sustainability

• Government agencies actto restrict their scope

• Local NGOs need todevelop strong unifiedvoice

Appendix 11, page 3

73

Organization Strengths Weaknesses Threats Comments

• Limited absorptivecapacity

• Lack of local telephonelines

• Need to take initiative

National NGOs • Existing managementstructure

• Planning and reviewmechanisms

• Extensive projectexperience

• Financial capability• Track record with

external funding agencies

• Not local• Distrust from local bodies• Potential new form of

paternalism• May lack patience and

preparedness to fostercompetitors

• Proposed NGOguidelines specific toCHT may require localpartnerships

• May wish to protect ownreputation

• Unclear if they wish tosupport localdevelopment

• Great potential to learnfrom their experience butneeds to be balancedwith protection of tribalrights

Appendix 11, page 4

74