|Project Rationale and Linkage to Country/Regional Strategy
State Context. Karnataka state in the south-west of India has an area of about 192,000 sq.km and population of about 61 million. Karnataka has been amongst the fast growing states in India, unemployment rate and poverty are lower than the national averages, and the state receives substantial foreign direct investment. In terms of transportation, the rail network in the state is rather sparse, with only about 3000 route km, mostly on single line. Because of the terrain along the Western Ghats (hill ranges), east-west rail connectivity is also limited to just one line from Hassan in the hinterland to Mangalore on the west coast. The road network is therefore a critical element of the economic infrastructure. Under ADB TA 7324-IND, Technical Assistance for Karnataka State Highway Network Improvement, consultants completed a study for identifying a Core Road Network' (CRN) in the state.
Priority Road Corridors. A pre-feasibility report was conducted on the CRN, based on broad financial assumptions, to categorize projects that could be taken up on some form of PPP: toll based, or with state support for part of capital cost, and/or availability payments on an annuity basis. Based on these studies, KSHIP identified nine key road corridors, portions of which will be taken up for upgrading through ADB's financial assistance, using appropriate PPP frameworks.
Road Institutions. Karnataka Public Works, Ports, and Inland Water Transport Department (KPWD) is the main institution of the government of Karnataka (GOK), responsible for SHs and MDRs. KPWD established Karnataka Road Development Corporation (KRDCL) in 1999, to promote surface infrastructure by taking up specific road works and bridges, and to take up projects on PPP formats. In addition, Karnataka State Highways Improvement Project (KSHIP) was established as a project implementation unit (PIU) to undertake multilaterally financed projects. KSHIP has an independent structure with its own offices, staff, and headed by a Chief Project Officer. For rural roads, GOK has established the Karnataka Rural Roads Development Agency (KRRDA), which manages rural roads through KRRDA funds made available from the state budget and national rural roads scheme.
Government Strategy. While Karnataka is amongst the better performing states in India, development is uneven, being focused around the capital region of Bangalore/ Mysore and the coastal towns of Mangalore/ Udupi. Given its poor rail network, Karnataka is heavily dependent on its road network for linkage between the rural and urban economies. In its state road policy (2009) GOK recognizes the importance of road development as an engine of economic growth, and proposes to develop the CRN to Indian Roads Congress (IRC) standards with 2-lane width. To achieve this, GOK has been using a combination of budgetary, PPP, World Bank, and ADB financing to improve state roads. KSHIP-I was a World Bank Project of 2001 approval for $360 million, addressing about 2400 km of roads. KSHIP-II, which is ongoing and covers about 1500 km of roads, has two parts: a World Bank approval of 2011 for a $350 million loan, and an ADB approval of 2010 for a $315 million loan. However, the development of the CRN roads requires further substantial funding, estimated to be of the order of $1.7 billion.
ADB's Participation. ADB's contribution to such development will foster inclusiveness by enabling larger segments of the state's population to better access markets and basic services. The project will also continue and strengthen ADB's engagement in the state and benefit the state's road program with continuity and consistency. ADB's value addition would also be from the proposed use of private sector financing to leverage government financing while improving sustainability of capital investments, as well in structuring an accident response system to improve road safety. The project is harmonious with the strategic objective set out in the Country Partnership Strategy 2013-2017 on development of state core network, with the transport sector objective of increased, more efficient, and sustainable movement of people and goods. The project is included in the Country Operations Business Plan: India (2013-2015), and the Department of Economic Affairs, Ministry of Finance, Government of India (DEA) has cleared the project for ADB's financial assistance.