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Performance

Evaluation Report

Greater Mekong Subregion:


Northern Economic Corridor Project
in the Lao Peoples Democratic Republic

Independent

Evaluation

Performance Evaluation Report


December 2014

Greater Mekong Subregion: Northern Economic


Corridor Project in the Lao Peoples Democratic
Republic

This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.

Reference Number: PPE: LAO 2014-17


Project Number: 34321
Loan Number: 1989
Independent Evaluation: PE-776

NOTE
(i)
(ii)

In this report, $ refers to US dollars.


For an explanation of rating descriptions used in Asian Development
Bank (ADB) evaluation reports, see ADB. 2006. Guidelines for Preparing
Performance Evaluation Reports for Public Sector Operations. Manila.

Director General
Director

V. Thomas, Independent Evaluation Department (IED)


B. Finlayson, Independent Evaluation Division 2, IED

Team leader
Team members

S. Palle Venkata, Evaluation Specialist, IED


F. De Guzman, Senior Evaluation Officer, IED
M. Fortu, Senior Evaluation Assistant, IED

In preparing any evaluation report, or by making any designation of or reference to a


particular territory or geographic area in this document, the Independent Evaluation
Department (IED) does not intend to make any judgment as to the legal or other status
of any territory or area.
The guidelines formally adopted by the IED on avoiding conflict of interest in its
independent evaluations were observed in the preparation of this report. To the
knowledge of the management of IED, there were no conflicts of interest of the
persons preparing, reviewing, or approving this report.

Abbreviations
ADB
EIRR
FGD
IED
IRI
MPWT
PCR
TA
VOC

Asian Development Bank


economic internal rate of return
focus group discussion
Independent Evaluation Department
international roughness index
Ministry of Public Works and Transport
project completion report
technical assistance
vehicle operating cost

Currency Equivalents
Currency Unit

KN1.00
$1.00

=
=

kip (KN)
At Appraisal
(31 October 2002)
$0.0001
KN10,760

At Project
Completion
(30 June 2009)
$0.0001
KN8,688

At Evaluation
(30 September 2014)
$0.0001
KN8,053

Contents
Acknowledgement
Basic Data
Executive Summary

v
vi
vii

Chapter 1: Introduction
A.
Project Description and Objectives
B.
Evaluation Purpose and Process

1
1
1

Chapter 2: Design and Implementation


A.
Formulation
B.
Rationale
C.
Cost, Financing, and Executing Arrangements
D.
Procurement, Construction, and Scheduling
E.
Consultants
F.
Outputs

3
3
3
4
5
6
7

Chapter 3: Performance Assessment


A.
Overall Assessment
B.
Relevance
C.
Effectiveness
D.
Efficiency
E.
Sustainability

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9
9
10
11
12

Chapter 4: Other Assessments


A.
Impact
B.
ADB Performance
C.
Borrower and Executing Agency Performance

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14
16
16

Chapter 5: Issues, Lessons, and Follow-Up Actions


A.
Issues
B.
Lessons
C.
Follow-Up Actions

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18
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19

APPENDIXES
1.
Design and Monitoring Framework
2.
Project Costs
3.
Status of Compliance with Loan Covenants
4.
Economic Analysis
5.
Socioeconomic Impact

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21
24
25
30
41

Acknowledgement
This performance evaluation report for the Greater Mekong Subregion: Northern
Economic Corridor Project in the Lao Peoples Democratic Republic was prepared by a
team led by Srinivasan Palle Venkata, Evaluation Specialist, Independent Evaluation
Department (IED), under the supervision of Bob Finlayson, Director, Division 2, IED and
guidance of Vinod Thomas, Director General, IED.
The report was prepared with support from Franklin De Guzman, Evaluation Officer,
IED and Joselito Supangco, consultant, who assisted in the analysis and preparation of
the report. Chittachone Volasay and Phantong Masisonxay assisted the IED project
performance evaluation report team with field evaluation, project-related documents,
data and information, and socioeconomic field survey. Lawrence Nelson C. Guevara
provided help in the preparation of the evaluation approach paper. Peer reviewers
Toshiyuki Yokota and Renato Lumain provided valuable comments to strengthen the
report. The team is grateful to Asian Development Bank staff and officials of the
Government of the Lao Peoples Democratic Republic for their assistance and
participation in the interviews. The team would also like to acknowledge valuable
guidance received from Hemamala Hettige, Senior Advisor, IED.
IED retains full responsibility for this report.

Basic Data
Greater Mekong Subregion: Northern Economic Corridor Project in the Lao Peoples
Democratic Republic
Key Project Data
($ million)
Total project cost
Foreign exchange cost
Local currency cost
ADB loan amount utilized
PRC financing
Thailand financing
Lao PDR financing
Interest during construction

As per ADB
Loan Document
1989
95.79
68.05
27.74
30.00
30.00
28.50
7.29

Actual
131.90
125.39
6.51
33.40
38.90
44.38
3.20
0.70

Additional repairs (Thailand)

Key Dates
Fact-finding
Appraisal
Loan negotiations
Board approval
Loan agreement
Loan effectiveness
Number of extensions
First disbursement
Project completion
Loan closing
Months (effectiveness to
completion)

Borrower:
Executing Agency:

11.32

26 April10 May 2002


1931 August 2002
3031 October 2002
20 December 2002
7 February 2003
8 May 2003
2
10 May 2004
315 October 2010
30 June 2007
40

9 February 2004

30 June 2009

Lao Peoples Democratic Republic


Ministry of Public Works and Transport

Mission Data
Type of Mission
Fact-finding
Appraisal
Inception
Resettlement review
Midterm review
Environmental compliance review
Indigenous peoples safeguard review
Special project administration
Review
Project completion
Independent evaluation
ADB = Asian Development Bank.

No. of Missions
1
1
1
2
1
1
1
5
10
1
1

No. of Person-Days
35
52
15
24
21
15
22
27
188
39
14

Executive Summary
The Greater Mekong Subregion (GMS): Northern Economic Corridor Project in
the Lao Peoples Democratic Republic (Lao PDR) was approved on 20 December 2002
with financing of $95.79 million equivalent. The project was funded by Special Funds
resources of the Asian Development Bank (ADB) and bilateral loans from the
governments of the Peoples Republic of China (PRC) and Thailand on concessional
terms.
The project aimed to accelerate subregional development and reduce poverty in
the Lao PDR by strengthening regional infrastructure linkages between GMS countries.
The project road links Chiang Rai in Thailand with Yunnan Province in the Peoples
Republic of China (PRC). Within the Lao PDR, it links two of its most remote and
poorest provinces, Louangnamtha and Bokeo. It was expected to reduce poverty by
increasing income and employment opportunities and improve access to markets,
agricultural support, health, and education.

Project Outputs
The project had three main componentsupgrading the project road,
preparing an area development plan, and building sector and provincial capacity. The
actual output from the project road component is 226.28 kilometers (km) along Route
3 upgraded to a sealed two-lane road, a standard consistent with its potential as a
major international link. This comprises 66.43 km from Louangnamtha to Boten funded
by the PRC; 75.85 km from Louangnamtha to Ban Sod funded by ADB; and 84.0 km
from Houayxay to Ban Sod funded by Thailand.
Outputs from the area development plan are the incorporation of resettlement
plans for 11 road sections (5 in the Thailand section and 3 each in the PRC and ADB
sections); and implementation of the social action plan, which comprised eight
components: (i) primary health care, (ii) nonformal education, (iii) land zoning and
titling, (iv) income restoration, (v) community rural access roads, (vi) water and
sanitation, (vii) community infrastructure, and (viii) road safety awareness. These
involved activities such as training of health care workers, awareness-raising workshops
on hygiene and sanitation, prevention of HIV/AIDS, and construction of community
rural access roads.
Outputs from the capacity building component include establishment of
environmental monitoring plans and procedures, and capacity building of provincial
environment authorities and the Environment Research Institute to enable independent
third-party monitoring of the projects environmental aspects, including sensitive issues
such as protected areas and wildlife trafficking.

Performance Assessment
Overall, the project is rated less than successful. Although the project helped
reduce transport costs and travel time, it was not economically viable for the Lao PDR.
A substantial number of the benefits accrued were regional, whereas the maintenance
costs were fully borne by the Lao PDR. Without an agreement on collection of tolls for

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Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
transit vehicles, current spending on road maintenance by the Lao PDR is inadequate,
putting in doubt the sustainability of the benefits in the long term.
The project is assessed relevant. The project was consistent with the
development strategies of the government, and aligned with ADBs strategic agendas of
poverty reduction and regional cooperation and integration. The northern corridors in the
Lao PDR were given priority ranking in the action plan for GMS investment projects. The
inclusion of the area development component was appropriate, and provided support
infrastructure and services to communities in the project area. However, project design
and implementation were not adequately geared to deal simultaneously with the three
financiers: ADB, the PRC, and Thailand. The executing agency, the Ministry of Public
Works and Transport, had difficulty ensuring uniform standards as each of the project
sections had its own design and supervision consultants.
The project is assessed effective. Most of the expected outputs were achieved.
Travel time between one border (Boten) to the other (Houayxay) decreased from more
than 9 hours in 2004 to 4 hours after project completion in 2009. Vehicle operating
costs decreased after project completion. Passenger and freight traffic grew at higher
rates than estimated at appraisal. Most of the cargo traffic is transit traffic between the
PRC and Thailand (62% in the case of medium-sized trucks and 83% for heavy trucks).
The project is assessed less than efficient in the use of resources. It is not
economically viable for the Lao PDR, with an estimated economic internal rate of return
(EIRR) of 6.9%. This is partly due to the fact that toll collections from traffic from the
PRC and Thailand were not realized as anticipated during appraisal. It is also partly due
to delays in completion and an increase in costs due to reconstruction works. Major
sections of the pavement of the Thailand-funded section failed during the 2008 wet
season due to poor quality work using substandard materials. The consequent repair
and reconstruction led to a 25% increase over the costs already incurred at initial
completion. The PRC-funded section of the road also had many defects requiring
repairs, leading to an increase in civil works costs. Even when benefits to the subregion,
comprising the Lao PDR, the PRC, and Thailand, are considered, the projects EIRR of
12.8% is only marginally higher than the social opportunity cost.
The project is assessed less than likely sustainable. Currently, costs associated
with road maintenance are fully borne by the Lao PDR as the governments involved
failed to reach an agreement on the collection of road charges for transit traffic. The
Lao PDRs road maintenance fund, generated from fuel surcharges, is inadequate to
meet the required maintenance expenses, even after it is supplemented with annual
budget allocations. The budgeted amount of $130/km for routine maintenance falls
short of funding requirements that are in the range of $300$500/km. Moreover, lack
of enforcement of vehicle load limits is likely to adversely affect road conditions.
However, the socioeconomic survey shows that the project had significant
socioeconomic impacts. Local communities in the project influence area have improved
access to water and sanitation facilities. Living standards of residents along the road
improved with increased employment opportunities. A greater variety of products at
cheaper prices became available due to improved access to markets including those in
neighboring countries. The improved road resulted in easier and faster access to
schools, hospitals, and other services. However, the project also had some negative
impacts such as worsening road safety and increased human trafficking.

Executive Summary

Issues
The project demonstrates the uneven distribution of costs and benefits among
participating countries, commonly experienced in regional cooperation projects. This
can have adverse implications for sustainability of project benefits. Most of the benefits
in the form of savings in vehicle operating costs and travel time accrue to the PRC and
Thailand. However, the Lao PDR shoulders the full cost of maintaining the road in
addition to its share of the negative impacts such as increased risk of road accidents,
logging, wildlife trafficking, human trafficking, and spread of HIV/AIDS. Benefits from
trade and investment were far greater for the PRC and Thailand than for the Lao PDR,
as they are able to readily exploit the trade potential between the countries and take
advantage of investment possibilities in the Lao PDR. The Lao PDR is currently unable to
fully access the business opportunities arising from the road due to weak capacity of
human resources, technological know-how, and availability of financial capital.
Extending the benefits of the road to local residents is an ongoing challenge for
the Lao PDR. Most of the feeder roads are unpaved and need improvements.
Complementary investments such as improving logistics facilities and developing
capacity of local entrepreneurs are required to overcome existing barriers to
transforming the road into an economic corridor.
Road safety also needs to be managed and requires adequate safety
regulations such as checks on speeding and drunken driving. Tendencies for increased
logging and human trafficking will need to be controlled.

Lessons
For a subregional project with multiple financing sources, an effective project
implementation entity is necessary to ensure uniform standards for the delivery of
project outputs. For the ADB-funded section of the road, the Lao PDR government was
able to track expenditures and verify if timelines and guidelines were followed.
However, this was not the case for sections financed by the PRC and Thailand.
An agreement on collective maintenance between the parties involved is
necessary to make project benefits sustainable. The countries need to reach an
understanding to raise funds for recurrent maintenance costs through a source, such as
tolls or road user charges.
An objective quantitative assessment of benefits and costs would help in
setting up a mechanism for the fair distribution of benefits and costs across the three
countries.

Follow-up Actions
The Lao PDR government may consider beginning a dialogue with the PRC and
Thailand on the implementation of tolls for transit traffic within the context of GMS
cooperation programs and forums. ADB could facilitate this process. The proceeds from
user charges can be allocated for maintenance and future upgrading of the road so
that project benefits are sustained. The option of introducing public-private
partnerships to improve road maintenance can be explored.

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Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
ADB should monitor progress on the cross-border transport agreement and
work closely with the governments to achieve full ratification and implementation of
the agreement so that regional benefits from the project can be enhanced.

CHAPTER 1

Introduction
A.

Project Description and Objectives

1.
The Greater Mekong Subregion (GMS): Northern Economic Corridor Project in
the Lao Peoples Democratic Republic (Lao PDR) was designed to support the
governments efforts to foster regional cooperation and strengthen the countrys role
as a land link at the center of the GMS. The project had three components: (i) project
road, (ii) area development, and (iii) capacity building. The first component involved
reconstructing and upgrading 228 km of the road from Houayxay in Bokeo Province to
Boten in Louangnamtha Province to international expressway standards.1 The road is
part of the GMS northsouth corridor linking the Peoples Republic of China (PRC) and
Thailand. At appraisal, the roadwork was divided into three sections. The PRC funded
the northern section of approximately 69 km, the Asian Development Bank (ADB)
funded the 74 km middle section, and Thailand funded the 85 km southern section.
The area development component included a resettlement plan and a social action plan
encompassing activities such as training of health care workers, awareness raising
workshops on hygiene and sanitation, and construction of community rural access
roads. The capacity building component was intended to enable monitoring of the
projects environmental impacts, including sensitive issues such as protected areas and
wildlife. It involved building capacity of the Environment Research Institute, which was
set up under the Science, Technology, and Environment Agency in the provinces and
districts to carry out third-party monitoring.
2.
The road, by providing a link between the PRC and Thailand via the Lao PDR,
was expected to reduce transport costs and increase the efficiency of the movement of
vehicles, goods, and passengers in the region. In the region, the project was expected
to accelerate regional development by linking the two rapidly growing economies of
the PRC and Thailand, and facilitate trade and investment in the subregion. For the Lao
PDR, the project was expected to reduce poverty by improving farmers access to
markets and extension services, increasing income and employment opportunities for
the local population, and enhancing the overall development potential in the road
influence area. Prior to project implementation, domestic trade flow between Bokeo
and Louangnamtha provinces was constrained by a single, narrow, unsealed road,
which was closed for about 4 months of the year during the wet season. The project
road is Bokeo Provinces only connection with the rest of the Lao PDR, other than
limited river traffic along the Mekong River.

B.

Evaluation Purpose and Process

3.
The main purpose of the project performance evaluation report is to assess the
performance of the project and identify lessons for the future. Since it has been more
than 3 years since the preparation of the project completion report (PCR) in 2010,
1

ADB. 2002. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the
Lao Peoples Democratic Republic for the Greater Mekong Subregion: Northern Economic Corridor Projec t.
Manila

Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
sufficient time has been allowed for project impacts to become apparent, and the
outputs and outcome to be reassessed. The evaluation was included in the 2014 work
program of the Independent Evaluation Department to provide inputs to a broader
thematic evaluation study on regional cooperation and integration.
4.
The project performance evaluation report is based on a review of projectrelated documents, and discussions with concerned ADB staff and key informants
during the Independent Evaluation Mission (IEM).2 Executing and implementing
agencies provided traffic count data and other information relating to the project.
Information on the projects socioeconomic impacts on local communities was
obtained from focus group discussions (FGDs), conducted by the Independent
Evaluation Department with stakeholders, and the implementation of household
surveys. The IEM conducted an origin-destination survey to measure changes in
subregional and national traffic flows.
5.
The PCR rates the project highly relevant, stating it was consistent with the
respective strategies of the government and ADB. 3 It rates the project effective in
achieving outcomes, as travel time and vehicle operating costs were reduced and traffic
grew at a rate higher than forecasted. However, it rated the project less efficient in
achieving outcome and outputs due to the low economic internal rate of return (EIRR)
(7.4%) making it economically unviable for the Lao PDR. The PCR notes implementation
delays and cost overruns. The project reached financial close 2 years later than planned
at appraisal, and total project cost increased by $33.3 million or about 34% from the
appraisal estimate of $95.79 million. This inefficiency was partly attributed to the fact
that ADB had no leverage over consultant supervision and contractors in the bilaterally
funded sections. The PCR rates the project less likely sustainable due to lack of toll
revenues from transit traffic between the PRC and Thailand, and inadequate alternative
revenue collection mechanisms for the required maintenance of the project roads. The
PCR notes the government and executing agency generally complied with the standard
loan covenants with the exception of a few envisaged outputs.
6.
The PCR validation conducted in 2012 gives a lower rating to project relevance,
while otherwise agreeing with the other PCR assessments.4 It rates the project relevant
as opposed to the highly relevant rating given by the PCR, due to poor initial design of
implementation procedures. Based on the PCR findings that from 2004 to 2008, per
capita income increased by 11.5% in Bokeo Province and by 14.1% in Louangnamtha
Province, compared with a 7.6% increase in national gross domestic product, the
validation rates the projects impact significant.

2
3

The mission was fielded to the Lao PDR from 16 February to 1 March 2014.
ADB. 2010. Completion Report: Greater Mekong Subregion: Northern Economic Corridor Project in the Lao
Peoples Democratic Republic . Manila.
ADB. 2012. Validation Report: Greater Mekong Subregion: Northern Economic Corridor Project in the Lao
Peoples Democratic Republic. Manila

CHAPTER 2

Design and Implementation


A.

Formulation

7.
The 1994 Hanoi Meeting of the Transport Ministers of the GMS Program
identified the project road as a high-priority regional road. ADB supported
strengthening of the road network in the Lao PDR to enhance the countrys linkages
with its neighbors. This provided the basis for the development of the East-West
Corridor Project, linking central Lao PDR with northern Thailand and central Viet Nam.
Earlier, ADB provided regional technical assistance (TA) to examine the viability of a
project linking Chiang Rai in Thailand to Kunming, Yunnan Province in the PRC via the
Lao PDR. Being landlocked, the Lao PDR hoped to reduce its trade costs and improve its
competitiveness through the construction of new roads and maintenance or renewal of
existing roads connecting to neighboring countries.
8.
The Lao PDR government viewed the project road as a means to enhance
overall accessibility of the two northwestern provinces to central Lao PDR and the
neighboring economies. A project preparatory TA was used to assist the government in
updating all project parameters of the prefeasibility study for the existing road in the
Lao PDR from Houayxay to Boten, and to undertake a pre-investment study on trade
and investment potential for the project.5 The government understood the importance
of its role in promoting regional trade and requested project support from ADB. This
resulted in ADB mobilizing a fact-finding mission during 26 April10 May 2002 and an
appraisal mission during 1931 August 2002. ADB negotiated the project loan with
the government on 3031 October 2002 and approved the loan on 20 December
2002.
9.
At ADBs initiative, a mechanism of quadripartite meetings was established to
help prepare the project jointly with the PRC and Thailand. The meeting on 67 August
2002 reached a consensus among all parties on matters pertaining to cost-sharing
arrangements and scope of work, among other things.

B.

Rationale

10.
Given this background, ADB support to the project was based on the need to
promote regional integration in the GMS and help support economic and social
development in the Lao PDR by providing an all-weather road link between two of its
poorest provinces. Being landlocked, the Lao PDR was expected to benefit from the
project road through reduced trade costs and increased competitiveness as domestic
markets are connected to neighboring countries. The project aimed to strengthen
regional infrastructure linkages between GMS members, accelerate regional
development, and reduce poverty in the Lao PDR. Linking the PRC and Thailand via the
Lao PDR was expected to reduce transport costs; increase efficiency in the movement of

ADB. 2002. Technical Assistance (TA 3817) to the Lao Peoples Democratic Republic for Pre-Investment
Study to Assess Trade and Investment Potential in the Northern Economic Corridor. Manila.

The Lao PDR


government
viewed the project
road as a means
to enhance overall
accessibility of the
two northwestern
provinces to
central Lao PDR
and the
neighboring
economies
ADB support to
the project was
based on the need
to promote
regional
integration in the
GMS and help
support economic
and social
development in
the Lao PDR

Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
vehicles, goods, and passengers; increase the volume of interregional trade via the
route; and increase investment in the project influence area.
11.
At the time of project preparation, transportation between the two Lao PDR
provinces, Bokeo and Louangnamtha, was constrained by a single, narrow, unsealed
road (Route 3), which was closed for about 4 months during the wet season. The lack
of reliable transport links with the PRC and Thailand, and the rest of the country
hampered economic and social development. Trade flows between Thailand and the
PRC relied on one of the following three links, which were restricted and not very
reliable: (i) river traffic on the Mekong River, (ii) Myanmar by road, and (iii) a poor
quality road in the Lao PDR. As a result, upgrading the project road was essential to
facilitate efficient transport infrastructure in the northern economic corridor connecting
Yunnan with the Lao PDR and Thailand; and improving economic and social
development in the northern provinces of the Lao PDR.
12.
In addition to road construction, the project had an area development
component comprising resettlement and social action plans. The resettlement plan was
to ensure that safeguards were in place to avoid any immediate adverse impact of the
project on communities living along the road, and ensure proper resettlement
procedures were in place. The social action plan was designed to enhance project
benefits to local communities, especially to ethnic minorities, through the construction
of community roads and provision of water, sanitation facilities, and education and
awareness programs. The two plans together were expected to help result in integrated
development of the project area.
13.
The project also had a capacity building component. The hiring of consultant
services for third party monitoring of the environmental impact of the road provided an
opportunity to build local capacity for carrying out environmental and social
monitoring. The Department of Roads, provincial divisions of transport, and local
government offices dealing with the environment would be trained in areas such as
environmental impact assessment and project monitoring.

C.

Cost, Financing, and Executing Arrangements

14.
The project cost, inclusive of physical and price contingencies, taxes and duties,
and interest and service charges during construction, was estimated at appraisal to be
$95.79 million equivalent. The foreign exchange cost was estimated at $68.05 million
equivalent, including $1.20 million for interest and service charges during construction.
The local currency cost was estimated at $27.74 million equivalent (about 29% of the
total), which included an estimated $4.51 million equivalent for taxes and duties, and
about $1.0 million equivalent for land acquisition and resettlement.
15.
The ADB loan at appraisal comprised $30.0 million equivalent from ADBs
Special Funds resources to finance about 31% of the total project cost. ADB financing
represented about 35% of the foreign exchange costs and about 22% of the local
currency costs. Bilateral financing of $58.50 million, or about 61% of total project cost,
was envisaged at appraisal. The PRC government was to provide $30.0 million and the
Thailand government $28.5 million. Total anticipated financing, ADB and bilateral, was
$88.50 million, or 92% of the total project cost. The Lao PDR government was to
provide the remaining funding of $7.29 million equivalent.
16.
The total cost estimated at project completion was $129.08 million equivalent,
with a foreign exchange cost of $122.57 million equivalent and a local currency cost of

Design and Implementation


$6.51 million equivalent. ADB financed $34.10 million equivalent, or about 26% of the
total. The bilateral financing from the PRC and Thailand accounted for $91.78 million
equivalent, and the government funded the remaining local costs of $3.20 million
equivalent.
17.
For the PRC-funded sections of the project road, the civil works cost increased
from $21.60 million at appraisal to an actual cost of $38.90 million, which included
$4.07 million for consulting services. The increase was due to the many defects
identified during the first defect liability period of 12 months, which extended the
defect liability period by another 12 months. Defects included longitudinal cracks on
the pavement along many parts of the road; the Louangnamtha bypass section
required a 3-centimeter asphalt concrete overlay due to the cracking. Landslides
resulted in the need for repairs for some sections.
18.
For the Thailand-funded section, the civil works cost increased from the
appraisal estimate of $21.44 million to an estimated actual cost of
$52.88 million, including the $8.5 million additional financing. The increase was due to
the failure of about 10% of the completed pavement at the end of 2007. Although the
works were completed in February 2008, major sections of the pavement failed again
after the 2008 wet season. The quality of the remedial work completed was of very
poor standard; about 60% of the pavement is estimated to be substandard and need
replacement. The additional cost for repairing the Thailand section at final completion
was $11.32 million.
19.
Costs for the ADB section of the project road increased from
$18.8 million at appraisal to $26.88 million. The increase was due to greater
earthworks and price escalation of the labor cost, interest, and other minor
components. The appraisal estimate for consulting services of the ADB-funded section
was $5.84 million, while actual costs were $5.73 million.
20.
The implementing arrangements were as envisaged at appraisal. The borrower
was the Lao PDR and the Ministry of Public Works and Transport (MPWT) was the
executing agency. The Department of Roads within MPWT was responsible for
implementation and overall coordination. Consultants provided assistance for
construction supervision responsibilities. The project manager was responsible for
implementation of the ADB-funded section of the project, while two full-time deputy
project managers were responsible for implementation of the PRC and Thailand-funded
road sections. The departments of public works and transport of Louangnamtha and
Bokeo provinces provided counterparts to help the project management unit. The team
leader of the supervision consultants acted as the employers representative for the
ADB-funded civil works and provided support to the project manager to coordinate
implementation of all three sections of the project road.

D.

Procurement, Construction, and Scheduling

21.
Procurement of civil works for the project road was carried out in accordance
with ADBs procurement guidelines. Of the 26 accepted applicants, ADB approved 12
to be prequalified to bid for the civil works. Bids were opened on 14 October 2003 and
ADB approved the contract award on 7 April 2004. The civil works contract for the ADB
section was signed on 4 May 2004 with a contract period of 34 months; construction
commenced the following day.

Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
22.
The civil works contract for the Thailand-funded section was for
33 months. Construction commenced on 6 September 2005. About 10% of the
completed pavement failed at the end of the 2007 wet season, and the work was
eventually completed in February 2008. However, major sections of the pavement
failed again after the 2008 wet season. The quality of the remedial work completed
was of very poor standard. On the whole, about 60% of the pavement was
substandard and needed replacement.
23.
The civil works contract for the PRC section was for 26 months; construction
commenced on 10 July 2004. The civil works cost increased due to many defects
identified during the first defect liability period of 12 months. Landslides had occurred
in some locations, road repairs were necessary. However, many of the slopes repaired
failed again late in 2008, causing additional expense.
24.
Local competitive bidding was used for the construction of community rural
access roads. Several roads were grouped into three packages. Package 1 was for roads
in Houayxay district, package 2 for Vieng Phoukha, and package 3 for Louangnamtha.
All three contracts commenced on 15 January 2006. Local competitive bidding was
used for the water and sanitation component. Bids for three contract packages for
Houayxay, Louangnamtha, and Vieng Phoukha districts were submitted to ADB. The
package for Houayxay was signed on 9 April 2007, and those for Louangnamtha and
Vieng Phoukha were signed on 30 April 2007.
25.
Direct purchase was used for the installation of vehicle weigh station
equipment, toll system, and forestry checkpoints, instead of national competitive
bidding. This was to ensure the equipment was similar to that used elsewhere in the
country for the World Bank-supported Heavy Transport Management Program. Minor
works and equipment for the toll collection office at Houayxay were paid through a
variation order to the community roads package 1 consultant. The contractor
implemented the toll collection and weigh-scale station at Boten under a variation
order to the community roads package 3 contract. Instead of installing forestry
checkpoints, three radio-communication sets were supplied to the existing police and
forestry checkpoints to assist in monitoring illegal wildlife hunting, trading, and slash
and burn activities.
26.
At appraisal, the project was expected to be implemented in 56 months,
including preconstruction activities. Completion of civil works was expected by 31
December 2006. Actual implementation took approximately 61 months. The PRC
section was completed in May 2006, but, due to defects, additional works were
needed. The ADB section was completed in September 2007, while the Thailand
section, although completed in February 2008, had to undergo additional major work
due to pavement failures.

E.

Consultants

27.
The engagement of consultants followed ADBs Guidelines on the Use of
Consultants. The PCR does not report any irregularities in the hiring of consultants.
Also, no pending issues or cases were filed under ADBs Office of Anticorruption and
Integrity concerning this project. No related advisory TA was provided. Consultant
services were divided into six packages: (i) project coordination, construction
supervision, social action plan, and environmental management plan; (ii) resettlement
planning, implementation, and capacity building; (iii) independent environmental
monitor; (iv) HIV/AIDS, sexually transmitted diseases, drug and human trafficking

Design and Implementation

awareness, and preventive education program; (v) nonformal education and land
titling; and (vi) independent resettlement monitoring and evaluation.
28.
Due to delays in implementing the civil works and changes in project
implementation arrangements, a time and input extension was required under the
consulting services packages. Actual international consulting totaled 180 personmonths and national consulting 1,834 person-months.
29.
The PCR rates the performance of the construction supervision consultants of
the ADB-funded section of the road highly satisfactory, the PRC section satisfactory,
and the Thailand section unsatisfactory. The consultant for the ADB section was also
responsible for coordinating the project with the PRC and Thailand consultants. After
the completion of civil works in 2008, the consulting supervision team for the Thailandfunded section was replaced by a new consultant and project manager, which helped
improve the quality of repair works. Performance of consultants under the other
packages was considered satisfactory.

F.

Outputs

30.
A discussion of the outputs under each of the three project components
follows. The project framework and achievements are given in Appendix 1.
1.

Project Road

31.
At appraisal, the project road comprised approximately 228 km of road R3
from Houayxay in Bokeo Province to Boten in Louangnamtha Province. The civil works
for the project road comprised (i) reconstruction and upgrading of the entire length to
a sealed, two-lane road; (ii) construction of new bridges and widening of existing
bridges, as required; (iii) upgrading of ferry facilities at the Mekong River; and (iv)
construction of a 7.1 km new bypass around the town of Louangnamtha. The
roadwork was divided into three sections: (i) the northern section comprising
approximately 69 km of road starting from the border between the PRC and the Lao
PDR at Boten and funded by the PRC; (ii) the middle section comprising about 74 km
and funded by ADB; and (iii) the southern section covering approximately 85 km from
Houayxay toward the north and funded by Thailand. At project completion, 226.28 km
of the road was upgraded to a paved two-lane highway, comprising 66.43 km of the
PRC-funded section, 75.85 km of the ADB-funded section, and 84.0 km of the Thailandfunded section. New bridges were constructed and existing bridges widened. The ferry
facilities across the Mekong River were upgraded and a new bypass was constructed
around the town of Louangnamtha.
2.

Area Development

32.
Area development included two subcomponents: (i) a resettlement plan, and
(ii) a social action plan. MPWT prepared a resettlement plan in 2002 and updated it in
August 2004.
33.
The social action plan was implemented as envisaged; it comprises eight parts:
(i) income restoration, (ii) community rural access roads, (iii) improvement of water and
sanitation, (iv) nonformal education, (v) primary health care, (vi) land zoning and
titling, (vii) community infrastructure construction, and (viii) road safety campaign. In
addition, a related program on HIV/AIDS awareness was undertaken and 16 rural access
roads covering three districts with a total length of 72.51 km were completed. The

At project
completion,
226.28 km of
the road from
Houayxay in
Bokeo Province
to Boten in
Louangnamtha
Province was
upgraded to a
paved two-lane
highway
The
implementation
of the social
action plan
included
community rural
access roads and
improvement of
water and
sanitation

Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
completed community infrastructure comprised (i) two access roads to schools, (ii) two
access roads to shifting cultivation areas, (iii) four roads within the villages, and (iv)
leveling of two school yards.
34.
Under the water and sanitation schemes, three works packages were
undertaken: (i) package 1 (Houayxay District) installed or renovated gravity-fed water
systems for 12 villages, constructed latrines for schools in nine villages, and 1,239
households in 37 villages; (ii) package 2 (Vieng Phoukha District) installed or renovated
gravity-fed water systems for 8 villages, and constructed latrines for 775 households in
20 villages; and (iii) package 3 (Louangnamtha District) installed or renovated gravityfed water systems for 12 villages and constructed latrines for schools in 2 villages and
for 666 households in 18 villages.

Capacity
building
component
included
training on
dealing with
protected areas
and wildlife
trafficking

3.

Capacity Building

35.
Capacity building was provided to enable independent third-party monitoring
of the projects environmental aspects. The monitoring program was expected to
integrate local capacity building through on-the-job training and formal modules of
training for the provincial road system. Capacity building encompassed all aspects of
the project, including training on dealing with sensitive issues such as protected areas
and wildlife trafficking, using geographic information systems and other information
gathering techniques, gathering technical expertise and advice, and preparing a
manual on environmental monitoring plans and procedures. Capacity building of local
units was expected to enhance environmental impact assessment and project
monitoring. However, implementation of the environmental management plan was
problematic as the PRC and Thailand contractors failed to follow the plan.

CHAPTER 3

Performance Assessment
A.

Overall Assessment

36.
The project was not economically viable for the Lao PDR as reflected in the low
EIRR of 6.9% estimated by the IEM. The project experienced implementation delays and
poor quality supervision. For the subregion, comprising the three countries, the IEM
estimated an EIRR of 12.8%, only marginally higher than the social opportunity cost of
capital of 12%. The project was effective in reducing transport costs and travel time.
However, sustainability of these benefits is in doubt as the Lao PDRs road maintenance
fund, generated from fuel surcharges, is proving to be inadequate in fully meeting the
required maintenance expenses. Overall, the project is rated less than successful (Table
1).6
Table 1: Overall Performance Assessment
Item
Relevance
Effectiveness
Efficiency

Weight (%)
25
25
25

Sustainability

25

Overall Ratinga

Rating
Relevant
Effective
Less than
efficient
Less than likely
sustainable
Less than
successful

Rating Value
2
2
1

Weighted
Rating
0.50
0.50
0.25

0.25
1.50

Highly successful >2.7, successful >1.6 and <2.7, less than successful >0.8 and <1.6, unsuccessful <0.8.
Source: Independent Evaluation Department, ratings as assessed by the Independent Evaluation Mission.

B.

Relevance

37.
The project is consistent with the governments strategy of narrowing the gap
between the Lao PDR and other regional economies through better physical
connectivity and strengthening its role as a land link at the center of the GMS. The
project is also consistent with ADBs strategy for promoting cooperation in the region
and for the road subsector in the Lao PDR. Cross-border infrastructure and related
software is the first among the four pillars of ADBs 2006 Regional Cooperation and
Integration Strategy.7
38.
ADBs country strategy and program, 20072011 for the Lao PDR recognizes
the countrys pivotal role in ADBs regional cooperation program for the GMS, since it
lies at the crossroads of the north-south and east-west economic corridors, which
6

IEDs guidelines identify four evaluation criteria: (i) relevance of the project to the government and ADB
development strategies, and relevance of the design to achieve project objectives;
(ii) effectiveness of the project outputs and outcomes; (iii) efficiency of project implementation; and (iv)
sustainability of the project outputs and outcomes. The overall rating uses these four criteria with equal
weights. Individual ratings are in whole numbers from 0 to 3, and in increasing order of program
performance.
ADB. 2006. Regional Cooperation and Integration Strategy. Manila.

The project is
consistent with
the governments
strategy of
narrowing the gap
between the Lao
PDR and other
regional
economies
through better
physical
connectivity

10

Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
connect key economic centers in the GMS.8 These corridors will connect the Lao PDR
with the rest of the GMS. Better connectivity is expected to accelerate economic
integration and enhance access to basic social services, especially for the poor in border
areas. The Lao PDRs Sixth Five Year National Economic Development Plan, 20062011
envisioned transforming the country from a landlocked to a land-linked nation in
support of regional integration. The plan emphasized developing economic corridors;
reducing trade barriers; promoting cross-border investment; and capitalizing on the
benefits that membership of the GMS, Association of Southeast Asian Nations (ASEAN),
AEAN Free Trade Area (AFTA), and World Trade Organization (WTO), together with
bilateral trade agreements, can bring.

Project design
and
implementation
arrangements
were not
adequate in
dealing
simultaneously
with the three
financing
entities: ADB,
the PRC, and
Thailand
The project
road resulted
in reduced
transport
costs and
travel times
for road users

39.
The 2006 GMS Transport Sector Strategy Study gave priority ranking to the
Houayxay-Chiang Khong Third International Mekong Bridge and the northern corridors
in the Lao PDR as part of the action plan for GMS investment projects. The strategy
proposed the theme Towards seamless transport services on a fully connected and
integrated GMS transport network.
40.
Project design and implementation arrangements, however, were not adequate
in dealing simultaneously with the three financing entities: ADB, the PRC, and Thailand.
The executing agency, MPWT, had difficulty ensuring uniform standards as each of the
project sections had their own design and supervision consultants. Even with MPWT
oversight, civil works contractors and consultants for these sections reported directly to
the funding country. This arrangement was apparent in the varied design standards
followed, and the pavement and road safety markings, which conformed to the
funding countrys standards and not to the uniform standards that were agreed upon
initially. Failure to implement a system of road user charges was not identified as a risk
in the project framework. The project is assessed relevant.

C.

Effectiveness

41.
The project is assessed effective. As envisaged at appraisal, the project road
resulted in reduced transport costs and travel times for road users, thus achieving its
intended regional and national outcomes. The IEM estimates that vehicle operating
cost (VOC) after project completion would be reduced by 14% for motorcycles, 27% for
cars, 39% for large buses, and 34% for heavy and/or articulated trucks (Appendix 4).
The IEM estimate of travel time savings is based on reducing the international
roughness index from 8 before the project to 2 after project completion. The project
generated travel time savings of 39% for motorcycles, 43% for cars, 45% for large
buses, and 44% for heavy and/or articulated trucks. The IEM travel time delay survey,
conducted during the site investigation, resulted in a travel time of 3.83 hours from
one border to another, down from the more than 9 hours before the project, around
60% savings in travel time.9
42.
At appraisal, passenger and freight traffic were estimated to grow on average
at 5%10% per annum depending on vehicle type. Using MPWTs Public Works and
Transport Institute traffic count data and converting these figures into passenger car
units, the IEM estimated the 2002-2008 annual traffic growth rates between Houayxay
and Viang Phouka at 11%; Viang Phouka to Louangnamtha at 17%; and
Louangnamtha to Boten at 8%. For 2008-2013, the IEM estimated annual traffic
8
9

ADB. 2006. Country Strategy and Program: the Lao Peoples Democratic Republic, 20072011. Manila.
The monitoring framework indicated an expected reduction in travel time of 3 days (from 5 days) for the
river traffic diverted to land transport. The PCR did not indicate if this was achieved.

Performance Assessment

11

growth rates at 11% between Houayxay and Viang Phouka; at 29% between Viang
Phouka and Louangnamtha; and at 16% between Louangnamtha and Boten. In
general, actual annual traffic growth exceeded the appraisal forecast.
43.
The IEM origin-destination survey indicates that a substantial portion of the
cargo traffic was between the cross-border stations in Boten and Houayxay. Mediumsized truck comprised 61.5% of total vehicular border-to-border traffic, heavy and/or
articulated truck traffic 82.9%, light bus traffic 42.1%, and heavy bus traffic 40%.
44.
The international transit and cross-border agreements that were expected to be
in place by 2005 have not yet been fully achieved. In the absence of these agreements,
the smooth flow of passenger and freight traffic at the borders may not be possible
and the Lao PDR cannot be an efficient land bridge connecting the GMS countries.
Passenger and freight transport between and the PRC and Thailand through the Lao
PDR is not seamless, as PRC and Thailand trucks cannot enter each others borders and
cargo has to be unloaded and loaded at the transshipment facilities at borders within
the Lao PDR.

D.

Efficiency

45.
The project is rated less than efficient. The IEM reevaluated the economic EIRR
at 6.9% for the Lao PDR.10 It estimated an EIRR of 12.8% for the subregion comprising
the Lao PDR, the PRC, and Thailand, marginally higher than the social opportunity cost
of 12%. Sensitivity analysis shows that a 10% decrease in project benefits reduces the
EIRR below 12%. The reestimated EIRRs are both lower than the corresponding
estimates obtained by the PCR and those estimated at appraisal.
46.
The PCR estimates an EIRR of 7.4% for the Lao PDR and 14.6% for the
subregion. At appraisal, the estimated EIRR for the Lao PDR was 12.8%, with benefits
comprising mostly VOC savings for local traffic. When revenue from forecasted toll
collections from PRC and Thailand traffic was included in the benefit stream, the
estimated EIRR at appraisal was 17.9%. The EIRR estimate at appraisal for the subregion
was 27.0%, with benefits comprising VOC savings for all traffic; savings for regional
freight traffic shifting from the river to the project road; VOC savings for subregion
passenger traffic; and savings in inventory costs as a result of savings in time. The EIRR
values estimated by the PCR and IEM are lower than those estimated at appraisal,
mainly due to traffic volume being lower than assumed at appraisal and longer
construction periods due to implementation delays.
47.
In the Thailand-financed section of the project road, ADB missions noted
serious concerns about the quality of the work, use of substandard materials for the
new pavement, poor pavement compaction and laying techniques, and poor quality
supervision of the works. Soon after completion in February 2008, major sections of the
pavement had failed after the wet season and required major repairs. About 60% of
the pavement or approximately 50 km of the total length of 84 km was substandard;
additional financing was required to cover the additional cost. The IEM investigated the
road section and noted the improved and satisfactory quality of the completed works.
The reconstruction works were completed in 2012 at an additional cost of $11.32

10

The IEM used the standard methodology for measuring VOC and travel time savings by utilizing the
Highway Development and Management software or HDM 4.2 to estimate VOC and travel time with and
without the project (Appendix 4). It included additional vehicle types that comprise current traffic flows,
which were not included in either the appraisal or PCR estimates, such as motorcycles and light trucks.

PRC and
Thailand trucks
cannot enter
each others
borders and
cargo has to be
unloaded and
loaded at the
transshipment
facilities

The project was


not
economically
viable for the
Lao PDR as
reflected in the
low EIRR of
6.9%

12

Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
million or a 25.5% increase over costs already incurred at initial completion in 2008.
The contractors warranty period expired in 2013.
48.
For the PRC-funded section of the project road, the civil works cost increased
from $21.60 million estimated at appraisal to an actual $38.90 million. The increase
was due to the many defects identified during the first defect liability period, resulting
in its extension by 12 months. Longitudinal cracks on the pavement along many parts
of the Louangnamtha bypass section required the application of a 3-centimeter asphalt
concrete layer. Road repairs were required in landslide areas. The IEM investigated the
road section and noted that most of the sealed longitudinal cracks had widened
further, land slips at certain sections resulted in only one usable lane, and numerous
potholes were along the entire road section. The sealing of the longitudinal cracks was
inadequate and further analysis should have been done if these were caused by
subbase or base failure.
49.
As indicated in the PCR, the project experienced implementation delays, which
resulted in slow disbursement of the loan. Selection of the contractor was delayed for
the Thailand section. Significant delays were experienced in implementation of the
resettlement plan. The project reached financial close 2 years later than planned at
appraisal, and the total project cost increased by $33.3 million from the appraisal
estimate of $95.79 million, an increase of about 34%. This inefficiency was partly due
to MPWTs lack of control over consultant supervision and contractors in the bilaterally
funded sections of the road.

E.

The project is
assessed less
than likely
sustainable

Sustainability

50.
The project is assessed less than likely sustainable. To ensure the project road
reaches its full economic life, maintenance is essential. Under the loan agreement, the
Lao PDR government committed, through the Department of Roads, to provide
responsible operation and maintenance of the project road with proper technical
supervision and adequate allocation of funds. A road maintenance fund made up of
fuel taxes was established in January 2001. The amount collected from fuel taxes has
grown steadily, but is considered insufficient to cover the maintenance costs of all Lao
PDR roads, even with supplementary allocations from the annual budget. Routine
maintenance costs for paved roads in the Lao PDR are in the range of $300$500/km,
but the budgeted amount received only up to $130/km. Thus, the long-term
maintenance of Lao PDR roads in general becomes questionable. On the other hand,
periodic maintenance averages $14,000$16,000/km for paved roads, and depends
mostly on foreign financing sources. The financial internal rate of return was not
calculated due to the lack of revenue from tolls and transit charges.
51.
The need for adequate resources for maintenance was evident during the IEM
field investigation. The PRC-funded road section was already in fair to poor condition,
badly in need of routine maintenance. It required significant repair works, including
resealing of longitudinal cracks and restoration of road sections in areas where slips
had occurred. Road safety accessories such as center and edge lines and barriers
needed to be restored. Though the ADB-funded section was in good condition overall,
several potholes and road depressions were in need of repair. The Thailand-funded
section appeared in good condition as it was completed as recently as 2012.
52.
Road damage is likely due to overloaded trucks as enforcement of weight limits
on the project road has not been consistent. The PRC and Thailand have higher legal
axle-load limits than the Lao PDR, making enforcement complicated. While the fixed

Performance Assessment
and portable weigh scales provided by the project are fully operating, fines are small
and few offenses are recorded.
53.
At appraisal, the project was expected to require road charges from regional
traffic of $20/passenger car unit at each border crossing or $40 in total to cover debt
service, road maintenance, and other related costs. The Lao PDR government had
agreed that determining the actual road charges for different vehicle types, rules,
implementing regulations, and other institutional arrangements would be prepared
and mutually agreed with ADB within 18 months of loan effectiveness so that revenue
could be collected as soon as a section of the road was complete. The report and
recommendation of the President to the Board of Directors indicates that an
agreement has been reached with the governments of the PRC and Thailand that a
system of road charges for vehicles and passengers will be in place so as to generate
adequate resources for the Lao PDR to cover debt service and road maintenance
(footnote 1) However, the expectation that tolls (user charges) would be collected from
international transit traffic via the project road failed to materialize as both the PRC and
Thailand resisted the tolls. While the Lao PDR, the PRC, and Thailand are part of the
GMS, the GMS countries do not have a toll agreement. MPWT was not confident about
the implementation of tolls anytime soon.

13
The
expectation
that user
charges would
be collected
from
international
transit traffic
via the project
road failed to
materialize as
both the PRC
and Thailand
resisted the
tolls

CHAPTER 4

Other Assessments
A.

Impact

54.
The overall project is assessed to have had a significant impact. The
socioeconomic impacts were significant for communities in the project influence area.
Regional trade and tourism increased significantly.
1.

Impact on Institutions

55.
The project was expected to develop and implement a system of road user
charges that can help the Lao PDR generate revenue from infrastructure services.
However, this did not materialize as the governments involved failed to reach an
agreement on this issue. The project helped develop local institutional capacity for
monitoring the use of natural resources and checking on vehicle load limits. However,
there were indications that the agencies have been weak in implementing these checks.
2.

Women
benefited
from better
access to
markets and
increased
access to
water supply
and sanitary
latrines

Environment and Resettlement

56.
The project is classified category A. The project was expected to require the
acquisition of 122 hectares (ha) of mainly rice land and 1.7 ha of residential land,
affecting 2,550 people in 502 families, 543 dwellings, 61 small retail shops, and 133
rice storage bins, all requiring relocation. The PCR indicates that resettlement plans
were incorporated into 11 road sections (five in the Thailand section and three each in
the PRC and ADB sections). During project processing it was agreed that a single set of
resettlement and environmental management plans and design standards would apply
to the whole project. It was the project coordination consultants task to ensure that
these plans and standards were implemented. However, communications with the PRC
contractor were difficult and neither the consultant nor the MPWT representative could
enforce compliance with project requirements. Environmental management was a
problem because neither the PRC nor the Thailand contractors followed the
environmental management plan. The MPWT representative did not have much control
over the contractors of the PRC and Thailand-funded sections as they were reporting
directly to their respective governments.
3.

Gender Impacts

57.
The socioeconomic survey and focus group discussions reveal that women
benefited from better access to markets and increased access to water supply and
sanitary latrines. The project also had negative impacts on women. The project road
facilitated sex trade, which carries the risk of the spread of HIV. A recent ADB report
notes that women hired by food and drink shops established in villages along the road
were sexually exploited by owners and customers. 11 The fact that most of these women

11

ADB. 2009. Build It and They Will Come: Lessons from the Northern Economic Corridor: Mitigating HIV and
Other Diseases. Manila.

Other Assessments

15

were socially disadvantaged with no access to literacy activities and weak negotiating
ability for safe sexual relations made them vulnerable to HIV risk.
4.

Socioeconomic Impacts

58.
A key benefit from the project has been the improved access of local
communities to basic social services (Appendix 5). People in the project influence area
have better access to water and sanitation facilities, and easier and faster access to
health and education services. Improved access to markets in neighboring countries
improved livelihood opportunities and living standards for residents along the road. A
greater variety of products at cheaper prices became available due to improved market
access.
59.
An ADB impact evaluation of the project reveals that households living in the
project area earned about 67% more on average per year relative to comparable
households in the nonproject area.12 Significant differences were noted in asset
ownership, housing quality, and time saved in accessing various services.
60.
The economic analysis, which determined the EIRR, considered the first-order
outcomes directly linked to the project road such as savings in travel cost and time. In
addition, project benefits include second-order outcomes such as increased crossborder trade and investment. For example, tourism-related businesses (resorts,
restaurants, and local tour operators) benefitted from the road. Although not entirely
attributable to the project road, trade between Thailand and the Lao PDR and between
Thailand and the PRC increased at a much higher rate after 2008 than in earlier years.
Tourist arrivals at the two borders, Boten and Houayxay, increased rapidly after 2008.
Lao PDRs exports to the PRC as a proportion of its total exports increased from 3% in
2005 to 21% in 2012. Lao PDRs imports from the PRC as a proportion of total imports
increased from 9% in 2005 to 16% in 2012.
5.

Regional Distributional Impacts

61.
Ensuring a fair distribution of benefits and costs across participating countries
is important for the success of regional projects. The project road, though located
entirely in the Lao PDR, provides substantial benefits to the neighboring countries of
the PRC and Thailand fostering cross-border trade and regional integration. This is why
the latter two countries financed their respective sections of the road. The IEM origindestination survey indicates that a large proportion of the cargo traffic on the road is
transit traffic between the border posts with the PRC and Thailand. About 83% of total
traffic in the case of heavy and/or articulated trucks and 62% in the case of mediumsized trucks is transit traffic (Appendix 4, Table A4.6). Thus, a greater share of project
benefits in the form of reduced VOC and travel time go to the PRC and Thailand. When
it comes to the distribution of costs, the Lao PDR government alone bears the full costs
of the recurrent and periodic maintenance of the project road. During the design of the
project, revenue collected from transit traffic tolls was assumed to be partly used to
fund road maintenance. In practice, implementation of tolls did not materialize.
62.
To assess the distributional effects across the countries, the net benefits from
the project are estimated not only from the borrower country point of view, but also
from the lending countries of the PRC and Thailand. Since the PRC and Thailand loans
are concessional, an equivalent grant value can be assumed to accrue as a benefit for
12

ADB. 2014. Assessing Impact in the Greater Mekong Subregion: An Analysis of Regional Cooperation
Projects. Manila.

A greater
variety of
products
became
available at
cheaper prices
and household
earnings
increased in the
project area

A greater share
of project
benefits go to
the PRC and
Thailand
whereas Lao
PDR alone bears
the
maintenance
costs of the
project road

16

Greater Mekong Subregion: Northern Economic Corridor Project in the Lao PDR
the Lao PDR.13 Even after taking this benefit into account the net present value at a
12% discount rate is negative for the Lao PDR. Correspondingly, even when the grant
equivalent values are considered as cost items for the PRC and Thailand, the net present
values at a 12% discount rate turn out to be positive. Assuming the equivalent grant
element is 30% of the loan amount, the estimated EIRR for the Lao PDR is 8.7% and the
corresponding EIRR for the PRC is 74.3% and for Thailand 40.4% (Appendix 4).
Simulations revealed that the Lao PDRs EIRR can be brought above 12% if the grant
element is increased to 70%. The corresponding EIRR for the PRC would be 45% and for
Thailand 25%.
6.

Other Social Impacts

63.
Some of the social costs borne by the Lao PDR due to the project include the
increased risk of human and wildlife trafficking, spread of HIV/AIDS, and road
accidents. Better accessibility provided by the transport links, along with the regions
high biodiversity, makes illegal trade in wildlife attractive. The project road also
facilitates sex trade with the associated risk of the spread of HIV.
64.
Other negative impacts identified during the focus group discussions include
increased risk of road accidents, noise pollution especially during the night, and greater
incidence of theft. The main causes of accidents on the project road are increased
pedestrian and motorcycle traffic, and absence of brake-paths for trucks in
mountainous areas. Due to the steep slopes and curves in many parts of the road,
drivers of heavy trucks are forced to apply brakes hard; over long distances this practice
creates a risk of brake failure.

B.

ADB Performance

65.
In general, ADBs performance is assessed satisfactory. ADB diligently
conducted resettlement missions, an indigenous peoples safeguard review mission, and
an environmental safeguard review mission; and fielded regular review missions and
special project administration missions. It fielded 10 review missions to monitor project
progress and resolve implementation issues, and 5 special project administration
missions. These missions included visits to the project site and to MPWT in Vientiane,
where coordination meetings were held to discuss and solve problems. ADB missions
advised MPWT on technical issues, and the preparation and evaluation of bid
documents. Project formulation appeared to be fast-tracked, taking less than 4 months
from appraisal to Board approval. This could have resulted in inadequate attention to
ensuring an agreement between the governments on road user charges, which was
vital for the maintenance of roads.

C.

Borrower and Executing Agency Performance

66.
The performance of MPWT, as the executing agency, is assessed satisfactory.
Despite the difficult institutional environment, it coordinated well with ADB staff
during project implementation and in reviewing project progress. MPWT implemented
the project diligently, despite considerable delays in the implementation of civil works.
13

According to the report and recommendation of the President, the terms of the bilateral loans from the
PRC and Thailand are more concessional than the ADB loan, which was at the Asian Development Fund
terms. The Government of Thailand provided 30-year maturity funds, including a 10-year grace period and
a 1.5% interest charge and about 10% of the principal interest free. The PRC agreed to provide an interestfree loan with a 20-year maturity, including a 10-year grace period and about 20% of the principal as
grant.

Other Assessments
The quality of the completed works for the ADB section was satisfactory. However, the
MPWT representative assigned for supervision of the PRC- and Thailand-funded sections
of the road did not have much control over the contractors since they reported directly
to their respective governments. The governments compliance with covenants was
generally satisfactory. It complied with 27 of the 33 loan covenants. Of the remaining
6 covenants, only 1 was not complied with, while the rest were assessed either partially
satisfactory or partially complied with. The only covenant that was not complied with
pertained to toll collection.

17

CHAPTER 5

Issues, Lessons, and FollowUp Actions


A.

Issues

67.
Distribution of costs and benefits. The issue of equitable distribution of project
costs and benefits among participating countries is important for regional cooperation
projects. Uneven distribution of costs and benefits can have adverse implications for
project sustainability. In the case of this project, a major proportion of the benefits in
the form of savings in VOC and travel time accrue to the PRC and Thailand. Since road
user charges have not been implemented, the Lao PDR bears the entire maintenance
cost of the road. Moreover, the Lao PDR has to deal with negative impacts of the road
such as management of road safety issues, controlling of logging, wildlife trafficking,
human trafficking, and spread of HIV/AIDS.

Inadequate
logistics
capacity and
infrastructure
such as dry
ports are
some of the
barriers
preventing
Lao PDR from
realizing the
full potential
of the road
infrastructure

68.
Being middle-income countries, the PRC and Thailand are in a better position to
realize the trade potential between the countries and take advantage of investment
possibilities in the Lao PDR. In comparison, the Lao PDR has less capacity to realize this
potential due to weak capacity of human resources, technological know-how, and
availability of financial capital. Inadequate logistics capacity and infrastructure, such as
dry ports; technical know-how; and financing for entrepreneurs are some of the
barriers preventing the realization of the full potential of the road infrastructure.
69.
Complementary investments and capacity development. For the Lao PDR to
fully benefit from the project, complementary investments would be required to
overcome existing barriers in transforming the road into an economic corridor.
Investments would be required to improve logistics facilities and develop the capacity
of local entrepreneurs to identify specific industrial or agricultural products that have
trade potential. Extending the benefits of the road to local residents would require
improvements to feeder roads, most of which are currently unpaved.
70.
Transport and trade facilitation efforts have a critical role in realizing and
maximizing the benefits of connectivity. The goal of regional integration can be fully
met only when there is free movement of trucks and buses across borders. Both time
and costs can be saved if cargo can be transported without transshipment at the
borders. Manual loading and unloading of cargo at the transshipment facilities at
borders carry the risk of damage to cargo, and breaks the cold chain for fresh and
frozen products. Lack of competition in the logistics sector also makes transshipment
services expensive. Myanmar and Thailand have not yet ratified some of the annexes
and protocols of the cross-border trade agreement for the GMS countries. Progress is
needed in different aspects of the agreement, like implementation of traffic rights
among the PRC, the Lao PDR, and Thailand; and customs cooperation facilitation
related to single-stop inspection and single-window clearance mechanisms.

Issues, Lessons, and Follow-Up Actions

19

71.
Road safety. Improved roads make travel easier and faster, but at the same
time, the risk of accidents with severe damage and fatalities is increased. Therefore,
pursuing ways to mitigate this risk and foster safety on the project road is important.
Steps required to improve road safety include posting and enforcement of speed limits,
checks on drunken driving, adequate shoulder widths for vehicular stops and parking,
introduction of speed bumps to reduce the speed of traffic entering villages and small
towns, and installation of entry barriers for pedestrians along road sections passing
through villages and towns.

B.

Lessons

72.
An effective project implementation entity is important when multiple
financiers are involved, in order to ensure uniform standards in the construction of the
project road. For the ADB-funded section of the road, the Lao PDR government could
keep track of expenditures and verify if timelines and guidelines are followed. This was
not the case with the PRC and Thailand financed sections. For example, the PRC used its
own design standards for the road without conducting any dialogue with the Lao PDR
government.
73.
An agreement for collective maintenance is an essential element for the
sustainability of subregional road projects, such as this project. A mechanism needs to
be devised for the costs to be shared in proportion to the benefits received by the
stakeholders.
74.
Objective quantitative assessment of benefits and costs may help in the setting
up a mechanism for fair distribution of costs across countries. The IEM economic
analysis indicates that the net present value of the project for the Lao PDR could be
made positive if higher grant elements were used in the financing by the PRC and
Thailand.

C.

Follow-Up Actions

75.
The Lao PDR government may consider a dialogue with the PRC and Thailand
regarding the implementation of tolls for transit traffic within the context of GMS
cooperation programs and forums; ADB could facilitate this process. Being a landlocked
country, the Lao PDR depends on its more powerful neighbors to access their ports for
trade with other countries and does not have much negotiating power. ADB could help
the countries realize it is in their interest to maintain the road in good condition and
agree on a framework for sharing road maintenance costs. An understanding that the
proceeds from tolls on transit traffic would be exclusively used for road maintenance
and future upgrading may help in this regard. The use of public-private partnerships
could be explored as an option for better road maintenance.
76.
ADB should closely monitor progress on the cross-border transport agreement
and work closely with the governments to achieve full ratification and implementation
of the agreement. The agreement has an important role in enhancing regional benefits
from the project through smoother trade flows.

An agreement
for collective
maintenance is
an essential
element for the
sustainability of
subregional
road projects

Appendixes

Project Achievements
(as in PCR)

PPER Update

Impacts:
1. Accelerate regional
development by linking two
rapidly growing economies of
Thailand and the Peoples
Republic of China (PRC) by
facilitating trade and investment
in the region.

Economic growth for the impact


regions in the immediate planning
period
Increased tonnage of interregional
trade via the project road

The gross domestic product of Bokeo


Province rose by 11.57% per annum
from 2004 to 2008 (i.e., the road
construction period). The gross
domestic product of Louangnamtha
Province grew by 14.13% per annum
over the same period.

During 20062010, the GDP of


Bokeo Province increased by 7.81%;
the GDP of Louangnamtha Province
increased by 7.65%.

Access to facilities such as health


care, markets, and schools has
increased, as noted during the
project completion review mission
visit to various project areas and in
discussions with local residents.

The socioeconomic survey reveals


that 76% of households had access
to public tap water after the project
compared with 26% before; travel
time to school was not more than 15
minutes for 88% of households after
the project compared with 74%
before; 68% of households used a
motorcycle to go to markets
compared with 20% before the
project; households with monthly
household income greater than KN3
million increased from 3% to 10%
and those with monthly income less
than
KN0.5 million decreased from 78% to
44%. Focus group discussions
revealed that greater employment

Increased foreign direct


investment in the road influence
area

2. Help reduce poverty in the Lao


Peoples Democratic Republic (Lao
PDR) by providing access to
markets, extension services,
income, and employment
opportunities; and by enhancing
development potential

Access to health and educational


facilities
Improved access to wider range of
markets
Improved access to employment
opportunities

Customs offices at the border


stations could not provide data to
indicate performance on trade
through the project road.
Tourist arrivals in Boten increased
from around 38,000 in 2006 to
about 118,000 in 2012. Tourist
arrivals in Houayxay increased from
73,000 to 98,000 during the same
period.
Data was not available on
investments in the road influence
area.

APPENDIX 1: DESIGN AND MONITORING FRAMEWORK

Performance Indicators

22

Project Achievements
(as in PCR)

PPER Update
opportunities were available after the
project.

Outcome:
Establish a direct link between the
PRC and Thailand via the Lao PDR
to reduce transport cost within
the regional influence area and
increase efficiency of the
movement of vehicles, goods, and
passengers

Reduced transportation costs of


goods and passenger traffic
Reduced travel time by 3 days
(from 5 days) in 2006

Actual vehicle operating cost (VOC)


reductions were calculated. For a car
the VOC falls from around $0.37 per
vehicle-km to $0.21 (by 43%), for a
large bus from $0.65 per vehicle-km
to $0.56 (14%), and for a heavy truck
from $1.09 per vehicle-km to $0.86
per vehicle-km (21%).
Travel time from Boten to Houayxay
during the rainy season has been
reduced from 9 hours in 2004 (before
construction) to 3-1/2 hours in 2007
(after construction).

VOCs decreased as follows:


Motorcycles: 14.3%
Cars: 26.7%
Pick-ups: 35.1%
Small buses: 35.8%
Large buses: 38.8%
Light trucks: 33.0%
Medium-sized trucks: 29.6%
Large and/or t Tractor-trailer: 33.8%
Travel time from Houayxay to Boten
based on the travel time and delay
survey conducted by the IEM was
3.83 hours, still a substantial
reduction from the time taken before
the project in 2004.

Outputs:
1. Upgraded 74-kilometer (km)
section of Route 3 to a standard
consistent with its potential as a
major international link

Safe, all-weather overland route


from Yunnan Province, PRC to
Thailand meeting appropriate
road standards

The actual length of road improved


was 226.28 km, comprising 66.43 km
for the PRC section (from
Louangnamtha to Boten, 75.85 km
for the ADB section (from
Louangnamtha to Ban Sod), and 84.0
km for the Thailand section (from
Houayxay to Ban Sod).

The actual length of road improved


was 226.28 km, comprising 66.43
km for the PRC section (from
Louangnamtha to Boten), 75.85 km
for the ADB section (from
Louangnamtha to Ban Sod), and 84.0
km for the Thailand section (from
Houayxay to Ban Sod).
Rehabilitation of the Thailand section
was completed in 2012 after
substantial sections of the road failed
and were rehabilitated.

Appendix 1

Performance Indicators

2. Resettlement plan

Performance Indicators
Implementation of right-of-way
acquisition and resettlement plan

3. Social action plan

Implementation of the social


action plan

4. Environmental management
plan

Implementation of the
environmental management plan

Project Achievements
(as in PCR)
Resettlement plans were incorporated
into a total of 11 sections of road (5
in the Thailand section and 3 each in
the PRC and ADB sections).

The social action plan was


implemented as envisaged and
comprised of eight components,
namely (i) Primary Health Care, (ii)
Nonformal Education, (iii) Land
zoning and titling, (iv) income
restoration, (v) community rural
access roads, (vi) sater and sanitation,
(vii) community infrastructure, and
(viii) road safety awareness.
Environmental management was a
problem because neither the PRC nor
Thailand contractors followed the
environmental management plan.
The contractors did not fully comply
with the environmental covenants
until after an environmental
compliance review mission.

PPER Update
Resettlement plans were
incorporated into 11 road sections: 5
in the Thailand section and 3 each in
the PRC and ADB sections.

The social action plan comprising


eight components was implemented
as envisaged.

Environmental management was a


problem because neither the PRC nor
Thailand contractors followed the
environmental management plan.
The contractors did not fully comply
with the environmental covenants
until after an environmental
compliance review mission.

Design and Monitoring Framework

ADB = Asian Development Bank, PRC = Peoples Republic of China, GDP = gross domestic product, IEM = Independent Evaluation Mission, km = kilometer, Lao PDR = Lao
Peoples Democratic Republic, PCR = project completion report, PPER = project performance evaluation report, VOC = vehicle operating cost.
Sources: IEM; ADB. 2002. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Lao Peoples Democratic for the Greater Mekong
Subregion: Northern Economic Corridor Project. Manila; and ADB. 2010. Completion Report: Greater Mekong Subregion: Northern Economic Corridor Project in the Lao Peoples
Democratic Republic. Manila.

23

APPENDIX 2: PROJECT COSTS

Item
A. Base Cost
ADB section
1. Land acquisition
and resettlement
2. Civil works
3. Consulting services
4. Project
management
PRC Government section
1. Civil works
2. Consulting
services
Thailand Government
section
1. Civil works
2. Consulting
services
Subtotal
B. Contingencies
C. Taxes and Duties
D. Interest During
Construction
Total Cost
Additional Thailand Cost
Total

Foreign
Exchange
($)

Appraisal Estimate
Local
Currency
(KN)

Total

Foreign
Exchange
($)

Actual
Local
Currency
(KN)

Total

0.00

1.00

1.00

17.64
3.16
0.00

4.41
2.67
1.20

22.05
5.84
1.20

24.36
5.73

6.51
0.00

30.87
5.73

17.28
1.37

4.32
1.22

21.60
2.59

34.83
4.07

0.00
0.00

34.83
4.07

17.15
1.36

4.29
1.21

21.44
2.57

41.50
2.88

0.00
0.00

41.50
2.88

57.97
8.88
0.00
1.20

20.32
2.91
4.51
0.00

78.29
11.79
4.51
1.20

113.37

6.51

119.88

0.70

0.00

0.70

68.05

27.74

95.79

68.05

27.74

95.79

114.07
11.32
125.39

6.51
0.00
6.51

120.58
11.32a
131.90

ADB = Asian Development Bank, PRC = Peoples Republic of China.


a
An additional $8.5 million was estimated for the remedial works on the Thailand section. The Ministry of Public Works and
Transport indicated that the actual repair cost was $11.32 million.
Sources: Independent Evaluation Mission; and ADB. 2010. Completion Report: Greater Mekong Subregion: Northern Economic
Corridor Project in the Lao Peoples Democratic Republic. Manila.

APPENDIX 3: STATUS OF COMPLIANCE WITH LOAN COVENANTS


No.
1.

2.

3.

4.

5.

6.

7.

Covenants
The borrower shall cause the project to be carried
out with due diligence and efficiency and in
conformity with sound administrative, financial,
engineering, environmental, road construction,
and operations and maintenance practices.
The Borrower shall make available, promptly as
needed, the funds, facilities, services, land and
other resources in addition to the proceeds of the
loan, which are required for the carrying out of
the Project and for the operation and
maintenance of the Project facilities.
The Borrower shall ensure that the activities of its
departments and agencies with respect to the
carrying out of the Project and operation of the
Project facilities are conducted and coordinated
in accordance with sound administrative policies
and procedures.
The Borrower shall ensure that technical audits
are carried out on the Project road at quarterly
intervals. Within six months from the award of
civil works for construction of the Project road,
the Borrower shall have agreed with the Bank on
the schedule for the first such audit
MPWT shall ensure that the Project management
unit sets up institutional arrangements,
acceptable to the Bank, to approve the actual
design of all sections of the Project Road. Prior to
this Loan Agreements, the Borrower has assured
that the agreed institutional arrangements will be
set out in the PRC Loan Agreement and Thailand
Loan Agreement to ensure compliance. Approvals
of road design shall be governed by the
agreements reached on design standards and
criteria at the Kunming Quadripartite Meeting
held on 6-7 August 2002 and shall follow the
mitigation measures adopted in the SEIA. The
Borrower shall ensure that such arrangements
shall be an integral part of the loan documents
with Thailand and PRC.
The Borrower shall ensure that construction
standards shall be uniform for the entire Project
Road, and that the basic road cross section shall
be a two lane road with a 7 meter wide sealed
pavement and with sealed shoulders varying
between 1.5 to 2.5 meters on each side.
Within six month of the effective date, the
Borrower shall establish three weighing stations
and three forestry checkpoints on the Project
road with one in each of the three districts
through which the Project road passes.

Reference in Loan
Agreement
Article 4, Section 4.01

Status of Compliance
Complied with.

Section 4.02

Complied with.

Article 4, Section 4.04

Complied with.

Schedule 6, para. 8

(LA, Schedule 6, para. 9)

Partially complied with.


Audits for the Thailand
section are not yet
complete. Three audits for
the ADB section have
been completed. An audit
for PRC section was never
done.
Complied with.

Schedule 6, para. 10

Complied with.

Schedule 6, para. 19

Partially complied with.


Three mobile equipment
sets arrived on 1 June
2005; two were set up at
Louangnamtha and one in
Bokeo. They are operated
by the departments of
public works and

26

Appendix 3

No.

8.

1.

2.

3.

4.

5.
6.

7.

Covenants

Reference in Loan
Agreement

The Borrowers Department of Roads shall be


responsible for the operation and maintenance of
the Project road through the proper technical
supervision and adequate allocation of funds to
the Project road.
Environmental
The Borrower shall cause the provinces of Bokeo
and Louangnamtha within the Borrowers
territory to implement agreed policy measures to
address the environmental and social impacts of
the Project, including the establishment of
environmental and social units with adequate
staff resources.
The Borrower shall review and reduce the present
level of logging by about 30% in the next four
years in the Louangnamtha and Bokeo provinces.
The Borrower shall strictly monitor agreed
logging level and prepare reports, which shall be
published widely and provided to ADB.
The Borrower shall ensure that the approved SEIA
shall be implemented for the Project Road,
irrespective of the financing arrangement. The
Borrower shall ensure that its obligations for
environment management, resettlement,
implementing the SAP, and other social issues,
under this Loan Agreement are incorporated in
the Thailand and PRC Loan Agreements.
The Borrower shall ensure that the environmental
impacts of the Project are minimized through the
implementation of appropriate mitigating
measures in the SEIA. The Borrower shall ensure
that appropriate prohibitions are built into the
contracts with civil works contractors for the
sections financed by Thailand and PRC loans.

Schedule 6, para. 20

Status of Compliance
transport. MPWT
informed that forestry
checkpoints are an
integral part of the police
checkpoints in the area.
Complied with.

Schedule 6, para. 7

Complied with.

Schedule 6, para. 18

Not complied with. The


executing agency will
provide the information as
requested by the mission.

Schedule 6, para. 13

Not applicable.
Compliance is no longer
required following Board
approval of the Waiver of
Loan Effectiveness
Condition on 4 Feb 2004.

Schedule 6, para. 14

The Borrower shall establish a third party


monitoring system for assessing environmental
impacts by IUCN in partnership with ERI.
Within six months of the Effective Date, the
Borrower's Department of Roads shall strengthen
the capabilities of the Environment and Social
Division in social analysis, particularly to monitor
social impacts of road projects.
The Borrower shall provide additional staff
resources as agreed with the Bank to address
social development issues. The Borrower shall
also provide the necessary staff and other
resources for the proper and effective
functioning of the provincial offices of the
Borrower's Division of Communication, Transport

Schedule 6, para. 15

Partly complied with.


Although the PRC
contractor implemented
mitigating measures to
comply with the SEIA, the
contract amendment for
environmental
management did not
include an environmental
bond as required.
Complied with.

Schedule 6, para. 16

Complied with.

Schedule 6, para. 17

Complied with.

Status of Compliance with Loan Covenants

No.

1.

2.

3.

4.

5.

6.

7.

Covenants
Post and Communication within Louangnamtha
and Bokeo provinces in the Borrower's territory.
Social
The Borrower shall ensure that all affected people
are provided adequate information and regularly
consulted in advance of signing household
compensation agreements and making other
decisions that affect their livelihoods and living
conditions as a result of the Project.
The Borrower shall ensure that land acquisition
and resettlement activities are implemented in
accordance with all applicable laws and
regulations, and ADBs policy on Involuntary
Resettlement, as sent out in the agreed
Resettlement Plan and Resettlement
Implementation Plan.
The Borrower shall ensure that the civil works
contractors comply with all applicable labor laws,
do not employ child labor for construction and
maintenance activities, provide appropriate
facilities for children in construction campsites,
and conduct adequate number of information
and education campaigns at worksites on
sexually transmitted diseases and HIV/AIDS for
construction workers as part of the health and
safety program during the construction period.
The Borrower shall ensure that after the effective
date, the detailed design of the SAP in
undertaken using the participatory approach that
shall ensure 50% participation in decision-making
by women.
MPWT shall ensure that the road where
community infrastructure shall be constructed
are selected based on participatory process
involving the communities along the Project Road
and the provincial authorities, with the assistance
of the consultants engaged as part of the Project
coordination team. The Project coordination
team shall submit justification report to MPWT
and ADB.
MPWT shall ensure that the Project coordination
team selects the villages to benefit from the
water and sanitation schemes to be constructed
under the Project based on a participatory
process in accordance with the following criteria:
(a) The affected villages have agreed to
arrangements for community based
maintenance;
(b) Construction of the schemes shall not displace
or adversely affect villages or individual
homesteads or agricultural production areas, and
(c) Construction of the schemes shall not cause
environmental degradation.
The Borrower shall ensure that in any event that
any construction under SAP requires minor
displacement or resettlement of affected persons,
appropriate compensation shall be provided in
accordance with the Banks Policy on Involuntary

Reference in Loan
Agreement

Status of Compliance

Schedule 6, para. 24

Complied with.

Schedule 6, para. 23

Complied with.

Schedule 6, para. 25

Complied with.

Schedule 6, para. 27

Complied with.

Schedule 6, para. 28

Complied with.

Schedule 6, para. 30

Complied with.

Schedule 6, para. 31

Complied with.

27

28

Appendix 3

No.

1.

2.

1.

2.

3.

4.

5.

6.

Covenants
Resettlement and consistent with the
Resettlement Plan.
Financial
The Borrower shall enable ADB, upon ADBs
request, to discuss the Borrowers financial
statements for the Project and its financial affairs
related to the Project from time to time with the
Borrowers auditors, and shall authorize and
require any representative of such auditors to
participate in any such discussion requested by
ADB.
The Borrower shall ensure that (a) a part of the
road charges collected from the use of the
Project road is contributed to the Borrowers
Road Maintenance Fund; (b) the Project road
shall be made part of the Lao PDR national road
network; and (c) the Project road shall be
maintained to international standards utilizing
funds from the Road Maintenance Fund.
Others
Established, Staffed, and Operating PMU/PIU
MPWTs Department of Roads shall be
responsible for Project implementation and
overall coordination. (LA, Sched 6, para. 1)
The PMU which shall have been formed by the
Borrower for the Project prior to the Effective
date shall be headed by a Project manager
appointed on a full-time basis, who shall be
accountable to the Director General of MPWTs
Department of Roads.
Fielding of Consultants
This selection, engagement and services of the
consultants shall be subject to the provisions of
this Schedule and the provisions of the
Guidelines on the Use of Consultants by ADB
and Its Borrowers dated April 2002 as amended
from time to time, which have been furnished to
MPWT.
The terms of reference of the consultants shall be
determined by agreement between ADB, the
Borrower and MPWT. The terms of reference for
the construction supervision consultant shall
include responsibility for ensuring technical
audits of the construction work for the northern
and southern sections of the Project road on a
quarterly basis.
The Borrower shall furnish or cause MPWT to
furnish, to ADB quarterly reports on the carrying
of the Project and on the operation and
management of the Project facilities.
The Borrower shall cause the provincial level
divisions of transport of Louangnamtha and
Bokeo provinces provide suitable counterparts to
assist the Project management Unit.
The Borrower shall cooperate with the Bank in
the conduct of review missions, including the

Reference in Loan
Agreement

Status of Compliance

Article IV, Section 4.06 (c)

Complied with.

Schedule 6, para. 6

As the discussions
between countries have
not been finalized, tolls
could not be collected.

Schedule 6, para. 2

Complied with.

Schedule 5, para. 4

Complied with.

Schedule 5, para. 3

Complied with.

Schedule 4.07 (b)

Complied with.

Schedule 6, para. 4

Complied with.

Schedule 6, para. 32

Complied with.

Status of Compliance with Loan Covenants

No.

7.

8.

9.

10.

Covenants
inception mission to be fielded after the Effective
Date and the bi-annual retailed reviews of the
overall progress of the Project during the
implementation period. The Borrower agrees that
in the event the results of such reviews indicate
serious implementation problems, the Borrower
and the Bank will cooperatively formulate and
agree on appropriate mitigation measures,
including changes in scope of implementation
arrangements, to ensure that Project objectives
are met.
MPWT shall with the assistance of the Project
consultants establish systematic Project
performance monitoring and analysis throughout
the implementation period in accordance with
the Banks Project Performance Management
System Handbook.
Promptly after physical completion of the Project,
but in any event not later than three months
thereafter, the Borrower shall prepare and furnish
to ADB a report in such form and in such details
as ADB shall reasonably request, on the execution
and initial operation of the Project, its costs, the
performance by the Borrower of its obligations
under this Loan agreement and the
accomplishment of the purposes of the Loan.
Without limiting to the generality of para 14 of
Sch. 6 to this Loan Agreement, the Borrower shall
ensure that all bidding documents for civil works
contracts and all civil works contracts for all
sections of the Project road
a) have the SEIA included as an attachment
b) include appropriate clauses to ensure that
environmental mitigation measures are
implemented during constructions;
c) include provision of an environmental security
bond in the form of a bank guarantee of at least
$500,000 to be held by the Borrower during the
entire construction period; and
d) clearly set out the penalties to be incurred by
the contractors for violations of environmental
standards.
If any substantial amendment of the consultants
contract is proposed after its execution, the
proposed changes shall be submitted to the Bank
for prior approval.

Reference in Loan
Agreement

Status of Compliance

Complied with.

Section. 4.07 (c)

Complied with.

Schedule 4, para. 12

Partially complied with.


The PRC contract did not
include the requirement
for an environmental
bond.

Schedule 5, para. 5(e) and


para. 7(c)

Complied with.

ADB = Asian Development Bank, PRC = Peoples Republic of China, ERI = Environment Research Institute, HIV/AIDS = human
immunodeficiency virus infection and acquired immune deficiency syndrome, IUCN = International Union for Conservation of
Nature, MPWT = Ministry of Public Works and Transport, PIU = project implementation unit, PMU = project management unit,
SAP = social action plan, SEIA = summary environmental impact assessment.
Source: ADB. 2010. Completion Report: Greater Mekong Subregion: Northern Economic Corridor Project in the Lao Peoples
Democratic Republic. Manila.

29

APPENDIX 4: ECONOMIC ANALYSIS


A.

Introduction

1.
The reevaluation of the economic analysis for the project performance evaluation report (PPER)
uses an approach similar to that used at appraisal and for the project completion report (PCR). The
analysis was conducted for the Lao Peoples Democratic Republic (Lao PDR) alone as well as for the
subregion, comprising the economies of the Lao PDR, Peoples Republic of China (PRC), and Thailand.
Updated information from the field was used to modify the assumptions made at appraisal and at
project completion. Reductions in vehicle operating cost (VOC) and travel time for passenger and
freight vehicles using the project road were considered as project benefits and were assessed by
comparing the with- and without-project scenarios. The analysis, however, excluded travel time savings
of river traffic diverted to the project road due to the unavailability of required data. The evaluation
considered the entire 226.28 km of the project road from Houayxay to Boten.

B.

Methodology and Assumptions

2.
The PPER uses the updated Highway Development and Management Model (HDM 4.2) to
estimate the savings from VOC and travel time.1 The impedance factors or the delta L method used
by the feasibility study was questioned during project appraisal since this method was no longer
popular at that time and had been replaced by the (HDM-3/HDM-4) software. The PCR employed HDM4 to estimate VOC savings for normal and generated passenger and freight traffic. This report makes no
distinction between normal and generated traffic since available traffic counts implicitly included all
traffic types, inclusive of diverted traffic. Transit traffic between the PRC and Thailand was estimated
using the results of the origin-destination survey conducted by the Independent Evaluation Mission
(IEM) at km 76 Junction NR3, Namtha City, at Ban Namtha, Vieng Phoukha District, Louangnamtha
Province on the ADB-funded section of the project. A 20-year time horizon was used for the analysis
and for the PCR.
3.
For the Lao PDR analysis, the benefit streams comprised savings in VOC and travel time for Lao
PDR-based vehicles. Road user charges or toll collections from transit traffic between the PRC and
Thailand were not yet in place and hence not included in the analysis. The Ministry of Public Works and
Transport (MPWT) informed the IEM of the absence of any agreement on tolls. The analysis however
includes travel time savings as an added project benefit for road users, which was not the case in the
PCR.
4.
For the subregion analysis, VOC savings and time savings from diverted river traffic were the
assumed benefits at both appraisal and for the PCR. The VOC savings were forecast to be generated by
all vehicles using the project road, while time savings were assumed to be generated from the diversion
of river freight traffic to the project road. Alternative trip costs were estimated to determine the
amount of savings accruing to freight operators in the PRC and Thailand. These savings, net of ferry
costs and road charges, provided the major savings for regional traffic. For passenger traffic, VOC
savings were used as a proxy for with- and without-project cases. The imputed savings were small
compared with the actual potential benefits in terms of travel time and actual costs incurred if they
continued to use other modes of travel or take journeys on the existing road. In addition, benefits
included savings in inventory costs as a result of savings in time, given that the trip on the Mekong
River between the PRC and Thailand took 5 days in 2002. Inventory cost savings of $2/ton were
estimated for users of the project road. However, other than a discussion on the benefits from diverted
traffic, the appraisal and the PCR do not provide any other information on how the diverted benefits
1

World Bank. 2010. HDM-4 Road Use Costs Model Version 2.00. Washington DC. Designed to calculate unit road user costs
adopting the Highway Development and Management Model (HDM-4) Version 2 relationships for speeds, travel times, VOC,
and emissions.

Economic Analysis
were estimated. The IEM exerted every effort to acquire a copy of the feasibility study but it was not
available. The IEM considered diverted traffic savings only implicitly in the analysis through the travel
time savings for current transit traffic on the project road. The IEM estimated the volume of transit
traffic using the origin-destination survey results. However, diverted or generated traffic could not be
identified.
5.
During the IEM field investigation, Thai freight trucks were observed to either transfer their
cargo to Lao trucks at the Houayxay, Bokeo border crossing or travel to Boten, Louangnamtha to
transfer their cargo into PRC trucks. While there is through freight traffic between Thailand and the PRC
via the Lao PDR, it was not the seamless land bridge arrangement envisioned. The double or triple
handling of cargo at the two border crossings is a costly arrangement since it substantially lessens
travel time benefits for moving freight through the project road. The PRC and Thailand trucks cannot
enter each others country, given their incompatibility with each others roads.
6.
Numerous truck accidents were said to have occurred on the project road as the PRC and
Thailand truck drivers are not used to the narrower project road. The other reason for accidents was
that Thailand trucks are designed for left-hand driving and Thailand drivers are not used to driving on
the left side of the road. IEMs origin-destination survey showed a large number of Lao PDR, not
Thailand or PRC trucks, travelling between the two border stations, ferrying cargo between Houayxay
and Boten. These were considered as transit traffic and included only in the subregion analysis.

C.

Economic Costs

7.
Construction costs. At appraisal, the economic construction costs were derived from the
estimated financial costs of civil works and consulting services. The PCR uses the actual financial civil
works and consulting services costs. It converted the financial costs net of taxes and duties into
economic costs by applying the standard conversion factor of 0.90 to the nontraded benefit and cost
components. The appraisal project cost estimate uses a standard conversion factor of 0.80 for the
nontraded benefit and cost components. In addition to adopting the project costs as used in the PCR,
this analysis includes the repair costs for the Thailand-funded road section in the project costs.
8.
Approximately 50 km of the Thailand project road section needed major repair work prior to
turnover. The PCR estimates the cost of these repairs at $8.50 million, which was added to the overall
construction costs, with completion estimated by October 2011. MPWT informed the IEM that the
actual repair cost was $11.32 million at 2009 prices and was completed in 2012. The actual total
project financial cost at the time of the IEM was $131.90 million as compared with the PCR estimate of
$129.08 million (Table A4.1).
Table A4.1: Actual Project Financial Cost Foreign and Local
($ million)
Cost
ADB
PRC
Thailand
Lao PDR
Additional repair works (Thailand)
Interest during construction
TOTAL

Appraisal
30.00
30.00
28.50
7.29
95.79

PCR
33.40
38.90
44.38
3.20
8.50
0.70
129.08

IEM
33.40
38.90
44.38
3.20
11.32
0.70
131.90

ADB = Asian Development Bank, PRC = Peoples Republic of China, IEM = Independent
Evaluation Mission, Lao PDR = Lao Peoples Democratic Republic, PCR = project completion
report.
Sources: Independent Evaluation Mission; and ADB. 2010. Completion Report: Greater

Mekong Subregion: Northern Economic Corridor Project in the Lao Peoples Democratic
Republic. Manila.

31

32

Appendix 4
9.
Maintenance costs. The PCR calculates the incremental maintenance costs (routine and
periodic) as the difference between the with- and without-project maintenance costs at 2009 prices. It
estimated these costs in line with MPWTs standard practice. For the without-project case, essential
maintenance would require major periodic maintenance (e.g., graveling) every 10 years at about
$10,000/km in addition to annual routine maintenance. In the with-project case, both routine and
periodic maintenance are undertaken, with periodic maintenance of the project road requiring resealing
with a single bituminous layer every 10 years. The routine and periodic maintenance costs for the withand without-project scenarios used in this analysis are the same as those obtained from MPWT for the
PCR (Table A4.2).
Table A4.2: Road Maintenance Costs
($/kilometer)
Item
Routine maintenance (yearly)
Periodic maintenance (every 10 years)

With the Project


300
16,000

Without the Project


250
10,000

Source: Government of the Lao Peoples Democratic Republic, Ministry of Public Works and
Transport.

D.

Economic Benefits

10.
Traffic forecasts. The IEM collected available traffic-count data for the project road sections
from MPWTs Public Works and Transport Institute (PWTI). The traffic data were for 2001, 2004, 2008,
and 2013; although most project road sections did not have complete traffic counts for these years.
The data collected for 2008 by the PCR was different from that obtained by the IEM; PWTI
representatives had no explanation for the difference between the PCR and current data provided.
Table A4.3 shows the traffic estimated in the 2002 feasibility study and the projections made at
appraisal to compare with actual traffic counts. The PCR undertook a traffic count in 2010 at one of
these locations. Traffic growth at appraisal was forecast to grow 5%10% annually for passenger and
freight traffic, varying by the type of traffic, i.e., normal, generated, and diverted.2 While the estimated
aggregate traffic growth seemed substantially high, the lower traffic base could account for the higher
traffic growth estimates.
11.
The forecast made at appraisal, the actual total traffic estimated for the PCR, and the estimates
obtained by the IEM are not comparable. No explanation was given for how appraisal and PCR traffic
estimates were calculated and if these were converted to passenger car unit equivalents. While the
appraisal gave 2002 traffic data on a per vehicle type, the same was not done by the PCR.
Table A4.3: Average Daily Traffic in Passenger Car Units
(vehicles, excluding motorcycles and pedal cycles)
Traffic Count
Location
River-Houayxay
Houayxay-VPK
VPK-LN
LN-Natuay
Natuay-Boten

Traffic
Survey1
2002
439
260
41
89
76

Forecast1
2006
2007
979
1,043
548
577
238
259
328
355
311
338

Actuala
2007
2008
1,743
1,716
564
664
400
367
502
564
401
439

PCRb
2010

Actualc
2008 2013
61
89
133

278
366
290

IEMd
2014
616

407

IEM = Independent Evaluation Mission, LN - Louangnamtha, PCR = project completion report, VPK = Vieng Phoukha.
Sources: a Project Benefit Monitoring and Evaluation Report, Ministry of Public Works and Transport.
b
Project Completion Review Mission counts.
c
Public Works and Transport Institute, 2014.
d
IEM traffic counts.
2

Normal traffic: traffic without any new investment; generated traffic: traffic associated with existing users of the road driving
more frequently or driving further than before; diverted traffic: traffic that diverts to the project road from an alternative road
with the same origin and destination as the project. World Bank. 2006. Roads Economic Decision Model. Washington, DC.

Economic Analysis

33

12.
The IEM was not able to determine the reason for the differences between actual traffic data
collected for the PCR and the traffic data provided to the IEM. Considering the road conditions prior to
implementation of the project, it was unlikely that average daily traffic would reach the forecast level,
especially during project construction. However, if the PWTI traffic count results for 2008 are compared
with those in 2013, the computed traffic growth rate per vehicle type was high and exceeded forecast
growth rates for light, medium-sized, and heavy and/or articulated trucks for the ADB and PRC sections.
For the Thailand-funded section, light and medium-sized truck traffic growth rates were lower than
forecast. The IEM analysis assumed the 20082013 growth rates to include normal, generated, and
diverted traffic on the project road. Bus traffic was observed to have declined during the construction
period. Table A4.4 shows the 20082013 traffic growth rates per vehicle type based on actual PWTI
traffic counts.
Table A4.4: Actual Traffic Counts for 2008 and 2013 and Traffic Growth Rates by Road Section
Road Section
Houayxay-VPK
Traffic count

Year/
Growth
Rate

Motorcycle

Car

Pick-up

Small
Bus

Large
Bus

Light
Truck

MediumSized
Truck

Heavy/
Articulated
Truck

2008
2013
Actual
Forecast
Difference

21
129
43.8%

10
39
31.3%
10.0%
21.3%

20.00
45.00
17.6%
10.0%
7.6%

10
27
22.0%
24.0%
(2.0%)

4
9
17.6%
30.0%
(12.4%)

10
24
19.1%
20.0%
(0.9%)

4
8
14.9%
20.0%
(5.1%)

3
126
111.2%
30.0%
81.2%

2008
2013
Traffic growth
Actual
20082013
Forecast
Difference
Louangnamtha-Boten
Traffic count
2008
2013
Traffic growth
Actual
20082013
Forecast
Difference

63
426
49.8%

6
67
62.0%
10.0%
52.0%

29.00
103.00
26.5%
10.0%
16.5%

17
43
15.5%
24.0%
(8.5%)

4
6
17.6%
30.0%
(12.4%)

14
45
39.9%
20.0%
19.9%

6
20
73.7%
20.0%
53.7%

13
82
48.2%
30.0%
18.2%

138
340
25.3%

26
55
20.8%
10.0%
10.8%

43.00
86.00
19.1%
10.0%
9.1%

31
40
6.8%
24.0%
(17.2%)

7
6
(3.0%)
30.0%
(33.0%)

12
35
30.3%
20.0%
10.3%

5
15
32.0%
20.0%
12.0%

9
53
55.6%
30.0%
25.6%

Traffic growth
20082013
VPK-Louangnamtha
Traffic count

( ) = negative value, VPK = Vieng Phoukha.


Note: Forecast refers to forecast growth rate used at appraisal. The numbers without a % symbol indicate traffic counts.
Source: Public Works and Transport Institute, Ministry of Public Works and Transport and Independent Evaluation Mission estimates

13.
The PCR followed the same methodology as at appraisal identify traffic types as normal traffic,
generated traffic, and land-bridge traffic. However, as stated earlier, how this was computed is unclear.
This economic reevaluation uses the PWTI 2008 and 2013 traffic count data including motorcycles in
the calculation of benefits.
14.
Increased traffic growth may be partly due to increasing vehicle ownership in Bokeo and
Louangnamtha provinces (Table A4.5). Vehicle registration statistics indicate an increase of around 55%
for motorcycles as well for all vehicles during 20102013.

34

Appendix 4
Table A4.5 Vehicle Registration Statistics (20102013)
Item
All vehicles (no.)
Motorcycles
Tricycles
Cars
Pick-ups
Vans
Jeeps
Trucks
Buses

2010
20,704
17,868
107
117
2,047
215
94
191
65

Bokeo Province
2011
2012
24,512
28,019
21,185
24,162
109
114
141
193
2,404
2,799
240
269
117
133
242
266
74
83

2013
32,164
27,759
119
232
3,189
286
163
307
109

Louangnamtha Province
2010
2011
2012
2013
17,249
20,608
23,274
25,988
14,447
17,434
19,776
22,220
18
20
21
21
224
256
280
305
1,580
1,804
2,005
2,158
388
449
497
536
185
199
208
224
317
351
389
423
90
95
98
101

no. = number.
Note: The plate numbers classified as diplomatic envoys, foreign guests, United Nations Development Programme,
financial institutions, and temporary use are excluded.
Source: Government of the Lao Peoples Democratic Republic, Ministry of Public Works and Transport, Department of
Transport.

15.
Total traffic counts were used for the subregional economic reevaluation. However, for the Lao
PDR economic analysis, transit traffic was excluded from the total. The share of transit traffic was
estimated based on the origin-destination survey conducted by the IEM (Table A4.6).
Table A4.6 Share of Transit Traffic in Total (2014)
Total
Traffic
22
13
41
19
10

Item
Light Trucks
Medium Trucks
Heavy and/or Articulated Trucks
Light Buses
Heavy Buses

Transit
Traffic
3
8
34
8
4

Transit Traffic
(% of total)
13.6
61.5
82.9
42.1
40.0

Source: Independent Evaluation Mission estimates based on the origin-destination survey.

16.
The traffic growth rates used in this analysis are the same as those utilized at appraisal and in
the PCR. Since the IEM used the 2008 PWTI traffic count results, the results should be more
conservative even though the growth rates seem very high. The traffic growth rates adapted are shown
in Table A4.7.
Table A4.7: Annual Traffic Growth Rates by Vehicle and Traffic Type (%)
Item
18-wheel Articulated Trucks
10-wheel Heavy Trucks
6-wheel Medium-Sized Trucks
Light Trucks
Buses (45-seater)
Buses (25-seater)
Pick-ups
Cars
Motorcycles

Normal
10
10
5
10
7
5
5

At Appraisal
Generated
10
10
5
10
7
5
5

Land Bridge
10a
10a
10a
10a

IEM
20
20
20
20
14
10
10
20

Growth for the initial few years of operation, which slowed to 7% after 2013 (i.e., after 5 years of
operation).
Source: Independent Evaluation Mission estimates.

17.
Vehicle operating cost savings. The IEM updated economic VOCs by collecting data from local
petrol stations, tire distributors, car and truck dealers, vehicle repair shops, and other sources. It
converted this financial cost data into economic costs by excluding taxes and duties. It calculated these
costs for eight representative vehicle types as compared with six used at appraisal and seven used for

Economic Analysis
the PCR. Cars, which were not considered at appraisal, were included for the PCR and by the IEM. The
IEM also included motorcycles, which are excluded in the PCR and at appraisal. It also included light
trucks, grouping them together with heavy and articulated trucks. The rate of road deterioration used
in the economic analysis is based on the international roughness index (IRI) before the project was
implemented (i.e., the without-project case) and the IRI after project completion (the with-project
case). The road roughness before improvement of the road is rated IRI 8. After undertaking the road
improvements the road ride quality was rated IRI 2. These IRIs were used in calculating VOC and travel
time benefits due to the road improvement.

E.

Economic Internal Rate of Return

18.
The economic internal rate of return (EIRR) for the Lao PDR is reestimated to be 6.9% (Table
A4.8). This is lower than the EIRR of 7.4% estimated for the PCR and 12.8% computed at appraisal. The
appraisal estimate is higher because of the inclusion of user charges in the form of vehicle tolls from
transit vehicle traffic collected at the border station. Since its operation from 2008, the anticipated toll
collections have not been implemented due to the lack of agreement among ASEAN member countries
and absence of a bilateral agreement with the PRC. Tolls on nontransit traffic cannot be included as an
economic benefit since this would amount to double counting of benefits. The project benefits could
be either savings in VOC and travel time for road users, or road tolls representing users willingness to
pay, but not both. In the economic analysis from the point of view of the Lao PDR, the VOC and travel
time savings for Lao PDR vehicles and road tolls for transit traffic between the PRC and Thai borders are
valid project benefits. However, in the economic reevaluation for the Lao PDR, road tolls on transit
traffic were not included as they were not implemented (Table A4.8). The EIRR for the subregion (the
PRC, the Lao PDR, and Thailand) is estimated to be 12.8%, which is lower than the 14.6% estimated for
the PCR and the appraisal estimate of 27.0% (Table A4.9). The differences in EIRRs calculated by the
IEM and those for the PCR are due to (i) revised economic costs derived from actual costs, (ii) longer
construction periods caused by delays in implementation, (iii) lower 2008 base traffic than at the PCR
and appraisal, and (iv) inclusion of travel time savings for the IEM computation.

F.

Sensitivity Analysis

19.
In the economic reevaluation for the PPER, project costs are the actual investment costs already
incurred (plus maintenance costs). Project benefits however depend on expected traffic growth, which
remains uncertain. Continued periodic collection of classified vehicle counts would be required to
determine if the traffic forecasts are met. Table A4.10 gives the sensitivity of the economic analysis to
the assumptions on traffic growth. The EIRR for the Lao PDR continues to be below 12% even with a
10% increase in project benefits. In fact, benefits would need to be doubled to raise the EIRR above
12%. The economic viability for the subregion is sensitive to the traffic projections. A 10% decrease in
project benefits reduces the EIRR for the region to less than 12% (11.4%).

G.

Distributional Analysis

20.
Ensuring a fair distribution of benefits and costs across participating countries is important for
the success of regional projects. The project road, though located entirely in the Lao PDR, has a
substantial impact on neighboring countries, the PRC and Thailand, fostering cross-border trade and
regional integration. This is why the PRC and Thailand financed sections of the road on concessional
terms. As per the report and recommendation of the President for the project, the terms of the bilateral
loans were more concessional than those of ADB. The Government of Thailand provided 30-year
maturity funds, including a 10-year grace period and a 1.5% interest charge. About 10% of the
principal is interest free, thus reducing the effective interest rate on the loan. The PRC agreed to
provide an interest-free loan of $30 million with a 20-year maturity, including a 10-year grace period.
This financing included a grant element of about 20% of the principal.

35

36

Appendix 4

21.
To assess the distributional effects across the countries, the net economic benefits from the
project are estimated from the viewpoint of the borrowing country, the Lao PDR, and the lending
countries, the PRC and Thailand. The origin-destination survey conducted for the PPER estimated the
proportion of transit traffic between the border posts with the PRC and Thailand.
22.
The concessional nature of the loans from the PRC and Thailand implies that the net present
value of these loans will be less than the corresponding nominal values of the loans. This is because the
net present value of the loan is defined as the discounted sum of the debt service payments (principal
plus interest) where the discount rate is the market rate of interest, which is higher than the interest
rate of the concessional loan. The grant value of a concessional loan can be taken as the difference
between the nominal value of the loan and the net present value (NPV) of the loan. Usually this grant
value is assumed to be 30% of the nominal value of the loan. Table A4.11 gives the details of the NPV
calculation of project benefits for the PRC where the capital costs are assumed to be equal to the grant
value of the loan (i.e., 30% of nominal value of the loan), and VOC and time savings benefits are
assumed to be 50% of the benefits from transit traffic (the other 50% of the benefits go to Thailand).
The PRC does not incur any maintenance costs. Similar calculations for Thailand are given in Table
A4.12. The calculations for the Lao PDR are given in Table A4.13. In the case of the Lao PDR, the capital
costs are reduced by the amount of grant value provided by the concessional loans from the PRC and
Thailand.
23.
The NPVs and the EIRRs for the three countries under different scenarios are given in Table
A4.14. Even with a 30% grant element, the NPV at a 12% discount rate is negative for the Lao PDR. The
NPVs are positive for the PRC and Thailand. The EIRR calculated for the Lao PDR is 8.7%,, for the PRC
74.3%, and for Thailand 40.4%. The grant element must be 70% to make the Lao PDRs NPV positive.
Even when the financing is assumed to be 100% grants, the EIRR for the PRC is 38% and Thailand 21%.
Table A4.8: Recomputed EIRR for Lao PDR Traffic
($ million)
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027

Capital
Cost
1.09
22.48
27.24
40.78
6.01
9.31
3.4
3.4
3.4

Maintenance
Cost

0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.85
0.01
0.01
0.01
0.01
0.01
0.52
0.01
0.01
0.01
0.01

Costs and Benefits


Total
VOC
Travel Time
Cost
Savings
Savings
1.09
22.48
27.24
40.78
6.02
1.10
0.31
9.32
1.32
0.36
3.41
1.62
0.43
3.41
2.03
0.52
3.41
2.59
0.64
0.01
4.58
0.79
0.01
5.25
0.91
0.01
6.02
1.05
0.01
6.92
1.21
0.85
7.97
1.39
0.01
9.18
1.61
0.01
10.61
1.86
0.01
12.27
2.16
0.01
14.21
2.51
0.01
16.48
2.91
0.52
19.15
3.38
0.01
22.27
3.94
0.01
25.95
4.60
0.01
30.27
5.37
0.01
35.36
6.27

Total
Benefits
0
0
0
0
1.41
1.69
2.06
2.55
3.23
5.37
6.16
7.07
8.13
9.36
10.80
12.47
14.43
16.71
19.39
22.53
26.21
30.54
35.64
41.63

Net
Benefits
(1.09)
(22.48)
(27.24)
(40.78)
(4.61)
(7.63)
(1.35)
(0.86)
(0.18)
5.36
6.15
7.06
8.12
8.51
10.79
12.46
14.42
16.70
19.38
22.01
26.20
30.53
35.63
41.62

Economic Analysis

Year
2028
EIRR

Capital
Cost

Maintenance
Cost
0.01

Costs and Benefits


Total
VOC
Travel Time
Cost
Savings
Savings
0.01
41.36
7.34

Total
Benefits
48.70

Net
Benefits
48.69
6.85%

( ) = negative value, EIRR = economic internal rate of return, Lao PDR = Lao Peoples Democratic Republic, VOC = vehicle
operating cost.
Source: Independent Evaluation Department estimates.

Table A4.9: Recomputed EIRR for the Subregion (PRC, Lao PDR, Thailand)
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
EIRR

Capital
Cost
1.09
22.48
27.24
40.78
6.01
9.31
3.4
3.4
3.4

Maintenance
Cost

0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.85
0.01
0.01
0.01
0.01
0.01
0.52
0.01
0.01
0.01
0.01
0.01

Costs and Benefits ($ million)


Total
VOC
Travel Time
Cost
Savings
Savings
1.09
22.48
27.24
40.78
6.02
1.46
0.33
9.32
1.84
0.39
3.41
2.39
0.47
3.41
3.17
0.57
3.41
4.31
0.69
0.01
8.90
0.87
0.01
10.48
1.00
0.01
12.36
1.16
0.01
14.59
1.35
0.85
17.23
1.57
0.01
20.37
1.83
0.01
24.11
2.14
0.01
28.56
2.50
0.01
33.85
2.93
0.01
40.16
3.44
0.52
47.68
4.05
0.01
56.63
4.78
0.01
67.32
5.64
0.01
80.07
6.67
0.01
95.28
7.91
0.01
113.44
9.39

Total
Benefits
0
0
0
0
1.79
2.24
2.86
3.74
5.00
9.77
11.48
13.52
15.93
18.80
22.20
26.25
31.06
36.79
43.60
51.73
61.41
72.96
86.74
103.19
122.84

Net
Benefits
(1.09)
(22.48)
(27.24)
(40.78)
(4.23)
(7.08)
(0.55)
0.33
1.59
9.76
11.47
13.51
15.92
17.95
22.19
26.24
31.05
36.78
43.59
51.21
61.40
72.95
86.73
103.18
37.39
12.76%

( ) = negative value, PRC = Peoples Republic of China, EIRR = economic internal rate of return, Lao PDR = Lao Peoples
Democratic Republic, VOC = vehicle operating cost.
Source: Independent Evaluation Department estimates.

Table A4.10: Sensitivity of EIRR to Project Benefits


EIRR
Item
Original estimates
10% increase in project benefits
10% decrease in project benefits
100% increase in project benefits

Lao PDR
6.85%
7.56%
6.09%
12.34%

Subregion
12.76%
13.54%
11.92%
18.84%

EIRR = economic internal rate of return, Lao PDR = Lao Peoples Democratic Republic
Source: Independent Evaluation Department estimates.

37

38

Appendix 4
Table A4.11: EIRR and NPV for the PRC
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
EIRR
NPV

Capital
Cost
0.1089
2.2479
2.724
4.0779
0.6009
0.9309

Costs and Benefits ($ million)


Total
VOC
Travel Time
Costs
Savings
Savings
0.1089
0
0
2.2479
0
0
2.724
0
0
4.0779
0
0
0.6009
0.18
0.01
0.9309
0.26
0.015
0.385
0.02
0.57
0.025
0.86
0.025
2.16
0.04
2.615
0.045
3.17
0.055
3.835
0.07
4.63
0.09
5.595
0.11
6.75
0.14
8.145
0.17
9.82
0.21
11.84
0.265
14.265
0.335
17.18
0.42
20.685
0.52
24.9
0.65
29.96
0.82
36.04
1.025

Maintenance
Cost

Total
Benefits
0
0
0
0
0.19
0.275
0.405
0.595
0.885
2.2
2.66
3.225
3.905
4.72
5.705
6.89
8.315
10.03
12.105
14.6
17.6
21.205
25.55
30.78
37.06

Net
Benefits
(0.1089)
(2.2479)
(2.724)
(4.0779)
(0.4109)
(0.6559)
0.405
0.595
0.885
2.2
2.66
3.225
3.905
4.72
5.705
6.89
8.315
10.03
12.105
14.6
17.6
21.205
25.55
30.78
37.06
74.30%
33.70

( ) = negative value, PRC = Peoples Republic of China, EIRR = economic internal rate of return, NPV = net present value.
Note: Capital cost is assumed to be equal to the grant value of the concessional loan provided to the Lao Peoples Democratic
Republic. The grant element is assumed to be 30% of the loan value.
Source: Independent Evaluation Department estimates.

Table A4.12. EIRR and NPV for Thailand


Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Capital
Cost
0.1089
2.2479
2.724
4.0779
1.2021
1.8621
1.02
1.02
1.02

Maintenance
Cost

Costs and Benefits ($ million)


Total
VOC
Travel Time
Costs
Savings
Savings
0.1089
0
0
2.2479
0
0
2.724
0
0
4.0779
0
0
1.2021
0.18
0.01
1.8621
0.26
0.015
1.02
0.385
0.02
1.02
0.57
0.025
1.02
0.86
0.025
2.16
0.04
2.615
0.045
3.17
0.055
3.835
0.07
4.63
0.09
5.595
0.11
6.75
0.14
8.145
0.17
9.82
0.21
11.84
0.265

Total
Benefits
0
0
0
0
0.19
0.275
0.405
0.595
0.885
2.2
2.66
3.225
3.905
4.72
5.705
6.89
8.315
10.03
12.105

Net
Benefits
(0.1089)
(2.2479)
(2.724)
(4.0779)
(1.0121)
(1.5871)
(0.615)
(0.425)
(0.135)
2.2
2.66
3.225
3.905
4.72
5.705
6.89
8.315
10.03
12.105

Economic Analysis

Year
2023
2024
2025
2026
2027
2028
EIRR
NPV

Capital
Cost

Maintenance
Cost

Costs and Benefits ($ million)


Total
VOC
Travel Time
Costs
Savings
Savings
14.265
0.335
17.18
0.42
20.685
0.52
24.9
0.65
29.96
0.82
36.04
1.025

Total
Benefits
14.6
17.6
21.205
25.55
30.78
37.06

Net
Benefits
14.6
17.6
21.205
25.55
30.78
37.06
40.37%
30.46

( ) = negative value, EIRR = economic internal rate of return, NPV = net present value, VOC = vehicle operating cost.
Note: Capital cost is assumed to be equal to the grant value of the concessional loan provided to the Lao Peoples Democratic
Republic. The grant element is assumed to be 30% of the loan value.
Source: Independent Evaluation Department estimates.

Table A4.13. EIRR and NPV for the Lao PDR


Item
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
EIRR
NPV

Capital
Cost
0.8722
17.9842
21.792
32.6242
4.207
6.517
2.38
2.38
2.38

Maintenance
Cost

0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.85
0.01
0.01
0.01
0.01
0.01
0.52
0.01
0.01
0.01
0.01
0.01

Costs and Benefits ($ million)


Total
VOC
Travel Time
Cost
Savings
Savings
0.8722
0
0
17.9842
0
0
21.792
0
0
32.6242
0
0
4.217
1.1
0.31
6.527
1.32
0.36
2.39
1.62
0.43
2.39
2.03
0.52
2.39
2.59
0.64
0.01
4.58
0.79
0.01
5.25
0.91
0.01
6.02
1.05
0.01
6.92
1.21
0.85
7.97
1.39
0.01
9.18
1.61
0.01
10.61
1.86
0.01
12.27
2.16
0.01
14.21
2.51
0.01
16.48
2.91
0.52
19.15
3.38
0.01
22.27
3.94
0.01
25.95
4.6
0.01
30.27
5.37
0.01
35.36
6.27
0.01
41.36
7.34

Total
Benefits
0
0
0
0
1.41
1.68
2.05
2.55
3.23
5.37
6.16
7.07
8.13
9.36
10.79
12.47
14.43
16.72
19.39
22.53
26.21
30.55
35.64
41.63
48.70

Net
Benefits
(0.8722)
(17.9842)
(21.792)
(32.6242)
(2.807)
(4.847)
(0.34)
0.16
0.84
5.36
6.15
7.06
8.12
8.51
10.78
12.46
14.42
16.71
19.38
22.01
26.2
30.54
35.63
41.62
48.69
8.69%
(20.30)

( ) = negative value, EIRR = economic internal rate of return, Lao PDR = Lao Peoples Democratic Republic, NPV = net present
value, VOC = vehicle operating cost.
Note: Capital cost is net of the grant value of the concessional loans provided by the Peoples Republic of China and Thailand. The
grant element is assumed to be 30% of the loan value.
Source: Independent Evaluation Department estimates.

39

40

Appendix 4
Table A4.14: Distribution of Project Benefits across Countries (various scenarios)
Item
30% grant element
70% grant element
100% grant element

PRC
EIRR
NPV
(%)
($ million)
74.3
33.70
45.16
31.99
37.73
30.71

Thailand
EIRR
NPV
(%)
($ million)
40.37
30.45
25.54
24.45
20.93
19.94

Lao PDR
EIRR
NPV
(%)
($ million)
8.69
(20.30)
12.37
1.74
17.41
18.25

( ) = negative value, PRC = Peoples Republic of China, EIRR = economic internal rate of return, Lao PDR = Lao
Peoples Democratic Republic, NPV = net present value.
Source: Independent Evaluation Department estimates.

APPENDIX 5: SOCIOECONOMIC IMPACT


A.

Introduction

1.
The impacts of the project road on the social economic well-being of households in the project
influence area were assessed. The impact assessment is based on a socioeconomic survey of households
and focus group discussions (FGDs) with communities in the project area. The household surveys and
FGDs were conducted during 31 March13 April 2014 in cooperation with the Provincial Statistics
Division, Department of Planning and Investment of Louangnamtha Province and the International
Cooperation Division, Department of Planning and Investment of Bokeo Province.
2.
Project location and affected area. The 226.28 kilometer (km) project road (R3) in the Lao
Peoples Democratic Republic (Lao PDR) connects the Mekong River in Houayxay District, Bokeo
Province at the border with Thailand with Boten village in Namtha District, Louangnamtha Province at
the border with the Peoples Republic of China (PRC). The project influence area comprises about 122
villages, of which 52 are in Houayxay District, 32 in Vieng Phoukha District, and 38 in Namtha District,
Louangnamtha Province. The villages are inhabited by about 13 ethnic minority groups, either mixed or
as a single ethnic grouping.
3.
Household surveys. The sample villages were selected based on the list of project-affected
villages in the social action plan. They are located within the road corridor, within 1 km on either side
of the road, and comprised single or multiple ethnic groupings. The sample households were selected
based on the village chief observation of the populations wealth ranking. Ten or 11 households were
selected per village for interviews: 3 poor, 4 medium, and 34 well-to-do households.
4.
Focus group discussions. The FGDs were conducted in 9 villages, 3 each from the Namtha and
Vieng Phoukha districts and 3 from Houayxay District. FGD participants included the village chief,
village womens union representative, village elders, and village youth.

B.

Survey Results

5.
Profile of respondents. The survey had 192 respondents. These were mainly household heads,
75.5% were men and 24.5% women. The average household size was 5.6 persons with a minimum of 1
to a maximum of 11 members. Most of the respondents were 3070 years old. The ethnic mix of the
survey population was 5.2% each from Lue, Panna, Hmong, Gnuan, Samtao and Lenten ethnicity, 5.7%
of mixed Samtao, Lenten, and Kmou ethnicity, 15.6% of pure Kmou ethnicity, and 20.8% each of Kwen
and Lamet ethnicity (Table A5.1).
Table A5.1: Demographic and other Information on Respondents
Sex
Male
Female

No. of years living in the area


75.5%
24.5%

Ethnicity
Lue
Panna
Huong
Kmou
Bit

5.2%
5.2%
5.2%
15.6%
5.7%

<5 years
>5, <10 years
>10, <15 years
>15, <20 years
>20 years
Distance of house from the project road
<50 m
>50, <100 m
>100, <200 m
>200, <300 m
>300 m

1.0%
12.0%
7.8%
8.3%
70.8%
67.2%
19.8%
8.9%
3.6%
0.5%

42

Appendix 5
Kwen
Lamet
Gnuan
Samtao
Lanten
Samtao, Lahushi,
Kmou
Age of respondents
(years)
<30
>30 to <40
>40 to <50
>50

20.8%
20.8%
5.2%
5.2%
5.2%
5.7%

Educational attainment:
Primary
Lower secondary
Upper secondary
College
Others
Mode of transport for nearest district center

12.5%
25.5%
23.4%
38.5%

Car
Motorcycle
Taxi
Transporter
Walking
Others

52.6%
17.2%
8.9%
2.6%
18.8%
8.9%
68.2%
7.3%
2.1%
11.5%
2.0%

Source: Independent Evaluation Mission.

6.
About 67.2% of respondents live less than 50 meters from the project road, with 68.2% using
motorcycles to go to the nearest district center. The highest educational attainment of respondents
was (i) college: 2.6%, (ii) upper secondary: 8.9%, (iii) lower secondary: 17.2%, (iv) primary: 52.6%, and
(v) no school completion or no reply: 18.8%. The respondents comprised farmers 78.6%, traders 14.1%,
wage earners and laborers 3.1%, and other occupations 4.2%.
7.
Access to schools. Of the respondents, 75% have children in primary schools within their village
or in nearby villages. Reductions in travel time to school after the project have been noticeable (Table
A5.2). More people traveled to school by motorcycle and bicycle, and fewer pupils walked. The average
distance to school is 3.8 kilometers (km) after the project compared with 2.7 km before, indicating that
the better road is encouraging households to send children to far-off schools.
Table A5.2: Access to School
Item
Travel time to school (% of households)
< 15 minutes
> 15 to <30 minutes
>30 to <45 minutes
>45 to <60 minutes
>60 minutes
Mode of transport to school (% of households)
Motorcycle
Walking
Bicycle

Before
Project

After
Project

74.0%
15.4%
0.0%
4.9%
5.7%

87.5%
9.7%
0.0%
0.7%
2.1%

23.0%
73.8%
3.3%

44.4%
47.9%
7.6%

Source: Independent Evaluation Mission.

8.
Access to medical facilities. Survey responses indicate that access to provincial hospitals as well
as hospitals in neighboring countries, i.e., the PRC and Thailand, improved after the project. Each
village cluster or koumban has at least one dispensary for first aid and treatment prior to referral to
hospitals in the district center or province.
9.
Access to potable water. Access to potable water improved substantially after the project
completion. Public taps, the major source, are used by 76.0% of respondents (Table A5.3), 4.7% use
tube wells, 2.6% use protected dug wells, while 16.7% rely on other sources. Prior to the project,
25.5% of respondents had access to public taps, 17.7% relied on tube wells, 12.0% on protected dug
wells, and 44.8% on other sources. After the project, significant improvements were observed on the
time spent collecting water. With the project, 44% of households could access water inside their
houses compared with 9.4% before.

Socioeconomic Impact

Table A5.3: Access to Potable Water and Sanitation


Item
Potable water source (% of households)
Public tap
Tube well
Protected dug well
Other
Time spent collecting water (% of
households)
0 minute
<15 minutes
>15 to <30 minutes
>30 to <45 minutes
>45 to <60 minutes
>60 minutes
Type of sanitation facility (% of
households)
Septic tank
Pit latrine with slab
Pit latrine without slab
Others

Before
Project

After
Project

25.5%
17.7%
12.0%
44.8%

76.0%
4.7%
2.6%
16.7%

9.4%
59.9%
27.6%
0.5%
2.1%
0.5%

44.3%
9.3%
45.3%
0.5%
0.0%
0.0%

32.3%
7.8%
7.8%
52.1%

73.4%
20.3%
1.0%
5.2%

Source: Independent Evaluation Mission.

10.
A significant improvement in sanitation practice was observed after the project: 73.4% of
households had septic tanks and 20.3% used pit latrines with slabs (Table A5.3).
11.
Cooking fuels. Firewood continued to be the main cooking fuel for households even after the
project. Around 4% of households switched to gas or electricity (Table A5.4). The time spent collecting
firewood improved only marginally: 44 minutes after the project compared with 47 minutes before.
Table A5.4: Time Spent on Firewood Collection
Item
Type of fuel used for cooking (% of
households)
Firewood
Gas
Electricity
Others
Time spent on collection of firewood (% of
households)
<15 minutes
>15 to <30 minutes
>30 to <45 minutes
>45 to <60 minutes
>60 minutes

Before
Project

After
Project

100.0%
0.0%
0.0%
0.0%

96.4%
1.0%
2.6%
0.0%

22.4%
35.4%
2.1%
25.0%
15.1%

27.6%
33.9%
2.1%
21.9%
14.6%

Source: Independent Evaluation Mission,

12.
Social interaction. After the project, 56% of the respondents indicated that they visited relatives
and friends more often, whereas 27% indicated that they did so less often, and 17% indicated no
change.
13.
Access to markets. Significant reductions in travel time to markets were observed. After the
project, 54% of the respondents spent less than 15 minutes going to market compared with 22% of
the respondents before the project (Table A5.5). The percentage of households using motorcycles

43

44

Appendix 5
increased from 20.3% without the project to 67.7% with the project. The number of traders going to
farms after the project increased slightly. No change was observed in sources of financing for
households.
Table A5.5: Access to Markets and Presence of Traders in Farms
Item

Before
Project

Mode of transport to market (% of households)


Motorcycle
Car
Taxi
Transporter
Walking
Others
Travel time to market (% of households)
< 15 minutes
> 15 to <30 minutes
>30 to <45 minutes
>45 to <60 minutes
>60 minutes
Traders going to farms (% of households)
Yes
No
Not applicable

After
Project

20.3%
6.3%
7.8%
3.6%
52.1%
9.9%

67.7%
9.9%
3.1%
2.1%
6.3%
10.9%

21.9%
19.8%
10.4%
14.6%
29.7%

54.2%
31.8%
0.0%
7.8%
4.7%

34.9%
58.9%
6.2%

37.5%
55.2%
7.3%

Source: Independent Evaluation Mission.

14.
Income and employment opportunities. Compared with the without-project situation, overall,
household respondents noted an increase in average monthly household income from KN591,808
without the project to KN1,524,346 with the project, or an increase of 157.6%. This is much higher
than the inflation rate. Household monthly incomes of respondents increased significantly with the
project as shown by the change in average income distribution by category (Table A5.6). The
percentage of households with monthly income equal to or less than KN500,000 decreased from
77.6% without the project to 43.8% with the project. This improvement is shown in all income ranges.
At the highest income range of greater than KN3.0 million, the percentage of households increased
from 2.6% without the project to 10.4% with the project.
Table A5.6: Monthly Household Income
Item
Monthly household income in kip
(% of households)
< 500,000
> 500,000 to <1,000,000
>1,000,000 to <1,500,000
>1,500,000 to <2,000,000
>2,000,000 to <3,000,000
>3,000,000

Before
Project

After
Project

77.6%
9.4%
1.6%
4.7%
2.1%
2.6%

43.8%
24.0%
8.3%
7.3%
5.7%
10.4%

Source: Independent Evaluation Mission.

15.
About 78.1% of household respondents indicated that the improved road has made finding
employment easier. Some of the factors cited include new investments, projects and businesses
providing job opportunities, ease of transport of goods for sale and purchase, and increased
opportunities to open shops and garages.
16.
Social action plan. Most respondents were aware of the social action plan and its various
components (Table A5.7).

Socioeconomic Impact
Table A5.7: Awareness of the Projects Social Action Plan and Components
Item
Awareness of social action plan
Improvement of water supply
Improvement of sanitation facilities
Opportunities for education and training
Awareness program on primary health
Awareness program on road safety
Awareness program on HIV/AIDS and STDs
Awareness program on human trafficking

Yes
79.7%
83.3%
89.6%
90.6%
90.6%
91.7%
90.6%
81.3%

No
20.3%
16.7%
10.4%
9.4%
9.4%
8.3%
9.4%
18.8%

HIV/AIDS = human immunodeficiency virus infection and acquired immune deficiency syndrome,
STDs = Sexually Transmitted Diseases
.
Source: Independent Evaluation Mission.

C.

Results from Focus Group Discussions

17.
The FGDs included the following focus questions: (i) What are the impacts of the project road?
(ii) Did implementation of project components under the area development plan contribute to the
communities maximization of benefits from the project? (iii) How have the lives of people in the
community improved due to the project? and (iv) What additional assistance does the community
require to further enhance quality of life, including income-generating activities?
18.
Perceived impacts from the project road. FGD participants in Houayxay District, especially the
suburb of Houayxay town, and part of Vieng Phoukha District felt that upgrading of the previously
earthen road to paved highway condition brought them closer to the civilized world. Travel is more
comfortable and access to markets, health facilities, and schools is easier. At the same time, increased
business activities in the area are providing more job opportunities for local residents.
19.
The project road has enabled them to save time and travel costs in going to nearby towns to
sell products and buy necessary goods for household use. Many of the participants mentioned that
women benefited from increased access to water supply and support for sanitary latrines. They could
save on time spent collecting water from far-off springs. Many women, who live far from town, said
that in the past they could not go to market in town due to lack of transport facilities, whereas they
could now easily go to town to sell non-timber forest products or agriculture products and to shop for
goods. Traders also come to the villages now to sell goods.
20.
Before the project, most of the villagers were mainly upland farmers. Now, many practice
shifting cultivation and a few are government employees (teachers), especially those living near the
district centers. At present, more job opportunities have been created such that people near the border
with the PRC are employed by transport companies as wage workers. Many could now sell their land
along the roadside for better prices, and invest in trucks or other vehicles to engage in the transport
business. Many have opened vehicle repair shops and shops selling a variety of goods, which help earn
a good income for the family. Table A5.8 lists positive and negative impacts identified.

45

46

Appendix 5
Table A5.8: Positive and Negative Impacts Identified by Focus Group Discussions
Positive Impacts
(i) Better road means easier travel, saving time and
money
(ii) Greater variety of goods available locally, better
distribution for the public
(iii) Quicker to reach hospital when sick
(iv) Easier to go to schools
(v) Traders are able to easily access farms to buy
produce
(vi) Electricity became available after the road was
completed, people can access information
through television
(vii) Household income increased

(i)
(ii)
(iii)
(iv)
(v)
(vi)

Negative Impacts
Greater risk of road accidents as roads have
no warning signs and vehicles travel at
great speed due to the good road
Noise pollution due to 24-hour/day
vehicular traffic, which is bothersome
especially during the night
Due to lack of drainage along the road
rainwater flow is uncontrolled and affects
residences in low-lying areas
Dust pollution from fast-moving vehicles
Increased incidence of theft
Road expansion affected cropping land
causing production land to decrease

Source: Independent Evaluation Mission.

21.
Area development plan and its contribution to the community. Of the nine villages included in
the FGDs, eight reported that the project conducted awareness raising programs on sexually
transmitted diseases and HIV/AIDS, and drug and human trafficking except in Kampone village, Vieng
Phoukha District. Three villages in Houayxay District, namely, Donephao, Namchang, and Namma
villages and Lamone village in Vieng Phoukha District noted that they received support for their water
supply systems and sanitary latrines. Only Buamphieng village, Namtha District reported support for
rural access road improvement. None of the villages was given support for any agriculture development
activities.
22.
Feedback from FGD participants revealed that compared with the situation before the project,
lives of the community residents improved a great deal. Household incomes increased by at least 3
times. Land values increased, especially those along the road. People had better housing and improved
access to food, clothing, and other necessities. Children had better access to schooling at all levels.
23.
The FGD participants expressed a need for agriculture support services, assistance from
government in negotiating contracts with traders; funding for repair and/or construction of water
supply systems; and funding for repair and/or construction of village roads or feeder roads.
24.
On the whole, the socioeconomic impact of the project road R3 can be considered positive,
outweighing the adverse impacts to the community. The negative impacts, such as increased road
accidents, and greater incidence of theft, dust, and noise pollution, can be mitigated and managed.

D.

Impact on Trade and Tourism

25.
The economic analysis, which determined the economic internal rate of return, considered only
the first-order outcomes directly linked to the project road, such as savings in travel cost and time. The
project has second-order outcomes, such as cross-border trade and investment. The IEM could not
ascertain the extent of trade between the Lao PDR and its neighbors passing through the border
provinces of Bokeo and Louangnamtha. The customs offices at the two cross-border stations could not
provide the baseline and current data on quantity and value of goods crossing these border stations.
Although it cannot obviously be attributed to the project road, trade between Thailand and the Lao
PDR and that between Thailand and the PRC increased at a much higher rate after 2008 (Figures A5.1
and A5.2).

Socioeconomic Impact

Figure A5.1
Thailand's Trade with Lao People's Democratic Republic
120
100

B billion

80
60
40
20
0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Exports 18.25 17.09 18.92 23.38 30.97 38.72 45.19 58.39 56.05 67.61 83.53 110.8 113.5
Imports 3.957 4.011 4.297 4.611 9.125 19.75 16.3 20.57 15.94 23.94 34.49 38.68 41.69
Source: Government of Thailand, Ministry of Commerce (Foreign Trade Statistics of Thailand).

Figure A5.2
Thailand's Trade with People's Republic of China
1,400
1,200

B billion

1,000
800
600
400
200
0
Exports

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
127

153

236

286

367

446

511

532

549

679

791

830

825

Imports 165.1 211.7 251.1 329.6 448.9 521.5 564.6 670.3 586.1 775.4 930.8 1160 1155
Source: Government of Thailand, Ministry of Commerce (Foreign Trade Statistics of Thailand).

47

Appendix 5
26.
Tourist arrivals at the two borders, Boten and Houeisay, increased rapidly after 2008 (Figure
A5.3).
Figure A5.3
Tourist Arrivals in Boten and Houeisay
180.00
160.00
140.00
'000s

48

120.00
100.00
80.00
60.00
40.00
20.00
0.00
Boten

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

33.84 17.13 16.12 26.20 29.37 37.66 44.84 91.49 134.58 159.54 137.67 117.91

Houeisay 40.53 45.49 39.89 52.03 59.61 73.29 73.81 100.97 110.66 131.00 138.76 98.49
Source: Government of the Lao People's Democratic Republic, Tourism Development Department. 2013. Vientiane.