Proposed Program and Rationale for Government of Australia Participation
Australia has been requested by the Government of Cambodia to support an ADB
supplementary financing project loan to rehabilitate Cambodia’s national railway. The
original ADB project loan was signed in May 2007, at an estimated cost of US$73 million. In
addition to physical rehabilitation, the project incorporated the transfer of railway
management and operations to a private sector company.
Following negotiations with the Cambodian Government, the Australian company Toll
Holdings signed a 30-year concession agreement on 12 June 2009 to manage the railway,
Toll’s business plan for the railway is ambitious and the railway has deterioration has been
greater than expected. As a result, the ADB now estimates that an additional US$69 million
over four years is required to complete the upgrade. The total project cost is now estimated
a US$142.1 million
It is proposed that these additional costs be met through a supplementary ADB loan
of US$42 million plus an Australian grant of US$22 million, and a US$5 million contribution
from Cambodia. Project details are outlined in the attached ADB design document1 (RRP)
Table 1 –Project Financing Plan (US$ million)
Original Project
Asian Development Bank
Government of Australia
OPEC Fund for International
Government of Malaysia (grant
in kind)
Royal Government of Cambodia
Following endorsement by an AusAID concept peer review in June 2009, we have
taken an active role in the ADB’s design process to examine the development benefits in
Report and Recommendation of the President (RRP) to the Board of Directors Proposed Loan,
Administration of Grant and Technical Assistance Grant Kingdom of Cambodia: Greater Mekong
Subregion: Rehabilitation of the Railway in Cambodia Project (Supplementary) and Outcomes
Monitoring and Procurement Review
supporting the project and to improve the project design to ensure that these benefits can be
realised. AusAID has undertaken due diligence through independent reviews of the economic
analysis and procurement arrangements that underpinned the original project and that will
carry over into the expanded project funded the supplementary financing. The results
(outlined in attachment 2&3) have confirmed the soundness of the ADB approach.
Furthermore we have committed significant resources to the project design, actively
participating ADB design missions. This work has been particularly apparent in improving the
project’s approach to monitoring and evaluation framework social impact issues (such as
resettlements, gender and HIV/AIDS).
As noted in the RRP, the project presents strong economic and financial viability.
(see RRP Appendix 13, and the AusAID-commissioned economic and financial analyses
review, Attachment 2),
The project also has strong support from Government. At a national level, the project
offers the opportunity to provide a viable alternative for meeting the country’s increasing
freight and passenger demand almost all of which now uses the highway network2 and to
eliminate the increasing drain on the budget that the railway now imposes. At a sub-region
level the project will enhance Cambodia’s role in Greater Mekong Subregion cooperation. It
will restore the physical link on the Cambodian side of the border with Thailand’s railway, and
Thailand has expressed interest in doing the same on its side of the border. ADB is working
with both governments to move this process forward. The possibility also exists of shipments
passing through Cambodia to and from Thailand and Vietnam, through a combination of rail
and inland water transport based around the proposed Samrong logistics facility and the
existing Phnom Penh river port.
The project is consistent with the broader objectives of the Australian aid program.
Transport infrastructure is one of four strategic priorities identified in the draft 2009-2015
Cambodia-Australia Country Strategy. The project lays the foundations for a far more
integrated transport and logistics network for Cambodia than the country possesses at
present. It moves the operations and management of a poorly performing and rapidly
deteriorating national asset, to a concessionaire that has a sound and practical plan for
restoring rail it to its former central place in national and sub-regional transport system.
The project will also reduce costs for road maintenance, as heavy freight and
container traffic diverts from road transport to more economical rail transport. This will
underpin the outcomes and objectives of a number of Australian supported GMS projects,
including the Road Asset Management Project (RAMP), which is assisting the Government
with maintenance of national and provincial roads, and the Southern Coastal Corridor Project
(SCCP), which contributes to economic diversification and development along the southern
coastal corridor from Bangkok, through Cambodia, to southern Vietnam.
In addition there are important links with other sectoral programs. The reduction in
transport costs resulting from addition of a rehabilitated and efficiently operated railway will
benefit the agriculture sector by strengthening supply markets for agriculture inputs as well as
connecting farm producers to urban consumers, domestic and regional. This will, for
example, complement the Cambodia Agricultural Value Chain Project, in particular in Takeo
and Kampot provinces through which the railway passes, by reducing transport costs, and so
Cambodia Transport Sector Review (draft), World Bank, November 2004.
strengthening input and output markets. Finally, in the context of the global economic crisis,
the project supports Cambodia’s recovery from recession and is expected to provide up to
1,500 jobs in the rehabilitation phase.
Proposed Government of Australia Financing
If approved Australia’s support for the project will be provided as joint
cofinancing to be administered by ADB. The proposed allocation for the use of our funding is
as follows (see RRP Appendix 9 for a detailed cost estimate and financing plan):
Table 2: Allocation of Australia Financing (US$ million)
Amount RRP reference
Construction works
18.45 (RRP para 55, Appendices 9-11)
Capacity building assistance to
3.00 (RRP para. 33-34, Appendix 8)
Technical assistance (For
outcomes monitoring and
procurement review)
0.40 (RRP para. 49, Appendix 14)
Resettlement advisory services
(Support to ADB and Australia
for oversight of project’s
resettlement program)
The proposed disbursement profile for Australia’s assistance is as follows.
Table 3: Allocation of Australia Financing (A$ million as at 23 October)
Implementation Arrangements
The Cambodian Government’s Ministry for Public Works and Transport (MPWT) will
remain the executing agency for the project. MPWT has employed a “Contractor” to
undertake design and construction of rail rehabilitation activities, and a“Project Consultant” to
provide oversight of design, construction, HIV/AIDs, resettlement, and project monitoring
activities to MPWT. Following the finalisation of the concession contract the Government has
invited the concessionaire (Toll) join the project implementation team to ensure that works
are prioritized. This involvement includes participation in all construction and project planning
meetings and access to the implementing agency's project data and reports.
The original project was scheduled for implementation over 3 years, for completion in
December 2009. Due to the longer than expected negotiation of the concession agreement,
however, the implementation schedule will be extended by 3.5 years for completion in March
2013. The extension allows sufficient time for implementing the additional works under the
proposed Supplementary Financing. The revised implementation schedule is in Appendix 10
of the RRP.
The procedure to be adopted for procurement of the additional works is set out in the
RRP (paras. 39 to 41). See also the AusAID-commissioned review of the original project’s
procurement (Attachment 3). Briefly, works of a similar nature to the existing works contracts
will be procured through variations to those contracts. This is provided for in the contract
documentation. The process will be reviewed for compliance with contractual procedures and
for a reasonable outcome through the services of a procurement specialist engaged by ADB
using a portion of the proposed Australian grant. Works of a different nature from the existing
contracts will be procured as new contracts, 2 for works for the Samrong freight facility and
one for the supply of rails and sleepers. All new procurement will be carried out in
accordance with ADB’s Procurement Guidelines. Details of the new contracts are provided in
Appendix 12 of the RRP.
Australian and ADB staff, with the participation of representatives from the
Governments of Cambodia will undertake 6 monthly supervision reviews of the project. These
reviews will be supported by consultants with appropriate expertise, including the project’s
resettlement activities. A midterm review will be undertaken in 2011. In addition to the issues
reviewed during regular project reviews, the midterm review will assess: (i) the impacts of the
Project; and (ii) the progress on developing the new railway department’s capacity to manage
the concession, and the railway sector in general.
Monitoring Arrangements
The project’s overall design and monitoring framework is presented in Appendix 1 of
the RRP. This has been prepared to also reflect Australia’s requirements, including gender,
HIV/AIDs, and resettlement. In addition to the standard monitoring arrangements found on
ADB infrastructure projects (for example control of project quality, schedule, and payments)
this project has three additional monitoring activities.
1. Outcomes Monitoring
The project includes a technical assistance (TA) grant with two parts: outcomes
monitoring (RRP para. 50 and 51, and Appendix 14) and procurement review, described
below. The TA will be managed by ADB and financed by Australia. The outcomes monitoring
TA will extend over 2 years, after which time outcomes monitoring will be integrated into
MPWT’s systems. Outcomes monitoring will include overview of economic and transport
benefits monitoring as outlined in the design and monitoring framework; social benefits by
focusing on outcomes related to the effective implementation and monitoring of resettlement
and compensation plans, HIV/AIDs, and issues related to gender and vulnerable groups; and
institutional benefits focusing on improved railway organizational systems. Outcomes
monitoring will take an integrated approach and expand upon the design and monitoring
framework (RRP Appendix 1), building on “project” level monitoring taking place through the
work of MPWT, the contractor and the project consultant.
2. Procurement Review
This part of the TA (RRP para. 49 and 51, and Appendix 14) will assist ADB with
ensuring that the process of developing, negotiating and agreeing the variations to the
existing contracts through which a substantial portion of the additional works will be
introduced to the contract scope has been carried out appropriately and has produced a
reasonable result.
3. Resettlement Advisory Services
The project requires substantial resettlement (RRP para. 55 and Appendix 5, and
also the resettlement plan summary in Attachment 4). In addition to the standard monitoring
arrangements prescribed in ADB’s Policy on Involuntary Resettlement, with which all project
resettlement activities must comply, ADB will engage an experienced international
resettlement specialist, with funding from Australia, to assist ADB to ensure that the
resettlement program is implemented in accordance with the provisions of the Policy, and
with the project’s approved resettlement plans. This arrangement will sit outside of the loan
agreement with Government, and directly support ADB and Australia in their supervision
monitoring. This unusual but necessary arrangement, which will extend for approximately 2
years, reflects both the scale and complexity of the project’s resettlement program, and also
the sensitive nature of land-related activities in Cambodia. The scope of the advisory services
will include: liaising with ADB and AusAID in Cambodia to monitor resettlement activities; and
documenting and assist in managing information and representations from affected
households and concerned stakeholders, such as community and NGO groups and the
Risks and Risk Management Strategies
The project’s risks, and the approach adopted for mitigating them, are described in
Section VI of the RRP. This section covers social, resettlement, political (in respect of the
connection with Thailand), financial, economic, and environmental risks. Section VII:
Assurances and Conditions, is also relevant in the context of risk. Given our involvement in
all aspects of the project, these risks apply in effect as much to Australia as they do to ADB.
Social and environmental aspects are highlighted below.
1. Social
The principles for addressing social and gender issues set out in the original Project
were developed as part of an overall integrated approach for addressing resettlement
activities and HIV/AIDS awareness and prevention; gender equality issues, and project
monitoring utilizing gender disaggregated indicators. (See RRP para. 31, 54, Appendix 6).
The original socioeconomic survey indicated that the Project is not expected to have any
specific impact on ethnic minority groups that differs from the impact on the majority Khmers
and ADB’s Policy on Indigenous Peoples (1998) is not triggered. Gender equity issues are
integrated across the project through resettlement, HIV/AIDS activities, and project
monitoring. The Project includes the following specific actions to address gender issues in
resettlement: (i) a male representative and a female representative of the affected
households (AHs) in a commune will sit in the resettlement working group (WG); (ii)
sensitization training on gender and on the Project resettlement policy will be provided to
relevant personnel of MPWT and the WG, through the Project Consultant’s resettlement
specialist; and (iii) special measures will be taken in the relocation of elderly, disabled and
households headed by women in terms of location of new sites for affected houses and
shops. With regard to HIV/AIDS, the civil works contractors are required to develop and
implement an awareness and prevention campaign during the construction period for both
workers and communities. In terms of project monitoring, disaggregated monitoring
indicators by gender will be developed for monitoring social benefits, HIV/AIDS, economic
opportunities, livelihood, and resettlement outcomes.
2. Environment
From the environmental perspective, the railway alignment is outside environmentally
sensitive areas such as national parks and other protected areas and their buffer zones and
the original Project falls into ADB environmental category B. (See RRP para. 32, 60,
Appendix 7: summary IEE for the supplementary activities). MPWT has prepared a
supplementary initial environmental examination (IEE) identifying environmental impacts,
mitigation measures and monitoring activities specific for various components to receive
supplementary financing. No significant environmental impacts are anticipated to arise from
project implementation through implementation of appropriate engineering and
environmental management measures. MPWT with support from the construction
supervision consultant will ensure proper implementation of such measures.
The monitoring activities referred to above will be the core of the project’s risk
management strategy. ADB’s commitment to strengthen its project team, and to more closely
involve its Cambodia Resident Mission in the day to day support and oversight of the project,
will also contribute to mitigating these risks, particularly in relation to resettlement issues.
ADB and AusAID Cambodia will work together closely on these aspects and the semi-annual
supervision reviews.
Australia’s involvement in the project’s preparation has added considerable value to
the development of the project, including an enhanced emphasis on the social, economic,
resettlement issues and impact monitoring. The project as it now exists has the potential to
provide substantial and sustainable national and regional benefits over the long term, for the
duration of the concession and beyond. It is recommended that the appraisal peer review
support the project to be considered for final Ministerial approval through the provision of a
co-financed grant of US$22 million equivalent.