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ASIAN DEVELOPMENT BANK
Push to Improve Rural Roads, Boost Farm Incomes

The Asian Development Bank (ADB) and Government of Japan are supporting Bhutan's drive to improve farm roads and provide new livelihood opportunities in some of the poorest and most remote parts of the country.

The Government of Japan-financed Japan Fund for Poverty Reduction, administered by ADB, is providing a $3 million grant for the Farm Roads to Support Poor Farmers' Livelihoods Project.

It will develop about 40 kilometers of farm roads in two impoverished districts and provide equipment and skills training to help isolated communities sell their farm products. At least 650 households, or around 4,000 people, are expected to benefit from the project.

In remote rural areas in Bhutan, it can take many hours, or even days, to walk to the nearest roads, severely limiting the ability of farm households to sell excess produce, or access schools or health clinics. As a result, many families suffer from food insecurity and maternal mortality rates are high.

"Improved road access will allow poor rural households which depend on agriculture to grow larger marketable surpluses and increase their income, and it will also give them badly needed access to economic and social services," said Snimer Sahni, Principal Agricultural Economist of ADB's South Asia Department.

Along with constructing new roads to transport produce to market, the project will establish community groups to manage and maintain the roads, and provide farmers with skills to link up with financial institutions, traders and food processors.

It will also train local road engineers, build sheds, platforms and other infrastructure, and provide small processing equipment such as chili-drying machines, to support the production and marketing of farm goods.

"By the end of the project the goal is to see poverty incidence in target areas decline by 30% with the proportion of households suffering from hunger falling to less than 5%," added Ms. Sahni.

The new farm roads, which will link up with others being built under the ADB-financed Road Network Project, will incorporate environmentally-friendly construction techniques including improved drainage systems to avoid storm damage, and the revegetation of cut slopes. The project will help farmers sell their goods collectively for better prices by providing seed capital for farm groups to process and market their produce. There will also be a strong focus on assisting women, with at least 50% of members in marketing infrastructure user groups to be female, and at least half of the beneficiaries of the poor farmer training to be women.

The Government of Bhutan will provide additional project funding of $256,314, with communities contributing $72,579 (mainly in kind) for a total investment cost of about $3.3 million. Bhutan's Department of Agriculture is the implementing agency for the project which will be implemented over three years.

Source: Asian Development Bank, July 2010

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Hydropower Project

A hydropower project supported by the Asian Development Bank (ADB) and the governments of Austria and Japan that will enable Bhutan to export clean energy to India has been registered as the first cross-border initiative under the Clean Development Mechanism (CDM).

Aimed at encouraging developing nations to invest in greenhouse gas emission reduction projects, the CDM has been established under the United Nations Framework Convention on Climate Change (UNFCCC).

The 114-megawatt Dagachhu hydropower project will promote cross-border power trade and reduce greenhouse gas pollution in the South Asia region.

Part of ADB's Green Power Development Project for Bhutan, the Dagachhu hydropower project is expected to reduce CO2 emission by about 500,000 tonnes per year, especially through exports to India, which relies heavily on coal-fired power plants for its electricity generation. The project will help prevent carbon emission in India while generating additional revenue from CDM to make the project viable in Bhutan.

"ADB is pleased that the Dagachhu hydropower project has been registered for CDM. It will encourage regional trade in clean and renewable energy while contributing to environmental protection," said Thevakumar Kandiah, Director of ADB's South Asia Department.

A notable feature of the Dagachhu hydropower project is participation by multiple Bhutanese and international stakeholders, marking it as the first public-private partnership in infrastructure investment in Bhutan. The special company established to manage the project is led by Bhutan's state-owned utility, Druk Green Power Corporation (DGPC) and India's leading energy company, Tata Power Company.

The total cost of the project is around $200 million. ADB has committed an $80 million loan to the project, of which $51 million from ADB's Ordinary Capital Resources is financed for debt while the balance of $29 million is used for DGPC's equity. Cofinancing is being provided by the National Pension and Provident Fund of Bhutan and the Raiffeisen Zentralbank Österreich AG (RZB) of Austria through export credit of Österreichische Kontrollbank AG (OeKB).

The Austrian government through the Austrian Development Agency has provided engineering support toward the project while ADB is providing assistance with overall capacity development to help strengthen policy and institutions of the Bhutan power sector.

"This project will deliver economic and social benefits on wider fronts. The project's royalties will contribute to low-cost electricity supply to rural domestic customers in Bhutan and at the same time provide the government of Bhutan with a long-term revenue stream to support its development programs for poverty alleviation," said Kaoru Ogino, Senior Energy Specialist of ADB's South Asia Department.

The project structuring was promoted with support from the Japan Special Fund, established by the government of Japan and administered by ADB. It has also received assistance from ADB's Technical Support Facility under its Carbon Market Initiative during the process of the CDM registration with UNFCCC.

Source: Asian Development Bank, April 2010

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Complete Electrification of Rural Households

Bhutan is receiving fresh Asian Development Bank (ADB) assistance to help it reach its target of providing electricity to all rural households, which will spur growth and reduce poverty in the mountainous, landlocked South Asian country.

ADB's Board of Directors approved a grant of almost $21.6 million for the Bhutan Rural Renewable Energy Development Project.

"Full rural electrification will not only address rising local energy demand and national energy security but will help diversify income earning activities and improve the quality of life and standard of living in rural areas where 90% of the country's poor live," said Kaoru Ogino, Senior Energy Specialist in ADB's South Asia Department.

Bhutan generates almost all its electricity from hydropower sources, with 70% exported to its neighbor, India. However, the country's steep terrain and widely spread rural population has made it difficult to provide electricity to some remote communities. As a consequence many families still depend heavily on traditional fuels, with Bhutan the world's highest per capita consumer of fuelwoods, which pollute and pose health hazards, particularly to women and children.

The government has provided electricity to around 60% of all rural households, with the figure expected to reach 84% by 2012. ADB has been an active supporter of the rollout program through several previous loan and grant projects. The latest assistance will help the government reach remaining rural households through a mix of both on-grid and off-grid power supplies.

The project will connect more than 5,000 households to on-grid electricity supplies sourced from hydropower, while nearly 1,900 homes in remote areas that can't be readily connected to the grid will get solar power packs. A further 2,500 existing solar power users will have their systems upgraded. Pilot wind power and biogas production plants will also be established.

"The pilot wind mills will demonstrate the feasibility of using wind to help alleviate hydropower shortages in the dry winter season when river levels drop, while biogas development can help replace fuelwood for cooking," said Mr. Ogino. Market estimates show that up to 16,000 households in the country could benefit from biogas, a clean, renewable fuel derived from cattle dung.

The project will be carried out in tandem with rural electrification work being undertaken by the Austrian Development Agency and Japan International Cooperation Agency.

ADB's grant from its concessional Asian Development Fund covers around 87% of the total project investment cost of almost $25 million. The SNV Netherlands Development Organisation will provide $270,000 to support the biogas development component, while the government and biogas users will finance the remainder through a microfinancing scheme.

The Department of Energy is the executing agency for the project which is due for completion around June 2015.

Source: Asian Development Bank, November 2010

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Help Bhutan Strengthen Resilience to Climate Change

Landlocked, mountainous Bhutan is getting support from the Asian Development Bank (ADB) and Japan to counter the harmful impacts of climate change on its rivers - the lifeblood of the economy.

The Japan Special Fund, financed by the Government of Japan and administered by ADB, is providing a $700,000 grant for building up the capacity of Bhutan's National Environment Commission (NEC).

The NEC is the designated national authority for climate change issues and handles projects that are eligible to avail of carbon credits under the Kyoto Protocol. However, it currently lacks the staff and other capacity for developing mitigation and adaptation measures that can counter climate change.

Landlocked, mountainous Bhutan is getting support from the Asian Development Bank (ADB) and Japan to counter the harmful impacts of climate change on its rivers - the lifeblood of the economy.

The Japan Special Fund, financed by the Government of Japan and administered by ADB, is providing a $700,000 grant for building up the capacity of Bhutan's National Environment Commission (NEC). The NEC is the designated national authority for climate change issues and handles projects that are eligible to avail of carbon credits under the Kyoto Protocol. However, it currently lacks the staff and other capacity for developing mitigation and adaptation measures that can counter climate change.

Bhutan's rivers are the backbone of the economy, with exports of hydropower-generated electricity accounting for more than 40% of national revenue, while 70% of the population lives in rural areas and depends heavily on irrigated agriculture. Climate change threatens to have a serious impact on river flows as a result of changing patterns of rain and snowfall, flash floods exacerbated by melting glaciers, and acute droughts in the dry season.

"The technical assistance will help create functioning and sustainable climate change mitigation and adaptation systems for combined energy and water resources in the country," said Kaoru Ogino, Senior Energy Specialist in ADB's South Asia Department.

It will also boost the ability of NEC to adequately assess and promote hydropower and other renewable energy projects suitable for availing of the Clean Development Mechanism (CDM) under the Kyoto Protocol, and for potential carbon trading. There is considerable scope for tapping the CDM as Bhutan and India - the main purchaser of Bhutan's electricity exports - are planning more hydropower projects with combined output of about 10,000 megawatts.

In spite of vital water resources for Bhutan, no single ministry or government agency is currently in charge of overseeing integrated resource management. The project will help NEC coordinate the differing ministries and agencies involved in the process, ahead of the eventual establishment of a single body.

It will also boost NEC's ability to expand Bhutan's access to financing for climate change mitigation and adaptation projects. The assistance will be coordinated with the work of other civil society groups and donors, including Danish International Development Assistance, Japan International Cooperation Agency, and United Nations Development Programme.

The Government of Bhutan will provide $50,000 equivalent for the project, which has a total cost of $750,000. NEC is the executing agency, with the work to be carried out over 18 months, with an expected completion date of September 2011.

Source: Asian Development Bank, January 2010

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Bhutan to Build Southern Highway to Boost Growth, Cut Poverty

An efficient and reliable road network is hampering development in southern Bhutan, and the government is now targeting a major road link there to boost growth and livelihood opportunities in one of the country's most remote and poor regions.

To support the government's plans, Asian Development Bank's (ADB) Board of Directors approved a grant of $38.76 million for a project that will construct or upgrade five sections of an east-west highway route in the south.

An existing highway in the north connects eastern and western sections of landlocked Bhutan, but the lack of a similar link in the south has been a major constraint to travel and new economic opportunities.

An efficient and reliable road network is hampering development in southern Bhutan, and the government is now targeting a major road link there to boost growth and livelihood opportunities in one of the country's most remote and poor regions.

To support the government's plans, Asian Development Bank's (ADB) Board of Directors approved a grant of $38.76 million for a project that will construct or upgrade five sections of an east-west highway route in the south. An existing highway in the north connects eastern and western sections of landlocked Bhutan, but the lack of a similar link in the south has been a major constraint to travel and new economic opportunities.

The project, covering road sections totaling 180 kilometers, will provide an alternate transit route for freight and passengers, opening up new trading opportunities with India, Bhutan's largest trading partner. It will also bring major social benefits including better access to health and education facilities. Equipment for road design, and measuring load levels and vehicle emissions will be provided to reduce overloading, pollution, and to improve road safety.

"The project will increase passenger and freight transport within the country and with neighboring India, spur industrial development in the south, and provide new livelihood opportunities," said Hiroaki Yamaguchi, Senior Transport Specialist in ADB's South Asia Department.

Bhutan's terrain is mountainous and prone to landslides, so the project incorporates design and construction measures sensitive to the landscape. Controlled blasting, limited use of bulldozers, log and boulder barriers, and environmentally-sensitive slope protection measures will be used. The alignment of the highway was decided after consultation with communities, and measures will be taken to minimize social and environmental impacts.

A technical assistance grant of $400,000 will also be provided to build up the survey, design, construction and management capabilities of Bhutan's Department of Roads. ADB plays a major role in road network development in Bhutan, providing loans and technical assistance of around $58 million to the sector since 1983.

ADB's financing - which makes up 71% of the total project cost of $54.32 million - includes a $10 million portion from its concessional Asian Development Fund. The Government of Bhutan is providing the balance of $15.56 million equivalent. The Bhutan Department of Roads is the executing agency for the project, which is due for completion around December 2014.

Source: Asian Development Bank, January 2010

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