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Poor connectivity is a major development constraint for Nepal. Inadequate feeder roads worsen the isolation of remote rural areas, mostly in northern hilly regions. These areas with high poverty incidence are required to be linked to markets in the country and further extended to those in neighboring countries. The north-south link could also be a potential transit route connecting India and the PRC. In addition to the connectivity issue of remote hilly areas, there is also growing congestion at major international trade corridors, especially EWH and road sections around the borders due to rapid increase of vehicles in Terai areas. This congestion is due to the roads' low capacity and poor condition, as well as the limited capability of customs clearance. The Government is required to expand connectivity of remote areas and, at the same time, enhance capacity of major international trade corridors including EWH and border roads, and customs systems. To address these constraints, the Government developed and has been implementing the Priority Investment Plan (PIP 2007-2016) and the customs modernization plan. Nepal has major international and subregional trade corridors as identified in SAARC Regional Multimodal Transport Study (SRMTS) and the Asian Highways network.

The road sector development strategy under Nepal's Three Year Interim Plan (TYIP, 2007/08-2009/10) includes (i) improving roads for the development of the dense and border area settlements and for the increased accessibility to hitherto unserved remote areas with economic potential, and (ii) developing the east-west highway as the Asian Highway and the regional trade route in accordance with the concept of developing road networks for promoting South Asian regional development. The strategy provides adoption of the planned road asset management system for sustainable, reliable and safe road transport operations through prioritized repair, maintenance, rehabilitation and reconstruction of roads and bridges.

Project roads include: (i) the Salleri-Okhaldhunga and (ii) Okhaldhunga -Harkapur roads (100 km), which provide the remote north-eastern hilly areas with a north-south connection to EWH and further south to the Siraha border; (iii) the Khandbari-Chainpur road (44 km), which provides one of the unconnected district headquarters with a motorable road, and will make a planned north-south transit route connecting India at the Bitranagar border point and the PRC at the KImathanka border; (iv) the Bhairahawa bypass (3.5 km), part of SAARC Road Corridor 10, connecting Kathmandu with Lucknow in India, which also complements India's ongoing Integrated Customs Posts Program; and (v) the Belbari-Chauharwa road (47 km), which is along EWH around border areas and part of the SAARC Road Corridor 4, facilitating subregional traffic through its Kakarvitta border post and India, to Bangladesh. These roads have been selected based on environment, resettlement, social and economic impacts; and project readiness. The capacity enhancement of trade facilitation will also help reduce congestion of border areas by further speeding up clearance through information technology and streamlining customs documentation and procedures. A minor change in scope was approved on 17 August 2013 to include additional road section - Nepalgunj-Kohalpur (22.3 km).

The Project will support the government in addressing two development issues: expand connectivity with remote areas and enhance the capacity of major international trade corridors. The Project is relevant to achieving results of the Country Partnership Strategy (CPS 2010-2014) of enhancing global-local connectivity to facilitate regionally balanced economic growth; as well as the Regional Cooperation Strategy and Programs (2006-2008) in improving subregional connectivity and facilitating intraregional trade in South Asia. The Project is included in the CPS 2010-2014 and the Regional Cooperation Operations Business Plan (2009-2010) as a national project with regional implications. This is an approach in accelerating regional cooperation, supported in the Second High Level Forum on Emerging Vision for Shared Prosperity: South Asia and Beyond, held in Manila in August 2010.

The project has been designed in coordination with development partners to ensure wide geographic coverage and avoid overlaps, and continues ADB's consistent engagement to improve road connectivity and capacity, and facilitate cross-border traffic, in parallel with capacity development such as road safety, social aspects, overload control, and road asset management. The project has substantially enhanced project readiness, e.g., ADB project appraisal on all project roads is based on detailed design prepared by consultants engaged by the government