Solomon Islands - Guadalcanal Road Improvement Project

RESTRICTED Report No. SOL: Ap - 8 This Report has been prepared for ASIAN DEVELOPMENT BANK I uhe exclusive use ot ihe Bank .. .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~7 APPRAISAL 0r THE GUADALCANAL ROAD IMPROVEMENT PROJECT IN SOLOMON ISLANDS tk-' October 1984 . - . , . I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.  CURRENCY EQUIVALENTS (As of 31 August 1984) Currency Unit - Solomon Island Dollar (SI$) SIS1.00 = US$0.77 US$1_00 = SI$1.30 For the purpose of calculation in .his Report a rate of US$1.00 to SISI .23 - which was the prevailing rate at the time of appraisal (30 April 1984) - has been used. The Solomon Island Dollar was introduced in 1977. The exchange rate is determined on the basis of a weighted basket of currencies of the major trading partners of Solomon Islands. ABBREVIATIONS ADT - Average Daily Traffic MCPU - Ministry of Communications and Public Utilities NPC - National Planning Council NPO - National Planning Office PMC - Project Management Committee PHO - Project Management Office RBS - Roads and Bridges Section VOC - Vehicle Operating Costs vpd - Vehicles per day NOTE The Fiscal Year of the Government coincides with the calendar year.  PROJECT FOCUS. DESIGN AND RATIONALE Development objectives of the Government focus mainly on diversification of agricultural production including forestry and fishing to enable the country to absorb fluctuations in the world market price of primary commodities like copra, palm oil. cocoa, fish and timber. Its development programs also aim to increase production of agro-industries based on locally available resources including timber and fish to expand value added by these products. Recognizing that adequate transport facilities are needed to help attain these objectives. the Government in its development plan has given high priority to the transport and communications sector with emphasis on road transport. Road transport accounts for almost 50 per cent of freight and passenger movements; the rest is served mostly by shipping. Considering the resource constraints, the Government's strategy in the road subsector is to improve the existing network rather than to expand it, except for provision of individual penetration roads to serve agricultural opportu- nity areas. The proposed Project will improve the road system in the Guadalcanal Plains -- the country's most important agricultural area with the highest population density - and will provide less costly and more reliable transportation services there. As the Project road carries traffic volumes substantially higher than for any other road in the country, the Government has accorded high priority to the Project. The Project area includes large scale rice and oil palm plantations as well as smallholder copra and cocoa farms; rootcrops are also grown for domestic consumption. With a view to realizing the full potential of the Plains, the Government is carrying out a number of agricultural research projects which aim to provide smallholder farmers with bett-r and more pest-resistant seed varieties of copra, cocoa and vegetable-. In addition, it is providing extension services and incentives for livestock raising centers with the assistance of foreign agencies including the Bank. The private sector is likewise active in the area and has plans for Increased production of palm oil and cocoa on a relatively large scale to serve export markets. The extent of the road network in the area is generally adequate but most road sections are in poor condition and several rivers are without bridges. These factors result in high transport costs and services are often interrupted for long periods during the wet season. The Project consists of rehabilitation and improvement of 90 km of road mostly passing through the Guadalcanal Plains together with construction of bridges across three major rivers. Thirty km of the road will be paved with bituminous surface and the remaining length will be improved to gravel standard. The Project also includes provi- sion of equipment and consultant services to assist the Fxecuting Agency in implementing the Project and to provide on-the-job training for local staff in all aspects of road construction and maintenance.  The total cost of the Project is estimated at US$6.5 million equivalent including a foreign exchange component of US$5 million. The proposed loan of US$2 million from the Bank's Special Funds resources will finance US$1.75 million of the foreign exchange cost and US$0.25 million of the local cost of the Project. The balance of the foreign exchange cost of US$3.25 million together with a portion of the local currency cost amounting to US$0.25 million equivalent will be financed from other external sources. The remaining local currency cost of US$1 million equivalent will be met by the Government from its own resources. The principal quantifiable benefits are savings in vehicle operating costs; of lesser importance are benefits to generated traffic and reductions in road maintenance costs. Non-quantifiable benefits in the form of improved accessibility to health services, educational institutions, marketing facilities and other social amenities - will accrue to a rural population of 25,000 people living in the immediate influence area of the Project. The Executing Agency - the Ministry of Communications and Public Utilities - will likewise benefit from on-the-job training provided to its staff by consultants. The Project is economically viable and socially desirable. It has no significant technical or economic risks and it is not expected to have any adverse environmental effects. The arrangements for timely implementation of the Project are considered adequate.  Table of Contents Page MAP: Project Road I. INTRODUCTION 1 II. BACKGROUND 2 A. The Transport Sector 2 B. The Road Subsector 3 C. The Project Area 7 D. Traffic Trends and Projections 9 E. Existing Roaa Conditions and the Proposed Project 10 Ill. THE PROJECT 12 A. Objectives 12 B. Scope 12 C. Project Description 13 D. Cost Estimates 14 E. Financing Plan 16 F. Environmental and Road Safety Aspects 17 IV. EXECUTING AGENCY AND PROJECT IMPLEMENIION 18 A. Executing Agency 18 B. Implementation Arrangements 19 C. Consultants 20 D. Procurement 20 E. Implementation Schedule 20 F. Land Acquisition 21 G. Haintenance 21 H. Accounting and Auditing 22 I. Reporting and Monitoring 22 J. Project Benefit Monitoring and Evaluation 22 V. ECONOMIC EVALUATION 23 A. Objectives 23 B. Benefits and Beneficiaries 23 C. Estimation of Economic Returns 24 D. Sensitivity Tests 25 E. Project Risks 25 VI. CONCLUSIONS AND RECOMMENDATIONS 26 APPENDIXES 28  1. INTRODUCTION 1. Agriculture is the mainstay of Solomon Islands' economy and accounts- for over 70 per cent of the Gross Domestic Product (GDP). Therefore, the Government's overall development objective is to strengthen its economic base through increased and diversified agri- cultural production. To enhance agricultural production and support rural development, the Government's strategy in the road subsector is to improve the road transport system by rehabilitating existing roads and constructing penetration roads to open up new agricultural opportunity areas. Most of the country's economic activity is concentrated in the island of Guadalcanal, where the Government plans to improve the main road (Guadalcanal road) serving the fertile plains along the northern coast. 2. At the request of the GoveryBent, the Bank in May 1983 approved a technical assistance grant- to undertake a feasibility study for improvement of 106 km of the existing Guadalcanal road and construction of 27 new penetration road (70 'km) from Aola to Marau Sound. While the study- confirmed the need for improvement of the existing road, the proposed new penetration road was found to be not economically viable. A Fact-Finding Mission visited the Project area in January- February 1984 and, after an in-depth review of the study, formulated the proposed Project in conjunction with the Government. 3. Following fact-finding, a Bank Mission composed of P. K. Thomas (Senior Project Engineer) Mission Leader, P. Nielsen (Project Economist) and T. Baker (Mechanical Engineer/S57ff Consultant) visited Solomon Islands from 24 April to 2 May 1984- to appraise the proposed Project. This report is based on the feasibility study, discussions with Government officials and the Mission's findings in the field. 1/ TA No. 515-SOL in the amount of $197,000. 2/ The Consultants for the study were Roughton & Partners, U.K. 31 The Mission was assisted at Headquarters by 0. S. Ward, Jr. (Country Officer) and B. Purdue (Counsel).  2 II. BACKGROUND A. The Transport Sector 1. General 4. Solomon Islands comprises a scattered archipelago stretching over a 1,450 km chain in a south-easterly direction from Papua New Guinea. The six main islands - Choiseul, New Georgia, Santa Ysabel, Malaita, Guadalcanal and Makira - constituting 80 per cent of the country's total land area of 27,600 sq km, have rain-forested mountain ranges of mainly volcanic origin, deep narrow valleys and limited coastal strips, while the numerous other smaller islands are volcanic or coral atolls. Although the population growth rate - 3.4 per cent per annum -- is high, the population density is low with an overall average of 9 persons per sq km and approximately 80 per cent of the present population of 258,000 live dispersed in rural areas. The capital, Honiara, located on Guadalcanal is the only major urban area and it has a population of about 23,000. The majority of Solomon Islanders are closely associated with traditional social and economic systems involving subsistence farming with shifting agricultural practice and a strong attachment to land which is communally owned by members of the clans (customary land tenure). 5. During 1980-1982 the economy remained stagnant y7inly due to decreasing demand for the country's major export products- caused by international recession and consequently the annual real growth of GDP slowed down. This trend, however, was reversed in 1983 with GDP rising by 3.2 per cent in real terms following improved vegetable oil prices and a record fish catch and demand. Agriculture including livestock, forestry and fishirg accounts for 70 per cent of GDP, provides 95 per cent of the total value of exports and is the main source of income for over 90 per cent of the couutry's population. The major primary products are timber, fish, copra, palm oil and rice (see Appendix 1). Logging activity has increased over recent years and provided 26 per cent of the country's export earnings in 1983. Considering, however, the present high cutting rate and the limited reforestation efforts made, it is expected that earnings from logging will substantially decrease from the end of this decade. In 1983, fish accounted for 41 per cent, and copra and palm oil constituted 24 per cent of the country's total export value (see Appendix 2). On the import side petroleum products and manufactured goods accounted for 50 per cent of the total value of imports. 6. The country's transport system which has emerged over the vears is characterized by the relative dominance of sea transport since population and production centers are scattered over numerous islands, 1/ Fish, logs, palm oil and copra.  3 mainly along the coastal strips. The Mission estimate-/ that the formal domestic sea transport sector, which excludes motorized minor boats and canoes, carries 55 per cent of total freight ton-km and 47 per cent of total passenger-km, while road transportation accounts for 45 per cent of freight and 48 per cent of passenger traffic. Although domestic aviation only accounts for about 5 per cent of passenger-km and a negligible fraction of freight transport, it provides extensive links betweewthe islands through 21 air fields and two international air- ports.- More information on non-highway modes of transport is given in Appendix 3. 2. Transport Planning and Coordination 7. Transport planning and coordination at the national level are the responsibility of the National Planning Office (NPO) under the office of the Prime Minister. NPO has a separate cell to deal with foreign aid projects. Proposals for improvement of trans3?rt infrastructure are generally initiated at the provincial level- and submitted to the NPO. After discussions with the Ministry of Commu- nications and Public Utilities (MCPU) -- the Ministry responsible for all public works including transport infrastructure at the national level -- and the concerned provincial authority, NPO carries out a review of the proposal on economical and technical grounds. Based on such review the proposal is submitted by NPO to the National Planning Council (NPC) -- the ultimate economic planning authority in the countrv headed by the Prime Minister - for consideration. Following approval by NPC, the financing source is identified and NPO includes the project in the annual development program and appropriate budgetary provisions are then made by the Ministry of Finance. B. The Road Subsector I.. Development Strategy 8. The overall long term objective of the Government for the road subsector is to provide each major island with a system of roads linking its ports, airports, development areas and centers of population as well as to develop the capability to maintain roads at a satisfactory level. The Government further recognizes that its financial position restricts road construction activities mainly to rehabilitation of exist- ing roads rather than extension of the network, except for provision of penetration roads to open up agricultural opportunity areas. It is also aware of the urgent need for regular preventive road maintenance to 1/ Based on information obtained from the Marine Division, MCPU traffic count data and the feasibility study report. 2/ Henderson near Honiara and Munda (Western Province). 3/ Solomon Islands is divided into seven provinces -- Western, Santa Ysabel, Central Islands, Guadalcanal, Malaita, Makira/Ulawa, and Temotu -- each administered by a local government body known as the Provincial Assembly which is responsible to the central Government. Honiara, the national capital, also has the status of a province and is administered by a town council.  4 preserve assets already invested in roads.-/ The Government attaches high priority to the improvement of the main road on the northern coast of Guadalcanal which is in an extremely poor condition and carries more traffic than any other road in the country. The Government also plans to improve the main road on the west coast Hf Malaita island which carries relatively high volumes of traffic.- 9. Annual development expenditure on road construction has shown a fluctuating pattern (SI$0.04 million to 1 million) over the past five years in view of the varying external aid flows -- the main source of financing for road construction. In 1984, expenditure for road construc- tion is estimated at SI$1.6 million corresponding to 6 per cent of the annual development budget of SI$28 million. Since the country is heavily dependent on foreign aid to finance development programs, the realization of the Government's road improvement plans will largely depend on timely availability of such aid funds. 2. The Road Network 10. Solomon Islands has about 1,300 km of public roads, 170 km of which are classified as urban roads, apart from private roads (520 km) for plantation and logging operations (see Appendix 4). The majority of public roads are located on the two main islands, Guadalcanal (548 km) and Malaita (350 km), while Western Province has a high share of private roads (400 km) for logging operations. A total of 100 km of all public roads are bitumen sealed, 93 km of which are in Guadalcanal. While the extent of the main road network is considered fairly complete in the sense that it connects major population centers, ports and air fields, the majority of the roads are in a deteriorated condition with poor quality surfaces and inadequate drainage. This is partly due to poor maintenance mainly because of limited financial resources and equipment; this deficiency will be attended to in the proposed Project (see para 48). The penetration and other rural roads are in an even worse condi- tion and are mostly accessible to tractors and four wheel drive vehicles onlv. The use of many roads is further constrained by numerous river crossings with only natural fords where heavy rain prevents movement for a considerable part of the year. 3. Vehicle Fleet 11. In 1982, there were 3,080 vehicles registered in Solomon Islands of which 2,350 were privately owned (see Appendix 5). The majority of vehicles are registered in Honiara with small proportions licensed in Auki and Gizo. Since unlicensed vehicles are allowed to operate outside the islands where registration is undertaken and as some illegal operation (without registration) takes place, particularly outside Guadalcanal, the fleet size indicated above is considered ar underestimate. Of the total number of private vehicles in 1982, 30 per cent were trucks licensed to carry goods only, 9 per cent were public service vehicles registered to carry both goods and passengers, 46 per I/ Presently maintenance operations are only initiated when the condition of a road or bridge reaches a critical state. 2/ Aid sources have not yet been identified.  5 cent were private cars and taxis while 8 per cent were motorcycles; the remaining vehicles were composed of tractors, trailers and mobile road construction equipment. Since 1980, when customs duties on cars and motorcycles were substantially increased, the fleet growth rate has been much less than before; overall annual growth of the private fleet during 1981-1982 was less than one per cent as against 6.8 per cent during 1978-1982. 12. All vehicles more than two years old are required to pass an annual road-worthiness test, except for taxis which are tested every three months at the MCPU motor pool prior to issuance of the annual license. The Mission found the inspection procedures generally satisfactory. However, as the country has no established vehicle registration procedure and no first time registration fee, vehicles are merely licensed annually on production of an inspection certificate and proof of insurance in respect of third party liability. The Government recognizes that proper vehicle registration procedures with permanent license plates, an annual sticker system and vehicle registration fee will improve the revenue proceeds and control vehicle use, and is presently initiating steps to introduce such a system. 4. Road Transport Industry 13. Public passenger transportation services are provided by a formal sector consisting of privately operated buses and taxis. Bus services are, however, restricted mostly to Honiara township limits in Guadalcanal where three licensed companies operate with 8 large buses and 5 minibuses. No subsidy is provided by the Government which on an arbitrary basis regulates fares and route licensing. Despite some resistance from informal passenger transport operators, in April 1984 the provincial Government granted permission to two of the bus companies to extend services to Tambea in the west (45 km from Honiara) and to Vouza bridge in the east (37 km from Honiara). These extensions of bus services have substantially improved the safety of passenger transport since the informal carriers, which were the only ones available hitherto, comprise open trucks without any seating facility. Apart from these public carriers, licensed taxis provide short distance services for which fares are negotiable due to lack of meters; more than 80 per cent of all registered taxis operate in Honiara. Occasionally, a tourist bus operates between Honiara and the small resort at Tambea. 14. The trucking industry is dominated by private company-owned vehicles, particularly within the logging, rice and oil palm plantation sectors as well as for transport of fuel. 'For hire' services are pro- vided by two medium size firms in Guadalcanal and by a number of small- scale operators with a maximum of 3 trucks per owner in all the major islands. The majority of trucks in Guadalcanal carry a mixture of passengers and freight with smallholders accompanying their copra, cocoa or other produce for sale at the Honiara market. Most of the trucks in operation do not present any particular problem in regard to the maximum permissible axle loads of 7.7 mt per single axle and 14.6 mt per tandem axle. During axle load surveys conducted as part of the feasibility study it was observed that only 6 per cent of the truck axles in Guadalcanal exceeded the legal load limits and then by a maximum of 20  6 per cent. However, the Government proposes to utilize the portable loadometer provided under the technical assistance to check overloading and enforce axle load regulations. 15. At present, the Government is not enforcing any formal trans- port tariffs but is contemplating the establishment, in the long term, of an entity to approve applications for fare and rate increases on a cost plus basis together with route licensing to avoid excessive compe- tition. The prevailing passenger fare per km is SIe2.0 by bus within Honiara, and SIO3.3 by bus and SIC4.9 by truck between Honiara and Ruavatu . The higher fares for truck services are due to shortage of bus transport facilities in the area. Since trucks for hire are running at low capacity utilization, the rates quoted for freight are correspon- dingly high - SI