Lesotho - Second Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Rqort No. 5214 PROJECT PERFORMANCE AUDIT REPORT LESOTHO SECOND HIGHWAY PROJECT (CREDIT 619-LSO) July 31, 1984 Operations Evaluation Department This docunment hs a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorzation. FOR OFFICIAL USE ONLY PR3JECT PERFORMANCE AUDIT REPORT LESOTRO SECOND HIGHWAY PROJECT (CREDIT 619-LSO) TABLE OF CONTENTS Page No. Basic Data Sheet ... ......... .......... .I......................... i Highlights .... ............... ......... iv PROJECT PERFORMANCE AUDIT MENDRANDUM I. BACKGROUND .................I II. PROJECT OBJECTIVES AND COMPONENTS ....................... 2 III. PROJECT IMPLEMENTATION AND REEVALUATION .... ......... 3 Road Component ....... ....... ................ ...... 3 Labor-Intensive Component ................... ......... 5 Equipment/VehIcle Pool .... ................... 7 IV. CONCLUSIONS . ........................................... 8 PROJECT COMPLETION REPORT I. Introduction ................... 11 II. Project Identification, Preparation and Appraisal 12 III. Project Implementation; Actual Cost . ............. 17 IV. Institutional Development ............................... 22 V. Performance of the Government........................... 22 VI. Economic Reevaluation................................. VII. The Role of IDA ..............24..............2 VIII. Conclusions and Lessons Learned .25....... 25 Tables 1 - 8 .. ..................................... 26-33 Map IBRD 11695R This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT LESOTHO SECOND RIGWAY PROJECT (CREDIT 619-LSO) PREFACE This report presents a performance audit of the Lesotho Second Highway Project for which Credit 619-LSO for US$5.5 million equivalent was approved on March 2, 1976. The project was designed to promote the develop- ment of an isolated mountain area and to address the employment situation in Lesotho. The Credit was fully disbursed in June 1981. The report consists of a Project Completion Report (PCR) prepared by the Eastern Africa Regional Office and a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED). OED has reviewed the PCR against the Appraisal and President's Reports, the legal documents and the transcript of the Executive Directors' meeting which considered the project. Project files and documents have been reviewed and discussions held with Bank Group operational staff. Further, an OED mission had discussions concerning this project with Lesotho authorities in October 1983. The report was sent to the Lesotho authorities for comments. No comments were received. In the audit's view, the PCR provides a good description of the project implementation and a suitable background for defining lessons under the project. The audit notes weaknesses in the Bank Group's monitoring of the project and the need for a final overall analysis of the experience with the project's employment-related component. - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET LESOTHO SECOND HIGHWAY PROJECT (CREDIT 619-LSO) KEY PROJECT DATA Appraisal Actual or Estimate Current Estimate Total Project Cost (US$ million) 9.01 9.98 - Overrun (Z) - 11 Credit Amount (US$ million) 5.50 5.50 - Disbursed - 5.50 - Cancelled - - Date Physical Components Completed 12/78 12/79 Proportion of Physical Components Completed by Original Completion Date (Z) 100 75 Proportion of Time Overrun (Z) - 50 Economic Rate of Return (Z) /a 12/b 6/c Cumulative Estimated and Actual Disbursements (US$ million) FY77 FY78 FY79 FY80 FY81 (i) Appraisal 1.5 3.5 5.3 5.5 5.5 (ii) Actual - 2.5 3.5 3.7 5.5 (iii) (ii) as % of (i) 0 71 66 67 100 OTHER PROJECT DATA Original Actual First Mention in Files 02/73 Government's Application n.a. Negotiations 01/76 * Board Approval 03/02/76 Credit Agreement Date 03/10/76 Effectiveness Date 07/28/76 Closing Date 02/31/80 12/31/81 Borrower Kingdom of Lesotho Executing Agency Ministry of Works Fiscal Year of Borrower April 1 - March 31 Follow-up Project Name Third Highway Project Credit Number 884-LSO Amount (US$ million) 9.0 Loan Agreement Date 04/06/79 /a Returns for project's road component only. /b St. Michael-Mantsonyane and Mantsonyane-Thaba Tseka roads combined. 7c Return for St. Michael-Mantsonyane road only. - iii - MISSION DATA Month/ No. of Man- Date of Year Persons weeks Report Identification 02/74 2 8 02/01/74 Appraisal 04/75 2 34 05/12/75/a Supervision 1 02/77 1 6 03/16/77 Supervision 2 10/77 1 5 11/18/77 Supervision 3 03/78 1 6 04/10/78 Supervision 4 07/79 1 6 07/20/79 Supervision 5 02/80 1 4 03/25/80 Supervision 6 04/81 L 10 04/02/81 Supervision 7 12/82 1 1 12/03/82 Total 80 CURRENCY EXCHANGE RATES Name of Currency (Abbreviation): Rand (R) 02/76 US$1.00 - R $0.86 12/79 US$1.00 - R $0.83 03/80 US$1.00 - R $0.81 12/81 US$1.00 - R $0.96 /a Final version of appraisal report is dated February 17, 1976. - iv - PROJECT PERFORMANCE AUDIT REPORT LESOTHO SECOND HIGHWAY PROJECT (CREDIT 619-LSO) HIGHLIGHTS The Second Highway Project had two major objectives: to promote development of an isolated mountain area and to prepare Lesotho for a pos- sible recurrence of an employment emergency such as the one which occurred in 1974. Earlier that year, about 10,000-15,000 Basotho miners returned home from the Republic of South Africa following disturbances in the mines, and (at least temporarily) swelled the large number of under- or unemployed (PPAK, paras. 3-6). An ancillary project objective was the improvement of the Government's central workshop which supplies vehicles and equipment to Government departments and agencies (PPAM, para. 8). The project financed a road component to provide the infrastructure for opening up the isolated mountain area, and a labor-intensive component to deal with the employment situation. Total project costs were estimated at appraisal at about US$9.0 million equivalent. Actual project costs were about US$10.0 million equivalent, which implies a cost overrun of about 11%. The cost overrun, mostly in the road component, was largely due to difficulties facing the contractors, flaws in road design and inflation (PPAM, paras. 9-12). The project was implemented about one year after the originally expected date, with a time overrun of about 50%. The delays in implementation were due to several factors which also caused the cost overrun (PPAM, paras. 9-12). The recalculated economic rate of return (ERR) for one of the two project roads is 6%, against an ERR of about 13% projected at appraisal. No ERR could be recalculated for the other project road because of lack of data, though indications are that the ERR would be low, too (PPAM, paras. 14-15); that road's ERR was estimated at 11% at appraisal. Project monitoring by the Bank Group and accounting for project cost and benefits were not fully adequate. In particular, the linkages between one of the project roads and parallel rural development programs, which were noted at appraisal, were subsequently not followed up (PPAM, paras. 13-15). Under the project's labor-intensive component, a Labor-intensive Construction Unit (LCU) was established, which has been in operation continu- ously since 1977. LCU has implemented various civil work schemes, most of them in the roads sector and it has, in the more recent years, employed - v - between 1,000 and over 2,000 people. In 1979, LCU, jointly with the Ministry of Works, made proposals for preparing the country for any recurrence of a 1974-type employment emergency. The future role of LCU outside an emergency context was also explored. Nevertheless, whether Lesotho is now prepared for another emergency situation is uncertain, and the issue of the non-emergency role of LCU is unresolved. LCU is at a crossroad and needs a final overall evaluation (PPAM, paras. 16-22). During implementation of the Second Highway Project, the per- formance of the Government's central workshops deteriorated, and during implementation of the Third Highway Project (Credit 884-LSO), a technical assistance team was engaged to prevent its total collapse. The recently approved Fourth Highway Project (Credit 1481-LSO) continues Bank Group support to the workshop as a follow-up to the two preceding projects. The experience with the workshop illustrates a typical dilemma of determining the suitable time for and appropriate level of Bank Group involvement in operations outside the immediate sphere of Bank Group interests (PPAM, paras. 23-24, 30). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM LESOTHO SECOND HIGHWAY PROJECT (CREDIT 619-LSO) I. BACKGROUND 1. Lesotho is a small and resource-poor country, which is classified by the United Nations as one of the least developed countries in the world. ALauc 90% of the population, living in rural areas, depends economically on subsistence agriculture and remittances of workers employed in the Republic of South Africa (RSA). External assistance is an important, if not indis- pensable, part of the national economy. 2. About 80% of the population is concentrated in the western lowlands and foothills and along the Orange or Senqu River valley in the South, where most of the arable land is located. Less than 15% of the total surface area of tne country is arable, while the remainder, mostly in the hills and mountains, is usable only for livestock. Due to soil erosion, poor farming techniques, overgrazing and other factors, about 7% of the nominally arable land has been lost for agriculture, and the pressure on the land is con- tinuing. The performance of the agricultural sector, providing about 70% of domestic employment, has seriously deteriorated in the last ten years: the production of the main crops has declined steeply, and the livestock sector has run into severe constraints. 3. In 1976,1/ when the project was made, the economically active labcr force was about 426,000 people. About 41% (174,000) were employed in agriculture, about 32% (135,000) in the RSA, about 17% (74,000) in the mostly public service sector, and about 10% (43,000) in mining and industry. An estimated 125,000 of the Basotho nationals employed in the RSA worked in mines. The present employment of Basotho miners in the RSA, based on rough estimates, is in the neighborhood of the 1976 census figure. Population growth since the mid-sixties to the year 2000 is estimated at over 2% p.a., which translates into a growth of the potentially active labor force of 10,000 people p.a. Increases in domestic employment opportunities are lagging far behind the increases in the labor force. 4. In early 1974, following disturbances in RSA mines, about 10,000- 15,000 Basotho migrant workers returned home to Lesotho, though toward the end of the year, some of them went back to the RSA or found employment in Lesotho's agricultural sector. Concerned about the social and economic dis- ruptions resulting from possible similar occurrences in the future, the Government approached the United Nations Development Program (UNDP) for assistance and advice. Subsequently, the Bank Group was nominated executing agency for a study on the migrant labor situation, and it mounted a mission 1/ Year of latest population census. - 2 - to Lesotho in September 1974, whose findings were published in the 1975 "Report of the Migrant Workers Reemployment Mission".2/ 5. The Bank Group mission, which included staff of the Food and Agricultural Organization (FAO) and the International Labor Office (ILO), as well as Bank Group consultants, had the following tasks: (i) to make concrete proposals on how to deal with any immediate employment problems; (ii) recommend a contingency plan for dealing with possible future emergencies resulting from a massive return of Basotho from the RSA; and (iii) to identify strategies for maximizing long-term employment opportunities in Lesotho. Because, by the time the mission arrived in the field, the 1974 emergency situation had eased, the mission concentrated primarily on the last two tasks. 6. To prepare for a future possible employment emergency, the mission recommended the following: (i) establishment of a National Employment Service within the Ministry of Labor which would monitor the employment situation; (ii) creation of a Labor-intensive Construction Unit (LCU) in the Ministry of Works (MW), which would test labor-intensive methods for subsequent large-scale implementation in an emergency; and (iii) formulation of a Coordinating Committee under the Prime Minister's Office, which would coordinate the emergency employment measures. The Bank Group mission also identified projects in the 1975-80 development plan, which might be suitable for employment of some 12,000 people in an emergency,/ while larger numbers of returning migrants would require the creation of "make-work" projects. To address the long-term (non-emergency) situation, the mission recommended, inter alia, the expansion of LCU-type works, should LCU projects prove technically and economically viable. II. PROJECT OBJECTIVES AND COMPONENTS 7. Against the background of a severe shortage of land for regional/agricultural development and of a recent employment emergency, the Second Highway Project, appraised in April 1975 and approved in March 1976, had these two major objectives: (i) to promote development of the isolated central mountain area through construction and maintenance of an all-weather link to the capital, Maseru; and (ii) "to prepare Lesotho to deal adequately with any recurrence of the recent employment emergency" 1/ along the lines of the Migrant Workers Report. 2/ Report No. 614a-LSO, hereafter referred to as "Migrant Workers Report". 3/ Mainly in road construction/maintenance, soil conservation, preparation of wood lots and fish ponds. 4/ SAR, para. 5.15. - 3 - 8. An ancillary project objective was the improvement of the Govern- ment's Central Mechanical Workshop and Plant Pool (CMW&PP) on the basis of a review of its operations and procedures jointly by the Government and the United Kingdom Overseas Development Ministry (ODM) and on the basis of a plan which was yet to be drafted, discussed and agreed with the Bank Group. At the time, ODM was a major source of financial support to CMW&PP. CMW&PP had been established in 1972 by the Government as a central facility to meet the equipment and vehicle needs of Government departments and agencies, but as the SAR reported, it had not functioned effectively and become the source of inefficiencies in road construction and maintenance. 9. The project financed a road and a labor-intensive component. The road component consisted of: improvement/construction of the gravel road from St. Michaels to Mantsonyane (95 km), upgrading of the one-lane track from Mantsonyane to Thaba Tseka (52 km) to a two-lane gravel road, related consultants services, road maintenance facilities for these roads, and tech- nical assistance to the MW. The labor-intensive component consisted of the establishment of an LCU and technical assistance to the Labor Commissioner's Office.. 10. The cost of the road component was estimated at appraisal at about US$7.3 million equivalent, and those of the labor-intensive component, at US$1.7 million equivalent (both components including local taxes). Total project cost, US$9.0 million equivalent, were to be financed by an IDA Credit in the amount of US$5.5 million equivalent, an ODM grant of about US$1.5 million equivalent and by a contribution of the Lesotho Government in the amount of US$2.0 million equivalent. At the time the Credit was approved, Government requests to the Swedish International Development Agency (SIDA) and to UNDP were pending for assistance to the project for a combined total of US$0.7 million equivalent, and the Government was negotiating with the Arab Bank for Economic Development in Africa (BADEA) for a loan in support of the project. III. PROJECT IMPLEMENTATION AND REEVALUATION , Road Component 11. According to data given in the PCR, the road component was com- pleted with a cost overrun of 13Z5/ and a time overrun of 50%.6/ The facilities (buildings and equipment), which were financed under the Credit for maintenance of the project roads, had a cost overrun of about 90% mainly because of the decision to purchase the buildings and shops the contractor 5/ PCR, Table 4. 61 PCR, para. 3.01. had erected along the road. They ended up coating US$0.85 million equivalent or about US$5,800 for each of the 147 km of the project roads to be maintained.7/ 12. The PCR attributes the cost overrun on the civil work, to several difficulties facing the contractors, flaws in the road (drainage) design8/ and inflation. The time overrun on the road component is attributed to an overly optimistic appraisal schedule and specific implementation difficulties.9/ 13. No full picture emerges from the PCR or other Bank Group documents about the sources of actual project financing and the respective amounts actually financed, except that the Credit is reported as fully disbursed. The PCR reveals deficiencies in accounting for the actual project cost, which were reported in the PCR as "the best possible estimate" and as accounting "for 80% (of costs) based on reasonably reliable data".10/ 14. At appraisal, the economic rate of return (ERR) for the St. Michael- Montsonyane road was estimated at about 13%, based on projected opening-year traffic in 1978 of approximately 110-130 vehicles per day (vpd) and 1983 traffic of approximately 170-180 vpd. The PCR does not provide new actual traffic data, except for 1983, when traffic is given as about 80 vpd,11/ which is the same number as that reported in 1973. The low actual traffic is unexplained, though it could be due in part to lack of development along the connecting road to Thaba Tseka (PPAM, para. 15). The 1983 traffic observations would imply that actual traffic development fell short of projections by some 50%. The actual cost of road construction including supervision, in real terms, is on the order of 110-120% of the appraisal estimates, according to data given in the PCR.12/ Current vehicle operating cost, in real terms, are possibly higher than those at appraisal as the PCR suggests, though it is unclear what the appropriate number is.1/ Assuming that vehicle operating costs are 50% over the appraisal level and using above data, assumptions and considerations, the audit and PCR estimate the ERR at about 6%.14/ This estimate is subject to a wide margin of error due to the unreliability of the data. 7/ PCR, Table 4. 8/ PCR, paras. 3.04-3.06. 91 PCR, Highlights, para. 4. 10/ PCR, para. 3.15. 11/ PCR, para. 6.04. 12/ PCR, Table 4 and para. 6.03. 13/ PCR, para. 6.05 and footnote. 14/ PCR, para. 6.05. -5- 15. The appraisal estimate of the ERR for the Mantsonyane-Thaba Tseka road was 11%. The PCR reports that agricultural development in the area, which was to provide the overwhelming part of the road construction benefits, was not adequately monitored for a meaningful economic evaluation, that little actual area development has taken glace, and that current traffic levels do not justify the road investments.1 I Labor-Intensive Component 16. The labor-intensive component was implemented under the project within the original budget of about US$1.7 million equivalent. Field opera- tions of LCU started in the second half of 1977 and have continued since, with additional financing provided by the Bank, ODM and SIDA. Other donor agencies, including Kreditanstalt fur Wiederaufbau (KfW), have expressed interest in funding LCU. The Bank's Third Highway Project (Credit 884-LSO) financed the establishment and operation of two labor-intensive brigades, each employing about 200 men, at a cost of about US$2.2 million equivalent, and the recently approved Fourth Highway Project (Credit 1481-LSO) finances road regravelling works by one brigade at a cost of US$1.7 million equivalent. At the same time, the Fourth Project reports the elimination of the second brigade because of budget constraints; however, Bank Group staff have also raised questions about the brigades' competitiveness and performance. These questions are supposed to be answered in a study of the cost effectiveness of LCU which is being carried out by the Ministry of Works on the Bank Group's recommendations. A draft report has been recently completed. 17. The initial experimental stage of LCU, under the Second Highway Project, lasted three years and resulted in the construction/improvement of some 65 km of rural roads, regravelling of some 20 km of roads, rehabilita- tion of several airstrips, construction of fish ponds and soil conservation works. The bulk of these works, as well as those in the post-experimental phase, was in the roads sector. The Government has decided "in principle" to extend the use of labor intensive construction methods to other sectors. 18. LCU started off with a small number of 200-300 laborers and reached a staff level of over 2,000 in 1982. Since then, the number fluctuated at a lower level, and present employment is on the order of 1,200-1,400 people. The Third Five-Year Development Plan (1980-85) set an employment target for LCU of about 3,500 people towards the end of the plan period, but there is little chance that it will be achieved. By comparison, the Roads Branch of the MW is reported to employ 2,000 men in quasi-labor-intensive assignments on average, not counting work given to LCU. There also is the Food-for-Work Program, which benefits large numbers of women and is reported to have employed 7,500-8,500 people during the first half of 1982, though it is 15/ PCR, paras. 6.07-6.08. When the project was presented to the Board for approval, it was said to meet -the criteria of the Operations Evaluation Department" for ensuring, that the road investments were accompanied by complementary developmental policies and investments. unclear whether employment was full- or part-time. Further, many Basotho found work in public reforestation and soil conservation programs organized by other Ministries. 19. LCU is administratively part of the MW because of its originally strong orientation towards works in road infrastructure. Under supervision of an interministerial committee, management staff is provided through technical assistance which is currently financed by SIDA. The technical assistance, under SIDA financing, is expected to continue for some years to ensure management continuity and safeguard the past institutional investments in LCU. There is little local capability at present for management of LCU. 20. In January 1979, the MW/LCU submitted a report to the LCU coordinating committee on how to deal with any recurrence of a 1974-type employment emergency.16! The report recommended various procedures for absorbing up to 10,000 men who might be returning home over a period of six months and proposed steps to be taken in advance of such an event. No record is in Bank Group files about concrete follow-up and implementation of the MW/LCU recommendations. 21. To address the long-term (non-emergency) employment situation in Lesotho, as proposed in the Migrant Workers Report (PPAM, para. 6), the LCU analyzed the areas and degree of its competitiveness with other work methods and organizations, it made analyses and proposals for its organizational structure, management, administration and accounting, supply with necessary equipment and related topics, and it keeps a periodically updated file for LCU-suitable works. In 1980, a team from a United States university, in cooperation with the MW/LCU, concluded that for certain conservation works on waterways, terracing and village roads, labor-intensive methods are marginally (about 10%) cheaper than equipment-based methods. The Bank Group supervision missions, without making an in-depth analysis of the usefulness of LCU operations (PPAM, para. 22), gave mixed evaluations. In 1980, in the context of supervision of the Second Highway Project, they labelled execution of the labor-intensive operations "highly successful",17 / while in 1982, in the context of supervision of the Third Highway Project,18/ they reported LCU work to be of poor quality, cost effectiveness to be questionable, supervision to be inadequate and staff turnover to be frequent. It is unclear whether the contrasting reports were due to differences in reporting standards, in the focus of the evaluations, or in actual changes in LCU performance. The Government's attitude toward LCU, judged by official pronouncements and actual departmental support, is somewhat ambiguous. In any case, whatever views are being held about LCU, it is, to date, neithcr assured of a permanent place in Lesotho's public works programs, nor has it attained a sizable share of such programs. 16/ Report to the Coordinating Committee on 'A Contingency Plan' during a possible emergency period. 17/ Report dated March 25, 1980. 18/ Report dated December 8, 1982. -7- 22. LCU is now in the seventh year of its existence. However, there is no clear evidence yet that adequate stand-by arrangements are made and tested procedures are in place for the country to adequately respond to a 1974-type emergency.19 / Bank Group staff and some Government officials furthermore question whether the original LCU objective is still valid. The issue of what role LCU should play in the future in a non-emergency situation, how it fits into a long-term employment generation strategy and what scope it should have in relation to the large pool of under- and unemployed, is also unresolved. The sense of urgency and emergency, which surrounded the 1974 migrant worker re-employment mission and led to the creation of LCU, seems to have subsided, though the Bank Group continues to suggest, with diminishing intensity, that LCU is an important remedy to the enormously difficult employment problems of Lesotho. In the meantime, LCU has succeeded in attracting attention by other international organizations such as the United Nations General Assembly/Security Council.20/ The Bank Group's Second Highway supervision reports uniformly made only fleeting references to LCU, and without giving much attention to the achievement of its fundamental objective (PPAM, para. 7). In 1981/82, the Bank Group launched an initiative to arrive at basic conclusions about LCU, and a draft evaluation report on LCU by the (then) Transportation, Water and Telecommunications Department of the Central Projects Staff, in collaboration with the Bank Group's regional office for Eastern Africa, was issued in March 1982 and subsequently discussed with the Government. As noted earlier, a draft study by the Ministry of Works on LCU's cost effectiveness was also recently completed (PPAM, para. 16). Careful monitoring of LCU and dissemination of lessons were a concern of a member of the Board when the project was presented to the Board for approval in March 1976.211 Equipment/Vehicle Pool 23. The performance of the Plant and Vehicle Pool Services (PVPS), formerly known under the initials CMW&PP (PPAM, para. 8), was unsatisfactory before the Second Highway Project, and it deteriorated further during project implementation and through part of the still ongoing Third Highway Project. By 1982, PVPS became a serious impediment to the efficient functioning of NW's Roads Branch and perhaps other Government agencies as well. The string of problems which afflicted PVPS at one time or another since appraisal of the Second Highway Project (1975/76), and indeed before, was long: weak management, shortage of staff, operational inefficiencies and high cost, lack . of workshops and equipment, imbalance of equipment, lack of equipment 19/ This is so, even though a Bank Group supervision report on the Second Highway Project, dated July 20, 1979, called the January 1979 MW/LCU emergency plan (PPAM, para. 20), without further elaboration, technically sound-. 20/ Document A/37/126 - S/15280 of August 18, 1982, regarding Special Economic and Disaster Relief Assistance, Special Programs for Economic Assistance. 21/ Transcript of Proceedings, March 2, 1976. - 8 - standardization, low equipment utilization rates, excessive rental charges, unsuitability of equipment for road maintenance, regulations against repair by PVPS of equipment procured under Bank projects, and inadequate financial management and accounting.22/ 24. In retrospect, it seems clear that provision for the Government under the Second Project to "review" PVPS with ODM and "agree" with the Bank on a plan of remedial action and to implement it, came too late and was inadequate to turn PVPS around. Even though the Government reportedly complied with its obligations under the Second Project, with considerable delays, a deeper Bank Group involvement became necessary under the Third Project, and by early 1983, a consultants' team financed by that project de facto had to take over the management of PVPS in order to salvage its remaining assets and start rebuilding it.23/ The Fourth Highway Project finances further Bank assistance for PVPS. IV. CONCLUSIONS 25. The project was devised to support the country in two policy areas vital to the national economy, in the quest for (i) expanding the agricul- tural sector and fostering rural development; and (ii) finding or contributing toward a solution for a potential employment emergency and chronic structural unemployment. 26. The physical objective of the project's road component, construc- tion of a road which would integrate an isolated mountain area with the developed western part of Lesotho, was achieved. As a result, thousands of people are now enjoying easier access to commercial, social and administrative services. The economic objective of the road component was not achieved, as the recalculated ERR for the longer road section appears to be well below 10%, and the ERR for the other section appears to be low, too, though no quantitative analysis of the latter was performed. 27. The experience with the road component underscores the considerable difficulties in designing and implementing "integrated" projects and the need to safeguard intersectoral linkages. The experience also highlights the requirement of adequate project monitoring and coordination with other agencies. Intersectoral linkages of the road component with broader development programs were reported, without great detail, in the SAR, but subsequently rot monitored, and the development programs, from what is known, 22/ SAR, para. 3.24; SAR for Third Highway Project, paras. 2.10-2.11, 2.25, 3.09-3.10; SAR for Fourth Highway Project, para. 2.13; and supervision reports for Second and Third Highway Projects. 23/ PVPS conditions at the time the consultants arrived and its long-term prospects are described in the Inception Report of May 1983, submitted under the consultants' contract for Technical Services to the Plant and Vehicle Pool Services. - 9 - may not have fully materialized. Project progress reporting should be geared not only to the physical implementation and to establishing the benefits of a project, but also to the necessary conditions on which physical implementation and project benefits are based. 28. Adequate project monitoring also extends to accounting for project cost. In this project, costs were not accurately accounted for, as it is noted in the PCR which also comments on the problem. In recent years, the Bank Group has given increased attention to governments' budgeting, accounting and auditing procedures as they apply to Bank Group operations, and in the case of the Lesotho roads sector, Bank Group mission reviewed the situation in the country in 1983. 29. The project's labor-intensive component has halfway met the stated objective of preparing the country for a recurrence of an employment emergency, and it has rekindled interest in Lesotho and the aid community in policies to strike an appropriate balance between labor- and equipment- intensive work methods. The LCU has been in operation continuously since 1977, procedures were proposed for coping with an employment emergency, and there has been a spin-off of ideas about its potential and limitations. The fragility of LCU has also been demonstrated, as LCU is still largely dependent on external support. LCU is at a crossroad. To determine whether its original objectives have been fully achieved, and to establish the direction in which it should be going, it needs a final overall evaluation.24, 30. The experience with PVPS (or rather its predecessor, CMW&PP) illustrates a dilemma faced by the Bank Group when it seeks to address a problem that may affect the project which it is helping to finance but which is not a central feature in the project design. Problems in the operations of PVPS were clearly visible before and at the time the Second Highway Project was made, and there was little doubt about the deleterious effects of a poorly performing PVPS on the road sector to which the Bank Group was lending. At the same time, PVPS might have been considered the domain of 0DM, which had been supporting it for some time and of other donors which had been supplying it with vehicles and equipment. As things developed, the Bank Group in the end became more deeply involved in the affairs of PVPS under the Third and Fourth Highway Projects, as part of its general effort to support the roads sector, when it was faced with the possibility of a complete breakdown of PVPS. Perhaps an earlier involvement might have been useful and might have contributed to the solution of a problem with which the Bank Group eventually felt constrained to deal. 24/ In a recent Project Performance Audit report on the Malawi Second and Third Highway Projects (Credit 523-MAI and 758-MAI), a similar suggestion was made for an in-depth review of the (successful) implementation of labor-intensive work methods in that country. Consideration might be given, for efficiency and contrast, to combining the two country reviews in one report. - 11 - KINGDOM OF LESOTHO SECOND HIGMRAY PROJECT - CREDIT 619-LSO PROJECT COMPLETION REPORT I. INTRODUCTION 2 1.01 Lesotho is a small (30,300 km ) mountainous country surrounded by the Republic of South Africa (RSA) on which it-relies for external communica- tions, and where a major part of Lesotho's male population earns its wage income. Altitudes range from 1,500 m in the western lowlands to 3,500 m in the eastern mountain areas. This topography presents major obstacles to the construction of the transport infrastructure which consists exclusively of roads and airstrips. Rivers are not navigable, and except for a 1 km rail connection between the capital Maseru and the RSA railsystem there are no railways. Because of the rugged topography 30% of the 1.34 million population (mid-1980s estimate) live in the western lowlands7. Agriculture is the main source of income for 85% of the population and contributes 55% to GDP. 1.02 The only previous Bank Group operation in the transport sector was a Credit (82-BL, US$4.1 million) for the construction/reconstruction between 1967 and 1969 of the 123 km north-south road from Leribe to the matsieng turnoff, plus a 23 km feeder road between Leribe and Pitseng. The project was success- fully completed for less than the estimated cost. 1.03 The above road served the country's most densely populated area along its western border with the Republic of South Africa (RSA). Contrary thereto, the Government's strategy reflected in the construction part of this Second Highway Project is to connect the remote and thinly populated mountain area in the center of the country with the more populous western lowlands. This Road Component fits in the framework of a comprehensive long term development effort with an agriculture project, the CIDA (Canada) financed Mountain Area Development Project. 1.04 Another Government strategy, reflected in the second major component of this Second Highway Project, is to make employment of the country's male wage earners less dependent on the ups and downs of the RSA economy, through the creation of a Labor Intensive Construction Unit in which male workers returning from RSA may find useful employment. It was in the frame- work of the above two Government strategy considerations that IDA's Second Highway Project was identified, prepared and appraised. 1.05 Already during the first supervision mission of the Second Highway Project, financed by US$5.5 million IDA Credit 619-LSO, approved by the Board in March 1976, a start was made with the preparation of the follow-on Third Highway Project for which a US$9.0 million IDA Credit (884-LSO) was approved in April 1979. A Fourth Highway Project is being prepared. - 12 - II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Identification 2.01 In 1974 the country's 2,725 1km road network was classified in primary, secondary and tertiary roadb. But of these, only 200 km were bituminous paved, and 370 km were two-lane gravel roads; the rest were dry- weather tracks. The 1,240 km primary system consisted mainly of a peripheral road in the west and south, supplemented by an east-west link in the middle of the country and a north-south link in the east. 2.02 In early 1975 the completion of the U.K.-financed Lesotho Transpor- tation Study resulted in a ten-year road development plan and program for collecting traffic data was initiated so as to determine priorities for road improvements, and to establish a framework for administrative reforms to arrive at better road maintenance procedures. It was this Transportation Study together with the Government strategy to connect the mountain region with the western lowlands which determined as one objective of a Second Highway Project the improvement of the St. Michaels-Mantsonyane-Thaba Tseka Road. 2.03 Simultaneously, in early 1974, the vulnerability of Lesotho's economy became obvious when some 15,000 migrant workers returned home following disturbances in the RSA mines. This led to a Government request to the UNDP and the Bank to organize a mission to (a) make proposals how to deal with any immediate unemployment problems; (b) recommend a plan which would enable the Government to handle such emergencies; and Cc) identify broad strategies to maximize long-term employment opportunities. This mission's recommendations led to the inclusion of the Labor Intensive Construction component in the project. Preparation 2.04 IDA and the Government agreed that the objectives of the Second Highway Project would be"met by two largely unrelated components: A. The Road Component, dfsigned (i) to promote development of the central mountain area by linking it with an all weather road to the national capital, Maseru; (ii) to ensure propermaintenance of that road; and (iii) to improve the operations of the Road Branch (RB) in the Ministry of Works (M11W) . B. The Labor-Intensive Comoonent, the aim of which was to prepare Lesotho to deal adequately with any recurrence of an employment emergency, along the lines recommended by the UNDP/IBRD Migrant Workers Re-Employment Mission. - 13 - A. The Road Component 2.05 This component comprised: (I) improving from gravel four to gravel three standard the seriously deteriorated two-lane gravel road between St. Michaels and Mantsonyane (95 km), and reconstructing to the existing gravel four standard the 52 km road between Mantsonyane and Thaba Tseka in the center of the mountain region; along the lines of the detailed engineering and construction documents already prepared by consultants, financed by ODM; (ii) providing consulting services to finalize tender documents in compliance with IDA requirements, and to supervise the work in (i); (iii) providing road maintenance facilities along the project road; and (iv) strengthening the Road Branch (RB) in the Ministry of Works (MW) through technical assistance. 2.06 To expedite international competitive bidding for the road works, US$13,000 was advanced (for retroactive financing from the Credit) for the cost of consultants to finalize tender documents, and to assist in pre- qualifying contractors; the same consultants were selected also to supervise construction. The road component costs were estimated at R6.30 million (US$7.3 million equivalent) including, or R5.96 million (US$6.9 million equivalent) excluding taxes. Taxes being a local cost, the foreign component was estimated at R4.7 million (US$5.5 million equivalent). Details are shown in Table 1 and summarized below: COST ESTIMATES ROAD COMPONENT (In US Dollars 000) Local Foreign- Total 1. Road Improvement/Reconstruction 892 3,022 3,914 2. Consulting Services (including advance tender documents) 176 340 516 3. Road Maintenance Facilities 147 168 315 4. Technical Assistance (10 man-years) 51 204 255 Subtotal 1-4 1,266 3,734 5,000 5. Contingencies (i)-Physical 126 373 499 (Ji) Price 469 1,345 1,814 Subtotal 5 595 1,718 2,313 Total Cost Road Component (including Taxes) 1,861 5,452 7,313 (Same Net of Taxes) (1,455) (5,452) (6,907) 1/At appraisal exchange rate: US$1 = RO.86 - 14 - B. The Labor-Intensive Component (LCU) 2.07 This component would be a pilot project for establishing a Labor- Intensive Construction Unit (LCU), and concomitant strengthening of the employment service functions of the Labor Commissioner's Office. It was initially to consist of a 35 member staff together with a labor force of about 200 engaged in labor-intensive construction works. The main functions of the LCU, which was to be an independent entity within the MW, would be: (i) to gain experience in carrying out labor-intensive public works, such as, e.g., road construction, maintenance of airstrips, soil conservation, etc. (ii) to formulate administrative procedures on which to base large scale adoption of labor-intensive techniques, (iii) to develop an inventory of appropriately designed projects; and (iv) to provide on-the-job training for local staff of the LCU and for appropriate staff from other ministries and agencies. The pilot.project would finance the establishment of the LCU and its operations for three years. 2.08 The cost estimates of this project component are shown in Table 2 and summarized below: COST ESTIMATES LABOR-INTENSIVE COMPONENT 1/ (In US Dollars 000) Local Foreign Total 1. Labor-Intensive Construction Unit (i) Consulting Services - 355 355 (ii) Equipment 18 348 366 (iii) Local Staff and Labor 355 - 355 2. Labor Commissioner's Office (i) Consulting Services - 72 72 (ii) Local Staff and Training 56 14 70 Subtotal 1 + 2 429 789 1,218 3. Contingencies Physical 43 79 122 Price 132 226 358 Subtotal 3 175 305 480 Total Labor-Intensive Component (No taxes in this component) 604 1,094 1,698 1-/ At appraisal exchange rate: US$1 R R0.86 - 15 - C. Total Project Cost - Financing Scheme 2.09 Adding the estimated cost of both the Road Component and the Labor- Intensive Component brings the total cost of the Second Highway Project to US9.01 million including, and US$8.61 million excluding taxes: TOTAL PROJECT COST ESTIMATES (In US Dollars 000) Local Foreign Total a. Road Component (including taxes) 1,861 5,452 7,313 b. Labor-Intensive Component 604 1,094 1,698 Total (including taxes) 2,465 6,546 9,011 Total (excluding taxes) 2,060 6,346 8,610 1/ At appraisal exchange rate: US$1 = RO.86 2.10 The project was to be financed jointly by IDA (US$5.5 million, including US$520,000 for local cost), 0DM (UK, USS1.5 million, including US$540,000 for local cost), and the Kingdom of Lesotho (US$2.0 million, all local cost, including US$0.4 million taxes). Details of the financing scheme are shown in Table 3. IDA credit funds were to be distributed as follows: (a) 86% of expenditures on road improvement/reconstruction; (b) 100% (retroactive) of foreign cost of consulting services for finalizing tender documents; and (c) 100% of consulting services for the LCU. 0DM was to pay for the supervision of the road improvement (US$0.68 million), technical assistance to the RB for maintenance operations (US$0.34 million) and road maintenance facilities (US$0.50 million). The Governmeit was to pay for the balance, namely US$0.39 million for the local cost of the road improvement, and US$1.20 million for the LCU. Appraisal 2.11 MW and the RB thereof were made responsible for project execution. Since it did not have in-house capability for supervision of construction, the same consultants who prepared the detailed engineering and the tender documents for the road improvement/reconstruction component were to be retained for that task. As to the LCU, this was made a special unit within the MW. reporting directly to a Coordinating Committee, chaired by the Senior Permanent Secretary in the Prime Minister's Office. Because of a general shortage of qualified - 16 - domestic staff prevailing in Lesotho, the three senior positions in the LCU were to be filled by a team of expatriates to be provided under a three-year contract with a consulting firm. 2.12 The project, as conceived above, was appraised in April 1975 and negotiated in January 1976. Board approval was on March 2, 1976 and signing took place on March 10, 1976. However, due to delays in both confirming ODM's contribution to the project and negotiating the consultants contract for supervision, it took nearly five months before the credit became effective, on July 28, 1976. - 17 - III. PROJECT IMPLEME!TATION; ACTUAL COST General 3.01 Except for a continuous shortage of qualified domestic counterparts for consultants' staff, difficulties encountered in recruiting supervisory staff at all levels, and occasional shortage of local funds to be provided by the Government, implementation of the two largely unrelated project components has not met with major difficulties. A cost overrun of 11% during the 1976-1980 inflation years is modest. There was a 50% time overrun of the original con- struction schedule for civil works, largely resulting from (a) a subcontractor going bankrupt and abandoning his contract at an early stage; and (b) due to incomplete rainfall data, drainage structures were underdesigned in some loca- tions, causing the need for redesign and excessive maintenance after heavy rains. For these and other reasons, the original construction schedule was extended by one year. 3.02 As to the LCU operations, works initiated under the pilot project were successfully completed. However, whether cost (excluding cost of technical assistance) was competitive with mechanized construction is not clear; this depends also on what shadow cost of labor would be applied and whether the quality of the work is equal. In any event, continuation of the program after completion of the Second Highway Project has met with some problems (para. 3.11). THE ROAD COMPONENT Civil Works 3.03 The advantage of having consultants finalize the tender documents even before the credit was approved was largely lost when making the credit effective was delayed (para 2.12). Already in September 1975 were eleven contractors pre-qualified but it took until May 1976 before bids were invited. Only four bids were received and opened on July 29, 1976. Included in these four was the low bid of Messrs. SMT Constructions (Lesotho) Pty. Ltd. (Italy/RSA) which was 45% over the estimates. This contractor was not pre-qualified but their bid was retroactively accepted with IDA's approval. A unit price contract for the civil works was awarded to this firm in September 1976 for an amount of R4,835,480 (US$5.547 million equivalent). In addition, the original contract included a provisional sum of R431,250 for the purchase of equipment plant. However, this amount was in March 1978 eliminated from the contract when in April 1978 bids were called for the 0DM financed equipment. ODM also financed three mechanics for supervision and training of equipment operators. 3.04 Work started in November 1976 and was scheduled to be completed in 24 months. However, the contractor was already soon confronted with a number of unexpected setbacks, most of them beyond his control. The sub- contractor for earthmoving works of the Mantsonyane-Thaba Tseka section went broke even before he had started work. After fruitless attempts to find another sub-contractor, the main contractor decided to do the work himself. Although he could impound the sub-contractor's equipment already - 18 - on site, he had to order some additional equipment which caused several months delay. Other problems confronting the contractor were: frequent shortage of blasting explosive:s in Lesocho; unavailability of skilled labor, combined with difficulties in obtaining permits for the import of such labor and artisans; delays resulting from labor disputes in general; a sub- contractor for haulage of grave; going broke also, causing the need for the main contractor to order his own trucks; difficulties in obtaining spares on credit because the contractor being unknown in Lesocho; snowfall and very cold weather in mid 1979, etc., etc. 3.05 In addition to the above problems, the contractor was also faced with problems resulting from design flaws. Greater than expected intensities of rainstorms, combined with less than expected permeability of soils in the catchbasins, caused greater than expected run offs in the side drains at locations with steep gradients; this necessitated local widening of these drains and lining them with stone. As a result of locally inadequate drainage, already completed gravel surfacing started to deteriorate before road sections were taken over by the Government. This called for heavier than expected maintenance, particularly for the rather heavily travelled first 24 km from St. Michaels to Molimo Ntuse. Since maintenance during construction was not included in the unit price contract, this was carried out by RB's own forces but the result was further delay for the contractor. With hindsight, bituminous paving should have been applied over the full first 24 km, rather.than only on sections with gradients steeper than 10%. 3.06 Still another problem outside the control of the contractor was the unsatisfactory quantity and quality of gravel. Much of the gravel in gravel pits close to the work sites proved to be too fine for the wearing course; further removed gravel pits had to be used, increasing hauling distances. A construction period of only 24 months for the 147 km road in such remote area proved to be too optimistic from the very beginning anyway and the supervising consultants and the Gc ernment agreed that the various problems described in this and the previous par.graphs entitled the contractor to an extension in time of one year and to claims for additional payments. Contractor's Claim 3.07 Since his contract was a unit price contract, the contractor submitted upon completion of the works a claim to the amount of R1.249 -illion for additional works described in paras 3.03 to 3.06. The claim was finally settled for an amount of R850,000 bringing'the total cost of the civil works contract to R5.406 million or about equal to the original R5.35 million low bid, including options (para 3.03). It must be noted, however, that the above amount does not include the cost of maintenance during construction for ibich no allowance was made in the unit price contract and which was carried out by force account on which no data are available. Cost of supervision by consultants, including sarvices related to the contractor's claim, amounted to R450,000 which was paid by ODM. Maintenance Facilities 3.08 It was decided to purchase the buildings and shops the contractor had erected for his own use along the alignment of the road, and to use these for depots and shops for the maintenance of the mountain road; for this an amount of R448,605 (US$540,000 equivalent) was paid. - 19 - LABOR INTENSIVE COMPONENT Establishina the LCU 3.09 The LCU was officially established by decree dated August 27, 1976, one month after the credit became effective. However, the start of implemen- tation was delayed by about 6 months, largely due to delay in selecting the consultants for the technical assistance to LCU. 3.10 LCU's consultants started preparatory work in February 1977. A major problem has been the recruiting of qualified indigenous staff to function as counterparts of the consultants' technical assistance team, and of field supervisors. Operations started with about 8 months delay in September 1977 with. the reconstruction by a labor intensive brigade of the 31 km Mazenod-Moitsepeli road for which ODM (UK) made available a grant of R230,000 (US$285,000 equivalent at exchange rate prevailing in March 1980). This work was followed by the recon- struction of the 34 km Masite Nek-Ha Makintane road, financed by a R350,000 (US$420,000 equivalent) grant from SIDA (Sweden). Other works carried out were: the regravelling of 14 km of the Maseru-Rama Reme road at a cost of R100,000 (US120,000 equivalent) financed by the Government itself, conservation works, construction of fish ponds, regravelling of air strips, terracing of land, etc. At that stage some 200 to 300 laborers were employed. The LCU operations were reported to be "highly successful," and the technical assistance was continued under the Third Highway Project. 3.11 However, when operations of the labor intensive brigades were extended and the number of employed laborers increased at-some point in time to over 2,000 some problems started to arise. In a letter from IDA to the Government dated November 1982 (in reference to the Third Highway Project and thus admittedly after the official completion date of the Second Highway Project) the following problems are mentioned: lack and frequent turnover of supervisory staff, resulting in inadequate supervision at all levels, lack of gravel suitable for labor intensive operations, frequent breakdowns of vehicles, poor output, high cost and poor quality of work, etc. Obviously, to meet the Government's ultimate goal to create employment for many thousands of repatriating workers, serious consideration must be given to such issues as how to organize the work, training of supervisory staff, and need for different skills thereof, whether LCU's should be established in other ministries, departments or agencies, etc. At the writing of this PCR in mid-1983, some of these issues remain to be resolved. Preparation of the Fourth Highway Project will give an opportunity to further discuss the various problems facing the very important LCU concept. The Central Mechanical WorkshoD and Plant Pool 3.12 Under section 4.05 of the Credit Agreement "the Borrower shall (i) discuss with ODM, the organization and procedures of its Central Mechanical Workshop and Plant Pool (CMW&PP), and furnish to the Association by December 31.. 1976, or such other date as the Association may agree, a plan of action for the ensuing four years to make the CMW&PP more responsive to user requirements; and (ii) implement such plan of action after it has been mutually agreed upon by the borrower, ODM and the Association." Although consultants were retained to identify CW&PP's problems, the Government has only partly complied with this covenant during the implementation of the Second Highway Project. Further strengthening of the CW&PP has again been made part of the Third Highway Project, and emergency technical assistance was needed to avoid complete collapse of that important section of the MW's responsibilities. - 20 - Performance of CansuLtancs 3.13 Four consulting firms have been involved in the proparacion and iaplementation of the two components of the projocc: (a) Roughton and Parcners (UK) who (i) in early 1975 completed the Lesacho Transportation Study upon which the so3eaccion of the Road Component was based; (1i) complaced detailed engineering and finalized the cenda document for the koad Componenc; and (iii) supervised its conscruction With a team of three expatriate engineers and four local technicians. (b) Scott, Wilson, Kirkpatrick and Partners (UK) who provided four expatriates for technical assistance to the Labor Intensive Unit and the Labor Inten- sive Commuitee; (c Brian Colquhoun & Partners (U.K.), who prepared a Road Maintenance Study, completed in mid-1978, with recommendations as to the best solution for the RB in the W to carry out its road maintenance operations to be implemented under the Third Highway Project; and (d) T. P. O'Sullivan (UK) who carried out the Q4W&PP study and made recommen- dations for improvement to be implemented under the Third Highway Project. Perfwrmance of all consulting firms has been satisfactory. As to the supervising consultants Roughton and Partners, their adjustments in vertical and horizontal shipments led to important savings in earth-moving quantities. Performance of Contractor 3.14 After the contractor, SNT Construccion (Lesotho) (?T*') Ltd. (Italy/RSA), had been granted a one year extension of conscrucctin time for reasons set foith in paras. 2.01 and 3.04; performance of the firm has been satisfactory. COST OF THE ROJECT 3.15 Table 4 shows a comparison between the appraisal cost estimates, amounting to USS9.01 millioh (including USS2.8 million or 45% for contingencies on top of the net esci=ates) and the best vossible estimate of USS10 million for the final actual cost when contingencies were used up. It must be-pointed out. however, that the source9of the actual cost figures are several, as is explained in the foocnotes at the bottzm of table A. In its draft ?CR the Government provides figures in Rand (without breakdown in local and foreign cost) for only three components, namely the civil works (I),.for supervision by consultants (II.iii) and for the purchase of the contractor's buildings, such as depots and workshops along the alignment of the road (III, i). Figures for othar components are based either on actual IDA disbursements (foreign cost only of I and total cost of VI,1), or on the lacesc available but still preliminary cost data in the supervision report dated 'arch, 1980 for components III fi!), IV, VI (ii) and (iii). Wheras it mav be assumed that the IMS10 .illion actual cost is for 80% based on reasonably reliable data (chose provided in the Government's draft ?CR and the actual IDA dis- bursemer:), there are also a few discrepancies. IDA disburse.ents 2or civil works were supposad to be 86: of zonctracors bills whereas the amount shown in table 4 for DA disbursements for componenc I - amounts to only 76%; this may mean that the Gover=mcat paid for the difference of 10% or about USSO.63 million equivalent. By the same token, sinca the IDA credit was fully disbursed, it could be that the Gover=ment has also paid ar.-? amount for technical assistance to LCU in excess of the a==cun disbur,ed by ICA. The UD? contribution to the Labor Commissioner's office had to be tentatively estimated because of lack of actual aata. - 21 - DISBURSEMENTS 3.16 Table 5 shows a comparison between actual disbursements of the US$5.5 million IDA credit and the allocations in Schedule I of the Credit Agreement. The Government realized that the amount for the unallocated would not be sufficient to cover the higher than estimated contributions to both the civil works and technical assistance, it did not bother to submit an application -for the retroactive financing of US$13,000 for finalizing the tender documents by the consultants. The rest of the project cost was paid for and disbursed by the Government or 0DM (see table 3) except for the estimated US$100,000 paid by UNDP. 3.17 The project was virtually comleted in Mtarch 1980. However, the Government failed to ti--ly submit to IDA the apalications for final disburse- ments to an amcunt of US41.165 million remain-g in the credit, it was this delay, i -her than delay in ccolezion of the project, that caused the need to extend the closing date for one year, until the end of 1981. The com- parison between the actual disburse=ents schedule and the one estimated at appraisal is shown in Table 6. FOLLOJ-0' ?R0J_CT 3.18 To the exzen that available fands fcr some components of the Second Highway Project fell short of needs, these could be provided from Credit-SZI-LSO approved in -arch 1979.- Airhough effectiveness of the latter credit was delayed until December 1979, this was still one year before the original closing dace of Credit 619-LSO. Examples of carry overs are: bituminous pav2.ng cf the first 24 km section of the St. Michaels-Mantsonyane road in full, rather than of only the gradients exceeding 10%; further improvement of the road maintenace, in particular the performance of the CW&PP. Continuation of technical assistance services to the LCU after expiration of the original three years contract in March 1980 was paid for by CIDA (Canada). - 22 - IV. INSTITUTIONAL DEVELOPMENT 4.01 No doubt the project has contributed to institution building. However, the continuous shortage of qualified counterparts and supervisory field staff at all levels has adversely affected reaching possibly too optimistic expectations. Whereas the shortage of qualified domestic staff is a serious problem in most African countries, the problem in Lesotho is particularly serious because neighboring RSA, with its much higher salary and wage levels, will for a long time be a drain on whatever skills are becoming available in Lesotho. In view thereof, expatriate consulting firms and individuals will continue to be needed for many technical functions in the Ministry of Works. 4.02 Supervision missions reported that the creation of the LCU has taken off with a good start. With further technical assistance, this branch within the MW may well continue to serve a '*seful Purpose, provided supervision problems are solved in due time (para. 3.11). V. PERFORMANCE OF THE GOVERNMT 5.01 Besides the usual standard obligations of the Government included in the Credit Agreement, during loan negotiations the Government had given assurances that it would: (a) during 1976 appoint a local counterpart in the MW Planning Unit (Section 4.04 of the Credit Agreement); (b) review, with ODM, procedures of CM&PP and formulate a plan to improve these for discussion and agreement with the Association (Section 4.05 of the Credit Agreement); (c) employ consultants for the LCU under terms and conditions satisfactory to the Association (Section 3.02); and (d) make available the additional financing required to complete both components of the project and sufficient funds to ensure continued maintenance of the project road and the linking Masianokeng-St.Michael's Road (Section 4.02 (c) of the Credit Agreement). The Government has complied with its undertakings mentioned under (a) and (c) but only partly with the covenants referred to under (b) and (d). Both undertakings are again made part of the Third Highway Project. VI. ECONOMIC RE-EVALUATION General 6.01 The chapter on Economic Evaluation in the appraisal report deals with this subject as follows: (i) the benefits of the improvement to gravel three standard of the 95 km St. Michaels-Mantsonyane road are conventionally based on savings in transport costs; - 23 - (ii) the benefits from the reconstruction to gravel four standard of the 52 km Mantsonyane-Thaba Tseka road would accrue primarily in the form of increased net value of production in the road's area of influence (10 km at either side) where some 8000 people are living with an income below USS85 per capita; (iii) no attempt was made to quantify separately the rate of return of investment in maintenance facilities along the alignment of the project road, the benefits of which were reflected in the maintenance cost incorporated in the economic analysis of the two road sections mentioned above under (i) and (ii); (iv) no attempt was made to quantify the benefits expected to result from improved MW and RB performance through technical assistance; and (v) no attempt was made to quantify the benefits resulting from technical assistance to the experimental LCU, through Lesotho's increased ability to cope with employment emergencies resulting from returns of migrant workers from RSA. 6.02 An additional unquantified major benefit of both road sections is to result from providing a better intearation of the remote Thaba-Tseka region with national economic, political and social development, including facili- tation of civil administration and improved health and education services. Improvement of St. Michael-Mantsonyane Road 6.03 Table 7 shows how, at the time of appraisal, the economic return of this road section was calculated at 13%, based on an estimated financial con- struction cost of US$2.826 million, including physical contingencies and supervIsIon, excluding taxes. The actual construction and supervision cost upon completion after three years, also excluding taxes, amounts to about US$4 milliord or 1.4 times the above estimated amount. This cost overrun would -reduce the economic return for this road section from 13 to 9.2% provided growth of traffic and transport cost savings therein would be the same as those assumed at appraisal which was based on a 1973 traffic count of 79 vpd (50 light vehicles, 18 buses and 11 trucks). 6.04 A February 1983 traffic count (thus 3 years after completion) shows virtually the same traffic volumes as those of 1973, namely over 10 days an average of 81 vehicles per day of which 30 are light vehicles, 16 medium vehicles and 35 are trucks. This implies that contrary to expectations virtually no traffic increase has developed after appraisal when 30% generated traffic was assumed upon completion and 5% growth thereafter. 1/ Since there was one contract for both road sections, no accurate actual cost for each of the two sections is available. Therefore, for this calculation the same division of cost is used as in the appraisal estimates. - 24 - 6.05 However, these disappointing results, which would reduce the actual economic return even further, are partly compensated by a greater than expected increase of unit vehicle operating cost, and thus of unit savings therein, between appraisal and the completion datel/. Based on the above considerations, the reevaluated return could be in the order of, say, 6%. Reconstruction Mantsonvane-Thaba Tseke Road 6.06 Table 8 shows how at the time of appraisal the economic return of this road section was calculated at 11%. Applying the same 40% increase of actual cost as calculated for the St. Michaels-Mantsonyane section, the cost overrun would reduce the economic return from .1% to 7.8%. 6.07 However, unlike the St. Michaels-Mantsonyane section, for this section only some 20% of total benefits was to result from savings in transport cost, and the remaining 80% from increased agricultural production, benefits expected to result from the Lesotho First (1975) and Second (1980) Phase Mountains Area Development Project. These results have not been monitored and quantified in sufficient detail to allow a meaningful economic reevaluation for this road action. According to the Bank's agricultural division, little development has actually taken place in the region served by this road section. 6.08 This is indirectly confirmed by a January 1983 traffic count which sSows.-.a average of 82 axles, or say only some 35 vehicles.per day over a 10- day period. This by itself is not enough to justify an investment in the order of US$45,000 per km. VII. THE ROLE OF IDA 7.01 After a gap of some five years after the First Highway Project (Cr. 82-BL US$4.1 million) was completed in 1969, IDA approached the Government in February 1974, suggesting that another highway project be prepared. IDA assisted in its identification and preparation. 7.02 At the request of the Government IDA also participated in 1974 in a UNDP/IDA mission which recommended to include in the Second Highway Project as an experimental pilot project, the Labor Intensive Construction component, intended to assist the Government in finding useful employment for Basotho workers returning from RSA. This somewhat unusual feature of a Bank Group operation may prove to be an important IDA contribution, provided the various problems facing the now expanded LCU will be resolved over time (para. 3.11). 7.03 Also, IDA's leading role in the preparation and implementation of the Second Highway Project has encouraged ODM (UK) to contribute an amount of US$1.5 million in the financing of the road maintenance component of the project. More- over, ODM (U.K.), CIDA (Canada), and SIDA (Sweden) contributed additional funds for works executed by the LCU after it was established under the IDA project. 1/ Vehicle operating cost data presented in the February 1979 appraisal report for the Third Highway Project are 30 to 70% higher than those assumed in the February 1976 appraisal report for the Second Highway Project. - 25 - 7.04 The schedule of supervision missions left something to be desired. The first mission took place one year after the credit was signed, or eight months after it became effective. Also the gap of 16 months between the Third and fourth supervision mission was too long, the more so since the third mission did not include a technical staff member. The following supervision mission was again some eight months later when the road improvement/reconstruction component was already completed. Moreover, from the first supervision onward, much time of the four to six day missions was spent on identification and preparation of the Third Highway Project, and beginning with the fourth supervision mission in mid-1979 most of the mission's time and communications between IDA and the Government is devoted to the Third Highway Project which was signed in April 1979. VIII. CONCLUSIONS AND LESSONS LEARNED 8.01 The Second Highway Project has been completed with a modest cost overrun of 11%. However, the cost of the Road Component is 13% over the appraisal esti- mates (including contingencies), and thus the reevaluated EER of that part of the project is lower than the appraisal estimate (para. 6.03 - 6.08). On the other hand, non-quantifiable contributions of the project to institution building through technical assistance to the M9 administration and the creation of the LCU has been of considerable value. 8.02 An unsuccessful part of the project has been the strengthening of the Central Mechanical Workshop and Plant Pool (CMI&PP) (para. 3.12). IDA should ascertain that the expected improvements through the plan of action agreed between IDA, ODH and the Government will materialize during the implementation of the Third Highway Project. 8.03 Unavailability of equipment because of poor performance of the CM&PP may also have contributed to less than satisfactory maintenance of- the St. Michaels-Mantsonyane -Thaka Tseka Road and of the St. Michaels-Hasianokeng access thereto. Improvement of maintenance under the Third Highway Project is expected to overcome these shortcomings (para. 5.01). 8.04 Whenever increased agricultural production is to be a major benefit of a road project, as eg in this case of the Mantsonyane-Thaba Tseka roadsection, agreement should be reached during negotiations how such benefits should be monitored and reported. Without such an arrangement, reevaluation of the economic return of such projects is not feasible. - 26 - Table 1 KINGDOM OF LESOTHO Secrnd Righvav Project - Credir 619-LsO Project Cmpletion Report ROAD CmIRO0xarç - pand 000 S. ----- Us '000 .----- ggi Toes.in InTl oal ForetSn :ai Tor1n *. czd IproeanrI/Rcconstzcrutto (1) St. :uchael'-:nsoyn (95 km 482 1.633 2.115 559 1.594 2.453 77 (11) Z:Ionyne-'ba Isaka (52 1) 287 972 1.259 333 1.128 1,461 77 2. COnMuSIng Sar.vtces (L) 71=l::o of co=s:euccLon doekun 11 11 13 13 100 (ii) Supcvision of£ rad conztructioa works 152 282 434 176 327 503 65 3. RMad .I=ntance F.cý1i.les ( ) Iuildings 123 82 205 143 95 235 40 (II) Equipmenr 3 63 66 4 73 77 95 4.. NZc issceCm (10 fn-years) 6 .20 1 20 - 55 w0 Su21-cocal, 1-4 1.091 _3219 _1,21 1.166 _3 _73 _$MO 5. Cj/nenis 5. C ysical -0 I 1-4 109 321 430 126 373 499 (Ir) ?ricc - (a) tr= I4 3(1)- 356 1.028 1.314 413 1.192 1.605 j.) E: 3U0 1 2.4 25 1 23 29 (c) Ic=s !(ii) ad 4 47 108 155 55 125 i2 Sub-cot:1 5 513 1.411 1.994 595 1.71S 2.313 TocZl Road Canponena cos: 1.604 4.700 6.304 1.61 5.452 j13 75 (roc3 od C n CosiC ma. of tax*) 7 4.5 C'ZZ. (5.!.2 (.9073 79 ( .mn w ?? C0EC 71 2,125 5.643 7.768 2.165 6.546 9,11 73 2o-?. and I.'ot-Intensv-Co=ponents) -- - T~C'' Mc = Cc-- '' " 'AXS (1.775) (5.6431 (7.413) (2.059) (6.54.6) f.0 76 (Z.IWI cnd Z.nor-IncensLve Cngonenas) 1! E-cluing nc=2(L). 2f 16 p.a.- 3/ 174 1..). 1977 (12.r 1973 (10%). 4/ 107.P.a. Fod de:an1s of ::e Lhor-z=esice co=ponza cosc astt=ca:s sm Table 2. Source: Appraisal Report 1976 - 27 - Table 2 KINGDOM OF LESOTHO Second Highway Project - Credit 619-LSO Project Completion ?.eport LAP.0R-7="FNSVsrE ct:!w?r!ENT - an" 'G0 -- - USS 1000 Local Foreign Tocal Local Foreign T4cal Ferelin 1. Labor-Intensive Construction unit (i) Consulting Services - 306 306 - 355 355 LOG (i) Equipment, Planc !Lre and Fuel, 16 316 18 348 366 95 (iii) Local Stzff :nd L.-bor 306 - 306 355 - 355 0 .2. Labor Cocissionerl s Office (W) Consulcing Services - 62 62 - 72 72 100 (i) Local Staff and Trainiag &E 12 60 56 14 70 20 Sub-tocal 1-2 370 680 0 429 789 L218 65 3. Contingencies: () physil - 10% on Items 1-2 37 68 105 13 79 122 (it) Pricel 11 195 309 232 226 358 Sub-total 3 151 263 414 175 305 480 Tocal Labor-Itensive Cocponenc Cosc 521 943 1,464 604 Ln 98 64 TOAL ROJECT COST3 7 125 73 (Road and L.Aor-Intensive Coponen) - 21 TOTAL PROJECT COST XET OF TAXES (1 775) (43 7.1) 2.059) ii,0) 76 Y 10 p.a. on all i:es excemc 1(ii). for z-hich zhe price can:*gency has been esti-aced Zs follows: 1976 (14), 1977 (1?.), 1978 (IC"-). */ For details of the Road Component cost esti:aces, sea Table 1 Source: Appraisal Report 1976 - 28 - Table 3 KINGDOM OF LESOTHO Second Bihway Project - Credit 619-LSO Project Completion Re2ort a.a aMMC . t". a -..M i'fi!ni L ÜM Carensaf m = 1. la.d.tessevamamb/mannsSai. 0.33 4.47 6.9 0.39 0.39 0.91 6.7 3.38 2. CamaulcaS8 tevie (<S 7T1sLasa ei esmuas 0.01 0.01 D.L 4.01 (IS> 8.'euvr<Lsa et .sasuusmtas 0.Zr. 0.4A 0.08 0.2& 0.4& 0.8 3. lest assaaance faiLCImas 0.23 I.27 0.30' .3 0.27 0.10 . sAC4A~ a 0.07 0.27 0.34 C.@7 0.27 0.3. 1. LCU (S> CagsuLiai Uuvises 0.30 0.30 0.30 0.10 (u% zqu~-aae. PLa XIr. and eeL 0.03 @.&t 0.0 0.03 0.47. 0.31 1e1 Iu.aL StE99 ..~u Lab~r 0.50 0.30 0.30 0.30 4. UtW CiEMmr's 5us1. Mo c.uuet:L-anvie. -2 010 C~.- :.U~ ( ~I LasaL TSr.a m1nd raSaan--- - - - - - - "-- - -e-- e2 L' Lii .Ga TOA LUi "t LZ. IJ-I 2J-8 L2 i Li Li I I Ucludg cnzamngscias. excluding taxs. 21 Th* Lazaaha Cvernc ha& successfully neouged ir-h UDP to finance rhls Item. Soure: AppraIsal Repor- 1976 E.1TX:b. - 29 - Table 4 KINCDOM OF LESOTHO SECOND HIGHWAY PROJECT - CREDIT 619-LSO PROJECT COMPLETION REPORT Project Costs - Estimaced & Actual (US$ 1000) 1! 2/ Appraisal- Z Actual- Local Foreign Total Foreisn Local Foreign Total A. Road Comoonent 1. Road Improvement/Construction 892 3.022 3.914 77 1.506 4.984/ 6.4903-1 11. Cnsulting Services (i) - finalizacion of contract - 13 13 100 - 013 0133 documents i) supervision of (I) 176 327 503 65 N/A N/A 5403/ II. Road Maintenance Facilities (L) buildings 143 95 238 40 N/A N/A 538G (ii) equipment 4 73 77 95 15 294 309 IV. Technical Assistance 51 204 255 80 70 280 3505/ V. Contingencies 595 1.718 2.313 74 - - - Subtotal 1.861 5.452 7.313 76 -NA NIA 8.240 3. Labor-Intensive Comoonent VI. Labor-Intensive Construc- tion Unit (i) consulting services - 355 355 100 - 516V 5161 (ii) equipment and macerials 18 348 366 95 18 348 366-' (iii) local staff and labor 355 - 355 - 750 - 75a/ VII. Labor Commissioner's Office (i) consulting services - 72 72 100 - 100 106 (il) local staff and 5 training 56 14 70 20 - 000 000 VIII. Contingmncies 175 305 480 61 - - Subtotal 604 1.094 1.698 768 964 1.732 7/ Total Project Cost 2465 6.546 9.011 N/A N/A 9.9777 Say, 10.- I/ Based on exchange rate Rl - US1.16 2/ Based on exchange rate R1 = US1.20 3/ Based on incomplete PCR prepared by Government 4/ IDA Disbursemencs 5, According to supervision report larch 1980 6/ Financed by UNDP; amount estimated 7/ Best estimate, rounded to USS10 million; of this amount, the figures marked 31 and 4/ representing 80Z, would appear to oe reasonably reliable. - 30 - Table 5 KINGDOM OF LESOTHO SECOND HIGHWAY PROJECT - CR 619 - LSO PROJECT COMPLETION REPORT Estimated and Actual Disbursements by Categories (In US$) Credit Actual Category Allocation Disbursements (1) Road Reconstruction and 3,365,000 4,983,531 Improvement (2) Consultants Services for 13,000 -0- Preparation of Tenderdocuments (3) Consultants Services for 372.000 516,469 Establishment and Operations of LCU (4) Unallocated 1.750,000 -0- TOTAL 5,500,000 5,500,000 - 31 - Table 6 KIN.GDOK OF LESOTHO SECOND HIGV.7AY PROJECT - CREDIT 619 - LSO PROJECT COMPLETION REPORT Schedule of Disbursements Estimated and Actual Accumulated Disburse=ent i- Millions of U. S. Dollars Ecuivalent IBD/IDA FISCAL ACTUAL ACTUAL AS 1EAR AND DISBURSE- APPRAISAL PERCENTAGE QUARTER MENTS ESTIMATE OF APPRAISAL 1976177 2nd 60 0 3rd 1.00 0 4th 1.50 0 1977178 1st 1.21 2.00 60 2nd 1.79 2.50 71 3rd 2.13 3.00 72 4th 2.45 3.50 70 1978/79 1st 2.72 4.00 68 2nd 3.22 4.50 72 3rd 3.45 5.20 65 4th 3.53 5.30 66 1979/80 1st 3.61 5.40 67 2nd 3.69 5.50 67 3rd 4.00 73 4th 4.00 73 1980/81 1st 4.00 73 2nd 4.07 74 3rd 4.34 79 4th 4.34 79 1981/82 1st 5.36 97 2nd 5.50 100 Extended Closing Date: December 31, 1981 - 32 - Table 7 KLNCDOM OF LESOTPO SECOND HIHWAY PROJECT CREDIT 619 - LSO PROJECT COMPLETION REPORT Appraisal Economic Evaluations ('0O in January 1976 Prices) St. Michael's-Mantsonvane Road Construction, 95 Em Construction Maintenance Savings in Vehicle Year Costel- Costs2/ Operating Costs 1976 1,218 -36 1977 1.218 -34 1978 -11 297 1979 -1 315 1980 20 334 1981 20 355 1982 29 377 1983 29 400 1984 29 425 1985 29 451 1986 29 479 1987 29 509 1988 29 541 1989 29 575 1990 29 611 1991 29 650 1992 29 691 Economic Return 13% I/ Economic cost is financial cost of conscruction plus physical contingencies and supervision, less indirect taxes. 2/ Represents cost of maintaining the project road, less maintenance expenditures which would have been made in absence of the project. Assumes periodic main- tenance is carried out continuously along the road, a quarter of the total leng:h being covered each year, beginning 1980 for the Improved road. Source: Mission calculations at appraisal in 1975. - 33 - Table b KINGDOM OF LESOTHO SECOND HIGNVAY ?ROJECT - C?EDIT 619 - LSO PROJECT CO!LLETION RE?OR. Appraisal Economic Evaluation (R'00O in January 1976 ?rices) Mantsonvane-Thaba Tseka Road Construction. 52 Km Btnefirs Costs -ormal Road iI Road 2/ Agricultural Azricultural Transportation Year Construction Maintenance Project 31 Project 3/ Cost Savin!s 4/ 1977 725 -14 201 1978 725 -14 375 1979 - 4 554 201 75 1980 - 4 586 395 92 1981 17 633 504- 100 1982 17 881 646 109 1983 17 956 797 118 1984 17 982 1,045 129 1985 17 814 1,161 140 1986 17 824 1,262 152 1987 17 799 1,290 16! 1983 17 792 1,344 180 3989 17 792 1,366 195 1990 17 790 1,388 212 1991 17 790 1,388 231 1992 IT 788 1,388 251 1993 17 786 1,388 273 1994-2010 per annum.1 786 1,388 Econo=ic Return: 11X L/ Econonic cost is financial cost of construction plus physical contingencies and supervision, less indirect taxes. 1 Represents cost of maintaining the project road less maintenance erpenditures which would have been =ade in absence of che project. Assu-cs periodic =ain- tenance is carried out continuously along the road, a quarter of the total length being covered each year, beginning 1981 for the improved road. 31 Based on the FAO/ World Bank Cooperative Progra=e Preparation Xission Report on Lesotho First ?hase Mcuncrain Area Develo==ernt Project, 1975, and assuing implementation of a second pnase trom 190. Al Represents savings to traffic which is independent of the agricultural project; savings to traffic associated vith agricultural project are reflected in net value added to agriculcural production. 5/ Evaluation ass=es that benefits and costs of agricultural project would continue La 2010; provides for reconstruction of road in 1994-1995. Source: Mission calculations at appraisal in 1975. 价 ．…价…