Jordan - A Multi-mode Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY LN . z4l63-CtO Report No. 4964-JO JORDAN STAFF APPRAISAL REPORT OF A ]MULTI-MODE TRANSPORT PROJECT May 21, 1984 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.  CURRENCY EQUIVALENTS Currency Unit = Jordanian-Dinar (JD) US$1 = JD 0.365 JD 1 = US$2.74 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.281 feet (ft) 1 kilometer (km) = 0.621 mile (mi) 1 kilogram (kg) = 2.205 pounds (lbs) 1 metric ton (m ton) = 0.984 long ton PRINCIPAL ABBREVIATIONS AND ACRONYMS USED AASHTO - American Association of State Highways and Transportation Officials ARC - Aqaba Railway Cooperation BPR - Bureau of Public Roads (USA) CIF - Cost, Insurance ana Freight ER - Economic Return FYBR - First Year Benefit Ratio FYP - Five-Year Plan GE - General Electric HJR - Hejaz-Jordan Railway ICB - International Competitive Bidding JFI - Jordan Fertilizer Industries JPMC - Jordan Phosphate Mining Company KfW - Kreditanstalt fur Wiederaufbau MOF - Ministry of Finance MOI - Ministry of Interior MOT - Ministry of Transport MPW - Ministry of Public Works NPC - National Planning Council NTS - National Transport Study RoRo - Roll-on/Roll-off TEU - Twenty-feet Equivalent Unit TPC - The Ports Corporation TRRL - Transport and Road Research Laboratory (UK)  JORDAN FOR OMCIAL USE ONLY STAFF APPRAISAL REPORT OF A MULTI-MODE TRANSPORT PROJECT Table of Contents Page I. THE TRANSPORT SECTOR 1 A. The Transport System . . . . . . . . . . . . . . . . . . . . 1 B. Transport Planning, Policy and Coordination. . . . . . . . . 2 C. Transport Sector Objectives and Issues . . . . . . . . . . . 3 D. Previous Bank Involvement. . . . . . . . . . . . . . . . . . 5 II. HIGHWAYS, RAILWAYS AND PORT SUBSECTORS 7 A. Highways . . . . . . . . . . . . . . . . . . . . . . . . . . 7 B. Railways . . . . . . . . . . . . . . . . . . . . . . . . . . 12 C. Ports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 II. THE PROJECT 20 A. Background . . . . . . . . . . . . . . . . . . . . . . . . . 20 B. Objectives . . . . . . . . . . . . . . . . . . . . . . . . . 20 C. Description . . . . . . . . . . . . . . . . . . . . . . . . 21 D. Engineering . . . . . . . . . . . . . . . . . . . . . . . 24 E. Cost Estimates and Financing . . . . . . . . . . . . . . . . 25 F. The Loan, The Borrower and Beneficiaries . . . . . . . . . . 29 G. Implementation . . . . . . . . . . . . . . . . . . . 29 H. Procurement . . . . . . . . . . . . . . . . . . . . . . . 31 I. Disbursements . . . . . . . . . . . . . . . . . . . . . . 33 IV. ECONOMIC EVALUATION 34 A. General. . . . . . . . . . . . . . . . . a . . . . a . . 34 B. Project Costs and Benefits. . . . . . . . . . . . . . . . . 35 C. Economic Return . . . . . . . . . . . . . . . . . . . . a . 36 D. Project Risk . . . . . . . . . . . . . . . . . . . . . . . . 40 E. Environmental Impact . . . . . . . . . . . . . . . . . . . . 40 V. FINANCIAL EVALUATION 41 A. General. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 B. Aqaba Railway Corporation (ARC). . . . . . . . . . . . . . . 41 C. The Ports Corporation (TPC) . . . . . . . . . . . . . . . . 48 This report is prepared by Messrs. M.K. Ganguli (Transport Economist), M. R. Payne (Highway Engineer), D. Perfrement (Port Engineer), P. 0. Cheryan (Financial Analyst) and U. Marggraf (Railway Engineer) on the basis of an appraisal mission to Jordan during November/ December 1983. This dowent has a restrted distibution and may be used by recpients only in the perfonane of thir offical duti Its contents may not otherwise be dbsosed without World Dank authorization.  Table of Contents- Continued) Page VI. AGREEMENTS REACHED AND RECOMMENDATIONS 51 ANNEXES 1. ARC Action Plan .. . . . . . . . . 54 2. Accounting Activities to be Introduced by ARC . . . . . . . 56 3. Highway Routine and Periodic Maintenance Activities . . . . 57 4. Railway Track Standards . . . . . . . . . . . . . .. . . . 59 5. ARC Training and Technical Assistance Programs . . . . . . 60 6. Highway Design Standards . . . . . . . . . . . . . . . . . 61 7. Related Documents and Data Available in the Project File. . 62 8. Assumptions regarding ARC's Sources and Applications of Funds . . . . . . . . . . ....... 65 SUPPORTING TABLES 1. Expenditures on National Highway Network, 1966-82 ... . . 67 2. Primary and Secondary Highways Kilometrage. . . . . . . . . 68 3. Status of 1981-85 Highway Investment Plan . . . . . . . . . 69 4. Registered Vehicles, 1978-81 and 1982 . . . . . . . . . . . 70 5. Railway Operational Data and Targets. . . . . . . . . . . . 72 6. Railway Monthly Operating Statistics, 1982-83 . . . . . . . 73 7. Railway Traction and Rolling Stock. . . . . . . . . . . . . 74 8. Railway Operation Plan for Freight Wagons . . . . . . . . . 75 9. Railway Investment Plan, 1984-87 . . . . . . . . . . . . . 76 10. Railway Investment Forecasts, 1984-87 . . . . . . . . . . . 77 11. Railway Financial Sensitivity Analysis . . . . . . . . . . 79 12. Port Traffic and Projections.. . . . . . . . . . 80 13. Container Import Traffic through Aqaba Port . . . . . . . . 81 14. Highway Component Implementation Schedule . . . . . . . . . 82 15. Railway Component Implementation Schedule . . . . . . . . . 83 16. Railway Items on which the Loan will be disbursed . . . . . 84 17. Estimated Schedule of Disbursements . . . . . . . . . . . . 85 18. ARC Projected Income Statements . . . . . . . . . . . . . . 86 19. ARC Projected Statement of Sources and Application of Funds 87 20. ARC Projected Balance Sheets. . . . . . . . . . . . . . . . 88 CHARTS 1. MPW Organization . . . . . . . . . . . . . . . . . . . . . . 89 2. MPW District Engineer Organization . . . . . . 90 3. ARC Organization . . .. . . . . . . . . . . . 91 4. TPC Organization . . . . . . . . . . . . . . . . . . . . . . 92 MAPS IBRD 17523 - Multi-Mode Transport Project IBRD 18002 - Road Traffic Assignment: Wadi YutumrWadi 2 and Spur to Container Port IBRD 17937 - Aqaba Port Layout  JORDAN STAFF APPRAISAL REPORT OF A MULTI-MODE TRANSPORT PROJECT I. THE TRANSPORT SECTOR A. The Transport System 1.01 Jordan's transport system comprises highways, railways, ports and airports. The main transport corridor connects Amman with Syria to the north and with the Gulf of Aqaba to the south. The corridor is served mainly by highway and to a partial extent by railway. The only seaport, Aqaba, is located at the northern tip of the Gulf of Aqaba, an arm of the Red Sea. Air transport serves the two main towns, Amman and Aqaba and is significant primarily for international passenger traffic to and from Amman. 1.02 The major centers of population and domestic production are rela- tively close to each other, therefore, only limited domestic transport is required. The situation is quite different for imports, exports and tran- sit traffic, which generally involve long distances. 1.03 Highways are the main mode of transport. In general, the dif- fe-rnt sub-sectors have admirably adjusted in the recent past to unexpected and significant expansions in traffic flows, including transit traffic to Iraq. However, this success has been achieved at high cost. The major portion of the transport network, particularly the main desert highway, has shown clear signs of distress. While there are obvious transport pro- blems-highway pavement deterioration, axle load control, heavy truck con- gestion in Aqaba, and under-utilization of railway capacity-in the main sub-sectors now, over the next few years pressures on all transport facili- ties will multiply as the planned expansions of major centers of production are realized. Unless timely action is taken, bottlenecks on the country's main export/import routes would prove a serious impediment to the movement of such key commodities as phosphate, potash, fertilizers, cement and general cargo, which are vital for the economy of Jordan as well as its neighboring countries. 1.04 The bulk of the transport sector investments during the 1980's would be designed to cater to the mining, export and manufacturing indus- tries like potash, fertilizers, cement, etc. Roads and road transport would continue to play a major role on the country's main export/import routes particularly for the movement of general cargo, potash, cement and transit traffic. Jordan's main export commodity is rock phosphate and  -2- priority is being given to increasing production. The bulk of this produc- tion is being planned to be moved from the mines by rail to Aqaba, taking into account cost effectiveness, bulk handling potentialities and relative efficiency in energy utilization of that mode. With these points in mind, there is urgent need to increase rail capacity. 1.05 During the last few years, Jordan experienced an unusual upsurge of transit traffic through the port of Aqaba as a result of the outbreak of hostilities in the Gulf. There has been substantial expansion of Aqaba port facilities to cope with the Iraqi transit traffic through foreign loans from the Iraqi Fund on attractive terms. The port facilities at Aqaba are now adequate. Transport accounted for about 15-20% of Jordan's total investments during the last decade. B. Transport Planning, Policy and Coordination 1.06 The responsibility for administering the transport system is dis- persed amongst a number of authorities: the Ministries of Transport (MOT), Public Works (MPW), and Interior (MOI), the National Planning Council (NPC) and to a lesser extent, other Government bodies such as the Ministry of Municipal and Rural Affairs and Environment. The MOT is responsible for the railway, Aqaba port and aviation. The MPW is in charge of the national and rural road networks. Regulations concerning axle loads, vehicle weight limits and dimension of vehicles are issued by the MPW with inputs from the MOI. The MOI prepares the regulations governing construction standards for vehicles and their operations. The responsibility for overall planning and coordination rests with the MOT. The MOT commissioned a comprehensive National Transport Study (NTS) in 1982/83 to provide the basis for trans- port investment and a coordinated transport development strategy. The Draft Final Report of this study prepared by the Consultants, Dorsch Consult, Hughes Economic Planning and Deutsche Eisenbahn Consulting GMBH was presented to the Government in July 1983. Investments, in transport as in other sectors, are coordinated by the NPC. 1.07 Central and Local Traffic Committees have been coustituted to review applications for the licensing of freight vehicle operators, bus and taxi operators and to consider the services to be provided and the routes to be served. The Minister of Interior chairs the Central Traffic Commit- tee whose members are the Head of the Traffic Management department in the MOI, delegates from the MOT, MPW, Industry and Commerce, Municipal and Rural Affairs and Environment and representatives from the operators. Each Local Traffic Committee is chaired by a Governor with members who are the Head of Police in the Governorate, the Head of the District Office of the MPW in each Governorate and delegates from the Public Transport Corpora- tion, and the Ministry of Municipal and Rural Affairs and Environment. All applications are routed through the Local Traffic Committees. There is little regulation of goods movements in the transport market; both the railway and the trucking industry are encouraged to set cost-based rates and adopt market policies. The expanding road transport industry has  -3- attracted most of the traffic. At present the Aqaba Railway Corporation (ARC) is a single commodity (phosphate) freight carrier and has been able to compete successfully for the transport of phosphate. 1.08 The 1971Law of the MOT is specific in requiring the MOT to exer- cise full responsibility for coordinating all transport matters. Further- more, it states that in order to participate in general transport policy and to coordinate transport activities in Departments and Corporations, a Higher Council for Transport shall be established. So far, this Council has not been activated. A high level inter-ministerial coordinating committee is urgently needed (including representatives of MOT, I'W, NPC) to consider and resolve problems relating to movement of key commodities, including phosphate. During loan negotiations, the Government undertook to establish an inter-ministerial coordinating committee by the end of 1984. C. Transport Sector Objectives and Issues Objectives 1.09 The Government's primary objectives for the transport sector are to build the infrastructure needed to support the development taking place in other sectors of the economy, to enhance operational efficiency of the key operating agencies through modernization, to conserve energy by promot- ing rail transport and to improve manpower planning. The Government attaches higthest priority to the improvement of international trade routes carrying suostantial quantities of phosphate, potash, fertilizers, cement and general cargo vital for the economy of Jordan and the neighboring countries. 1.10 Tne proposed transport project would contribute to the three major themes of Jordan's development strategy: (a) promotion of international trade including transit traffic; (b) modernization and technology transfer; and (c) manpower planning and institution building. Bottlenecks have already developed on the principal trade routes in Jordan, their elimina- tion is of great urgency for the Government and the proposed project would ensure significant improvements on international trade routes (paras. 2.11, 2.13, 2.37 and 2.55). The project would also encourage technology transfer particularly for the railway through an Action Plan (Annex 1). The Bank had already made an important impact on the ARC's operational efficiency during project preparation and ARC has attained record transport levels in moving phosphate to Aqaba. Furthermore, the proposed project includes technical assistance and training as an important component to improve institutional development and staff training, especially for lower level workers (paras. 3.08, 3.16, 3.18 and 3.19). Completion of civil works envisaged in the proposed project and other on-going works would meet most of the urgent needs of international trade including transit traffic within the project period. However, assistance for institutional development, manpower planning and improved technology, would be needed even after the completion of the project.  -4- 1.11 The Bank's role in developing the multi-mode transport project and providing the needed lead in its financing is considered by the Government of Jordan as catalytic for obtaining recognition, support and financial assistance from other financing institutions. Based on the Bank's involve- ment in the preparation and appraisal of the project, the Government of Jordan has made significant progress towards identifying and attracting parallel co-financing (paras. 3.31 and Annex 8). Issues Diesel and Aviation Fuel Subsidy 1.12 The transport sector accounts for about 50% of the energy consump- tion of the country and uses about 75Z of the imported petroleum. At present diesel oil and aviation fuel are subsidized. In 1979, the Govern- ment decided to phase pout the subsidies for petroleum products. Since then, domestic prices have been increased on six 1/ occasions by a total of about 180%. Presently, the weighted average domestic price is above the weighted average border price for petroleum products. However, the lighter fuels are cross-subsidizing diesel and aviation fuel. The prices of diesel oil (US$230 per ton or about 80 cents per US gallon) and aviation fuel (US$248 per ton or about 90 cents per US gallon) covered about 75% and 80% of border prices respectively in early 1983. Currently, there is a slide in crude oil spot market prices and prices of several types of crude are being quoted $1 to $2 per barrel below official price. In the circumstan- ces, the prices of diesel and aviation fuel are now closer to the border prices and the issue of subsidies on these products is now of marginal significance. Furthermore, the Government in the Memorandum of Under- standing with the Bank dated October 27, 1983, on a recent Energy Develop- ment Loan, has reaffirmed its intention to continue its review of domestic prices of petroleum products with the object of phasing out the subsidy over the medium term (1984-89). Road User Charges 1.13 The estimated income in 1981 from road user charges amounted to about US$70 million compared to a total expenditure of about US$60 million on inter-urban roads for the same year. Thus it appears that overall road transport costs are being covered on a pay-as-you-go basis. However, at present the large fleet of heavily laden trucks does not pay adequately for the wear it causes to the road network. If this situation is allowed to continue, undue advantage will accrue to heavy trucks which do not cover directly the costs of provision and operation of their infrastructure as compared to the railway. The NTS has recommended that for freight vehicles, registration and licensing fees should be appropriately related to maximum gross vehicle weights in accordance with the vehicles' maximum permissible 1/ March, July 1979, February 1980, February and November 1981 and February 1983.  -5- axle loads. Furthermore, the NTS has made many other related recommenda- tions for revising user charges such as annual license fees, import duties, diesel fuel prices, transit fees, etc. particularly for trucks, to cover the resource costs of operations. However, users of service vehicles are more sensitive to changes in charges than, in many cases, to the absolute level of charge. This is particularly relevant for the heavy transit traf- fic to Iraq, on which Jordan does not directly recover all costs from the specific road users, but Iraq grants considerable economic privileges and financial assistance to Jordan in recognition of its goodwill. Thus formu- lation of charges requires political flexibility and commercial acumen to ensure optimum benefits for Jordan. During loan negotiations, an under- standing was reached with the Government that it would appoint a working party by the end of 1984 to consider revenue measures recommended in the NTS and would initiate actions on selected measures by the end of March 1985. This issue is one which cannot be resolved by a single action and it will be necessary for the Bank to carry out continuous dialogue with the Government on the matter of road user charges. Axle-load Control 1.14 Unregulated axle loads of the large fleet of heavy trucks have severely damaged the primary roads in Jordan. If highway overloading remains unrestrained, the road network will continue to deteriorate rapidly and total transport costs, including the cost of the infrastructure will remain unduly high. The Government has recently enacted a Bill limiting the axle load to 13 tons per axle. The Government should ensure effective enforcement of current legislation regarding maximum permissible axle loads, gross vehicle weights for particular vehicular configurations and vehicle dimensions. In particular, the Ministries concerned should ensure that the present permissible overloadings should be reduced in stages from 25X in 1984 to no overloading by the end of 1986. Furthermore, in view of the relative damages done by the different types of vehicles, the Govern- ment aims to discourage the importation and use of 2-axle trucks and encourage the purchase of multi-axle vehicles by proper fiscal incentives and more favorable licensing policy and will prepare an action plan to an agreed timetable. The enforcement of axle load policy and related matters was discussed further with the Government during loan negotiations and a timed program of enforcement agreed (para. 2.10). D. Previous Bank Involvement 1.15 The proposed project would be the second in the transport sector and the first for rail/port development. In June 1971, the Association approved a Credit (262-JO) in the amount of US$6.0 million equivalent, to assist in the construction of a highway from Amman to Zarqa (18 km) and to finance related consultancy services, the purchase of road maintenance equipment and an urban transport study of Amman. The credit was closed and fully disbursed in December 1974. The road construction component was com- pleted two years later than expected with a 30% cost overrun.  -6- 1.16 In general, the main problems encountered in the project were inefficiency of the contractor (a British/Jordanian joint venture), and slowness in arranging for the clearing of obstructions (buildings and mili- tary installation6) and relocation of utilities from the right-of-way. The land acquisition related difficulties were not unique to this project (Audit Report No. 1762 dated October 18, 1977) and several other projects involving road construction passing through densely populated areas experi- enced similar problems. The delays in obtaining the right-of-way, together with delays in contractor mobilization because of a closure of the Jordanian/Syrian border, gave rise to a substantial claim being paid to the contractor; this claim was the main reason for the cost overrun. In the currently proposed transport project, land acquisition problems will not arise as all the rights-of-way are over Government-owned land.  -7- II. HIGHWAYS, RAILWAYS AND PORT SUBSECTORS A. Highways Organization 2.01 The MPW is responsible for the constructon and maintenance of roads. The Under-Secretary for Public Works is the senior coordinating official to whom the Director of Highways reports (Chart 1). The highways headquarters is adequately staffed with some positions filled by individual Jordanian consultants. 2.02 The MPW engineering districts correspond to the eight governorates into which Jordan is divided for administration purposes; three of these governorates are on the west bank of the Jordan river (Map 17523). Each is under the control of a District Engineer who is responsible for all road- work activities in his governorate (Chart 2). The district organizations need reinforcement for the purposes of more effective road maintenance (paras. 2.14-2.19, 3.05-3.07). Planning 2.03 Highway planning is a function of the NPC which evaluates and ranks planning proposals mainly from MPW, MOT, MOI and from city adminis- trations. MPW undertakes feasibility studies through consultants to generate the basis for proposals for investment decisions for highway development. Engineering 2.04 The Director of Major Roads in MPW is responsible for executing road development projects; his headquarters organization is adequately staffed with engineers to fulfill this function, although consultants, both local and expatriate, are often employed when engineering design and con- struction supervision requirements exceed the Directorate's capacity. 2.05 Highway design standards in Jordan were originally recommended in 1965 by the then U.S. Bureau of Public Roads (BPR) (now Federal Highway Administration - FHWA) and are satisfactory. Pavement design is based on American Association of State Highway and Transport Officials (AASHTO) standards. Construction 2.06 Highway construction is normally executed under unit price con- tracts awarded after competitive bidding. Construction activities have increased significantly from 1975 onwards (Table 1). The domestic contract- ing industry has expanded considerably since the First Highway Project began in 1971. There are now 18 local contractors in the top class for  -8- works valued up to US$33 million and 3 local contractors in the second class. The majority of large highway construction contracts are undertaken by national contractors in joint venture with expatriate firms. Large con- struction projects are controlled by a Projects Department of MPW which was set up in 1982. Network 2.07 MPW is responsible for Jordan's national highway network (Table 2) which for the East Bank now comprises 2,004 km of paved primary highways (29Z of total network) and 867 km of paved secondary highways (12Z). Village and feeder roads, 2,304 km paved (33Z) and 1,775 km unpaved (26Z) have recently been transferred from the jurisdiction of the MOI to MPW. 2.08 The paved highway networks has expanded by about 2% per year since 1970 (Table 2). Major emphasis has been given to improvement of the exist- ing network by reconstruction and pavement strengthening, in particular, the main north/south route from the Syrian Border at Ramtha via Amman and Ma'an to Aqaba Port on the Red Sea. A total of about 520 km (26%) of the primary network is under reconstruction under the 1981-85 Five-Year Plan and most was completed by the end of 1983. About 460 km (23%) of similar works is planned for completion by 1986. 2.09 The highway system, given the improvements underway and planned, adequately connects all populated areas of the country. Paved connections exist to Syria, Iraq and Saudi Arabia. A special purpose road has been completed from Aqaba to Safi, where a potash industry has been established (see Map IBRD 17523). 2.10 Regulations and legislation governing maximum dimensions and axle loading of vehicles have not been enforced effectively and the resultant severe road damage has necessitated a major reinvestment in highway infra- structure (para. 2.15). The 1983 legislation specifying a maximum single axle load of 13 tonnes has been amended by Government in response to pres- sure from the trucking industry to permit 25%, 15% and 10% above the maximum respectively during the next three years and no overloading from September 1, 1986. Actions are to be taken so that the weighing stations at Jordan's international borders, the phosphate mines at Ruseifa, El Abyad and El Hassa and at Aqaba Port would be utilized rigorously to enforce the legislation and protect the highway system from accelerated deterioration. During loan negotiations, an assurance was obtained from the Government that it will enforce and continue to enforce regulations controlling vehicle dimensions and axle loads and phase out overloading before September 1, 1986, (para. 6.01(iii)). Investment Plan 2.11 The 1981-85 highway investment plan of 33 items, including the project highway construction component, was estimated to cost about JD 197 million (US$540 million equivalent) and has the general objective of  -9- meeting urgent transport requirements and public safety by the construction/ reconstruction/improvement of 2,240 km (600 km primary, 240 km secondary and 1,400 km rural and agricultural roads) of the 1980 network. The high- way investment plan has adopted a balanced approach towards the development of international routes connecting neighboring Arab countries, the primary network serving mining and export oriented industries and agricultural roads in and around the Jordan valley region. The highway investment plan is sound and comprehensive. 2.12 Sources of finance for the 1981-85 highway investment plan are shown below: Table 2.1: Source of Finance for Righway Investment Plan, 1981-85 (JD million) i81 1982 1983 1984 1985 Total General Budget 10.7 26.3 27.9 28.4 22.9 116.2 General Bulget and Foreign Loans - - - 3.5 7.5 11.0 Municipal Resources and Loans - 0.2 0.9 1.0 0.4 2.5 Foreign Loans 3.7 16.7 23.4 16.4 7.3 67.5 Total ( JD million) 14.4 43.2 52.2 49.3 38.1 197.2 (USt million) 39.5 118.4 143.0 135.1 104.4 540.4 2.13 Implementation of the 1981-85 highway investment plan is well underway and by the end of the plan period it is estimated that most of the major projects will have been completed or be under construction (Table 3) and the spillover to the next plan period will be about 15-20X, which includes the project highway construction component. Maintenance 2.14 The MPW undertakes routine and some periodic highway maintenance works by force account through the District organizations; other periodic maintenance such as asphalt overlays and some resurfacing is carried out by contract. Present day levels of maintenance have become ineffectual and, recognizing the resultant deterioration of the network, the NPW has begun to improve all aspects of highway maintenance. 2.15 The maintenance efforts made by the MPW through its District opera- tions have been unable to cope with the demands. Over a short time, heavy, often overloaded trucks, have severely damaged highway pavements and shoulders to the extent that maintenance efforts are totally inadequate to sustain the service level of the highways at or near their original  -10- condition. Highway damage has been so severe that the Government has embarked on major capital expenditures to reconstruct/rehabilitate large sections of the highway network (paras. 2.11, 2.13 and Table 1). 2.16 District maintenance operations need to be improved and expanded to cope with the increasing demands arising from heavy traffic. Shortages of competent equipment operators must be alleviated if maintenance efforts are to be realistic and efficient. Training methods must be reinforced to provide the number of maintenance staff required. 2.17 Maintenance equipment used by the District Engineers was origin- ally obtained on a hire basis from the centralized plant and equipment pool in Amman (Wadi Sir), where good workshop facilities used to exist, having been constructed in the late 1950's/early 1960's with the advice of the U.S. Bureau of Public Roads (BPR) under USAID financing . Then, the policy was to undertake all major repairs and overhauls in Amman and reissue recom- missioned equipment to the District Engineers; now, the central workshops in Amman have become so rundown that they only handle some minor repairs to light vehicles and act as a dumping ground for unserviceable earthmoving equipment and heavy trucks, which are beyond the District Engineers' capa- bilities to repair. The reasons for the deterioration of the workshop services in Amman are poor management, insufficient and underpaid staff and budget constraints, which over time have brought the mechanical engineering services to a virtual standstill. 2.18 Effectiveness of highway maintenance efforts, especially the avail- ability of adequate, serviceable maintenance equipment and plant to carry them out, have followed a "sawtooth" pattern over the last two decades with peaks arising during 1953-1965 and again during 1972, both with USAID participation. 2.19 The Government and MPW recognize the urgent need to revitalize highway maintenance activities and are taking steps towards that goal by (a) utilizing bilateral technical assistance from USA, U.K., and Sweden to plan, manage and operate a highway maintenance system based on the recom- mendations of the 1983 NTS for a strategy aimed at urgent reintroduction of efficient highway maintenance; and (b) providing 25% government participa- tion in a commercial plant-hire corporation that is being set up and would lease to MPW equipment and plant for highway maintenance purposes. During loan negotiations, understandings were reached with the Government that; (a) it would discuss and review with the Bank the maintenance system which would be derived with bilateral technical assistance and the arrangements for ensuring the avail- ability of adequate equipment and financing for the planned maintenance operations; and  -11- (b) it would submit to the Bank a plan for improving the functioning of the plant-hire corporation and implement the plan according to a timetable agreed with the Bank. Traffic and Road Transport 2.20 The conflict in the northern Gulf, and the subsequent closing of the ports there, has diverted traffic destined for Iraq via Basra to Aqaba Port and then overland by road to Iraq. This has caused a big surge in traffic volumes along the Aqaba-Amman-Iraq highway corridor. Road haulage to Iraq amounted to about 4.2 million tonnes in 1982. In 1982, the highest traffic flows were on the access roads to Amman (6,000 to 12,000 vehicles per day) and the main road via Jerash and Ramtha to the Syria border (5,000 to 6,000 vehicles per day). International traffic to Syria, Iraq and Saudi Arabia were 1,800, 1,300 and 500 vehicles per day, respectively. In 1982, traffic along the 335 km long Aqaba-Amman highway was about 2,500 vehicles per day, of which 70% were heavy trucks. Secondary roads typically carry about 500-800 vehicles per day. 2.21 Jordan's trucking industry consists of numerous small companies, typically with fleets of up to ten vehicles and a large number of individual operators. Ninety (90) percent of freight vehicles are privately owned and about 60% operate for hire and reward. Two major companies, in which the Government has a half share, handle transit movements to Iraq and Syria; these are the Iraqi-Jordanian Land Transport Company (IJLTC) and the Jordanian-Syria Land Transport Company (JOSYCO), both of which are granted by the Government immunity from import duties and annual license fees for their vehicle fleets, which number 750 and 350, respectively. IJLTC operates by leasing trucks from two German suppliers under an agreement which includes driving staff and mechanical maintenance; JOSYCO vehicles are operated directly by the company. The Arab Potash Company (APC) owns a puirpose-built fleet of 9 axle trucks and trailers (gross vehicle weight 75 tonnes; payload 52 tonnes) for the haulage of potash from Safi to the Jordan Fertilizer Industry Co. Ltd (JFI) at Wadi 2. 2.22 The domestic vehicle fleet has grown at about 15% per year during 1972-82 to reach 177,849 vehicles. Annual growth rates during the period 1978-81 were 21% for trucks and buses and 16% for passenger cars and light vehicles (Table 4). Trucks form 24% of the domestic vehicle stock and pas- senger cars and taxis 70%. Budgets, Accounts and Audit 2.23 MPW prepares annual budgets for its recurrent and capital expendi- tures, which are consolidated with those of other ministries by the Ministry of Finance (MOF) and are approved first by the Cabinet and then by Par- liament. The approved budget is closely controlled by MPW and the budget department of MOF through monthly statements of budget performance and cash position. MOF establishes disbursement ceilings for each ministry for each month on the basis of the liquidity position of the government.  -12- 2.24 A MOF representative is located in the MPW finance department and checks all financial certificates and vouchers. The Accounting Council, which reports directly to Parliament, conducts audits through auditing personnel permanently assigned to each ministry. A joint auditing com- mittee from the Accounting Council and MOF performs the annual audit of the actual expenditures and checks all cash transactions. The above budgeting and accounting systems and auditing arrangements are satisfactory to the Bank. B. Railways Network 2.25 Jordan's railway system is based on the Hejaz Railway, which was constructed between 1900 and 1904. Today, the section Syrian border- Amman-El Qasr (94 km) is operated by the Hejaz Jordan Railway (HJR), while the sections Amman-El Abyad (about 130 km), Batn El Ghul-Saudi Arabian border (about 68 km) and the branch line Ma'an-Ras En Naqb (about 40 km) have been out of operation since 1973. All major fixed assets of the HJR date back to the early part of the century and are fully depreciated although still allowing limited operations. Two passenger trains and two freight trains run weekly with the help of about 20 staff, 4 locomotives and a limited number of coaches and wagons. The present level of low key operations of HJR is of little economic and financial significance for the country and the main source of income for the HJR is the rent paid by the ARC for the section of the Hejaz Railway over which it operates. HJR has no plans for expansion within the project period. 2.26 This report deals only with the ARC, which operates on the old Hejaz Railway over 294 km of single track between El Abyad and Batn El Ghul and on the new line Batn El Chul-Aqaba (see Map 17523). Two branch lines connect the phosphate mines with the main line; these are El Abyad (3.4 km), built in 1981/82, and El Hassa (5.1 km), built in 1975. All the lines with a gauge of 1,050 mm have been designed and built for a 16-tonne axle load. Temporary and permanent speed restrictions, mainly imposed due to sharp curvature and bad track conditions, limit the efficient use of the ARC line. Organization 2.27 The Corporation was established under the ARC Law of 1972. Pre- sently it is only operated to haul phosphate from the mines at El Abyad and El Hassa to Aqaba Port. ARC is governed by a Board of Directors consisting of seven members under the chairmanship of the Minister of Transport. The organization is shown in Chart 3. Role of the Railways 2.28 Operating since 1975, the ARC is still an infant railway with a number of problems. While traction and rolling stock are relatively new, ARC now faces necessary major overhauls of high priority. Recruiting staff  -13- became more difficult when the ARC headquarters were moved from Amman to Ma'an in 1980. Little was done in the past to train staff because the railway was facing the problem that employees who received training and acquired skills left the railway and went abroad or to the private sector in Jordan, which both offer more lucrative job opportunities. 2.29 ARC tried with increasing success to raise its share of phosphate transport. Recent studies carried out show that ARC's task in the next years is clearly to further its role as the major transporter of phosphate for export. Plans to diversify into grains, containers and other general cargo should be pursued only after ARC has solved the above-mentioned pro- blems (para. 2.37), has successfully completed a substantial technology transfer, has further improved its operational efficiency and has increased its capacity to meet possible phosphate transport forecasts. Management 2.30 The Director General is responsible for the efficient management of the ARC and for planning its development under the direction of the Board of Directors. Seven Chiefs of Departments and a Chief of Planning report to the Director General (see Chart 3). Staff 2.31 At the end of 1983, ARC employed 797 staff. More staff will be required in certain sections to meet the forecast increase in traffic. The staffing and annual targets are given by ARC in a manpower plan, which is subject to annual review. Productivity, measured as traffic units per employee, is forecast to increase by 12% over the period 1983-87. Staff numbers and productivity forecasts are shown in Table 5. The external demand for Jordanian labor has decreased in recent years, and it is expected that more manpower will be available to ARC and that, like many other institutions in Jordan, staffing problems will subside. 2.32 To improve the ability of ARC to operate the railway with current available manpower, 70 railway staff from Rail India Technical and Economic Services (RITES-India) were engaged under contract. The team members are deployed as engineers and supervisors in all departments but accounting. Traffic 2.33 The ARC is a single purpose railway for the carriage of rock phosphate for export. Rail-borne phosphate traffic from the mines to Aqaba for export has registered a significant increase in recent years, rising from 1.15 million tonnes in 1979 to almost 2.6 million tonnes in 1983 (Tables 2.2 and 6). The Jordan Phosphate Mining Corporation (JPMC) fore- casts that its total production from all three mines now working would be at least 6 million tonnes in 1986 of which 4 million tonnes would be for export. Considering the cost effectiveness and energy conservation of bulk  -14- transport by rail, the Government proposes that this 4 million tonnes of phosphate be moved to Aqaba Port by rail. The projected traffic eroe-th is realistic provided that exports develop as expected and the ARC will be able to increase its transport capacity commensurately through the planned investments and higher operational efficiency. 2.34 The figures below show the actual traffic growth during the 1971-83 period and the traffic projections up to 1987. Table 2.2; Phosphate Traffic and Traffic Projection, 1979-87 (million tonnes net) Annual Growth Rate Year Actual Traffic Projected Traffic % 1979 1.15 1980 1.30 1981 1.64 22.5 (1979-83) 1982 2.15 1983 2.59 1984 2.7 1985 3.0 1986 3.7 11.5 (1983-87) 1987 4.0 About two-thirds of the above phosphate traffic originates from El-Hassa mines and one-third from El Abyad Mines. Operations 2.35 The ARC has 25 main line locomotives and 247 phosphate wagons in operational condition (Table 7) and presently operates about 7 phosphate unit trains per day almost every day of the week, a marked improvement compared to 1979 and 1980 when the railways were running only 3 trains a day. To carry the projected 4 million tonnes in 1987, the number of trains has to be increased to 10 to 11 trains per day, an operational level attainable with the existing infrastructure improved by the proposed investments shown in para. 2.37. Operational efficiency also needs to be improved, according to an Action Plan (Annex 1) by increasing the number of wagons per train from 30-32 to at least 35, reducing the turnaround time for the unit trains and reducing day to day traffic variations (Table 8). The latter aspects would require co-ordination of activities with the mines and the port (para. 3.18). Tariffs and Costs 2.36 Tariffs for the transport of phosphate from the mines to Aqaba are proposed by ARC to HOT which has to ratify them before becoming effective. Tariff rates in the recent past have been as follows;  -15- El Hassa to Aqaba El Abyad to Aqaba Distance 271.7 km 289.0 km Oct. 31, 1980 JD 1.600/tonne JD 1.800/tonne Jan. 1, 1982 JD 2.050/tonne JD 2.200/tonne Jan. 1, 1983 1/ JD 2.200/tonne JD 2.400/tonne 1/ Proposed by ARC's board but not yet approved by the MOT. In 1983, the railway carried 2.59 million tonnes of phosphate at estimated operating expenses and interest costs of JD 5.50 million, i.e. JD 2.12 per tonne. The main thrust of ARC should be to improve utilization of railway capacity by carrying increasing volumes of traffic, supplemented to the extent necessary by tariff adjustments, so that higher contributions could be made towards fixed costs and debt service requirements, thereby paving the way towards the railways' financial viability. The proposed project aims at achieving this objective (paras. 3.02 and 3.36). Investment Plan 2.37 ARC's Investment Plan (Table 9), which is an update of the 1981-85 plan extended to 1987, covers the period 1984-87 and consists of three parts; (i) Spillover Investments; (ii) New Investments covered by the pro- ject; and (iii) Other New Investments. Spillover Investments comprise either on-going project items or those for which firm investment commit- ments were made prior to preappraisal of the proposed project. The project investments were selected to achieve the principal objective of the Invest- ment Plan, which is to increase the operational efficiency of ARC to enable its greater utilization as an energy-efficient transport mode for phos- phate, its exclusive commodity. The investment proposals are realistic and are responsive to the needs of Jordan's economy. More than 80% of the new investments form an important part of the proposed project. Detailed investment costs and their yearly breakdown are shown in Table 10. Financing 2.38 The Five Year Plan for 1981-1985 provided for railway investments during the period totalling JD 11.1 million (US$30.4 million) to be financed from the General Budget (JD 7.4 million (USM2O.3 million)) and through external loans from the Kuwait Fund and the Saudi Fund for Develop- ment (JD 3.7 million (US$10.1 million)). During loan negotiations, the Government has agreed that the ARC would implement and annually review its action and financing plans before the start of each fiscal year and prepare necessary revisions in consultation with the Bank.  -16- Budgets, Accounts, Audit and Insurance 2.39 ARC prepares annual budgets for its cash working and capital expenditures, which are first cleared by MOT and then incorporated into the national budget by MOF before approval by the Cabinet and Parliament. The approved budget is tightly controlled by MOT and the budget department of MOP through monthly statements of budget performance prepared by ARC from the receipts and expenditure accounts mentioned below (para. 2.39). 2.40 ARC's accounts are kept on the same basis as the Government treasury system of accounting and budgeting; the emphasis is on cash move- ments. ARC's financial department does not attempt to assess activity-based operating results through accrual accounting. However, starting from July 1981, ARC's auditors have reworked the outward billings and incoming invoices on a commercial basis to determine the financial position and results before certifying the annual balance sheets and the statements of revenue and expenditures for 1981 (part) and 1982. No subsidiary accounts or controls exist for the fixed assets, related depreciation and the stores inventory. ARC needs, and the proposed project provides, technical assist- ance and training (paras. 3.16, 5.06 and 5.15) for the introduction of new and improved methods of accounting to establish and maintain satisfactory bases for its accounting activities as shown in Annex 2. 2.41 ARC's accounts are audited by a local firm of public accountants in accordance with generally accepted auditing practices which are adequate for purposes of reporting to the Bank. 2.42 ARC maintains adequate insurance coverage of its rolling stock and other insurable risks. C. Ports organization & Management The Port Corporation (TPC) 2.43 The Royal Decree of 1952 established TPC as an independent public corporation. The Corporation is managed by and acts through its Board consisting of five designated members, two of whom are Government represen- tatives. The Board is presided over by the Minister of Transport, the Director General of TPC who is responsible for the day-to-day running of the port is Deputy Chairman, and representatives from the port users and other relevant sectors are appointed by the Council of Ministers. TPC is legally empowered to operate the port of Aqaba and to levy dues and charges for the use of the port and its facilities. The structure is being revised and the new proposed structure is shown in Chart 4. TPC proposes to improve its financial, administrative and planning capabilities, and the overall status of its cargo handling equipment through a technical assist- ance and training program included in the project (paras. 3.18 and 3.19).  -17- Staff 2.44 Of about 4,500 staff employed, 500 cover the administration, work- shops and warehouses functions with which the project is concerned. About 25Z of port workers (mainly Egyptian) are employed on a two-year contract basis. Training 2.45 TPC operates its own training school with up to 10 instructors available to run training courses of eight weeks duration for mechanics, drivers, shed master and tally clerks, labor foremen, electricians and introductory labor. The school operates efficiently and has a reasonable quantity of training aids. Main Port Facilities 2.46 The Port of Aqaba was established in 1952 by Royal Decree and has developed through various phases to its present seven general cargo main berths, and with two shallower cargo berths (Nos. 9 and 10) and two lighter berths - see General Plan (IBRD 17937). The six main berths are 1,060 meters in length with a depth alongside of 11 meters, Berth 7 is 150 meters long with 7 meters depth, Berths 9 and 10 are 150 meters long with 6 meters depth. The lighter berths have about 6 meters depth. The berths and asso- ciated sheds and storage areas are generally in satisfactory condition. None of the berths carries any portal cranes, all non-bulk cargo being handled by ships gear, which appears to work effectively. 2.47 Immediately south of Berth No. 1 are two phosphate loading berths, "A" and "B", constructed in 1960 and 1969 respectively. Berth "A' is now being used for the imports of mineral and edible oils, and can take vessels up to 18,000 dwt. Berth "B" is 180 meters long with 15 meters depth along- side and is capable of taking vessels up to 100,000 dwt. There are two shiploaders on the berth of 2,100 tonnes/hr nominal capacity served by conveyors from four sheds onshore (two of capacity 73,000 tonnes each, and two of capacity 80,000 tonnes each). With the expected increase in phos- phate exports, TPC should initiate an investigation of the likely advan- tages of restoring the phosphate loading facilities at Berth "A" for loading smaller ships to optimize availability of both berths for bulk export of phosphate (para. 3.18). Two rail unloading bins and two road truck unloaders are located in the port on the landward side of the sheds. Container and RoRo Berths 2.48 In 1977, TPC provided two floating berths (150 meters long and 35 meters wide) about 5 km south of the main port for handling container, cement and RoRo traffic to minimize congestion in the main port area. One pontoon handled containers and has a RoRo ramp on the northern face, and carried 4-5 tonne portal cranes, while the second had a bulk cement  -18- unloader, and also handled RoRo traffic. Nearby, TPC has constructed a container berth 280 meters long with a depth alongside of 15 meters and are providing 2-40 tonne container cranes. A new 80 meter RoRo berth was con- structed simultaneously just north on the same quay line as the new con- tainer berth, one pontoon has recently been removed, and the second container berth will be completed in 1984 in the intervening 220 meters to provide 580 meters of continuous berths. Potash/Fertilizer Jetty 2.49 Some 15 km south of Aqaba there is a new jetty for the import of raw materials such as sulphur, and the export of potash and fertilizers. The berth has 2 loaders and 2 conveyors for handling di-ammonium phosphate (DAP) fertilizer, potash and other fertilizers for export. Traffic 2.50 Import traffic handled through the port of Aqaba increased drama- tically in the years 1980, 1981 and 1982 as a result of transit cargos, mainly for Iraq. In 1983 Iraq began diverting imports for northern Iraq through Mersin (Turkey) and southern Iraq through Saudi Arabia with con- sequent reductions in throughputs at Aqaba of about one million tonnes in 1983 (Table 11). 2.51 The traffic statistics for imports and exports through Aqaba 1979-83 and projections for 1984, 1985 and 1990 are shown in Table 11. The container traffic has increased from 4,557 Twenty feet Equivalent Units (TEU) in 1977 to about 37,000 in 1933 (Table 12) and is expected to reach about 100,000 TEU by 1987. Operations and Productivity 2.52 General cargo operations in the port are satisfactory and open and covered storage space appears adequate. Labor productivity is generally good averaging 18 tonnes per gang hour for general cargo, and 35 tonnes per gang hour for bagged cargo. 2.53 TPC has two container yards in the main port area totalling 140,000 square metres and further yards in the area of the new container berth totalling 200,000 square metres. Container handling is by straddle carriers and forklift trucks but the overall operation could be consider- ably improved and provision of technical assistance e. i training to achieve this is included in the project (para. 3.18). 2.54 The maintenance workshops are too small and lack sufficient covered area and workshop equipment and trained technicians to carry out effective preventive and breakdown maintenance. TPC aim to correct these shortcomings by appropriate self-financed investments in workshops and training activities (paras. 3.18 and 3.19). Site preparation has begun for the workshops extension.  -19- Investments and Financing 2.55 The Five Year Plan for 1981-1985 provided for investments during the period of some JD 43.3 million (US$118.6 million) for the construction of new container and RoRo berths and a slipway and a new industrial berth to handle imports and exports of fertilizer and potash industries, acquisi- tion of equipment, and ship-loading systems for the industrial berth, acquisition of marine craft, and rehabilitation and increase in capacity of shiploading at phosphate Berth A. These are to be financed to the extent of JD 6.6 million (US$18.1 million) through self-financing by the Port Authority, JD 13.8 million (US$37.8 million) from the General Budget and JD 22.9 million through external loans from the Saudi Fund for Development, the Islamic Bank and the Iraqi Fund for External Development. The Plan is project-specific and aims to develop the port capacity in order to meet the expected increase in transport requirements for imports and exports. All these works are well underway or completed. No new major investments are envisaged or required during the project period beyond 1985 through 1987 other than the completion of the ongoing works and the provision of techni- cal assistance and training component included in the project (para. 3.19). Budget Accounts and Audit 2.56 TPC's budgets are controlled in the same manner as those of ARC (see para. 2.39). TPC's accounts are commercially-based, follow the accrual system, and are audited by Jordanian public accountants in accord- ance with professional standards.  -20- III. THE PROJECT A. Background 3.01 In recognition of the seriousness of the mounting congestion pro- blems on the country's trade routes, the increasing problems of maintaining the highways under heavy traffic and the urgency to improve the railway operations in an era of energy consciousness, Government commissioned in early 1982 a comprehensive NTS covering the entire transport sector to provide the basis for transport investments and a coordinated transport development strategy. This study has been completed and provides forceful evidence of priority investment needs in the transport sector. Based on the study's findings, and supplemented by the Bank assessment of the sector needs, a multi-mode transport project has been proposed which forms a vital and economically justified part of the high priority investments included in the Government Development Plan. B. Objectives 3.02 The primary objectives of the project are to; Transport Sector (a) ease critical transport bottlenecks on Jordan's principal export/import routes to facilitate the movement of such key commodities as phosphate, potash, fertilizers, cement and general cargo, all vital for the economy of Jordan and neighboring countries; (b) initiate institution building efforts by introducing and encouraging investment and financial planning, manpower management, training and technical assistance; (c) improve project preparation and thereby the receptivity of the capital markets towards cofinancing; Highways (d) improve monitoring, control and enforcement of the legal limits of vehicle axle loads and dimensions by operation of permanent and mobile weighing stations; (e) promote systematic and effective highway maintenance; and Railway (f) encourage technology transfer in order to improve ARC's operating efficiency with greater utilization of line capacity;  -21- (g) strengthen management of ARC by the preparation and implementation of sound Operational and Action Plans (Annex 1); (h) enable ARC to achieve financial viability; and Port (i) enable TPC to improve interface operations -- rail/port movement of phosphate and highway/port movement of con- tainerized cargo--through technical assistance and training. C. Description 3.03 The proposed project deals with highways, railway and the port which serve the major part of Jordan's transportation. The project is based on a broad review of all major investment programs of the above three modes in the 1981-85 Plan including important spillover works through 87/88, that is, up to the end of the project period. The structure and organization of these agencies, their on-going investments and financing plans are described in Chapter 2. 3.04 The project components derived from the above investment plan lay special emphasis on the development and maintenance of international trade routes and institution building. The project components are discussed below: Highway Components Highway Maintenance 3.05 The proposed project includes routine and periodic maintenance activities set out in Annex 3. 3.06 The periodic maintenance asphalt overlay program for strengthening of sections of the highway network would be selected on the basis of tech- nical and economic criteria which were discussed and agreed during negoti- ations (para. 4.10). Sections of the following four highways have been tentatively proposed by MNPW for strengthening: (a) Azraq-Saudi Arabia Border, 50 km; (b) Juwaidah-Azraq-Iraqi Border, 320 km; (c) Access road to Queen Alya International Airport, 35 km; and (d) Al Hashimiyah-Rihab; 30 km.  -22- 3.07 Equipment included in the project to assist the implementation of routine and periodic maintenance consists of: (i) five to seven fixed bitumen storage heaters for periodic resealing and routine patching; (ii) a highway striping machine; (iii) portable weighing scales for axle load control; (iv) traffic counters; and (v) pavement deflection testing equipment for asphalt overlay design purposes. Technical Assistance 3.08 Technical assistance to strengthen highway maintenance management, planning, operations and training would be undertaken by consultants appointed to "in-line" positions within MPW for 100-120 man-months-one senior engineer for planning and budget (30 man-months), one administra- tion/procurement officer (30 man-months), one field maintenance engineer (30 man-months), and one training specialist (20 man-months). During negotiations, the Jordanian delegation expressed the Government's comit- ment to an effective highway maintenance program and plan of action, in accordance with established practices already set out in the MPW Highway Maintenance Manual (see Annex 7, Project File, Item B9) and based on the recommendations of the NTS and other bilateral agencies who have recently visited Jordan (USAID, Sweden, TRRL (UK)); implementation progress would be monitored through project supervision. Expatriate consulting services cost estimates are based on the estimated man-months required and consultants rates applicable to Jordan. Bank financing is limited to training activi- ties only, as technical assistance for other requirements would be financed by the Government or any bilateral sources that may become available. Civil Works 3.09 Diversion around Aqaba Town of heavy trucks destined to or from the Aqaba port area and JFI is only practically possible on the eastern side of the town away from the Gulf of Aqaba shore and the mountainous area (see Map IBRD 18002). The proposed 30 km two-lane alignment will begin about 15 km from Aqaba on the Aqaba-Amman road, overpass the ARC track and proceed along the Wadi Yutum in a SSW direction towards Wadi 2 (JFI). Climbing lanes for trucks will be required on about 9 km of the first 15 km where the 6 km spur to the container berth area branches off the main alignment; these will accommodate slower-moving trucks on gradients between 6 and 7%. No climbing lanes are required on the spur. Truck parking areas with repair/maintenance facilities will be constructed alongside the spur to store vehicles in convenient proximity to Aqaba port.  -23- Railway Components 3.10 Aqaba Workshop Extension is vital to enable the ARC to adequately maintain its traction and rolling stock. Most of the ARC's locomotives are now due for 8-year major overhaul and the phosphate wagons are due for 4-year minor overhaul around 1984. These overhauls are additional to normal repairs and necessary to ensure satisfactory operation and a reason- able life for the traction and rolling stock. The present lack of space at Ma'an would inhibit maintenance work and result in a substantial drop of locomotive availability from 80% (1982) to 70Z (1985). The planned exten- sion of the workshop would allow the concentration of all locomotive main- tenance at Aqaba and free space for all freight wagon maintenance at Ma'an. 3.11 Track Renewal. Track renewal involves high priority sections Rum-Aqaba (31 km), Batn El Ghul-Disi (40 km), and El Hassa - Jerouf/Jourdan - Ma'an (30 km), where standards and conditions of the rails, sleepers, fastenings, and ballast are unsatisfactory. Without the proposed track renewals which includes using heavier rails of 49 kg/meter (Annex 4), the poor track conditions would deteriorate further and restrict the daily number of trains. 3.12 Track Machinery. In light of the specialized natur rf the work, the ARC proposes to carry out track renewal with its own work force. Costs would be lower than using contractors and track quality would be better maintained especially on the long stretches of line (about 115 km) with steep gradiants up to 2.692. To this end the proposed project includes track renewal machinery to carry out track renewals planned after 1987. 3.13 Freight Wagons. Sixty phosphate wagons have been ordered and would be delivered in early 1984. The project provides for a further 90 wagons to be delivered in 1985 and 1986. Detailed calculations (Table 8) demonstrate the need for these wagons to meet the transport target of about 4 million tonnes per year by 1987. 3.14 Breakdown Crane. Derailments and collisions result in traffic interruptions which would have a substantial adverse affect on the number of daily trains operated substantially. With the expected increase in traffic, line blockage would become increasingly serious. Since ARC has no suitable breakdown crane the purchase is essential and would avoid delays similar to those experienced in the past when hiring lifting equipment. 3.15 Locomotive Rehabilitation, Spare Parts. In recent years several locomotives were heavily damaged by train accidents (para. 4.16). ARC plans to rehabilitate four of them, which are in repairable condition, to provide the necessary locomotives for phosphate trains and for ballast and material trains during the track renewal period. Extra spare parts such as draft gear assembly, coupler, crankshaft, engine governor, etc. are needed to rehabilitate the locomotives.  -24- 3.16 Training and Technical Assistance. The ARC has a serious manpower problem due to high turnover of staff resulting from unattractive employ- ment conditions. Since there has been no systematic training on the rail- ways, the project includes a training component (Annex 5) to meet the urgent needs and make the lower level staff technically more competent. Bank financing is needed for the railway component only since bilateral technical assistance on attractive terms is available for the highway component (except training-see para. 3.08) and TPC will finance its own training needs (para. 3.19). 3.17 Training costs are based on estimates of 36 man-months for expat- riate consultants services, 108 man-months for overseas courses for ARC staff, 200 man-months for local, technical and professional assistance and provision of training equipment and materials. Training equipment and materials are estimated to cost US$150,000. Port Components 3.18 To ensure that the objectives of efficient operation of the inter- dependent transport modes are achieved, it is essential that the interface operations such as rail/port movements of phosphate and highway/port move- ments of containerized cargo are effectively coordinated and implemented. To this end the project contains a training component whereby existing operational staff in the port will receive further training which will include container, general cargo and shipping operations, phosphate handl- ing and storage, repair and maintenance of equipment, finance and admini- stration, project planning and maintenance, and safety/fire fighting. The Government in cooperation with TPC would initiate an investigation of the likely advantages of restoring the phosphate loading facilities at Berth 'A' (see Map IBRD 17937) and/or of other ancillary facilities which would be needed to provide sufficient capacity to sustain regular rail movements of phosphate and to take into account the seasonal variations in ship arrivals (para. 2.47). 3.19 The technical assistance and training needs an estimated input of about 100 expatriate man-months-operations specialists (18 man-months), phosphate storage and handling (12 man-months), maintenance engineer (36 man-months), finance and administration (24 man-months), project planning and maintenance (6 man-months) and safety/fire fighting (4 man- months)-and about 36 man-months of overseas training for selected staff and middle management. US$150,000 has been included for training equipment materials. The USS1.3 million total cost of the training component is to be financed from TPC's own resources. D. Engineering Highway Maintenance 3.20 Detailed engineering for the asphalt overlays will be undertaken by consultants using the results of field testing of the selected road sections to determine residual pavement life and projections of future traffic demand.  -25- Civil Works (Highways) 3.21 Detailed engineering and bid documents for the Wadi YutumrWadi 2 "back road" and the spur to the Aqaba Container port were substantially completed in June 1977 by consultants (VBB-Sweden and Ahmad Fawzi and Asso- ciates - Jordan). Extensions of the final engineering to include details and quantities for the road junctions at Wadi Yutum, Wadi 2, and the container port are estimated to be completed by September 1984. 3.22 Design standards adopted are shown in Annex 6 and are satisfactory when considering the harsh terrain through which the alignment passes. Where vertical gradients are steeper than 6Z, climbing lanes have been provided for heavy trucks; these sections are 3.7 km long (inbound to the port) and 5.7 km long (outbound from the port) in which the maximum vertical gradient of 7Z occurs over 2.6 km. Track Renewal (Railway) 3.23 Detailed engineering for the track renewal was carried out by ARC on the basis of experience with similar ongoing works. Geometric standards, however, were not changed because straightening of curves with small radii, which restrict speeds substantially below the maximum of 80 kmph, would be extremely expensive. 3.24 The present track standards (see paras. 2.25, 3.11 and 4.13) had been chosen for a traffic volume of 1.5 to 2 million tonnes per year. Since actual traffic is now above this limit, improved standards of track materials have been adopted by ARC (Annex 4). Aqaba Workshop Extension 3.25 Detailed engineering for the extension of the existing Aqaba work- shop, for earthworks, tracks and a new access road was undertaken by con- sultants. They also assessed the necessary workshop equipment and machinery (see Project File, Annex A7, Item B3). The ARC will prepare the bidding documents based on the consultant's recommendations. E. Cost Estimates and Financing 3.26 Project cost estimates and Bank participation are summarized in the table below:  -26- Table 3.1s Project Cost Estimates nd Bank Pwrticipation ./ S Foreign Bank JD million USS million Exchange Participation Local Foreign Total Local Foreiqn Total Coponent USS Million A. HIGHIRAS CONPONENT Highway Naintenance Routine Maintenance 4.0 2.0 6.0 11.0 5.5 16.5 33 - Periodic Maintenance 1.7 2.5 4.3 4.7 7.0 11.7 60 7.0 Highway mintenance. Traffic and Pavement Testing Equipment - 0.2 0.2 - 0.5 0.5 100 0.5 Technical Assistance: (a) Naintenance anagment 0.1 0.4 O.S 0.3 1.1 1.4 s0 (b) Training 0.2 0.1 0.3 0.6 0.2 0.8 25 0.2 Sub-total 6.0 5.3 11.3 16.6 14.3 30.9 46 7.7 Civil Works Wadi Yutum-hadi 2 (31 ki) 3.2 4.7 7.9 8.6 13.0 21.6 60 -- Spur to Container Port (6 kb) 1.0 1.4 2.4 2.6 3.9 6.5 60 -- - Sub-Total 4.2 6.1 10.3 11.2 16.9 28.1 60 -- Base Cost (JD & US$ million) 10.2 11.4 21.6 27.8 31.2 59.0 53 7.0 Contingencies Physical ZJ 1.0 1.1 2.2 2.8 3.1 5.9 53 0.o Price Escalation Y 1.6 1.9 3.2 4.3 S.2 9.5 55 1.5 TOTAL (Highways) 12.8 14.4 27.2 34.9 39.5 74.4 53 10.0 _. MM . ._. _i u __ me _ B. RAMILWY C(UONENT Aqaba orkshop Extension 1.5 1.0 2.5 4.2 2.6 6.8 38 - Track Renwal 3.4 6.3 9.7 9.2 17.2 26.4 65 16.0 Track Machinery - 0.6 0.6 - 1.7 1.7 100 - Phosphate Wagons - 3.1 3.1 - 8.6 8.6 100 - Breakdown Crane - 0.3 0.3 - 0.9 0.9 100 - Locometive Rehabilitation - 0.5 0.5 - 1.5 1.5 98 - Technical Assistance and Training 0.2 0.3 0.5 0.5 .0.8 1.3 62 0.2 Subtotal 5.1 12.1 17.2 13.9 33.3 47.2 71 16.2 Cotingencies Physical 0.5 0.8 1.3 1.3 2.1 3.4 62 1.6 Price Escalation 0.8 1.6 2.4 2.1 4.4 6.5 68 2.2 TOTAL (Railway) 6.4 14.5 20.9 17.3 39.8 57.1 70 20.0 m. _ m.. _ . __m .m. mem...._ _ C. PORT COMPONENT Technical Assistance and Training 0.1 0.4 0.5 0.3 1.0 1.3 80 - GRANW TOTAL (Highways. Railway and Port) 19.3 29.3 48.6 52.5 80.3 132.8 60 30.0 __m me. _em _me._ .. m._. em .m. m.. .f Local and foreign costs do not include taxes as IPI nd ARC components are tax-exempted. 31 Physical contingencies at 1S. except for railwy equipment and machinery. 3I Price esculation for foreign exchange calculated using 7.5% (1984), 7.01 (1985) and 6.51 thereafter and for local costs 7.51 throughout.  -27- 3.27 The project cost estimates are based on April 1984 price levels. The total project costs are estimated at JD 48.6 million (US$132.8 million), consisting of highways JD 27.2 million (US$74.4 million), railways JD 20.9 million (US$57.1 million) and ports JD 0.5 million (US*1.3 million) with an estimated foreign exchange component of about JD 29.3 million (US$80.3 million). A US$30.0 million loan would thus represent about 23% of the cost of the project and about 37Z of the foreign exchange component. 3.28 Cost estimates for civil works are based on quantities from the provision1 final engineering design and on unit rates derived from current construction contracts. Railway equipment estimates are based on recent procurement and market surveys. 3.29 The foreign exchange component of the Wadi YutumrWadi 2 and spur to Aqaba container port and for the asphalt overlay program is estimated to be about 60% which includes an element of foreign costs for non-Jordanian construction workers. 3.30 The data used in the preparation of the project are listed in Annex 7. Financing 3.31 Out of the total foreign exchange cost of US$80.3 million, financ- ing to the extent of US$50.7 million has been assured by the Bank loan (US$30.0 million), a Saudi Development Fund loan (US$11.4 million) and an Islamic Development Bank loan (US$9.3 million) as shown in Table 3.2 below:  -28- Table 3.2: ProJect Comeonent Cost Estimtes and Sources of Financing US) millionn 1 --- Government Co-Financier Local Foreign IBRD SOF IDO Cnrcial Total Credits A. HIGhWAYS Highway Maintenance (a) Routine Maintenance 11.0 S.S 1 - - -- -- 16.5 (b) Periodic Maintenance 4.7 -- 7.0 - -- - 11.7 (c) Highway Maintenance. Traffic & Pavement Testing Equipment -- -- 0.5 - -- - 0.5 (d) Technical Assistance; (i) Maintenance Management 0.3 1.1 - -- -- -- 1.4 (ii) Training 0.6 - 0.2 - -- - 0.8 Sub-Total 16.6 6.6 7.7 -- - _ 30.9 Civil Works (a) Wadi Tutum-Wadi 2 (31 ki) 8.6 4.8 21 - 8.2 - - 21.6 (b) Spur to Container Port (6 ki) 2.6 3.9 - - - _ 6.5 Sub-Total 11.2 8.7 -- 8.2 -- - 28.1 Base Cost (JD & US) million) 27.8 15.3 7.7 8.2 -- - 59.0 Contingencies (a) Physical 2.8 1.S 0.8 0.8 -- - 5.9 (b) Price Escalation 4 1.3 1.3 1.5 2.4 - - 9.s TOTAL (Highays) 34.9 18.1 10.0 11.4 Y - 74.4 B. RAILWAY (a) Aqaba Workshop Extension 4.2 1.2 S - -_ _ 1.4 Al 6.8 (b) Track Renewal 9.2 1.2 AS 16.0 -- - -- 26.4 Cc) Track Machinery - -- - -- - 1.7 L 1.7 (d) 90 Freight Wagons -- - - -- 8.6 7/ -- 8.6 Ce) Breakdown Crane - - - -- - 0.9s 0.9 (f) Locomotive Rehabilitation and Spares - - - -- - 1.S Y 1.S (g) Training 0.5 0.6 0.2 - -- -- 1.3 Sub-Total 13.9 3.0 - 16.2 - 8.6 5.5 47.2 Contingencies (a) Physical 1.3 -- 1.6 - - 0.5 3.4 (b) Price Escalation 3/ 2.1 0.5 2.2 - 0.7/N 1.0 6.5 TOTAL (Railway) 17.3 3.5 20.0 - 9.3 7.0 57.1 C. PORT (a) Training Aids and Books -- _ _ _ _ __ (b) Technical Assistance and Local Training - -- - - - -- _ Cc) Overseas Training Sub-Total 0.1 1.0 - -- - -- 1.1 Contingencies (a) Price Escalation 3/ 0.2 - 0.2 TOTAL (Port) 0.3 1.0 / - - 9/ 1.3 TOTAL (Highways. Railway, and Port) 52.5 22.6 30.0 11.4 9.3 7.0 132.8 50.7 __----- 80.3 11 Foreign exchange element to be financed by Government. 12 Includes heavy vehicle parks. 3/ Price escalation for foreign exchange calculated using 7.5% (1984). 7.01 (1985) and 61 thereafter and for local costs 7.5% throughout. 4/ Saudi Developuent Fund (SOF) assistance (SR 40 million; US$11.4 million equivalent). k1 Foreign exchange element of workshop building to be financed by Goveriment. 6/ Foreign exchange shortfall for m2% balance of cost of rails to be financed by Govermient. 7/ Islamic Developoent Bank (IB) comnlttment. !/ Foreign exchange to be financed by TPC.  -29- During loan negotiations, the financing of project costs was discussed with the Borrower and agreement reached that the foreign exchange costs in excess of the proposed Bank loan and the co-financing arrangements, and all local costs, including cost overruns would be met by the Government. Therefore, in addition to local costs (US$51.7 million), the Government will finance foreign exchange costs of routine highway maintenance (US$6.6 million), the foreign exchange gap of the Wadi Yutumr-Wadi 2 road and spur to the container port (US$8.7 million), the railway locomotive workshop building at Aqaba (US$1.2 million), rails (US$1.2 million), and railway and port training (US$1.6 million) to the extent of US$22.6 million, including physical and price contingencies. The Government expects to enlist additional financial support of US$7.0 million for the railway part of the project from suppliers' and/or export credits. 3.32 Since parallel financing is preferred by the co-lenders, the Government requested at negotiations that the Bank and the co-lenders should finance separate, economically self-reliant project components. For the railway, the parts of the project to be financed by each are distinct. For highways, the Bank would finance the foreign exchange cost of the periodic maintenance, while the Saudi Development Fund would contribute part of the foreign exchange cost of construction of the Wadi YutumrWadi 2 highway, the spur to the containe-r port, heavy vehicle parks and flood controls at Wadi 2. Each financing agency would administer procurement related to its part of the project and the Government would arrange regular exchanges of information between co-lenders. Such arrangements were dis- cussed and confirmed during loan negotiations. Signature of official co-financing arrangements would be a condition of loan effectiveness. 3.33 In respect of the port component, which is to be fully financed by the TPC, agreement was reached during loan negotiations that TPC would investigate by December 31, 1985, the optimum use of berth facilities for phosphate loading and exchange views with the Bank on proposed measures to be taken (paras. 2.47 and 3.18). F. The Loan, The Borrower and Beneficiaries 3.34 The Hashemite Kingdom of Jordan will be the borrower of the Bank loan for the whole project totalling US$30.0 million comprising US$10 million for highways and US$20 million for railway. The beneficiary for highways will be MPW; since the Ministry is a part of the Government and is not a revenue earning entity, there will be no relending arrange- ments. The beneficiary for the railway component of the project will be ARC. The portion of the Bank loan for the railway component would be relent by the Government to ARC under the same terms as the proposed Bank loan to the Government. Signing of the subsidiary loan agreement would be a special condition of loan effectiveness. G. Implementation 3.35 The executing agencies would be MPW for highways, ARC for the railway and TPC for the port, each assisted by consultants engaged under terms and conditions satisfactory to the Bank. During negotiations, agree- ment was obtained from the Government that it would retain, or cause ARC  -30- and TPC to retain, as the case may be, consultants for construction supervision and for other technical assistance services required in the project under terms of reference satisfactory to the Bank (paras. 3.08, 3.16 and 3.19). 3.36 In order to reduce costs, improve service quality and its market position, the ARC has prepared Comprehensive Action Plans which address organization, planning, investments, productivity, information systems, finance, government support and staff training. The Plans specify actions to be taken to achieve agreed productivity, operational and financial tar- gets and will be updated annually. As part of its Action Plan, the ARC has prepared Operational Plans to improve the utilization of its traction and rolling stock and to serve as a basis for procurement (Annex 1). 3.37 During loan negotiations, agreement was reached with the Government that: (a) before presentation of the project to the Bank's Board of Directors, MPW, ARC and TPC would nominate an officer of each agency with appropriate qualifications and experience to be appointed in consultation with the Bank as Project Coordinator responsible for implementation of his agency's part of the project in accordance with agreed specifica- tions, time schedules and budgets and this has been done; (b) before presentation of the project to the Bank's Board of Directors, MPW, ARC and TPC would, and in consultation with the Bank, appoint/nominate full-time training officers with suitable qualifications and experience and take all steps necessary to ensure that satisfactory arrangements be completed on time for carrying out the training programs and technical assistance envisaged in their respective project components and thereafter cause such training programs to be carried out according to a time-table to be agreed between the Government and the Bank and this has been done; and (c) the ARC, in conjunction with JPMC and TPC would endeavor at all times to; (i) carry out its Action Plan (Annex 1) including its operational plan and training program; (ii) follow appropriate monitoring procedures to assess progress in the implementation of its Action Plan; (iii) review annually in consultation with the Bank its Action Plans. 3.38 All communications and reporting will be through the National Planning Council. Implementation schedules for the project components, prepared in conjunction with the transport agencies (Tables 13 and 14), were discussed and confirmed by the Government during loan negotiations.  -31- The Government also agreed to prepare regular progress reports on a quarterly basis and a project completion report within six months of the Loan Closing Date. H. Procurement 3.39 Contracts for asphalt overlays would be offered for bids under ICB procedures and in accordance with the Bank's Guidelines for Procurement under World Bank Loans and IDA Credits (July 1980 Edition) after satisfac- tory review by the Bank of: (i) the technical and economic evaluations of selected highway sections prepared by consultants; (ii) the final engineer- ing and bid documents; and (iii) the bid evaluations (see paras. 3.06, 4.10 and 6.02). The timing of the first overlay contract is estimated to be August 1985. 3.40 The construction contracts for the Wadi Yutum-Wadi 2 highway sec- tion, the spur to Aqaba container port, related heavy vehicle parks and flood control measures would be awarded on the basis of unit prices after international competitive bidding in accordance with the procedures of the Saudi Development Fund. Bids are expected to be called for in early 1985 and construction begin in June 1985. The duration of construction is expected to be 2-1/2 years. 3.41 Equipment for pavement testing and traffic data collection will be procured on the basis of limited international competitive bidding because of the specialized nature of the items. 3.42 Materials for track renewal would be procured by ICB in accordance with the Guidelines for Procurement under World Bank Loans and IDA Credits (July 1980 Edition) after Bank review of the bid documents. Domestic firms participating in bidding would be accorded a preference of 15%, or the custom duties, whichever is lower. The proposed items to be procured comr prising rails, fastenings, fish plates, anti-creep and anti-warp devices are shown in Table 15; the list of items was discussed and agreed with the Government during loan negotiations.  -32- Table 3.3: Procurement Method Total Project Element ICB LCB Other N.A. Cost (US$ million) Civil Works Highways 53.3 -- -- 18.3 1/ 71.6 ( 93) C-) (--) 2/ () ( 9.3) Railways -- -- 1.6 16.8 18.4 C-) (-) (--) (-) (-) Equipment Highways -- -- 0.6 -- 0.6 (C-) (C-) t 0.5) (-) ( 0.5) Railways 21.7 -- 15.4 - 37.1 (19.7) (-) (--) C-) (19.7) Services Highways -- -- -- 2.2 2.2 C-) C -) C--) C 0.2) ( 0.2) Railways -- -- -- 1.6 1.6 C -) (- ) (--) ( 0.3) C 0.3) Ports -- -- 1.3 -- 1.3 .-- __C-) C--) (-) (-) TOTAL 75.0 -- 18.5 38.8 132.8 (29.0) (-) C 0.5) ( 0.5) (30.0) 1/ Routine highway maintenance. 2/ Figures in brackets are for the proposed Bank loan. NOTE: Unbracketted figures are for project.  -33- I. Disbursements 3.43 The proceeds of the highway and railway component of the proposed Bank loan would be disbursed on the following basis: Highways (a) 601 of the total costs of asphalt overlay, which represents the estimated foreign exchange component of this item; (b) lOOZ of the c.i.f. landed costs of highway maintenance, traffic and pavement testing equipment; and (c) the actual foreign exchange costs of the consultants undertaking training services. Railways (a) 10OZ of expenditures on track materials up to the amount allocated in the Loan Agreement; and (b) the actual foreign exchange costs of the consultants undertaking technical assistance and training services. 3.44 The estimated cumulative quarterly disbursement schedule shown in Table 16 assumes that the loan would become effective by October 1984. The disbursement profile is closely similar to those for other regional trans- portation projects (see Table 16) and, in view of Jordan's long term involvement and familiarity with Bank projects, the marginal improvements assumed between the project and regional transport standard profiles are realistic. During negotiations, the Government and the Bank discussed and confirmed the Bank participation rates for each loan category and the disbursement schedule.  -34- IV. ECONOMIC EVALUATION A. General 4.01 Increased emphasis is being given in Jordan to develop industry and mining projects with a large export potential. Industry, particularly mining and construction, has been the engine of growth during the last decade. In the 1980s, relatively high growth rates, about 15-20% per annum are envisaged for industries such as fertilizers, phosphate mining, cement and refining, as compared with a growth rate of about 8-10 per annum for the economy as a whole. Generally, these economic priorities would generate increased transport requirements on the principal trade routes of the country. Jordan has experienced an unusual upsurge of transit traffic to Iraq through the port of Aqaba since outbreak of hostilities in the Gulf in 1979; this has strengthened Jordan's political and economic ties with Iraq. Even when the hostilities cease, because of the complementary interests of the two countries, Iraq would wish to continue to have a reliable outlet overland through Jordan. Furthermore, a post-war reconstruction boom in Iraq is likely to result in the import of increased tonnages of construction materials over the Aqaba-Baghdad route. 4.02 As in the past, the ARC's investment programs would remain closely related to the increasing transport needs of phosphate movements from the mines to Aqaba port for export. The railway is likely to assume a renewed significance in the era of energy consciousness. Road transport would con- tinue to play the dominant role in facilitating the movement of such key commodities as potash, fertilizers, cement, and general cargo which are vital to the economy of Jordan and its neighboring countries. The Aqaba Port, which has by now developed adequate capacity, would be required to deal with increasing pace of containerization and considerable growth in bulk exports such as phosphate, potash and fertilizers. 4.03 Many important links in the transport networks are already over- loaded now and, with the projected growths in traffic, would become even more congested later. Several sections of the primary highway network are already under reconstruction to meet the Government's objective to restore the primary highway network to adequate pavement service levels by 1985. The proposed project aims at relieving transport bottlenecks on some critical road and rail sections. One of the principal highway components included in the project is the improvement of road maintenance systems, particularly for the primary road network; another aims to divert the heavy port-oriented truck movements away from Aqaba town. The railway components included in the project are intended to provide additional capacity and technology transfer. 4.04 The ultimate beneficiaries of the proposed project would be trans- port users who, due to the diversity of traffic using the transport net- works, come from a wide range of sectors and income groups. The proposed project would benefit long distance international trade, and support  -35- Jordan's efforts for energy conservation. Because of the competitive nature of the transport industry, it is expected that the benefits of the project, which initially would accrue to transport users, would be ultimately passed on to the economy in general. B. Project Costs and Benefits 4.05 The economic evaluation of the different sub-projects is based on the feasibility studies undertaken by the consultants Hughes Planning Unit and Rail India Technical and Economic Services (RITES) for the highway and railway components respectively. These studies were reviewed and discussed with the concerned agencies and, to the extent necessary, some of the mar- ginal subprojects were either reformulated or postponed as a result of the review. 4.06 The traffic projections for the different sub-projects are based on past traffic trends, recent origin-destination studies and planned increases in production and consumption in the zones of influence. The quantitative economic analysis for the project road sections takes account of savings in vehicle operating costs due to savings in distances, reduced congestion and improved road surfaces. Benefits from improved environment around Aqaba town and possible development of tourism at the Red Sea coast due to the diversion of heavy commercial vehicles from the city and coastal roads have not been quantified. The economic benefits due to the railway workshop facilities and spare parts would result mainly from reduced maintenance and operating costs and improved availability and utilization of traction and rolling stock. Expected benefits from the track renewals include reduction in track and rolling stock maintenance expenses due to reduced wear and savings in operating expenses due to increased operating speed arising from removal of speed restrictions on poor tracks. Benefits due to reduction in derailments have not been taken into account. 4.07 For calculating the economic benefits and costs, international prices have been used for imported equipment and materials, and other trade- able commodities. In particular, prices of asphalt in Jordan are signifi- cantly below the international price. Land and other non-tradeable items like railway ballast and concrete aggregates have been valued at local prices. Jordan presently imports a large number of skilled and unskilled construction labor and this has been taken into account in estimating the foreign component of construction costs. Economic costs net of taxes were estimated for all investment costs, maintenance costs and operating costs. Savings in transport operating costs, excluding passenger (driver) time savings, account for more than 95% of the total benefits because the project routes are freight traffic oriented. 4.08 In selecting the proposed investments, several alternative solu- tions were evaluated such as improving or reconstructing the existing track or constructing a new one, rehabilitation of the damaged locomotives or purchase of new ones, road construction of the ultimate four lanes at once or by stages. For each project alternative, the most economic solution has been adopted.  -36- C. Economic Re .rn 4.09 Based on the most probable estimates of construction and equipment costs, operating and maintenance costs, the proposed investments on the project road/rail sections and equipment produce economic returns (ERs) ranging from 12-35% (Table 4.1). All investments would yield first-year benefits of 9% or more. The weighted average ERs of all civil works com- ponents (excluding routine maintenance) and equipment such as railway work- shop machinery, breakdown crane,etc., which account for more than 95% of total project cost are 18% for the project as a whole and 162 and 201 respectively for its highways and railway components. The above ERs under- state the full economic benefits of the project by excluding benefits due to reduction in accidents, environmental improvements and greater comfort and convenience of travellers. Sensitivity analyses were carried out to test the effects of variation in construction and equipment costs and users' benefits on the above estimates. Even under the unfavorable assumptions of 152 higher construction/equipment costs combined with a 15% reduction in users' benefits, the ERs remain acceptable within the range of 10-29% with an overall weighted ER of 15%.  -37- Table 4.1: Economic Returns (ERs) and First-Year Returns (FYRs) Proportion SENSITIVITY ANALYSIS Project of Total Expected Lower /I Higherl2 Expected Component Investment ER Estimate Estimate FYR ------------------------- -%------------------------ Hi ghways 1, Periodic Maintenance (about 100 km) 14 12 3/ 10 14 9 3 2. Civil Works 36 17 14 20 11 a) Wadi Yutum-Container Port (20 km) 20 16 24 13 b) Jn. of Wadi Yutum & Spur road to Container Port-Wadi 2 (15 km) _ 13 11 15 10 Sub-total (Hi gways) 50 16 4/ 13 1 19 lo 10 4 Railways 1. Aqaba Workshop Extension 9 25 20 30 17 2. Track Renewal & Track Machinery 30 18 14 22 12 a) Ram-Aqaba (31 km) 20 16 24 14 b) Batn El Ghul-Disi (40 km) 18 14 22 12 c) El Hassa-Jerouf & Jourdon- Ma'an (30 km) 15 13 18 11 3. Freight Wagons 9 22 17 27 15 4. Breakdown Crane 1 20 16 24 15 5. Locomotive Rehabilitation & Spares 1 35 29 41 24 Sub-total (Railways) 50 20 4 16 A 24 . 15 4/ GRAND TOTAL (Highways & Railways) 100 18 is 15 22 1 13