Guinea - Third Highway Project

Document of The World Bank QLkA FOR OFFICIAL USE ONLY Q Report No. P-3718-GUI REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT IN THE AMOUNT OF SDR 26.5 MILLION TO THE REVOLUTIONARY PEOPLE'S REPUBLIC OF GUINEA FOR THE THIRD HIGHWAY PROJECT March 29, 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 = Syli (GSY) US$1.0 = GSY 23.0 US$1.06013 = SDR 1 FISCAL YEAR July 1 - June 30 SYSTEM OF WEIGHTS AND MEASURES (METRIC) Metric British/US Equivalent 1 meter (m) 3.28 feet (ft) 1 square meter (m2) 10.76 square feet (sq ft) 1 cubic meter (m3) 35.3 cubic feet (cu ft) 1 kilometer (km) 0.62 mile (mi) I metric ton (t) 2,205 pounds (lb) ABBREVIATIONS AND ACRONYMS adt average daily traffic Af )F African Development Fund BADEA Arab Bank for F.cotic Developnent in Africa CGPR Mmagement Council of the Road Project CNR Natinal Road Council DT Division of Works, OPR MIGAT Ministry of Infrastructure and Major Works m million m-n - mm-month MDT inistzy of Transport OPR Road Project Office PAC Port Authority of Conakry voc vehicle operating costs  - i - FOR OFCIAL USE ONLY REVOLUTIONARY PEOPLE'S REPUBLIC OF GUINEA THIRD HIGHWAY PROJECT CREDIT AND PROJECT SUMMARY Borrower: Revolutionary People's Republic of Guinea Amount: SDR 26.5 million (US$ 28.0 million equivalent) Terms: Standard Co-Lenders: African Development Fund (US$14.6 million equivalent); BADEA (US$ 9.0 million) Project Description: The project would continue to assist the Government in the rehabilitation and maintenance of a priority network of roads essential for adequate functioning of the country's productive sectors, and extend the ongoing institution building effort for improving Guinea's civil construction capacity. The project provides financing (i) for the regravelling or rehabilitation of 1,085 km of unpaved roads by force account; (ii) the reconstr- uction of the country's main artery between Conakry and Mamou (255 km), and resurfacing of some 360 km of other paved roads by contractors; and (iii) the technical assistance required to execute and supervise the above works, to intensify training and to define medium term development priorities for Guinea's transport sector as a whole. Benefits and Risks: The project would ensure that essential flows of imports from Conakry to the regions, and of agricultural surplus production from the regions to markets of the capital, can be maintained and handled at reasonable economic costs. It thus benefits both the rural and urban popula- tions, most directly road users including vehicle owners and paying passengers. Project design minimizes the risk of exposure to pressures for the utilization of project resources for carrying out non-project works, as experienced under the Second Highway Project. With the new project organization and the full support pledged by the Government these risks are considered minimal. Thb document ha rst"cted distribution and My be used by recpints only in the perfomance of heoir official duties. Its cntents May not otherwise be discled without World Bank authorization.  - ii - ESTIMATED PROJECT COST ------------US$ million------------- Foreign Local Net Taxes Total of Taxes A-i Labor-based maintenance works - 2.1 2.1 0.1 2.2 A-2 Equipment-based maintenance and rehabilitation works 5.9 6.8 12.7 0.3 13.1 A-3 Equipment renewal, buildings 6.6 0.1 6.7 - 6.7 A-4 Technical assistance, audit, training 6.0 0.5 6.5 - 6.5 A-5 Refunding of PPF advance 1.0 - 1.0 - 1.0 a-i Rehabilitation Conakry-Mamou Road 15.8 5.5 21.3 - 21.3 B-2 Resurfacing of paved roads 6.2 2.2 8.3 - 8.3 Base Cost 41.3 17.3 58.6 0.4 59.0 Physical Contingencies 3.1 1.0 4.1 - 4.1 Price Contingencies 7.2 3.3 10.5 0.1 10.5 TOTAL 51.6 21.6 73.2 0.5 73.7 FINANCING PLAN ---------------- US$ million-------__________ IDA AfDF BADEA Government Total (Foreign (Foreign (Foreign (Local Costs Costs) Costs) Costs) and Taxes) A-1 Labor-based maintenance works - - - 2.9 2.9 A-2 Equipment-based maintenance and rehabilitation works 4.4 - 3.0 8.4 15.8 A-3 Equipment renewal, buildings 1.3 - 6.0 0.2 7.4 A-4 Technical assistance, audit, training 8.2 - - 0.7 8.8 B-1 Rehabilitation of Conakry-Mamou Road 6.0 14.6 - 7.2 27.8 B-2 Resurfacing of paved roads 8.1 - - 2.9 11.0 TOTAL 28.0 14.6 9.0 22.1 73.7 ESTIMATED IDA DISBURSEMENTS ---------------US$ million----------------- FY85 FY86 FY87 FY88 FY89 FY90 Annual 3.8 6.7 6.9 5.7 3.5 1.4 Cumulative 3.8 10.5 17.4 23.1 26.6 28.0 ECONOMIC RATE OF RETURN Highway Maintenance Program exceeding 100%; benefit/cost ratio at 12% discount rate: 5.3. Paved Road Rehabilitation and Resurfacing 65%; benefit/cost ratio at 12% discount rate: 4.9 for B-1 and 2.2 for B-2. Staff Appraisal Report: Report No.4507-GUI, dated March 26, 1984 Map: IBRD No. 17479 Note: Figures may not add because of rounding  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REVOLUTIONARY PEOPLE'S REPUBLIC OF GUINEA FOR A THIRD HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed Devel- opment Credit to the Revolutionary People's Republic of Guinea for SDR 26.5 million (US$28.0 million equivalent) on standard IDA terms to help finance a Third Highway project. Additional financing for the project would be provided by the African Development Fund (AfDF) and the Arab Bank for Economic Development in Africa (BADEA) in amounts equivalent to US$14.6 million and US$9.0 million respectively. PART I - THE ECONOMY 2. An Economic Memorandum was discussed with the Government in November 1983 and has been distributed to the Executive Directors (Report No. 4690-GUI, dated February 15, 1984). This section summmarizes its contents, focusing on changes in Guinea's economic situation and policies in recent years. 3. Despite its mineral and agricultural potential, Guinea saw declining economic performance from Independence in 1958 until about 1973-74. Economic activity, with a stimulus from mining, grew rapidly between 1973-76, but again at a slower pace since then. At present, most of Guinea's 5.5 million inhabi- tants live at the margin of poverty. With a per capita income of about US$300 in 1982, Guinea is among the least developed countries as classified by the United Nations. Life expectancy is only 44 years, infant mortality is about 17 percent, 90 percent of the population has no access to safe water, and 80 percent of the adult population is illiterate. 4. Since 1976, and particularly since 1979, Guinea has been re-examining its development policies, institutions, and relations with the outside world. It has recently announced significant policy reforms. Important first steps have been taken towards improved economic management and decentralization of the economy: excessive money supply was gradually reduced; more explicit performance criteria and greater autonomy of public enterprises are being introduced; sectoral public holding companies have been dismantled, and a reform of the banking sector has been initiated. There is greater acceptance of technical assistance for planning, investment programming, and project preparation, and increased recognition of the need for economic pricing of resources (e.g., interest rates have been doubled and electricity tariffs increased). Private trade has been legalized, state retail trade has been discontinued, and many price controls have been permitted to lapse, thus liberalizing and encouraging the agricultural sector. Private investment, small and medium-scale enterprises, foreign direct investment, and the i"eturn  - 2 - of expatriate Guinean capital are being encouraged, and some private enter- prises have been allowed to import and export most goods and to borrow and hold foreign exchange. Enrollments in higher education have been reduced and more students are being directed to vocational training; manpower planning is being introduced, and the guarantee of state employment to school graduates is being reappraised, with a view to curtailing the increase in public employment. These measures reflect a significant and broadly based attempt to address Guinea's deep-seated problems and poor economic performance, and represent fundamental changes from past policies. Recent Performance 5. Despite these positivre steps taken in recent years, Guinea's economic development remains hampered by structural problems. The economy is stagnating and the balance of payments faces chronic deficits. Foreign exchange supply cannot satisfy domestic consumption, service external debt, and finance capital and recurrent costs of existing and new projects. Limited absorptive capacity hampers investment and the inflow of foreign capital. The overvaluation of domestic currency perpetuates distorted prices and wages and creates an unattractive environment for producers and investors (both domestic and foreign), affecting output and export performance. The main productive sector - agriculture - produces well below potential because of inadequate producer incentives, inputs, iextension services, infrastructure and marketing facilities. Guinea's current pace of economic development permits neither an incIease in the standard of living of the population, nor the generation of domestic savings for self-sustained growth and development. 6. Increased domestic oatput especially for exports, a stricter control of aggregate demand, as well as quantitative import restrictions, allowed Guinea to record a balance of merchandise trade surplus of about US$66 million per year on the average between 1979-81. This resulted in a reduction in the current account deficit to 3.4 percent of GDP from 6-7 percent of GDP in prevrious years. However, the capital account remains in difficulty because of Guinea's inability to attract higher capital inflows while facing important amortization obligations. Overall balance of payments deficits have thus represented 5.5 percent of GDP between 1979-81 (about US$90 million per year), and they have been financed in equal proportion through an accumulation of debt; arrears and by a decrease in gross foreign exchange reserves. In mid- 1982 foreign reserves covered only about two weeks of merchandise imports. 7. Government's current revenues (about 33 percent of GDP, largely dependent on mining exports), increased at a rate of 9.6 percent per annum in 1977-81, while at the same time current expenditures advanced at an annual rate of 12.9 percent, mainly on account of expanding government bills for wages and salaries and of growing interest obligations. At the same time, the state enterprise sector has absorbed heavy subsidies not only on current account but also in the form of capital transfers and indirectly through the intermediation of the state banking system. In total, the parastatal sector received about GS 20 billion (US$1 billion equivalent) of financial support, or 13 percent of GDP annually over the 1977-81 period. The overall deficit of the Government reached US$3.6 billion eauivalent (10 percent of GDP) in 1981. In an attempt to curb the growth of current expenditure on wages and salaries, the Government has enforced a decline in university enrollments from  - 3 - 20,700 students in 1978/79 to 12,100 students in 1981/82, and has terminated the automatic recruitment of new graduates into the public sector. 8. Other than the enclave mining projects, most productive investment in Guinea is of a public and parapublic nature. During the last development plan (October 1973 to December 1978), public and parapublic investment reached US$478 million (55 percent of planned expenditure) averaging 10 percent of GDP. Total investment was modest at 15 percent of GDP on the average. Two- thirds of centrally-planned investment was financed by foreign assistance. The ongoing plan (1981-85) projects much higher investments of US$1.6 billion (in 1980 prices), favoring agriculture (31 percent) and industry (14%). Many of the proposed projects are, however, in preliminary stages of preparation, and their financing is not yet sure. It appears unlikely that the proposed investment targets can be reached. During the 1979-81 period, public and parapublic investment represented about US$164 million per year in current terms, remaining at about the same level as the previous plan exercise in terms of GNP. 9. Recognizing the need to maintain and use existing capital assets better, Government has increased the proportion of its recurrent budget for maintenance and repair. It is also undertaking a serious examination of the viability of state enterprises and has closed some. The least successful ones (including the entire network of retail trade enterprises outside Conakry) have been closed down, while others have embarked on rehabilitation programs, mostly with external assistance. Recent policies in the parapublic sector aim at making parastatals financially self-sufficient, more responsive to market mechanisms, and more receptive to technical assistance. Prospects 10. Based on its agricultural, mineral and hydroelectric potential, Guinea's long-term development possibilities are substantial. However, with 80 percent of the population in the rural sector, and with modest national savings (about 9.5 percent of GDP in 1980) combined with an acute shortage of foreign exchange, the exploitation of this potential hinges on the country's ability to provide incentives to agricultural producers and to attract foreign capital for investment in mining, ore-processing, and, eventually, petroleum development. 11. During the 1980's Guinea will continue to face a serious foreign exchange constraint, despite the projected entry into operation of a diamond mine in 1984. Existing mining operations have few prospects for expansion in the coming years, and the downward trend in agricultural exports will be hard to reverse. At the same time price distortions linked to the overvalued exchange rate discourage the substitution of the large food imports by domestic production, while the debt service burden remains heavy. 12. At present Guinea is excessively dependent on bauxite mining for its foreign exchange. Diversification of its mineral production is thus a key element in the country's longer-term development strategy. Iron ore mining is one promising possibility now under active investigation. Oil exploration would be another.  -4- 13. The Bank is assisting the Government to formulate and implement a rehabilitation program aimed at further encouraging private sector develop- ment, notably in agriculture, increasing the efficiency of the public sector, and improving resource management. Particularly crucial will be the Government's success in correcting price and exchange rate distortions, improving the structure of agricultural incentives and ensuring rational programming of public investments. The forthcoming Economic Memorandum analyzes the policy options aviailable to the Government. A major Agricultural Sector Review organized by the Bank with the support of several other agencies (CIDA, USAID, CCCE, IFAD, UNESCO) in November/December 1982, represents a significant step in assisting the Government to reform agricultural sector policies. A recent Transport Sector Review is expected to provide a basis for prioritizing investments in the sector and coordinating donor agency efforts to finance them. However, if the Government were to embark on major reforms, Guinea would face a difficult transition period during the 1980's when increased foreign assistance, on concessional terms, would be needed to ease the balance of payments difficulties and contribute to a gradual realization of the country's considerable development potential. Foreign Assistance and External Debt 14. Since 1975-76, Guinea has been diversifying its sources of foreign assistance through renewed ties with the Western industrialized countries, expanided relations with Arab nations and with multilateral sources. Guinea qualifLed for drawings under t:he IMF first credit tranche and trust fund facilities, and successfully negotiated a Stand-By Agreement in 1982. However, this agreement has now lapsed due to the Government's inability to meet some of the agreed financial performance criteria, and to reach an understanding with the Fund on the issue of adjusting the overvalued exchange rate, 15. The accumulation of foreign debt to finance investments in infra- structure and public enterprises, as well as consumer goods, has resulted in a burden of foreign obligations which is, and will remain for years, a major prob em. Guinea's outstanding public and private external guaranteed debt exceeded US$1 5 billion as of December 31, 1982, of which US$1.2 billion (76 percent of GNP) was disbursed. Service obligations on this debt are projected at US$132 million per annum over 1983-87. Foreign exchange shortages have hindered the payment of debt service, and outstanding arrears totalled US$176 million at the end of 1982. The ratio of public and publicly guaranteed debt serv.ce obligations to gross export earnings in 1981 was about 28 percent. Actual service payments on this debt amounted to about 17 percent of export rece pts. Private non-guaranteed debt is estimated at US$300 million in 1982 (20 percent of GNP), and its debt service represented about 10 percent of the 1981 export earnings. 16. Although Guinea's debt servicing has shown some improvement, accum-ulated arrears are likely to increase in absolute terms unless there is new debt rescheduling or major change in the present allocation of foreign exchange. The Government has addressed the problem through bilateral debt rescheduling, and measures to improve debt management via the External Debt Department in the Central Bank, to which the Bank has provided technical advice as part of its economic work. Government has also undertaken both a stricter control of investments financed by external credits and a more  -5 - judicious official import program. The pressure on imports was somewhat relieved in recent years by official toleration of some private exports at the free rate outside official foreign exchange channels. However successful these operations may be, Guinea will have to rely on substantial amounts of foreign assistance on concessional terms during the next few years. This will be needed not only for investment purposes, but also to provide foreign exchange for intermediate and consumer good imports which are vital to stimulate economic activity and relieve supply constraints, particularly in the rural sector. Furthermore, net public savings after debt service will be inadequate until at least the late 1980s, and local cost and recurrent expenditure financing by external sources will be needed. PART II - BANK GROUP OPERATIONS IN GUINEA 17. The first Bank Group operation in Guinea comprised two loans in FY68 and FY71 for the very successful bauxite mining project at Bok'e. This project was followed by IDA credits in the mid-1970's for pineapple production and the rehabilitation of roads. Encouraged by the first results of these projects, the Bank Group began to diversify and expand its lending program, based upon broad priorities agreed with Government: (i) rehabilitation and maintenance of basic infrastructure; (ii) improvement of human resources; (iii) mining development; and (iv) development of the rural sector. IDA operations in each of these areas have been approved, with particular emphasis on sectoral planning, institution building and training. Thus, the Power Engineering project and subsequent First Power project (FYs79,81) are rehabilitating the Conakry power system. A Water Supply project (FY79) provides similar assis- tance. The proposed project continues the important highway rehabilitation effort successfully pursued to date following the satisfactory completion of the Second Highway project (FY80) earlier this year (para. 33). Enterprise Rehabilitation programs under the Industrial Rehabilitation Promotion Project (FY81) have begun. The FY79 First Education Project was very satisfactorily implemented, and provided a sound basis for the Second Education Project, which was recently approved. Physical implementation of the Conakry Port Project (FY83) is also on schedule. Implementation of the first IFC operation, to the AREDOR diamond mining company, and of the Petroleum Exploration Promotion Project (FY84), is proceeding satisfactorily. 18. It is in the rural sector that the Government has experienced the greatest difficulty in harnessing its development potential. Poor logistical support for the rural sector, badly chosen inputs of modern technology and lack of financial incentives and of applied agricultural research, have been among the most important of these. To deal with these fundamental problems, the Association has supported intervention in two sub-sectors with substantial growth potential. The Rice Development Project (FY80) stresses national institution-building and introduces pilot low-cost improved rice production methods in an area with high potential. A study of agricultural prices and rural incentives has been completed and the Government has accepted the need for improved incentives. The Livestock Development Proiect (FY81), which aimed at strengthening the national livestock planning institutions, improving animal health and productivity and training livestock sector staff, had substantial implementation problems due to the continuation of enforced government cattle purchasing below cost prices. Following intensive discussions, the Credit was cancelled on September 12, 1983. As part of the  - 6 - dialogue between the Bank Group and the Government, the Agricultural Sector Review (para. 13) provides a focus for new directions for agricultural development and policy formu:lation, including a follow-up Rice Project which will be appraised later in 1984. 19. Bank Group operations in Guinea now include twelve IDA Credits totalling US$64.9 million and SDR 70.3 million, and two Bank loans totalling US$73-5 million. Guinea's disbursement rate (disbursements in relation-to the undisbursed balance) compares very favorably with that of other countries, averaging 40 percent during the past five years, compared with 24 percent for the Western Africa Region and 22 percent for the Bank/IDA as a whole. Guinea's rate also compares :favorably with those of other countries at similar levels of per capita income and development. 20. Current Strategy. 'The proposed Bank Group len'ding program, supported by an expanded program of economic and sector work, is based on a strategy of promoting growth through support to the directly productive sectors, and by encouraging key policy reforns at the macroeconomic, project and sectoral levels to improve existing economic mechanisms and promote market forces. Spe!cific targets are: (a) g:iving priority to projects that increase prcidtuction and exports; (b) :improving absorptive capacity in those social and infrastructure sectors, such as transport, which support the productive sectors, through rehabilitation, technical and managerial training; (c) introducing technical assistance directed towards policy reforms, improved economic management and resource allocation; and (d) improving capital flows thiough the promotion of private investment and increasing the level of cofinancing. 21. IDA has appraised a technical assistance project for economic marLagement and a Second Power Engineering Credit. Following discussion of the Country Economic Memorandum, the Bank is working with Government to prepare a major economic reform progran, as the possible basis for a structural adjustment operation within -the next year. The Bank is also planning to discuss the price and incentive structure for agriculture, and is seeking to increase the sectoral knowledge necessary to develop, and conditional upon policy changes, expand agricultural operations. It is equally important for the Bank to deepen its understanding of the industrial sector through additional sector work and policy discussions, possibly leading to a second industrial rehabilitation operation. The Bank is providing technical advice to Government for the proposed Mifergui-Nimba iron ore project, as well as for a maEster plan of the country's water resources, which will help prepare a 4 strategy for hydroelectric development. 22. The Bank Group's share of Guinea's external debt (public and private guaranteed) at the end of 1980 stood at about 8 percent (including undisbursed). Its portion of external debt disbursed is expected to be 11 percent by 1985 compared with 8 percent in 1981; its share of debt service on public debt and private debt guaranteed, 6.6 percent in 1980, is expected to decline to 3.7 percent by 1985. PART III - THE TRANSPORT SECTOR 23. Guinea's transport infrastructure at present comprises 14,000 km of classified roads (1,145 km paved); a public rail line from Conakry to Kankan  - 7 - (660 km); three enclave rail-lines (386 km) serving bauxite and alumina mining operations; two deep water ports at Conakry and Kamsar, an international airport in Conakry and secondary airports at Kankan, Faranah and seven other regional centers. The existing network of transport facilities appears sufficient in extent to serve the country's population and economy adequately. But except for a portion of the main road network which has been rehabilitated with Association financing, their level of service has in fact been declining dangerously over recent years. This decline reflects generally poor sector management and a long neglect of maintenance, which has affected all subsectors and is only slowly beginning to be reversed. 24. By far the heaviest transport demand is generated by Guinea's enclave mining sector. Its important bulk transport is handled reasonably efficiently by the three enclave railroads and specialized port facilities in Kamsar (8 million tons per year) and Conakry (3 million tons per year). But by 1981, conditions in Conakry's general cargo port, the country's main maritime gateway, had deteriorated to the point of compromising the flow of essential imports into the country (some 300,000 tons per year). The port is now being rehabilitated through an Association project, financed jointly with the African Development Bank and the Federal Republic of Germany. 25. The national airline, Air Guinee, carries about 100,000 passengers a year. It plays a potentially important role in domestic passenger transport to out-lying regions which are inaccessible by road over long periods. But air transport has been hampered in fulfilling its emergency access function by the poor state of regional airports (4 out of 9 closed to commercial traffic); furthermore, recently acquired aircraft are used inefficiently and are ill adapted to domestic airport facilities. Government has started discussions with Canada for assistance to domestic aviation. 26. The state of the public rail line which was constructed before 1914 and the unreliability of its services have resulted in the almost complete decline of the railways. Carrying not much more than 10,000 tons and less than 300,000 passengers in 1981, they offer little, if any, competition to road transport which handles the bulk of the internal commodity traffic outside the mining sector and practically all domestic passenger transport (paras. 33-34). The potential for rehabilitating the railroad has been examined in two major studies with French (1979) and African Development Bank (1983) financing. Their results will be evaluated under the transport planning component of this project. Planning, Management and Coordination 27. Nominal responsibility for transport planning and coordination lies with the Ministry of Transport (MOT). In the absence of competent personnel, funds and data, however, any realistic assessment of sector needs has been impossible. Sector management is divided between various bodies responsible for the different subsectors: the Ministry of Infrastructure and Major Works (MIGAT) for all new construction and especially for the road subsector; the Office du Chemin de Fer de Guin'ee (OFERGUI) for the public railway; AIR GUINEE for air transport; two public transport companies (ENTRAT and COTRA) for road  -8- freight transport; the Port Autonome de Conakry (PAC) for port operations and, since 1982, the seven Provinces for routine road maintenance and intra- regional transport of officially traded goods. Management of these bodies has been weak, not least because lines of responsibility have been confused on important aspects of their operations. Coordination between entities is minimal or nonexistent. It is thus not surprising that investment planning has amounted to little more than the listing of assorted projects for the various subsectors. Since no arbitration takes place, investment proposals in the two latest Development Plans (1973-78, 1981-85) have been poorly focused, overly ambitious, and largely unrealized. 28. Over the past years, however, a number of feasibility studies have b been carried out, covering rehabilitation and upgrading of existing infrastructure in the road, rail, port and air transport subsectors. Although these studies were undertaken in an ad-hoc fashion, their results nevertheless begin to provide a better basis for planning. Some have already resulted in rehabilitation projects (Conakry Port and Airport). The remainder should be evaluated carefully and expanded as necessary within a framework of overall sector development needs. The Government has requested IDA assistance for this, and a transport planning component will be included under the proposed project. This is particularly timely since extensive investments are now being implemented and proposed (rehabilitation of additional parts of the road system and/or of the public rail line). Careful evaluation of the relative economic advantage of developing road/rail/air transport alternatives for long distance domestic passenger and freight movements is required to ensure that scarce! investment resources are channeled into priority projects. Revenues and Investment 29. Like most other parastatal enterprises in Guinea, railway, port, airline and public sector road transport operations have all been deficit operations for many years. The status of their accounting does not permit realistic estimates of whether they could cover even short run marginal costs. The recently approved Conakry Port Project (para. 32) tries to remedy this situation for the port subsector and, after discussions with the Association, Canada is discussing possible reforms at Air Guinee in the context of a civil aviation project. However, since the problem is systemic and affects all public enterprises, it will need to be addressed through the structural adjustment process, and the Association's proposed Technical Assistance Project would include a parapublic sector analysis. Road users contribute substantially to Government revenues through annual vehicle registration and inspection fees, transport licenses, import duties on vehicles and taxes on fuel. During 1979-81, annual revenues from these sources should on average have amounted to some US$33 million equivalent annually (actual statistics not available). But since a large part of the fuel is bought by Government for its own vehicles, and since the full amount of import duties and taxes is not paid on all imported vehicles, actual revenues probably fell considerably short of this amount. Nevertheless, the differential between road expenditures (para. 31) and estimated road user tax revenues is large enough to conclude that a larger share of these funds should in future be channelled into highway maintenance. The proposed Transport Plan Study will evaluate actual revenues and suggest regular funding procedures for periodic and routine maintenance of the classified road network. Govermnent's contributions should increase gradually to the point  -9 - where funds will be sufficient to cover the full cost of maintaining a priority network estimated at about US$15 million annually, some 60% of it in foreign exchange. 30. Under Guinea's first two Development Plans (1960/63 and 1964/71), investments in the transport sector, many of them in connection with the enclave mining projects, represented one third of the country's total investment expenditures. Under the Third Plan (1973/78), they declined to about 15% of public investments (themselves a low 10% of GDP), and are shown as falling even further under the ongoing Fourth Plan (1981/85). Four-fifths of the investments included in the Fourth Plan documents would be for roads and road transport; however, and this is a fairly typical indication of the weakness in present transport planning capabilities, the plan figures do not include the major rehabilitation projects in ports and airports that have since been initiated. 31. Highway expenditure patterns have represented the bulk of transport investments over the recent years. They reflect the desirable shift in priorities from new construction to rehabilitation and maintenance of the existing network. During the 1970-75 period, some US$18 million equivalent per year were spent, on average, on new construction and US$3.5 million equivalent on maintenance; by contrast, new road investments over the 1978-81 period were negligible, while US$11 million equivalent were allocated annually for rehabilitation and maintenance. Role of the Bank Group 32. The Bank Group has encouraged and supported the Government's emerging strategy of maintaining, rehabilitating and upgrading the essential transport infrastructure needed to facilitate development of the productive sectors. The proposed project would be the Bank Group's Third Highway Project in Guinea. The Bank Group has previously assisted the transport sector through an Engineering Loan (SI-GUI) and two loans (577-Gui and 766-GUI) for the Boke Bauxite Project which included construction of a new port at Kamsar, and related rail transport and new town infrastructure. These enclave projects were completed satisfactorily. The First Highway (Credit 596-GUI,1976) and the recently completed Second Highway (Credit 953-GUI,1979) projects were instrumental in developing a maintenance oriented basic sector strategy. They financed extensive high-priority road rehabilitation and maintenance programs, as well as training, and the development of road sector planning and project preparation capabilities. The proposed Third Highway Project would continue these efforts, with a focus on strengthening the Ministry's capacity for effective project supervision, and on developing a nucleus for a local road rehabilitation and construction industry able to compete as a contractor in local and regional markets. Similarly, the recently approved Conakry Port Project (Credit 1382-GUI,1983) rehabilitates cargo port infrastructure, renews port handling equipment, vehicles and floating craft needed for efficient operation of existing assets, and introduces a new structure of management into port operations in Conakry aimed at making them financially self- supporting and managerially autonomous.  - 10 - Roads and Road Transport 33. Road transport handles the bulk (98%) of internal passenger and (non- ore) commodity traffic. Guinea's total classified road network reportedly has increased only moderately over the past fifteen years from 12,600 km in 1967 to 14,000 km in 1982; but the paved network grew significantly, from less than 200 km in 1967 to over 1,000 km in 1976, and 1,145 km in 1982. In the mid- seventies, it was realized thEat many of the unpaved roads - having received almost no maintenance - were fast reverting to their natural state: most were 4 passable with difficulty during the dry season and completely impracticable during the long months of the rainy season, when interregional traffic of essential goods was severely curtailed. With Association assistance, a priority network of some 4,500 km of road was identified. A first tranche of a rehabilitation and maintenance scheme for these roads was financed under the First Highway Project. Following its successful completion (some 900 km of paved road maintained, some 920 km of unpaved roads rehabilitated), the Second Highway Project has continued to support priority road maintenance and has rehabilitated 975 km of unpaved roads. An attempt, under the latter project, to integrate project activities more closely with the Ministry of Work's existing structure proved prenmature. It resulted in significant diversion of equipment and personnel to non-project works (city streets, airport rehabilitation etc.). This wELs largely overcome by a return to the earlier model of clearly separating project and other Ministry activities, when a new Ministry of Infrastructure (Ministere de l'Infrastructure et des Grands Amenagement du Territoire, MIGAT) replaced the Ministry of Public Works in early 1982. The MIGAT Project Directorate has by now been transformed into the Road Project Office (OPR) responsible for the Project (para. 39). RespDnsibilities for routine maintenance operations were transferred from the new Ministry to the seven Provinces. It is not yet clear how well the Provinces will be able to cope with this new responsibility. Their capacity will be evaluated and they will receive some technical assistance in organizing their maintenance tasks under the proposed project. 34. At about the time when systematic maintenance of the priority network was initiated with Association assistance in 1977, Guinea also changed an earlier restrictive regulation governing vehicle imports by allowing Guineans to bring vehicles with them from abroad. Since then, the country's vehicle flee-t has grown by about 15% annually. But since there has been no parallel liberalization for imports of spare parts and fuel, the country's road transpOrt industry still operates very inefficiently. The public sector companies (COTRAs) which have had the monopoly for long-distance transport of all officially traded goods, receive regular allocations of fuel and some spare -parts and have been able to renew their fleet of about 300-400 trucks aboun every five years. By contrast, the six thousand or so private transporters with one or two vehicles on average, who handle practically all urban and interurban passenger transport, as well as short-distance hauls of local produce to local markets, face a situation of chronically short supply of fuie-Ls and spares. These are practically unavailable outside the capital, except on the parallel market at 6-8 times official prices. Vehicles thus are immobilizedL for long periods, and are often in a precarious state of repair when operating. Officially mandated tariffs that would be remunerative if fuel and spares were available at official prices are clearly not sufficient to cover actual costs. However, the demand for transport is such that operators usually can command the fares that allow them to buy provisions in the  - 11 - parallel market. Ways to eliminate, or at least alleviate, some of the handicaps under which the road transport industry presently operates, will be examined as part of the Transport Plan Study included in the proposed project. PART IV - THE PROJECT Project Background and Objectives 35- The project is the third phase of a road rehabilitation and maintenance program which the Government began with IDA's support in early 1977. It was prepared by Bank staff using inputs provided by Government and Consultants under the ongoing Second Highway Project, with appraisal taking place in January 1983. Since Second Highway Project funds will be exhausted before Credit signing, a PPF advance of US$1 million has been approved to prefinance the preparation phase of the consultant-contractor's support to the Division of Works (Division Travaux - DT), limited technical assistance to the Road Project Office (Office du Projet Routier - OPR), and some spare parts to maintain the equipment fleet. Negotiations were held in Washington in March 1984 with a Guinean delegation led by Mr. M. Cellou Diallo, Secretary of State of MIGAT. Staff Appraisal Report No. 4507-GUI dated March 26, 1984 is being distributed separately to the Executive Directors. 36. The project addresses four interrelated objectives: (a) to provide continued assistance to Government for the rehabilitation of the priority road network and fulfill its essential role for the country's economy; (b) to continue and extend the ongoing institution building effort aimed at improving Guinea's highway maintenance and rehabilitation capacity; (c) to intensify the provision of structured training to local staff in support of road management, maintenance and rehabilitation efforts; and (d) to assist the Government in defining medium-term development priorities for the transport sector. Project Description 37. To achieve these objectives, the project includes the following related elements which, for cofinancing purposes, are divided into two separate packages. Package A groups two components which feature important institution-building aspects: a medium term-transport plan to be drawn up with the assistance of the engineering consultant, and a third three-year program of road rehabilitation and maintenance. The latter comprises four main elements: (a) equipment-based rehabilitation and routine maintenance (in the proportion of 75%-25%) on the unpaved priority network, to be carried out by OPR; (b) renewal of highway and workshop equipment, and rehabilitation and construction of buildings for OPR; (c) labor-based routine maintenance of drainage system and shoulders throughout the priority network, to be carried out by the Provinces road maintenance force account staff; and (d) technical assistance: a consultant-contractor to support the DT, and engineering consultants for supervision of works under packages A and B and training of MIGAT and provincial road maintenance staff. 380 Package B consists of discrete and well-defined reconstruction and resurfacing works on the paved network. These are of the highest priority if pavement failure and more costly reconstruction in the near future are to be avoided. Works are to be carried out by contractors, and start-up of works does not necessarily have to coincide with that of Package A. The proposed  - 12 - Package B works include: (a) reconstruction of the Conakry-Mamou Road (255 kn); and (b) resurfacing of some 360 km of other paved roads. Institutional Development and Project Implementation 39. Project Administration, Coordination and Supervision. The organization of the proposed project has been designed to avoid some of the serious problems experienced for a time under the Second Highway Project and tc) create the nucleus of a local road construction industry which at present iEi inexistant (there are no petty contractors). Its main features are the continued separation of project supported road rehabilitation and maintenance from other MIGAT activities and, within the project organization, a clear organizational distinction between supervisory and control functions on the one hand, and responsibility for the execution of works on the other. Following intensive discussions between the Guinean authorities and IDA, it has been agreed to transform the existing Road Project Directorate in MIGAT into an autonomous Road Project Office (Office du Projet Routier, OPR). OPR is responsible for carrying out all project tasks and operates independently from the Ministry's administration, with discretion particularly to hire and fire personnel and determine their compensation; to procure materials and spare parts; and to manage Project resources in the most efficient manner. Similar to an enterprise with its Board of Directors, OPR will be supervised by a Road Project Management Council (Conseil de Gestion du Projet Routier, CGGPR) presided by the Secretary of State of the MIGAT, but also including representatives of other Ministries. CGPR's functions are supervisory and advrisory. 40. Within OPR there will be clear separation between the division responsible for the execution of works (DT, para. 41) and those responsible for other project tasks, which essentially cover the following five areas of reEsponsibility: (a) administration of all project activities, including budgetary control, accounting, and preparation of disbursement requests to the different co-financiers; (b) supervision of works carried out by contractors on the paved network, including quality and quantity controls for reconstruction of the Conakry-Mamou Road and for resurfacing works on other links; (c) supervision of works carried out by DT; (d) development and supervision of training assistance to OPR and Provinces' maintenance staff and other project personnel; and (e) coordination of transport plan studies, traffic counts and other road data collection. A technical assistance team of eight experts (213 m-m) will be required to assfst OPR for varying periods of time in these tasks. These organizational arrangements and staffing were confirmed at negotiations (Section 3.02 of draft Development Credit Agreement) and a presidential decree creating OPR and CGPR has been published. They will be implemented prior to project effectiveness with the assistance of two consultant teams and financing under the PPF advance.  - 13 - 41. Equipment-Based Maintenance and Rehabilitation on the Unpaved Priority Network. The principal thrust of institution building in the project will be the introduction of a better management structure for the force account brigades of MIGAT, expected to improve construction know-how and brigade productivity to minimize equipment diversions and to create the nucleus of a road construction industry. Works execution will be the responsibility of the DT, organized along the line of a construction enterprise. DT will reassemble the present twelve MIGAT force account brigades into three field groups, each in charge of regravelling, earth road upgrading, spot regravelling and mechanized routine maintenance within a specified territory, roughly corresponding to the regions west of Labe, east * of Labe, and south of Kankan. DT will receive intensive assistance over a period of three years from an experienced international contracting company. The advantages of employing a contractor are an integrated management package (particularly in the area of cost controls), and a reasonably homogeneous team with practical experience in the procedures and disciplines to be introduced. The consultant-contractor personnel (10 people for a total of 276 m-m) will have in-line responsibility in the DT, but will train Guineans in management, as well as providing practical, on-the-job training in administration and construction technology at senior and intermediate levels; they will hand over responsibilities to counterpart personnel by the end of the project. 42. A large part of the equipment fleet, procured under the First Highway Project, is now at the end of its useful life and will be renewed under the proposed project. Although the DT will require somewhat less equipment than was available under the Second Highway Project, procurement of some additional pieces will be necessary to complement existing operational equipment. Under the new OPR organization, equipment maintenance, which improved markedly toward the end of the Second Highway Project, should be further upgraded. 43. The work of the DT will be supervised by OPR, who will certify progress and quality of work for the purposes of authorizing disbursements. The OPR will also carry out a quarterly assessment of DT productivity, which will serve as the basis for determining productivity bonuses payable to local project personnel and releasing the retention to the consultant-contractor. 44. Labor-Based Routine Maintenance on the Priority Work. The project will assist the National Road Council in programming and budgeting for labor- based maintenance operations, and the Provinces in solving present constraints to effective maintenance implementation. In the past, routine maintenance suffered from the low priority accorded, from insufficient budgets, and from an unattractive mandated monthly wage rate (GSY 1,500) for casual labor that was well below returns to agricultural work in many regions of the country. The project includes financing for carrying out labor based maintenance, at an implicit wage rate of GSY 4,000/month paid on a task basis, on about 2,500 km of priority network roads with average daily traffic (adt) of 40 vehicles or more. To manage these operations efficiently, the public works staff of the Provinces will be trained under the project to plan, organize, budget and supervise such tasks. This experience of organizing and managing labor-based maintenance of the priority network should serve as a pilot exercise for provincial maintenance personnel, who would be expected to extend these operations gradually to the remainder of the classified network. At negotiat- ions, Government agreed that a detailed description of the task methods to be used in carrying out and paying for these works (Section 3.06 of draft Development Credit Agreement) under the project, and official instructions to the relevant provincial and local authorities to apply these methods, would  - 14 - be a condition of credit eff'ectiveness (Section 6.01 (c) of the draft De-velopment Credit Agreement). 45. Training and Assistance for Road Maintenance. The OPR organizational st'ructure wil'l include a new Division in charge of training coordination, and assistance to the National Road Council and the provinces for road mai-ntenance. The project will support this Division with 20 m-rn of technical asistance and financing for local allowances of instructors and trainees, as we.'Ll as for training equipment. The main target groups for training are MIGAT pe:-sonnel assigned to OPR and provincial road maintenance personnel, some 700 eng,ineers, operators and mechanics in all. 46., Transport Planning. The project includes the preparation of a medium- ter.m transport plan to fill some of the present gaps in sector knowledge, give realistic focus to transport investments, facilitate aid coordination, propose a system for financing foreign exchange costs of road maintenance, and suggest an organizational set-up for transport data collection and analysis and trainsport planning, which would receive additional technical assistance in the fut;ure. Terms of reference ~for the study, which will be carried out by the Division of Transport Planninag of OPR over a two-year period, have been agreed at negotiations. Study recomnmendations will be discussed with IDA and subsequently implemented as appropriate. In particular, Government has agreed to include in its investment plan only the priority investments identified in the study, to carry out only works included in the investment plan, to institute a satisfactory mechianism to finance foreign exchange costs in road maintenance and to put in place an organization for transport planning based on the recommendations of the study (Section 3.07(b) of draft Development Credit Agreement). Road Works 47. During the project per-iod, DT will carry out 445 km of periodic regravelling of laterite roadis, most of them rehabilitated under the First Highway Project; 640 km of rehabilitation of earth roads; and equipment-based routinie maintenance of some 3,000 km, the remainder of the unpaved priority netwgork. Works will be carried out at standards which will take into account tra:ffic and annual gravel loss, estimated to average 20 mm on the unpaved priority network; they will include clearing of vegetation, cleaning of side drains, and rehabilitation and/or construction of drainage structures where needied. 48. Conitractors will rehabilitate, and/or provide periodic maintenance on, a total of 615 km or 54% of the paved road network. Since practically no resurfacing has been carried out on paved roads since their construction in the late sixties and early seventies, the backlog is important and not all of it can be included in the proposed project. Of highest priority is the reconstruction of the Conakry.-Mamou road, Guinea's central transport artery and most highly trafficked road (3,000 vpd near Conakry, 500 vpd near Mamou). This will involve selective strengthening/resurfacing over 245 km and spot; geometric improvements ona some 10 km. Works will include base course strE~ngthening as required (15-20 cm of gravel), plus a double bituminous surf'ace treatment over a 7 m iroadway plus 1 m shoulders on each side. In majcr villages and townships, pavements would be widened by 2.5 m to allow off-road stopping for vehicles. Reconstruction is expected to take 2.5 years  - 15 - to complete. Of the additional priority paved roads proposed for resurfacing under the project, 71 km need base reinforcement or an overlay and 287 km require surface treatments or resealing only. Implementation Schedule 49. The project would be implemented over a four year period starting in * July 1984. Project Cost and Financing 50. The total cost of the project including taxes and contingencies is estimated at US$73.7 million. Taxes will be levied only on local labor and represent GSY 12.3 million (US$0.5 million) or less than one percent. The foreign exchange cost is US$51.6 million or 71% of the net project cost; the local cost is GSY 490 million (US$21.6 million equivalent). Cost of works are based on consultant and mission estimates, updated to March 1984. Physical contingencies of 10% are allowed on tools and supplies, building rehabilit- ation, technical assistance, and on paved road works by contractors. Price contingencies have been included at 3.5% for 1984, 8% for 1985 , 9% for 1986-88 and 7.5% for 1989. The same rate has been used for both foreign and local costs since the latter cover mainly salaries and their rate of increase has been closer to that of foreign costs than to price increases of other local goods. The average man-month rate for consultant services and technical assistance (including salaries, overhead fees and reimbursable expenses) has been assumed at US$12,000 plus GSY 20,000, based on the cost of similar services in Guinea and neighboring West African countries. The project includes 518 m-m of technical assistance. 51. The cofinancing arrangements accommodate the different donors' procure- ment rules. The proposed IDA Credit of SDR 26.5 million (US$28 million equivalent) would finance US$13.9 million of the foreign exchange costs of the transport plan and the highway maintenance program (Package A, para. 37), US$6.0 million of those of the Conakry-Mamou reconstruction works, and the foreign cost, US$ 8.1 million, of the paved road resurfacing program. The African Development Fund (AfDF) would finance the remaining US$14.6 million foreign exchange costs for the Conakry-Mamou road. The Conakry-Mamou road works are being jointly financed by AfDF and IDA to take advantage of project preparation carried out under the Association's Second Highway Project. Since the AfDF cofinancing will not be available until late 1984, the effectiveness of the AfDF Credit is a condition of disbursement for the IDA credit category for the Conakry-Mamou road (para.4, Schedule I of draft Development Credit Agreement) The financing plan for the foreign exchange costs of the road maintenance program is based on parallel financing for equipment renewal and spare parts to accommodate differences in procurement and other BADEA rules and procedures. BADEA's contribution of US$9 million would cover the remaining foreign exchange costs of most of OPR's road maintenance equipment and part of OPR spare parts requirements. Cross-effectiveness with the BADEA agreement is a condition of credit effectiveness. The Government will finance all local costs of the project, US$21.6 million equivalent. USAID has agreed that GSY 275 million (US$12 million equivalent) of the Government's PL 480 counterpart funds can be applied towards the financing of these local costs.  - lb - Procurement and Disbursement 52. Procurement arrangements are summarized in the table below: Procurement Table (US$ millions) Total Project Elanent ICB LCB Other NA Cost A1 Iabor-based Maintenance Works 2.9 2.9 A-2 Equi_pent-based Maintenance and Rehabilitation Works 3.0 4.5 8.3 15.8 (4.5) (4-5) A-3 Equipnent Renewal, Building 7.0 0.4 7-4 (1 .0) (0.4) (1 4) A-4 Technical Assistance, Audit, Training 8.7 0.1 8.8 (8.2) (8.2) B-1 Rehabilitation of Cnakry-Mimmu Road 27.8 27.8 (5.9) (5-9) B-2 Resurfacing of Paved Roads 11.0 11.0 (8.1) (8.1) TOyL 48.8 0.4 13.2 11.3 73-7 (15.0) (0.4) (12.7) (28.0) liotes: - Figures in parentheses are the respective amounts financed by IDA. - Figures may not add due to rounding. - A-1 Cost ($2.9 m) consists of salaries - A-2 Non-proprietary spare parts ($3.0 m) are financed by BADEA and will be procured through ICB in accordance with their regulations, proprietary spare parts ($1.6 m) will be procured through direct procurement or limited international bidding, lubricants, workshop and construction sujpplies ($1.1 m) will be procured through limited international bidding, fuel ($1.8 m) will be supplied by ONAH/IMPORTEX and $8.3 m are salaries. - A-3 $6.0 m of equipment is financed by BADEA and will be procured through ICB in accordance with their regulations, $1.0 m of equipment will be procured through ICB and $0.4m of civil works will be procured through LCB open to foreign firms. - A-4 Consultants for technical assistance and audit ($8.6 m) will be selected in accordance IDA guidelines, training equipment ($0.1 m) will be procured through limited international bidding and $0.1 m are training fees. - B-1 Is cofinanced with AfDF in accordance with both AfDF and IDA regulations. All procurement will be handled by OPR, who may use the consultant contractor to DT as its procurement agent for spare parts procurement. All contracts will clearly show the subdivision of costs into foreign and local currency elements. Procurement will be grouped whenever possible into contracts valued at $50,000 or more which will be subject to prior IDA review which will cover more than 90% of such purchases. Other contracts will be reviewed at the audit.  - 17 - 53. Force account operations under the proposed project will be financed through use of a performance based pricing system rather than for actual incurred cost of inputs. To provide initial working capital, a revolving fund will be established. Government will open a Project account denominated in Sylis (Sectior 3.03 of draft Development Credit Agreement) and a Special Account denominated in US dollars in a local Bank acceptable to the Association (Section 2.02 of draft Development Credit Agreement). An initial deposit of GSY 25 million to the Project Syli account is a condition for credit effectiveness (Section 6.01 of draft Development Credit Agreement). All expenditures of the DT would be channelled through the Special and Project Accounts, which will be periodically audited by independent external auditors acceptable to the Association (Section 4.01 of draft Development Credit Agreement). Upon credit effectiveness, the Association will make an initial deposit of US$ 530,000 into the Special Account, and will replenish eligible drawings from the account on receipt of certified Statements of Expenditure from the DT through the OPR. Government will replenish quarterly all Syli drawings from the Project Account during the preceding quarter (Section 3.03 of draft Development Credit Agreement). OPR will submit monthly statements which will show the nature, location and volume of works performed by DT, costed in terms of six sets of agreed unit prices, and certified by the Engineering Consultant. Disbursements will cover 100% of the foreign cost of IDA financed maintenance and rehabilitation of the priority network, and of building and workshop construction. Disbursements for IDA equipment renewal and consultants' services will also cover 100% of foreign costs and will be made against full documentation submitted to IDA. Disbursements for Conakry- Mamou rehabilitation would cover 30%, and those for paved road resurfacing 100% of foreign costs. After refinancing the Project Preparation Facility advance (US$1,000,000), US$5.340 million of the proposed IDA Credit would be unallocated. Disbursements follow the IDA profile for highway projects in the West Africa Region. Audit 54. An opening audit of assets transferred to OPR will be carried out. Thereafter OPR accounts will be audited annually by independent auditors to be appointed by the Government under terms and on conditions acceptable to the Association (Section 4.01(c) of the draft Development Credit Agreement). The auditors will in particular audit supporting documents, cross-referenced to applications of disbursement against Statements of Expenditure, for DT operating costs (original and latest cost estimates, contract, bill, salary statements, work certification and other relevant documents). The annual audit would serve as a basis for the Association's review of actual cost incurred in executing the agreed maintenance program as compared with initially used billing rates, and would be used to readjust the latter in the light of current season experience. Benefits and Risks 55. The program of rehabilitation, periodic and routine maintenance of the unpaved priority network (Package A) was evaluated using the Bank's Highway Design and Maintenance Standard model; it has an overall rate of return exceeding 100%, and a benefit/cost ratio of 5.3 at a 12% discount rate. Separate analyses for classes of roads carrying different volumes of traffic show that - assumming a 10% discount rate - even for links carrying less than 25 vpd, (28% of project roads) a per km net present value of about US$7,000 equivalent would result from implementation of the proposed  - 18 - maintenance strategy. This amount increases to about US$24,000 equivalent for roads with traffic volumes of 25-50 vpd, (33% of project roads) and to US$61,000 equivalent for roads with traffic volumes of 51-100 vpd (30% of project roads). Even with large changes in underlying assumptions (e.g., a 100% increase in cost or a 50% decrease in benefits), the program's benefit/cost rat.io would remain above 2:1, and the ERR over 100% - a reflection of the very highl costs of operating vehicles on a road network as deteriorated as that of Gui:nea. 56. The most likely economic rate of return for Package B which includes reconstruction of the Conakry-Mamou road and resurfacing of an additional 360 km of paved road, is estimated at 65%. The reconstruction of the Conakry-Mamou road which carries the heaviest traffic of all roads in Guinea and is most seriously degraded, has an estimated ERR of 75% assuming normal annual traffic growth of 4% only; resurfacing the remaining paved roads would yield a most likely ERR of 41% assuming normal traffic growth at 3.5% annually. 57. By improving and/or maintaining road conditions to satisfactory all- weather standards on the priority network, the project will help to ensure flows of essential imports to the regions and of agricultural surplus production to the markets of Conakry, handled regularly and at reasonable economic costs. The project thus will benefit both the rural and urban populations by facilitating basic interregional exchanges of goods, and facilitate communications via improved passenger transport. Non-quantified benefits to passengers through improved road safety, better riding conditions and shorter travel time will be substantial. Most directly, the project will benefit road users including owners of vehicles and paying passengers. 58. The project has been designed for more effective support in the development of local construction capabilities. In that perspective, establishment of DT in the OPR with stronger technical assistance from a consultant-contractor with in-line responsibility is essential. Nevertheless, the OPR may encounter difficulties in running operations autonomously and more along the lines of a construction enterprise, and it may still be pressured into carrying out non-project works. However, with the full support pledged by the Government these risks are considered minimal. The continuity of operations betwfeen the Second and Third Highway projects provided through PPF financing wilL obviate any temporary assignment of road maintenance equipment to other taskcs. PART V - LEGAL INSTRUMENTS AND AUTHORITY 59. The draft Development Credit Agreement between the Revolutionary People's Republic of Guinea and the Association, and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the articles of Agreement of -the Association, are being distributed to the Executive Directors separately. 60. Special features of the draft Development Credit Agreement are referred to in the text and listed in Section III of Annex III of this report. Conditions of effectiveness of the proposed credit are: the implementation by Govenament of all official measures to implement the task identification and recommendation system for labor-based maintenance (para. 44), the payment by Government of 25 million Sylis into a Project Revolving Fund towards OPR's working capital (para. 53), the opening of a Special Account (para. 53) and cross-effectiveness with the BADEA agreement. (para. 53). Disbursement for the Conakry-Mamou road would be conditional on the effectiveness of the proposed AfDIT Credit.  - 19 - 61. I am satisfied that the proposed Development Credit would comply with Articles of Agreement of the Association. PART VI - RECOMMENDATION 62. I recommend that the Executive Directors of the Association approve the proposed Credit. A. W. Clausen President Attachments Washington, D.C. March 29, 1984  - 20 - ANNEX I T A B L E 3A PAGE 1 GUINEA - SOCIAL INDICATORS DATA SHEET GUINEA REFERENCE GROUPS (WEIGHTED AVERAGES) /a MOST (MOST RECENT ESTIMATE) /b RECENT LOW INCOME MIDDLE INCCHE 1960-b 1970-ESTIMATE- AFRICA S. OF SAHARA AFRICA S. OF SAHARA AREA (THOUSAND SQ. EM) TOTAL 245.9 245.9 245.9 AGtICULTURAL 44.0 45.7 45.7 GNP PER CAPITA (US$) 100.0 140.0 300.0 254.6 1147.9 ENERGY CONSUMPIION PER CAPITA (KE:LOGRAMS OF COAL EQUIVALENT) 17.0 91.0 83.0 79.8 724.2 POPUiLATION AND VlTAL STATISTICS POPULATION,NtD-YEAR (THOUSANDS) 3067.0 4069.0 5571.0/c URBAN POPULATION (% OF TOTAL) 9.9 13.9 19.7 19.5 28.5 POI'ULATION PROJECTIONS POPULATION IN YEAR 2000 (MILL) 9.4 STATIONARY POPULATION (MILL) 29.8 YEAR STATIONARY POP. REACHED 2155 POPULATION DENSITY E'ER SQ. KM. 12.5 16.6 22.1 29.5 56.5 P'ER SQ. EM. AGRI. LAND 69.7 89.0 118.7 94.1 131.8 POEPULATION AGE STRUCTURE (2) 0-14 YRS 42.0 42.5 43.9 45.0 45.9 15-64 YRS 55.1 54.7 53.1 52.1 51.2 65 AND ABOVE 2.8 2.8 2.9 2.9 2.8 POPULATION GROWTH RATE (%) TOTAL 2.2 2.8 2.9/c 2.8 2.8 URBAN 8.1 6.2 6.0 6.2 5.3 CRUDE BIRTH RATE (PER THOUS) 46.9 46.9 47.5 47.9 47.6 CRUDE DEATH RATE (PER THOUS) 30.3 24.2 22.4 19.2 15.2 GROSS REPRODUCTION RATE 3.0 3.0 3.1 3.2 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUS) .. USERS (% OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PROD. PER CAPITA (1969-71=100) 97.0 101.0 86.0 87.8 95.7 PER CAPITA SUPPLY OF CALORIES (I Or REQUIREMENTS) 92.0 86.0 77.0* 88.0 97.1 PROTEINS (GRA,S PER DAY) 46.0 42.0 38.0 51.2 56.0 OF WHICH ANIMAL AND PULSE 8.0 7.0 7.0/d 18.1 17.2 CHllD (AGES 1-4) DEATH RATE 49.6 43.3 36.4 25.7 23.6 BEALTH LIFE EXPECT. AT BIRTH (YEARS) .. .. 42.8 47.4 51.9 INFANT MORT. RATE (PER THOUS) 207.8 186.5 162.8 126.5 117.6 ACCESS TO SAFE WATER (%POP) T7TAL .. .. 10.O/e,f 24.7 25.4 URBAN .. .. 44.01e f 56.8 70.5 RlURAL * * ' 2.57 18.3 12.3 ACCESS TO EXCRETA DISPOSAL (% OF POPULATION) TOTAL .. 13.0 . . 28.1 URBAN .. 70,0 .. 65.7 RURAL *- 2.0 . . 21.9 POPIJLATION PER PHYSICIAN 26900.0 32520.0 16630.0/d 27420.6 12181.6 POP, PER NURSING PERSON 3260.0 2030.0 2490.0/d 3456.2 2292.0 POP. PER HOSPITAL BED TOTAL 1120.0 610.0 630.0/g 1183.2 1075.4 URBAN 210.0 220.0 390 0/ 380.6 402.3 Rl'RAL 2200.0 880.0 730.0g 3177.5 3926.7 ADMISSIONS PER HOSPITAL BED .. 16.0 HOUS INiG AVERAGE SIZE OF HOUSEHOLD TOTAL .. .. URBAN .. .. RIJRAL .. .. AVERAGE NO. OF PERSONS/ROOM TOTAL .. .. URBAN .. .. RUtRAL .. .. ACCESS TO ELECT. (2 OF DWELLINGS) TOTAL * * ' ' 5.0/f UR'BAN .. .. RU RAL .. .. _ _ _- - - -- - - - - - - - - - - - - - - - - - - - --_- - - - - - --_- --_- - - - - - - - - --- _ _ __-_-_-_- -_-_-_-_-_ _-_ _ _-_- _-_-_-_- -_-_-_-_-_ _-_-_-_- _ _-_-_-_-_- - _ _ _- _- _ -  - 21 - ANNEX I T A B L e 3A PAGE 2 GUINEA - SOCIAL INDICATORS DATA SHEET GUINEA REFERENCE GROUPS (WEIGHTED AVERAGES) /a MOST (MOST RECENT ESTIMATE) /b /b_ lb RECENT LOW INCOME MIDDLE INCOME 1960-b 1970- ESTIMATE- AFRICA S. OP SAARA AFRICA S. OF SAHARA EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 30.0 33.0 33.0 63.9 97.2 MALE 44.0 45.0 44.0 73.6 103.1 FEMALE 16.0 21.0 22.0 51.6 88.5 SECONDARY: TOTAL 2.0 13.0 16.0 12.5 17.2 MALE 3.0 21.0 23.0 16.7 23.5 FEMALE 0.4 5.0 9.0 8.1 14.2 VOCATIOkAL (I OF SECONDARY) 21.7 3.2 2.7 7.3 5.2 4 PUPIL-TEACHER RATIO PRIMARY 66.0 44.0 36.0 46.4 42.9 SECONDARY 26.0 23.0 24.0/f 25.1 23.7 ADULT LITERACY RATE (1) 7.0 9.0/h 20.0 36.5 37.1 CORSUNPIroN PASSENGER CARS/THOUSAND POP 1.8 2.4 .. 3.3 18.8 RADIO RECEIVERS/THOUSAND POP 12.7 22.4 22.3 45.3 97.8 TV RECEIVERS/THOUSAND POP .. .. 1.1 2.2 18.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPLULATION 0.2 1.2 3.8 4.7 18.2 CINEMA ANNUAL ATTENDANCE/CAPITA .. .. .. 1.0 0.6 LABOR FORCE TOTAL LABOR FORCE (THOUS) 1522.0 1940.0 2456.0 FEMALE (PERCENT) 40.4 40.3 40.7 34.5 36.1 AGRICULTURE (PERCENT) 88.0 85.0 82.0 76.9 56.8 INDUSTRY (PERCENT) 6.0 8.0 11.0 9.8 17.5 PARTICIPATION RATE (PERCENT) TOTAL 49.6 47.7 44.1 40.9 37.0 MALE 59.4 57.4 54.0 53.0 47.1 FEMALE 39.9 38.1 34.8 28.9 27.0 ECONOMIC DEPENDENCY RATIO 0.9 1.0 1.1 1.2 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5% OF HOUSEHOLDS .. . . HIGHEST.20T OF HOUSEHOLDS .. LOWEST 20% OF HOUSEHOLDS LOWEST 40% OF HOUSEHOLDS .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 165.9 534.2 RURAL .. .. .. 87.4 255.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) IJRBAN .. .. 70.0/f 100.8 491.5 RURAL .. .. .. 64.6 188.1 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCOME LEVEL (%) C URBAN .. .. .. 39.5 RURAL .. .. .. 69.0 NOT AVAILABLE NOT APPLICABLE N O T E S /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970t between 1969 and 1971; and data for "Most Recent Estimate" between 1979 and 1981. /c Recent Government estimates from Administration census indicate a resident population (excluding nonrGuineans) of 4.53 mill. in 1977 and population growth rate of 2.7I p.a.; Id 1977; /e WHO report May, 1980 quotes total access of 11-12%. However, this does not match reported service in urban and rural areas; /f 1978; /L 1976; /h 1965. * Present Bank estimates indicate higher ratio of supply close to requirement, the Bank estimstes point to a better standard and there is no evidence of a sharp deterioration in nutritional standards. May 1983  -22- ANNEX I DPt?INITEOfS OF SOCIAL INDICATORSt Notes: Aitboogh the date ore dess fre .a.ur.s generally judgel these autbritantre and reibe 0sol lob ae he.hysyoth nentoai ounparbir bcause f thelark o stanardize defiition and fnteps used y digErrantcounties lovolleding bt dat. Thedate fe, norsheics, usfulbt drace tbo order of eageitude, lndicoce trends, and car-cterie cetain major differene ere contIe., I h .. h ---- ..hl . . .- TOo reernc gops ore (1) lbs man -uouny grou of the sohJert rucetfyed()acutygopoc oehthgeraeaeirs ctecutygopo b aubJeot coaenrp (eccoPt for 'High looer" oil "cyrete" groupsdner "Idde ..om Noth frc Sood Middetar hinghoer-n becaus ostrongte r eoiou... turol afflitlec). In tbare rro group datat . be .. a -`ao are- ppistion eeigbtdt. - Norbetho uafa orac leMddIctE.l and ab ... Seywrnaort Itofsecutisna grop has dot. for tboe iodtoator.SInc Mb ocr-rage of conre- mu h edioadpnso he' riablty of dAteM andy Wis not oifoY oaosthn suetrj he nurledI raIatingonrae of Cnn todioutur to touches- T tsraerge r onlyth urful to d cP npariog the valbie of one. oditr at aI t_ineaf._ bCutr n AREA (thousand oq.Os-)Peaain erPyiin oplncdiddbyasrofpntig r- I- Total suofoor urea conprislog land area snd ttlaad waters; fOAl, ppiia uife reau olehe tuiese e I197ind98 dunn..Prlte e aen Pseo 1-1Ociootiotdiided b -by fub of praceicig ASritultoroI - E`lotsae of agricl-tural urasedteprriyorprocnpsl andfemle rodet Pcraa, asistantid nures pracbra fnnrt and forCrps,9P-turn, turkec and kinrhso gardeon or no lie feilco; 1960, nurin auni t..aetss,Ii- or..o 1971 cod 180 data. P-rlaiog perifupna a -tei,uh.ad ua -Oplain(ttl GNP PiR CAPITA (USE) - IM P.prrpt eius tCrensre eca vial npbi and ptet eurl n s lairdbrytl n acuaadb see covnei tsehnd enWorld Bach Atlas (19)9-ft heels); nbehlittioeooen fepel r aoblishmden-ta-l1 dp.ilj. peMaustef seffd 1962, 1870, ord 1901 data, byhat lnat.toar ptpsrion H.ptstahliahants proidIngt p-noipelly cutodia tEoRot WMSUMfPTICN ?ER COPITA - auuYrprtoonupatofcssrolseie etr -a pruItti atafe byapyiin(bnb s1l 196), 1t)0,pand 198 at.ura baiti icud t 0 rlopl/gnea bopnlu,ad rra PRP0LA2IPO 011 SITE STATISICS ipentalieduhospptala ae included osy o_der total Tn ,tb=Iuoltin Mid-ter(huad)-bofJl1;16,1 ,an18;diatsue rycaRd - Tonalt numdbero dmato toph orhithor ~~Ztta. free hospitals diin'idedf bye thel, comberrofpibeds. 196oog". doaris 190117070dloidea Avrae ine of Nosho caton he heffl)- '-Pto-ta.rbcanrul dreaint er10 orn ouairporncsunbadr 1980 and thelir sa el. ora o ugn a rnytrdeinlddi PULTIota ANusiD b g udscadternrtlc n etlt the. bopsahald u atuia"' a p -iirpoeFrra..tt eanemu.ingdeIs i fertlY.. ph aordIng toA rn. lvladpotfml Morselto tlhctviotor Iyrcn of.d denlynos)- total, ra,an ua pT.lavlg efann loh9outr0I to 1seg 170cu ,o thes 19ca Covrnoeld -lla Ttbel 1cvicin is livngqrtrs anpecetage.. runh' Imnio of ortlit adfR-tiity treoda for trcjrnio partae. of -cehl,Purban ndi~ddb rua drl log respcIvey snrrroereaicerc196sr1n70 Thi isa urteve cuply bafter ofdctili prnsAjNtdG rlsetbn each onertiot f noer relo't irrP seartlyo1 . Teeainr nolen falagta h yriaryleo aa pr etarefraeco Your utcotoaar peroluoov It rechd I oTe er abet stadtinarIior some popln Ar be.lrc or above the orfl _to urhot og. _Id pocttte lu oi hernorh d. bSecondary-areol -i-total, aal ard froae -uCbmputed asl- aheve; uscu ba Pnctatt ...oto'.coPtro eocettorNqotv1~nn f at lt oryaa rtyOnZeea)tatric toap re;160i90 and 1960 dot ee.ppturlyo12o10ro fof g;corepodrcecIo r PeL