Tunisia - Highways Maintenance and Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6247a-TUN STAFF APPRAISAL REPORT REPUBLIC OF TUNISIA HIGHWAYS MAINTENANCE AND REHABILITATION PROJECT November 19, 1987 Infrastructure Division, Country Department II Europe, Middle East and North Africa Region 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 As of September 1987 Currency Unit Tunisian Dinar (DT) DT 1 = US$1.20 DT 1,000 = TTS$l, 205 DT 1,000,000 = US$1,205,000 US$1 = DT 0.83 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System British/US System 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 sq. kilometer (km2) = 0.386 sq. miles (mi2) 1 metric ton (ton) = 2,205 pounds (lb) ACRONYMS AND ABBREVIATIONS ADT - Average Daily Traffic DAF - Direction des Affaires Administratives et Financieres (Administrative and Financial Directorate) DGPC - Direction Gen6rale des Ponts et Chauss6es (Highway Department) DGTT - Direction Generale des Transports Terrestres (Land Transport Department) DRAL - Direction de la Recherche Appliqu6e et du Laboratoire (Central Laboratory) ERR - Economic Rate of Return GP - Route de Grand Parcours (Primary Highway) HDM - Highway Design and Maintenance Standards Model MC - Route de Moyenne Communication (Secondary Highway) MEH - Ministere de l'Equipement et de l'Habitat (Ministry of Public Works) MT - Ministere des Transports et du Tourisme (Ministry of Transport) OFPP - Office de la Formation et Promotion Professionnelle (Training and Professional Improvement Institution) OPNT - Office des Ports Nationaux Tunisiens (Tunisian National Ports Board) RVE - Route Vicinale d'Etat (Tertiary Road) SNCFT - Societe Nationale des Chemins de Fer Tunisiens (Tunisian National Railroad Company) SNTRI - Societ6 Nationale de Transport Rural et Interurbain (National Rural and Interregional Transport Company) SRTG - Societe Regionale de Transport de Gouvernorat (Regional Transport Company) STM - Societe de Transport de Marchandise (Freight Transport Company)  FOR OFF7CLUL USE ONLY REPUBLIC OF TUNISIA STAFF APPRAISAL REPORT HIGHWAYS MAINTENANCE AND REHABILITATION PROJECT Table of Contents Page No. Loan and Project Summary i I. THE TRANSPORT SECTOR ....... 1 A. The Transport System ....... ........................ I B. Planning .......................... *......... . ..... 4 C. Previous Bank Experience in the Sector ............... 6 II. THE HIGHWAY SUBSECTOR .........................*......... 6 A. The Road Network ..................................... 6 B. Traffic ............................................. 7 C. Road Transport . ........ .... ................... 9 D. Highway Administration .............................. . 10 E. Financing and Expenditure .......... ................ 10 F. Human Resources ......................12 G. Planning and Engineering ..................... ...... 12 H. Construction ......................................13 I. Maintenance ................. .... . ............ 14 lIII THE PRO JECT ..................... .o.15 A. Background .......................... *.15 B. Objectives ................................. 15 l C. Project Description ............................ 15 D. Cost Estimates and Financing ............ .... l19 E. Procurement ................... ...................... 22 F. Implementation ..............*23 G. Disbursements ................. .4 H. Auditing ................. .. 25 This project was appraised by Messrs. Enn Vasur, Economist, Jacques Tollie, Highway Engineer and Jean-Michel Verdier, Training Specialist, on the basis of a mission to Tunisia in March 1986, and post-appraised by Mr. Jacques Tolli6 on the basis of a mission to Tunisia in October 1987. 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.  Table of Contents (Continued) Page No. IV. ECONOMIC EVALUATION ............................... 26 A. Main Benefits and Beneficiaries ....................... 26 B. Economic Analysis .......................... oe#o.***,26 C. Project Risk ......................................... 27 V. RECOMMENDATIONS .......................... .......... 2 ANNEXES 1. Previous Bank Experience in the Transport Sector ........ 30 2. Petroleum Products Price Structure ...................... 32 3. Organization of the Highways Administration ............. 33 4. Organization of a Regional Public Works Administration..34 5. Capital and Recurrent Expenditures on Roads 1976-85 ..... 35 6. Description of Training Component.......................36 7. DGPC Design Criteria ....................................43 8. Maintenance Organization and Operations ................. 45 9. Action Plan ..................................................... 50 10. Equipment and Buildings Requirements .................... 55 11. Roads to Rehabilitate. Provisional List ................ 57 12. First Year Road Rehabilitation Program .................. 59 13. Detailed Cost Estimates .. .............. ......... 60 14. implementation Schedule .............. ........... 61 15. Disbursements Schedule ............. ......... . .62 16. Economic Analysis *-f Rehabilitation Program ............. 64 17. Documents in Project File ............................... 69 TABLE 1. Traffic Development 1967-84 ................ .....71 MAPS 1. Tunisia Transport System (IBRD 19680) L. Road Traffic Flows (IBRD 19679) 0068d (Text) 0069d (Annexes)  REPUBLIC OF TUNISIA HIGHWAYS MAINTENANCE AND REHABILITATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Government of Ttnisia Amount: US$63 million Terms: Seventeen years including four years of grace at standard variable interest rate. ProJect Objectives The proposed Project aims at improving the and Description: management of highway maintenance activities through organizational changes and strengthening; rationalizing road maintenance budgeting; reducing the backlog of road rehabilitation, and improving management and training. It comprises a five-year program of highway rehabilitation and maintenance, and important institutional and human development components. The Loan would finance: (a) periodic maintenance, including the provision of equipment and workshops; (b) road rehabilitation; and (c) consultancy services and overseas training. The main benefits are reduced vehicle operating costs, the strengthening of the organization and administration of DGPC, reduced accidents and savings in travel time. The only foreseeable risk is related to the timely availability of counterpart funds. The Project includes special supervision and monitoring measures to minimize this risk.  -ii- ESTIMATED PROJECT COSTS:* Local Forei Total ----US$ Million Equivalent--- Capital Costs Rehabilitation 20.9 27.7 48.6 Asphaltic concrete overlay 3.3 5.5 8.8 Workshop buildings 1.5 1.0 2.5 Miscellaneous equipment 1.0 3.6 4.6 Road maintenance equipment 3.2 11.3 14.5 Consulting services 0.3 1.3 1.6 Overseas training 0.0 0.4 0.4 Base cost 30.2 50.8 81.0 Contingencies Physical 3.0 5.1 8.1 Price 4.3 7.1 11.4 Total capital cost 37.5 Q100.: Recurrent Costs 92.5_ TOTAL PROJECT COSTS 1365 FINANCING PLAN: Local Foreign Total ----US$ Million Equivalent---- Government 136.8 32.5 169.3 Proposed Bank Loan - 63.0 63.0 TOTAL 136, 25.5 Z323 ESTIMATED DISBURSEMENTS: ----------------------US$ Million----------------- Bank FY 1988 1989 1990 1991 1992 1993 1994 1995 Annual 0.4 4.6 12.0 12.4 14.7 11.1 5.2 2.6 Cumulative 0.4 5.0 .7.0 29.4 44.1 55.2 60.4 63.0 Economic Rate of Return minimum 30X. * Includes $32.9 million in taxes and duties.  I. THE TRANSPORT SECTOR A. The Transport System General 1.01 The Seventh National Development Plan, 1987-91, whose implementation nas just started, is pursuing the main objectives of the Sixth Plar (1982-86) which concentrated on strengthening and diversifying the economy, particularly through employment creation and emphasis on agricultural and regional development. To achieve these objectives, a more efficient use of investment resources as well as a reduced Central Government investment level, have been recommended by the BankL/. A better use of existing infrastructure, through maintenance and rehabilitation, assumes an increasing importance to meet the needs of the populatioc. 1.02 Tunisia's relatively small area, 164,000 km2, about 15 times smaller than neighboring Algeria, coupled with an uneven distribution of pol.ilation with the southern half very sparsely inhabited and with a strong and increasing concentration of population and economic activity to the northeast and east coasts, have strongly influenced the transport network (Map 1). It is most densely developed in the coastal areas, especially in the Bizerte-Tunis-Sousse-Sfax corridor and less dense in the regions more distant from these well populated areas. 1.03 The transport infrastructure is relatively well developed. It includes five major ports (Bizerte, Tunis-La Goulette, Sousse, Sfax, Gab6s), about 1,900 km of railway lines, some 9,JOO and 28,000 km of paved and unpaved roads respectively and four international airports (Tunis-Carthage, Monastir, Tozeur, Djerba). Apart from the transport of phosphate rock on the freight side and passenger flows in the coastal corridor and around Tunis, there are no specific items of traffic that dominate the system; the different modes hanule a variety of commodities and flows to serve the economy. 1/ Tunisia, Public Expenditures Review: "Adapting Public Expenditures to Changing Resource Availability" (in five volumes). January 1987 (Report No. 6604-TUN).  - 2 - 1.04 In the past the transport system has served Tunisia's development process well, but as a large proportion of the network, especially the roads and railways, date from before independence (1956), the system no longer responds to actual traffic patterns and volumes. Total traffic has shown a strong and consistent increase which has averaged about 82 p.a. since 1970 for both freight and passengers. The increase has been accompanied by a marked shift from the railways, whose share of traffic has decreasei in favor of road transport which has regularly shown annual traffic increases of above 102 during the same period (Table 1). Road transpo:t is now the dominant transport mode carrying more than 90S of passenger traffic and, excluding captive phosphate traffic (para. 1.08), almost 702 of freight. 1.05 Government's involvement in the transport sector is quite extensive. In addition to providing the infrastructure and promulgating transport regulations it also owns most of the companies providing transport services. However, for both freight and passenger transport about one third only is being carried by these enterprises, the rest by private cars and taxis or, in the ease of freight, mainly by own-account trucks. While the Government is heavily involved in the sector, in practice a fair amount of competition exists which is likely to increase with the implementation of recent legislation (para. 2.13). Highways 1.06 The highway subsector is described in Chapter II. Railways 1.07 The railway system is operated by the Tunisian National Railway Company (Societe Nationale des Chemins de Fer Tunisiens, SNCFT), a semi-autonomous agency responsible to the Ministry of Transport (Ministere des Transports, MT). The network comprises about 1,900 km of track. That part of the network which is situated north of Tunis, about 400 km, and which provides the only international connection (to Algeria), is standard gauge (1435 mm) whereas the rest of the system is meter gauge (1000 mm). The two gauges developed during colonial times with the main line along the north coast connecting the former French possessions being standard gauge and the branch lines feeding into this line or directly to a port being usually meter gauge. 1.08 Railway traffic has increased very slowly over the past 10-15 years with annual average growth rates of only about 12 and its relative importance has sharply decreased. In 1970, the railways carried 37f of freight (excluding phosphates) and 17% of main line passengers whereas the current corresponding shares can be estimated to be about 13S and 62 respectively. The table below gives the development of some broad categories of railway traffic.  -3- Million pass-km or ton-km 1972 1977 1981 19S^ 1985 Main line pass-km 337 447 556 506 460 Freight ton-km 1445 1339 1720 1896 1680 of which phosphate (864) (904) (1092) (n.a.) (990) Total traffic units 1782 1786 2276 2402 2140 Transport of phosphate rock from the mines around Gafsa to Gabes and Sfax constitutes the major commodity flow handled by rail. At about 4 million tons annually it represents close to two thirds of total freight ton-km. 1.09 Although not formally spelt out, t}e present transport policy favors railways over other modes. The Sixth Plan (1982-86) allocated heavy investments of doubtful economic justification for the expansion and upgrading of the railway network. However, because of the country's relatively small size and the distribution of economic activity (para. 1.02), there are few long hauls and hence opportunities for profitable traffic with the average freight haul length, excluding phosphates, being 150 km. Also, the division of the network into staudard and narrow gauges makes through traffic difficult. On the one hand, these factors have contributed to a rapid decline of the relative import'nsce of rail transport. However, on the other hand, the total resources allocated to the railways, in terms of investments and operational deficits, have grown to average about US$100 million equivalent annually. The discrepancy between the decreasing role of the railways in the transport sector anl the increasing financial resources required to run it, at a time when public investments need to be reduced, has been brought to the Government's attention in a Transport Sector Memorandum (Green Cover, July 1985). Although the Government stated its agreement with the Bank's position, there has been as yet no change in policy. To advance the dialogue, Bank staff together with the Transport Planning and Coordination Unit in MT (para. 1.17) recently undertook a brief study analyzing the railway investment program. The study has been of assistance to the Government in the preparation of the Seventh Plan. As part of the Bank's sector work, it is expected that this analysis will be followed by a more comprehensive review of the railways in view of a possible future sector operation or inclusion of the railways in a future public enterprise restruLturation loan. Ports and Shipping 1.10 The main port facilities are owned and operated by the Tunisian National Ports Board (Office des Ports Nationaux Tunisiens, OPNT), which falls under the jurisdiction of MT. 902 of port traffic is handled in the five OPNT ports, viz Tunis-La Goulette, Bizerte, Gabes, Sousse and Sfax with Tunis-La Goulette, Bizerte and Sfax being of roughly equal importance, each handling about 3.5 million tons per year. Tariffs have been increased regularly to match increasing operating and investment costs and OPNT's  - 4 - financial position has been sound. Cargo handling is the responsibility of several companies, including one public enterprise, the Cargo Handling Company of Tunisia (Societ6 Tunisienne d'Acconage et de Manutention, STAM) which is by far the largest. 1.11 Port traffic has increased by about 7Z annually for the past 15 years and now amounts to about 15 million tons. Almost all of this increase has taken place in domestic coastal shipping which accounts for about 30% of total port traffic, primarily of petroleum products. International traffic has increased only modestly (2% p.a.). The part of international traffic carried by Tunisian shipping lines constitutes about 10% and is the responsibility of two companies. The Tunisian Shipping Company (Compagnie Tunisienne de Navigation, CTN) is a semi-independent company which currently owns 18 cargo vessels with a capacity of 165,000 tons. The Gabes Chemical Transport Company (Gabes Chimie Transport, GCT) owns and operates 6 ships for the transport of gas and liquid bulk for the chemical industry. Under the ongoing port project the Bank has financed berth modernization in La Goulette and Sfax (Annex 1, para. 2). Airports and Air Traffic 1.12 Tunisia is served by four international airports; Tunis-Carthage, Monastir, Tozeur and Jerba. Air passenger traffic has increased at an average annual rate of 7% since 1974 and in 1984 reached 3.4 million passengers, of which 90% was international traffic. The major airports are managed by the Tunisian Airports Adminiszration (Office des Ports Aeriens de Tunisie, OPAT), a semi-autonomous Government agency responsible to MT. The national airline, Tunis Air, has expanded its services rapidly in recent years with traffic growing at an annual rate oi 5% since 1977. Total passenger traffic in 1984 amounted to 1.7 million passengers. However, Tunis Air's financial performance has been ra*her poor due to major investments in new aircraft and operating costs increasing faster than revenue. The airline currently operates a fleet of 8 Boeing 727s, 4 Boeing 737s and one Airbus on routes to Europe, the Middle East and other North African countries. A second small airline, Tunisavia, operates a small fleet of charter aircraft and a limited schedule of domestic services. B. Planning 1.13 The transport sector does not constitute a bottleneck for economic and so:ial development in the sense that important links are missing or demand far outweighs supply. However, in view of the severe overall economic conditions and constraints now facing Tunisia, a policy of reduced Government investment as well as of more efficient use of existing resources in all sectors, including transport, is being pursued. 1.14 Investment in the transport sector during 1979-85 has been as follows:  - 5 - 1979 1980 1981 1982 1983 1984 1985 -Constant 1985 DT million----- -- Railways 23.1 74.3 81.1 71.8 79.5 86.9 74.4 Road and road transport 75.3 84.6 81.5 57.7 75.5 81.4 73.0 Ports and shipping 31.7 37.6 34.9 48.3 20.7 37.6 20.4 Airports and airlines 40.2 15.8 32.4 74.8 7.3 7.9 9.5 Total 170.3 212.3 229.9 252.j 183.0 213.8 177.3 These investments include infrastructure investment as well as investment in government owned and controlled companies. Twenty of these companies are engaged in trucking and hence the investments made in them tend to inflate the figures for the road subsector. On average over the period, transport sector investments represent 13% of total investment and 18% of total public investment. The imbalance in railway investments referred to earlier (para. 1.09) is clearly evident. 1.15 Transport sector investment plans, as well as those of other sectors, are formally expressed in five year National Economic and Social Development Plans. Proposals are initiated by the agencies responsible and then submitted through the relevant ministries to the Ministry of Planning which coordinates and arbitrates between the various proposals to fit them into the economic and political framework. 1.16 In the transport sector ministerial responsibilities are divided. The planning, construction, operation and maintenance of road infrastructure comes under the Ministry of Public Works (Ministere de l'Equipement et de 1'Habitat, MEH), whereas the remainder of the transport sector is under the Ministry of Tidnsport (MT). Various mechanisms for coordination exist. At the top level there is the final arbitration of the Ministry of Planning. At the working level MT/MEH interministerial working groups are formed to handle transport issues in the preparation of the successive National Economic and Social Development Plans. 1.17 In between the more formalized exercises such as annual budget preparation or the preparation of Development plans, there was not any planning covering the whole transport sector. This affectea especially the possibility of improved mo6al coordination between road and rail. The lack of a coordinated approach to planning was recognized by the Government and, under the Fourth Highway Project, a Transport Planning and Coordinating Unit was established in the MT. Its task is to analyze the whole transport sector, regardless of ministerial boundaries, with special emphasis on coordination between modes. This Unit now forms a part of MT's Planning Directorate and plays a positive role, particularly thr ugh its involvement in the preparation and implementation of the Seventh National Development Plan.  - 6 - C. Previous Bank Experience in the Sector 1.18 Since 1964, the Bank has made a total of ten loans in the transport sector to Tunisia - five for highways, three for ports and one each for railways and a pipeline. The overall experience has been positive and the proposed project builds on and provides continuation to the previous projects in the highways subsector. Annex 1 provides a description of the Bank's experience in the sector. II. THE HIGHWAY SUBSECTOR A. The Road Network 2.01 Tunisia's road network comprises about 37,000 km of roads, of which 17,000 km are termed 'classified' by the Highway Department (Direction Generale des Pcnts et Chaussees, DGPC) which is under MEH. The remainder, comprising mainly rural access roads and tracks, (but also some newer urban by-passes and streets) are mostly maintained by municipalities. The classified roads are divided into three groups: (a) primary highways (GP-routes de grand parcours) linking major centers in Tunisia and providing links to neighboring countries; (b) secundary highways (MC-routes de moyenne communication) for interregional service; and (c) tertiary or local roads (RVE-routes vicinales d'Etat) generally within a province. 2.02 Road standards are based on traffic volumes, so that in the densely populated northeast many secondary and tertiary roads are paved whereas in the sparsely popul b.ed southwest some primary roads have gravel or earth surfaces. The table below shows the distribution of types of surfacing by road classification. Road Network as of 1984 (km) Gravel and Unimproved Paved Improved Earth Earth Total Expressways and motorways 55 - 55 GP 3520 211 301 4032 MC 3665 730 2168 C 53 RVE 1635 755 3839 6229 Total classified network 8875 1696 6308 16879 Non-classified network 265 2883 17213 20361 Total 9140 4579 23521 37240  2.03 At independence, Tunisia inherited a relatively well developed road network which was adequate for that period. However, due to the subsequent rapid traffic increases the pavement strength and geometric conditions are now largely inadequate. To determine the condition of the network a Road Maintenance Study!/ was carried out under the Fourth Highway Project and its principal findings are discussed below. 2.04 The majority of Tunisian roads were found to be narrow as shown by the following study data. Road width Lenath (km) 2 of Paved Network Expressways and motorways (4 lanes) 55 1% More than 7.5 m (others) 321 3% 6.5 - 7.5 m 617 7% 5.5 - 6.5 m 2252 24% 4.5 - 5.5 m 3579 38% Less than 4.5 m 2578 27% Thus about two thirds of the paved roads have pavement widths of 5.5 m or less. Taken together with the strong increase in traffic (para. 2.08) the narrowness of the roads represents a serious problem for traffic safety as well as for road deterioration, especially of pavement edges because vehicles when meeting have to partly run on the road shoulder. 2.05 With respect to the general condition of the paved network, and based on the maintenance study, the consultants have estimated-/, on the basis of an extensive inventory, that about 552 can be considered in good condition, a little less than 102 in outright poor condition and the remaining third somewhere in between. However the distribution varies considerably between the climatic regions and close to 402 is in poor condition in the northwestern region which has the highest precipitation. B. Traffic 2.06 Based on an accelerating growth of the vehicle fleet, road traffic has increased rapidly over the last 10-15 years. Although detailed and reliable statistics are not available, estimates show a growth rate of the total fleet over the period 1977-82 of more than 112 annually. 1/ Etude de l'Entretien routier. Setec International, Sotuetec-Sotinfor. Aouit 1984.  -8- Average Annual Growth Rate (2) Vehicle Type 1972 1977 1982 1972-77 1977-82 Passenger cars 57,213 83,622 119,078 7.9 7.3 Buses 1,866 2,369 2,940 4.9 4.4 Pickups, light and heavy trucks 12,036 14,009 48,074 3.1 30.0 Total 71,115 100,000 170,092 7.1 11.2 2.07 Private cars are subject to high import duties, typically 160%. Such taxes are much lower for pickups and light trucks and these vehicles are nearly all diesel fuelled. The combination of lower tax rates and the lower cost of diesel fuel, which is less than half the price of regular gasoline, accounts for the very large increase in the number of these two classes of vehicles. The relationship between diesel and gasoline retail prices is being addressed through the Energy Pricing and Interfuel Substitution Study within the framework of the Bank's Energy Sector Work. Annex 2 shows the petroleum products price structure which shows that the retail prices for petroleum products are clearly above their opportunity costs. 2.08 Since 1968 MEH has conducted nationwide traffic counts on the paved network at five year intervals. The latest survey dates from 1982 and its results are shown graphically on Map 2. Traffic is heavily concentrated on the coast between Tunis and Sfax and, in terms of annual vehicle km, about 75% of the traffic occurs in the Tunis-Sousse-Sfax regions. Traffic growth rates, as measured by vehicle-km traveled per km of road length, have surpassed 10% annually between 1977 and 1982 which makes for an increase of about 70% of average traffic density (vehicle km/km) on the paved network in this period. The increase is illustrated by the following Table. Average Daily On 2 of Paved Network Traffic (ADT) 1979 1982 Less than 750 65 36 750 - 1500 17 31 1500 - 300 9 17 More than 3000 9 16 2.09 Legal restrictions on vehicle weights and dimensions are based on French standards and are satisfactory. A 1983 survey showed that overloaded axles in excess of the 12-ton legal maximum were not a significant problem. Nevertheless, to continue the level of enforcement and to meet the increase in traffic, replacement and additional weighing equipment is required; this equipment together with appropriate technical aesistance is included under the proposed project (para. 3.03).  - 9 - C. Road Transport 2.10 Passenger and freight road transport have been heavily regulated, both with respect to pricing and entry into the market. However, in practice, government owned trucking enterprises have not proved competitive and almost two-thirds of total road freight transport is carried by own-account or small owrer-operator vehicles. All three categories exhibit inefficier.cies in various forms such as low utilization and low load factors. Other issues, tied to Government owned enterprises, are high operating costs with resulting large deficits, inflexible tariffs not well related to costs and unclear rules for compensating socially motivated transport services. However, the situation is improving (para. 2.13), and studies to explore policy options are underway (para. 2.20). 2.11 For interurban road passenger traffic, it is estimated that of the total 5,200 million passenger km about 40% is carried by Government owned enterprises, 402 by private cars and "voitures de louage", (long-distance shared taxis) and the remainder by miscellaneous means such .s taxis and tourist buses. The Government organizations providing these passenger services are the National Rural and Interregional Transport Company (Societ' Nationale de Transport Rural et Interurbain, SNTRI) which provides intercity bus transport in all governorates of Tunisia, and twelve Regional Transport Companies (Societes Regionales de Transport de Gouvernorat, SRTG), providing urban bus and truck services locally as well as nationally. 2.12 Freight transport is primarily carried out by the Government owned Freight Transport Company (Socik6 de Transport de Marchandises, STM), the aforementioned twelve SRTGs, owners of small trucks, and companies with an own account truck fleet. Owners of small trucks (total weight less than 3.5 t) are the only persons who are completely free to transport what they want, either for themselves or for others without any authorization. With the exception of the small truck activities, government owned trucking enterprises have a monopoly on common-carrier trucking activities - currently about one third of the freight market. 2.13 Nevertheless, during the last five years the MEH has introduced a number of improvements in the regulations. For instance, regulations have been abolished that prohibit regional transport organizations like the SRTGs to transport goods outside one of the five zones to which they were assigned, put limits on total truck capacity which each of these zones was allowed to have, and put limits on total truck capacity of STM. In August, 1985, Parliament passed a new law for the "organization of land transport". The law only gives broad guidelines but decrees to implement the law are under preparation. The decrees are expected to go in the direction of a cautious liberalization, allowing increased private participation in both passenger and freight transport. A recent Bank report- analyses road transport in detail and the dialogue with the Government will be continued under the Bank's sector work. 1/ Road Transport Regulations in Tunisia, October 1985.  - 10 - D. Highway Administration 2.14 The organization of DGPC within MEH (Annex 3) is the result of an important decentralization decision in 1981, which created, in each of the 23 governorates, a regional MEH directorate with its road department responsible for road maintenance, own account construction as well as equipment management and maintenance (Annex 4). 2.15 The objectives 3f the decentralization were to make the regional administrations directly responsible for the execution of all MEH activities on the regional level. The implementation of this decentralization has not yet been fully carried through, mainly because the means put at the disposal of the regions do not match the responsibilities foreseen. Lence the actual functioning of DGPC does not correspond to that which was foreseen in the various Government decrees establishing the present organization. In particular, a rumber of important functioning positions do not legally exist, but are filled by various ad hoc arrangements. Under the project, these positions will be formally recognized by the Government and filled by capable staff (para. 2.35 and Annex 9). 2.16 Although regional road maintenance services need strengthening, the present functioning of the central services is the main issue. There is a need for the central services to provide much needed professional guidance and leadership. A strengthening of the central administration is required (para. 2.35), particularly with respect to continuous inspection of road conditions and giving professional assistance to the regions. 2.17 Equipment management and maintenance is formally regionalized to the extent that the corresponding central function no longer exists in the legal texts defining the present organization. However, the capabilities of the regions vary enormously with some regions almost totally devoid of maintenance facilities. In practice therefore the central workshops in Tunis have continued to maintain and repair as much as has been possible. The resulting situation has been highly unsatisfactory with an unclear distribution of res7onsibility and inadequate maintenance. The Administration has therefore decided to reorganize (para. 2.35) this function and assistance for this purpose is included in the project (para. 3.12). 2.18 The Action Plan (Annex 9) includes the necessary actions and timing to bring about the improvements noted in the above paragraphs. E. Financing and Expenditure 2.19 Road subsector financing is included under two separate main headings in the Government budget - capital expenditure and recurrent expenditure. Capital expenditure, which includes construction of new roads, major modernization, rehabilitation, heavy periodic maintenance and purchase of equipment is controlled by the Ministry of Planning. Recurrent expenditure covering, in addition to administrative expenses, routine maintenance, light periodic maintenance and minor improvements is controlled by the Ministry of Finance. The table below and Annex 5 show road sector expenditures.  - 11 - Capital and Recurrent Expenditures on Roads 1980-85 (Current DT million) 1980 1981 1982 1983 1984 1985 Capital expenditure 17.45 21.68 22.25 32.00 36.35 39.00 Recurrent expenditure 8.36 8.40 10.99 12.61 13.70 15.16 Total 25.81 30.08 33.24 44.61 50.05 54.16 2.20 Since all equipment and spare parts purchases are carried under the capital budget, the maintenance expenditures are somewhat understated. It appears, however, that about 302 of total funds for road infrastructure have been spent on maintenance for the last three years. Road users contribute to Government revenues through various taxes and fees such as annual vehicle registration fees, taxes on fuel, lubricants and tires, and import duties on vehicles and spares. The total revenue frim road users, such as fuel taxes, vehicle taxes and registration fees, covers well the total expenditure on the road network. There are indications that heavy trucks might be taxed too low. However, this question is being studied under the Bank's research study of Pricing and Taxing Transport in Developing Countries and conclusive data will be discussed with the Government under the Bank's sector work. 2.21 The quality of road construction and rehabilitation carried out under the capital expenditure program has been generally good. A major portion of the investments has been carried out within Bank financed projects (Second and Fourth Highway Projects and Third and Fifth Rural Roads Projects) which have shown high economic returns. Despite an increase in capital expenditure (including rehabilitation and periodic maintenance) which has averaged about 6Z annually in real terms an important backlog of rehabilitation and maintenance work has developed (para. 2.33). Reduction of this backlog is part of the 5 year program included under the proposed project. 2.22 Due to growth in traffic and the expansion of the road network, the average annual increase of recurrent expenditure has been about 3.52 during the 1976-85 period. In the 80's this rate increased to about 62 which was partly to meet the needs of the administrative decentralization then being implemented. Measures identified to improve the quality of the DGPC services and to adequately maintain the road network, would require a continued increase of the recurrent expenditure over the next five years of about 6% annually. A forecast for adequate recurrent and capital expenditure related to maintenance and rehabilitation is included in para. 3.13. 2.23 Although Government plans to reduce total public investments, it nevertheless intends to give increased emphasis to maintenance and rehabilitation. This is reflected in the project which provides for an increase in the level of recurrent expenditure as well as in the level of capital expenditure for road rehabilitation, which is in line with the  - 12 - recommendations of the Bank's "Public Sector Expenditure Review" report (para. 1.01). The expenditures for the roads subsector will be detailed in the Seventh National Development Plan (1987-91). During negotiations it was agreed that the Bank review and comment on proposed road subsector expenditures on an annual basis and that the Government will take these comments into account in preparation of the annual budgets (para. 5.02). F. Human Resources 2.24 MEH employs a total of about 7,000 personnel, of which about 3,500 are under DGPC and assigned to road construction and maintenance activities. All MEH personnel are managed by a central administrative and financial directorate (direction des affaires administratives et financieres - DAF). Within this directorate, a central training unit is responsible for training of all MEH personnel. However, this unit does not have the necessary resources to deal specifically with DGPC personnel. There are also two units under DGPC dealing specifically with skills. One was in charge of recruitment and testing of mechanics but is no longer operational due to lack of personnel; and the other, the training unit, to which is assigned a training officer, has so far had only a limited impact on improving the skills of DGPC manpower forces, due to apparent lack of commitment, lack of work program and adequate local resources. 2.25 The need for improved training was recognized by the Government and a start was made under the Fourth Highway Project directed principally at training professional staff. However, the training function remains weak and the proposed project therefore addresses all major aspects of training requirements for DGPC. These are described in Annex 6 and specific measures to be taken to improve training are incorporated in the Action Plan (Annex 9). G. Planning and Engineering 2.26 Investments in road construction and rehabilitation are based on sound economic criteria. A Highway Master Plan, financed under the Second Highway Project and completed by consultants in 1982, provides the framework for road planning and the Highway Maintenance Study of 1984 (para. 2.03) analyzed and defined maintenance and rehabilitation needs. The knowledge of the subsector is thus quite good. Based on these studies, the Studies Division of DGPC carries out planning work either through its own resources or through local consultants. Where appropriate, the Highway Design and Maintenance Standards Model (HDM), adapted to Tunisian conditions, is used for economic and policy studies. 2.27 Within DGPC the Studies Division has competent staff to carry out survey and design work for small and medium sized road construction projects as well as for rehabilitation projects entailing few alignment changes. Consultants are employed for larger projects. Some minor design is carried out by regional staff. The Central Laboratory and Applied Research Division (Direction de la Rechorche Appliquee et du Laboratoire, DRAL) is competently staffed and has a reasonable range of equipment in  - 13 - generally good condition. However, if the DRAL is to play its proper role in the maintenance management system, especially in the fields of pavement and bridge structural surveys, additional specialized personnel and equipment are needed which are covered under the proposed project (Action Plan, Annex 9). 2.28 The design standards used by DGPC are satisfactory. Geometric standards are based on a design speed chosen based on traffic, terrain and function of the road. Pavement design is also satisfactory and is based on a "catalogue of pavement structures for new construction and strengthening", updated within the framework of the Maintenance Study (Annex 7). 2.29 Although the Maintenance Study (para. 2.03) provides a good assessment of the condition of the paved network, some aspects of the study should be extended to allow continuous analysis of paved roads over a longer period of time as well as to cover gravel roads. Also, axle load surveys carried out under the Maintenance Study should be updated on a regular basis, and it is essential that the existing axle load legislation continues to be enforced (para. 2.09). The project will provide technical assistance and specialized equipment for these purposes (para. 3.03, 3.12 and Annex 9). H. Cotnstruction 2.30 Tunisia has a well developed contracting industry, with several local firms fully up to international contracting standards and with foreign firms also active. Construction works are normally carried out under unit price contracts awarded after competitive bidding and contract prices are competitive. Small contracts (of the order of US$2 million) are usually won by Tunisian contractors, while larger contracts (over US$5 million) are frequently won by joint ventures of foreign and local contractors. The Federation of Building and Civil Engineering Contractors (Chambre Syndicale des Entrepreneurs) has over 400 members. All companies are classified by DGPC according to their capacity, experience and skills. While about 60 percent of the members are builders only, with a work capacity of less than DT 350,000 a year, at the other end of the scale are about 20 companies qualified to bid for unlimited value complex civil works contracts. Payment to contractors by DGPC has been reported to be an issue, with payment being made usually several months after submission of a payment certificate. These delays are expected to be eased by better planning of works by MEH and firmer financing commitment from the Ministry of Planning. 2.31 Except for very large special projects, for which the Government relies on consulting firms, construction supervision is carried out by DGPC engineers with the assistance of DRAL. This supervision work is carried out by the regional engineers, with some assistance from headquarters for larger projects. To ensure full consistency throughout the 23 regional directorates in the use of contract documents, specifications and  - 14 - reporting, involvement of headquarters should be more systematic. This will be achieved through the establishment of an organization and methods Unit in DGPC (para. 3.06), as provided for in the Action Plan (Annex 9). I. Maintenance 2.32 Highway maintenance (Annex 8) is the responsibility of the Regional Directorates and is carried out by force account, except for periodic maintenance on asphaltic concrete pavements which is executed by contract. Rehabilitation is also executed by contract, except for works on small sections (widening, strengthening, etc.) which are carried out by the periodic maintenance crews. While these arrangements appear satisfactory, the current level of road maintenance is inadequate as explained below. 2.33 During the latter part of the 1970's road maintenance and rehabilitation started to lag seriously behind that which was economically justified. Because resources available were largely used to expand the network at the expense of maintenance and rehabilitation activities, an increasing portion of the road network deteriorated below the standard required by the rapidly increasing traffic volumes. In addition, the DGPC decentralization (para. 2.15) contributed to a lowering of efficiency in road maintenance operations with the Regional Directorates not yet geared up for the task and receiving inadequate support from the central organizations. For example, there has been an insufficient level of task definition, of control, of equipment performance monitoring and of training in the equipment maintenance organization. Nevertheless, although these events have all contributed to a lowering of levels of maintenance, improvements are in sight. 2.34 The Fourth Highway Project has focused increased attention to maintenance and rehabilitation as witnessed through increased budgets for these activities and more forceful maintenance/rehabilitation programs. The central services have now a better knowledge of regional needs and are becoming more conscious of their responsibilities and more willing to discharge them. Similarly, the Regional Directorates are more aware of their responsibilities in providing adequate maintenance. 2.35 The need now is to build up and strengthen all institutions in the decentralized system. The central Road Maintenance and Operation Division will be strengthened to enable it to meet its functional responsibilities, especially through a new Organization and Methods Unit. Within the central Equipment Maintenance Division the focus will be on: (i) coordination of equipment maintenance, inspection and advice on equipment operations; (ii) centralization of equipment procurement; and (iii) the only operational role remaining at the central level which will be the major equipment repairs. At the regional level, the Road Units within the Regional Directorate have now the main operational role as far as maintenance tasks are concerned. They will be strengthened to fulfill their roles. These measures are included under the proposed project through measures in the Action Plan, which also sets forth physical targets to be achieved (Annex 9).  - 16 - (d) institutional development and studies for: (i) establishing an organization and methods unit; (ii) improving mechanical equipment maintenance; (iii) reinforcing laboratory services; (iv) economic studies and detailed engineering for implementing the rehabilitation program. 3.04 The proposed Bank loan would finance the foreign exchange content of: (a) that part of periodic maintenance carried out by contract (asphaltic concrete overlay), maintenance and traffic equipment, and facilities and equipment for repair workshops and the DRAL; (b) 800 km of road rehabilitation by contract; (c) consultancy services and overseas training for the improvement of the DGPC personnel management system and for the preparation and implementation of the training plan, including overseas training and training equipment; and (d) consultants services for studies and other technical assistance. During negotiations, the Government agreement concerning project objectives and description was obtained (para. 5.02). Road Maintenance Program 3.05 DGPC has prepared a road maincenance program (para. 2.35 and Annex 9) that would begin in 1987, with implementation continuing through the Seventh Development Plan (1987-91). The program will raise the maintenance effort to meet the needs of the network as defined by the Maintenance Study. The efficiency of routine maintenance activities will be improved through work programming, training and increased funding. Periodic maintenance activities (i.e. surface dressing, overlays, regravelling of unpaved roads and of shoulders) will be intensified to meet the frequencies necessitated by regional climate, traffic and road condition. 3.06 The proposed project covers five years (1988-92) and is detailed in Annex 9. The Bank-financed components comprise the acquisition of new maintenance and traffic equipment, the provision of workshop and associated equipment (Annex 10), asphalt concrete overlays, and technical assistance to create a maintenance oriented Organization and Methods Unit and to tmprove the mechani^al equipment maintenance organization. The roJe of the Organization and Methods Unit, described in para. 6 of Annex 8, is central to the project, and the establishment of this Unit as well as the employment of its head, are made a condition of loan effectiveness (para. 5.03).  - 15 - III. THE PROJECT A. Background 3.01 The proposed project is a follow-up to the Fourth Highway Project (1841-TUN) whose major objective was to improve the management of the highway network. At that time, the need for a second phase project was explicitly recognized to continue the momentum of the longer term institutional changes and improvements. Furthermore, the Fourth Project, as originally appraised, had subsequently to be reduced when expected cofinancing did not materialize. The road rehabilitation program, the project's main component, was cut and thus an important portion of the backlog of works identified in 1979 remains. It has also become increasingly clear during implementation of the Fourth Project that serious institutional and budgetary issues have not been resolved especially in training, routine road maintenance, and mechanical equipment maintenance. The proposed project addresses these issues. B. Obiectives 3.02 The principal objective of the project is to improve the use of resources, especially by improving the management of the Tunisian highway network. Specifically the project aims at: (a) improving the efficiency of road maintenance through organizational changes and strengthening; (b) achieving a proper balance in highway expenditures between maintenance, rehabilitation and new construction; (c) reducing the backlog of road rehabilitation; and (d) improving personnel management and training in the highways subsector; C. Project Description 3.03 In order to achieve these objectives, the proposed project eomprises: (a) a five-year routine and periodic maintenance program including procurerent of maintenance equipment, and workshop and laboratory facilities and equipment (including vehicle weighing equipment); (b) a five-year program of road rehabilitation covering about 800 km of roads; (c) improvement of the human resources management system including the establishment of a training directorate and preparation and implementation of a five year training plan; and  - 17 - 3.07 During loan negotiations, the form and contents of the Action Plan were agreed and assurances obtained that the Government will, through the DGPC, carry out the five-year program in accordance with this Action Plan. Updated annual programs and budgetary allocations for the road subsector including maintenance, rehabilitation and training, consistent with the Action Plan, will be submitted to the Bank by Aligust 15 each year starting 1988 for review and comment, prior to implementation during the following year. Not later than February 15 each year beginning in 1989, the Bank and Government will review and discuss these programs in light of the approved annual budget. The Govermaent will take all appropriate measures to carry out these programs, including the provision of adequate budgetary allocations and taking into account the Bank's comments (para. 5.02). Road Rehabilitation Program 3.08 The works consist of pavement strengthening, with or without road widening, and also road widening alone where pavement strength is adequate and where justified by high traffic volumes. At present, about 1,200 km of roads have been identified as requiring rehabilitation. Elimination of this backlog will require an approximate eight year program with the existing physical and financial capacities, and two thirds of this program are proposed to be undertaken during the five years of the project. The provisional list of roads is given in Annex 11. Economic studies and detailed engineering have been carried out for the sections to be improved during the first year (1988) of the Program (Annex 12), which have a total length of 168 km. Pavement design is based on deflection measurements, the existing pavement structure, and the Tunisian "catalogue" of pavement strengthening design. The methodology is satisfactory. The sections to be improved during subsequent years will be prepared on a continuous basis in time for approval by the Bank to meet the planned work program. To prepare the economic evaluation, designs and contract documents for the sections to be implemented, DGPC will require the assistance of consultants, to be financed under the proposed project. 3.09 The criteria for Bank approval of rehabilitation subprojects would be that the quality of the preparation and analysis is acceptable to the Bank and that subprojects are of high priority and are economically viable. During loan negotiations, assurances were obtained from the Government that, before calling for bids, DGPC will submit the technical and economic evaluation of rehabilitation subprojects for the Bank's approval, according to the same methodology, criteria, and procedures as agreed with the Bank under the Fourth Highway Project, including an economic return of at least 12% (para. 5.02). Human Resources 3.10 The objectives of the 1988-1992 training plan to be implemented under the project are: (a) strengthening personnel management by: (i) introdtcing systems for forecasting personnel needs and keeping updated personnel inventory and evaluation;  - 18 - (ii) forecasting personnel needs for the ten coming years and assessing training needs for that period based upon existing personnel inventory and evaluation; (iii) reactivating personnel skill testing for recruitment; (iv) implementing measures aiming at increasing personnel motivation, including productivity and efficiency, and reducing personnel turnover. (b) strer.gthening the training function by: (i) establishing the training directorate, including improvement of the personnel management system and preparation and im.plementation of t!e training plan which includes 76 man-months of consultent services and 122 man-months of fellowships for overseas training (para. 3.03); (ii) creating a training steering committee; and (iii) creating ad-hoc technical panels. (c) providing DGPC with the qualified personnel required for: (i) the new units to be created and existing ones to be strengthened under the project; (ii) replacement of retiring personnel (between 1981 and 1991 about 1,000 employees will retire); and (iii) implementing the administrative regionalization and decentralization, including the 23 regional directorates, the 23 regional workshops, and also the 5 main workshops. About 65 engineers, 300 field supervisors, 700 operators and drivers, 80 mechanical supervisors, and 350 mechanics are to be trained under the project. In view of the important role to be played by the Training Directorate and the Training Steering Committee, their establishment is made a condition of Loan effectiveness (para. 5.03). 3.11 Existing training institutions will be used for the most part for preparing and implementing the training plan. In particular, DGPC will contract to the Training and Professional Improvement Institution (Office de la Formation et Promotion Professionnelle - OFPP)V' training of existing, or newly recruited, middle-level supervisors and skilled workers 1/ OFPP is under the Ministry of Social Affairs. Its mission includes the following: (i) ensuring that national training policy is relevant to country economic needs and addresses these needs; (ii) preparing and implementing of training plans; and (iii) developing training activities in enterprises. OFPP operates more than 70 training centers, of which 8 in mechanics and equipment operation. OFPP receives Bank assistance under the Education IV Project. The contract with OFPP is foreseen to be financed partly under the Fourth Highway Project (1841-TUN).  - 19 - in the road and equipment maintenance fields. OFPP will also inventory and evaluate the professional skills of existing personnel with a view towards reassignment, transfer, promotion and preparation of relevant training programs. The first con.tract between DGPC and OFPP was reviewed by the Bank before negotiations (Annex 6, Annex 9). Institutional Development and Studies 3.12 In addition to the important institution building aspect of the human resources development, the project includes the following consultant services: (a) establishing an organization and methods unit, 24 man-month8 (paras. 3.03 and 3.06); (b) mechanical equipment organization, 36 man-months (paras. 3.03 and 3.06); (c) reinforcing the laboratory services, 18 man-months (paras. 3.03); (d) economic studies and detailed engineering for implementing the rehabilitation program, 50 man-months (para. 3.08). Outline Terms of Reference, contained in the Project File (Annex 17), have been agreed with Government and this was confirmed during negotiations (para. 5.01). D. Cost Estimates and Financing Project Cost Estimates 3.13 The table below shows the capital and recurrent cct estimates of the proposed project. A detailed cost estimate table is found in Annex 13. The total capital cost is estimated at US$100.5 million equivalent, including a foreign exchange component equivalent to US$63.0 million, and a local c-'st component of US$37.5 million equivalent, including US$19.9 million equivalent in taxes and duties. The recurrent costs of the five year maintenance program are estimated at US$131.9 million equivalent including US$13.0 million equivalent in taxes and duties. The overall cost of the five-year program is therefore estimated at US$232.3 million. The cost estimates were discussed and confirmed during negotiations (para. 5.01). 3.14 Estimates for civil works are based on unit prices for recent contracts in Tunisia, adjusted to September 1987 levels, and on completed engineering studies for the first-year program of works. The estimated cost of the five-year maintenance program is based on these unit prices and preliminary estimates of the quantity of each class of works required on the roads in the program. Cost estimates for road maintenance equipment are based on recent purchase prices. The technical assistance cost estimates are based on recent rates for consulting services in Tunisia. 3.15 Recurrent costs are funded by the Ministry of Finance through budget allocations to DGPC for road maintenance and administration. These costs for the five-year program are based on current budget alloactions,  - 20 - SunMary of Prolect Costs (September 1987 Cost Estimates) Foreign as Capital CostsTi Loal Fgreign Toal l Foreign lotal %X of Ttal DT million US$ million - Rehabilitation 17.3 23.0 40.3 20.9 27.7 48.6 57 - Asphaltic concrete overlay 2.7 4.6 .T3 3.3 5.6 8.8 63 - Workshops buildings 1.3 0.8 0 1.5 0.9 2.5 38 - Equipment lab., workshop, traffic and training 0.8 3.0 3.8 1.0 3.6 4.6 78 - Road maintenance equipment 2.6 9.4 12.0 3.2 11.3 14.5 78 - Consulting services 0.2 1.1 1.3 0.3 1.3 1.6 83 - Overseas training _.Q 0.4 0 4 QL. 0.4 0.4 100 Base costs 25.0 42.2 67.2 30.2 50.8 81.0 62.8 Physical contingencies1" 2.5 4.2 6.7 3.0 5.1 8.1 Price contingencies2' 3 .L9 9.5 .A-I 4 _3J.1 11.4 Total capital costs 31.1 52.3 83.4 37.5 63.0 100.5 3, 62.7 Recurrent Costs 1 1 1990 12]. I122 Total (in million dinars - base 1987) OT US$ .. Operations: - Supplies 7.5 8.4 9.3 10.3 11.4 46.9 56.5 - Labor 7.5 7.7 7.9 8.1 8.2 39.4 47.5 11. Administration: - Salaries 1.6 1.7 1.8 1.8 1.9 8.8 10.6 - Buildings 0.8 0.9 0.9 0.9 0.9 4.4 5.3 Price contingencies4' 0..6L 1.2 1.7 -2.8 .6 9.9 119. Total recurrent costs 18.0 19.9 21.6 23.9 26.0 109.4 131.8 Total project costs 192.8 232.3 .1 Physical contingencies amount to 10% for all items; not applicable to recurrent costs. 3/ Price escalations are as follows: 1.0% for 1988-90, and 3.5% for 1991-92 for foreign costs, and 7.0% for 1988-92 for local costs. 3/ Identifiable taxes and duties are about US$19.9 million equivalent and the total project capital cost, net of taxes, is US$80.6 million equivalent. d/ Price escalation for recurrent costs are based on an annual average rate of 3%.  - 21 - increased by the cost of additional supplies, equipment operations and labor, necessary to support expanded maintenance operations (paras. 2.32-2.35) in accordance with the Action Plan. The provision of adequate recurrent budgets in accordance with the Action Plan was agreed during negotiations (para. 5.02). 3.16 Physical contingencies of 10% of base costs have been allowed on all capital items. Contingency allowances for price escalation were calculated for each year of the planned implementation schedule (Annex 13), and overall represent 132 of base line costs plus physical contingencies. 3.17 Foreign exchange components have been calculated for each project component. For civil works, the breakdown between foreign and local components (the local including taxes) >as calculated for each major item in the bill of quantities, assuming that most of the contracts would be awarded to Tunisian contractors. This latter assumption was based on recent prequalifications and contract awards. Financing 3.18 The Borrower would be the Government of Tunisia. The proposed Bank loan of US$63.0 million, representing 32% of the total project costs excluding taxes, would finance 100% of the foreign exchange component of the capital costs, or 66X of the foreign exchange component of the total project costs. During negotiations, the Government has agreed that it will provide all funds necessary to complete the project and the financing program (para. 5.02) which is shown below: Table 1: Financing ProRram (US$ million)- Project Element Government IBRD Total Capital Costs Rehabilitation 26.2 34.6 60.8 Asphaltic concrete overlays 4.0 6.9 10.9 Workshops buildings 1.9 1.1 3.0 Equipment for workshop, laboratory, traffic and training 1.3 4.7 6.0 Road maintenance equipment 3.8 13.6 17.4 Consulting services 0.3 1.6 1.9 Overseas training 0.0 0.5 0.5 Total 37.5 63.0 100.5 Recurrent Costs 131.8 -- 131.8 Total Cost 169.3 63.0 232.3 1/ Including distributed contingencies.  - 22 - E. Procurement Bank Financed Components 3.19 Contracts for road rehabilitation would be awarded after International Competitive Bidding (ICB) in accordance with the Bank's guidelines. The works would be geographically grouped in lots with an aggregate value of not less than US$4 million to make the contracts attractive to larger contractors, and contractors would be prequalified to undertake either single or several lots. 3.20 The periodic asphaltic concrete overlay contracts, awarded over the 5 year period, are small and scattered throughout the country, with a maximum grouped value of US$1.0 million, and would be most efficiently procured by Local Competitive Bidding (LCB) procedures. The workshops buildings also would be most efficiently procured through LCB. As regards LCB, a Regional procurement review has confirmed that Tunisia's local competitive procurement bidding rules and procedures are acceptable, provided no preference is granted for purposes of bid comparison to any group of bidders, all bidders are treated equally especially in terms of the requirements of furnishing bid and performance securitiess bids are opened in public and foreign firms wishing to participate are allowed to do so in accordance with local procedures. These provisos were discussed and agreed during the negotiations (para. 5.02). 3.21 Road maintenance equipment and workshop, laboratory, traffic and training equipment would be procured through ICB in accordance with the Bank's guidelines. However, smaller items of specialized equipment rith inadividual amounts not exceeding US$100,000 and up to a maximum of US$500,000 in total, may be procured through procedures acceptable to the Bank through LIB on the basis of evaluation and comparison of bids invited from a list of at least three qualified suppliers eligible under Bank Procurement Guidelines and in accordance with procedures set forth in such Guidelines. 3.22 Technical assistance for the various project items would be provided by qualified consulting firms or individuals as appropriate, engaged in accordance with the Bank's guidelines for the use of consultants. 3.23 All procurement documentation will be reviewed by the Bank before being issued. However, for periodic maintenance works and workshop buildings, this will be confined to a review of standard bidding documents and of the procurement programs. Prior to contract award, and with the exception of those for periodic maintenance works and workshop buildings, all proposed contracts, together with the bidding analysis, will be subject to Bank review. Periodic maintenance works and workshops buildings contracts will be subject to post review. Prior review of contracts will cover about 802 of the total value of works financed under the project.  - 23 - During negotiations Government confirmed these procuremant arrangements (para. 5.02). The table below gives a breakdown of the proposed project by procurement method. Procurement Table (US$ million)1" Procurement Method Total Project Element ICB LC8 Other Cost 1. Road Works: Rehabilitation 60.8 60.8 (34.6) (34.6) Periodic overlays 10.9 10.9 (6.9) (6.9) 2. Equipment for: Road maintenance 17.4 17.4 (13.6) (13.6) Workshops, lab, traffic and training 5.5 0.5 6.0 (4.3) (0.4) (4.7) 3. Workshops buildings 3.0 3.0 (1.1) (1.1) 4. Technical assistance and training 2.4 2.4 (2.1) (2.1) Total Capital Costs 83.7 13.9 2.9 100.5 (52.5) (8.0) (2.5) (63.0) 1/ Figures in parenthesis indicate loan proceeds. F. Implementation 3.24 Implementation of the improved highway maintenance and rehabilitatfin programs, including the establishment and operation of the regional workshops and related studies, will be the responsibility of the DGPC. The project is expected to become effective in March 1988. Execution of the Bank's financed components would be completed by September 30, 1994, a total of about 6-1/2 years. The loan closing date is scheduled for June 30, 1995.  - 24 - 3.25 The implementat!an schedule is shown in Annex 14 and was discussed and confirmed with the Government during negotiations. Progress on the project will be communicated to the Bank by means of quarterly progress reports, the first one within three months of the date of loan effectiveness. DGPC will also prepare a project completion report within six months of the Loan Closing Date. During negotiations, assurances were obtained that DGPC will prepare and submit the quarterly reports and the completion report (para. 5.02). 3.26 The highway maintenance and rehabilitation program annual plans of operations will be submitted to the Bank by August 15, starting 1988, each year. Through discussions between the Bank and Government, the Bank's comments will then be taken into account by the Government in determining both capital and recurrent budgets to be allocated to various items for the subsequent year and then submitted to the Bank not later than February 15 the following year (para. 3.07). This was agreed at negotiations (para. 5.02). Once the budget provisions have been decided by the Government, the detailed program of periodic maintenance and strengthening-rehabilitation works can be implemented. The project covers five such annual cycles. 3.27 The preparation of the project is well advanced. The road maintenance program is detailed in the Action Plan (Annex 9). Economic studies and detailed engineering are completed for the first year road rehabilitation program. The human resources program has been extensively studied (Annex 6) and for the studies and technical assistance, draft terms of reference have been prepared (Project File). G. Disbursements 3.28 Disbursements will be made on the basis of the estimated foreign exchange component for: (a) the 1988-92 rehabilitation program (57% of total expenditures) and periodic overlays contracts program (63% of total expenditures); (b) the construction (382 of total expenditures) of the regional workshops; (c) the equipment (100% of foreign expenditures and 782 of local expenditures for other items procured locally) for road maintenance and for workshops, laboratory, traffic and training; and (d) the consultants services (83b of total expenditures) and the overseas training (100% of total expenditures).  - 25 - 3.29 The disbursement schedule (Annex 15) has been developed from the general implementation schedule (Annex 14). In addition to the formal commitments under the loan, the high priority accorded by the Government to the implementation of an improved maintenance program as well as a better understanding of Bank's procurement guidelines by Government staff, should ensure that the project will be implemented according to the agreed schedule. 3.30 The forecast schedule of complete disbursement within 7-1/2 years from Board approval has been compared with historic experience. First, a comparison with standard profiles (xnnex 15) shows that the project forecast starts halfway between the Bankwide and regional subsector profiles, and then accelerates to end up with the Bankwide standard profile, a total of 8-1/2 years. Second, a comparison with previous Bank financed highway projects in Tunisia confirms that these projects have disbursed generally quicker than indicated by the regional profile. The First Highway Project was disbursed in 6 years, the Second in 7-3/4 years and the Third in 7-1/2 years. It is expected that the Fourth Highway Project will be disbursed in 7-1/2 years. The Fifth Highway Project, although of a different nature (rural roads project), has experienced a low start-up but is now likely to catch up with the initial estimates and to be fully disbursed in less than 8 years. The disbursement schedule is therefore considered to be a realistic forecast. 3.31 Part of the proceeds of the Bank loan is proposed to be channeled through a Special Account, covering all categories of disbursement, to be established by the Government at the Central Bank of Tunisia on terms and conditions acceptable to the Bank. The sum deposited into the special account by the Bank will be US$3,000,000, approximating an eatimated four months disbursement. Statements of expenditures would be used for contracts valued at US$100,000 or less. During negotiations, agreement was obtained that the Government establish such an account (para. 5.02). H. Auditing 3.32 The project auditing procedure initiated under the Fifth Highway (Rural Roads) Project (Loan 2108-TUN) will be continued under the present project. Under this procedure the Contr8le General des Finances, whose independent status and quality and scope of audits have been found acceptable to the Bank, will prepare annual audit reports covering project related activities. Separate reports covering the Special Account and the Statements of Expenditure will be prepared. The reports will be submitted to the Bank not later than nine months after the end of the fiscal year. These arrangements were agreed during negotiations (para. 5.02).  - 26 - IV. ECONOMIC EVALUATION A. Main Benefits and Beneficiaries 4.01 The principal benefits stemming from an improved maintenance and rehabilitation program are reduced vehicle operating costs. Since improved and increased maintenance activities cover the whole classified and part of the unclassified network, the benefits will accrue generally to all vehicle owners, both private and public. Although the transport market has a fair amount of regulation, the degree of competition that takes place (para. 1.05) makes it fair to assume that vehicle operating cost savings will be largely passed on to the users. The road rehabilitation program would, for the same reasons, benefit the users of the rehabilitated roads. Since these works are fairly evenly spread over the country, no region would be particularly favored. 4.02 Savings in avoided or delayed reconstruction is another benefit due to the project that will accrue directly to the Government. The strengthening of the organization and administration of DGPC should also present substantial resource savings, especially in the mechanical equipment area through increased availability and better use of existing equipment and human resources. B. Economic Analysis General 4.03 Explicit economic analyses have been made separately for the road rehabilitation and maintenance programs, within the framework of the Road Maintenance Study, using the Highway Design and Maintenance Standards Model (HRD) appropriately adapted to Tunisian conditions. Estimates of economic benefits from reduced road deterioration and improved running surfaces take into account only vehicle operating cost savings. Reduced accidents and travel time savings have not been included in the analyses. Road Rehabilitation 4.04 Under the Road Maintenance Study feasibility studies were carried out for 584 km of proposed road rehabilitation works. The rehabilitation works analyzed consisted of road widening, with or without pavement strengthening or, in some cases, only pavement strengthening. Actual traffic varies between 450 and 6,700 vehicles (ADT) with an average of 4,000. Annual traffic growth rates have been based on actually observed past growth rates taking into account actual or proposed changes in the network. Growth rates used vary between 4 and 10 p.a. Cost estimates include necessary repairs and widenings to bridges. The analysis covers 15 years.  - 27 - 4.05 The ERR's are generally very high, between 30 and 1002 which is common for this type of work. The analyses show a generally only marginally higher ERR for widening and strengthening as compared to widening only. The results, together with some of the assumptions used, are summarized in Annex 16. The first year program is shown in Annex 12. Detailed description of methodology, assumptions and results are available in the Project File (Annex 17). Improved Road Maintenance 4.06 The economic analysis of the improved road maintenance program has been carried out by comparing the condition and hence the associated costs of the road network under the improved program with the conditions assuming a continuation of present maintenance levels. The analysis has been carried out over a 15-year period (1985-2000) using the HDM. For purposes of analysis, the country was divided into three zones that are reasonably homogenous with respect to geology, topography and climate. Within each zone, four different classes of roads according to road width and traffic, and hence different maintenance, have been treated separately. The actual calculations have been carried out on a representative sample of the roads in the different classes and zones and then weighted together to represent the averages of the zones. 4.07 The maintenance program is well justified with internal rates of return ranging from 28 to 482 depending on the zone. With a 202 increase in costs combined with a 20% decrease in benefits, the corresponding rates would be 19 and 32S. 4.08 The assumptions used regarding vehicle operating costs, traffic, road conditions, etc. as well as details of the analysis are available in the Project File. C. Project Risk 4.09 The eccnomic analysis assumes that all the measures foreseen for the improved maintenance program will be taken in a timely manner so that efficiency increases are achieved. The most important factor to achieve this is the timely availability of necessary funds. This is especially important for the maintenance activities. Delays to the road rehabilitation program would result in a substantial loss of benefits during the period of delay. The high priority accorded by the Government to the project, together with the monitoring procedures included in the project, should reduce the risk of insufficient funds (para. 2.23).  - 28 - V. RECOMMENDATIONS 5.01 During loan negotiations, the Go'ernment confirmed: (a) the outline terms of reference for the consultant services (para. 3.12); (b) the project cost estimates (para. 3.13); 5.02 During loan negotiations, Government agreement was obtained: (a) concerning the project objectives and description (paras. 3.02, 3.03, 3.04); (b) concerning the form and content of the Action Plan and that Government will, through DGPC, carry out the actions in accordance with the Action Plan (para. 3.07); (c) that updated annual programs and budgetary allocations for the road subsector, including maintenance, rehabilitation and training, consistent with the Action Plan, be submitted to the Bank by August 15 each year starting 1988, for review and comment, prior to implementation during the following year (paras. 2.23, 3.07, 3.26); (d) that the Bank and Government review and discuss, not later than February 15 each year, starting 1989, the documents under (c) above in light of the approved annual budgets. The Government will take all appropriate measures to carry out these programs including the provision of adequate budgetary allocations and taking into account the Bank's comments (paras. 2.23, 3.07, 3.15, 3.26); (e) that DGPC will, before calling for bids, submit the technical and economic evaluation of rehabilitation subprojects for the Bank's approval, according to the same methodology, criteria, and procedures as agreed with the Bank under the Fourth Highway Project, including an economic return of at least 12% (para. 3.09); (f) concerning procurement arrangements (paras. 3.20, 3.23); (g) the project implementation schedule and reporting requirements (para. 3.25); (h) that the Government establish a Special Account of US$3,000,000 in the Central Bank of Tunisia on terms and conditions acceptable to the Bank (para. 3.31);  - 29 - (i) that the Contr8le Gkniral des Finances will prepare annual audit reports covering project related activities with separate reports for the Special Account and the Statements of Expenditure. The reports will be submitted to the Bank not later than nine months after the end of the fiscal year (para. 3.32). 5.03 Conditions for Loan effectiveness would be (a) establishment of the Training Directorate and appointment of its director (para. 3.10); (b) establishment of a Training Steering Committee (para. 3.10); and (c) establishment of the Road Maintenance Organization and Methods Unit and appointment of its head (para. 3.06). 5.04 Subject to agreement on the above, the project would be suitable for a Bank loan of US$63.0 million equivalent to the Republic of Tunisia for a 17 year term including a four year grace period.  ANNEX 1 - 30 - Page 1 of 2 REPUBLIC OF TUNISIA STAFF APPRAISAL REPORT HIGHWAYS MAINTENANCE AND REHABILITATION PROJECT Previous Bank Experience in the Transport Sector 1. To assist the Government in achieving its objectives in the transport sector, the Bank has participated in nine transport projects since 1964. The First and Second Highway Projects (Loan 746-TUN, 1971, US$24 million and Loan 1188-TUN, 1976, US$28 million) focused on modernization and rehabilitation of primary and secondary roads. The First Highway Project was generally successful. However, the rehabilitation component was cut back substantially because of high inflation and dollar devaluation over the implementation period. Difficulties were encountered with right-of-way acquisition and with road transport regulation and road user taxation improvements (PPAR No. 2772, December 26, 1979). Implementation of the Second Highway Project was delayed because of problems of property acquisition and insufficient local financing. The project was completed in March 1984 (PCR, June 25, 1984). Both highway projects included technical assistance which encouraged the development of several competent local consulting firms which now work closely with DGPC. The Third Highway (Rural Roads) Project (Loan 1601-TUN, 1978, US$32 million) initiated the Government's program for improving rural roads by providing financial assistance for an initial slice of about 1,100 km of roads together with some coordinated agricultural investments in a cross-section of the country's agricultural areas. Progress with the road component was good throughout. The agricultural components suffered some delays, especially regarding the credit aspects. The project was completed in December 1986. A follow-up rural roads project, The Fifth Highway Project (Loan 2108-TUN, 1982, US$35.5 million) is progressing well. It continues the same general approach developed for the Third Highway Project, that is, combining road improvements and complimentary agricultural investments in integrated programs for specific rural roads and the agricultural areas they serve. At the same time, continuity in the Government's highway program and balanced development of the highway network are being provided through the Fourth Highway Project (Loan 1841-TUN, 1980, US$36.5 million) which emphasizes rehabilitation of primary and secondary roads and improved maintenance over the whole network. It also addresses issues which had been identified to be of importance in the previous highway projects, viz training and an improved organizational structure for maintenance activities as well as improved sector wide coordination. The project is foreseen to be completed in March 1988.  ANNEX 1 - 31 - Page 2 of 2 2. Two small loans in the port subsector (Loan 380-TUN, 1964, US$7 million, and Loan 573-TUN, 1969, US$8.5 million) provided support facilities for port operation, mainly dredging, maintenance operations and cargo handling equipment. Both these projects had an important institution building impact (PPAR No. 1049, February 26, 1979). A Third Port Project (Loan 1797-TUN, 1980, US$42.5 million) is assisting the Government in modernizing berth facilities at the main ports of La Goulette and Sfax and is providing support facilities for improved port operations. The First Railway Project (Loan 606/Credit 150-TUN, 1964, US$17 million) included renewal of track and purchase of railway equipment. It was completed in 1976 with a 100% time overrun (PPAR No. 2109, June 23, 1978). Although the project was generally successfully implemented in its physical aspects, the Borrower apparently did not share the objectives of key loan covenants, especially the financial ones, and thus the financial performance objectives were not realized.  ANNEX 2 - 32 - Page 1 of 1 REPUBLIC OF TUNISIA STAFF APPRAISAL REPORT HIGHWAYS MAINTENANCE AND REHABILITATION PROJECT Petroleum Products Price Structure The table below shows the prices of transportation fuels as of March 1986 and the relationship between Tunisian internal prices and comparators constructed by taking the c.i.f. price1/ of imports and adding an allowance for internal transportation and distribution costs equal to the actual distribution costs. The retail prices are well above the comparators. All prices in US$/ton. Ratio Ex Distri- Comparator/ refinery bution Retail Retail Product price costs Taxes price Comparator Price Regular gasoline 381.85 55.67 368.85 806.37 387.31 0.48 Super gasoline 386.79 54.32 367.63 808.74 385.96 0.48 Gas oil 255.43 40.81 90.73 386.97 309.77 0.80 Fuel oil 179.45 6.15 78.06 263.67 184.96 0.70 1/ Mid November quotations.  REPUBLIC OF TUNISIA STAFF APPRAISAL REPORT HIGHWAYS MAINTENANCE AND REHABILITATION PROJECT ORGANIZATION OF THE HIGHWAYS ADMINISTRATION WITHIN THE MINISTRY OF PUBLIC WORKS MINISTER I NSPECTION MINISTER'S OFFICE ADMINISTATIVE STUDIES [DIRECTOR 23 REGIONAL [OTHER AD FINANCIAL PLANNING AND GENERAL PUBLIC WORKS DEP6RTMENTS DIRECTORATE STATISTICS HIGHWAYS ADMINISTRATIONS I DAMS DIRECTORATE DEPARTMENT SE. ERMASE. .________ ___ _______1 ___ _ETC.) tI SROAD IADMINISTRATIVE LARAGE AND MAINTENANCE ~~ ~~~~EQUPENT I LABORATORY AND PROJECTS PROGRAMMING DIRECTORATE IIRCOAEDIRECTORATE ACUTN IETRT DIRECTORATE ~~~~~~~~~~~~~~~~~~~~~SERVICES ;ORGAN1I-ATION TRANIN AND . DIRECTORATE I - - oQ~~~-------- WORLD BANK 30549B C  REPUBUC OF TUNISIA STAFF APPRAISAL REPORT HIGHWAYS MAINTENANCE AND REHABIUTATION PROJECT ORGANIZATION OF A REGIONAL PUBUC WORKS ADMINISTRATION RPON WORKS DIRECTOR _ SECRETARIAT 1 SUB- ADMINISTRATIVE TRANSPORT URBAN DIRECTORATE AND I NFRA- BIINoGS NFRA- STUDIESI ,I r __ N AND CONTROL SECITIt SECTITw STUDIES REOIONAL LABORATORL L_ IRl OTHER SECTIONS GENIERAL MECHANICAL ROAD P PRTS SERVICES FORCE EQUIPMENT MAINTENANCE -AIRPORTS (BOOKEEPING. ACCOUNW -FLOOD CNTL. RIVERS' POOL. ETC.) REGRAVELLING PATCHING STR URESMARKINGS TRANSPORT EARTHWORK R GROUP GROUP GROUP GROUP GROUP OPCTOR l . NOT FULLY DEVELOPPED IN ALL OF tHL 23 GOVERNORATS (REGIONS).