Ghana - Third Highway (Emergency Maintenance) Project

Dacumont of The World Bank FOR OThiACUL USE ONLY Repoi No. 6946 REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-GH PROJECT COMPLETION REPORT September 18, 1987 Western Africa Region Transportation Division Ts doemu bas a 1side dhbtomt sad may be eod by XvWpu omy in the p"*gagm of dwk ff duik tse ewatmbb may ad thu w be dbsolosed witou Wodd Stik authorata. l . . .. .,. . .  FOR OMCIL US. OnY THE WORLD BANK Washngton, D.C. 20433 U.S.A. September 18, 1987 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Republic of Ghana Third Highway (Emergency Maintenance) ProJect Credit 1029-GE Attached, for iLformation, is a copy of a report entitled "Project Completion Report on Republ'.c of Ghana Third Highway (Emergency Maintenance) Project (Credit 1029-GH)" prepared by the Western Africa Regional Office. Under the modified system for project performance auditing, further evaluation of this project by the Operations Evaluatiou Department has not been made. Attachment This document has a restricted distributon and may be used by recipients only in the perfonrance of their offcial duties. Its contents may not otherwise be dtscised without World Bank authorization.  FOR OFFICIAL USE ONLY REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-GH PROJECT COMPLETION REPORT Table of Contents Page No. Basic Data ieets .................... ............ * .. ii Highlights ............................................ iv I I ............................. ............... 1 II. PROJECT IDENTIFICATION AlD APPRAISAL .................. 3 III. PROJECT IMPLEMENTATION ....................... 8 IV. ECONOMIC REEVALUATION .................. . 16 V. CONSULTANTS' PERFORMANCE ....... .... .... 17 VI. INSTITUTIONAL PERFORMANCE ................00000000000 099 18 VII. ASSOCIATEON'S PERFORMANCE ......... *00 **... 20 VIII. CONCLUSIONS AND RECOMMENDATIONS ....................... 21 TABLES 1. Final Cost imates ............ 23 2. Actual Schedule of Disbursements.*................ 24 3. Total Output of Road Maintenance Program During Project Period, 1981-86......................... 25 4. Output of Periodic Maintenance Program Compared to Targets ...................................... 26 5. Value in Constant Prices (1985) of Road Mainte- nance Output and Project Disbursements During Project Period (1981-86)........................ 27 ANNEX Borrower Counents ............................... . 28 MAP IBRD 14888R This document has a restricted distribution and may be used by recipients only in the performance of their ofcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  - i - REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-GH PROJECT COMPLETION REPORT PREFACE 1. This report presents a completion evaluation of the Third Highway (Emer,ency Maintenance) Project financed under Credit 1029-GH for US$25.0 m. The credit was approved on May 27, 1980. 2. The report was prepared by the Western Africa Region. 3. In accordance with the revised procedures for project performance audit reporting, this Project Completion Report was read by the Operations Evaluation Department (OED) but the project was not audited by OED staff. The draft report was sent to the Borrower for comments; their replies are shown as an annex to the PCR.  - ii - ,REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT i029-GH PROJECT COMPLETION REPORT BASIC DATA SHEETS KEY PROJECT DATA Original Actual or Item Expectation Current Estimate Total Project Cost (US$ million) La 38.6 38.6 Cost Over/Underrun (%) -- 0 Financing (US$ million) IBRD Credit Amount 25.0 25.0 Disbursed 24.9 Cancelled 0.1 /b Repaid 0 Outstanding 24.9 Completion of Physical Components (date) 12/31/82 12/31/85 Proportion Actually Completed by above date (%) 60 100 Economic Rate of Return (%) > 100% > 60% CUMULATIVE ESTIMAIED AND ACTUAL DISBbRSEMENTS (US$ million) FY81 FY82 FY83 FY84 FY85 PY86 FY87 Appraisal Estimate 9.0 23.5 25.0 Actual 0.9 12.6 16.5 19.3 22.0 24.4 24.9 Actual or % of Estimate 10 54 66 77 88 98 99.6 OTHER PROJECT DATA ia.tual or Item Original Amended Current Estimate Conception Date 11/13/79 Negotiations /c 04/3-4/80 Board Approval of the Credit 05/27/80 Credit Agreement Date 08/27/80 Effectiveness Date 11/04/80 Closing Date 06/30/83 06/30/84 06/30/86 06/30/85 Borrower Republic of Ghana Executing Agencies Ghana Highway Authority and Bank for Housinx and Construction Follow-on Project Road Rehabilitation and Maintenance Project, Credit 1601-GH _a Excluding duties and taxes of US$8.6 m. Jb The undisbursed balance of approximately US$100,000 will be cancelled shortly. Le Took place in London.  - iii - MISSION DATA La No. of Mission Date of Item Mo./Year Persons Composition /b Man Weeks Report Identification 10/79 11/13/79 Preparation Le Appraisal 11-12/79 4 E, H, 0 (2) 7.0 05/05/80 Supervision 1 06/80 2 E, H 1.0 07/29/80 Supervision 2 11/80 3 E, H (2) 2.0 12/15/80 Supervision 3 03-04/81 4 E, H (2), 0 4.0 05/21/81 Supervision 4 06/81 1 H 0.5 07/16/81 Supervision 5 07/81 1 E 0.5 09/09/81 Supervision 6 10/81 1 0 0.5 t 11/16/81 Supervision 7 12/81 1 H 0.5 01/13/82 Supervision 8 05/82 3 5, H, 0 1.5 )07/01/82 )07/16/82 Supervision 9 09/82 1 H 0.5 10/22/82 Supervision 10 01/83 2 g, H 0.5 02/15/83 Supervision 11 03/83 1 E 0.1 04/08/83 Supervision 12 04/83 1 H 0.5 05/05/83 Supervision 13 03/83 1 0 0.1 05/12/83 Supervision 14 07/83 2 E, H 2.0 09/23/83 Supervision 15 10/83 1 M 3.0 11/08/83 Supervision 16 11/83 2 E, H 2.0 12/21/83 Supervision 17 03/84 3 H, F, M 3.0 04/09/83 Supervision 18 06/84 4 Hi F, M, E 4.0 07/11/84 Supervision 19 09/84 4 H, F, M, E 2.0 10/26/84 Supervision 20 11/85 3 H (2), F 1.0 11/27/85 Supervision 21 02/86 1 F 0.5 04/28/66 Supervision 22 05/86 4 1 (2)* M, E 1.0 06/20/86 Supervision 23 11/86 1 5 J.1 /d Supervision 24 01/87 1 H 0.2 03/10/87 /i Excludes brief visits for which supervision reports were not written. E - Project Economist; F - Financial Analyst; H - Highway Engineer; 0 - Operations Officer; M = Mechanical Engineer Ic The project was prepared and appraised by a four-man mission from the Highways and Industrial and Finance divisions. /d To obtain information for PCR. March 1987  - iv - REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT (CREDIT 1029-GH) PROJECT COMPLETION REPORT EVALUATION SUMMARY Introduction By the start of the 19709 road maintenance in Ghana had become an urgent priority due to the continued deterioration of the country's road system. In response to this need, the Second Highway Project (which immedi- ately preceded this Third Highway Project) had been designed to establish an effective road maintenance organization and to provide equipment to the high- way authority and local contractors for the first (four-year) phase of an eight-year (1975-1983) road maintenance program. The Third Highway Project was intended to continue the work of the Second Highway Project for a period of two years. Oblectives The project aimed at relieving, on an emergency basis, the most pressing constraints affecting road maintenance and trucking operations. The project permitted the importation of urgently needed spare parts, equipment, tools, tires, bitumen and lubricants. The project similarly provided, through BHC, spare parts to the private trucking industry to repair vehicles in order to increase capacity. In addition, the project was to strengthen BHC through further technical assistance and ensure proper and timely execution of the project (para. 2.22). The project consisted of implementing GHA's road maintenance program during 1981 and 1982, and increasing the capacity of the domestic trucking industry by about 75 million vehicle kilometers. The maintenance program included performing effective routine maintenance on all public roads (25,400 km); resealing about 1,350 km; resurfacing about 250 km; and regravelling about 2,600 km of main roads and about 1,800 km of feeder roads (para. 2.23). The project included finance for the highway authority to purchase' equiment, spares and materials, for loans to be made to local contractors by a local development bank, for imports of spares and materials needed by local contractors and truckers and for technical assistance (para. 2.23). Implementation Experience At the time the project was prepared, neither IDA nor the Government foresaw the depth of economic deterioration, including the acute shortage of foreign exchange, which would take place in Ghtna between 1980-85 and tt  - v - disruption that this would have on the execution of the project. The economic situation deteriorated, partly due to mismanagement and partly to the worst drought in history, to a point where the Govetnment was frequently unable to provide agreed budgetary resources or to finance the couatry's regular fuel, lubricant and bitumen imports which further handicapped road maintenance (paras. 6.01-6.02). During most of the period of project execution, the Mini.etry of Finance did not keep IDA informed of its budgetary problems, and in fact, rarely responded to communications directed to it. On the other hand, the Ministry of Roads and Highways was responsive to problems brought to its attention and closely cooperated with IDA in endeavoring to improve project execution (para. 6.03). The Ghana Highway Authority's (GHA) performance was mixed; several of its senior managers were devoted and hardworking but the country's problems made it impossible for it to fill staff vacancies, and to provide a living wage to its workers. GHA also seriously overestimated the capability of its Mechanical Division to carry out equipment maintenance. Eventually, it recog- nized that it should place more reliance on contractors, and adjusted its work program accordingly to give contractors a larger role (paras. 6.05-6.06). Bank for Housing and Construction's (BHC) performance, which had been rated as uneven under the Second Highway Project, worsened during the execution of the Third Highway Project despite the assistance of a consultant, mainly because of economic events beyond its control. However, BHC'a senior management generally did the best possible under most difficult conditions (para. 6.08). IDA's overall supervision of the project was satisfactory; however, it overestimated the capability of GHA, particularly its Mechanical Division. When it became awrare of the situation, IDA acted promptly first by increasing the number of tine consultant's workshop staff, then when that did not solve the problem, by sending an audit team to Ghana, and acting on its recommenda- tions (para. 7.02). IDA showed flexibilty in adjusting the project to the rapidly chang- ing conditions in Ghana. The amount of technical assistance was expanded manyfold to meet the needs of GHA and its contractors. IDA also responded affirmatively to several requests for a broader use of spare parts and bitumen when it became evident that these were the only supplies available in the country. The arrangement for advances to Crown Agents for procurement of parts and materials was particularly helpful in moving the project ahead (para. 7.04). Results The assistance under the project mainly went to support the Government's road maintenance program. The project provided vital inputs through parts, materials, equipment and management assistance to both GHA and private ccatractors, to make this program, limited as it vas, feasible. The  - vi - physical output of the road maintenance program during the project's disburse- ment years of 1981-86 are presented in Table 3. Table 4 shows the output of the periodic maintenance program as compared to the targets set forth in the President's Report. While the outputs were substantially less than targeted, they are considered reasonable in the light of the conditions prevailing in Ghana during project execution (para. 4.02). The reevaluated ERR estimated at over 602 was considerably less than the 100Z estimated at appraisal, but is clearly adequate, given the depth of the deterioration of the economy during the economic crisis and drought during the first half of the 1980s (para. 8.02). Better e',aluation of the component for accessories and spare parts is suggested as a subject for possible future research (para. 8.03). Sustainability The economic results of maintenance activities under the project are predicated on short-term time horizons and sustainability should thus be adequate (para. 4.03). GHA remains critically short of experienced civil and mechanical engineers and this problem may have an impact on sustainability of institutional improvements (para. 6.05). Findings and Lessons In retrospect, the project might be regarded as a holding operation to keep GHA and BHC operating until the economy improved and another project could be prepared to meet the need for a sustainable road maintenance program (para. 8.07). The lessons learned from the project have already been applied in formulating the follow-up project. For the GHA component, the progress in improving the central workshops is being expanded into two regions, and steps have been taken to improve the morale of the workshops through food incentives and training. The heavy financial burden on BHC and its contractors has been eased, and other steps taken to improve BHC's performance (para. 8.05). In designing future projects, more emphasis should be placed on executing works and providing funds specifically for that purpose, rather than on a procurement type operation (para. 8.06).  REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-GH PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 Apart from an engineering credit in 1969 for the preparation of road projects, the above project was the third for highways in the Republic of Glhana. The First Highway Project (Credit 438-GH, US$13.0 m, 1973) was for road construction, while the Second Highway Project (Credit 594-GH, US$10.0, and Loan 1182-GH, US$18.0 m, 1975) was for road construcuion and a maintenance program. The Third Highway Project provided for a continuation of the previously -initiated maintenance program which was designed to support road maintenance operations in both the private and public sectors. The project was followed by a multi-component Road Rehabilitation and Maintenance Project (Cred- it 1601-GH, US$40.0 m, 1985) which is well underway. 1.02 By 1979, the network consisted of 25,400 km of classified roads, including 3,700 km of primary roads, 8,600 km of secondary roads and 13,100 km of feeder roads. About 4,700 km were paved and the remainder were gravel or earth surfaced. The First and Second Highway Projects had achieved only mixed results. The Bank's combined audit report for both projects noted that while the physical investments yielded acceptable economic returns, the projects' achievements in meeting their institution-building objectives were rather limited. The problems of the previous projects were mainly political and economic instability which led to frequent changes of government, rampant infla- tion and a severe shortage of foreign exchange. These factors made it almost impossible for the private or the public sectors to complete the projects or maintin the road system as originally planned. 1.03 At the time of independence, Ghana had a well-developed and maintained highway network. However, by the early 1970s the system had deteriorated into a generally poor condition. primarily because of unexpectedly high traffic increases particularly of heavy vehicles, and also because the maintenance program had become inadequate due to lack of equipment and trained staff, and cumbersome funding procedures. The Second Highway Project was designed to remedy this situation by estab- lishing within The Ghana Highway Authority (GHA) an effective mainte- nance organization, and providing equipment to GHA and private domestic contractors to execute the first four-year phase of an eight-year (1975-1983) road maintenance program. Routine maintenance was to be carried out by force account by GRA's regional offices, while periodic maintenance was to be executed by private contractors (75% of regra- velling and 50% of resealing), and the balance by GRA.  - 2 - 1.04 U der the Second Highway Project, GHA purchased US$12.1 mil- lion of maintenance equipment including a two-year supply of spare parts. Government was supposed to provide from its own resources foreign exchange needed to import operating supplies and materials (lubricants, fuel, bitumen, etc.) and spare parts totalling US$3-5 mil- lion per annum. In practice, however, GHA was able to import only US$200,000 in supplies during 1977-79, and was forced to make do with the initial stock of spare parts. By 1979, the situation had reached a point where the maintenance program was stalled because of lack of spare parts and supplies, and a large proportion of GHA's fleet was out of service. 1.05 The project was designed to support the continuation of the Second Highway Project for a period of two years. Execution of the project was the responsibility of the GHA which had overall responsibil- ity for executing the road maintenance program. The Bank for Housing and Construction (BHC) was responsible for relending part of the pro- ceeds of the credit througi sub-loans to contractors and quarry opera- tors, and for an import program to assist contractors and truckers. 1.06 While re-evaluating any project in Ghana in the early 1980s, it is important to note that the Government faced unexpected mac- ro-economic problems during 1980-1984 which aggravated its already worsening economic crisis of the 1970s, and particularly depleted its slender budgetary resources. The following passage from the (draft) President's Report for Ghana's First Structural Adjustment Credit (Report dated November 4, 1986; para 11) is highly relevant: "To add to all its difficulties, Ghana was subjected in the early 1980s to three other problems. First, a prolonged and severe drought created the worst food shortages since Independence. Second, the external terms of trade sharply deteriorated following the increase in petroleum prices, and a softening in prices of Ghana's major exports (cocoa and gold). Third, the sudden return of over one million Ghanaians from Nigeria severely strained the food and employment situation. The cumulative effect of the downward economic spiral and these most recent "shocks" to the system can be seen in the trends in key economic indicators between 1970 and 1982: per capita real income declined by 30%; import volumes fell by a third; real export earnings fell 52%; domestic savings and investment declined from 12 and 14% of GDP, respectively, in 1970 to almost insignificant levels: inflation averaged 44% per annum over the period."  Actions for solving these problems at the macro-level started systemati- cally only from 1984, eepecially with the Economic Recovery Program of 1984-86, which was actively supported by the international community. 1.07 This report is based on information available in Bank files, including supervision and consultants' reports, and interviews with Bank staff formerly involved with the project. II. PROJECT IDENTIFICATION AND APPRAISAL Identification 2.01 In October 1979, a high level Bank Group mission met with representatives of GHA to discuss the problems facing Ghana's road sector. The primary focus was on the effect of the country's economic situation on the ongoing highway projects and possible role that IDA could play in helping to relieve the present constraints. 2.02 Performance under the Second Highway Project had been far below expectations: less than 25% of the maintenance program's overall targets had been achieved and the level of performance had deteriorated rapidly over the last two years. GHA's routine maintenance resources had therefore been spread thinly ove the main road network resulting in insufficient maintenance on practically all sections. Periodic mainte- nance had also slowed down; only 2-10% of the program for resealing and about 50% for gravelling had been accomplished. The maintenance of feeder roads had hardly started. 2.03 The problem stemmed mainly from the shortages of foreign exchange for recurrent operating supplies and materials which were to have been financed by the Government from its own resources. Although the annual sums involved were relatively small, about US$5 m, the effect on equipment use, including equipment of local contractors financed with BHC loans, had been serious. As regards local cost financing of the maintenance program, GHA informed the October 1979 miscion that this had not been a problem in the past and that it did not anticipate it would be a problem in future. Also, GHA indicated that it had sufficient organizational, staffing and management capacity to make immediate and substantial progress on the maintenance program, if only the present foreign exchange constraint for recurrent expenditures were resolved. As events turned out, GHA was wron& on both counts; it did not foresee the acute shortage of local funds which developed and did not anticipate that its own capacity would deteriorate as well. 2.04 The October 1979 mission decided that IDA should consider, on a crash basis, an emergency project which would alleviate the most nressing constraints on the execution of the Second Highway Project. The mission concluded that it was obvious that a solution had to be found to these immediate problems before serious consideration could be  - 4 - given to the then-proposed third highway project and the proposed feeder road project. 2.05 An IDA highway mission in November 1979 discussed a detailed plan of action put forward by GRA. The mission noted that possible IDA assistance to the road sector to help relieve present constraints, which were imposed largely as a result of the country's macroeconomic situa- tion, could not be treated in isolation of the broader dialogue needed with the Ghanaian Government on the policies and programs to put the economy back on track. Appraisal 2.06 The project was appraised in November/December 1979 by a four-man mission which consisted of two highway staff (one economist and a consultant highway engineer) and two IDF staff. The mission was instructed to identify and appraise an interim project directed at overcoming the shortcomings being experienced in the implementation of the Second Project. 2.07 In the Issues Paper dated January 14, 1980, the mission proposed an emergency project aimed at relieving the most pressing constraints in the highway sub-sector. It involved a relatively modest infusion of foreign exchange into various priority activities including GHA's maintenance program, private trucking operations and the support- ing contracting industry. The mission proposed to limit the operation to the highway sub-sector because established working relationships with GRA and BHC would allow for rapid project preparation and implementa- tion, as well as disbursements. The foreign exchange cost of the project was estimated at US$20 m. 2.08 Important issues raised were: (a) IDA should finance recur- rent costs of imports normally financed by budgetary allocation, which could not be met under present economic conditions; (b) similarly, IDA should finance the working capital needs of contractors and quarry operators through BHC sub-loans; (c) the Government should finance the foreign exchange for a three-year supply of fuel and bitumen, and provide sufficient local funds for works by contract and force account; and (d) Government would accept the foreign exchange risk for the full line of credit, as under the Second Highway Project. 2.09 Other issues included (a) interest rates to be charged by BHC for onlending; (b) repayment time by BHC; (c) BHC's arrearages which, as a result of weak financial management, posed a major problem; (d) ar- rangements for technical assistance to BHC and to deal with institution- al weaknesses; and (e) arrangements to consolidate BHC's scattered offices which contributed to a ack of overall administrative coordina- tion. A Board Presentation in late April 1980 was proposed. 2.10 At the Decision Meeting held on January 17-18, 1980, Ghana's economic problems were reviewed in the context of justifying the pro- ject. It was noted that poor road conditions due to a lack of  - 5 - maintenance, coupled with insufficient transport capacity, had severely constrained mobility of foodstuffs and agricultural inputs, aggravating the shortages of food and other essential commodities throughout the country. A new Government had already declared its intention to embark on a two-year program of rehabilitating the existing infrastructure, particularly roads, and improving the maintenance of the existing capacity as a cornerstone of its short-term development strategy. The Government had also entered into a dialogue with the IMF and the Bank Group about an economic stabilization program which might attract balance of payments support from both institutions. 2.11 The meeting noted that the proposed credit would provide for the continuation of the Second Highway Project, but that a new component had been introduced into the proposed Third Highway Project -- assis- tance to the trucking industry. The meeting agreed to the project components as proposed, but that as lack of bitumen had been an impor- tant obstacle to carrying out the maintenance program under the Second Highway Project, it included US$1.0 m in the proposed credit to cover some bitumen plus US$4.0 m for locally procured imports. The amount of the credit was thus raised to US$25 m. 2.12 The meeting further decided that (a) the number of contractors eligible for sub-loans should be limited to those already carrying out road works for GHA; (b) that selling prices for spare parts and lubri- cants should be marked-up to a level to a' 'oid a wide margin between their economic cost and black market prices; and (c) funding for sup- plies for contractors and truckers should be made available to trucking companies rather than to BHC. 2.13 The meeting approved a combination of procurement arrangements for spare parts (e.g., ICB, local competitive bidding, competitive direct purchase) depending on the typeF of goods involved. It agreed that a procurement expert would be engaged to assist BHC in project related procurement. The meeting also agreed that (a) Government should bear the foreign exchange risk in the sub-loans for BHC, in return for which the contractor would pay a 10% annual premium to Government; and (b) as a condition of disbursement to BHC, it should be required to reduce its arrears. 2.14 The meeting accepted the appraisal mission's processing schedule and agreed that in lieu of a Staff Appraisal Report the Presi- dent's Report should be expanded to permit coverage of all the issues involved. In a memorandum dated January 31, 1980, CPS rexistered a dissent to eliminating the Appraisal Report on the grounds that the President's Report was an inadequate vehicle for bringing out all the issues involved. On February 15, senior management approved the use of a President's Report only. 2.15 The memorandum dated February 25, 1980, circulating the Yellow Cover Report noted two outstanding issues: (a) the appropriate level of the proposed mark-up for supplies purchased through the Special Import Facility (SIF) to prevent misallocation or reselling of the imported  goods; and (b) advance technical assistance to assist BHC in procurement under the SIF. 2.16 A follow-up mission to Ghana just before negotiations, report- ed that (a) the Government was having difficulty in accepting the budget figures fo;0 periodic maintenance as proposed by IDA because of budgeting constraints; (b) the Government preferred that sub-borrowers rather than the Government take the foreign exchange risk; (c) the proposed mark-up on spare parts would not be needed as the Government had just levied taxes and duties on CIF values that raised the market prices to reflect the real values of the spares; and (d) GHA had requested that an expert on equipment maintenance be included in the project. 2.17 Senior management raised a number of questions on the Loan Committee documents which were responded to in a memorandum dated March 24. The most important were those related to BHC. Management noted that as BHC seemed a weak institution, why not channel spare parts, etc., to the private sector through commercial banks rather than through BHC. The reply pointed out that the Government was anxious to strengthen BHC, and that BHC would be assisted by its subsidiary, Plant Pool, which specialized in equipment buying and handling. Also, commer- cial banks lacked expertise in the contracting industry. 2.18 Management said that the Association should tigbten up the proposed arrangement to reduce BHC's arrears; the response noted that BHC would be asked to prepare an arrears collection Drogram satisfactory to IDA by December 31, 1980, and to achieve within a time period accept- able to IDA, a reduction in its exposure rate to below 30%. Management asked that the funding mechanism of recurrent road maintenance expendi- tures be tightened up. The reply noted that while local cost financing had not been a problem in the past, the situation was becoming more difficult as Government measures to cut budgeting expenditures, as advocated by the IMF and the Bank Group, took hold. There was further discussion on setting the final prices of spare parts for the private sector, the potential risks of diversion of spares, and the steps to be taken to prevent spares from reaching the black market. 2.19 Negotiations for the credit took place in London on Ap- ril 3-4, 1980. The Government agreed to all the terms and conditions in the proposed credit documents with the exception of (a) the mark-up under the SIF which it wanted increased to reduce the price differential between the c.i.f. cost and the final end-user price; and (b) the terms of the sub-loans in which the Government preferred to have the sub-borrowers bear the full foreign exchange risk. The Association accepted the Government's points. Unfortunately, the decision as regards the second condition created serious financial hardship for local contractors and BHC (paras 3.24-3.26). 2.20 The Executive Directors raised a number of questions about the project prior to Board approval. They included an inquiry as to the prospects of Ghana's macro-economic performance to obviate the need for this type of operation in the future. In reply, it was mentioned that  -7- the new Government had inherited a difficult and fragile situation and it might need time to come to grips with the problem. Another asked that as the project would bail out the Second Highway Project, what would happen next? -- that there seemed to be a built-;n need for foreign exchange to get road maintenance going but what could Ghana do to be more self-reliant? The reply pointed out that Ghana was already applying labor-intensive maintenance to the extent possible but this could not replace equipment-intensive operations. The required inputs such as spare parts and petroleum products could not be produced in Ghana, and while the Government was looking into the possibility of improving export earnings, Ghana would continue to need further external assistance. To the question whether the Bank should have provided technical assistance earlier to BHC, the reply was "yes, in retrospect." 2.21 The credit was approved on May 27, 1980 and signed on Au- gust 27, 1980. It became effective on November 4, 1980. The project was expected to be completed by December 31, 1982. Project Objectives and Description 2.22 The project aimed at relieving, on an emergency basis, the most pressing constraints affecting road maintenance and trucking operations. The project permitted the importation of urgently needed spare parts, equipment, tools, tires, bitumen and lubricants. The project similarly provided through BHC, spare parts to the private trucking industry to repair vehicles in order to increase capacity. In addition, the project was to strengthen BHC through further technical assistance and ensure proper and timely execution of the project. 2.23 The project consisted of implementing GHA's road maintenance program during 1981 and 1982, and increasing the capacity of the domes- tic trucking industry by about 75 million vehicle kilometers. The maintenance program included performing effective routine maintenance on all public roads (25,400 km); resealing about 1,350 km; resurfacing about 250 km; and regravelling about 2,600 km of main roads and about 1,800 km of feeder roads. To carry out the project, the credit financed the following components: (a) Spare Parts, Tires ane Lubricants for GHA: the backlog needs and the 1981-82 requirements for GRA road maintenance equip- ment; (b) Bitumen for Resealing and Resurfacing: a two-year bitumen supply for resealing and resurfacing operations based on GHA's periodic maintenance program; (c) Generator for GHA's Training Center: two three-phase 125 RW generators, including a year's supply of spare parts at the Training Center; (d) Subloans to Private Domestic Contractors and Quarry Operators; sub-loans to be extended by BHC to enable procurement of  - 8 - equipment and related spare parts for (i) about 16 contractors who are executing GRA road maintenance contracts, but whose operations have been disrupted because part of their equipment requires replacement; and (ii) about four quarry operators which are supplying materials for the road maintenance program and similarly need to replace unserviceable equipment; (e) Special Import Facility (SIF) for Spare Parts for Contractors and Truckers: spare parts, tires, tools and lubricants for (i) about 45 contractors executing road maintenance works for GHA; and (ii) about 200 small private trucking firms engaged in agricultural transport; and (f) Technical Assistance: about ten man-months of technical assistance to strengthen the management and operations of BHC, to improve the operational capacity of private domestic contractors, to assist in the implementation of the SIF, and to strengthen the opeiations of tli& GHA's central workshop. i 2.24 GHA had overall responsibility for executing the road mainte- nance program, while BHC was responsible for sub-loans to contractors, the SIF and the technical assistance component except for 12 m-m of consulting services for GHA. Total project costs were estimated at US$38.6 m excluding duties and taxes of about US$8.6 m. The foreign exchange component estimated at US$25.0 m (of which US$14 m was for GHA and US$11 m for BHC) represented about 65% of total project cost net of tax. The local cost estimate was US$13.6 m equivalent net of tax; it largely comprised handling costs, trader markups and fees for BHC, Plant Pool Ltd, and the Government. 2.25 The President's Report stated that GHA was "considered a reasonably efficient organization," an over-optimistic assessment as events turned out. With the problem of imported supplies resolved, it was expected that GHA would be able to increase its maintenance output quickly to meet the most urgent needs of the road sector. As regards BHC, the Report acknowledged that BHC's performance had been uneven under the Second Highway Project, and that its financial management had been deficient. III. PROJECT IMPLEMENTATION Early Progress 3.01 Project execution got off to an early start. Within a month of board approval, the Association sent a supervision mission to Ghana to assist GHA in setting up the arrangements for the procurement of proprietary and non-proprietary spare parts, tires, batteries, lubri- cants and bitumen. The mission found that no detailed data were avail- able regarding GRA's immediate needs for spare parts and lubricants. A list of spare parts needed was to be prepared by GHA, taking into  - 9 - account the manufacturer's recommendations and workshop *.ecords; the mission considered that this was a satisfactory arrangement. 3.02 The mission noted that the 1980/81 budget was being debated in Parliament at the time of its visit "within an austerity framework." Despite the follow-up cable of June 17, 1980 to the Ministry of Finance (MOP), and frequent efforts on the part of IDA thereafter, the project was to be severely handicapped throughout its execution by (aj reduced budgetary allocations for mcintenance below the amounts called for under the supplemental letter to the credit agreement; (b) further reductions in the annual budgets after specific amounts were established; and (c) failure to release even the reduced amounts on a timely basis. 3.03 The mission assisted GRA in drafting terms of reference for the advisor to GRA's workshops, who was provided by the same firm which had been the maintenance consultant under the Second Project. The mission also assisted BEC Ir. preparing terms of reference for an advisor to domestic contractors; BHC later contracted with a consulting firm to provide this advisor, as well as a procurement expert, to oversee the SIF. In the meantime, headquarters was assisting BEC in reaching agreement with an Indian development bank to provide institutional support and financial training for its staff. 3.04 Even though only about 16 firms were expected to be assisted (para 2.23(d)), by November 1980 GHA and BEC had jointly selected 20 contracting firms, which were mainly owner-operated, to be considered for sub-loans. They also identified the equipment to be ordered and proceeded with the procurement under the project. Lists of parts, supplies and equipment were approved by the Association, and agreed-on procurement procedures were followed by the executing agencies. Because of Ghana's economic problems, many suppliers requested irrev',cable letters of credit. Some .lso asked that letters of credit be covered by unqualified agreements to reimburse (A/Rs), and a few refused to ship unless paid 100% in advance, rather than 80% on shipment and 20% an delivery as provided for in their contracts. While Government always had the option to use either qualified or unqualified A/Rs covering letters of credit, and BHC in particular was urged to consider using one of these procedures, Government elected not to use either procedure. In addition, both GRA and BHC sometimes failed to submit the proper docu- mentation to IDA with their disbursement requests. These problems caused considerable delays in the delivery of some orders. Progress up to 1982 3.05 By the end of 1982, when the two-year project was scheduled to be completed, only about 60% of the credit had been disbursed. Delivery of the first tranche of spare parts, supplies and bitumen to GHA was about completed, and most BHC-supported contractors had received their equipment. However, serious difficulties in carrying out road mainte- nance had arisen because of insufficient budgetary funds, a fuel short- age, and poor morale of GHA's workforce. GRA had gradually lost some of its senior staff because of better opportunities elsewhere, and those  - 10 - that remained were preoccupied with other problems. Although GHA's head office management was doing its best under these difficult circum- stances, absenteeism in the shops and field had reached alarming propor- tions because of low pay, curfews, increasing difficulty in finding food at an affordable price, lack of public transportation, and the general deterioration of the economy. 3.06 While GHA continued to carry out manual maintenance opera- tions, its equipment-intensive operations were at a low level for the reasons stated above. The standard of work was poor because of the lack of proper supervision on the part of GHA's regional and divisional staff, and IDA reiterated the need for more technical assistance in the form of experts skilled in equipment usage and work layout. While some progress had been made by GHA and its consultants in repairing equipment at its ce.etral workshop with spare parts delivered over the past year, the backlog of sidelined equipment grew larger. Despite some input by the workshop's consultants, the regional shops were in such poor condi- tion, and so inadequately staffed that they were unable to carry out repair work or even maintain equipment that was repaired. The overall output of GRA's mechanical division was low indeed, and it greatly contributed to GHA's poor performance on periodic maintenance. 3.07 Contractors were performing somewhat better than GHA depart- mental forces, but they too were handicapped by deteriorating economic conditions, and a lack of spare parts, supplies, and fuel. The contrac- tors under both the Second and Third Highway Projects were small entre- preneurs with little or no managerial or contracting experience. Their small equipment holdings consisted of a mix of a few old and some new machines. Contractors were subject to a complete work stoppage if a grader or a loader broke down or to an imbalance in operations if one out of two or three trucks was sidelined. 3.08 In view of the problems which had emerged, several changes were made in the technical assistance program in 1981. The needs in the workshops were far beyond that provided for under the project (one adviser for 12 months). The team was strengthened at the suggestion of IDA, by the addition of two mechanics and later by two road maintenance foremen. Also, at BHC's suggestion, the contractors' advisory position originally placed under BHC, was transferred to GHA which had a better understanding of contractors' needs. A consultant was selected to provide a range of serviLes including assistance to contractors and quarry operators in the field, and formal training through seminars in all aspects of contracting. 3.09 In mid-1981, the Government removed the responsibility for feeder roads from GHA to the Ministry of Youth and Rural Development, dismissed GHA's board and placed it under the Ministry of Works. On December 31, 1981, following a coup, a new government took office and GHA was placed under a new Ministry of Roads and Highways (MRH) along with the Department of Feeder Roads (DFR). The new government placed high priority on maintenance of the road system, and project execution eventually benefitted from the efforts of the new Secretary of Roads and  - 11 - Highways to deal with the problems facing GHA. While the turnaround was slow because of the many difficulties facing the new administration, decisions were made that led to gradual improvements in GHA's operations over the remaining three year period of project execution. 3.10 As noted in para 3.07, private contractors, financed under the BHC component for sub-loans, had performed somewhat better than GHA; however, progress of work and disbursement of the component have been slower than expected. Major contributing factors have been administra- tive difficulties in GHA, weak performance by some contractors, and in particular, payment delays by the Government. However, cooperation between GHA ano BHC has recently improved and steps are being taken to assist performing contractors. A policy of seizing the equipment of contractors who were not performing satisfactorily, or who were not repaying their loans to BHC had been implemented at the urging of IDA, with a view to redistributing the equipment to contractors who were performing. 3.11 As regards sub-loans for quarry operators, BHC had proposed to finance under this category mainly spare parts for existing quarries, instead of new equipment as provided for under the Credit Agreement. Given the need for rehabilitation of existing quarries, IDA agreed. Up to the end of 1982, it had approved only one sub-project and rejected one unviable proposal. Since a shortage of crushed stone was one reason for slow progress of road maintenance work, BHC was requested to accel- erate the utilization of this component. Three more sub-projects were in an advanced stage of preparation, but commitments continued slowly since many quarry companies were not creditworthy. 3.12 Under the SIF, spare parts, tires, tools and lubricants were being imported by local trading companies and sold to contractors and truck operators on a cash basis. The utilization of the SIF was slow at first but gradually picked up. Delays were caused by the almost total breakdown of the Ghanaian economy, including a serious lack of supervi- sory personnel in institutions like BHC, inefficiency of Government rading corporations, and lack of incentives for private trading houses tG sell at official retail prices. 3.13 Under the consultant services component, the contract of the procurement adviser, who assisted BHC in the implementation of the SIF, terminated in 1981. As previously noted, the position of the contrac- tors' adviser was transferred to GHA. 3.14 The agreement between BHC and its consultant provided for 72 m-m advisory services over two years at a cost of US$455,000. During the first year, a team of six experts spent 21.5 months with BHC and 11 m-m of training were provided to four BHC officers deputed to the consultant's headquarters at a cost of about US$133,000. The program was temporarily halted at the Association's request in April 1982, because the political and economic situation in Ghana had deteriorated to the point that working conditions had become unacceptable to the consultant, and BHC was no longer able to effectively benefit from the  - 12 - assistance, BHC was satisfied with the services provided and submitted a proposal for its continuation. Since many BHC staff members had left the country during the past two years, it was necessary to ensure that suitable new staff be recruited to derive maximum benefit from a contit.- uation of the aesistance program. 3.15 BHC's arrears continued to be a matter of concern. According to the Project Agreement, loans outstanding affected by arrears of more than three months were to be reduced to a level not exceeding 30%. In spite of efforts made by the Association and intensive assistance by BBC's consiltants, an accurate and complete picture of overall arrears was still not available by the end of 1982. While defaulting industrial and mortgage loans have apparently been Lept within reasonable limits, loans to contractors financed under the Second Highway Project were most &'eriously affected by arrears. 3.16 BEC explained the above situation by the slow payments to contractors and the lack of spare parts and other materials which did not allow the contractors to perform. Importation of such materials was being financed under the SIF, but the lead time for the arrival of goods has been long, goods were sold on a first-come, first-serve basis, and some contractors were unable to benefit from the SIF because they were not paid in time by the Government for ongoing road maintenance work. The repayment record of contractors was generally bad, and BHC's super- vision capacity proved inadequate. BHC expected that improved coopera- tion with GHA and the recently initiated seizure policy (see para 3.10) would improve contractor's repayment performance, although slow Govern- ment payments to contractors would still present an impediment. Progress from 1983 to 1985 3.17 Following repeated complaints by IDA to the Government con- cerning the slow progress in the repair of maintenance equipment and the poor management of GHA's Mechanical Division, the Government informed IDA on October 18, 1983, that it had decided to have its workshop consultants, who had been acting in an advisory role, take over the management of the Mechanical Division including the central workshop and stores. The Chief Engineer (mechanical), his assistant, and the manager in charge of the central workshop were dismissed. 3.18 IDA sent out an audit team which found major problems in the operation of the Mechanical Division and recommended a series of steps for improvements. The responsibility at each workshop ie-Tel needed to be defined and then provided with appropriate tools, equipment and facilities. Other tasks included installing a preventative maintenance program, organizing a fleet-wide lubrication system, improving the inventory control system, retraining stores personnel, improving the workshop job costing system, and carrying out longer-term studies of parts and equipment needs. 3.19 To effect these improvements, it was evident that all opera- tions of the Mechanical Division required a thorough overhaul, a task  - 13 - far beyond the capacity of the present consulting team which was concen- trating on equipment repair and field maintenance operations. The Government decided to replace the consultant with another firm, after inviting proposals from shortlisted firms, to manage the shops under terms of reference agreed with IDA. The new consultants commenced their duties in June 1984, and were closely supervised from time to time by an IDA mechanical engineer. Within a year, the consultants brought about a substantial improvement in the operation of the central workshop but barely started on improving the regional shops. The main task was to establish levels of work to be carried out in the field to prevent the regional and district shops from tackllng work which they were not competent to do. The allocation for technical assistance to GHA was raised to US$2.4 m, as compared to the US$120,000 originally allocated. 3.20 In January 1984, a disastrous fire at the Central Workshop destroyed a warehouse which contained most of the spare parts purchased under the project for GHA's heavy equipment, at a loss estimated at about US$3.5 m. The shortage of water because of drought conditions and the broken down communications system resulted in a total loss. The warehouse was uninsured. Subsequently, the Government agreed to change its policy of self-insurance, and to take out foreign reinsurance for imported equipment and parts. The loss of the spare parts inventory was a serious blow to GHA. To conserve funds, orders were restricted to specific needs rather than to building up a slow-moving inventory. To facilitate the placement and delivery of small orders, IDA had suggested earlier to GHA that it set up an advance of US$210,000 with procurement agents, which was replenished from time to time. These arrangements were closely monitored by IDA, and were generally successful in expedit- ing the delivery of urgently needed parts. 3.21 The Ministry of Finance was still unable to provide the budgeted maintenance funds on a timely basis. The Government had reduced GHA's 1984 budget, but even so, quarterly allocations were disbursed months late. The result was that work of domestic contractors on maintenance was seriously impeded. This problem was worsened by the failure of the Government to adjust the unit rates of the contractors to reflect substantial devaluations over the past years, and the rising, cost of imported supplies needed by the industry. The delay also adversely affected GHA's effort to place more reliance on the domestic contracting industry in carrying out periodic maintenance. 3.22 While improvements were gradually taking place in the central workshop, the general economic situation in the country continued to worsen which greatly contributed to the lack of morale and low produc- tivity of GHA's labor force. By 1985, 65% of the engineering positions in GHA were vacant, and it had a surplus of unskilled labor which it could not dismiss. Only about 20-25% of actual maintenance needs of the road system had been met over the past decade. As a result, road conditions continued to deteriorate, and road transport costs were high all over the country.  - 14 - 3.23 Nevertheless, GRA had taken certain measures to improve its performance. First, as already noted, it had placed a consultant in charge of the problem-ridden central workshop, a decision whiczz had already improved performance significantly. Second, GHA, in consulta- tion with IDA, had commissioned a manpower study of the organization. Third, GHA had set up a Mobile Maintenance Unit (MMU), under Japanese aid, which had produced impressive results in pavement rehabilitation and resealing works. Fourth, GRA had introduced "single-man contrac- tors" (SMCs) with responsibility for roadside maintenance of about five km stretches, and placed a maintenance contract with a timber company. Fifth, with the help of WFP, a "food for work" program was introduced to provide incentive to workers; the results have been encouraging. The foregoing arrangements were incorporated in the Road Rehabilitation and Maintenance Project (Fourth Highway Project) which was approved on June h, 1985. 3.24 The Fourth Highway Project also addressed the mounting prob- lems facing GHA's contractors and BHC. While, as previously noted, the contractors had generally performed much better than GHA, they faced major problems due to delay in contractual payments, delay in revising contract rates after major devaluations and consequent price increases, and difficulty in getting imported spare parts and fuel. During negoti- ations for the Fourth Project, the Government agreed tBiat contractors' unit rates under existing road maintenance or rehabilitation contracts would be adjusted by December 31, 1985 to reflect devaluations and price increases since January 1, 1983, and thereafter, from January 1, 1986, automatic adjustments would be made to reflect changes in exchange rates or prices in accordance with a formula acceptable to the Association. The Government also agreed to assume the foreign exchange risk during the time lapsed between collection from sub-borrowers by BHC and actual repayment to Government. 3.25 In addition, as a condition of the Fourth Project, the Govern- ment established in 1985 a Road Fund, financed from special road-user taxes on petroleum fuel, for paying the road maintenance contractors. This arrangement has freed GHA, DFR and contractors from dependence on the uncertainty of budget allocations for road maintenance programming and payments, particularly in the case of periodic maintenance; it also helped GHA to pay long-standing arrears due to contractors. Although the present Road Fund level is inadequate, the sense of stability and reliability brought by the Fund, the payment of arrears, the prompt revision of unit rates being made as a condition of the Fourth Highway Credit, the availability of equipment under the Third and Fourth Pro- jects, and the recent (1986) freer availability of spares and supplies in Ghana, have together boosted contractor confidence and capacity. IDA is currently encouraging Government to considerably increase the size of the Road Fund. The training and equipment given to the contractors under the Third and Fourth Highway Projects are playing a key role in increasing contractor capacity. 3.26 BHC's performance under the Third Highway Project, although slightly better than under the Second Highway Project, remained at best,  - 15 - marginal. BHC continued to suffer from institutional and financial problems. On the institutional side, procedures remained weak and the institution was understaffed; a situation particularly obvious in the accounting department which had been unable to produce timely and reliable accounting data. Further, appropriate policy statements and operating procedures were required based partly upon review and updating of internal documents. On the financial side, BHC's continued weak financial management and high portfolio arrears, coupled with the effects of the series of devaluations of the cedi, which had signif4.- cantly eroded the dollar equivalent of BHC's net worth, resulted in a deterioratiorn of its term debt/equity ratio. However, BHC's board had approved an increase in the authorized share capital and other financial measures (including an increase in its term debt/equity ratio to 10:1) which improved BHCts balance sheet significantly. 3.27 Notwithstanding the problems noted above, a reorganization of BHC and the recruitment of 12 new professionals in 1984 had brought about some improvement. The Government and BHC, with IDA assistance, prepared in the course of negotiating the Fourth Highway Project, a detailed action program which included measures designed to: (a) strengthen the financial condition of BHC; (b) revamp BHC's policy statement, organizational structure and operational procedures, includ- ing staffing and training; (c) improve BBC's project appraisal and supervision activities; (d) strengthen BHC's accounting and management information systems and internal controls; (e) improve BEC's loan recovery performance, including agreed collection targets; and (f) strengthen BHC's commercial banking operations. Implementation Schedule 3.28 The project suffered a three-year delay because of the prob- lems which overtook the Ghanaian economy and the executing agencies. While far less maintenance was carried out than originally aniticipated, the project enabled GHA and BHC to keep going during extremely difficult times. The Closing Date was extended twice from June 30, 1983 to June 30, 1986. Project Costs 3.29 Because of the enormous inflation which too' place in Ghana over the last several years, cost comparison of maintenance operations with figures at the time of appraisal would be meaningless. Careful procurement held down foreign costs while local costs of work were probably understated in comparison to real costs because local contract prices were belatedly adjusted. Table 1 shows the appraisal compared to actual cost. Disbursements 3.30 By the end of 1982, the project completion date, only about half the credit had been disbursed (Table 2). Disbursements continued slowly over the next 3 1/2 years because of the problems previously  - 16 - discussed. By February 1987, about US$24.9 m had been disbursed; approx- imately US$100,000 will be cancelled. IV. ECONOMIC REEVALUATION 4.01 The project provided urgently needed assiscance to Ghana during the worst years of the economic crisis and droug'at. One of the most critical constraints contributing to Ghana's economic crisis in the early 1980s was the poor state of the road network, which impeded the movement of export crops to the ports and food crops to the markets. Poor roads aggravated starvation and hardship during the drought and famine years of 1982/83, as imported food under aid programs or food surpluses in some areas could not be moved to the famine-affected areas. Similarly, lack of spares and access- .ies for vehicles left about 70% of the vehicle fleet sidelined, aggravatlng transport bottlenecks. Assis- tance provided under the Third Highway Project kept the minimal trans- port capacity operating in these difficult years, which was of the utmost importance to Ghana's economic survival. 4.02 The assistance under the project mainly went to support the Government's road maintenance program. The project provided vital Inputs through parts, materials, equipment and management assistance to both GHA and private contractors, to make this program, limited as it was, feasible. The physical output of the road maintenance program during the project's disbursement years of 1981-86 are presented in Table 3. Table 4 shows the output of the periodic maintenance program as compared to the targets set forth in the President's Report. While the outputs were substantially less than targeted, they are considered reasonable in the light of the conditions prevailing in Ghana during project execution. 4.03 It is difficult to separate specific project benefits from the overall benefits associated with the entire maintenance program which was undertaken with many cost elements in addition to the project costs. It is also difficult to estimate benefits from particular road mainte- nance activities, as the works were spread over the entire road system. For these reasons, the President's Report (which served as the appraisal report) had estimated economic returns from road maintenance on a global basis, on assumptions of typical road conditions, vehicle operating costs and road maintenance costs in Ghana. A similar approach is taken in this reevaluation based on the results of a recent detailed analysis of road maintenance costs and benefits presented in the SAR for the Fourth Highway Project (Report No. 5479-GH). For the 1986 road mainte- nance program, the report estimates an ERR of 73%, assuming a typical mix of road conditions, treffic levels, vehicle operating costs and the costs of different types of road works (regravelling, resealing, etc.). All costs and benefits are expressed in terms of constant 1985 dol- lar-equivalent prices. Since foreign components dominate road mainte- nance costs and vehicle operating costs in Ghana (over 75%) and sirce the value of the cedi during 1981-86 dropped drastically with a  - 17 - devaluation of 5000%, the analysis was mostly done in dollar terms. Detailed assumptions are presented in Annex 4 of the above SAR. 4.04 The above ERR is less than the appraisal estimate of 100% since it was based on more conservative assumptions than used origin- ally. However, it a.sumed that all project imports for road maintenance were productively employed for this purpose. As a result of US$3.5 m worth of imports lost in the fire (para 3.20), representing a zero rate of return for these resources, the weighted average estimated ERR from the road maintenance component was reduced to just over 60%. 4.05 Benefits from providing accessories sid spares for the truck- ing fleet could not be quantified. However, considering Bank documenta- tion on the acute scarcity of trucking capacity In moving cocoa and other exports during this period, this project component has certainly provided a vital support to Ghana's exports and farm production. It would be a useful area for research to come up with a methodology to better assess needs and benefits for this type of component. V. CONSULTANTS' PERFORMANCE 5.01 The performance of the various consultants on the project was mixed. The BHC procurement advisor for the SIF performed satisfactori- ly, but the first contractor's advisor supplied by the same firm left Ghana without notice in the middle of his assignment. The decision to transfer this position from BHC to GHA was sound as the replacement staff were located in GHA's head office alongside GRA's Road Maintenance Divisicni. The expansion of the consultants' role to provide not only practical advice to contractors and quarry operators in the field, but to give formal instruction in managing, financing, estimating, etc., was most helpful to the small domestic firms which were inexperienced in road building works and contracting procedures. 5.02 Although the management consultants to BHC performed well, their assistance to BHC was limited, due to interruptions resulting from political instability. During the period of their services, the firm provided assistance to the various departments of BHC and to its senior management, both by assigning advisors to BHC offices and also by sending BHC staff to its headquarters in India for in-house training. Further assistance is being rendered by the same firm under the Fourth Project. 5.03 The performance of the first workshop consultant was handi- capped for a number of reasons. The extent of the problems in GHA's workshops was not recognized at the time of appraisal (para 2.25) and the technical assistance originally included in the project was much less than needed. Furthermore, GHA's capacity deteriorated along with the general decline in the economy. Later, the size of the consultant's team was substantially increased, but because of worker absenteeism and a lack of cooperation from GHA's mechanical division, progress was slow  - 18 - and mainly involved the repair of equipment. The consultant's head ofLice should have focussed more attention on the problems which handi- capped their team, and their progress reports which were inadequate. 5.04 Following the preparation of new terms of reference for workshop consultants as a result of the Bank audit, which placed empha- sis on the need to strengthen management of the workshops, the dismissal of senior mechanical staff and the appointment of a new consulting firm with line responsibility, the operation of the central workshop gradual- ly improved, but little progress was made in the regional shops. The improvement of the central workshop is continuing, and being expanded into the regional and divisional shops under the Fourth Highway Project. VI. INSTITUTIONAL PERFORMANCE 6.01 Because of deterioration in the economy partly due to misman- agement and partly due to the worst drought in history, the Government was unable to provide during tLhe period 1980-85 the level of local currency funding for the project which it had agreed to do. Even the reduced budgetary amounts were not provided promptly or in full which slowed departmental maintenance operations and prevextted GHA from paying its contractors on a timely basis. The result was that contractors were forced to slow down or stop work, as they lacked the funds to pay for the limited amount of fuel, parts and supplies available in the country. 6.02 The economic situation deteriorated to a point where the Government was frequently unable to finance the country's regular fuel, lubricant and bitumen imports which further handicapped road mainte- nance. While the project provided spare parts, lubricants and bitumen for GHA and its contractors, there was no provision in the project for the import of fuel. Fuel shortages were caused not only by the lack of fuel but by the breakdown of the fuel tanker fleet which distributed fuel up-country. The contractors were often forced to divert their own trucks to haul fuel. This situation gradually improved in 1985 as the economy began to recover. 6.03 During most of the period of project execution, the Ministry of Finance did not keep IDA informed of its budgetary problems, and in fact, rarely responded to communications directed to it. On the other hand, the MRH was responsive to problems brought to its attention and closely cooperated with IDA in endeavoring to improve project execution. 6.04 The removal of feeder roads from GHiA (para 3.09) was a breach of Section 4.03 of the Credit Agreement. However, as GHA was not even maintaining the main road system, the change had no effect on feeder road maintenance. The eventual transfer of DFR to MRH was a sound arrangement as feeder roads are now being given belated attention. The Fourth Highway Project contains a pilot feeder road program to improve feeder roads through the use of force account and contractors who are being trained by an ILO team in labor-based operations.  - 19 - 6.05 GRA's chief executive at the t-me of appraisal left shortly after; his replacement also left within a year. GHA's senior managers are currently few, but are devoted and hardworking. The country's problems made it impossible for GHA to fill staff vacancies, and to provide a living wage to its workers. The food incentive program recently started under the Fourth Highway Project has eased the problem somewhat, but GHA still remains critically short of experienced civil and mechanical engineers. 6.06 GHA seriously overestimated the capability of its Mechanical Division, which declined even further during project execution. Had this problem been recognized earlier, remedial action could have been taken at the beginning of the project. GHA is also faulted for noj. being able to prepare its own spare parts lists (para 3.01) and for over-relying on manufacturers' lists which tended to overemphasize expensive and slow-moving parts. The basis for improvement under the Fourth Highway Project has been set, but much needs to be done to train Ghanaian engineers and managers in GHA. 6.07 GHA overestimated its ability to carry out periodic mainte- nance but eventually recognized that it should place more relia'nce on contractors, and adjusted its work program accordingly to give contrac- tors a larger role. While a few contractors gave up under the financial constraints that they faced, the majority did the best they could under extremely difficult circumstances and managed to continue working to the extent possible. The Bank-financed equipment was spread too thinly among too many contractors (20 rather than the 16 firms called for in the President's Report); better results would probably have been achieved by restricting distribution to fewer firms. 6.08 BHC's performance, which had been rated as uneven under the Second Highway Project (para 2.25), worsened during the execution of the Third Highway Project despite the assistance of consultants, mainly because of economic events beyond its control. However, BHC's senior management generally did the best possible under most difficult condi- tions. Both GHA and BHC suffered staff losses which handicapped their operations, and prevented much progress in institution building. 6.09 While relations between GRA and BHC were not always harmoni- ous, overall they worked reasonably well together. They twice reallo- cated credit proceedii between their components where they were most urgently needed. Strains between two semi-autonomous organizations with different objectives were perhaps inevitable given the problems which arose during project execution. GHA and BHC cooperated closely with the Association in executing the project, and IDA encouraged the two enti- ties to meet frequently to coordinate their operations.  - 20 - VII. ASSOCIATION'S PERFORMANCE 7.01 The project was placed on the problem project list in the fall of 1982. It was removed, prematurely as it turned out, in the fall of 1983 when it appeared that GRA and BHC had taken certain corrective steps to give cause for expecting improved performance. The project was reviewed periodically thereafter but not considered a problem project again because the Government had adopted positive measures towards solving the main problems facing the project. It was recognized that most of them stemmed from the serious economic situation, and substan- tial and lasting improvement could not be exnected until the economy showed sig.s of reviving. 7.02 IDA overestimated the capability of GHA's Mechanical Division, whose collapse brought equipment repair to a virtual standstill. While the appraisal mission was experienced, the engineer, who was a consul- tant, had no previous experience in Ghana. IDA, when it became aware of the problems, acted promptly first by increasing the number of the consultant's workshop staff, then when that did not solve the problem, by sending an audit team to Ghana and acting on its recommendations. 7.03 IDA's overall supervision of the project was intensive as shown on page iii, and the add4tion of a mechanical engineer to super- vise the workshops was most useful. The supervision of the BBC compo- nent was not nearly as frequent as for the GHA component; however, IDA lid work closely with the consultant advising BHC. A memorandum dated April 22, 1980, explicitly outlined the division of supervision respon- sibility between the Highways and IDF Divisions. 7.04 The Association showed flexibility in adjusting the project to the rapidly changing conditions in Ghana. The amount of technical assistance was exp.ided many fold to meet the needs of GHA and its contractors. IDA also responded affirmatively to several requests for a broader use of spare parts and bitumen when it became evident that these were the only supplies available in the country. Use of spare parts was extended to small truckers outside agricultural transport, and use of bitumen was permitted by GRA contractors on important road construction contracts, The Association also agreed to the purchase of hand tools to enable GHA to continue labor-intensive operations when equipment was not available. The arrangement for advances to the procurement agent (para 3.20) was particularly helpful in moving the project ahead. 7.05 Fuel shortages were anticipated during project preparation. Inclusion of funds for fuel was considered but rejected on the grounds that importing fuel for GRA only would create political problems. This was undoubtedly true and, furthermore, supervision and monitoring of imported fuel supplies would have posed difficult problems. 7.06 As noted in paras 2.22-2.23, the project aimed at relieving on an emergency basis, the most pressing constraints affecting the road sector over the two-year period 1981-82. While Part A of the project  - 21 - description called for routine maintenance on all project roads and periodic maintenance on about 6,000 km of roads, the funding provided only for the importation of goods to enable GRA to resume its mainte- nance program, and services to provide technical assistance to the executing agencies. No credit funds were actually allocated to Part A which was to be carried out with budgetary funds. In retrospect, the above arrangements, which provided only for acquisition of goods and services should have included some funding for implementation of Part A, particularly by contract, and roads to be periodically maintained should have been specifically identified. If more attention had been focussed on identifying specific works to be carried out by GHA, somewhat more maintenance might have been accomplished. VIII. CONCLUSIONS AND RECOMMENDATIONS 8.01 At the time the project was prepared, neither IDA nor the Government foresaw the depth of the economic deterioration, including the acute shortage of foreign exchange, which would take place in Ghana between 1980-84 and the disruption that this would have on the execution of the project. While some warnings such as foreign exchange shortages were evident at the time of appraisal, it was unlikely that anyone could have -redicted the extent of the difficulties which arose. 8.02 The project provided urgently needed assistance to Ghana during the worst years of the economic crisis and drought, and it helped to maintain minimal transport capacity during that difficult period. The estimated ERR of over 60% is substantially less than the estimate of 100% but is considered adequate given the problems which arose during project execution. 8.03 The benefits of providing accessories and spares for the trucking fleet could not be quantified. This type of component would be a useful area for research (para 4.05). 8.04 IDA's overall supervision was intensive; however, supervision coordination by its two administrative entities responsible was not always adequate. It is important that the supervision arrangements made for the Third Highway Project which is to continue under the Fourth Highway Project, be adhered to by both Bank divisions. 8.05 The lessons learned from the project have already been applied in formulating the follow-up project. For the GHA component, the progress in improving the central workshops is being expanded into two regions, and steps have been taken to improve the morale of the work- shops through food incentives and training. The heavy financial burden on BHC and its contractors has been eased, and other steps taken to improve BHC's performance (paras 3.24-3.26).  - 22 - 8.06 In designing future projects, more emphasis should be placed on executing works and providing funds specifically for that purpose, rather than on a procurement type operation. 8.07 ' In retrospect, the project can be regarded as a holding operation to keep GRA and BHC operating until the economy Improved and another project could be prepared to meet the current need for road maintenance.  REPUBLIC OF auuu TIID HIGHWAY (EIEAGENcY N&IWTUNWE) PRO? CRCDIT 1029-CE PROJECT CCNUTIOS REP1015 Final Cost Estimtes (all amounts in USS aillions) Bank Group Contract Data Appraisal Estiatte Contrib. Phys. Disbursed Project Ites Contract Contract Completion (including contingencies) ---- Contract Value --- % CoAp. to Signed Completed 'Estimate) Local Foreign Total Local Foreign T7otat (Forein) Date A. QRA Protect Zlemnnt 1. Spare Parts, Tires, Tools, and Lubricants 5.20 10.15 15.35 5.00 6.60 95 6.S 2. Ditumen 1.80 3.50 S.30 0.n0 2.40 2.4 4.30 100 4.3 3. Supply and lastallation of Generators 0.08 0.18 0.26 0.00 0.06 0.06 0.20 100 0.2 4. Technical Assistance 02/23181 June 1982 June 1984 0.08 0.13 0.21 0.14 0.28 0.42 1.17 100 1.2 06/01184 09/01185 12/31185 - -- -- .07 0.65 0.72 0.66 100 0.6 1016/81 01/01/86 June 1986 -. -- -- -- -- -- 0.59 100 0.6 7.16 13.96 21.12 B. BEtC Project Element 6.44 11.04 17.48 11.48 98 11.5 T7.AL 33.60 25.00 38.60 25.00 99 24.9 Source: ID MPAr Marchl 1987-  - 24 - TABLE 2 REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-GH PROJECT COMPLETION REPORT Actual Schedule of Disbursements ACCUMULATED DISBURSEMENTS (US$' 000) IBRD ACTUAL TOTAL APPRAISAL ACTUAL DISBURSEMENTS AS % OF FISCAL YEAR AND QUARTER DISBURSEMENTS ESTIMATE APPRAISAL ESTIMATES 1981 2nd 0 1,000 3rd 31 5,000 4th 903 9,000 10 1982 1st 2,506 13,000 19 2nd 8,389 17,500 36 3rd 9,390 21,000 45 4th 12,625 23,500 54 1983 1st 13,000 24,500 53 2nd 14,800 25,000 59 3rd 15,100 60 4th 16,500 66 1984 1lt 17,933 72 2nd 18,250 73 3rd 18,702 75 4th 19,269 77 1985 1st 19,720 79 2nd 20,360 81 3rd 21,520 86 4th 21,980 88 1986 1st 22,580 90 2nd 23,370 93 3rd 23,984 96 4tb 24,440 98 1987 1st 24,770 99 2nd 24,880 99 3rd 24,902 99 Closing Date 06/30/86 06/30/83 NOTE: The undisbursed balance of approximately US$-00,000 will be cancelled shortly. WAPTR, March 1987  - 25 - TABLE 3 REPUBLIC OF GHAM THIRD HICHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-Gl PROJECT COMPLETION REPORT Total Output of Road Naintenance Program During Project Period, 1981-86 Total Cost Total Periodic of Morks Ypar Regravelling Resealing Resurfacing Improvesent Naintenance in 19M5 Prices al (lb (Ka) (Kb) lKS) (Kb) (USO) 1-961 573 40 9 22 644 6,636,000 1982 652 62 27 16 757 7,913,000 19l3 778 40 16 37 871 9,291,000 1984 672 90 29 51 842 11,014,000 1985 625 195 73 64 957 15,3t0,000 1996 tJanuJun) 509 36 19 36 600 7,360,000 Total Ka. 3,809 463 173 226 4,671 Total Cost 26,663,000 10,186,000 6,055,000 14,690,000 57,594,000 a/ Basd on 1995 units costs (for contract work), per kn, of: Regravellings $7,000 equivalent Rusealing: $22,000 equivalent Resurfacingq $35,000 equivalent Improvement: $65,000 equivalent NOTEt Annual routie maintenance coverage during the period is estiuated at about 40a of total trunk road network, that is, about 5,600 km per year, and about 30a of feeder roads, that is about 4200 km per yeaw. Annual cost, at an estimated $500 per ka for trunk roads and and $200 per km for feeder roads, is about $3.6 million. WTR 09-Ja-87  - 26 - TABLE 4 REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-GH PROJECT COMPLETION REPORT Output of Periodic Maintenance Program Compared to Targets Regravelling Resealing Resurfacing ----------------------km --------------------- Project Target /a 3800 1350 250 Annual Target 1900 675 125 Total Output lb 3809 463 173 Annual Output 635 77 29 Annual Output as % of Annual Target 33 11 23 /a Para 44 of President's Report |b Table 3 WAPTR March 1987  - 27 - TABLE 5 REPUBLIC OF GHANA THIRD HIGHWAY (EMERGENCY MAINTENANCE) PROJECT CREDIT 1029-GH PROJECT COMPLETION REPORT Value in Constant Prices (1985) of Road Maintenance Output and Project Disbursements during Project Period (1981-86) A. Disbursements /a ('000 dollars) Deflator Disbursements World Bank's MUV Index Value Calendar Year in Current Prices 1985 - 100 in 1985 prices (a) (b) ((a) . (b)l 100 1981 (Jan. Dec.) 8,389 105.2 7,974 1982 6,411 103.8 6,176 1983 3,450 101.0 3,416 1984 2,110 99.3 2,125 1985 3,010 100.0 3,010 1986 (Jan. June) 1,630 113.0 1,442 TOTAL 25,000 24,144 /a Includes US$xxx for spare parts for private truckers. B. Cost of Road Maintenance Program 1. Cost of Periodic Maintenance during 1981-86 in 1985 prices (from Table 4) US$57.6 m equivalent 2. Routine Maintenance (from Table 4) 5