Document of The World Bank Report No. 18352-MAI PROJECT APPRAISAL DOCUMENT ONNA PROPOSED CREDIT IN THE AMOUNT OF SDR 22.2 MILLION (US$30 MILLION EQUIVALENT) TO THE REPUBLIC OF MALAWI FORA ROAD MAINTENANCE AND REHABILITATION PROJECT (ROMARP) MAY 18, 1999 Transport Operations Eastern and Southern Africa Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective January 1, 1999) Currency Unit = Malawi Kwacha MK44.20 = US$I SDR1 = US$1.35 1998 MK32.02 - US$1 1997 MK15.35 US$1 1996 MK15.30 = US$1 1995 MK15.30 US$1 1994 MK7.39 = US$1 1993 MK4.45 US$1 FISCAL YEAR July 1 to June 30 ABBREVIATIONS AND ACRONYMS AfDB - African Development Bank AWP - Annual Work Program CAS - Country Assistance Strategy CEO - Chief Executive Officer CRA - Central Roads Agency CRD - Central Roads Division DCA - Development Credit Agreement DDLGA - Department of District and Local Government Administration (Office of President and Cabinet (OPC)) DflD - Department for International Development (UK) DRIMP - District Road Improvement Program EIA - Environmental Impact Assessment EMA - Environmental Management Act EMU - Environmental Management Unit ERC - Environmental Review Committee ERR - Economic Rate of Return EU - European Union GDP - Gross Domestic Product ICB - International Competitive Bidding ICR - Implementation Completion Report IDA - International Development Association KfW - Kreditanstalt fur Wiederaufbau LACI - Loan Administration Change Initiative LGDP - Local Government Development Project LIL - Learning and Innovation Loan MASAF - Malawi Social Action Fund Project MOF - Ministry of Finance MIP - Malawi Infrastructure Project MOT - Ministry of Transport MOWS - Ministry of Works and Supplies MRRP - Malawi Railway Restructuring Project MRTTP - Malawi Rural Travel and Transport Program MTEF - Medium Term Expenditure Framework NCIC - National Construction Industry Council NCB - National Competitive Bidding NDF - Nordic Development Fund NEC - National Economic Council NRA - National Roads Authority NTC - Northern Transport Corridor Project PCC - Petroleum Control Commission PMR - Project Management Report PHRD - Policy and Human Resources Development PIP - Project Implementation Plan PPF - Project Preparation Facility PSC - Project Steering Committee PTF - Project Task Force PVHO - Plant and Vehicle Hire Organization QCBS - Quality and Cost Based Selection RMI - Road Maintenance Initiative ROMARP - Road Maintenance and Rehabilitation Project ROSAP - Road Safety Project RTOA - Road Transport Operators Association RUC - Road User Charge RTI - Rural Transport Infrastructure RTTP - Rural Travel and Transport Program SADC - Southern Africa Development Community SIP - Sector Investment Program SOE - Statement of Expenditure UNDP - United National Development Program USAID - United States Agency for International Development UDRD - Urban and District Roads Division VOC - Vehicle Operating Cost Vice President Callisto Madavo Country Director Barbara Kafka Sector Manager Yusupha Crookes Team Leader Stephen Brushett CONTENTS A. Project Development Objectives 2 1. Project development objectives and key performance indicators 2 B. Strategic Context 2 1. Sector-related CAS goal supported by the project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 6 C. Project Description Summary 7 1. Project components 7 2. Key policy and institutional reforms supported by the project 9 3. Benefits and target population 9 4. Institutional and implementation arrangements 10 D. Project Rationale 12 1. Project alternatives considered and reasons for rejection 12 2. Major related projects financed by the Bank and/or other development agencies 12 3. Lessons learned and reflected in proposed project design 14 4. Indications of borrower commitment and ownership 15 5. Value added of Bank support in this project 15 E. Summary Project Analyses 16 1. Economic 16 2. Financial 17 3. Technical 18 4. Institutional 18 5. Social 20 6. Environmental assessment 20 7. Participatory approach 21 F. Sustainability and Risks 21 1. Sustainability 21 2. Critical risks 22 3. Possible controversial aspects 23 G. Main Loan Conditions 23 1. Effectiveness conditions 23 2. Other 24 H. Readiness for Implementation 25 I. Compliance with Bank Policies 25 List of Annexes Annex 1. Project Design Summary 26 Annex 2. Detailed Project Description 30 Annex 3. Estimated Project Costs 33 Annex 4. Summary of Economic Analysis 34 Annex 5. Financial Summary 40 Annex 6. Procurement and Disbursement Arrangements 48 Table A: Project Costs by Procurement Arrangements 48 Table B: Thresholds for Procurement Methods and Prior Review 51 Table C: Allocation of Loan Proceeds 52 Annex 7. Environmental Analysis 54 Annex 8. Project Processing Budget and Schedule 58 Annex 9. Documents in Project File 59 Annex 10. Statement of Loans and Credits 61 Annex 11 Statement of IFC's Committed and Disbursement Portfolio 62 Annex 12. Country at a Glance 63 Annex 13. Letter of Road Sector Policy 65 Annex 14 Sector Organization Chart 74 Annex 15 NRA Organization Chart 75 Map: IBRD 29732 Project Appraisal Document Page I Malawi: Road Maintenance and Rehabilitation Project (ROMARP) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Project Appraisal Document Africa Regional office AFC03 Date: May 18, 1999 Task Team Leader/Task Manager: Stephen Brushet Country Manager/Director: Barbara Kafka Sector Manager/Director: Yusupha Crookes Project ID: MW-PE-1666 Sector: Roads/Transport Progrwm Objective Category: Environmentally Sustainable Development Lending Instrument: SIL Program of Targeted Intervention: [ ] Yes [x ] No Project Financing Data [] Loan [x] Credit [] Guarantee ] Other [Specify] For Loans/Credits/Others: Amount (US$m/SDRm): 30.0/22.2 Proposed terms: [x] Multicurrency [] Single currency, specify Grace period (years): 10 [x] Standard Variable [ Fixed [] LIBOR-based Years to maturity: 40 Commitment fee: 0-0.5% (presently waived) Service charge: 0.75% Financing plan (US$m): Source Local Foreign Total Government 2.7 0.0 2.7 IDA 6.0 24.0 30.0 NDF 1.2 5.6 6.8 Total 9.9 29.6 39.5 Borrower: Republic of Malawi Guarantor: N/A Responsible agency(ies): National Roads Authority, Ministry of Works and Supplies, National Construction Industry Council, Department of District and Local Government Administration, Ministry of Transport Estimated disbursements (Bank FY/US$M): 2000 2001 2002 2003 2004 2005 Annual 4.3 6.1 8.1 7.6 2.5 1.4 Cumulative 4.3 10.4 18.5 26.1 28.6 30.0 For Guarantees: [ Partial credit I Partial risk Proposed coverage: Project sponsor: Nature of underlying financing: Terms of financing: Principal amount (US$) Final maturity Amortization profile Financing available without guarantee?: [ ] Yes [ No If yes, estimated cost or maturity: Estimated financing cost or maturity with guarantee: Project implementation period: 5 years Expected effectiveness date: 09/01/1999 Expected closing date: 03/31/2005 Project Appraisal Document Page 2 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) A: P'roject Development Objective 1. Project development objective and key performance indicators (see Annex 1): The principal goal of the Road Maintenance and Rehabilitation Project (ROMARP) is to bring about sustainable improvements in the quality of Malawi's road infrastructure which will help economic growth and diversify the Malawian economy by reducing transport costs and improving access. This goal translates into three interrelated objectives. The project firstly will support strengthening and restructuring of the road sector institutional framework with a view to improving the effectiveness of sector management and enhancing planning and programming of road works. The project secondly will support the reform of road sector financing to put the funding of future road maintenance expenditure onto a firm, sustainable footing. The project thirdly aims to support the process of addressing the backlog of road maintenance and rehabilitation through financing of economically viable, but currently unfunded, subprojects in line with implementation and financing capacity. More generally, the project is expected to contribute towards putting in place the conditions for a full sector program approach for roads. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 18349-MAI Date of latest CAS discussion: August 27, 1998 Far reaching and sustained poverty reduction is central to Government's development objectives and is the ultirnate objective of the Bank's assistance. Over the coming two to three years, four particular objectives or themes will be important as set out in the CAS, i.e.: creating broad-based, labor-intensive growth; fostering environmental sustainability and human development; improving public sector management and capacity; and strengthening policy dialogue and implementation and donor coordination. The CAS underlines generally the need for structural change in key sectors to complement the macroeconomic policy reforms undertaken to date. More specifically the CAS makes mention of the deteriorating quality of economic infrastructure as an impediment to growth and puts this down to delayed reforms and inadequate expenditure prioritization. The objectives of ROMARP dovetail with the strategic imperatives set out in the CAS. ROMARP seeks to support sustainable improvements in economic infrastructure in the roads sector in order to reduce transport costs and inefficiencies. This will help unleash private initiative, which is currently "taxed" by high transport costs, and'improve conditions for broad based growth. ROMARP will support reforms in the institutional framework for the management and financing of roads which in turn will support the CAS objective of improving public sector management and capacity. Commercialization of the sector management supported by the project is seen as strategically imperative at this juncture by external and local stakeholders. Another important outcome of the project is expected to be increased funding and improved execution of road maintenance works and better allocation in general of public expenditures in the road sector. The project also supports the CAS in three other areas: environmental sustainability through supporting improvements in environmental review and management in the roads sector; sustaining a dialogue with local stakeholder interests on road sector reform and working through a stakeholder led National Roads Authority (NRA) for project implementation; and donor coordination through close collaboration with the donor community, notably with the European Union (EU) and Kreditanstalt fur Wiederaufbau (KfW), in helping design and implement the sector reform strategy. 2. Afain sector issues and Government strategy: The Bank's report "Accelerating Malawi's Growth: Long Term Prospects and Transitional Problems" dated September 1997 outlines the main challenges faced by the Government in the realization of its objectives in the Project Appraisal Document Page 3 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) near and medium term future and in particular sets out detailed strategic considerations for raising the sustainable rate of economic growth to 6% per annum. The report establishes that one of the main threats to Malawi's ability to generate new domestic and foreign investment is the internal transport constraint (high cost and poor access). The report also indicates that the infrastructure maintenance needs, including roads, exceed likely available domestic resources over the medium term, placing a premium on the need for both better expenditure prioritization and enhancing domestic resource mobilization in the road sector. Malawi has already gone a considerable way towards putting in place a strategy in the road sector to address these economy wide concerns with the assistance of the Road Maintenance Initiative (RMI) and the Rural Travel and Transport Program (RTTP) of the Sub-Saharan Africa Transport Policy Program (SSATP): Malawi has been an associate member of the RMI since February 1995 and a member of RTTP since November 1997. With support from IDA and the EU, the RMI has undertaken a number of actions to determine a basis for the sustainable management and funding of the road sector. This includes notably a decision to establish the NRA and the Roads Fund arising out of the recommendations of a first stakeholder workshop in May 1995. Subsequently a series of policy studies have been carried out and the findings and recommendations endorsed by a further stakeholder workshop in June 1997. This included principally: (a) Institutional Development: audit of road sector institutions and development of a framework for institutional strengthening; (b) Financing mechanisms: identification of reliable and sustainable funding sources for the Roads Fund to finance the road maintenance program; (c) Axle Load Control: effective control of vehicle loading to minimize road damage; (d) Private and Public Sector Staff Training a program to develop local capacity for the sector in general, and for the construction industry in particular, in road maintenance; (e) Alternatives for the Plant and Vehicle Hire Organization (PVHO): consideration of a number of options for the future, to maintain, commercialize, privatize or liquidate; and (f) Road Safety: through public information and education, enforcement and control and physical improvements to the road environment. Government has endorsed this agenda and is committed to fully support its implementation in terms of its letter of road sector policy which has been finalized and sent to IDA by Board presentation (see Annex 13). Under the RTTP, a program document for a Malawi Rural Travel and Transport Program has now been prepared. The key policy dimensions of support for rural roads are also included in the letter of road sector policy. There are seven major sector issues arising out of this work which are detailed below together with the Government position on them. High Transport Costs: Despite a number of recent positive developments - fiscal and transport policy reform, the opening of the Nacala rail and Beira road routes to international traffic, the updating of the Roads Traffic Act and the restructuring of Malawi Railways and Malawi Lake Services - transport costs remain very high which has a negative impact on the cost of imports and exports and which also constrains national development. To a certain extent this can be explained by Malawi's geographical position and by the limited competition for domestic and international freight leading to higher tariffs. Average domestic transport costs by road are 2-3 times higher than in Zimbabwe or South Africa. This is being addressed somewhat by reduced barriers to entry and lower taxation following policy measures already taken by the Government. Improved road infrastructure quality will help over time reduce vehicle operating costs. To ensure realization of these gains however, it is important to promote improvements in operational practices and ensure that cost reductions made possible by liberalization are passed on to end users to reduce operating costs inputs. Inadequate use of rail in general for international traffic and the under exploitation specifically of the most profitable Nacala route is also a factor. It is estimated that an optimal redistribution of international traffic could potentially save Malawi about US$10- 11 million annually. This would depend though on complementary investments in infrastructure in Malawi and Mozambique and to the privatization of Malawi Railways to which the Government is now committed. Over and above these initiatives, there is a clear need to develop a better understanding of the demand and supply relationships, how the sector is responding to the new regulatory regime and to improve Govemment's ability to identify and take needed corrective measures. To this end, a study is being undertaken to identify the reasons why the expected gains from liberalization have not been realized and to propose measures to be taken up as a consequence. Project Appraisal Document Page 4 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Weak Management of Road Sector Agencies: The Government's ability in the past to carry out effective management of the road sector has been hampered by limited financial resources and capacity constraints. This lack of capacity pervades all key areas and is a critical constraint on sector development. The Government has accepted the results of the institutional audit carried out under the RMI policy studies program and thus recognizes that the pre-existing arrangements are not sustainable. The proposed strategy is based around the concept of a new commercially oriented management structure involving as an ultimate envisaged structure the NRA as planner and procurer of services and a Central Roads Agency (CRA) and other road agencies as provider of services. The strategy depends for its success on attracting and retaining a number of highly motivated and experienced people into key positions in the sector - some of whom may have to be initially externally recruited - and ensuring effective collaboration between these structures, central and local Government departments involved and the stakeholder communities. Institutional reform has thus to be supported by actions to build and retain human capacity, particularly in areas where skills are currently in short supply, such as road engineering. The Government's letter of road sector policy sets out how it intends to imp]lement the transition to the new sector management arrangements over a period of the next two to three years. As an initial step, the road agency function will be provided by an operations department directly under the NRA. The Government's decentralization policy has the objective of empowering local authorities to carry out their functions. It involves both functional and fiscal decentralization and defines the framework for planning and implementation and the relationship between central and local authorities. Its operation will have a significant influence on how NRA discharges its functions vis-a-vis the local road network Inadequate Local Financing for the Road Sector: Up until 1995/96, resources allocated to road maintenance expenditure were well below what was needed to assure the quality of the network, e.g. in 1994/95 MK24 million (US$3.2 million) was allocated, less than 15% of requirements. There was some progress with the introduction of the Medium Term Expenditure Framework (MTEF) under which high priority has been assigned to improving expenditure management and increasing allocations for road maintenance - these were MK120 million (US$7.8 million) in 1996/97 and MKI40 million (US$9.1 million) in 1997/98. Government also moved during this period - from 1996/97 - to contract out nearly all maintenance activities to the private sector to increase flexibility and capture efficiency gains. The establishment of the NRA and the Roads Fund under the National Roads Authority (NRA) Act No. 13 of 1997 is however a recognition by Government that previous measures have been inadequate to address the problem. The Act confers on NRA the status of a road authority (with direct jurisdiction over central government roads) concurrently with the Local Authorities (who have direct jurisdiction over district and local government roads in their areas) and responsibility for the management of the Roads Fund to meet the maintenance needs of the entire road network including paths and trails. The NRA Board created under the Act was appointed in July 1997 and recommends raising road user charges (initially through a fuel levy) for the Roads Fund. These revenues which are to be allocated by the Board to priority maintenance needs on any part of the road network over which NRA has maintenance responsibility. The Board consists of seven persons nominated by stakeholder organizations specified in the Act, three persons nominated by the Minister of Works and Supplies (MOWS) to represent the general public interest, and three "ex officio" Government representatives. The majority of the members are from the private sector including the Chairman. The policy objectives of Government are for the road user charges through the Roads Fund to immediately cover the maintenance requirements of a core network of some 9,400 kilometers, to cover maintenance of the full network within five years and, in the medium term, to cover all maintenance and "normal" rehabilitation needs. Susitainability of the Existing Road Network: Malawi's total designated road network amounts to about 15,100 kilometers of which: 6,500 kilometers are main and secondary, 7,600 kilometers are tertiary and district, and 1,000 kilometers are urban. Quality has clearly deteriorated over the last ten years such that over 50% of the network is now believed to be in poor condition. Indications are that traffic has been increasing at or above the rate of economic growth and may now exceed 700 vehicles per day on average for main and secondary roadls. For the network as whole the degree of variation is extreme, from a handful of vehicles on many rural Project Appraisal Document Page 5 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) roads to over 8,000 vehicles per day on Lilongwe and Blantyre urban throughways. When compared to Sub- Saharan African averages, the size of the network in Malawi is broadly in line with GDP and population. Most of these countries, including Malawi, however have experienced great diffiQulty in maintaining their networks. One of the key issues is thus what size of network is both affordable and serviceable from a development perspective - how are the development imperatives of assuring rural access to be traded off against the need to economize fiscal resources for roads given competing expenditure priorities? The full network may be progressively brought under regular maintenance. The Government proposes to adopt different and generally lower maintenance standards for low traffic volume roads and to explore ways to involve local authority and community financing of part of the maintenance requirements for local, rural roads. Lack of Development of the Local Construction Industry: A study of the local construction industry was included in the Malawi Infrastructure Project (MIP) under the African Development Bank (AfDB) funding, and some of the recommendations of the study have been implemented. Although significant progress has been made in this area, notably the enactment of a Bill in March 1996 establishing the National Construction Industry Council (NCIC), and the registration of an increasingly large number of local contractors and consultants, the level of participation and performance of local firms in the road sector continues to be poor. In 1996, the total number of registered firms in civil construction was 71, of which 46 were of Malawian origin. All of the latter are registered in the lowest category of work - up to MK2 mn (US$45,000). Total annual capacity of indigenous Malawian firms to undertake road work was then estimated at MK60 million (US$1.3 million). There are a number of underlying constraints to the expansion of the industry which are in the process of being addressed through the NCIC which has been fully operational only since October 1997. The Government envisages tying a program of support to local contractors to the development of a larger and more secure market for construction services that should emerge out of the project. Training will form the major part of this program, including the use of "live contracts" for the delivery of on-site based practical training, as well as appropriate packaging of civil works contacts. Poor Accessibility in Rural Areas: Malawi's economic growth prospects depend largely on the smallholder agriculture sector. For the most part, rural roads and bridges have been allowed to deteriorate over the years which has reduced accessibility and increased costs for farmers. Through the District Road Improvement Program (DRIMP), which was supported under MIP, and through the Malawi Social Action Fund Project (MASAF), there has been more recent attention to the rehabilitation of both public and community roads in the rural areas. However, much still needs to be done: according to MASAF, their program covers less than twenty percent of the assessed needs for such infrastructure in the 73 Economic Priority Areas (EPA). There is therefore a large backlog of unfilled demand for Rural Transport Infrastructure (RTI) - e.g., small bridges, culverts, footbridges, tracks and paths - in the EPAs and other parts of the country to improve access and connectivity to and between rural communities. Sustainable funding of the maintenance of the assets created under the DRIMP and MASAF programs remains an issue. For public roads, reforms in sector financing under the proposed project are expected to increase the volume of expenditure on maintenance from which rural roads will benefit. Public funding will still however be limited. Thus it is proposed that, for the provision of new RTI and the maintenance of RTI in their areas, communities will be given specified control over the use of non- public roads thus engendering a sense of ownership and also benefit from part financing of maintenance needs. The Malawi Rural Travel and Transport Program (MRTTP) document contains a commitment by Government to working out effective arrangements for the latter as part of its endeavors to encourage community participation in the provision and maintenance of RTI and to increase donor assistance in this area. The modalities of so doing will be supported through the project. Weak Traffic Management and Lack of Road Safety: Malawi continues to have one of the worst road safety records in the world, and certainly the highest road accident rate among countries in the Southern Africa region with an estimated 220 deaths per 10,000 vehicles in 1994 compared to an average of 33 per 10,000 vehicles for Southern Africa Development Community (SADC), and 62 per 10,000 vehicles for Sub-Sahara Africa. The social and economic consequences are considerable - the cost to the economy has been reckoned at Project Appraisal Document Page 6 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) equivalent to 2-3% of GDP such that even a modest improvement might have considerable favorable macroeconomic implications. This poor performance is attributed to a variety of factors on which some work has already been done notably the AfDB-financed Road Safety Program within MIP. The program has attempted to address issues of planning, programming, and implementing of road safety strategies but has been hampered by shortage of funds and a weak institutional framework. Govemment commitment to a serious and sustained effort at improving road safety is however confirmed by the passage of the Road Traffic Act and the strengthening of the Road Traffic Department to better address road safety needs. The success of any future program however depends on effective social and political mobilization to underscore and support any road traffic management improvements introduced as well as on sustainable financing. 3. Sector issues to be addressed by the project and strategic choices: (i) High Transport Costs: The agenda of issues under railways and lake services' restructuring and privatization as well as the strengthening of the analytical capacity of the Ministry of Transport (MOT) in the area of transport policy is already being addressed under the Bank supported Malawi Railways Restructuring Project (MRRP). It is intended that the national transport policy framework document, which is expected to be presented to Cabinet for adoption in 1999, will set out the next stages in this process. The principal contribution of the proposed project will be through supporting sustainable management and financing for the imprDvement in the quality of road infrastructure to reduce vehicle operating costs and appropriate interventions for the more effective capture of gains from policy and regulatory reforms. (ii) Weak Road Sector Agencies: The project's major objective is supporting the implementation of significant reforms in the road sector institutional framework which are aimed at addressing past weaknesses in planning and implementation capacity. The creation of the NRA, and eventually of the CRA, is expected to render sector management more efficient and commercially oriented than hitherto which should in turn contribute to the overriding concern of improving road infrastructure and reducing transport costs. Likewise, the creation of the RTTP Unit in the Department of District and Local Government Administration (DDGLA) to manage the implementation of policy reforms is aimed at assisting the DDLGA and the local authorities and communities to better manage rural travel and transport infrastructure. (iii) Inadequate Local Sector Financing: The project will both support the implementation of agreed financing reforms - the creation of a Roads Fund and financing of all maintenance requirements through road user chargyes principally a fuel levy. Particular attention will be placed on broadening the revenue base of the Roads Fund and instituting appropriate policies and procedures for fuel levy adjustment. This is to enable Government to progressively meet its policy targets for maintenance funding. The project will also support agreed policy reforms set out in the MRTTP document for harnessing local community resources for ensuring more sustainable provision and maintenance of rural travel and transport interventions. (iv) Size of the Network: Through a Project Preparation Facility (PPF) advance for the project approved in Febniary 1997, the project has already provided assistance to help Govemment and local stakeholders to better define the size and composition of the network and determine the core network for maintenance purposes. Consultants were appointed to this end and the basis for such a program now exists in their report dated July 1998. This work also covers technical, economic and environmental selection criteria for road rehabilitation and improvement subprojects. Government has subsequently adopted these findings as a basis for the investment program. (v) Constraints faced by the Construction Industry: By assuring a better planned and expanding road program to be carried out by private sector contractors and by ensuring financing is made available on a sustainable and predictable basis, the project will contribute to alleviating a major constraint to the growth of the industry. The project is also designed to start the process of addressing other constraints to the effective take up of opportunities by local industry, notably with regard to finance and equipment requirements. The NCIC as the Project Appraisal Document Page 7 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) principal local stakeholder is playing a leading role in defining an action plan, the preparation of which has been financed out of the proceeds of a PHRD grant. The plan was adopted in the first quarter of 1999. (vi) Poor Rural Access: The project will address this issue primarily through the expected improvement in road maintenance performance and support to sustainable maintenance arrangements for low volume roads. Through coordination with the relevant internal and external stakehol .ers, the Bank is helping ensure that the sizeable roads component of the public works program being undertaken under MASAF I, and to be undertaken under MASAF II, is correctly prioritized in line with road sector and local community concerns. A memorandum of understanding providing for the roles of different agencies in the management and supervision of rural roads funded by MASAF was drawn up and then finalized and signed as a condition of effectiveness for IDA support to MASAF II. This is expected inter alia to increase the emphasis on maintenance and to improve the quality of technical supervision. There is a range of policy and institutional issues concerning the management of rural infrastructure and the further development of rural transport. This will be addressed in the context of implementation of the MRTTP. Improvements in the institutional framework benefiting the provision of rural transport infrastructure are included in the project. Investments arising out of this program may be financed by IDA through a successor project and by other donors under ongoing or new programs. (vii) Weak Traffic Management: An FY2001 Road Safety Project (ROSAP), supported by a small Learning and Innovation Loan (LIL) will be the major Bank supported vehicle for addressing specific measures for improving traffic management, enhancing axle load control and reducing the rate of road accidents. Building on the national transport policy and the provisions of the amended Road Traffic Act, this project may support the development of effective sanctions and incentives for road safety (including the use of insurance surcharges to pay for the cost of measures), for increasing the role of the private sector in the provision of licensing, testing and other services and for providing opportunities on a pilot basis for stakeholder involvement in the design and implementation of road safety programs. C: Project Description Summary 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown): The project comprises four parts as follows: 1. Strengthening the Road Sector Institutional Framework. The project will support institutional development and changes in the roles of various road sector agencies to accommodate the new sector policy framework. The project covers not only technical assistance and some equipment requirements of the new or restructured institutions, but is also intended to support capacity building and skills development of road sector personnel for long run sustainability of road sector management. The component has five sub components as follows: - Road Sector Policy Development - Sector Institutional Development - Framework for Management and Financing of Rural Roads - Establishment of NRA - Framework for policy and regulation 2. Development of the Construction and Consulting Industries. The project will support the establishment of the NCIC as the principal stakeholder representative body responsible for the development of the local industry and will support the development and implementation of action plans to address constraints still faced by the industry. The project will cover the technical assistance, training and some equipment requirements of these plans which have been elaborated in the course of project preparation. The component has three subcomponents as follows: Project Appraisal Document Page 8 Malavwi: Road Maintenance and Rehabilitation Project (ROMARP) - Establishment of NCIC - Contractor and consultant training - Equipment and financing provision for contractors 3. Support to Sustainable Periodic Mai9tenance. The project will cover priority periodic maintenance requirements of the core network to assure no further deterioration of road infrastructure quality. Economically viable projects have already been identified as a result of studies financed out of the PPF advance and packaged into five tenders for a first year program by Government and NRA. Contracts are expected to be awarded following credit effectiveness (Bids were issued end January 1999). This program covers about 450 kilometers summarized below and detailed in Annex 2: - Lilongwe to Mchinji - Lumbadzi to Chitsime; Chitsime to Bunda - Linthipe to Nkhotakhota - Mangochi to Mbalula; Liwonde to Naminga; Limbe to Chiradzulu - Lilongwe to Salima; Salima to Grand Beach 4. Support to Selective Rehabilitation and Upgrading. The project will cover, from the second year of the projiect and onwards, a limited amount of rehabilitation of the paved road network and a limited amount of earth to gravel or gravel to paved upgrading commensurate with implementation capacity where economic viability and the unavailability of other sources of financing can be demonstrated. Through a preliminary feasibility and desi,gn study financed out of a PHRD grant, a number of potential subprojects have been identified. These will be subject to detailed analysis and design during the first year of the project. The following have been tentatively agreed by Government and NRA, as the sections (total of about 200 kilometers) for IDA financing with details given in Annex 2: - Zomba to Blantyre - Jenda to Chikangawa - Mzuzu to Nkhata Bay - Selected urban roads in Lilongwe and Blantyre Project Appraisal Document Page 9 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Componen0 , S ,;t Caegr Cot inc;ludng % oftoWtal:Bank % of Total Contingecies FnangoB, .k ... (VS$M) (US$M) Financing Strengthening of Road Sector Institutional Consultant 6.1 15.1 2.0 33.3 Framework services, equipment, training Development of Construction and Consulting Consultant 4.9 11.6 2.0 40.0 Industries services, equipment, training Support to Sustainable Periodic Maintenance Civil Works, 10.1 25.6 9.1 90.0 consultant services Support to Selective Rehabilitation and Upgrading CIi WoTks, i16.9 48;; 15.4 940i services::|0 ;- ;i;0: i;;: PPF refinancing 13 4.9 1.5 1: 00 0 totai i 39.5 100 30 76. 2. Key policy and institutional reforms supported by the project: The project is primarily designed to support the institutional and financing reforms necessary for sustainable improvements in the quality of infrastructure. Specific reforms supported by the project are as follows: a) Elaboration of policies and procedures to be followed by the NRA in managing the Roads Fund with regard in particular to the collection, allocation, accounting and auditing of funds generated by road user charges as well as to the periodic review of their level and composition; b) Elaboration of policies and guidelines, including selection criteria, for carrying out of the NRA's programming functions with particular regard to the composition of the road maintenance and rehabilitation program; c) Assisting in the implementation of the institutional transition plan towards the full operation of the NRA by a series of defined steps to assure inter alia that the policy and regulatory functions and arrangements for contract management are appropriate to the needs of the project, with due regard of the cultural and organizational implications of the shift from a Government departmental structure towards a commercially oriented, autonomous one; d) Assisting in the development of appropriate institutional arrangements for the management of rural roads by district and local authorities giving due regard to the need to maintain technical standards in view of the decentralization of authority for planning and implementation authority; and e) Development of maintenance standards for both high and low volume traffic roads to be used in determination of the level of service of road maintenance to be carried out on an annual basis. 3. Benefits and target population: The project supports reform measures in road financing and management, including creation of the Roads Fund to be financed from a fuel levy and other road user charges and establishment of the NRA. These reforms are Project Appraisal Document Page 10 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) supported by an appropriate legal framework and will facilitate active participation of road users in road management. This includes some decision making responsibilities and advising the Minister on the size, composition and financing of the roads investment program. Specific stakeholder organizations are represented on the Board of the NRA and their nominees will thus have a critical say in the type and level of road user charges and in the prioritization of road works. The organizations concerned are: Road Transport Operators Association (RTOA); Bus and Taxi Operators Association; Chamber of Commerce and Industry; Tobacco Association of Malawi; Tea Growers' Association; the sugar manufacturing industry; NCIC and National Road Safety Council. In addition, there are three Board members nominated by the Minister who represent the public interest. The Steering Committee to oversee implementation of the MRTTP document will comprise representatives at PS or chief officer level of RTOA; Council for non Governmental organizations of Malawi; Malawi Industrial Research and Technology Development Centre; Association of Local Government Authorities of Malawi; MASAF; NRA; NEC; DDLGA and the Ministries of Finance; Works and Supplies; Transport; and Women, Youth and Community Services. The good representation of private stakeholders on the committee and some common representation with the NRA Board should help ensure relevance of the work of tlhe committee and consistency of its decisions with those of the NRA Board. The project will support the carrying out of social and beneficiary assessments to determine the impact of the program and the distribution of the benefits. Investments in road maintenance, rehabilitation and upgrading supported by the project are expected to yield substantial and quantifiable benefits to road users, mainly in terms of vehicle operating cost (VOC) savings and also in terms of time savings. A relatively high proportion of these savings are expected to be passed on to the benefit of producing and consuming groups in the economy. One group that should benefit in particular is agricultural producers whose market access should improve and whose profitability should be enhanced by an increase in farm gate prices. Improvements in the quality of road infrastructure will also result in time savings which could be of importance to road users in the business and Government sectors, and in better delivery of services such as education and health which is expected to alleviate poverty especially in rural areas. The project will support capacity building in both private and public sectors which will increase national capability to plan, supervise and carry out road works. This will be of particular benefit for the thus far small local construction and contracting industries. Small scale, labor-based contractors should be able to expand their output and their employment absorption capacity. 4. I)2stitutional and implementation arrangements: Implementation period: 5 years (September 1999 to September 2004) Executing agencies: National Roads Authority, Ministry of Works and Supplies, Ministry of Transport, Department of District and Local Government Administration; and National Construction Industry Council. Project coordination: This was initially under a Project Task Force (PTF) which has been in existence since November 1996. The Task Force managed all project preparatory work, chaired by the Director of Roads in MOWS. Project coordination will pass to the NRA and will be absorbed under the Technical Committee of the Board once the project is under implementation. All executing agencies, plus Ministry of Finance (MOF), National Economic Council (NEC), MOT, and DDLGA are represented on the Committee. The NRA will be responsible for coordinating physical implementation of the project, for financial management of the project, and for assembling all technical and financial reports. The Secretariat of the Board is headed by a Chief Exe,cutive Officer (CEO) and organized in Technical and Financial services, each serving the Board as a whole and also the corresponding Committee. The main tasks of the Board are to (a) manage and direct the utilization of the Roads Fund; (b) prioritize annual road programs submitted to the authority by the various central and the local road agencies; (c) monitor the maintenance and development of the public road network of Malawi. Project Appraisal Document Page I 1 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Project implementation: The project will be implemented by the NRA, except for the development of the construction and consulting industries component, which will be implemented by NCIC, and the implementation of certain subcomponents of the road sector institutional framework strengthening which will fall to MOT, MOWS or DDLGA. It has been determined that as an initial step - beginning from fiscal year 1998/99 - that the provider of service function will be an integral element of the NRA structure. The CRA function will be carried out by a Central Roads Division (CRD) for main and secondary roads and an Urban and District Roads Division (UDRD) for urban and rural district roads. The Divisions assumed responsibility for the routine maintenance program from the Roads Department in MOWS from 1998/99. For periodic maintenance, rehabilitation and upgrading, the functions will be turned over commencing with IDA and other donor funded projects from July 1999. This process will be completed over a two year period to July 2001, the detailed plan for which has been drawn up and agreed prior to credit negotiations. The Technical Director of the CRD will manage the implementation of civil works for main and secondary roads under the project. The Technical Director of the UDRD will coordinate the implementation of civil works for urban and any rural district roads under the project. This is because the appropriate road authorities for these roads are the respective councils although, aside from Blantyre and Lilongwe, few if any have the capacity to implement at this stage. The opportunity to transform CRD and UDRD into one or more road agencies operating under contract to the NRA will be revisited as an integral element of the project. Project oversight (policy guidance, etc.): This was initially under a Project Steering Committee (PSC) chaired by the Principal Secretary, MOWS. At project implementation, this function will pass to the NRA Board, with the Chairman in the chair and the CEO as secretary. Policy and regulatory responsibilities for roads rest with MOWS (technical and design standards) and MOT (long range planning, inter modal issues). These ministries are represented on the Board along with other major public and private stakeholders. Accounting, financial reporting and auditing arrangements: A detailed review of the proposed financial management arrangements was carried out to assess its adequacy and the readiness of the project to operate the new disbursement procedures under the Loan Administration Change Initiative (LACI). A separate report of this review has been prepared and made available. The main features of the system and the action plan for design and implementation are detailed in Annex 5, Financial Summary. In addition, the disbursement procedures are set out in Annex 6, Procurement and Disbursement Arrangements. The financial unit of NRA under the Finance Director will coordinate project accounting, maintain overall records, manage disbursements, produce the project management reports (PMR), annual accounts and ensure their timely audit. Drafts of the accounting systems requirement and an accounting manual have been reviewed and detailed comments submitted. The finalization of the accounting manual, installation and operation of the accounting software and training of staff will be completed by June 30 and is a condition of effectiveness of the proposed Credit. Agreement has also been reached on a timebound action plan for the implementation of PMR-based disbursement which is anticipated no later than by June 2000. Disbursements under the proposed Credit will, thus commence under existing procedures and in the interim PMR statements for sources and uses of funds and procurement monitoring reports will be produced. The external audit of NRA is to be carried by the Auditor General or a professional approved by the Auditor General. The terms of reference have been prepared and will be agreed as one of the actions prior to credit effectiveness. Monitoring and Evaluation (M&E) arrangements: The technical services of the NRA will oversee implementation of the project. Monthly operational progress reports will be developed on the basis of submissions from all executing agencies. Quarterly progress reports to monitor implementation will be distributed to stakeholders and financiers (indicators as per the Logical Framework in (Annex 1). More in depth analysis will be carried out on an annual basis to review project performance. There will be a mid term review Project Appraisal Document Page 12 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) at which any major modifications in project scope may be considered. Periodic reports and assessments will be prepared by other agencies or consultants to review, inter alia, poverty reduction impact in agricultural/rural areas, environmental impact, traffic growth and composition, impact of institutional and financing reforms. D: Project Rationale 1. Project alternatives considered and reasons for rejection: A full sector investment approach was given consideration in line with the recent interest in pursuing this approach to Bank supported projects. It was determined that not all the requirements for this approach were in place, or were likely to be in place, in the near future. There does however already exist substantial collaboration between the Bank and the core sector donors (EU and KfW) with regard to the institutional and financing reforms necessary before major new sector investment should be considered. The development of a common basis for the determination of the sector investment program and the adoption of common technical, economic and environmental criteria for subprojects, while not imminent, has been advanced significantly by the preparation of proposals for the same under PPF financing. Malawi still has to further develop and strengthen local capacity and there needs to be further stakeholder involvement in the development of the road program. Readiness for the sector program approach would be reviewed again around mid-term review, at which point the preparation of a successor operation employing such an approach could be contemplated. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): The Bank and ten other bilateral and multilateral international aid agencies financed a total of US$157.7 million Malawi Infrastructure Project (MIP), with IDA cofinancing amounting to US$28.8 million to support: capacity building in the MOWS to better manage its investment program, and to restore and improve the physical condition of selected roads to facilitate traffic movement and lower transport costs. Most of the project funding was earmarked for the improvement, rehabilitation, and maintenance of roads and bridges; and for technical assistance to support human resource development in the sector. The project was closed on December 31, 1995. A summary of achievement of project objectives as abstracted from the Implementation Completion Report (ICR) dated March 18, 1997, forms the basis of the lessons learned from country experience. Project Appraisal Document Page 13 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Sector Issue Project Latest Supervision (PSRs)/ICR Ratings Bank-financed ICR Ratings Implementation Development Progress (IP) Objective _________ ~~(DO) Capacity Building and Training MIP S Funding of Road Maintenance MIP U Road Safety MIP* U Devel'nt. of local construct. industry MIP* U Transport Policy MRRP (FY95) S S Capacity Building LGDP (FY92) S Rural and community roads MASAF I (FY96) S HS MASAF II (FY99) S S Other development agencies Bridge Replacement and Rehabilitation, KfW road resealing (ongoing and planned) Road Rehab (ongoing) AfDB Road Rehab (ongoing) Kuwait, BADEA, OPEC Road Rehab (IDA cofinancing) NDF Road Rehab (ongoing and planned) EU Local Governance Support (ongoing) UNDP Rural Infrastructure (planned) DflD IPIDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) * Component funded by AfDB There are five other related Bank financed projects, one recently completed, three under implementation, and one recently negotiated. The Bank supported a US$110 million Northern Transport Corridor (NTC) project with the objective of providing a shorter and more cost effective route to the Indian Ocean (through Tanzania) for Malawi's exports. This included rehabilitation of just over 300 km of roads with cofinancing with EU and KfW. The project closed in June 1994 with most of its objectives met although with some concern about the sustainability of the maintenance of the infrastructure created. EU is providing further funding under its new sector program to rehabilitate the NTC. The Malawi Railway Restructuring Project (MRRP), which is cofinanced by USAID, seeks to revitalize the rail sector, especially the Nacala link through Mozambique, and to prepare the privatization of rail as well as of lake services. One component of the project is providing support to MOT for the development of a national transport policy which will have a significant interface with road sector development. The Local Government Development Project (LGDP) currently under implementation is helping to build human and financial capacity in local authorities, inter alia, to address planning and implementation of road improvements and road maintenance. The project is supporting some road works in Lilongwe and Blantyre. The UNDP under its 5th and 6th Country programs has been assisting the Government with the implementation of the Local Governance and Management Development Program under which the decentralization policy and mechanisms for operationalization have been developed. The mechanisms include piloting implementation of the district planning framework in six districts and developing financial and planning frameworks for project planning and implementation at the district level. These Projec:t Appraisal Document Page 14 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) activities have been closely monitored and factored as appropriate into recommendations in the MRTTP Program Document. MASAF I includes components for community (including undesignated road and bridge construction) and for public works programs (including district road rehabilitation). Low cost, labor based methods are being used in order to generate income transfer to specifically targeted poor communities. Up to US$16 million of road work is covered under MASAF I. The processing of MASAF II, approved by the Board in FY99. was closely coordinated with the project. This is to ensure: the adoption of common, agreed technical standards for road works; focus of financing on road maintenance as opposed to rehabilitation or new construction; use of resources for public works programs on district (designated) roads; and development of a comimon strategy for developing the institutional framework for managing district and community roads. Important sources of finance for new and ongoing donor funding for the sector are to come from KfW and EU with which the Bank enjoys close collaboration. KfW is financing in 1998-99 about US$6 million of works including bridge replacement and rehabilitation and about 260 km of resealing of selected main roads in fair condition. A second tranche of funding of approximately the same amount is expected to follow - appraisal was carried in the last quarter of 1998. EU on-going operations include about US$35 million (including Stabex funding) for rural road rehabilitation and about US$3 million for support to institutional and policy reform and for road engineering. New support under EDF VIII is expected to be about US$120 million covering further support to reform and to capacity building, urgent bridge repairs, feeder road support and rehabilitation of main roads. There are in addition some ongoing capital works being financed by AfDB and others planned for Kuwait, BADEA, OPEC funding amounting respectively to US$30 million and US$21 million. The Nordic Development Fund (NDF) has agreed to provide about SDR 5 million (about US$6.8 million) in cofinancing for the project. The DflD intends to finance poverty reduction activities under its new country program in Malawi with provision of rural infrastructure including rural roads as a key instrument. 3. Lessons learned and reflected in the project design: These largely derive from the experiences from the MIP which are both recent and quite relevant to the proposed project as well as from recent regional experience in countries trying to implement policy and institutional reform in the road sector. The major concern is to ensure project arrangements which are supportive of the sustainability of project benefits in the long term. (1) Adequate and assured road maintenance funding is the critical factor for sustainability. This seems to be quite critical on the basis of past experience, including the failure of Government to meet maintenance funding targets under MIP. In order to address the issue, the Roads Fund has been established as a dedicated mechanism to fund maintenance through road user charges. The Roads Fund has been operational since April 1998. The required level of road user charges, principally the fuel levy, as well as estimated annual revenue has been assessed up front to ensure that the Government's policy targets for maintenance expenditure can be met within reasonable fiscal and affordability parameters. The lesson is that road maintenance needs must be the first priority on these funds and that this policy must be backed by appropriate legal and institutional arrangements. (2) C ompetent and commercially oriented core project management must be ensured. While some improvements were initially obtained under MIP, these have not proven to be sustainable. The lesson is that more appropriate institutional arrangements need to be put in place if quality project management is to be assured and if the road sector is to be operated on a commercial basis with due regard to stakeholder interests. To this end, the NRA has been created before the project starts and the process of transforming the role of the Roads Department in the MOWS will be significantly advanced and then completed as an integral element of the project. It is anticipated that the new sector institutions will be able to offer the right incentives to retain qualified staff - many of those trained under MIP have since left MOWS. Project Appraisal Document Page 15 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) (3) Institutional transformation must precede major sector investment. The experience of a number of countries, notably Tanzania, illustrates the risks involved in implementing a major sector investment program with an inadequate institutional structure and with limited management capacity. Substantial external resources were made available to Tanzania in the early 1 990s, for both civil works and technical assistance and training, with little impact on the ground - absorptive capacity was very low, the institutional structure was inadequate (a Roads Fund existed but did not benefit from appropriate management and oversight arrangements), the local contractor response was weak. The lesson is that particular attention must be paid to developing appropriate contract management arrangements and to letting out contracts for work other than routine maintenance of the core network only as this capacity increases or is appropriately augmented. (4) Agency and industry constraints are significant and not easily overcome. The experience of a number of countries, notably Zambia, suggests that even where strong Government and stakeholder commitment for a coordinated, sector investment approach exists, capacity limitations pose real and serious constraints on program implementation and the realization of program goals. The lesson from such experiences is that clear oversight and coordination arrangements are helpful, especially if adjustments to the scope of the program prove to be necessary, and that local contractor and consultant capacity has to be properly assessed when establishing program goals. 4. Indications of Government commitment and ownership: There is evidence of considerable commitment from the Malawi Government to both maintaining an appropriate road sector strategy and to the objectives of the particular project. This is confirmed in the letter of road sector policy and through the following specific actions: (i) Establishment of the Road Maintenance Initiative (RMI) Country Program in 1995 (after the Mangochi workshop in May of that year) and the creation of a Coordination Unit and a Program Steering Committee to ensure the development of RMI principles for Malawi and their integration into the road sector program including sustainable road maintenance expenditure; (ii) Completion of a program of road policy sector studies in 1997 (after the Lilongwe workshop of July of that year) setting out a series of recommendations, largely accepted by sector stakeholders and subsequently by Government, for the long-term sustainable development of the sector and for the purpose of preparing specific components of the project; (iii) Passage by Parliament in 1997 of an Act establishing a Roads Fund and a National Road Authority to finance and manage road maintenance respectively which has been closely followed by appointment and gazetting of Board membership of the NRA in July 1997 and the start up of the Roads Fund from April 1998; (iv) Agreement to provide fuel levy of MKI/liter for petrol and MKO.99/liter for diesel from February 1998, to adjust these levels as necessary in the future (to MK 1.25/liter in October 1998), and making over the total proceeds to the Roads Fund thus doubling the allocation to road maintenance in one year. (v) Establishment of the MRTTP in 1997 within DDLGA, preparation of a Country Program Document, creation of a RTTP Unit and appointment of a full-time Program Coordinator to ensure the effective implementation of the policies and strategies embodied in the Program Document. Project Appraisal Document Page 16 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) 5. Value added Qf Bank support in this project: Bank support for the proposed project is consistent with the CAS and country development objectives. The Bank has developed extensive knowledge of the transport sector in Malawi and has helped finance a number of operations in the roads and highways sector, as well as in ports, railways and transport policy. Through the RMI program of which it is the manager, the Bank has become strongly associated with the process of sector reform in road management and financing and, together with the EU, has contributed financially to program start up and a number of specific program activities. The Government has acknowledged the critical role its cooperating partners have played in providing advice, inter alia through the RMI, especially in guiding the development and enactment of the NRA legislation and in the setting up of the NRA and the Roads Fund. The Government has particularly appreciated the Bank's extensive cross country (particularly regional) experience in road sector reform and has sought to ensure that the lessons of this experience are reflected in the design of the proposed project. As one example of this, the Bank has helped to arrange two study tours for senior Government officials and private sector representatives to meet with counterparts in other countries and discuss comparative experiences. In this regard also, the Bank has been asked to provide support on the updating and deepening of the analysis underlying the implementation of the institutional transformation and also on policies and procedures for the determination and adjustment of road user charges. Moreover, the MRTTP will, for the first time, provide the Government, the Bank, the donors and others with a policy document to guide actions relating to rural travel and transport. E: Summary Project Analysis (Detailed assessments are in the project file) [to be revised] 1. Economic (see also Annex 4): [x ] Cost-Benefit Analysis: Average ERR for first year program = 33.9% []Cost Effectiveness Analysis: [ ] Other (Specify) A cost-benefit analysis approach has been used and projects have been ranked according to ERR with a threshold value of 12% approximating to the real opportunity cost of capital in Malawi. The time period used for the economic analysis is 7 years for single reseal roads and 8 years for double reseal roads. Modeling of cost and benefit streams has been undertaken using HDM-III which is standard for IDA supported roads projects. Unit financial and economic costs for different engineering interventions have been derived using recent (past and ongoing) contract information. Conversion factors have been calculated and applied to different categories of cost to derive economic prices. Vehicle fleet characteristics and operating costs equating to Malawi conditions have been utilized in the estimation of vehicle operating cost (VOC) savings which are the major quantified benefit. Time savings have also been quantified as have generated traffic benefits, although the latter are expected to be marginal other than on unpaved roads for upgrading or major rehabilitation. Traffic growth has been projected using a regression analysis linking the forecasts for different vehicle types to expected trends in the components of GDP. Passenger vehicle traffic is thus projected to grow at 5.8% per annum, heavy commercial traffic at 4.5%, and light commercial traffic at 2.5% which is considered to be conservative. Detailed analysis was carried out on 450 kilometers of paved road periodic maintenance identified for the first year program under the project. All sections of the proposed road network were subjected to cost-benefit analysis, and were estimated to have ERRs ranging between 25% and 75%. The ERR for the first year program as a whole is 33.9%. Sensitivity analysis shows that the investments are robust and the return remains well above the assumed 12% opportunity cost of capital, if traffic growth is zero or investment costs escalate by 20%. Project Appraisal Document Page 17 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) 2. Financial (see also Annex 5): The project supports significant changes in the way in which road sector expenditure is to be financed. As a matter of policy, for routine road maintenance, from 1998/99 onwards, financing will be through road user charges channeled through the Roads Fund to initially finance all routine maintenance on the core network. Subsequently road user charges are expected to finance routine maintenance on the whole network. Budgetary allocations in future are expected to be limited to the counterpart contribution to donor or other externally funded projects and to financing of new construction or upgrading. Policy studies under the preparation phase of the project deternined the needs for road maintenance funding over the life of the project (they rise as more roads are brought into good or fair condition) and analyzed different ways in which these funds could be raised from road users. These have been updated and the results are given in more detail in Annex 5. It has been decided that a fuel levy will be initially the principal means of raising these funds. As of February 1998 when a new price formula for the retailing of petroleum products was introduced, a levy of MKI/liter on petrol and MKO.99/liter diesel was incorporated. In October 1998, fuel levy was adjusted to MKl.25/liter US$0.03/liter) for both diesel and petrol to partially compensate the impact of the Kwacha devaluation and road maintenance cost inflation. At projected levels of fuel consumption, this was anticipated to raise MK300 million (US$6.8 million), well under the minimum amount needed to maintain the core network in 1998/99 though a near doubling in nominal Kwacha terms of the allocation of recurrent funding to the road sector in one year. A five- year program to progressively raise this amount to cover all routine maintenance has been agreed prior to negotiations. The fuel levy has two particular advantages: ease of collection through the fuel companies and the Petroleum Control Commission (PCC); and equivalence to the economic concept of the marginal damage to the road network caused by each additional journey and consumption of a liter of fuel. This does however imply the fuel levy will have to be reviewed and adjusted as necessary on a regular basis. A suitable formula for the periodic adjustment of the fuel levy is to be put in place with IDA assistance under the project. A memorandum of understanding between NRA and Government will be drawn up to clarify roles and responsibilities for this process. Further increases would be justified to the road user by the efficient investment of the proceeds of the levy in the road network which in turn will reduce vehicle operating costs - analysis has shown that an increase in the fuel price of 10% will increase average operating costs of cars by 1.5% and of light commercial vehicles by 2.2%, but that the corresponding expenditures on improved maintenance may reduce vehicle operating costs by 5.4% and 9% respectively (thus a benefit:cost ratio in excess of 3:1). Capital works financed by the project and by other ongoing and committed external funding are expected to contribute to increasing the size of the maintainable network over the life of the project - by about 33% in volume and 67% in constant price value terms. Two scenarios have been worked out for how the maintenance cost will be met - one purely through the continued adjustment of the fuel levy, the other through the addition of other road user charges to the Roads Fund. These imply respectively a 65% and 40% real increase in the fuel levy over the life of the project. This type of increase is taken to be affordable as this translated to a real fuel price increase of only 3% over the life of the project. This would bring the fuel levy to MK2.1 /liter (US$0.05) which is in line with international experience. In the medium term, that is beyond the life of the project, the Government's objectives are to further raise the level of road user charges so as to cover normal rehabilitation as well as steady state maintenance. This is roughly (and conservatively) estimated to be equivalent to MK2.7/liter (US$0.06) implying a further increase of 30% in the real value of the fuel levy. This level of increase poses a challenge in terms of affordability and thus will have to be preceded by further analysis of - the optimum affordable size of the network, ways and means of reducing average maintenance costs, opportunities for alternative domestic resource mobilization. Project Appraisal Document Page 18 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Fiscal impact: There are short and medium term benefits from taking routine maintenance costs off budget and financing through incremental road user charges. There will however be some extraordinary additional fiscal expenditure associated with the institutional transition and some incremental budget expenditure on the capital account as the network rehabilitation backlog is addressed. In the medium term improvements in the quality of road infrastructure are expected to result in savings in vehicle operating costs which should easily outweigh the value of the additional road user charges. Increased net incomes should thus give rise to additional fiscal benefits through increased tax revenue. 3. Technical: The project components include civil works and services in respect of maintenance, selective rehabilitation, and upgrading of high priority roads. The implementation of routine maintenance program are well within the capability of the implementing agencies and the local trained contractors. However, the design and implementation of the complex periodic maintenance, road rehabilitation and upgrading works, will be carried out with the support of international consultants and contractors. Bid packages and criteria for the selection of consultants will be prescribed so as to encourage well qualified contractors and consultants to ensure adherence to quality and timely completion of the project. The economic justification of the proposed works and services wil]i be carried out by implementing agencies with the support of consultants selected in consultation with IDA. Upgrading of existing substandard bituminous roads, or earth to gravel and gravel to bitumen upgrading, will be limited to cases where an adequate ERR is demonstrated. The detailed design and preparation of contract documents for the first year civil work program, have been undertaken with the support of international consultants engaged under the PPF advance. It is expected that the bid evaluation report will be ready for contract award for the first year works by the credit effectiveness. Coonstruction supervision will be carried out with the help of consultants. It is anticipated that about 15 ICB and NC B civil works contracts and 10 consulting services contracts will be awarded for IDA financing. About 20 training contracts for emergent local contractors may also be funded by IDA. The technical design and the estimated cost of the civil works have been assessed by the international consultants by adoption of the standard design practices and careful review of the unit rates. Design and the construction supervision costs have been estimated at 10% of the civil work contracts value. The implementation schedule of all project components will be agreed with the concerned agencies and reflected in the PIP, the final version of which will be adopted prior to credit effectiveness. The technical and managerial capacity of the NRA and the road agencies will be strengthened by an appropriately designed technical assistance program, and by training of local staff with particular regard to procurement and to management work of work executed under contract. 4. Institutional: a. Executing Agencies: As part of the policy studies program under project preparation, an institutional audit was carried out focusing on the road authorities, that is the Roads Department in MOWS and the local authorities. The study drew attention to the declining effectiveness of these authorities due to inadequate funding, excessive overhead and unproductive expenditure, loss of experienced and qualified personnel, and deterioration in planning systems. The approach now proposed, as set out in the Government's letter of road sector policy, represents a radical departure from the past arrangements in order to fully address the underlying constraints. The final institutional structure, which was agreed by sector stakeholders in July 1997, provides for: regulation and policy oversight at the level of the minister (for Works and Supplies); procurement of road services through the NRA which is responsible for the preparation of the annual roads program and for management of the Roads Fund; provision of road services for main and secondary roads through a CRA and other agencies under contract to the NRA, with agencies providing support to the local authorities to this end for urban and rural district roads. Substantial progress has been made towards implementation of this challenging agenda. A transitional plan setting out how the agenda is to be completed has been drawn up. The Project Appraisal Document Page 19 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) project will support the implementation of this plan. As a first stage, the procurer and provider functions will be included under one institutional structure, the NRA. Technical directors for the CRD and UDRD have been appointed to manage the provision of road services and will be accountable to the Board of the NRA (organization chart at Annex 15). The effectiveness of the new structure depends on recruiting key technical and financial staff through improved incentives and also on expanding the skill base through training in such areas as contract management. NRA will pay competitive salaries and is recruiting from the public and private sectors. These will be financed out of the proceeds of the Roads Fund. While NRA has been established and has employed all key staff before the implementation of the project, it will take time to build up its capacity to take on work other than routine and periodic maintenance. Accordingly, the first year program of works will only consist of periodic maintenance. The program for the second and subsequent years of the project will be determined after an assessment has been carried out before the end of December 1999 as to the capacity of the NRA to address rehabilitation and upgrading. The NCIC, which is charged with the promotion of the local construction and consulting industries, was established by Act in 1996. The Council has been in place since October 1997 and is now in the process of recruiting an Executive Secretary and a small core technical team to manage the provision of services under the project. b. Project Management: NRA will be responsible for project management, except for the development of the construction and consulting industry component which will fall to NCIC. NRA will have the capacity for technical and financial management and oversight of network development when it is fully staffed. Technical assistance will be provided in the first two years of operations to fill gaps and to help develop staff capacity and management systems. Past experience suggests a critical success/failure factor for project management will be at the level of the road agencies. For main and secondary roads, capacity will be built up initially in the CRD and the UDRD within NRA before determining at a later stage whether to establish these as one or more autonomous road agencies. Engineering staff are being recruited mainly from the Roads Department, on a contract or a consultancy basis, and financial and contract management expertise from the private sector. Urban councils generally have adequate technical staff and limited, but increasing, experience in contracting out work. Rural district councils will for the most part still require technical support - in the past provided by the Roads Department and in the new set up by the UDRD. Consideration is being given to specific arrangements for the management of minor works - involving the contracting out of management services to one or more consultants. c. Construction industry: An analysis has been carried out of anticipated construction industry capacity in relation to the future increment of road work arising from - a secure and increasing volume of road maintenance work; works arising out of the project; works arising out of other donor funded rehabilitation and maintenance. Contracted out maintenance is likely to rise from MK60 million (US$1.3 million) prior to the reform to an average figure four or five times that amount during the project period MK290 million (US$6.6 million). It is envisaged that about 60% of this amount would be for local semi-mechanized contractors and about 20% for local labor based contractors. This is a significant increment of work over the current capacities which are about MK60 million (US$1.3 million) for semi-mechanized and near zero for labor based contractors. It is estimated that the number of semi-mechanized contractors would have to increase from 46 to about 65 and the average turnover managed/contract value handled to nearly double in real terms. These are challenging but plausible targets to reach as and when underlying constraints are addressed. For labor-based contractors, a substantial amount of work will be involved in identifying and training potential contractors. It may thus take longer to build up this capacity. This will however be explicitly supported by the project. In addition, the restructuring of the Roads Department is expected to release a large number of potential candidates for this training. There are a sufficient number of medium/large scale mechanized contractors in the country (16 registered in unlimited category) and in the region to cover the deficit on the maintenance program and to take on the larger share of the rehabilitation work. It is expected that towards the end of the project period an increasing number of semi-mechanized contractors may be in a position to compete for this work - the project targets at least 10 such contractors to be raised to the unlimited category. This compares to 3 which currently specialize in the road sector. However the additional supervisory and inspectorate staff could potentially be Project Appraisal Document Page 20 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) recruited from the restructured Roads Department where they are available in the required numbers (about 1 00- 120). It is anticipated that about 7 to 11 local consulting firms will be required to handle the volume of supervision work for maintenance - rehabilitation and upgrading is likely to continue to be provided by regional or i:nternational firms during the project period. Some initial shortages may be faced however with regard to supervisors for the labor based works, where particular skills and experience may be required. 5. 'Social A social analysis of the expected impact of the project and the planned road sector program was carried out under the PPF consultancy. The consequences are expected generally to be positive. As the program does not contain any new road development or significant realignment of existing roads, there is no anticipation of dislocation or resettlement of people having to take place. The project will enhance accessibility and facilitate more journeys taking place, and at a lower cost than in the past. Many of these journeys have a social dimension, with visits to health and education facilities being particularly important in rural areas. One important consequence of road improvement is higher average speeds for motorized traffic and a consequent higher risk of road accidents. This may involve pedestrian traffic with on average lower incomes in a disproportionate amount. For this reason, pilot programs aimed at improving road safety awareness and practices are to be carried out under ROSAP. Mallawi has one of the highest incidences of AIDS in Africa. Based on a 1996 study of antenatal facilities in Blantyre, thirty five percent of women tested were HIV positive. It is also estimated that one third of the 15-49 year olds in Blantyre and Lilongwe, and over 13 percent of this age group throughout Malawi, are HIV- infected. One of the sectors targeted as high risk is the transportation sector. The project would build on work carried out by other agencies, in particular the EU which are supporting efforts to promote risk reducing behavior and maintain low risk behaviors among truck drivers. Their activities included distributing condoms and AIDS prevention materials. Under the project, the Bank, would support efforts to target construction workers within the sector, as part of the training to be provided under the construction industry development program. 6. Environmental assessment (see also Annex 7): Environmental Category [] A [x] B [IC An environmental analysis was carried out under the PPF consultancy. No major adverse environmental impacts are anticipated as the project does not include new construction or major road realignment. Effective mitigation actions will however need to be taken to manage the negative impacts which include: unrehabilitated borrow pits and works; inadequate management of diverted water; insufficient attention on the storage and disposal of potentially toxic materials and wastes. Awareness of environmental management is judged to be lim.ited in the roads sector. New environmental legislation (The Environmental Management Act and the Guidelines for Environmental Impact Assessment) has a number of provisions which will affect the roads sector. Action under the project thus has to assure awareness building, establishing an environmental review process for the road sector, and developing environmental management capacity for monitoring, evaluation and appraisal. The sequencing of these actions is envisaged as follows: (i) Establish an Environmental Review Cornmittee (ERC) to oversee implementation, determine the budget, terms of reference and work program for the Environmental Management Unit (EMU); (ii) Set up the EMU and support through the project a first two year's work program, the EMU to report through the NRA; (iii) The EMU to develop training programs, including awareness raising, effective environmental impact assessment guidelines, development of mitigation measures, including appropriate contractual requirements for consultants and contractors; and (iv) Establish an environmental monitoring and evaluation system. Project Appraisal Document Page 21 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) 7. Participatory approach [key stakeholders, how involved, and what they have influenced; ifparticipatory approach not used, describe why not applicable]: a. Primary beneficiaries and other affected groups: There has been substantial and significant involvement of road users and their representatives in the development of the project. Under the RMI Program, there has been the practice over the past 3-4 years of involving these stakeholders in discussions of future sector policy. To this end, road users were represented on the Working Committee and its various subcommittees which helped manage the program of policy studies. This has led to the June 1997 resolutions which in turn provide the underpinning for Government's letter of road sector policy. Road users will continue to be involved in the updating of policy and the implementation of the sector program through their representation on the Board of the NRA and its technical and financial subcommittees. The main constituencies thus represented are: the road transporters; the bus and taxi operators; the tea, sugar and tobacco farmers; the chamber of commerce and industry; the construction industry; the local authorities; and the road safety council. b. Other key stakeholders: The general interest of the public in the quality of road infrastructure and road transport is provided for through the three nominations to the Board of the NRA made by the Minister. NRA is developing its strategy to keep the public informed about sector developments and particular issues thereto related. This is still however at an early stage. F: Sustainability and Risks 1. Sustainability: Sustainability of road sector infrastructure is a critical consideration underlying the design of the project. This involves the related dimensions of: increased and sustainable human resources to manage the network and effectively carry out the necessary maintenance works with minimal recourse to outside assistance; and building up the base of domestically generated financial resources to reduce and, over time, eliminate reliance on external concessional funding for anything other than selected new road development or upgrading. The project is designed to support a challenging, but plausible strategy, for ensuring such sustainability. The size of the rehabilitation and maintenance program would adapt to the available financial resources on the understanding, however, that in no year would maintenance funding fall below the threshold for maintenance expenditure agreed at negotiations. It is anticipated that the scope and complexity of the institutional structure would evolve to meet the requirements of the program and that the pace at which this structure moved towards its ultimately envisaged state would be determined by project experience and by the stakeholders as represented on the NRA Board. This will be subject to specific review at mid term assessment. IDA assistance to the project would be on the understanding, as given in the legal documents, that the NRA Act would not be amended, abrogated, repealed or waived so as to affect materially and adversely the ability of NRA to perform its obligations or to abolish the Roads Fund. Project Appraisal Document Page 22 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) 2. Critical Risks (reflecting assumptions in thefourth column ofAnnex 1): Risk Risk Rating Risk Minimization Measure Annex 1, Cell "from Output to Purpose" Government maintains policy of private sector Moderate Understandings in letter of road sector participation and decentralization of road policy, subject to periodic review. maintenance NRA primary legislation in place Reformed sector institutions receive adequate Moderate Technical assistance to fill short term support and are allowed to operate in a gaps. Transparent procedures for commercial fashion recruiting local staff and freedom to NRA and later the CRA to offer appropriate remuneration and incentive packages Traffic levels and axle loads remain within Moderate NRA to take responsibility for axle design limits load control - user groups are represented on Board Adequate funding for maintenance is provided Moderate Understandings in letter of road sector policy including agreed minimum financing required for road maintenance for next five years Rehabilitated or upgraded roads are properly Low NRA established and staffed to handed over to maintenance provide necessary technical expertise Adequate funding for rehabilitation and Moderate Government commitment to provide upgrading provided counterpart funding. External support has been lined up. People selected for training are trainable and Low Clear criteria adopted for selection of remain in post after training training candidates. Improved conditions to help retain personnel Roads Fund is managed in a transparent and Moderate Clear legislation and operating fully accountable manner procedures have already been published in this regard. Stakeholder responsive NRA Board will be responsible for management oversight Local consulting and construction industry High NCIC primary legislation in place. develops sufficient capacity to implement the Ensure effective implementation of program study recommendations for strengthening capacity management. Packaging of works to provide incentives to local industry Core network for investment program is Low PPF funded consultancy helped appropriately defined Government define priorities and selection criteria Project Appraisal Document Page 23 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Risk Risk Rating Risk Minimization Measure Annex 1, cell "from Components to Outputs" NRA and local authorities develop adequate Moderate External recruitment to ensure capacity to plan, program and manage civil adequate management in NRA works balanced by capacity building program supported by the project Local contractors manage their finances Moderate NCIC to help provide advice and prudently and follow professional codes of training to local industry conduct Local consultants and contractors are trainable Moderate Specific criteria are developed for local contractors and consultants to be trained Local consultants and contractors compete Moderate Criteria for development and training successfully provided enabling consultants and contractors to be competitive Construction costs stay within consultants Low Improved sector management estimates and projections arrangements to assure better costing and contract No serious delays in the execution of works and Low Improved sector management the availability of plant and materials arrangements to assure better costing and contract Contract management is efficient Low Specific training being provided to NRA management Overall Risk Rating - Moderate 3. Possible Controversial Aspects: There are no particularly controversial aspects to the project. It should though be recognized that Government is seeking to implement a very challenging reform agenda in the road sector and that some of the measures to be undertaken have high risk associated. Government has endorsed the reform agenda in principle (letter of road sector policy) but will now need to ensure consistent implementation in particular in the following areas: ensuring the autonomy of the management of the Roads Fund, the adequacy of the resources allocated to it for road maintenance, and the non diversion of these resources to other ends; as well as following through on the institutional transformation process in a consistent and appropriate fashion. G: Main Loan Conditions 1. Effectiveness Conditions: (i) NDF loan agreement is made effective. (ii) Final project implementation plan (PIP) is adopted in form and substance acceptable to IDA. Project Appraisal Document Page 24 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) (iii) Tenders for engineering design services for potential second year civil works have been issued. (iv) Evaluation of award of tenders for first year civil works and engineering services has been submitted to IDA. (v) NRA financial management and accounting system satisfactory to IDA is adopted. 2. Other [classify according to covenant types used in the Legal Agreements.]: Prior to Board presentation (i) Government will adopt and send the letter of road sector policy to the IDA. (ii) Adopt and send to IDA a timebound action plan for NRA to establish sound financial management and accounting system and PMR-based disbursements. (iii) All outstanding audit reports (for IDA funded operations in the sector) are submitted. ALgeements reached at negotiations (i) Carry out the project in accordance with the implementation plan, including a mid-term review no later than June 30, 2002 and, annual reviews commencing 1999 no later than March 31 utilizing reporting procedures and performance monitoring indicators acceptable to IDA, and annual work plans commencing 1999 no later than March 31 according to a format to be agreed with IDA. (ii) Maintain project accounting consistent with internationally accepted standards, and submit annual audited financial reports no later than 6 months after the end of each fiscal year according to terms of reference agreed with IDA. (iii) Carry out policy studies, engineering and feasibility studies, beneficiary assessments, institutional development and capacity building (including detailed training plans) in project executing agencies according to terms of reference to be agreed with IDA. (iv) Maintain procurement procedures acceptable to IDA including the use of the Bank standard bidding documents for works and goods under ICB and for consultancy services, the use of an agreed document for civil works under NCB, and the use of a simplified document for the procurement of minor works from local contractors. (v) Maintain appropriate and agreed selection criteria for the inclusion of road subprojects in the sector program. (vi) Subject to minimum funding requirements for the project agreed prior to negotiations review the funding requirements of the Roads Fund on an annual basis in the light of the proposed maintenance program. (vii) Maintain appropriate regulations and procedures for the collection, allocation and disbursement of road useir charges proceeds into the Roads Fund by December 31, 1999 and adopt and maintain appropriate procedures and policies for the periodic review and adjustment of the level and composition of road user charges by June 30, 2000. Project Appraisal Document Page 25 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) (viii) Carry out no later than June 30, 2000 a review of the impact of the institutional reforms being carried out in the sector according to terms of reference acceptable to IDA and prepare an action plan on future reforms to be implemented after consultation with IDA from March 31, 2001. By December 31, 1999 and in all events before the tendering of works under the second year program, carry out an assessment of capacity to implement a rehabilitation and upgrading program and make recommendations as necessary for adoption no later than September 30, 2000. (ix) Carry out annual consultations with IDA by March 31 on the effectiveness of measures to be taken to promote the local construction industry in the road sector. (x) Carry out no later than June 30, 2000 a timebound action plan acceptable to IDA for strengthening the NRA's financial management system and preparation of project management reports. (xi) Develop and adopt by March 31, 2000 an action plan for the improvement of environmental management in the road sector and review the implementation of the plan by March 31 each year of the project. The action plan is to provide inter alia for the establishment of an Environmental Review Committee and an Environmental Management Unit under the NRA. (xii) Carry out by December 31, 2000 an exercise to reclassify the public road network on the basis of economic, traffic and engineering considerations according to terms of reference to be agreed by IDA. Prepare legal and institutional changes arising out of the agreed recommendations of this exercise by June 30, 2001. H. Readiness for Implementation [x] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ ] Not applicable. [x] The procurement documents for the first year's activities are complete and ready for the start of project implementation. [x ] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] The following items are lacking and are discussed under loan conditions (Section G): I. Compliance with Bank Policies [x] This project complies with all applicable Bank policies. [ ] [The following exceptions to Bank policies are recommended for approval: The project complies with all other applicable Bank policies.] Stephen Brushe9y Task Manager, AFTTI Yusupha B. Crookes, Sector Manager, AFTTI Barbara Kafka, C untry Director, AFC03 Project Appraisal Document Page 26 Malawi: Road Maintenance and Rehabilitation Project Annex 1 Road Maintenance and Rehabilitation Project Project Design Summary Narrative Summary Verifiable Indicators Means of Verification Important Assumptions CAS Goal: 1. Maintain 4.5% real GDP (CAS to Super goal) Far reaching and growth rate sustainable poverty 2 Fiscal deficit declines reduction. to 6 % of GDP by 2001. 3 Inflation rate declines to 9 % by 2000. Purpose: (Purpose to Goal) Increased access and use 1 40% increase in ton 1. I NRA Quarterly & I Other social services of a safe and good quality kilometers by 2005. Annual Reports (transport services, national road network education, health, et 2 25% increase in 1.2 RTOA reports al) improved and passenger kilometers by provided in areas 2005. 1.3 National Statistical where road network is Bulletins improved. 2 Other 3 Road accidents reduced 3.1 Road Traffic commercial/public by 40% by 2003. Commissioner & utilities & services Police Reports improved and provided in areas where road network is improved. 3 Absence of external economic shocks. 4 Absence of natural disasters. Outputs: (Output to Purpose) I Performance 1.1 The NRA senior 1.1 RD records I Government improvement program management (CEO, maintains policy of for road sector Finance, Director and 1.2 NRA reports private sector institutions operational. Operations Director) participation in the in place. 1.3 Project reports road sector and road 1.2 Technical Departments user financing of of the NRA in place. road maintenance 1.3 Strategy for 2 The institutions receive downsizing Roads adequate support, and Dept revised and operate independently agreed. in a commercial 1.4 Review of fashion without institutional reform Government strategy carried out interference. by December 1999. 3 Traffic levels and 1.5 Action plan on axle loads remain Project Appraisal Document Page 27 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Narrative Smmary Verifiable indicators: Means [jonf Verificaio Im por Assumptions future institutional within design limits. reform by September 4 Adequate funding for 2000. maintenance provided 1.6 Roads Fund collected 5 Rehabilitated or to cover routine upgraded roads are maintenance of the properly handed over core network by to maintenance. 2000/01 and of full 6 Adequate funding for network by 2003/04: rehabilitation and 1999 - US$9.5m upgrading provided. 2000 - US$12.Om 7 People selected for 2001 - US$12.9m training are trainable 2002 - US$13.8m and remain in post 2003 - US$15.3m after training. 1.7 Administrative costs as 8 Roads Fund is a percentage of Roads managed in a Fund revenues fall from transparent and fully 10% in 1999/2000 to accountable manner. 5% by 2003/04 1.8 Rehabilitation and 9. Local Consulting maintenance work and Construction subject to independent Industry develops technical audit rises sufficient capacity to from 5% in 2000/01 to implement the 20% in 2003/04. program. 10 Core network for investment program is appropriately defined. 2 Quality improvement 2.1 20 local maintenance 2.1 Project M&E program for Local contractors trained reports Construction and per year by 2004. Contracting Industry 2.2 30 small scale 2.2 Beneficiary (LCCI) implemented. contractors for assessment reports periodic maintenance upgraded to higher categories by 2004. 2.3 10 local civil road engineering contractors (for rehabilitation works) upgraded and maintained in the unlimited category (>MK5.0 m) by 2004. 2.4 10 local firms used for rehabilitation, maintenance and Project Appraisal Document Page 28 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Narrative Summary Verifiable Indicators Means of Verification Important Assumptions upgrading works by 2003. 2.5 10 local consultants trained per year to 2004. 3 Maintenance of high 3.1 Routine maintenance 3.1 Project progress priority and of all core network reports economically viable roads assured by road links carried out. 1999/2000. Routine 3.2 NRA reports maintenance of all roads assumed by 2003/04 3.2 900 km of roads periodically maintained by 2004. 3.3 Resealing of 450 km of paved roads under IDA funding completed by 2003. 4 Rehabilitation and 4.1 800 km of roads 4.1 Project progress upgrading of rehabilitated and reports economically viable upgraded by 2004 road links from the 4.2 230 km of roads 4.2 NRA reports core network carried rehabilitated under out. IDA funding by 2003. 4.3 RD/CRA reports 4.4 Consultant reports 4.5 Beneficiary Assessments Project Components: (Component to Output) I Strengthening and 1.1 Goods, equipment - 1.1 Project review 1. NRA and local supporting road sector US$1.7 million reports authorities develop agencies by 1.2 Consultant services adequate capacity to providing NRA and and training - US$4.4 1.2 Periodic financial plan and manage other new institutions million accounting returns, civil works. with: annual accounts and 2 Local contractors (i) equipment and financial audit manage their transport, and finances prudently (ii) consultant services 1.3 NRA reports and follow and training. professional codes of 1.4 Consultant reports conduct. 3 Local consultants and 1.5 Mid-tern review contractors are assessment trainable. 4 Local consultants and contractors compete successfully. 5 Construction costs ____ ____ ___ ____ __ _ ___ ____ ____ ____ ____stay w ithin Project Appraisal Document Page 29 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Narraive Sumnmary Verifiable Irnicfators MeansVerification ImpoiintAssuoptionsX consultants estimates and projections 2 Developing the Local 2.1 Goods and equipment 2.1 NCIC reports 6 No serious delays in Construction and - US$1.4 million the execution of Consulting Industries by 2.2 Consultant services 2.2 Project review works and the through: and training - US$3.5 reports availability of plant (i) consultant services million and materials and training in best 2.3 Periodic industry 7 Contract management practice, and surveys is efficient. (ii) technical assistance addressing policy, 2.4 Mid-term review institutional issues, assessment and PVHO restructuring 3.1 Civil works - 3.1 Project review 3 Selection of core road US$9.4 million reports network and periodic 3.2 Engineering services - maintenance of the US$0.7 million 3.2 NRA annual and roads. quarterly returns 3.3 Periodic technical and financial audits 3.4 Consultant reports 4.1 Civil works- US$15.9 4.1 Project review 4 Selection and million reports rehabilitation of roads 4.2 Engineering services - and upgrading of earth- US$1.0 million 4.2 NRA annual and to-gravel and gravel-to- quarterly returns paved roads 4.3 Periodic technical and financial audits _ 4.4 Consultant reports Project Appraisal Document Page 30 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 2 Road Maintenance and Rehabilitation Project Project Description Project Component 1 - Strengthening of Road Sector Institutional Framework - US$6.1 million (total cost including contingencies) Significant progress has been made on strengthening and reforming the road sector institutional framework. Legislation has been passed enabling the establishment of a National Roads Authority and a Roads Fund. A transition plan for the implementation of these reforms and for supporting measures to improve the efficiency and effectiveness of road management as agreed to by stakeholders in July 1997 has been drawn up after extensive studies funded by the EU under the RMI program. This transition plan has been updated in December 1998 on the basis of a consultancy funded under the PPF advance and the Government has included the required policy measures in its letter of road sector policy. The project component will support various actions and measures to implement the plan and will complement a major technical assistance program to the NRA which is being funded by the EU. The project includes not only technical assistance and some equipment requirements for the new or restructured institutions, but is also intended to support capacity building and skills development. Total IDA financing for this component is expected to be US$2.0 million with the balance coming from the NDF. The main subcomponents and the responsible implementing agencies are given below: a) Road Sector Policy Development (Ministry of Transport and Ministry of Works and Supplies): Updating the national transport policy framework; Vehicle operating costs study; Development of selection criteria for low volume roads; Road reclassification study; Development of future requirements and sources of revenue for road maintenance, including adjustment formulae. b) Sector Institutional Development (Ministry of Transport and Ministry of Works and Supplies): Periodic assessment of impact of institutional reforms carried out; Development of a medium termn framework for road sector management, including the role of a CRA and other road agencies; Study of options for private sector participation in contract management. c) Framnework for management and financing of low volume roads (Ministry of Transport and Department of District and Local Government Administration): Assessment of institutional requirements for rural road management; Development of cost sharing and financing options for rural road maintenance; Rural transport needs assessment. d) NRA Establishment (National Roads Authority): Development of financial management and accounting systems; Development of procurement management and monitoring systems; Development of environmental management capacity; Elaboration of policies and procedures for the management of the Roads Fund, including collection, allocation and disbursement of road user revenues; Development of monitoring and evaluation systems. e) Framework for Policy and Regulation (Ministry of Transport and Ministry of Works and Supplies): Support to restructuring and downsizing of the Roads Department; Support to capacity building for sector policy development and for regulation and oversight of road sector institutions, including the NRA. Project Appraisal Document Page 31 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Project Component 2 - Development of the Construction and Consulting Industries - US$4.9 million (total cost including contingencies) Further to the Southern African Construction Industry Initiative, considerable progress has been made in Malawi in providing a supportive framework for the local construction industry. The National Construction Industry Council was established by Act in 1996, the council has been in place since October 1997 and staff are in the process of being recruited. A detailed action plan for the further development of the local construction and consulting industries in line with the growing demand for these services in the road sector has been developed by consultants financed out of a PHRD grant. Conclusions and recommendations were tabled in December 1998 and an action plan adopted in March 1999. Inter alia the plan seeks to build on the recommendations of the earlier EU financed RMI studies which considered measures to strengthen private sector training and to restructure plant and vehicle hire. The project component will support technical assistance, training and some equipment requirements and will complement other technical assistance being provided by the EU. IDA is expected to finance a total of US$2.0 million out of this component with the balance coming from NDF. The main subcomponents and responsible implementing agencies are given below: a) NCIC Establishment (National Construction Industry Council): Support to secretariat capacity building with emphasis on financial management and monitoring and evaluation systems; Development of contractor registration and survey function; Development of contract documentation for small scale works; Development of options for local revenue generation and cost sharing for NCIC programs. b) Contractor and Consultant Training (National Construction Industry Council and Ministry of Works and Supplies): Assessment of training needs, including training facility refurbishment and expansion; Development of training materials and curricula; Development of "live" contract training schema, including eligibility criteria and follow up support. c) Equipment and financing requirements (National Construction Industry Council and Ministry of Works and Supplies): Study of outstanding constraints with regard to access to finance and light equipment and transport; Development of options and pilot schemes to address these constraints. Project Component 3 - Support to Sustainable Periodic Maintenance - US$10.1 million (total cost including contingencies) The prioritization of road rehabilitation and maintenance works over the period 1999-2004 has been developed as a result of a preliminary technical and economic feasibility study financed out of the PPF advance. On the basis of the criteria developed through this study and bearing in mind both the available implementation capacity and the available alternative sources of domestic and external funding, a follow up study was undertaken to detail a first year program of work for the project. This program is based on those (paved main and secondary road) links for which periodic maintenance, that is resealing plus shoulder rectification, patching of potholes and edge breaks, crack repairs, surface reshaping and restitution or improvement of road markings and road signs, is the indicated intervention. The links demonstrating the highest ERRs have been selected for the first year. Further links may be considered for selection for future years of the project once implementation of the first year program is underway. The component is to be implemented by the National Roads Authority (Technical Director for Central Roads) with the assistance of the Ministry of Works and Supplies. IDA will finance 90% of the cost of this component and the Government will finance 10%. The first year program is in five sections as follows: Project Appraisal Document Page 32 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) a) Lilongwe to Mchinji (M12) 120 km b) Lumbadzi River to Chitsime (MI) Lilongwe Airport road (M30) Chitsime to Bunda (S 125) Total of 57 km c) Linthipe River to Nkhotakota (M5) 113 km d) Mangochi to Mbalula (M3) Liwonde to Naminga (S 131 ) Air Wing road (S 143) Limbe to Chiradzulu (S 146) Total of 54 km e) Lilongwe to Salima (M14) Salima to Grand Beach (S122) Total of 106 km. Project Component 4 - Support to Selective Rehabilitation and Upgrading - US$16.9 million (total cost including contingencies) An economic feasibility and preliminary engineering design report was carried out under PHRD grant financing, the final report of which was submitted in December 1998. Under this study, about 930 km of main and secondary roads and 150 km of urban roads was studied with a view to determining optimum engineering treatments to rehabilitate these roads and to establishing an order of priority on the basis of ERRs. The proposed links for the second and third year program under the project to be financed by IDA, have been selected after this study and now will be subject to more detailed analysis and evaluation before design and bid documentation is finalized. The component will be implemented by the National Roads Authority (Technical Directors for Central Roads and for Urban and Rural District Roads) with the assistance of the Ministry of Works and Supplies. IDA will finance 90% of the cost of this component and the Government will finance 10%. The second and third year program tentatively includes the following links. a) Zomba to Blantyre 57 km b) Jenda to Chikangawa 83 km c) Mzuzu to Nkhata Bay 47 km d) Selected urban roads in Blantyre, i.e. Mahatma Gandhi, Churchill, Ndirande Ring and Kenyatta. Total of 10.9 km e) Selected urban roads in Lilongwe, i.e. Chilambula, Mzimba. Total of 7.1 km Project Appraisal Document Page 33 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 3 Road Maintenance and Rehabilitation Project Estimated Project Costs Project Component Local Foreign Total -----------------------US $ million-------------------- Strengthening of Road Sector Agencies 0.6 5.1 5.7 ( 1.8) Development of the Construction and 0.5 4.2 4.7 ( 1.8) Consulting Industries Periodic Maintenance 2.9 5.4 8.3 ( 7.7) Rehabilitation and Upgrading 4.1 10.6 14.7 (13.3) PPF Refinancing 1.5 1.5 ( 1.5) Total Baseline Cost 8.1 26.8 34.9 (26.1) Physical Contingencies 0.6 1.5 2.1 ( 2.0) Price Contingencies 1.2 1.3 2.5 ( 1.9) Total Project Cost 9.9 29.6 39.5 (30.0) Note: Figures in parenthesis are the amounts to be financed by the IDA credit Project Appraisal Document Page 34 Malawi: Road Maintenance and Rehabilitation Project (ROMAR") Annex 4 Road Maintenance and Rehabilitation Project Summary of Economic Analysis Introduction 1. The overall objective of this project is first to bring the core public road network into a maintainable condition by a program of rehabilitation and then to keep it in a reasonable condition. The broad annual target is based on the availability of resources and the seriousness of the current situation. The determination of the detailed composition of the investment program is based on an economic evaluation of the engineering alternatives. The economic analysis focuses on the calculation of costs and benefits brought about by undertaking road works such as upgrading, rehabilitation or deferred periodic maintenance. The analysis is based on the work undertaken under the PPF and the Japanese PHRD Grants. The outcome of these studies are presented in the final reports on the "Preliminary Economic and Technical Feasibility Study", "Priority Resealing and Associated Rehabilitation Work" and the "Economic Feasibility Study and Preliminary Engineering Design" which are available in the project files. The methodology and results of the prioritization are summarized in the following paragraphs. Traffic Estimation 2. Future traffic for passenger cars is based on linear extrapolation of the past trends. Petrol consumption in the transport sector is used to estimate traffic volume for cars as it has direct relationship with the use of a passenger car. Data from 1985 to 1996 are obtained from the Transport and Communications Performance Bulletin published in 1997 by the Ministry of Economic Planning and Development. Regression analysis yields an annual growth rate of 5.8 per cent, which is used to forecast passenger car traffic growth. The growth of commercial vehicles is based on an income elasticity of 1.0, which is consistent with international studies 3. Traffic surveys were carried out on some of the project roads to estimate traffic volume by different vehicle types. Traffic projections for paved roads are based on the growth of normal traffic, without taking into account any generated traffic. On the other hand, as the maintenance of unpaved roads has been much more insufficient compared to the paved roads, the current condition of the unpaved roads is in general poor and it is expected that improved condition would generate new (or suppressed) traffic. The generated volume of traffic on an existing unpaved road after improvement is estimated from an improved road of a same class servicing similar geographic areas. Reduction in the vehicle operating cost (VOC) will generate additional traffic, but while the normal traffic will receive full benefit from reduction of the (VOC), the generated traffic will receive only half. Estimates of Economic and Financial Costs 4. The costs of various interventions are taken from the past and on-going contracts. Market rates for vehicle and spare parts as well as construction and maintenance costs are converted to economic costs by applying shadow exchange rates and conversion factors. The difference between prevailing market and official exchange rate is used for the shadow exchange rate for the project's foreign component, which is 1.05 times the oi;ficial exchange rate. Costs of goods and equipment are broken down to major cost components. Duties, surcharges and taxes, which account for 80% in case of passenger cars and 10 Project Appraisal Document Page 35 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) % in case of heavy vehicles, are then subtracted from the financial cost to compute economic cost. The shadow price for unskilled labor is computed to be 0.46 from the different wage levels in the construction industry and estate farming. Skilled labor is given a factor of 1.0. Table 4-1 shows the derived weighted conversion factors for major goods and equipment. Financial costs of road intervention are decomposed into components as shown in Table 4-2 for adjustment using the conversion factor to estimate economic costs. Transfer charges consist of taxes and duties. As the current practice on paved road works in Malawi is equipment intensive even for routine maintenance, the share of imported goods dominates among the cost components. The financial and economic unit costs for each intervention obtained from these adjustments are shown in Table 4-3. Table 4-1 Compound Conversion Factor of Goods and Equipment Item Compound Conversion Factor Heavy Vehicle 1.041 Passenger Car 0.308 Pickups and 4x4 0.380 Buses 0.981 Tires 0.457 Petrol 0.549 Diesel 0.616 Construction Equipment 1.047 Table 4-2 Composition of Intervention Cost by Components (in %) Skilled Unskilled Local Transfer Intervention Imports Labor Labor Material Charges Routine Maintenance (Class 1) 55 1 8 9 27 Routine Maintenance (Class 2) 54 3 5 12 26 Patching 58 2 4 10 26 Single Bitumen Reseal 64 2 3 10 21 Double Bitumen Reseal 65 2 4 9 20 Overlay with Regulating Course 70 3 3 5 19 Reconstruction 72 2 5 3 18 Note: Routine Maintenance Class I and Class 2 refer to the intensity of patchwork. Table 4-3 Unit Costs Used in the HDM3 Analysis Financial Unit Economic Unit Intervention Cost in US$ Cost in US$ Routine Maintenance (Class 1) 2,879/km 2,066/km Routine Maintenance (Class 2) 1,899/km 1,405/km Patching 32/sq.m 24/sq.m Single Bitumen Reseal 1.4/sq.m 1.2/sq.m Double Bitumen Reseal 2.6/sq.m 2. 1/sq.m Overlay with Regulating Course 181sq.m 15/sq.m Reconstruction of Failed Pavement 27/sq.m 23/sq.m Project Appraisal Document Page 36 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Prioritization of Roads 5. The cost/benefit analysis is based on the estimates on capital and recurrent costs, traffic flows and road conditions. Initial road condition is based on March 1998 survey data. The deterioration in road conditions which is a function of, inter alia, traffic volume is modeled by the HDM3. The model generates stream of VOC as a function of deterioration in road condition. The base case applied for the HDM3 simulation is routine maintenance with pot hole patching as it occurs. It is compared against two resealing, two overlay and one reconstruction strategies. The result may be considered somewhat conservative because lack of resources has resulted in almost no maintenance activities in the past. The traffic volume data are provided by the Roads Department and is checked for any anomalies and seasonal fluctuation. The vehicle volume is then re-allocated to the HDM3 vehicle group using average traffic composition for each category of roads. 6. The quantified benefits estimated in this analysis are based on lower VOC as a result of project investments. Initial calculations included savings in travel time from road improvements. However, because of the low contribution of travel time savings in the total savings (less than 10%) and difficulties in estimating value of time for different road users, it was excluded from economic analysis. 7. Calculations of the net present value (NPV) and the economic rate of return (ERR) are based on the HDM3 output which compares total net benefit of a base case against each of the strategies. The discount rate used for the calculation of the NPV is 12 per cent which is used as opportunity cost of capital in the region and across the sector. The time period used for the economic analysis is 7 years for single reseal roads and 8 years for double reseal roads. For each road a strategy with highest ERR is selected as the preferred one. In order to establish a priority ranking of the paved roads ERR of the preferred strategy are obtained for each of the roads. The road sections with the highest ERR are selected as priority projects. PriorityRoadResealing: EconomicAnalysis 8. For the first year work program, the aforestated methodology and estimations have been applied in order to select those paved roads' sections scheduled to receive periodic maintenance treatment which should be funded under the project - that is those projects currently unfunded with the highest ERR subject to exceeding the 12% threshold. Table 4.4 below gives the road sections selected, the different treatments identified (may be several per road section) and the estimated ERR. Each road section is individually viable, with the ERR ranging between 25% and 75%. The average project ERR is 33.9%. Project Appraisal Document Page 37 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Table 4.4 - Priority Resealing Treatments and Economic Rate of Return Number Name/Section Treatment ADT Av. ERR MI Lilongwe Airport-Bunda 0.0-20.7 SR1O 1362 47.0 20.7-35.8 DR14/7 3745 75.4 M3 Mangochi-Mbalula 0.0-11.9 DR14/7 415 35.1 M5 Nkhotakhota - Salima 0.0-25.3 SR1O 381 34.7 25.3-34.3 DR14/7 381 25.5 34.3-114.2 SRIO 486 23.5 M12 Lilongwe-Mchinji 0.0-6.8 DR14/7 1478 61.8 6.8-119.3 SRIO 590 38.1 M14 Lilongwe-Naminga 0.0-3.4 DR14/7 753 34.0 3.4-114.2 SR1O 560 25.0 M30 Lilongwe Airport Access 0.0-3.9 SR1O 578 50.4 S122 Salima-Grand Beach 0.0-23.8 SRIO 561 51.8 S125 Lilongwe-Bunda 0.0-16.4 SRIO 454 42.1 S131 Liwonde-Naminga 0.0-24.3 DR14/7 349 16.7 S143 Zomba-Ndege 0.0-3.6 DR14/7 176 20.9 S146 Limbe-Chiradzulu 0.0-14.2 SRIO 301 35.4 Total Project Priority Resealing Treatments 33.9 Key: SRIO - Single Reseal with lOmm DR 14/7 - Double Reseal with 14mm and 7mm Project Appraisal Document Page 38 Malawi: Road Maintenance and Rehabilitation Project (ROMARp) Risk and Sensitivity Analyses 9. Sensitivity analysis is carried out only on those road sections selected for the first year program. The project viability is particularly sensitive to two sets of assumptions: zero traffic growth and an increase in investment costs. Considering that the bid documents for the first year program are ready, there is not expected to be any delay in the implementation of works and benefits are expected to start resulting in year 2000. The project's ERR is well above the 12% threshold under each of the two scenarios. The results of the specific sensitivity test cases are (see Table 4.5): - With zero traffic growth, the ERRs of all subprojects are reduced but remain above the 12% threshold; and - With 20% cost escalation, the ERRs of all subprojects are above the 12% threshold. 10. The Malawi economy is subject to external shocks such as drought and changes in the terms of trade which may have a profound effect on traffic volume and construction costs.. Another factor that may impact on future traffic volume is the extent to which heavy goods traffic is diverted from road to rail and water. The privatization of Malawi Railways and Malawi Lake Services may be expected to make these transport modes more efficient. The impact on heavy goods traffic volume may be significant on certain export routes, e.g. one round trip Chipoka to Chilumba of a 1300 ton vessel on Lake Malawi could substitute for 15 heavy, articulated truck trips on the northern corridor. Given that none of the roads selected under the first year program are major export routes, it has not be necessary to model the potential impact of intermodal shifts. Such will however be included under the terms of reference for the detailed feasibility and design studies for the main road rehabilitation under the second year program of works. Project Appraisal Document Page 39 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Table 4.5 - Sensitivity Analysis: Priority Resealing Treatments and Economic Rate of Return Number Name/Section Treatment Zero Traffic 20% Cost Growth Escalation MI Lilongwe Airport- Bunda 0.0-20.7 SR1O 26.3 37.6 20.7-35.8 DR14/7 40.4 64.0 M3 Mangochi-Mbalula 0.0-11.9 DR14/7 17.8 29.3 Ms Nkhotakhota - Salima 0.0-25.3 SRIO 20.2 27.1 25.3-34.3 DR14/7 16.0 20.0 34.3-114.2 SRIO 15.0 20.7 M12 Lilongwe-Mchinji 0.0-6.8 DR14/7 46.2 49.1 6.8-119.3 SR1O 27.8 29.8 M14 Lilongwe-Naminga 0.0-3.4 DR14/7 22.7 26.9 3.4-114.2 SRI0 16.2 18.0 M30 Lilongwe Airport Access 0.0-3.9 SR1O 36.7 40.19 S122 Salima-Grand Beach 0.0-23.8 SRIO 35.78 43.4 S125 Lilongwe-Bunda 0.0-16.4 SRIO 24.7 33.9 S131 Liwonde-Naminga 0.0-24.3 DR1417 11.5 12.2 S143 Zomba-Ndege 0.0-3.6 DR14/7 15.9 15.7 S146 Limbe-Chiradzulu 0.0-14.2 SRIO 29.5 27.3 PROJECT 26.3 27.9 Key: SRIO - Single Reseal with lOmm DR14/7 - Double Reseal with 14mm and 7mm Project Appraisal Document Page 40 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 5 Road Maintenance and Rehabilitation Project Financial Summary A. Financial Analysis I. The project is to assist the Government's program aiming at establishing a sustainable road maintenance over five years. The majority of the project cost is expected to be financed by IDA with counterpart funding from the Government. NDF will co-finance the institutional and capacity building components. Once the roads are rehabilitated, they will be put under a maintenance program financed by the Roads Fund. Table A summarizes the annual expenditure projections during the project period. There will be a slight increase of the incremental recurrent cost over the project period which totals about US$ 1.5 million equivalent. Compared to the expected revenue of the Roads Fund, this increase will have no major impact as it represents 20 per cent of the Roads Fund revenue expected for only 1998/99. 2. More important, the sustainability of the road sector development will depend on the sustainable road sector financing as a whole. The history of road development in Malawi is characterized by the development of new roads. As a result, road network size has been increasing from just above 10,000 km in the 1960s to more than 14,000 km in 1995, and consequently the allocation of the recurrent road budget to the Roads Department has been declining both in total amount and per km basis for many years before it started to recover from 1995. For example, the recurrent expenditure was US$ 9 million equivalent in 1990, but decreased to US$ 3 million equivalent in 1994/95. This is a serious consideration given that the percentage of paved roads to total has increased sharply over this period - and the cost of recovering an unmaintained paved road is greatly in excess of an unpaved road. Financing for recurrent costs started to recover from 1996/97 and reached US$ 9.1 million equivalent in 1997/98. Chart 3 shows the changes in the financing of road sector recurrent costs. 3. The Government has recognized the importance of road maintenance and introduced the Roads Fund in 1997 which is expected to cover recurrent expenditure in the future. On projected levels of fuel consumption in 1998/99, the fuel levy per liter of MK I for petrol and MK 0.99 introduced in February 1998 was to yield roughly MK 245 million (slightly below US$ 10 million equivalent at that time). Fuel levy was adjusted to MKI .25/liter (for both petrol and diesel) in October 1998 as pump prices were increased. This was expected to raise MK300 million, but only US$6.8 million at the new exchange rate. 4. The policy of Government is to ensure that the expected revenue of the Roads Fund as a first step would cover the minimum routine maintenance to prevent roads from further deterioration and would address only the core road network of about 9,400 km out of a total network of 15,000 km. The core road network is defined as all public roads carrying more than 30 vehicles per day. According to Government's policy, the routine maintenance would be extended as a second step to cover the whole network plus maintenance of bridges and administration cost of the new road authorities - which means all recurrent costs. (Periodic maintenance is not included in the recurrent cost during the project period because it is performed to cover the backlog investment rather than preventive maintenance operation). It was originally anticipated that these steps would be achieved respectively in 1998/99 and 2000/01. Delays in implementation of the institutional reform, currency devaluation and fiscal and macroeconomic constraints to raising the fuel price have pushed these back. The size of the network is not expected to increase during the project period, but the maintenance expenditure would continuously increase as roads after rehabilitation would be able to receive full maintenance. It is assumed that road rehabilitation Project Appraisal Document Page 41 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) program funded by other donors will be performed as planned, and this has been factored into the calculation of financing requirements which is discussed below. 5. Table SB analyzes the expected expenditure and the required level of the fuel levy. The expected growth rate of fuel consumption is set at 5.8 per cent for petrol and 4.5 per cent for diesel which is in line with the future traffic forecast presented in the Annex 4. No cost inflation or exchange rate change is taken into account. Case I assumes no funding other than the fuel levy would be made available for the Roads Fund. In order to finance the recurrent expenditure the required level of the fuel levy by 2000/01 should then be about MKI.95 per liter (about 5 US Cents): and MK2.06 by project end This implies that the fuel levy should be increased by 56 per cent over the next two years. Case 2 presents that other sources like license fee and transit charge would be included to the Roads Fund from 2000/01. The required level of increase in fuel levy will be reduced by 25 per cent for the next two years which can be maintained from 2000/01 to project end. Even in Case 1 the effect of the increase, however, would have no significant increase in the pump price of fuel as the Roads Fund at its current level corresponds to 7.6 and 9.1 per cent of the pump price for petrol and diesel respectively (Chart 1). Assuming other Government tax and charges would remain at the current level, the end project level of fuel levy will increase the pump price by 3 and 4 per cent for petrol and diesel respectively. The share of Roads Fund will increase to 10 per cent of the pump price (Chart 2) in this case. 6. Once all backlog rehabilitation and maintenance have been covered, the Roads Fund is expected to cover all scheduled maintenance and rehabilitation according to Government's sector policy statement. This situation is not likely to occur within ten years. The estimated annual expenditure under this case (the steady state) is US$ 35.5 million equivalent. Including license fees and transit charges which is expected to grow at the same rate as the traffic volume (4.5 per cent per year), the fuel levy contribution to the Roads Fund should be about MK 2.13 (5 US Cents equivalent) per liter. (This case assumes year 2008/09 under constant growth of fuel consumption.) This level of user fee should be considered to be as the medium term target. In order to achieve this revenue level by 2008/09, average annual increase of the levy by MKO. 16/liter (13 per cent per annum based on 2000/01 level) would be necessary. 7. The fiscal impact of the project can thus be seen as follows: (i) The incremental recurrent cost arising from the project will be fully financed by the road users so that no additional Government budget is required other than the counterpart funding. (ii) Roads Fund needs to be increased in order to finance maintenance of the full network, but the effect of this increase will not be significant on the pump price. This implies that although transport costs account for more than 40 % of retail and fertilizer price, the effect of the increased fuel levy will not induce significant increase in consumer price. On the other hand traffic benefit may be much larger than the increase in the pump price so that a net reduction of the transport costs should be realized. (iii) Broadening the revenue source of Roads Fund will reduce the required rate of increase of fuel levy. The Government should seriously consider transferring license fees and transit charges to the Roads Fund. (iv) Inflation will offset increase in the Roads Fund. In order to keep the Fund on the current level a regular adjustment of the fuel levy is necessary. Project Appraisal Document Page 42 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 5, Table A: Project Financing Plan (US$ million) Implementation Period Fiscal year 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 Total Project Costs Investment Costs 4.3 8.7 12.1 10.7 2.2 38.0 Recurrent Costs 0.0 0.1 0.2 0.5 0.7 1.5 Total 4.3 8.8 12.3 11.2 2.9 39.5 Financing Sources (% of total project costs) IDA 2.1 6.1 9.3 8.9 2.1 28.5 Co-financiers (NDF) 1.8 2.0 2.0 1.0 0.0 6.8 Government 0.4 0.6 0.8 0.8 0.1 2.7 User Fees 0.0 0.1 0.2 0.5 0.7 1.5 Total 4.3 8.8 12.3 11.2 2.9 39.5 Main assumptions: 1. Total cost including contingencies. 2. Periodic maintenance is included in investment costs for the implementation period as it is aimed for covering the backlog. 3. PPF refinancing (US$ 1.5 million) is not included. 4. Only incremental recurrent costs as a result of this project are shown. 5. User Fees are expected to cover incremental recurrent costs while IDA, NDF and Government will finance the investment costs. Project Appraisal Document Page 43 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 5, Table B: Road Maintenance Expenditure and Financing Forecast Expenditure 98/99 99/00 00/01 01/02 02/03 03/04 Stea dy Routine Maintenance MK mn 278 388 493 530 570 630 1065 Administration MK mn 30 32 35 38 41 45 55 Total MK mn 308 420 528 568 611 675 1120 Financing Fuel Levy (Case I) MK mn 308 420 528 568 611 675 1120 Fuel Levy (Case 2) MK mn 308 420 479 492 511 560 870 OtherRoadUserCharges MKmn 0 0 49 76 100 115 250 Sub Total MK mn 308 420 528 568 611 675 1120 Notes: 1) Assumed fuel Consumption MKAliter Petrol 125 132 140 148 157 166 220 Diesel 121 126 132 138 144 151 188 2) Case 1: Fuel Levy without revenue from other RUCs Petrol MK/liter 1.25 1.63 1.95 .1.99 2.03 2.03 2.75 Diesel MK/liter 1.25 1.63 1.95 1.99 2.03 2.06 2.75 3) Case 2: Fuel Levy with revenue from other RUCs Petrol MK/liter 1.25 1.63 1.76 1.73 1.7 1.75 2.13 Diesel MK/liter 1.25 1.63 1.76 1.72 1.7 1.75 2.13 4) February 1999 exchange rates and prices assumed 5) Routine maintenance of core network achieved by 2000/01 Routine maintenance of full network achieved by 2003/04 Administration costs fall from 10% to 5% over project 6) Other road user charges based on Bank estimates 7) No financing of rehabilitation from Roads Fund 8) Steady state assumes rehabilitation by 2009/2010 9) Rate of growth of maintainable network (%/o) 7.8 7.8 7.7 6.9 6.9 0 Project Appraisal Document Page 44 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Main Assumptions Chart 1 Current Composition of the Petrol Price at Pump Handling and Markup 18% Other Funds 4% Road- CIF 49% Fund 8% Duties, Taxes, Surcharge 21% Chart 2 Composition of the Petrol Price at end of project, Case I Handling and Markup 17% Other Funds 4% CIF 48% Road Fund 10% Duties, Taxes, Surcharge 20% Chart 3 Recurrent Expenditure of the Road Sector: Past and Future 16.0 14.0 12.0 . 10.0 - 6.0 4.0 2.0 0.0 cIJ C) (cD r- co O 0 - CO _ 0) 0) N 0 0 0 0 0 0 0 0 0 a ' Cm toC co tl- ~ 0)0- CM4 0) 0) ) CY) 0) 0) a) 0) 0) 0 0 0 - - - - - - C,~ CJN 0NN Fiscal Year Project Appraisal Document Page 45 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) B.Financial Management Arrangements 1. Institutional Responsibilities. The executing agencies for ROMARP are the NRA, and the NCIC. The NRA is governed by the National Roads Authority Act No. 13 of 1997 (published May 16, 1997) and its operations are specified in the National Roads Authority operating procedures. The NCIC was established under its own legislation, July 1996, and has been created as a body corporate. It is expected that for the initial stages of the project that all the funding will be controlled through the NRA. 2. NRA is a body corporate and has wide powers on ownership of assets, receiving revenue, borrowing and carnying out its affairs in law and in a business manner. It is responsible for the operation of the Roads Fund. It is required to keep proper books of account and have its annual accounts (balance sheet and income and expenditure account) audited by the Auditor General or other professional approved by the Auditor General. These have to be carried out within three months of the year end. The NRA procedures set out the duties of the Financial Sub Committee which is drawn from specified Board Members and two members of the Authority and which has overall responsibility for the Roads Fund and other financial matters of the NRA. In addition, the Authority is required to establish a Secretariat, consisting of the Chief Executive Officer and up to four qualified officers in accounting, transport planning and financial management. The Secretariat is charged with the keeping of proper accounts, maintaining separate bank accounts for local and donor funds, and preparing annual accounts. An annual budget process is also laid down. According to the NRA procedures, all donor funds pass direct to the NRA and not through Government. Interim Accounting Arrangements 3. While the Board of NRA was appointed in October 1997 the first receipts from the Roads Fund only came in January 1998. In addition, the NRA was used as the paymaster for donor funding for the outstanding contractor payments that had been accumulated by the Ministry of Works and Supplies since 1996. To help with this work the NRA received assistance from a professional accounting firm to organize the outstanding claims, schedule them for payment and record the accounting for these funds and those being received from the Roads Fund. In addition, they provided financial management services to the NRA Board on the "Mini Budget" for the April to June 1998 period and for the year July 1998 to June 1999. Contributions have also been made on the operations budget and cash management. 4. The accounting records have been kept on Excel spread sheets; cash book and contractor payments and liabilities. Separate Bank accounts were established for the donor funds and three other bank accounts were opened for the Roads Fund. This has allowed the NRA to place funds on interest bearing accounts. The review of these records showed satisfactory accounting and reporting. 5. The Finance Director has been in place since October 1998 and continuing assistance is being provided by the professional accounting firm. There is provision in the staffing structure for three other accounting staff- an accountant, assistant management accountant and an assistant financial accountant and their recruitment is underway. Overview of Financial Management System 6. The first function of the Finance Director has been to review what is necessary and decide on the best way of ensuring that the accounting system is put in place at the earliest time. As part of this process the below elements have been highlighted. This work should be guided by the Secretariat as part Project Appraisal Document Page 46 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) of its responsibility for ensuring that proper accounting records are kept. Other parts of this responsibility should incorporate the accounts procedures manual, budget review, the quarterly and annual accounts and other financial matters that are important to the running of the NRA. 7. Internal Control: - The guiding principles that should be adopted are that the internal controls are appropriate; function consistently; and, are cost effective. These should be documented in an accounting procedures manual and approved by the Board. They should also be updated on a regular basis to meet new needs. The manual should deal in detail with the systems, authorization process, level and responsibilities. All aspects of accounting, procurement, stores management and fixed assets should be covered. 8. Integrated Accounting System: - The integrated system needs to be capable of incorporating procurement and project progress with the general accounting system. Output will encompass the quarterly LACI PMR reports, copies of which are set out in the World Bank Handbook, recording transactions by category of expenditure, identifying the funding source, be capable of dealing with multiple currencies and produce the required disbursement data for each donor. In order to establish a correct analysis of expenditures a chart of accounts will have to be put in place at an early time. A review will need to be made of available of software and the Secretariat, on advice from the Finance Director, will need to consider the advantages and shortfalls of the available software currently in use in Malawi. Local support from the systems supplier should be an important criteria in the eventual choice. The accounts for NRA must present the total position of the institution and be capable of identifying the expenditures from each source of funding. 9. Cash or Accrual Accounting: - NRA will need to move to accrual accounting to present an accurate position of the state of the organization, especially as it refers to its liabilities on contracts let and Roads Fund fuel levy accruing. The question as to when NRA recognizes revenue from the fuel levy will need to be decided. For the purposes of cash requirements for the special account, adjustments will have to be made to change the requirements to a cash basis as well as making appropriate adjustment to funding from other sources. 10. Fixed Assets: - A module of the accounting system and the internal control procedures will be needed to properly account for all the fixed assets and create an identification mechanism for the individual assets. One issue that should be addressed is the question of the transfer of assets from the Ministry of Works and Supplies to the NRA. A basis of valuation will need to be agreed upon. 11. Internal Audit: - As part of the process of internal control and full accountability, consideration should be given to the appointment of an internal auditor. 12. External Audit: - The audit of the NRA, under its act, is to be carried out by the Auditor General or professional approved by the Auditor General. The Secretariat needs to make an early decision as to how this is to be handled. Also a decision needs to be taken on the first reporting period to be presented for audit. The Act specifies the year for NRA as being April to March. However, as Government has changed the fiscal year to July to June it is necessary to agree upon which period is to be used. If the NRA follows Government then there are three basic options with some small variations on the options. These are to have the initial reporting period: (i) to March 1998; (ii) to June 1998; or, (iii) to June 1999. Variations could include having the first period to March 1998 and then an interim April to June 1998. The Auditor General has stated that the first reporting period will cover the period April 1998 to June 1999, and thereafter the reporting period will be 12 months to June 30 each year. Project Appraisal Document Page 47 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) 13. Planning and Budgeting: - The NRA Act sets out requirements for the budget process. In addition, the project management reporting system under the LACI requires quarterly information. It will be important that reconciliation is made. Again this should be monitored by the Secretariat. The above are being addressed in the Accounting Manual and satisfactory progress was noted during negotiations. The ongoing process of completion of the accounting manual and installation of the accounting software will continue to be monitored by the Headquarters and Resident Mission financial management specialists. Full operation of the integrated system, using PMR-based disbursements, have been formulated in a timebound action plan which was discussed at negotiations and which will be finalized by Board presentation. Disbursements under the proposed Credit will commence under existing procedures and in the interim PMR statements for sources and uses of Funds and procurement monitoring reports will be produced. Project Appraisal Document Page 48 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 6 Road Maintenance and Rehabilitation Project Procurement and Disbursement Arrangements Table A: Project Costs by Procurement Arrangements (in US$ million equivalent) Procurement Method Expenditure Category ICB NCB Other N.B.F Total Cost 1. Works Periodic Maintenance 4.5 2.2 1.1 0.0 7.8 (4.0) (2.0) (1.0) (7.0) Rehabilitation 5.9 2.2 0.0 0.0 8.1 (5.3) (2.0) (0.0) (7.3) Upgrading 4.9 0.6 0.0 0.0 5.5 (4.5) (0.5) (0.0) (5.0) 2. Goods Equipment 0.0 0.7 0.3 0.7 1.7 (0.0) (0.6) (0.2) (0.8) Vehicles, Computers 0.0 0.3 0.2 0.9 1.4 (0.0) (0.2) (0. 1) (0.3) 3. Services Eng. Services & Studies 1.7 0.0 2.1 (1.7) (1.7) Technical Assistance 1.5 3.8 5.3 (1.5) (1.5) Training 1.0 1.6 2.6 (1.0) (1.0) 4. Miscellaneous PPF 1.5 1.5 (1.5) (1.5) Unallocated 3.9 3.9 (3.9) (3.9) Total 15.3 6.0 11.2 7.0 39.5 (13.8) (5.3) (10.9) (30.0) Note: N.B.F. = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the IDA credit Procurement for Project Preparation. The four major consultancies undertaken during preparation work for the project were: the Preliminary Economic and Technical Feasibility Study; the Priority Resealing and Associated Rehabilitation Work - Detailing, Designing and Documentation Consultancy; Feasibility Study and Preliminary Engineering Design for the Rehabilitation of Selected Main Roads; and Preparation of an Action Plan for the Development of the Construction and Consulting Industries in Malawi. The first two mentioned were financed by the PPF of this project and the latter two Project Appraisal Document Page 49 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) by grants under the Japanese PHRD facility. These were contracted following IDA guidelines for the use of consultants. The summary of proposed procurement arrangements are presented at Table A. Procurement under the Project. The total value of IDA-supported consulting assignments will be US$4.2 million. These assignments mainly comprise institutional strengthening and capacity building in road sector agencies and in the construction industry, specific feasibility, economic and engineering studies, and design and construction supervision for periodic maintenance, rehabilitation and upgrading road works. Consultants would be hired in accordance with the Bank's Guidelines for Selection and Employment of Consultants (January 1997, updated September 1997). Most consultant selection will be addressed through competition among qualified short-listed firms in which the selection will be based on Quality-and-Cost-Based Selection (QCBS) by evaluating the quality of the proposal before comparing the cost of the services to be provided. Short lists for contracts estimated under US$100,000 may be comprised entirely of national consultants if a sufficient number of qualified (at least three) are available at competitive costs. However, if foreign firms have expressed interest, they will not be excluded. Included in the total is, US$1.7 million for engineering services and feasibility studies. US$1.5 million will be spent on technical assistance, in the form of hiring of firms and individual short term consultants (individual contracts not exceeding US$50,000 in the latter case). Contracts less than $50,000 each may be awarded on a single source basis subject to adequate justification and prior review by IDA. This will mostly concern capacity building in road sector agencies. Training (total value US$1.0 million) will comprise hiring of individual short term consultants and support for training programs. Larger works contracts (individual contract value - local costs and IDA support -- US$0.5 million and above) will be awarded on the basis of ICB for an aggregate value equivalent of US$15.3 million approx. This comprises contracts for periodic maintenance, rehabilitation and selected upgrading of main and urban roads. Smaller-value works contracts (individual value less than US$0.5 million equivalent) will be awarded on the basis of NCB for an aggregate value of US$6.0 million equivalent. It has been agreed that procedures for NCB to be used by NRA and the tender documents to be used will be based on the Bank Standard Tender Documents for ICB, suitably modified. In the interest of promoting opportunities for local contractors under the project, out of the aggregate amount of US$6.0 million about US$1.0 million is expected to be utilized for minor works (individual contract value up to US$0.1 million). A simplified form of tender document based on NCB for these works is under preparation. This will be finalized and agreed with IDA no later than credit effectiveness. Training contract works (individual contract value of US$50,000) may be awarded to local contractors (one contract per contractor) who have completed a training program acceptable to NRA and IDA for an aggregate value of US$1.0 million. Selection of contractors for training will be based on objective criteria and open selection, the parameters for which will be agreed with IDA by credit effectiveness. Contracts for the procurement of goods supported by IDA (individual value US$250,000 equivalent and above) will be awarded on the basis of ICB. Smaller value goods procurement contracts (individual value less than US$250,000 equivalent) will be awarded on the basis of NCB, for an aggregate value of US$ 1.0 million. Contracts less than $50,000 each may be awarded through National Shopping using approved procedures, for an aggregate value of US$ 0.3 million equivalent. The General Procurement Notice has been published in the Development Business Forum at least 60 days prior to the issue of bid documents. Specific Procurement Notices will be issued for firstly civil works under ICB procedures and secondly for consulting contracts above US$200,000 before preparation of shortlists. The Procurement Planning Schedules for consultancies, goods and works are included in the Project Implementation Plan (PIP) in draft final form by credit negotiations and in final form by credit effectiveness. Project Appraisal Document Page 50 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Implementation Arrangements. The implementation arrangements will be designed to support the five year program for roads which is financed by Government and many donors. The total program is estimated to cost US$342 million. The IDA will finance US$30 million and the remaining funding will come from (a) Government budget; (b) the Roads Fund; (c) EU; and (d) KfW. The IDA financing will support (i) civil works for periodic maintenance and rehabilitation works; (ii) goods; (iii) consulting services for engineering design, supervision; and (iv) capacity building activities. For this work, the detailed planning is in progress. Provisional estimates of procurement work are that there will be: about 15 contracts for civil works (10 contracts of value between US$1-2 million and 5 contracts of value between US$34 million); 6 contracts for goods; about 10 contracts for consulting services including capacity building activities; and about 20 training contracts for emerging contractors. The non-IDA portion of the road program of NRA (US$312 million) will include: (a) about 460 small routine maintenance contracts (90 every year on average of value US$70,000), and (b) about 40 contracts for capital works of periodic maintenance and rehabilitation works. NRA will be responsible for the procurement of all civil works, good and consulting services. All the procurement functions including, preparation of bidding documents, bid invitation, contract award and monitoring of contracts will be carried out centrally at NRA headquarters through a Procurement Unit (PU) under the Planning Section. The institutional capacity of NRA for procurement is not yet adequate and will be strengthened by setting up the PU. The engineering site staff currently undertake procurement functions in addition to their primary role of contract supervision, for routine maintenance contracts only using local bidding procedures. Under the project, these engineering staff will continue to handle similar work (expected cost $60 million). For the remainder of the procurement workload, the PU will be fully responsible for planning and timely completion. The PU will comprise 3 procurement specialists, each forming the head of an autonomous team with the support of secretarial and accounting staff. The PU will also be responsible to deliver the procurement products to agreed timetables. One specialist is being recruited through EU assistance. A second specialist to focus on IDA funded procurement is being recruited and will be on board by credit effectiveness. For its procurement management functions including preparation of bidding documents, bid evaluation reports, and contract monitoring for all contracts except routine maintenance, the PU will be staffed initially by skilled procurement staff (individual consultants to be recruited). These consultants will train up the local NRA counterpart staff so that the work of the remainder of the project is undertaken by NRA's own staff. These staff will be in position before credit effectiveness. The cost of the PU staffing and training of counterpart staff will be financed under the project. Procurement monitoring will be the responsibility of the PU. Quarterly progress reports will be furnished inter alia to IDA through the NRA. Project Appraisal Document Page 51 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Table B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review 1. Works <500,000 NCB > 250,000 > 500,000 ICB > 250,000 2. Goods < 250,000 NCB >250,000 > 250,000 ICB >250,000 < 50,000 International/National - Shopping 3. Services QCBS 100,000 (firms) Individual 50,000 (individuals) Single Source All 4. Miscellaneous Total Prior Review For procurement of works and goods, all cases valued at US$ 250,000 or more will require prior review by IDA. The Bank will review the selection process for the hiring of consultants proposed by the borrower for those consultancy contracts to be awarded to firms; contracts worth US$ 100,000 and above will be subject to IDA prior review; for individual consultants the prior review threshold will be US$ 50,000. However, the exception to IDA prior review will not apply to the Terms of Reference of such contracts, regardless of value, to single-source hiring, or assignments of a critical nature as determined by IDA or to amendments of contracts raising the contact value above the prior review thresholds. All contracts during the first year of the project, and selective contracts thereafter, will be subject to post- review. Project Appraisal Document Page 52 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Disbursement Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$million Financing Percentage Civil Works (Periodic Maintenance) 7.0 90% Civil Works (Rehabilitation) 7.3 90% Civil Works (Upgrading) 5.0 90% Goods (a) Equipment 0.8 90% (b) Vehicles, Computers 0.3 90% Services (a) Engineering services and Studies 1.7 100% (b)Technical Assistance 1.5 100% (c) Training 1.0 100% Refinancing of PPF 1.5 Unallocated 3.9 Total 30.0 The proceeds of the IDA credit would be disbursed against: (a) 90% of expenditures on all civil works contracts; (b) 90% of expenditures on all goods contracts; and (c) 100% of expenditures for studies, other consultancy and advisory services and training. As projected by Bank's standard disbursement profiles, disbursement would be completed by four months after project closure. Disbursement would be made against standard IDA documentation. Use of statements of expenditures (SOEs): Disbursement would be made on the basis of statement of expenditure (SOE) for contracts and purchase orders with an individual value less than those requiring IDA's prior review. Special account: In order to ensure timely provision of funds available to finance the costs of the project, it is proposed that the Government establish a Special Account in the amount of US$2.0 million. Funds in this Special Account would be available to finance only eligible expenditures under the Project. During negotiation, agreement was reached regarding the arrangements for establishing and operating the Special Account. Project Appraisal Document Page 53 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Project Account: In order to ensure the timely provision of counterpart funds, the Government will establish, a Project Account, at a Bank acceptable to IDA, with an initial balance sufficient for the first quarter by project effectiveness, i.e. US$125,000. The Government will replenish the Project Account, at intervals of not less than 3 months, with sufficient funds to meet the Government's share of expenditures under this project for the ensuing 3 months, and the funds would be applied only for this purpose. During negotiations, agreement was reached regarding the arrangements for establishing and operating the Project Account. Project Appraisal Document Page 54 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 7 Road Maintenance and Rehabilitation Project Environmental Analysis Background The final report of the Preliminary Economic and Technical Feasibility Study, whose findings and conclusions on environmental management have been accepted by Government, provides advice and guidance on the requirements for environmental impact assessment and mitigation in the road sector in Malawi. The environment includes the physical and human environments as they relate to, and are affected by, the road sector. Examples of negative environmental impacts in the road sector include: unrehabilitated borrow pits and works, storm water directed onto adjoining farmlands and villages resulting in silting and in some cases, flooding. An important factor influencing the past and present environmental impact assessment practice in Malawi appears to be the apparent lack of environmental awareness and appreciation that environmental assessment can address in the interest of long-term economic development. Environmental Impact Assessment in Malawi Under the provisions of the Environmental Management Act (EMA) a developer is required to prepare an environmental "project brief' for projects that have, or are likely to have, potential impact on the environment. To enable the developers to decide which projects fall into this category a list of "prescribed projects" was gazetted in June 1998. This lists the types of projects that require a environmental assessment brief to be sent to the Director of Environmental Affairs for determination if a comprehensive EIA study and report is required. Environmental Impact Assessment Requirements in the Road Sector The Guidelines for EIA have a significant impact upon the management, administration and technical aspects in the road sector. The following items are of particular administrative relevance: * The provisions of the EMA binds road project developers. Within the public sector, this implies the road agencies; * The EMA prevails over any other environmental assessment provisions in other Acts that relate to road projects; * The gazetted list of "prescribed projects" defines a number of cases where an EIA is likely to be mandatory on road projects. Those of particular technical relevance include: * The construction of new highways and feeder roads or the expansion of existing highways and feeder roads; * All extraction of sand, gravel and clay or topsoil material, be it from the ground or from the banks and beds of water bodies, where explosives or heavy machines will be used; * All blasting operations; * Construction of dikes and groynes of greater than 2 meters in height or I km in length, to remedy flooding; Project Appraisal Document Page 55 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) * Construction of dams and weirs with a height of greater than 2 meters, or which divert more than 20 cubic metres of water per second, or any bypass channels or channel realignments to remedy river erosion or flooding; * Projects in proximity to, or that have a potential to affect areas of unique historical, cultural, scientific or geographical significance or that have received some kind of World Heritage designation; national parks, game reserves and protected areas, wetlands, water bodies, flood zones, major sources of drinking water, including communal wells, cemeteries or ancestral shrines, or residential, school and hospital areas, as designed in local planning documents. Road Sector Environmental Impact Assessment Process A specific environmental impact assessment and mitigation process is required within the road sector that includes guidelines for environmental assessment for all works. The process needs to allow development within the road sector to proceed without causing significant or unnecessary environmental harm. The process should facilitate the development, rehabilitation and maintenance of roads while addressing the environmental obligations and requirements. The early identification and resolution of environmental issues is important to prevent wastage of resources after large amounts of effort and money have been spent on the project conception, planning, design and construction. The NRA is responsible for the planning and funding of the network and for approving various programs put forward by the different road agencies who are responsible for implementation. The NRA will need to take a role in the identification and resolution of environmental issues and be able to advise the road agencies on the acceptability or otherwise of their proposals from an environmental standpoint. The NRA should have, within its structure or reporting directly to it, the necessary specialist capabilities required for this role. The establishment of an Environmental Management Unit (EMU) is recommended in this regard. Environmental Mitigation Provisions in Road Work Contracts The Ministry of Works and Supplies Road Planning Manual (1972, Chapter 11) mentions the importance of the environmental considerations of proposed route improvement during development and evaluation to ensure that road works are conducted in the best overall public interest. It recognizes the need for planners to identify positive and negative environmental impacts as well as mitigation measures. However, it does not give details on how to do this. To ensure that contractors undertake environmental mitigation activities, the tender and contract documents should include environmental clauses. There should also be a provision for environmental education for sub-contract workers to be provided by the primary contractor. The EMU should be responsible for developing and reviewing such clauses for use in documents. Environmental mitigation plans should be developed and environmental performance benchmarks established and agreed upon during the implementation and supervision of physical works. Failing to comply with the environmental requirements in the contract should result in strict penalties such as withholding payments to allow the road agencies and the NRA to rectify the situation. Environmental Review Committee The NRA should take responsibility for the development of systems and procedures for environmental impact assessment and mitigation. To assist in getting these established, it would be desirable to put into place a multi-disciplinary Environment Review Committee (ERC) for the road sector. Such a committee would oversee the implementation of environmental impact assessment and mitigation processes in the Project Appraisal Document Page 56 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) road sector. This ERC should be established early in the life of the project and should help determine the detailed terms of reference and budget for the EMU, oversee its operation for a suggested initial 2 year period, after which the ERC would cease operation, organize training and produce road sector environmental assessment guidelines. Environmental Management Unit (EMU) Currently the road sector in Malawi has no internal environmental unit dedicated to providing advice, guidance or checking environmental issues associated with road projects. The establishment of an EMU reporting to the NRA is considered a desirable way of overcoming this deficiency. The EMU should have a wide range of responsibilities focused on the environmental impact assessment and mitigation process in the road sector. The precise composition and role of the EMU, especially its role within the road sector review process, needs further definition depending on the needs of the NRA. The ultimate role of the EMU will depend upon its position in the road sector, and the financial and human resources available. Road Sector Environmental Review Guidelines Environmental impact assessment guidelines, with checklists and information related specifically to the road sector, would be prepared. They would provide engineers and others involved in the environmental impact assessment and mitigation with a simple effective and uniform method and process. The guidelines would be designed so that in most cases the environmental issues can be satisfactorily identified and addressed without the need for a full EIA report even for "prescribed projects". Environmental Awareness Education and Training Effective environmental impact assessment and mitigation in the road sector, requires that those responsible for and undertaking the process have the necessary knowledge and skills. Currently, the road sector in Malawi has a shortage of such people. It is imperative that the appropriate people receive training to correct this problem. Once the road sector environmental impact assessment procedures and guidelines are adopted and an EMU has been created, the precise training needs should be determined by completing a training needs analysis. The first people to train for instance, are those in positions central to the initial implementation of the EIA process and those who initiate works and will have to provide assessments of the like impacts. As a guide, people in the following key positions should participate in environmental training in the near future: * National Roads Authority Board members; * The NRA Director of Operations and the heads of Divisions; * Chief Design Engineers in all road agencies; * Members of the Ministry of Works and Supplies Planning Unit (or the equivalent in the NRA if the function is transferred); * Members of the District Assembly; * EIA mitigation and audit practitioners; * Key personnel in road contractors and subcontractors likely to be bidding and winning road contracts * local representatives of key international donors. The training should also be extended to include people involved in: NGOs, academia, media, training organizations, Members of Parliament, representatives of other line Ministries and the general public. Project Appraisal Document Page 57 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) The training program should have the broad objectives of giving participants: * an understanding and appreciation of the benefits of EIA and mitigation; * an understanding of the EIA process established by the EMA and how it can be implemented in the road sector; * an awareness of how the road sector and other sectors are affected by the process; * a practical understanding of, and an ability to undertake, the assessment process; and * an understanding of the road sector environmental assessment guidelines and their interaction with the overall EIA process in Malawi. Project Appraisal Document Page 58 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 8 Road Maintenance and Rehabilitation Project Project Processing Budget and Schedule Planned A. Project Budget (US$000) (At final PCD stage) Actual 350.8 B. Project Schedule Planned Actual (At final PCD stage) 19 months 29 months Time taken to prepare the project (months) First Bank mission (identification) 11/01/96 11/01/96 Appraisal mission departure 02/01/98 09/15/98 Negotiations 04/05/98 04/26/99 Planned Date of Effectiveness 06/16/98 09/01/99 (Plan) Prepared by: Ministry of Works and Supplies, Project Task Force Preparation assistance: Project Preparation Facility Q024-OMAI, Q024-1 MAI; PHRD Grant 027009MAI, PHRD Grant 025087MAI Bank staff who worked on the project included: Name Specialty Stephen Brushett Task Team Leader John Kandulu Co-Task Team Leader Sally Bumingham Infrastructure Engineer Toshiyuki Iwama Transport Specialist Subhash Seth Highway Engineer George Banjo RTTP Regional Adviser Anna Temell Transport Economist Nina Chee Environmental Specialist Ian Heggie Roads Advisor Jan de Weille Consultant Transport Specialist Thor Wetteland Transport Engineer, RMI Program Ajay Kumar Transport Planner/Economist Brian Falconer Financial Management Specialist Subhash Dhingra Procurement Specialist Annette Minott Task Team Assistant Steve Gaginis Disbursement Officer Elizabeth Adu Principal Legal Counsel Project Appraisal Document Page 59 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 9 Road Maintenance and Rehabilitation Project Documents in the Project File* A. Project Implementation Plan Borrower Implementation plan, including Procurement Plan, March 1999 (draft) B. Bank Staff Assessments Aide Memoires: Identification November 1996, Preparation, November 1996, June 1997, November 1997 Preappraisal, February 1998, July 1998 Appraisal, October 1998, Post Appraisal, January 1999 Analysis of Road Sector Public Expenditure, May 1998 C. Other Preliminary Technical and Economic Feasibility Study (SMEC International) - Inception Report March 1998, Final Report in 3 volumes, October 1998 Economic Feasibility and Preliminary Engineering Design for Selected Main Roads for Rehabilitation (Roughton International) - Inception Report July 1998, Final Report December 1998 Follow up to RMI Reform (NCG Consulting Group) Draft Final Report November 1998 Priority Bitumen Road Resealing and Associated Works: Detailing, Design and Documents (SMEC International) Final Report December 1998 Development of National Contractors and Consultants (Mphizi Consulting) Inception Report October 1998, Final Report March 1999 Studies to Support the Road Maintenance Initiative (Scott Wilson Kirkpatrick/lberinsa) for Ministry of Works and Supplies financed by the European Development Fund. Final reports dated June 1997 as follows: * Institutional Development * Funding Mechanisms * Axle Load Control * Road Safety * Staff Training * Plant and Vehicle Hire Organization * Training of Local Consultants and Contractors National Road Authority Act of 1997 National Construction Industry Act of 1996 Project Appraisal Document Page 60 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Road Traffic Act of 1998 National Transport Policy Statement, dated September 1998. *Including electronic files. Status of Bank Group Operations in Malawi Z -0 Operations Portfolio As of 17-May-99 > Differenice Between c 2 eXpected Original Amount in US$ Millions and actual n T Fiscal disbursements a/ Project ID Year Bo0rrower Purpose Project ID Year Borrower Purpose ~~~~~~ ~~~~ ~~~~~~~~~IBR4O IDA Cancellations Olndisbursed orig Frm Rev'd Numbe.r or ciosDe.d 'lto I: S7 Active Projects MW-PE-36038 1999 GOVT POPULATION/FP PROJEC 0.00 5.00 0.00 5.15 .70 0.00 e 8 MW-PE-45030 1999 GOVT. OF MALAWI FRDP 11 0.00 92.00 0.00 31.71 -1.69 0.00 MW-PE-49599 1999 GOM MASAF II 0.00 66.00 0.00 67.21 9.S4 0.00 Cli MW-PE-1670 1998 GOVERNMENT OF MALAWI SECONDARY ED PROJECT 0.00 48.20 0.00 46.86 5.02 0.00 3 MW-PE-1664 1997 GOVERNMENT ENV. MANAGEMENT 0.00 12.40 0.00 10.34 .64 0.00 0 3 MW-PE-1648 1996 GOVT FISCAI. RESTR6DERE 0.00 112.20 0.00 1.24 -1.79 3.83 H MW-PE-1668 1996 GOVERNMENT SOCIAL ACTION FUND 0.00 56.00 0.00 38.32 -.07 0.00 c '0 MW-PE-42305 1996 GOVERNMENT OF MALAWI PRIMARY EDUCATION EM 0.00 22.50 0.C0 3.60 5.25 0.00 -4 MW-PE-1667 1995 NAT WATER DEV 0.00 79.20 0.00 47.41 20.61 0.00 0 to > MW-PE-34489 1995 GOVT MALAWI RAILWAYS REST 0.00 16.16 9.38 2.29 12.01 2.33 _ po MW-PE-1657 1994 GOVT. INSTIT.DEV.II 0.00 22.60 0.00 9.50 9.05 3.00 b ar MW-PE-1660 1993 GOM AGR5C SERVIC-S Q.Q00 45.60 e.so 15.11 12.28 0.00 MW-PE-1677 1993 Rural Finl Svcs 0.00 75.00 0.00 1.88 1.13 2.21 t - MW-PE-1636 1992 GOVT. LOCAL GOVT. 0.00 24.00 0.00 9.52 7.21 0.00 1 MW-PE-1662 1992 GOVERNMENT POWER V 0.00 55.00 0.00 16.35 17.27 1.76 C. MW-PE-1646 1991 GOVT. PHN SECTOR CREDIT 0.00 55.50 0.00 14.92 17.04 0.00 MW-PE-1658 1991 GOVT FISHERIES DEV. 0.00 8.80 0.00 2.12 2.24 0.00 ; - 0. Total 0.00 746.36 9.38 303.53 116.84 5.71 j2 Active Projects Closed Prects Total Total Disbursed (IBRD and IDA): 414.19 1,248.81 1,663.00 of which has been repaid: 0.00 156.80 156.80 Total now held by IBRD and IDA: 736.98 1,054.61 1,791.59 Amount sold : 0.00 .72 .72 Of.which repaid : 0.00 .72 .72 Total Ur,disbursed : 303.53 0.00 303.53 a. Intended disbursements to date minus actual disbursements to date as pr-jected at appraisal. Note: Disbursement data Is updated at the end of the first week of the month and is currently as of 30-Apr-99. -o Generated by the Operations Informnation System (OIS) Project Appraisal Documevnt Page 62 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 11 Road Maintenance and Rehabilitation Project Malawi STATEMENT OF IFC's Committed and Disbursed Portfolio As of 31 -Jan-99 (In US Dollar Millions) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1986/90 LFCM 0.00 .19 0.00 0.00 0.00 .19 0.00 0.00 1995 AEF Mal Stkbrkrs 0.00 .11 0.00 0.00 0.00 .11 0.00 0.00 1996 AEF Mwaiwathu 0.00 .81 0.00 0.00 0.00 .81 0.00 0.00 1997 AEF Maravi .60 0.00 0.00 0.00 .60 0.00 0.00 0.00 1998 AEF Ufulu Garden .31 0.00 0.00 0.00 .15 0.00 0.00 0.00 Total Portfolio: .91 1.11 0.00 0.00 .75 1.11 0.00 0.00 Approvals Pending Commitment Loan Equity Quasi Partic 1999 AEF CITY LODGE .64 0.00 0.00 0.00 1998 HOFICO 0.00 .30 0.00 0.00 1998 IDHM 0.00 .50 0.00 0.00 Total Pending Commitment: .64 .80 0.00 0.00 Project Appraisal Document Page 63 Malawi: Road Maintenance and Rehabilitacion Project (ROMARP) Annex 12 Road Maintenance and Rehabilitation Project Malawi at a glance 10/1198 Sub- POVERTY and SOCIAL Saharan Low- Malawi Africa Income Development dlamond 1997 Populabon, mid-year (millions) 10.3 614 2,048 LiUfe eectancy GNP per capita (Atlas method, USS) 220 500 350 GNP (Atlas method, USS billions) 2.3 309 722 Average annual growth, 1991-97 Populaton (%) 2.7 2.7 2.1 G G Labor force (%) 2.6 2.6 2.3 GNP Gross per pnmary Most recent estimate (latest year available, 1991-97) capita enrollment Poverty (% of pogulation below national poverty line) Urban populabon (% of total population) 13 32 28 Life expectancy at birth (years) 43 52 59 Infant mortality (per 1,000 live births) 133 90 78 Child malnutribon (% of children under 5) 27 .. 61 Access to safe water Access to safe water (% of population) 54 44 71 Illiteracy (% ofpopulatfon age 15) 43 43 47 Gross primary enrollment % of school-ae population) 81 75 91 Malawi Male 84 82 100 Low-income group Female 77 67 81 __1___ KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1986 1996 1997 Economic ratios GOP (US bilions) 0.67 1.2 2.3 2.4 Gross domestic investmenttGDP 26.3 12.3 12.2 12.5 Trade Exports of goods and services/GOP 30.4 23.0 22.3 24.7 Gross domesatcsavings/GOP 17.8 10.1 0.8 5.0 Gross nabonal savings/GDP 14.9 6.3 -1.5 3.0 Current account balance/GOP .. -6.0 -13.6 -9.5 Domestic Ivt Interest paymentslGDP 1.3 3.1 1.2 1.2 Savngs nvsmn Total debttGOP 44.6 98.0 100.0 104.9 savi Total debt servicelexports 9.1 47.4 17.0 15.3 Present value of debtGDP .. .. 68.0 Present value of debtexports .. .. 301.1 .. Indebtedness 1976-86 1987-97 1996 1997 1998-02 (average annual growth) GDP 2.5 3.3 9.8 5.0 4.5 Malawi GNP per capita -0.8 0.6 8.9 2.5 2.1 Low-income group Exports of goods and services 3.2 3.7 14.5 12.6 5.8 STRUCTURE of the ECONOMY 1976 1986 1996 1997 Growth rates of output and Investnent l%) (% of GOP) 40 Agriculture 39.2 43.1 35.7 33.3 Industry 18.5 21.5 16.7 18.6 6 o Manufacturing 11.9 14.8 13.0 13.0 a _, , ! Services 42.3 35.4 47.6 50.0 * 20 f f ST Private consumption 68.1 70.1 84.7 75.8 40 General government consumpton 14.1 19.7 14.5 19.2 -GDI G OP Imports of goods and services 38.9 25.1 33.6 32.1 (average annual growth) 197646 1987-97 1996 1997 Growth rates of exports and Imports (%) Agriculture 1.1 3.0 37.1 -1.1 40 . Industry 1.9 3.2 Z8 5.2 Manufacturing 3.0 5.5 -1.4 5.5 20 . Services 3.2 3.4 -1.4 17.2 Private consumpton 1.4 5.9 22.0 -4.7 o 97 General government consumpton 7.0 -1.0 -12.8 41.6 s Gross domestc investment -7.1 -3.7 8.9 12.8 -20 Imports of goods and services -2.9 3.9 37.3 6.9 - 9 -o.-lpOM Gross national product 2.4 3.5 11.7 5.2 __ Note: 1997 data are preliminary estmates The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Project Appraisal Document Page 64 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Malawi PRICES and GOVERNMENT FINANCE 1976 1986 1996 1997 Inflation (%) Domestic prices (% change) 100 r Consumer prices - 14.0 41.9 7. 75 t ImplicitGDPdeflator 10.0 13.2 46.1 9.7 s Govemment finance 2 5 (% of GDP, includes current grants) o Current revenue .. 21.8 16.8 16.4 92 93 94 95 96 97 Current budget balance . -2.5 -3.0 -6.3 -GDP deflator -OcPI Overall surplus/deficit .. -12.7 -7.9 -11.4 _ TRADE 1976 1986 1996 1997 Export and import levels (USS millions) (US$ millions) Total exports (fob) .. 248 481 556 aco Tobacco 135 300 340 Tea .. 38 26 66 s00 Manufactures .. .. 4ie Total imports (cirf) 257 624 652 Food .. 2 52 53 f Fuel and energy .. 32 31 32 Capital goods .. 74 197 213 o Export price index (1995=100) .. . 107 113 93 94 99 96 97 Import price index (1995=100) .. .. 105 99 0i Exports * Imports Terms of trade (1995=100) . .. 102 113 BALANCE of PAYMENTS 1976 1986 1996 1997 Current account balance to GDP ratIo (%) (US$ millions)I Exports of goods and services 189 271 515 604 0 Imports of goods and services 249 296 778 786 Resource balance -60 -25 -262 -182 Net income -10 -61 -44 -41 Net current transfers 6 5 -2 -9 Current account balance .. -71 -315 -232 Financing items (net) .. 49 424 179 Changes in net reserves 36 22 -109 53 .25 Memo: _ Reserves including gold (US$ millions) 26 42 222 163 Conversion rate (DEC, local/LUSS) 0.9 1.9 15.3 16.6 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1996 1997 (US$ millions) Composition of total debt, 1997 (USS millions) Total debt outstanding and disbursed 299 1,158 2,311 2,566 IBRD 0 85 42 34 G: 20 IDA 74 422 1,346 1,375 E 312 2 A: 34 Total oebt service 18 130 89 95 I8RD 0 11 13 8 IDA 1 5 18 18 Composition of net resource flows 0: 701 Official grants 15 60 97 83 B ,7 Official creditors 29 111 121 76 Private creditors 20 -32 -4 -3 Foreign direct investment 10 0 30 25 Portfolio equity 0 0 0 . C: 102 World Bank program Commitments 185 16 A-IBRO E-Bilateral Disbursements 12 87 141 107 8 -IDA D Othermultilateral F-Private Principal repayments 0 5 18 15 C - IMF G - Short-term Netflows 12 82 124 92 Interest payments 1 11 14 12 Net transfers 12 72 110 80 World Bank 1011198 Project Appraisal Document Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Page 6 Annex 13 Road Maintenance and Rehabilitation Project rueWY,M. ^WAtCLi Ul-- M14NISr! 07 FINANM! ;kpn : Utletfe 782 19P.O. BOX 309 TeIi: 4S MALAWI FAx: 781 679 RefNo. 32/1/83 10th May,1999 Mr. James Wolfensohn, Prcsident, World Bank, 181 8H Strcet NW Washington, D.C. 20433 USA Dear Mr. President, RE: 4MALAW1 ROAD SECTOR POI..TCY Introduction In this letter is outlined a policy framework for managemcnt and development of the road sector in Malawi, that aims to facilitate effective and efficient provision of adequate and affordable road services and acceptable levels of traffic safety, in line with the socio-eccnomic needs and economic opportunities of the county. This policy has served as the guideline for preparation and subsequent implementation of a fivc year. (1999 - 2004) Road Maintnnce and Rehabilitation Program (ROMARP) for which the Malawi Govenmnent has requested the Bank's assistanoe. 1.0 Economic and socdal development 1.1 Devclopmcnt Objectives Malawi's long-term development goal is to reduce poverty, especially rural poverty. For the CGovernment, the achivcement of this goal will be evidenced by the country's tansfonnation from one of the poorest countries in the world to middle income status by the year 2020. Realising tis goal reuires the following objcctives to be achieved: (i) increased agicultural productivity and food security; (ii) m increase in the contribution of the manufacturing sector to GDP from 12%/o to 25%a (iii) a reduction in population growth rate; (iv) reduction in income and gender inequality; (v) access to quality health and education for all; (vi) effective sustainable management of the environment; (vii) provision and efficient management of economic infastracture; and (viii) a streanlined, utnsparent, efficient and effective public sector. The Government strategy to achieve these objectives is tbrcc -pronged revolving arumd: (i) promoting and facilitating the growth of the private sect and devclopment of competitive market; (ii) deepening the reorientation of the public sector responsibilities towards policy and formulation of reulations; and (iii) shifting public expenditure in favour of the social sector aimcd at assisting the more vulnemrable sections of the population. Underpinning this strategy will be sound macroecononnc framework in which fiscal discipline will be emphasized. Project Appraisal Document Page 66 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) 1.2. Constraints to growth Apart from macroeconomic management, particularly fiscal imbalance, the main threats to continued growth are: the internal transport constraints; inadequate support services for continued growth of smallholder agricultural production and other rural activities: and the risk of decline in the commodity prices. The quality of infrastructure has scriously deteriorated through insufficient cost recovery for maintenance, increased attention to social services, and slow pace in irnplcmcntiing necessary policy reforms. Road, power and water services have deteriorated due to insufficient maintenance, poor management, and inappropriate tariff policies. Telccomniunications services also remain poor. 2.0 Policy Framework for The Transport Sector 2.1 The Need for Reforms Goveniment sees improvements to transport services as crucial to the achievement of its economic and social objectives earlier outlined. To this end, Government has undertaken a number of policy actions aimed at promoting competition and increased efficiency in the sector. Such actions include: granting freedom to industry to set tariffs; removal of restrictions on entry and cxit to passenger and freight transport industry; and significantly shifting budget allocation in the road sector from capital to recurrent expenditures. Despite these changes, Government sees the need for further actions to eliminate remaining rcstrictions which contribute to observed high tansport costs and to ensure greater equity in the distribution of gains from the policy actions. It is Govemment's view that appropriate actions in thcss and other areas will go a long way to improving the sector's efficiency in service delivery and thus its overall viability. 2.2 The New Sector Policy Framework The various stakeholder workshops held since 1995 under the aegis of the Ministry of Transport (MOT), the National Economic Council (NEC) the Road Maintenance Initiative (RMI) and Rural Travel and Transport Programmc (RTIP), have all helped to create better awareness of the nature of the transport rmoblems of Malawi. These workshops have notably led to consensus on the frameworkls for achieving better management and financing of road infistructure (May 1995, June 1997) and for addressing movement problems in rural areas (January 1998). The framework for national transport policy was debated by stakeholders in April 1997 and is reflected in a document of the MOT which has been submitted to cabinet for approval. Experience in the period since measures were taken to dereghtlae the sector has clearly demonstrated that given appropriate incentives, the private sector is able and willing to explore new opportunities provided by policy actions and thus assist Government in achieving its objectives. These constnsual initiatives and opportunities for their implementation provided by the emerging improved public/ private partnerships underpin the transport policy framework, the key elements of which are outlined in this letter. 2.3 Goals and Stategies The Government's goal is to ensure the provision of a coordinated environment for the transport sector that fosters safe and competitive operation of commercially viable, financially sustainable and environmentally friendly transport services and enterprises. The overall policy objective is to meet the cconomic and socio-political needs for transpot while minimizing the cost to the economy. The key principles underlying this broad policy objective to guide policy development and implementation Project Appraisal Document Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Page 67 strategies, may be summarized as follows: * the Government shall refrain from instituting regulations that restrict the ability of any mode to compete freely with any other mode of transport; * each mode of transport shall bear the full cost of resources, facilities and services employed; * each mode of transport shall receive compensation for resources, facilities and services that it is required to provide in the public interest; and * each mode of transport shall conform to the Environmental Laws of Malawi. 2.4 The Role of Government Within the new policy fiamework, the Govenmment sees its role as that of creating an enabling environment for efficient and adequate elaboration and implementation of the goals, objectives, and strategies outlined abovc and the provision of supportive resources for their actualization consistent with macroeconomic policies. This role essentially relates to policy and regulatory activities and requires iovernment to divest itself of direct involvement in the provision of transport services. It also requires Government to create a level playing field wheeby different types of service providers will be encouraged to participate in the sector and thus encourage more diversified and appropriate approaches to meeting the necds of the transport sector. l'o this end, Government has developed a privatisation policy covering Malawi Railways and Air Malawi which is now under implementation. The Govemment is also considering optionis for promoting local private sector ownership in the passenger transport industry, a more diversified range of services especially targetted at rural areas, and a better and more efficient use of infrastructurv. Beyond these specific actions and proposals, the Govenmuent is considering policics for further involvement of the private sector in infrastructure investment and operation. Government will also actively promote measures that will improve the productivity and responsiveness of the sec'tor through, for example, more efficicnt pricing within the sector and the economy as a whole, and measures to increase the technical skills base of the economy. To improve its ability to discharge its role, Govcrnment has resolved to consolidate all utnsport policy and regulatory functions in the MOT. To this end such fiunctions presently being perforned by NEC have already been moved to the Ministry of Transport whereas those performed by the Ministry of Works & Supplies (MOW&S) will be transfcrred to the National Roads Authority (NRA) or MOT. At the same time, measures are being taken with cxternal support to increase the capacity of MOT to undertake analytical work in the area of transport policy fornulation. 3.0 Polcy For The Road Sector 3.1 Background and Main Tssues Despite its present inadequacies, road transport is the most important mode of transport in Malawi. Whilst at times reaching thc most remote parts of the country, it does so unevenly and irregularly and with a yearly decreasing capacity. Arguably, those that suffer most from thesc inadequacies are the 90% of Malawi's population who live in the noral areas and are captivc to waUdllg and headloading to satisfy their transport needs. Vehicle ownership at about I per 250 persons is vcry low by any standard and is reflected in the very low traffic volumes observed on most roads except on the major urban roads where they sometimes reach as high as 8,000 vehicles per day. The length of the road network is about 15,137 Project Appraisal Document Page 68 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) kilometers of which only 3,203 are paved. The total length of non-gazetted community roads is veriously estimated at about 10,000 kilometers. The road network is generally in poor condition. Estimates are that presently less han 20% of the paved roads and less than 11% of the designited gravel and earth roads are in good condition with only about 50% of the designated unpaved roads open all the yc:ar round. This poor state of the road network and observed poor driver behaviour has significantly ccntributed to Malawi having an unacceptably high road accident rate. In 1994 the death rate from road accidents in Malawi was 200 deaths per 10,000 vehicles compared to the Souther African Development Community (SADC) region avcrage of 33 dcaths per 10,000 vehicles and 62 deaths per 10,000 vehicles for Sub-Saharan Africa. rhe social and economic consequences of these high accident rates are considerable, given that it translates into annual costs to the economy of at least 2% to 3% of GDP. An improvement in the situation would have major positive socio-economic consequences. The main issues facing the road sector therefore revolve around the ncod to (i) sustainably improve the serviceability of the road nctwork; (ii) increase its coverage of the rural areas; (iii) increase availability of road transport serviccs; and (iv) improve road safety. Govemmcnt sees the first issue as requiring thc putting in place of a better framework for management and financing of the road sector, and assuring the technical and financial capacity for a road maintenance programme of an appropriate level that can be sustained. In the case of the second, this needs putting in place a ftamework for communities to identify thuir road transport infrastructure needs and to be assisted to achieve these needs. The third issue of imiproving transport services is more complex. It will require a series of measures to be taken to improve productivity of transport operators and thereby decrease their unit costs, and to divcrsify the means of transport available to tavelers generally. and those in rural areas in particular, to increase travel choices and availability. 'Ihe fourth issue of improving road safety is being addressed through a multi-agency Task Force created under the Chairmanship of MOT in February 1999. The uask Force will, by December 1999, develop a programme of specific measures and invcstments to improve road safety for which Government will seek extenal assistance. 3.2 noe New Policy Framework rhe Govemment is conscious of the need to- address the main sector issues in a consistent and sustainable manner given the importance of functioning economic infrastructure for growth prospects, Various stakeholder consultations have been held to evolve new approaches to the problems of the transport sector resulting in a consensus on how to address the above issues. On improving road sector management and finance, the consensus is embodied in the resolutions of the RMI Mangochi Workshop in May 1995. The govemnment communicated to the World Bank, through a letter dated 25 May 1995, that the resolutions at the workshop had formed the basis for Government's new policy towards the management and financing of the road sector. Consistent with these resolutions, and recommendations from the RMI studies subsequently carried out to claborate upon the resolutions, Government has since enacted an Act of Parliament creating the NRA which is mandated to manage the road sector on behalf of Governmcnt with resources to be genmrated from a Roads Fund for which the NRA board has full responsibility. The creation of the NRA has significant implications for institutional arrangements within tha' road sector. A detailed trasition plan has been worked out as pat of the progmme of implementation of reforms in the road sector as given in section 5 of this letter. Govemment is fully coinmitted to the implementation of all elements of the refom programme consistent with the resolutions. from the Lilongwe Workshop of June 1997 (see: Annex 1) which reflect the views and expectations of road stakebolders. Lack of access and mobility in the rural areas has long been a major source of concern Government. SinIce the 1970's the Govemment has sought to address these problems with its external development Page 69 Project Appraisal Document Malawi: Road Maintenance and Rehabilitation Project (ROMARP) partaers through a variety of project initiatives. More recently, drough the Malawi Social Action Fund (MASAF) and Micro-projects Programmes, the scope for impacting upon rural access and mobility have been explored. Against this background, the Govermment embarked upon a stakeholder consultative process to gain consensus on the nature of the mobility problems in rural areas and on the means of addressing them. This process has been completed and resulted in a Malawi Rural Travel and Transport Programme Document which has been submitted to the Bank for comments. This docunent contains thc policies and strategics of Governmcnt and implementation instruments and mechanisms for addressing rural tansport problcms in the foreseeable futurc. Themes underpinning the policies and strategies include (i) promoting increased awareness of rural travel and transport issues; (ii) increasing resource allocation to rural travel and transport issues; (iii) paying particular attention to the transport needs of rural women; (iv) using the district planning framework for involving communities in the planning and sustainable provision of rural transport infrastructure: and (v) promoting adoption of appropriate technologies as part of strategies to increase the range of travel choice availablc for use in rural areas. Govemment has set-up an RTTP tfnit in the Department of District and Local Government Administration (DDLGA) to man agc the implementation of the Progrname and inter-agency Steening Committee to over-see the process. However, the Project Implementation Unii is facing financial constraints in order to be operational. 4.0 Implementation of Policy Reforms 4.1 Institutional Development Legislation cstablishing a National Roads Authority including an autonomous Roads Board and a Roads Fund, was passed in April 1997. The specific purposes of these new entities are: (a) to ensure that public roads are maintained and rehabilitated as required at all times; (b) to raise the required funds for adequate maintenance and rehabilitation of public roads; (c) to advise the Minister and, where appropriate, the Minister responsible for Local Government and the Minister responsible for Transport on: (i) the preparation and efficient and effective implementation of the annual roads programme as specified; and (ii) the control of overloading of vehicles on public roads. The NRA Board consists of 13 members: 9 members, including the Chairman, representing the private sector; I member representing the Local Government Authorities; and three members representing the Secretaries for Transport, Works and Supplies and Local Govenmment. The NRA Board and its technical and financial subcommittees are now fully constituted and meet on a regular basis. The positions of Chief Executive Officer, Operations and Finance Directors, Teclnical Directors for the Central Roads and Urban and District Roads Divisions have all been filled. In view of the NRA's critical role in implementation of the road sector programmes and the need to establish its capacity at an early stage, the Government has secured technical assistance for the NRA which has beer in place since January, 1999. Malawi: Road Maintenance and Rehabilitation Project (ROMARP) The Government reaffirms its support for an eventua] institutional structure in the roads scctor which separates the functions of provision of road management services to a Cental Road Agency (CRA) and other autonomous road agencies for urban and district roads from the iunctions of programming and finance. As a first step, however, the Government has agreed with the NRA Board that these functions should be provided by an Operationi Department as an integral part of the NRA. This arrangement will be subject to periodic review. The NRA became operational on July I, 1998 fulfilling its functions in line with the legal provisions of the NRA Act of 1997. The priority for the NRA during its early and formative stage has been financing and management of routine maintenance programmes. During its second year of operations from I st July 1999, the NRA will progressively take over responsibility from the Roads Department in the MOW&S for periodic maintenance, rehabilitation and upgrading programmes in accordance with the transition plan.. As a first step, crucial positions at the NRA headquarters have been filled in pace with the increased responsibilities. As a second step, zone units of the NRA will be established to take ovcr the fuinctions currently provided by the Regional Controllers of Works. This process is expected to be completed by June 2001. Technical assistance and training will be provided to enable functions to be effectively carried out. The new institutional structure cnvisages responsibilities for the planning and management of urban and district roads to be devolved to thcir legally established authorities - the local councils. Thc Government is committed to the policy of decentralization and devolution of responsibility and thus local authorities will have the role of preparing their own road programmes for submission to the NRA (through the Urban and District Roads Division) and consolidating them in the annual road programme to be produced by the NRA. The Govemment is, however, conscious of the need to assure the provision of appropriate technical and managerial structure needed for the local councils to fulfill their functions. Local authorities may also avail themselves of support provided by the private sector as and when appropriate. Technical support services will continue to be provided by the Roads Departnent during the transition. Once the zonal units of the NRA are established they will provide such services to the councils on a contractual basis. The NRA will make available technical support services to the councils as and when required. In view of the need for clear delineation of the responsibilities of the various road authorities with respect to provision of road access and minimum road standards, the Government intends to carry out a functional road classification exercise. The study should largely be completed by-December. 2000 and will serve as a basis for determining what revisions may be needed in the Public Roads Act and other legislation. 4.2 Funding of Maintenance The Government reaffirms its commitment that, through the Roads Fund, the routine maintenance requirements of the core classified network will be fully fundcd from 1999/2000 and that funding for subsequent years would be expanded in line with the principles established by the June 1997 workshop. The Government has established the following minimum threshhold amounts for the Roads Fund revenues for the next five years within which period at least the routinc maintenance requirement of the full network will be provided for: 1999/2000 - USS9.5 million; 2000/2001 - uS12.0 million; 2001/2002 - US$12.9 million; 2002/20b3 - US$13.8 million; and 2003i2004 - US$15.3 million. Project Appraisal Document Page 71 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) The applicable road user charges shall, to thc extent possible, be collected directly by the Roads Fund and the Govemment is committed to approve arrangemcnts recommended by the NRA provided the methods of revenue collection arc efficient, transparent and ensure propriety and full accountability. To facilitate appropriate and timely adjustment of the fuel levies and other user charges to take account of (i) inflation and (ii) changes in maintenance requirements, the NRA will develop generally acceptable and practical modalities and procedures for timely adjustments, to be ready for approval before the end of Deccmber, 1999 and to bc put into effect no later than fiscal year 2000/01. 4.3 Traffic Management and Road Safety The Government passed in 1997 a new Road Traffic Act which provides for appropriate regulation and management of road traffic, including: registration and licensing of vehicles and drivers; requirements on the fitness of vehicles and vehiclc operators and their behavior in traffic; road traffic sips; speed lirnits and other rules of the road; and the powers and duties of officers engaged in vehicle and driver registration and in traffic management. T'he Government intends to put in place an action plan for the implementation of the various measures by December 1999. In addition the governrent has agreed to work with the Bank and other cooperating parters on the development of a pilot programme to test alternative approaches on how desirable improvements in taffic safety may be obtained. It is the Goverrnent's goal to bring traffic safety levels in Malawi up to the average for the Sub-Saharan Africa (SSA) as a first step and then to bring levels up to SADC countries average as a second step. To this end, a monitoring and evaluation system will be established in the Ministry of Transport. The Government has agreed that responsibility for axle load control will pass to the NRA. The transfer of responsibility will take place once NRA has the capacity to absorb the responsibility, which is expected by December, 2000. 4.4 Capacity Building To address the need for increasing the capacity by volume and quality of the local consultants and contractors, the Government is supporting the establislhment and initial operation of the private sector National Construction Industry Council (NCIC). ThC NCIC will be responsible for the development of local capacity in the construction industry, the registration of contractors and consultants, and monitor their performance paying particular attention to the medium to small firms. The Goveanment with the support of the donor community will launch a specific programme for development of smallscale contractors and consultants including training, appropriate contracting procedures, and special aTangernents or assistance to acquire required construction equipment. The envisaged increased involvement of small scale contractors and consultants in implementation of the maintenance and rehabilitation programme will generate a large number of small contracts to be let and supervised for which standard management procedures are ill suited and expensive considering the low amounts involved. Thc Government will thus authorise the use of specialised contract managenent tools for small scale contracts, and will encourage the use of specialised contracting agencies. The Government intends to assist, through the RITrP Unit in the Department of District and Local Government Administration, the process of strengthening the capacity of local authorities, especially rual districts, to effectively plan, programme and supervise works and to effectively utilise sources of technical expertise. rroject AppraLsai uocument Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Page 72 5.0 Road Sector Investment Programme 1999 To 2004 5.1 Objectives The principal objectives of the road scctor investanent progranune for the next five years, are: (i) to establish a sustainablc road maintenance prograrmne that within the period will extend regular maintenance at agreed quality to the whole public road network; (ii) to address the backlog of maintenance on main, secondary and tertiary roads, (iii) to improve rural access thmugh investment in rural transport infrastructure and provision of a more diversified range of rural transport services; and (iv) to finance high priority improvcnicnt and upgrading projects in terms of economic retums and traffic safcty. The programmc is expected to help arrest the deterioration of the road network and then gradually improve quality through sustainablc maintenance. It is the goal of the Government, however, that by year 2004, 50% of roads should be in good condition, 30% in fair condition, and only 20% in poor condition. 5.2 Cost and Financing The estimated cost of the programme for the next five years is US S348.0 million (rehabilitation and upgrading roads at USS 278 million; routine and periodic maintenance at US$54 million; strengthening of road sector institutions at USS 6 million; building the capacity of local consulting and construction industry at USS 5 million; and strcngthening road traffic management and road safety at USS 5 million). Financing for this programme is to comc from a variety of intemal and external sources: approximately 13% from the Roads Fund in line with enunciated principles on the funding of maintenance; 12% from direct Government contribution for part of costs of rehabilitation and upgrading; 68% from identified donors for part of the costs of maintenance (on an extraordinary basis) rehabilitation and upgrading; and 7% from external sources still to be firmed up. 5.3 Selection Criteria The Government will ensure that consistent and appropriate project selection criteria as well as road design specifications and maintenance standards are used under the programme to insure scarce financial resources are applied to the highest priority projects. Priorities will be established on the basis of economic rates of return for main and secondary roads and for other high volume roads; and multi - criteria analysis for district roads and other low volume roads. The NRA will be responsible for working out the Letailcd criteria for routine maintenance in 1999/2000 and for all other works in 2000/2001. Under the programme, thc Govenment intends that the provisions be made for the necessary resources for the acqutsition of Highway Design and Maintenance Standards Model (HI)M TV) and other related analytical tools for evaluation of alternatives tfor road rehabilitation and maintenance, training of staff in the use of tools; carrying out regular road inspections and traffic surveys for data input and eventual development/ adoption of road and bridge management system. Page 73 Project Appraisal Document Malawi: Road Maintenance and Rehabilitation Project (ROMARP) 6.0 Coacelndoo The Government is commiined to imprhvi.r-theX m sector in Malawi. In this regard it has plans to revicw progress on the programme and on the implementation of road sector policy reform with stakeholders and with the cooperating partners on at least an annual basis. The reviews will present the occasion to discuss cmerging opportunities or constraints for the road sector and the need to modify programme goals and objectives. Malawi Govermnent therefore views IDA support as an important input to this commitment. Yours sincerely, qM9EIMC Project Appraisal Document Page 74 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 14 ROAD MAINTENANCE AND REHABILITATION PROJECT and Cabinet Public Sector Change President and Agency l ~~~~~~~~~Management Agency /Advises on Civil Service and Ministerial Po/- rtfio restncturing Ministry of Finance Ministry of Works |m Transport Min.LocalGovt| *Approves Fiscal Rudget *Regulates NRA *Scts Transport *Sets *Approves Public Expen. *Approves A WP PoL Decentraleation *Superises PCC *Approves RUCs 'Sefs road Policy and *Consult with MWS and *Sets Sector Standards subsectorpolsL & provides oversight RUCs & Guidelines controls vehicle and support to overloading, local authorities consults with MWS ------------------------ --------r--------------------------------- NA |LOCAL Authorities - 5 NRA urban; and 22 Rural Districts Procurer Function Provider Function *Submit work program Prepares AWP, issues (direct or through zone Pireparves ISUS*Submit work program and units) directives manages program of civil *Reviews agency work for central roads *Monitors submissions *Procurement Management for all implementation of work *Manages Road Fund central roads programs (or contracts *Prepares Financing *Operational Planning & expenses to zone units) Plan; and proposes *Monitoring of periodic main., RUCs rehab. & upgrading work. *Monitors imple. Of Inspection and Certification AWP and autborises payment *Prepares vehicle overloading measures -------------------------------r--------~-------T ------------------------------ cons.&cns!1 Zn nt *Support dev. Of local * Carry out road works Monitoring of road construction and under contract routine maint. consulting industry e.g. *Carry out other Contracts training equipment hire services under contract. *Inspection & Certification *Advise &assist local authorities 'Develop regional submission to AWP Project Appraisal Document Page 75 Malawi: Road Maintenance and Rehabilitation Project (ROMARP) Annex 15 ROAD MAINTENANCE AND REHABILITATION PROJECT MALA WI: NATIONAL ROAD AUTHORITY BOARD CEO || OPERATIONS DIRECTOR FINANCE DIRECTOR TECH. DIRECTOR TECH. DIRECTOR FINANCE ADMIN CRD |URBAN & DIST. RDS. SEC SECTION PLA NNING (INCL. PROCUREMENT) SECTION PROJ. ADMIN | PROJ. ADMIN SECTION SECTION ZONE UNITS ZONE UNITS J IBRD 29732 32
Groupe de la Banque mondiale · Project Appraisal Document
Malawi - Road Maintenance and Rehabilitation Project (ROMARP)
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