Madagascar - Fourth Highway Project

Report No. 978a4MAG Appraisal of a Fourth Highway Project Democratic Republic of Madagascar june 3, 1976 p Regional Projects Department [astern Africa Regional Office E Cop FOR OFFICIAL USE ONLY U Document of the World Bank This doc Liment has a restric ted distrihution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise he dis losed without World Bank authorization.  CURRENCY EQUIVALENTS Except as otherwise stated, all f:Lgures are quoted in U.S. Dollars (US$). Currency Unit = Malagasy Franc (FMG) US$0.0047 = FMG 1 US$1.00 = FMG 215 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (kmn) = 0.62 miles (mi) 1 hectare (ha) = 2.47 acres (ac) 1 kilogram (kg) = 2.2 pounds (lbs) 1 metric ton (m ton) 2,204 pounds (lbs) 1 sq km (km2) = 0.386 sq miles (mi2) ABBREVIATIONS AND ACRONYMS AM - Air Madagascar CEBTP - Centre d'Etudes du Batiment et des Travaux Publics Center for the Study of Public Works and Construction DIM - Direction de l'Infrastructure et de Maintenance Infrastructure and Maintenance Department DTN - Direction des Travaux Neufs New Works Department LNTPB - Laboratoire Nati'onal des Travaux Publics et du Batiment National Laboratory of Public Works and Construction MA,T - Ministgre d'Amenagement du Territoire Ministry of Works MTP - Ministere des Travaux Publics Ministry of Public Works MTR - Ministere des Transports et du Ravitaillement Ministry of Transport and Supplies PA - Parcs et Ateliers Central Workshop RNCFM - Reseau National des Chemins de Fer Malagasy Malagasy National Railway Network SCP - Service Central de la Programmation Central Planning; Service SINPA - Societe d'Interet National pour les Produits Agricoles National Agency for Agricultural Products SINTP - Societe d'Intere"t National des Travaux Publics National Public Works Agency UCA - Union des Cooperatives Agricoles Union of Agricultural Cooperatives vpd - vehicles per day DEMOCRATIC REPU'BLIC OF MADAGASCAR FISCAL YEAR January 1 - December 31  FOR COfICIAL USC ONLY DEMOCRATIC REPUBLIC OF MADAGASCAR APPRAISAL OF A FOURTHI HIGIHWAY PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS . ................ i-ii 1. INTRODUCTION . . ........... 1 2. THE TRANSPORT SECTOR. 1 A. Effects of Geography and thie Economy on Transport , .......... , ................... 1 B. The Modes . ................................ 2 C. Transport Policy, Planning and Coordination 5 D. Bank Group Projects in the Sector 7 3. HIGHWIVAYS .............................,., 8 A. Administration .... 8 B. Planning ............ .................. 8 C. Financing ... 9 D. Engineering ...10 E. Construction ..... ................... ...... 10 F. Mlaintenance . 11 G. Training .................................. 12 4, THE PROJECT .12 A. Objectives ... 12 B. Description ....12 C. Cost Estimates ....16 1). Financing .. .. 17 E. Implementation ....18 1F'. Disbursements . . ................. . 19 5. ECONOMIIC EVALUATION .......... .. . 19 A. tain Benefits and Beneficiaries . .19 B. Arivonimamo-Analavory Road .19 C. Tsiroanomandidy-Maintirano Road .20 1). Road Maintenance Elements .21 6. AGREIMENTS REACHED AND RECOMMENDATION .......... 21 This report was prepared by Frida Johansen (Transport Economist), Peter Ludwig (Engineer), and Mustafa Nour (Economist) and was edited by Marie Garcia-Zamor (Technical Editor). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- 7. ANNEXES 1. Distribution of Benefits Accruing from Road Improvement 2. Background for Eva.Luation of the Proposed Road Construction 3. Draft Terms of Reference for Engineering, Management and Supervision of Tsiroanomandidy-Maintirano Road Construction 4. Draft Terms of Reference for Study of Training Needs and Implementatioi of Findings 5. Draft Terms of Reference for a Study of DIM Reorganization and Equipment ancl Spare Parts Needs 6. Project Progress Re!porting Requirements 8. TABLES 1. The Highway Network, 1974 2. Development of the Primary Road System, 1964-74 3. Motor Vehicle Registration, 1958-71 4. Fuel Consumption, 1960-73 5. Highway Expeniditures, 1964-75 6. Revenues from Road Users, 1971-74 7. Highway Design Standards 8. Estimated Schledule of Disbursements 9. Equipment to be Procured for Force Account Works on Tsiroanomandidy-naintirano Road 10. Vehicle Operating Costs 11. Economic Evaluation of Arivonimamo-Analavory Road 12. Economic Evaluation of Tsiroanomandidy-Maintirano Road 9. CIIARTS 1. Organizationi of the Ministry of Public Works 2. Organization of Ministry of Transport and Supplies 3. Implementation Schedule 10. MAP Madagascar, Transport System (IBRD 11744)  DEMOCRATIC REPUBLIC OF MADAGASCAR APPRAISAL OF A FOURTH HIGHWAY PROJECT SUMMARY AND CONCLUSIONS i. Despite recent improvements, Malagasy transport infrastructure is fragmentary. Rugged topography translates into high construction costs which, combined with the country's meager resources and copious development needs in all sectors, slow the pace of higlhway network improvement. The Bank Group has been active in accelerating this pace; since 1966, it has helped finance construction of 649 km of roads, 535 km of which are paved. It has also as- sisted in improving the Tamatave port and the railway system; total transport sector lending, including studies and technical assistance, amounts to US$63.6 million. ii. This will be the sixth transportation, or the fourth highway project in Madagascar. It will continue previous development efforts by upgrading the heavily-trafficked Arivonimamo-Analavory main road; constructing an all-weather feeder road between Tsiroanomandidy and Maintirano to serve a now-isolated area and connect the west coast witlh the central plateau; and identifying and subsequently financing training, equipment and spare parts needs to improve road maintenance. iii. Estimated project cost is US$31.8 million (US$25.6 million foreign and US$6.2 million local), net of taxes and duties. The proposed US$22.0 million IDA credit would finance 100% of foreign costs and some local costs, or 69% of project costs net of taxes and duties. The Arab Bank for Economic Development in Africa (BADEA) will participate in the project with a US$5.0 million loan, which will finance 16% of total project cost, but is earmarked specifically for the foreign cost of the earthworks on the Tsiroanomandidy- Maintirano road. Government will provide US$11.4 million, or US$4.8 million net of taxes and duties. iv. The Ministry of Public Works is competent and will be responsible for project execution. Main road construction will be awarded to contractors after international competitive bidding and will be supervised by Ministry staff. The Eeeder road will be designed and supervised by consultants, with earth works carried out by force account, and bridges constructed by contractors. Consultants will examine training and equipment needs and assist itl t:raining. Project execution is estimated to start in 1976 and finish by 1980. v. Road construction should result in a 12% to 16% basic economic return, depending on the section; on average a 12% return. The main bene- fits, decreased transport costs on the main road and access to an area with agricultural potential where an IDA-assisted Livestoclc Project is underway, will accrue to low-income farmers. Transport, marketing and land tenure system structures appear adequate to foster growth and to permit fulfillment of the possibilities the road betterment will create. The training program and the procurement of spare parts and equipment will improve maintenance operations which are essential to prevent deterioration of existing roads and loss of investments.  - ii - vi. While overall performance under the previous highway projects has been satisfactory, Government's adherence to some of the credit/loan covenants has been less so. Therefore, during negotiations Government has agreed on a program to enforce axle load regulations; to discuss annually the appropriateness of proposed budget allocations for road maintenance; and to provide funds as required to cover local project costs. In addition, Government has agreed to prepare a program and implementation schedule for the improvement of the Infrastructure and Maintenance Department's maintenance equipment renting and spare parts supply systems; to employ consultants under terms of reference and conditions satisfactory to the Association; to procure civil works and equipment: according to IDA guidelines; and to carry out force account works under corLditions satisfactory to the Association. vii. The project is suitable for an IDA credit of US$22.0 million on the usual terms to the Democratic Republic of Madagascar.  DEMOCRATIC REPUBLIC OF MADAGASCAR APPRAISAL OF A FOURTH HIGHWAY PROJECT 1. INTRODUCTION 1.01 The Malagasy Government has requested Bank Group and BADEA as- sistance to upgrade and expand the highway network. Several possible project components were evaluated by the Ministry of Public Works and Bank staff. Construction of National Road No. 1 from Arivonimamo to Analavory (RN1, 67 km) and of the Tsiroanomandidy-Maintirano road (370 km) and improvement of road main- tenance were given highest priority. The RN1 section had been included under the Third Highway Project, but when the lowest bid was 70% higher than the appraisal estimate, upgrading to proposed standards was no longer justified. Reduced standards were proposed, but meanwhile cost overruns in the remaining project elements had more than absorbed available funds plus supplementary financing to cover currency realignment effects. Thus, the section was deleted from the project and a reduced, economically justified improvement of RNI is included in this project. Another component is construction of the Tsiroanomandidy-Maintirano road which is essential to successful completion of a current IDA-assisted Livestock Project. Under its Credit Agreement (506-MAG), Government gave assurances that it would upgrade the road but because of fund shortages has requested Bank Group financing. Equally impor- tant are the project components for improving maintenance capability, since present low standards endanger preservation of investments. Provision is made to identify and provide needed maintenance training, road maintenance equipment, spare parts, portable scales and weighbridges. BADEA selected the earthworks of the Tsiroanomandidy-Maintirano road for their assistance. 1.02 The Third Highway Project financed detailed engineering for the Antsohihy-Ambanja road with the expectation that construction would be under- taken under a following project. However, consultants adopted design standards above requirements resulting in high cost estimates. The works as designed are not justified and the consultants are presently reviewing the possibility of reducing the standards and finding a more economic road alignment. Since the road's priority is lower than the components of the proposed project, construction has been postponed. 1.03 This report is based on information from the Livestock Project appraisal report (Credit 506-MAG), on Ministry of Public Works studies, and on the findings of a. appraisal mission comprised of Frida Johansen (Transport Economist), Peter Ludwig (Engineer), Mustafa Nour (Economist) and Peter Blom (Agriculturalist, Consultant) which visited Madagascar in April 1975. The report was edited by Marie Garcia-Zamor (Technical Editor). 2. THE TRANSPORT SECTOR A. Effects of Geography and the Economy on Transport 2.01 The world's fourth largest island, Madagascar (590,000 km ) lies in the Indian Ocean 400 km off the east coast of Africa, from which it is  - 2 - rather isolated economically and culturally. Its climate is marine tropical; frequent cyclones and heavy rainfall, particularly on the east coast, periodi- cally disrupt transport and the economy. 2.02 The population, estimated at 8.3 million and growing at 3% p.a., is 90% rural and engaged in the agricultural sector. Althouigh more than half the annual production (mainly rice) is used for subsistence, agricultural products (chiefly coffee, spices, and meat) account for about 80% of the value of Malagasy exports. The country will continue to rely on agriculture since industry, which accounts for 10% of GDP, is at an early stage of development, and the numerous known mineral deposits are not commercially important, except for chromite iand graphite. Average per capita income has increased by less than 1% p.a. since 1960 and is currently about UTS$150 p.a. Available data indicate that there has been little economic growth since 1972. In view of the various political and social changes which have occurred since then, it will probably take some time for the economy to reach a substantial rate of growth. 2.03 The Malagasy population is unevenly distributed. Although average density is 14 persons/km2, it can be as low as 2 or as high as 25. Half the population is located on a quarter of the island's surface, in the central Tananarive and Fianarantsoa provinces. Almost no one lives in the surrounding regions, but nearing the sea concentrations are again found, especially on the east coast. This distribution is determined by Madagascar's physical config- uration, rugged topography, and climate. These factors, together with a lack of suitable construction materials, inhibit infrastructure construction and maintenance which, in turn, reinforce the relative isolation of the less populated regions. An adequate transport system is lacking, notwithstanding considerable progress in this sector in the last 15 years. Transport needs are relatively well served only on the central plateau, with Tananarive city generating or absorbing half of the country's commodity flows. Other populated areas are served mainly, if not only by coastal shipping. If the agricultural potential of presently unpopulated areas is to be realized, considerable road improvement and expansion are required, even though expansion may appear onlv marginally justified because of the sluggishness of service area and traffic development. B. The Modes 2.04 At present, the transport system comprises about 32,000 km of roads, of which 4,000 km are paved; two unconnected railway systems totalling 880 km; 15 main ports, of which 11 are suitable only for lighterage; and 59 airfields, of which 17 are all-weather standard. Roads and Transport 2.05 Network. A 1974 inventory of the road network is included in Table 1, and Table 2 shows primary system development since 1964. The paved highway  network, begun around 1950, consists of a main north-south artery intercon- necting Fianarantsoa, Antsirabe, Tananarive, and Majunga; an east-west road linking Moramanga-Tananarive and Tsiroanomandidy; and several short stretches around the major coastal towns. Other roads are generally low standard, narrow, badly aligned and often have weak, obsolete structures; heavy rains make many roads impassable half the year. The north and part of the west have no all- weather land connections to the rest of the island; although links to the southern region are mere trails, the dry climate contributes to year-round serviceability. Average density, considering all road types, is 54 m/km2. 2.06 Traffic. The vehicle fleet is composed of about 60,000 units, more than half of which are cars (Table 3). About half the fleet is registered in Tananarive, but the average of 135 inhabitants/vehicle is representative throughout the country. Traffic volume on paved roads is less than 75 vpd on some sections but reaches more than 1,000 vpd near main cities. On other roads, flows range up to a maximum of 50 vpd. According to counts taken from 1965 to 1972, road traffic has grown about 5% p.a. and near 10% on paved roads; this is corroborated to some extent by a similar growth in the estimated fleet and a 7% p.a. increase in fuel consumption (Tables 3 and 4). In 1971, about 1,000 million vehicle-km were driven, half by light vehicles in the towns and surrounding areas; trucks of more than 2 tons accounted for only 7% of the total. About 135 million vehicle-km were run on earth roads. Ap- parently, since 1972, however, traffic growth has slowed, as has the rest of the economy. 2.07 Road Transport Industry. This industry consists mainly of numerous highly competitive small carriers and cooperatives, a few large companies, and traders. Almost no regulations or restrictions are imposed on providing services; the main exception is a 5.5 ton vehicle load limit on the Tananarive- Tamatave road to protect the railway from road competition. As a whole, tariffs are close to costs. Ton-km tariffs vary from FMG 10 to FMG 125, according to road condition, season, and demand; passenger-km tariffs by taxi-be 1/ vary from FMG 2.70 on good paved roads to FMG 10 on earth roads. Services are generally provided near or below cost ou paved roads where competition is stiff, but high tariffs are charged for the few services provided on poor roads. For additional details see Annex 1, Section B. Railways 2.08 Infrastructure. The country is served by two unconnected railway systems between Antsirabe and Tamatave and from Fianarantsoa to the east coast at Manakara, totalling 880 km. They were constructed before 1920 and are operated by the Government-owned Malagasy National Railway Network (RNCFM), under the Ministry of Transport and Supplies (MTR). The RNCFM operates under quasi-monopoly conditions (para. 2.19). 2.09 Traffic. From 1967 to 1971, freight traffic grew at 13% p.a. and in 1971 was more than one million tons, or about 300 million ton-km. The 1/ Cars which provide bus-type service and which are more common than buses.  - 4 - increase was partly due to the opening of a chromite mine near Vohidiala. Reflecting general economic trends in the country, traffic declined on all lines during 1972 and 1973, and about 250 million ton-km were carried in the latter year. In 1974 traffic increased slightly. Petroleum products, chromite, rice, cement, empty bottles and containers account for more than 60% of traf- fic. On the other hand, passenger transport has grown continuously since 1969, and more than 3 million passengers, 244 million passenger-km, were trans- ported in 1974. The 375 km secticon from Tananarive to Tamatave carries 75% of freight-km and 50% of passenger-km. 2.10 Tariffs are based on commodity values and range from FMG 15 per ton-km for less than a carload of general freight to FMG 3 for chromite. Passenger fares per km are RIG 5.90 (US$.027) first class and second class, FMG 2.95 (US$.014). However, fares on the Tananarive-Antsirabe line are lower because of strong road competition. Tariffs have remained almost unchanged since 1964, and operations show a deficit. A 1974 R4CFM proposal to increase freight rates by 25% and passenger fares by 18% is, however, still awaiting approval. Waterways, Ports and Navigation 2.11 Infrastructure. Inland water transport is limited by a lack of navigable rivers. The exception is the Pangalanes Canal which is used to move agricultural products along the east coast. Fifteen ports are classified as imain", even though most are suitable only for lighterage. MTR gives con- cessions to private enterprises to operate the ports under MTR-established port authorities. Tamatave became the only autonomous port in January 1972 at Bank Group suggestion, under a project which provided for the port's extension and improvement (para. 2.24). 2.12 Traffic. Most imports and exports are moved by sea. Shipping along the 4,000 km coast is also important, since it is the only means of transporting freight between many areas. Tonnage has steadily increased by 3% p.a. since 1969 and import tonnage is double that of exports; about 1.8 million tons were imported or exported in 1973. Tamatave handles 78% of this traffic, and four other ports, the rest. Coastal tonnage has increased about 6% p.a. since 1969, despite the portst unfavorable natural features and climatic conditions, espe- cially on the east coast, and despite poor services, e.g., only one boat per month between such major ports as Majunga and Nossi-Be. About 380,000 tons were moved by coastal shipping in 1973, of which 50% was sent from Tamatave and 30% received in Majunga, with the broad participation of the remaining 13 ports. There are several coastal companies, but only Societe Malgache d'Activites, de Participations et d'Affretements (SOMAPAMAR), 51% Government- owned, is authorized to serve the whole coast. Tariffs are established by the private sector, based on length of trip and port category, and are lower for essential commodities. The fleet consists of 250 registered sail boats and 25 cargo ships, only 5 of which have a carrying capacitv above 400 tons. 150-ton landing craft 1/ are being introduced to overcome the lack of ports. 1/ The hulls of these boats are specially shaped so that they can dock on an ordinary sandy beach.  -5- Airports and Civil Aviation 2.13 Infrastructure. Internal air transport is important in a country the size of Madagascar, with its many isolated regions. Accordingly, there are 59 airports, including 17 all-weather airports and 5 appropriate for inter- national traffic. All are operated and administered by MTR. More than 50% of all air traffic is handled by Ivato Airport at Tananarive. 2.14 Traffic. Most air services are provided by the 60% Government- owned and 40% Air France-owned Air Madagascar (AM), which has a virtual mono- poly over scheduled air services. Landing rights have been denied to inter- national carriers, except Alitalia, and only a few private aero clubs undertake non-scheduled internal flights. AM's fleet comprises 21 aircraft, including one 737 for internal services; two 737's for regional use; one 707 for long distance; and 15 small airplanes for agricultural spraying. This fleet is expected to be adequate for the next 10 years' needs, especially since average occupancy is only slightly above 50% and most aircraft were acquired recently. 2.15 After a precarious start in 1969, AM has greatly expanded services and become increasingly viable; in 1973 it carried 264 million passenger-km and 9 million ton-km. The company provides internal services on 52 scheduled, regular stops. Forty of these account for only 20% of traffic and produce losses but are subsidized and continued for social reasons and for lack of an alternative surface transport infrastructure. In 1973, 63 million passenger- km and 2 million ton-km (or 158,000 passengers and 4,600 tons) were carried internally; volume increases since 1969 have been 13% and 9% p.a., respectively. The company also undertakes regional flights, which logged 37 million passenger- km and 2 million ton-km in 1973 (21% and 15% growth p.a., respectively), and long distance flights to Europe, which in 1973 carried 164 million passenger- km (a decrease of 25% compared to 1971) and 5 million ton-km. These flights are the most profitable and cover losses on internal routes. Minor activities are spraying services, mainly insecticides for cotton fields, and car rentals at main airports. C. Transport Policy, Planning and Coordination 2.16 Government has endorsed the 1973-77 Development Plan's broadly outlined transport policy objectives. Further, the "Charter of the Revolution", dated August 1975, indicates that it is considered essential to: a) connect regional capitals gradually by all-weather roads; b) construct the Tananarive- Moramanga-Tamatave road; c) maintain the road network effectively and d) re- view the transport organization to improve services. The Corps of Engineers of the Army, a "Youth Army" and the Fokonolonas 1/ are to assist in road 1/ Organized under elders' leadership, a Fokonolona is the traditional village group, the dominant social organization and a powerful influence on social and economic issues. Government expects these groups to play a development role similar to that of the "ujamaa" villages in Tanzania.  - 6 - building and maintenance. Although highways have priority ranking in the plan, budgetary constraints are severe and, as a result, Government is under- taking projects only on an annual basis according to fund availability. Bank Group sector lending would not be feasible at this time because of these contraints. 2.17 Twice after recent political changes, Government departments res- ponsible for transport policy implementation have been administratively reor- ganized. In 1972, the Ministry of Works and Communications was replaced by the Ministry of Works (MAT). In Februarv 1975, the short-lived MAT was split into three ministries: the Ministry of Posts and Telecommunications; the Ministry of Public Works (MTP), responsible mainly for infrastructure con- struction and maintenance (Chart 1); and the MTR, responsible for transport regulations and basic goods supply planning; RNCFM and AM are attached to it (Chart 2), However, transport rates proposed by MTR are approved by the Ministry of Finance which also establishes taxes on transport activities; transport fiscal receipts go mainly to general revenues. Both MTP and MTR transport plans are reviewed by the Ministry of Planning, which is responsible for sector coordination although, in fact, there has been little coordination, partly due to a lack of clearly defined programs in any sector. 2.18 In addition, Madagascar lacks sufficient qualified transport experts to assess the increasingly complex technical and economic issues involved in planning and coordination, such Ets stage construction, modal allocation or transport regulations and taxation. MAT's Central Planning Services (SCP) has remained under MTP and is now responsible for coordination among the different departments of the MTP, for MTP's annual budget proposals and for highway planning. MTR has no general planning unit but is being strengthened by the IDA-financed transport planning team which was originally assigned to MAT (Credit 488-MAG); this team, which has been fully operational since late 1975, will work in close collaboration with Government officials who, it is hoped, will be able to take charge when the team leaves. 2.19 Because of high construction costs and low traffic levels, the upgrading of main roads should be coordinated with the needs of other sectors, as well as with a program to close some minor ports wiose traffic would be carried by road to and from main ports. These tasks will be undertaken by the planning team. Up to now, there has been little need for modal coordination since the system's stage of development affords little possibility of competition, except in the Tananarive-Tamatave corridor where preference has been given to RNCFM by not upgrading the roacd to all-weather standard and by imposing a 5.5-ton truck load limit. Noneltheless, traffic has increased. The first step seems to be to decrease the railway monopoly. Government now is prepared to take this action, realizing that the railway cannot cope with present traffic volume and that road construction would reduce total transport costs. According to a feasibility study undertaken by SETEC (consultants, France) in 1973 (Credit 90-MAG), the alignmernt via Anjozorobe-Ambatondrazaka would maximize the return on investment, but Government instead intends to construct the road parallel to the railway track, via Brickaville, with assistance from the People's Republic of China.  - 7 - 2.20 As is apparent from the description of transport modes, Government relies on parastatal entities to provide public transport services in every sphere except road transport: rail and air (quasimonopolistic) and long distance and coastal shipping (in competition with the private sector). Road transport, on the other hand, is virtually unrestricted, but increased control and a parastatal trucking organization are envisaged (Annex l, Section B). Govermuent has asked the IDA-financed planning team to study these matters also. D. Bank Group Projects in the Sector 2.21 The Bank Group began transport activities in the country in 1966. The First Highway Project (Credit 90-MAG, US$10.0 million) provided for recon- struction to paved standards of two sections of the Tananarive-Majunga road, totalling 145 km. The works were completed satisfactorily. A surplus re- mained under the credit, part of which was used to finance engineering and feasibility studies of high priority road sections; the studies were satis- factorily completed by mid-1973. 2.22 The Second Highway Project (Credit 134-MAG/Loan 570-MAG, 1968, US$8.0 million) helped finance reconstruction of two roads to paved standards, Fanjakamandroso-Tsiroanomandidy (55 km) and Ambilobe-Ambanja (91 km), and construction of three major bridges, one near Ambanja and two in the vicinity of Tamatave. These works have also been satisfactorily completed, although changes in the design of one road, due to unexpectedly difficult materials problems which were not revealed until work was well underway, resulted in a 27% increase over the original project cost estimate. 2.23 The Third Highway Project (Credit 351/Loan 896-MAG, 1973/75, US$35.6 million) provided for construction of 417 km of primary roads, detailed engi- neering of the Antsohihy-Ambanja road and a review of the traffic counting system. Construction of RN44 from Vohidiala to Ambatondrazaka (24 km paved) was completed in late 1974; work is nearing completion on RN34 from Antsirabe to Malaimbandy (220 km paved and 114 km gravel). RN1, from Arivonimamo to Analavory, was deleted from the project and is included in this one. Detailed engineering of the Antsohihy-Ambanja road has been completed to standards above requirements and is being revised. No action has been taken regarding the traffic counting system, but the planning team provided under the railway project will look into it. 2.24 In addition, there was a port project (Credit 200-MAG, 1970, US$9.6 million) which provided for the extension of Tamatave Port, construction of a tanker terminal, creation of the Tamatave Port Authority, and technical assistance for management personnel and training. The port extension was completed in 1974; the Tamatave Port Authority has been established but needs improvement; the question of whether or not to proceed with the tanker terminal is under review in light of higher-than-estimated costs.  - 8 - 2.25 A railways project, the latest in the country (Credit 488-MAG, 1974, US$6.0 million), provides for a 60 km main track renewal, a few buildings, some freight and passenger wagons, and consulting services to RNCFM and MAT. This project is being executed behindi schedule; cost increases have reduced the number of wagons to be purchased. 3. HIGHWAYS A. Administration 3.01 MTP has been responsible for highway administration (Chart 1) since MAT was reorganized in 1975. The split-up involved no major changes in per- sonnel or lines of authority. The New Works Department (DTN) of MTP is in charge of new construction and the Infrastructure and Maintenance Department (DIM) is responsible for highway maintenance. The functional organization is adequate. 3.02 Staffing, on the contrary, is not adequate. Most of the French experts left the country after the 1972 revolution. Of the 60 then in the MAT Public Works Department, only seven remain in the present MTP. The resulting gap has not affected new construction, design or supervision, where use of consultants is possible, but maintenance has deteriorated because the Malagasy staff is inadequately trained. Government is preparing nationals to fill positions formerly occup:ied by expatriates and, to assist in this, the project will help finance a study of training needs and subsequent implementation of its findings (para. 4.07). 3.03 The roads under MTP are administratively classified as national (primary, or main) and provincial (secondary). Road regulations set vehicle weight and dimensions, inspection, speed limits, and vehicle and driving licenses. Vehicle dimensions and! weight regulations are generally adequate (allowing loads up to 10 tons/axle, except on some paved road sections or bridges). However, enforcement of these ordinances, the responsibility of the national police, is lacking. This is a serious problem, especially with the trend to increase vehicle dimensions and to overload units. To alleviate this, the project will help finance procurement of portable scales, necessary vehicles and, after a weighing campaign with the former, permanent weigh- bridges on strategic sites (para. 4.09). B. Plannning 3.04 A highway master plan (Plan de l'An 2000) drawn up in 1961 by the Bureau Central d'Etudes pour Les Equipements d'Outre Mer (BCEOM, France), in cooperation with Government ofiicials, was geared to linking major pop- ulation centers with paved roads; the plan was based on political and adminis- trative considerations. However, since 1972 Government has recognized that secondary road construction to open areas with good agricultural potential  -9- also has high priority. This concern is reflected in Government's request that this project include construction of the low-standard Tairoanomandidy- Maintirano road. 3.05 Highway planning is the responsibility of the SCP, in cooperation with DTN. However, because SCP is poorly staffed, Government engages con- sultants to evaluate major highway projects. The IDA-financed planning team, which has taken up its duties within MTR, will assist SCP in establishing priorities for improving and maintaining the road network. This team will also study traffic counting needs and propose a counting system. Counts of dubious reliability were recorded from 1965 to 1972, and although the Third Highway Project included a provision to improve traffic counts, they were discontinued because adequate personnel was lacking. C. Financing 3.06 Yearly expenditures in the highway sector amount to about US$10 million for recurrent expenses and US$30 million for investment. Total expenditures have been declining in real terms since 1969 (Table 5). Since 1971, yearly fiscal revenues from road users have been declining even in nominal terms and were only about US$33 million in 1973 (Table 6). These revenues amount to about 85% of total highway expenditures, but allocations for highway expenditures are not related to road user revenues. Administration and road maintenance are financed out of the general budget and upgrading and new construction from the development budget, which since 1972 includes a small amount for secondary road construction under the "programme de relance economique". 70% of the development budget consists of grants and credits from bilateral and multilateral aid programs; the remaining 30% is the local contribution for these programs. Since 1966, the Bank Group has contributed a yearly average of about US$4 million to the highway sector. Other agencies or donor countries are: the European Development Fund, France, the Federal Republic of Germany and Italy. 3.07 Inadequacies in Government's budget and payment procedures cause difficulties. A budget is prepared by MTP and submitted to the Ministry of Finance for approval by the Government. The latter, due to financial constraints and priorities, regularly allocates less funds than requested. Sometimes, budgeted funds are not made available to MTP when requested; for instance, execution of the Third Highway Project was endangered because Government's financial constraints precluded timely payments of the local currency part of contracts. In 1975 contractors had reached the ceiling of credit availability at local banking institutions and only the expedition of direct payment for the foreign currency part of the contract enabled them to continue temporarily until local currency payments were made. However, the Government has now redressed its payment default to contractors, made appropriate allocations for remaining works under the Third Highway Project and agreed to provide funds as needed for implementation of this fourth highway project.  - 10 _ D. Engineering 3.08 Up to 1972, most of the preliminary design, detailed engineering and construction supervision, even of major road projects, had been carried out by the Central Technical Services of the former MAT, corresponding to DTN in the present MTP organization. However, with the gradual departure of French experts, MTP has relied increasingly on consulting services. The National Laboratory of Public Works and Construction (LNTPB), a financially autonomous agency of MTP managed by the Center for the Study of Public Works and Construction (CEBTP, France), is still capable of carrying out all necessary soil investigations and material tests for highway design construc- tion and supervision. 3.09 The design standards adopted by MTP are appropriate (Table 7). The rural road standards are well-suited to the traffic levels and the sometimes difficult terrain. Primary road network design standards should be applied flexibly in accordance with economic conditions, traffic levels and terrain, which vary considerably from region to region. E. Construction 3.10 Major road projects are executed by contractors which are either local subsidiaries of French or Italian firms or foreign firms. A domestic contracting industry for highway construction has not developed, due to lack of professional skills and scarcity of capital and credit facilities. Initial Government efforts to encourage private domestic contractors have been abandoned. Instead in early 1974 the capital-financed National Public Works Agency (SINTP) was created as an independent and financially autonomous corpo- ration whose sole stockholder is the Government, and it was equipped, with US$9 million worth of equipment, to compete with local and foreign contractors. A first contract, for the reconstruction of RN3 between Ankzondandy and Anjozorobe (42 km), was negotiated between MTP and SINTP in October 1974 for about US$5 million. SINTP's performance under this contract is being watched to see whether it could be prequalified for international competitive bidding for Bank Group-financed projects. A force account construction unit within the MTP maintenance department carries out earth works and gravelling of secondary roads; its performance, although hampered by insufficient equipment, is satisfactory. 3.11 Usually, construction contracts are awarded on the basis of local or international competitive bidding. Administrative procedures for bidding and contract award follow well-established and appropriate regulations; work specifications are comprehensive and precise. Construction supervision is carried out either by DTN or by consulting engineers as its representatives. DTN's dealings with contractors are generally satisfactory but sometimes strained because the Ministry of Finance does not disburse payments due under budgeted and approved contracts (para. 3.07).  - 11 - F. Maintenance 3.12 Maintenance of the primary highway network and, since 1973, of the secondary network is the responsibility of the DIM in the MTP. In each arrondissement 1/, DIM has a division whose subdivisions and sections execute the maintenance (Chart 1). In line with the decentralization policy, it is intended to give more responsibility to the divisions, which then would report directly to the Secretary General and receive technical advice from DIM. In addition to DIM, the Malagasy Army's Corps of Engineers carries out limited local road maintenance and has recently received a loan of about US$4 million from the Federal Republic of Germany to purchase road maintenance equipment. Tertiary road and track maintenance is the responsibility of the Fokonolona, whose individual efficiency and motivation determine maintenance quality, which varies considerably from village to village and is generally inadequate. 3.13 DIM maintenance operations are largely mechanized. Equipment avail- ability is below requirements, in some cases simply due to lack of spare parts. Equipment is procured, distributed and repaired by the well-equipped Central Workshop (PA) in Tananarive, under DIM authority but financially autonomous. PA rents equipment to the divisions and subdivisions and charges for operating costs but not for the time equipment is idle. Thus, there is little incentive to minimize idle equipment time; each superintendent requests as much equipment as possible and retains what is obtained even if it is no longer needed or funds are not on hand to operate it. In addition, sub- divisions are not authorized to exchange equipment directly among each other, which could reduce total requirements. Minor repairs, the responsibility of divisional workshops, are often neglected or cannot be made due to lack of spares. Since present procedures are wasteful, the project provides financing for a study on how to improve DIM*s organization, its equipment renting system and the spare parts supply system (para. 4.08). 3.14 Budget allocations for road maintenance have been insufficient in recent years; in 1974 maintenance expenditures per km for the primary highway network averaged US$250 for paved roads and US$650 for unpaved. Updated figures from a 1966 BCEOM maintenance study indicate that yearly expenditures per km should be about US$450 for a paved road and US$1,100 for an unpaved one, plus administrative costs. Furthermore, allocated funds are not avail- able on time. The present Government recognizes the priority of road main- tenance (para. 2.16) and has increased the budget allocation in 1976 (Table 5). Even so, because of the backlog, additional funds are required for spare parts to rehabilitate existing equipment and for equipment renewal. Therefore, the study mentioned in para. 3.13 will also determine spare parts and equip- ment needs, and the project will also assist in financing procurement of the elements identified (para. 4.08). During negotiations, it was agreed in a side letter that, in the future, the Association and the Government will annually discuss the appropriateness of proposed budget allocations for road maintenance. 1/ Administrative unit of a province.  - 12 - G. Training 3.15 After professional training abroad (usually in France), about two engineers a year are recruited inlto MTP Central Services for relatively high- ranking positions. The Higher Technical Teaching Institute (Etablissement d'Enseignement Superieur Polytechnique) of the Malagasy University yields about 10 civil engineers per year who are mainly recruited by the Administra- tion as division or subdivision chiefs. While the curriculum and number of engineers graduated appear adequate, most graduates lack practical experience and management training, which are indispensable to running a division or sub- division efficiently. The 30 technical assistants who graduate annually from technical high schools either continue their studies at university or are employed in the administration as section chiefs or deputy division chiefs. Practical engineering experience and personnel management training are completely missing, even though a chief may supervise as many as 60 persons. 3.16 The MTP training center (Centre de Maitrise des Ponts et Chaussees) was created in 1963 and has since trained road supervisors, foremen, equip- ment operators and mechanics. 84 were trained in 1971, but only 18 in 1974, and the center has been closed since 1975 for lack of teachers and operating funds. Since MTP's maintenance operations are seriously affected by the shortage of skilled staff, assistatnce will be provided under the project to identify training needs and implement an agreed-upon training program (para. 4.07). 4. THE PROJECT A. Objectives 4.01 The project will assist Government in reducing transport costs on a heavily trafficked road, in opening up for development areas with high agricultural potential, and in improving overall road maintenance quality. B. Description 4.02 The project consists of: (i) reconstruction of the two-lane paved National Road No. 1 between Arivonimamo and Analavory (RN1), 67 km; (ii) construction to gravel standards of the secondary-feeder roacl between Tsiroanomandidy and Maintirano, 370 Icm;  - 13 - (iii) consulting services to supervise (i) and to engineer, manage and supervise construction of (ii); and (iv) road maintenance elements comprising: a) a study of MTP training needs to improve maintenance; b) implementation of the study's recommenda- tions; c) a study of DIM's operational organization, including the spare parts distribution and equipment renting systems, in order to improve equipment availability; and of DIM's equipment, in order to determine the need for spare parts and additional road maintenance equipment; d) procurement of the spare parts and equipment identified in c) above; and e) procurement of portable scales and vehicles, and weighbridges. (i) Reconstruction of RN1 (67 km) 4.03 Reconstruction of this road had been included in the Third Highway Project; it was later deleted because of substantial cost overruns of ongoing components in that project. The reconstruction of this road, which was paved between 1952 and 1956, continues to have high priority and is therefore in- cluded in the project. For the purpose of analysis and design the road has been divided into three sections: Section A: (19.5 km 1/ from Arivonimano to Pk 65.6) This section has a poor alignment with continuous narrow curves and a poor-to-regular surface. There are two decaying major bridges which have to be replaced if the road is to carry expected future traffic. The overall condition of this section is too poor to justify a mere improvement of the existing road. Therefore a new alignment has been selected, resulting in a distance saving of 3.2 km; furthermore, 2 km of this alignment, from Arivonimamo to the Arivonimamo airport are already paved and in good condition. The remaining 14.3 km will be constructed to two-lane paved standards as set out in Table 7. Section B: (30.4 km 1/ from Pk 65.6 to Pk 96) The existing align- ment and base on this section are adequate. Construction works will there- fore be limited to an overlay with a 4 cm bituminous premix, improvement of 1/ Length of existing road.  - 14 - draining and drainage structures and reconstruction of one major bridge. Pavement width averages about 5 m, 50 cm less than provided for in the general design standards for the primary road network. The 5 m pavement width is, however, judged adequate to accommodate, without major impediment, expected traffic over the 20-year life of the road. Section C: (24.0 km 1/ from Pk 96 to Analavory) The alignment of this road section is generally adequate, but due to difficult soils and traffic, pavement is so deteriorated that strengthening by bituminous overlay is not possible. The road will therefore be reconstructed on the existing alignment with some minor improvements in geometric standards, which will reduce the present length by 1.7 kXm. 4.04 DTN has prepared the detailed engineering and tender documents for this road and will carry out construction supervision in close cooperation with LNTPB. For further details of the project road, see Annex 2, Section A. (ii) Construction of the Tsiroanomandidy-Maintirano Road (370 km) 4.05 The present link between Tsiroanomandidy and Maintirano, about 390 km, is almost impassable even by four-wheel drive vehicles in dry season. Alignment follows water sheds and presents numerous curves; it crosses many rivers, including three major ones. Only one has a bridge and all other rivers and streams have to be waded across, which is possible only four months of the year. About 100 km from Tsiroanomandidy to Ambaravanala have been recently improved to a 6 m wide earth road; the following 140 km to Morafenobe is only a track presenting gradients up to 20%, and the remaining 150 km from Morafenobe to Maintirano is an earth road about 4.5 m wide. The road will be constructed to all-weather gravel standards as set out in Table 7. It will connect Tsiroancmandidy, Ambaravanala, Beravina, Bemahata- zana and Maintirano and provide access to Morafenobe from Bemahatazana. The alignment was chosen following investigations by MTP's Central Planning Services, with preappraisal mission assistance. About 120 km of the proposed alignment runs through rather difficult and rugged topography and the remain- ing 250 km through flat to rolling terrain. Several major bridges will be built to one-lane width which is adequate for present and future traffic. For more details of the road areas see Annex 2, Section B. (iii) EngineeriTg, Management and Supervision Consulting Services 4.06 For the low-standard, low-cost Tsiroanomandidy-Maintirano road, the expense of full engineering, including working drawings and bills of quanti- ties, is not justified. DTN has undertaken only preliminary investigation on the basis of aerial photography, and engineering will be carried out by consultant's site staff ahead of construction as it proceeds, under their management (para 4.16). Agreement has been reached during negotiations that the consultants will be employed under terms and conditions satisfactory to the Association (Annex 3). 1/ Length of existing road.  - 15 - (iv) Road Maintenance Elements 4.07 Training. Because maintenance performance is hampered by lack of experienced and qualified technical personnel (paras. 3.02 and 3.16), Govern- ment agreed during negotiations to employ consultants, under terms and condi- tions satisfactory to the Bank Group (Annex 4) to study MTP training needs, giving particular attention to maintenance. The study should make proposals concerning the employment of training officers, training methodologies, didactic equipment procurement, the re-opening of MTP's training center, and/or creation of new decentralized training facilities throughout the coun- try. The recommendations the study makes will be reviewed by Government and the Association and an agreed-upon program will be implemented, possibly with the assistance of the same consultants who carry out the study. 4.08 Spare Parts and Equipment. Maintenance performance has also been hampered by inadequate operational systems (para. 3.13) and by budgetary constraints (para. 3.14). Concerning the former, the Government agreed during negotiations that it will, not later than December 31, 1977, prepare in con- sultation with the Association a work program and implementation schedule to reorganize DIMts maintenance equipment renting system and improve the organi- zation's spare parts supply system. To facilitate this, the Government also agreed that consultants, under terms and conditions satisfactory to the Association, will be financed under this project to study present operations and to make recommendations for their improvement (Annex 5). Regarding bud- getary constraints, which are reflected in depleted spare parts stocks and almost no equipment renewal during recent years, Vhe Government agreed to include in the above-mentioned terms of reference a study of spare parts and additional equipment needs. The study's recommendations will be reviewed by the Government and the Association, and an agreed list of goods will then be procured under the credit to ease the serious shortage. 4.09 Axle-load control. Though adequate regulations exist, axle-load control is not enforced (para. 3.03). During negotiations, the Government agreed (a) to take all measures reasonably required to ensure that the di- mensions and axle-loads of vehicles using its national highway network shall not exceed limits consistent with the design standards for such roads, and (b) not later than December 31, 1976, exchange views with the Association on its proposed program for implementing the measures. To assist Government in this, the project provides financing for the portable scales and vehicles required for a year-long axle-weighing campaign on the paved network to deter- mine the sites where permanent weighbridges, also to be procured under the project, should be installed.  - 16 - C, Cost Estimates 4.10 Total project costs are estimated at US$38.4 million including taxes (US$31.8 million net of taxes and duties), with a foreign exchange component of US$25.6 million, or 67%. Detailed costs are as follows: X Financineg FMG niillion US$ million Foreign US$ million Item Local Fcreign Total Local Foreign Total Costs IDA BADEA- Gov't I. Construction: a) RN 1 722 1,178 1,900 3.36 5.48 8.84 62 6.15 - 2.69 b) Tsiroanomandidy- Maintirano Road: i) Bridges 380 520 1,000 1.77 2.88 4.65 62 3.25 - 1.40 ii) Earthworks 664 798 1,462 3.09 3.71 6.80 55 - 3.60 3.20 1I. Engineering and Super- vision of Construction: 64 :256 320 0.30 -1.19 1.49 80 1.19 - 0.30 III. Road Maintenance a) Study of Training Needs 2 18 20 0.01 0.08 0.09 90 0.08 - 0.01 b) Implementation 40 :160 400 0.19 1.67 1.86 90 1.67 - 0.19 c) Study of Equipment and Spare Part Needs 2 20 22 0.01 0.09 0,.10 90 0.09 - 0.01 d) Equipment and Spare Parts 84 776 860 0.39 3.61 4.00 90 3.61 - 0.39 e) Weighbridges, Portable Scales and Vehicles 10 1.08 118 0.05 0.50 0.55 90 0.50 - 0.05 Sub-total I-IIIl 1,968 4,134 6,1052- 9.17 19.21 28.38 16.54 3.60 8.24 'IV. Contingencies: a) Physical: 10% on 1,11 183 235 468 0.85 1.33 2.18 1.06 0.35 0.77 b) Price: 22% on Ia 175 235 460 0.81 1.33 2.14 1.50 - 0.64 36% on Ib (i) 150 245 395 0.70 1.14 1.84 1.29 - 0.55 27% on Ib (ii) 232 198 430 1.08 0.92 2.00 - 1.05 0.95 20% on II and ITI 43 357 400 0.20 1.66 1.86 1.61 - 0.25 Sub-total IV 783 1,370 2,153 3.64 6.38 10.02 5.46 1.40 3.16 Total Project Cost 2,751. 5,504 8,255~- 12.81 25.59 38.40 67 22.00 5.00 11.40 (Total Project Cost Excluding Taxes) (1,326) (5,5C4) (6,830) (6.18)(25.59)(31.77) 80 22.00- 5.00 4.77  - 17 - 4.11 The estimates were obtained as follows: (i) Construction: Cost estimates for RNI are based on updlated bid prices received for this road in July 1974 and on the modified design. The cost for the Tsiroanomandidy-llaintirano road has been estimated by DTN and the mission on the basis of preliminary design and a survey of costs per-km for similar roads and bridges. (ii) Supervision: Costs are estimated at 5% of construction cost for RN1 and 9% for the Tsiroanomandidy-MTaintirano road, the latter percentage reflecting consultants' increased workload for field engineering and team management during supervision. (iii) Road Maintenance: Lump sums are included, based on experience with similar projects in Kenya and Tanzania. (iv) Contingencies: A 10% physical contingency is provided for con- struction and supervision to allow for quantity variations and extensions. Price contingencies are calculated for each component, taking into account the period from April 1976 to completion and price escalation rates of 13% for 1976, 12% p.a. for 1977 to 1979, and 10% for 1980, for civil works, and 9% for 1976 and 8% annually for 1977 and 1978, for equipment. (v) Foreign Cost Component: Under the Third Highway Project, this was estimated at 66% for the construction of RN1, now reduced to 62%, reflecting tax and local labor cost increases higher than foreign cost increases. The foreign exchange cost for the earthworks of the Tsiroanomandidy-Maintirano road construction is estimated at 53% of total cost, reflecting the use of force account. These estimates were made by DTN and the Association, with BADEA participation in the case of Tsiroanomandidy-Maintirano road. Equipment, spare parts, imported materials, fuel, expatriate personnel, management over- head and profit are the principal foreign exchange items. The foreign com- ponent for supervision, has been estimated by the Association at 80% and for training and equipment procurement at 90% of the total cost. n). Financing 4.12 Total project costs are US$31.8 million net of taxes. The US$5.0 million BADEA loan, which will finance 16% of total project cost, net of taxes, is earmarked specifically for the foreign cost of the Tsiroanamandidy- Raintirano earthworks, or 53% of these works' total cost, including taxes. The US$22.0 million IDA credit will finance 69% of total project cost, net of taxes, covering some local costs in addition to 100% of the foreign exchange costs. The remaining 15% (US$4.8 million) of total project costs, or US$11.4 million, including taxes, will be met by the Government, which, (luring negotiations, agreed to make funds available as and when required.  - 18 - E. Implementation 4.13 DTN in the MTP, assisted by consultants, will be responsible for road construction; this organization has the necessary competence, as shown by its performance under previous projects. 4.14 Reconstruction of RN1, its bridges, and the bridges of the Tsiroanomandidy-Maintirano road 'will be executed under three separate unit price contracts awarded after international competitive bidding in accordance with Bank/IDA guidelines. 4.15 All bidders will be required to prequalify. Since Madagascar has a GNP per capita of less than US$200, the credit agreement contains provisions for 7.5% preference in bid evaluation for domestic contractors, including SINTP in the event that it is a bidder (see para. 3.10). Procurement arrange- ments for contract construction were agreed during negotiations. 4.16 Earthworks on the Tsiroanomandidy-Maintirano road are, in fact, an intensive maintenance operation to upgrade the existing track to an all- weather road, rather than a full construction operation. The scope of the works and their dispersion over :370 km are likely to result in high costs if executed by contractors. A force account unit of the MTP has recently satisfactorily upgraded a feeder road near Tsiroanomandidy at low cost. Therefore, execution of the eartliworks on the project road by force account appears the most economic alternative, which provides, in addition, an ex- cellent opportunity to train Malagasy staff at all levels on the job. Con- sultants will be employed to assist the MTP with the engineering. management and supervision of the force account works and to coordinate the earthworks with the bridge construction by contractors. Administrative arrangements for the force account works and conditions of consultant employment were agreed during negotiations. 4.17 Also assisted by consultants, the SCP and the DIM in the MTP will be responsible for implementing the training program and the maintenance program, respectively. Terms of reference and the study results will be disculssed with the Association, and associated procurement will be in accordance with Bank/IDA guidelines. 4.18 Construction works on RNI are expected to start by October 1976 and be completed in about 2 years. Works on the Tsiroanomandidy-Maintirano road are expected to start in the second quarter of 1977 and finish 3-1/2 years later. Studies are to begin by January 1977 and, following their results and analyses, training, equipment procurement and DII reorganization are to start within a year. The axle-load weighing campaign with portable scales would be carried out during 1977, and installation of weighbridges at selected sites would proceed in 1979. The project is expected to be completed by mid-1980. The implementation schedule (Chart 3) as well as the progress reporting system for works (Annex 6) were agreed with the Government and recorded in a side letter during negotiations.  - 19 - F. Disbursements 4.19 Financing sources for specific project components are shown in the cost table in para. 4.10. The IDA credit will finance 70% of contract con- struction work costs, including taxes, and the foreign exchange cost of the remaining elements (except force account works), estimated at 80% of engineer- ing consultant fees and 90% of road maintenance component costs. All disburse- ments will be fully documented. A disbursement schedule is given in Table 8. 4.20 BADEA's loan will cover 100% of the foreign exchange cost of the force account works. About US$4 million will finance the initial purchase of required equipment and spare parts, according to the side letter including an equipment list (Table 9) agreed during negotiations and US$1 million will cover the foreign cost of operating expenditures throughout the construction period. All these disbursements will also be fully documented. The Government will provide the balance of required funds. 5. ECONOMIC EVALUATION A. Main Benefits and Beneficiaries 5.01 The project roads are located in the mid-west and west and will provide a direct connection from Tananarive to the west coast, supporting agri- cultural development. The main project benefits are the savings that will be produced for normal traffic on the main road and access to an area with agri- cultural potential where an IDA Livestock Project is underway. Transport savings benefits are expected to be passed on to the small-scale farmers, since the highly competitive structure of the transport industry will exert pressure to reduce tariffs. Further, the reduced transport costs and increased services expected from small operators may render production profitable in now marginal areas. Unit vehicle operating costs are shown in Table 10. The structure of the marketing and land tenure systems is such that it should not constrain the development process (Annex 1). B. Arivonimamo-Analavory Road 5.02 This section of RN1 is paved but in poor condition and incapable of adequately serving the increasing traffic. About 70,000 persons live in the area of influence of the project road. Density gradually increases towards the east, and small rural villages are seen continuously along the road. About 670 vpd are expected in 1979, the year it opens. The population derives its livelihood from agriculture and related services. Average annual income per capita is less than US$120. Annex 2, Section A, contains additional details about area of influence, traffic and benefit estimates.  - 20 - 5.03 Reconstruction of the Arivonimamo-Analavory section of RN1, as envisaged in the Third Highway Project, would have been on a new alignment over half of its length, reducing the distance by 20 km. Appraisal evaluation gave a 16% economic return, but when the low hid received was 70% above esti- mates, construction was no longer justified to proposed standards. Alter- native technical upgrading possibilities for each of the three sections into which the road was divided were then evaluated and the best are included in this project. 5.04 The rate of return for the whole road to revised standards is estimated at 13% (13% for the new alignment from Arivonimamo to PK 65.5, 16% for resurfacing the middle section and 12% for reconstructing the last section to Analavory). If the foreign exchange component is shadow priced, the rates decrease about one point. Operating savings plus reduced maintenance costs justify the works. No benefits have been attributed to bridge reconstruction even though it is essential for traffic continuity; if its cost is excluded, the average rate becomes 15% (or 14%, 22%, and 14%, respectively). A sensitivity test on the first section in which the old alignment is neither used nor maintained results in a 14% return (Table 11). C. Tsiroanomandidy-Maintirano Road 5.05 From Tsiroanomandidy to Maintirano, development is hampered by lack of communications. This project will finance the first all-weather road in an area of about 100,000 km2. As in the case of RNI, about 70,000 persons live in this road's area of influence and derive their livelihood from agri- culture and related services. Sonme major towns have emerged, mainlv as market centers (for instance, Tsiroanomandidy, with about 18,000 inhabitants). Population density is lowest in the middle section, partly reflecting the lack of transportation which isolates that area. Per capita income is about US$80 on average. 5.06 Crop extraction or passenger transport is almost impossible in the area that the proposed Tsiroanomandidy-Maintirano road will serve. Its opening will allow achievement of the potential developmental benefits of the IDA Livestock Project, will produce savings for the traffic that now uses the existing track and for traffic that will be diverted from other modes, and could produce other social and economic benefits which are not quantified in this analysis, such as those generated by crop development and new settle- ment programs. Estimated opening year (1980) traffic is 36 vpd from Tsiroanomandidy to Ambaravanala, 14 vpd in the middle section and 42 vpd from Morafenobe to Maintirano. Cattle is not expected to be moved by truck, since the cattle-transport price structure does not justify it. For further details, see Annex 2, Section B. 5.07 The best estimates result: in a 12% economic return for the whole road; since their benefits are interdependent, sections have not been eva- luated separately. Introduction of shadow exchange rate does not modify the  - 21 - results; if construction costs were 15% higher, the economic return changes to 10% (Table 12). 5.08 In addition to supervising works, the consultant management team will train Malagasy staff on the job. The value this training may have, of eventually enabling Malagasy to undertake works of similar magnitude and quality without assistance, has not been quantified, and the training component is, therefore, not included in thie above-mentioned rates of return. D. Road Maintenance Elements 5.09 No rate of return calculation has been attempted for the elements intended to improve maintenance operations. however, thley will undoubtedly result in improved work organization, increased efficiency in operating and maintaining equipment, better road maintenance procedures, and better capabi- lity for enforcing axle-load regulations. Overall, the maintenance elements under the project are expected to result in reduced vehicle operating costs and increased efficiency of the road transport industry; these benefits will accrue to thie economy as a whole and will be passed on to different segments of the population in varying degrees. Reduced vehicle operating costs will directly benefit the owners of private cars and commercial vehicles; since transport prices are determined in a competitive framework, part of this benefit should be passed on to producers and consumers. There will also be Government savings in future road rehabilitation costs. 6. AGREEMENTS REACHED AND RECOMMENDATION 6.01 During negotiations agreements were reached on: (a) an annual review by the Association and the Government concerning the appropriateness of proposed budget allocations for road maintenance (para 3.14); (b) terms of reference and employment conditions for consultants to be provided under the project (paras. 4.06-.08 and 4.16); (c) a program and implementation schedule to reorganize DIM's maintenance equipment renting system and to improve the organization's spare parts supply system (para. 4.08); (d) an implementation schedule for enforcing axle-load regulations (para. 4.09); (e) provision by thie Government of funds required to cover local project costs (para. 4.12); and  - 22 - (f) procurement arrangements for contract construction and administrative arrangements for force account construction (para. 4.16). 6.02 The project is suitable for an IDA credit of US$22.0 million on the usual terms to the Democratic Republic of Madagascar. June 3, 1976  ANNEX 1 Page 1 DEMOCRATIC REPUBLIC OF MADAWAFCAR APPRAISAL OF A FOURTH HIGHWAY PROJECT Distribution of Benefits Accruing from Road Improvement A. Introduction 1. Road improvement is essential for development in rural areas because transport cost reductions stimulate agricultural production. To have this effect, however, road improvement benefits must be passed on to primary pro- ducers by transporters and other intermediaries. To predict whether this will happen, the road transport industry, marketing system, and land tenure system must be examined. B. Road Transport Industry 2. Access to the Malagasy transport industry is relatively open. Vehicle dealers offer easy credit to virtually anyone with a driving license who can raise the relatively small down payment from his own savings or from friends and relatives who then become his associates. 3. Public transportation registries exist in MTP divisions 1/ but are incomplete and out-of-date. The most reliable source is the Ministry of Finance, Tax Office, which estimates that there are about 5,000 public trans- porters. Structure of the Transport Industry 4. Transporters fall into four categories: (i) transport companies; (ii) individual transporters; (iii) transport cooperatives; and (iv) merchant transporters. (i) Transport Companies 5. Transport companies are often family enterprises, some of them European. Company managers are normally experienced, know the market well and ensure good quality service. Large industrial companies deal with these enter- prises, rather than with individual transporters, and often have annual con- tracts with them. 1/ Arrondissements des Ponts et Chaussees.  ANNEX 1 Page 2 6. Transport companies confine their activity mainly to freight and usually hesitate or refuse to send their trucks on bad roads, such as the Ambanja-Antsohihy. Few companies venture into passenger transport; if they do, they use large buses on main roads such as Tananarive-Majunga. Only one com- pany is known to use "taxi-be" 1/ and "car-brousse" 2/ in Finanarantsoa. (ii) Individual Transporters 7. Individual transporters are usually Malagasy. The vehicle operator may be the owner, an operator on his account, or a salaried driver employed by a wealthy merchant or government employee. Owners and operators have little managerial knowledge and often consider neither vehicle depreciation nor maintenance costs. The vehicle is simply used, generally overloaded and the income spent as it comes. When major repairs or change of tires are necessary, they borrow money, accept a new associate who pays the expenses, or go bankrupt. Their attitudes are also reflected in prices charged. On good roads, such as the Tananarive-Majunga, where competition is stiff, they accept prices near operational cost or even lower, and on bad roads, such as the Ambanja-Antsohihy, where competition is low or nonexistent, tariffs may be double operating costs. 8. Individual transporters predominate in the passenger business, and Cihere are also many in the trucking industry. (iii) Transport Cooperatives 9. All Malagasy cooperatives, normally considered nonlucrative organ- izations, are grouped under the National Federation of Malagasy Cooperatives (Federation Nationale des Cooperatives Malagaches) and supervised by the State Secretariat for Cooperatives. 10. Transport cooperatives' mnain income sources are members' contribu- tions and discounts received when purchasing supplies. Surplus income after expenses is distributed to members, but some transport cooperatives use the surplus to acquire and operate transport vehicles for members' benefit. This third income source is, of course, subject to taxes like that of any other transport company. 11. Cooperatives offer supply facilities and sometimes garage services to their members and impose standards on vehicle condition. They fix tariffs, schedules, and organize the rotation of members' vehicles on roads in their area of influence. 12. Cooperatives are more act:ive in passenger transport than in trucking. 1/ Peugeot or Renault cars. 2/ Bus of 12 to 23 seats.  ANNEX I Page 3 (iv) Merchant Transporters 13. Some large commercial companies have truck fleets to transport their own merchandise. Smaller merchants who have pick-ups or trucks for their own use also offer transport services, which are concentrated on good roads and generally refused on poor ones. 14. These merchants usually keep their vehicles in good condition but do not keep separate accounts for commercial and transport activities, which makes it difficult to assess the importance and cost of each. They tend to consider the transport activity a by-product and accept very low rates, sometimes below operating cost. Transport Tariffs (i) Fares 15. Only one transport company still offers regular interurban bus service. It operates between Tananarive and Majunga at FMG 2650 for first class passengers (FMG 4.61/passenger-km) and 1850 for second class (IMG 3.22/ passenger-km). All other interurban passenger traffic is carried by individual transporters and cooperatives. 16. Provincial traffic rates are fixed by provincial authorities who take road condition into consideration. Passenger-km fares vary between FMG 2 and 3 on paved roads, 3 and 5 on regular earth roads, and between 5 and 7 on poor earth roads. 17. Interprovincial tariffs are determined by supply and demand and thus vary considerably according to road condition, season, region and, on roads parallel to the railway, according to passenger train schedules. The following table shows April 1975 average fares and operating costs per passen- ger-km; the latter are based on officially authorized occupancy, but over- loading is a current practice and it is common to see a "Renault 4" designed for three passengers carrying 5 or even 6; the same is true for other car makes and for "car-brousses", thus, profits from operation are larger than the table suggests.  ANNEX 1 Page 4 Taxi-Be 1/ Car-Brousse 2/ Fare Operating Cost 3/ Fare Operating Cost 3/ (FMG/passenger-km) Paved Roads: Good 2.70 to 5.50 4.62 to 5.82 2.20 to 3 2.26 to 2.38 Poor 5 to 7 5.63 to 7.10 3 to 4 2.38 to 2.72 Earth Roads: Good 5 to 9 6.30 to 7.63 4 to 6 3.00 to 3.70 Poor 10 or more 8.32 to 10.48 5 to 7 3.70 to 4.33 1/ Peugeot 404 and Renault 4 are the most common. The first has a capacity of 6 passengers and the second 3. 2/ Car-brousse are busses with 12 to 23 seats; average, 17. 3/ Vehicle operating costs are mission estimates based on SETEC's "Etude des Tariffs des Transports Roujtiers," 1974; and current April 1975 prices. (ii) Freight 18. There is an official nat:Lonal tariff only for cement, which is FMG 15/ton-km. It is generally respecl:ed, as the sole cement factory has medium term contracts with transport companies based on it. All other inter-provin- cial transport tariffs are determined by supply and demand and consequently, like passenger tariffs, vary consicLerably 1/. Transport companies charge higher rates than individual transporters, who in turn charge more than merchant transporters. 19. Each province fixes tariffs for transport within its limits. Rates vary from as little as FMG 15/ton-km on stretches of the Tananarive-Majunga paved road to as high as FMG 62.5/ton-km on the Mahasolo-Sakay earth road. Tariffs are more or less respected on good roads. On earth roads, they are observed during the dry season but bypassed during the rains; on the Mahasolo- Sakay road, for example, the rainy :season tariff charged is double the official rate. 20. The table below illustrates the wide range of tariffs charged in relation to road condition. The freights reported were obtained from transport companies and individual transporters. No meaningful average could be obtained for merchant transporters but in 1972 a study reported that they accepted as little as FMG 4/ton-km. The operating costs/ton-km reported are for the most commonly used vehicles, trucks between 4 and 10 tons. The cost is higher for small 1 or 2 ton trucks and lower for trucks over 10 tons. 1/ However, the Ministry of Transport and Supplies intends to fix tariffs for haulage on all major roads.  ANNEX 1 Page 5 Tariffs Operating Cost (FMG/ton-km) Paved Roads: Good 10.43 to 22.73 7.80 to 12.20 Poor 18.26 to 37.31 9.60 to 14.02 Earth Roads: Good 23.58 to 43.48 10.80 to 19.35 Poor 62.50 to 125.00 13.20 to 22.86 1/ Vehicle operating costs are mission estimates based on SETEC's "Etude de Factibilite Routiere," 1973; on the Ministry of Transport's "Etude des Tariffs des Transports Routiers," 1974; and current April 1975 prices. Operating cost is calculated for 4- and 10-ton trucks during dry season; it can almost double on earth roads during the rainy season. C. Marketing System for Agricultural Products 21. In 1973, Government created the National Agency for Agricultural Products (SINPA) for the marketing of agricultural products. It has a monopoly over rice, the country's main staple, and competes with the private sector for other products, such as corn and peanuts. 22. Members of the Union of Agricultural Cooperatives (UCA), are particu- larly active in marketing coffee in competition with traders. The cooperatives use their benefits to extend and improve services to affiliates. 23. However, most agricultural products are marketed by individuals. Farmers deposit their crops at Fokonolona buying centers 1/ where they are sold to SINPA or UCA. Alternatively, farmers may sell them at the village market to representatives of large exporters or to small dealers. 24. For rice, Government fixes farm-gate and countrywide wholesale prices. In 1974, the paddy price was fixed at FMG 30/kg to farmers plus FMG 2/kg to the Fokonolonas for administrative expenses, and the wholesale price of white rice at the sale centers 2/ was fixed at FMG 65/kg. However, because production falls short of local demand, it was estimated that farmers sold one-sixth of the rice crop on the black market for as much as FMG 50/kg, and wholesale white rice reached FMG 150/kg in some remote areas. 25. For other major crops, including coffee, corn, cotton, and cocoa, Government fixes a price or a minimum guaranteed price. Official prices differ from region to region, approximately reflecting transport cost to major ports or markets. They are respected by SINPA and UCA, but private 1/ Centres d'achat. 2/ Centres d'eclatements.  ANNEX 1 Page 6 dealers may pay more or less according to the transport cost from village to port of export and the area's competitiveness. For example, in 1974 Govern- ment fixed the coffee price in Ambanja at FMG 162/kg, but effective prices paid to producers by private merchants varied from FMG 158 to 163/kg, depend- ing on transport cost between the Fokonolona where coffee is bought and the Ambanja port where it is shipped to Nossi-Be for export. 26. For all other products, prices vary from one Fokonolona to another in relaton to transport costs and competition; both factors are, of course, affected by road conditions. In 1972, the most recent date for which statis- tics on average prices paid to producers in different provinces are available, manioc prices varied from FMG 8/kg in Tulear to 20 in Finanarantsoa. Corn varied from FMG 8/kg in Antsohihy to 30 in Diego-Suarez; green beans varied from FMG 43/kg in Tulear to 80 in Tamatave. 1974 prices were different but the mission was told that they varied as much as in 1972. 27. For the time being, road improvement would have little, if any effect on cattle prices, since most cattle are walked to market because transport cost by truck is higher than that of the animals' weight loss. At present, for example, there are only two trucks transporting cattle from Tsiroanomandidy to Tananarive. However, cattle owners should also benefit from transport cost reductions, although perhaps less than other producers. D. Land Tenure 28. The Malagasy rural land tenure system is complex. The fundamental legal assumption is that all land belongs to the Government unless an individ- ual holds formal title and the land is fully exploited. The 1960 laws govern- ing property rights spell out rights and procedures for granting land titles. There are three different systems of property rights: (i) "modern" private land ownership, which was introduced in 1881 and follows French legal and admin- istrative procedures. Official title is granted by registration or cadastral survey, provided the applicant can demonstrate a 10-year uninterrupted and undisputed possession of the property; (ii) customary land use rights, granted under traditional common law by the rural community, the Fokonolona, which is regarded as the rightful owner; and (iii) state land ownership. Two main types of land holdings have developed: the few large plantations usually owned by private or public companies and the large majority of family farms, which are smaller than one hectare in overpopulated areas, 3 to 4 in less populated areas and 10 to 12 ha per family in the newly-developed mid-west.  ANNEX 1 Page 7 E. Concluding Remarks 29. At present, transport industry competition is stiff on good roads, limited on poor ones and slight or nonexistent on the poorest. Accordingly, tariffs are near or lower than operating costs on good paved roads; they increase on fair and poor roads and may be more than double operating costs on poor earth roads in rainy season. Consequently, road improvement in Madagascar effects tariff reductions equal or superior to effective operating cost savings and aids development of new services. 30. It is equally true that,at present, competition in marketing agri- cultural products is quite healthy and, as a result, transport cost reductions should increase farm-gate prices, provided that Government-fixed prices are revised accordingly. 31. Land tenure in Madagascar should not constitute a constraint on agricultural production or marketing, nor in any way prevent road improvement benefits from reaching producers. 32. However, it should be noted that: (i) the newly created Ministry of Transport and Supplies is thinking of regulating and fixing transport tariffs for passengers and freight and of creating a transport company which might have a monopoly over the transport of some products; (ii) SINPA is to have a monopoly over the marketing of all agricultural products as a first step towards transferring this responsibility to the Fokonolona or to the Fiarisam-pokonolona, an administrative unit which will include a group of Fokonolonas; no schedule has been set for this change and the details of the system are not yet known. Whether these things will be done in the near future, and if so, how, might drastically change transport and marketing conditions. 33. Consequently, the favorable conclusions above should be regarded as temporary pending clarification of Government's new policies and reforms. June 1976  ANNEX 2 Page 1 DEMOCRWTIC REPUBLIC OF MADAGASCAR APPRAISAL OF A FOURTH HIGHWAY PROJECT Background for Evaluation of the Proposed Road Construction A. Arivonimamo - Analavory (RNI) Area of Influence 1. RN1, the main route westward from the capital in Tananarive province, is paved as far as Tsiroanomandidy 1/, an important marketing center in the fertile mid-western region. The section under consideration traverses the densely populated and cultivated central plateau. Although it is a rural area, population concentrations can be seen all along the road, decreasing in number and size from east to w,est. The three major towns are Arivonimamo (about 9,500 inhabitants), Mia5inarivo (5,100) and Analavory (1,350). Average density is about 60 persons/km in the Arivonimamo subprefecture and about 9 in the Miarinarivo subprefecture. Approximately 65,000 inhabitants are in the direct area of influence and an additional 100,000 persons are indirectly served by the road. From 1963 to 1972, population growth averaged 3.2% p.a. in the Arivonimamo subprefecture and 3.9% in Miarinarivo but is-higher in towns because of migration. These trends are expected to continue. About 85% of the areas' population depends on small scale agricultural activities. Paddy, manioc, potatoes, maize and other crops are produced, while cattle raising and secondary and tertiary activities are few. Traffic 2. Traffic volume is almost the same throughout the road according to three counting stations. Average growth rate has been about 10% p.a. from 1966 to 1971, the date of the last complete count. In the section westwards to Tsiroanomandidy, the rate has been as high as 19% p.a. during the same period. However, since 1972, traffic growth has decelerated and will probably grow at not more than 7% p.a. until 1987 and decrease to 5% thereafter. Aver- age traffic on the Pnalavory to Arivonimamo road is projected as follows: 1, The Second Malagasy Highway Project (Credit 134/Loan 570-MAG) helped finance the paving of the 55 km section from Fanjakamandroso to Tsiroanomandidy, which was undertaken from 1970 to 1972.  ANNEX 2 Page 2 vpd Vehicle 1971 1978 1997 (opening year) Cars 159 256 765 Light vehicles 46 74 221 Buses 138 221 662 Trucks, 2-6 ton-load 46 74 221 Trucks, 6-10 ton-load 18 29 86 Trucks, over 10 tons 10 16 48 Total 417 670 2,003 3. The 14 km of new alignment between Arivonimamo and PK63.5 are expected to attract not more than 85% of the traffic from the existing road which passes through a settled area where part of the traffic origin-destina- tion is. 4. Neither diverted nor generated traffic is considered, althouRh some may be generated by the reduction in overall travel time from shortening the road and reducing congestion and by trucking industry competitiveness, which may effect teriff reductions and pass operating savings to local dealers or Producers and consumers. Neither has any additional long distance traffic on this RN1 section, due to the Tsiroanomandidy-Maintirano road upgrading, been included. Benefits 5. Estimated benefits are indicated in Table 10. The main project benefits are normal traffic operating savings from shortening the distance and eliminating the worst curves (an overall 5 km reduction, 3.2 km in Section A and 1.7 km in C), decreasing congestion and improving the surface. UInit oper- ating costs are shown in Table 9. 6. Maintenance costs will also be reduced, but maintenance will have to continue on the existing alignment of Section A since some traffic will use it after the new alignment is open. B. Tsiroanomandidy-Maintirano Road Area of Influence 7. The Tsiroanomandidy-Morafenobe-Maintirano axis traverses the mid- west and west of 2the country, where no all-weather road exists in an area of about 100,000 km (about one sixth of the country's surface). The topography  ANNEX 2 Page 3 is difficult and erosion widespread. Throughout the central plateau there are smaller plateaux of not more than 100 ha separated by small valleys, rivers or streams. The altitude decreases continously westwards, especially from the Bemarivo river where the plateau abruptly changes to flat rolling terrain which descends smoothly to sea level at Maintirano. The rainy season from about November to April, during which an average of 1.5 meters of rain falls, increases the difficulty of communications. 8. Partly due to the lack of roads, the population is scattered, with density lowest in the middle area,about 2 persons/km2, increasing to about 4 in the Maintirano subprefecture and to 8 in the Tsiroanomandidy sub- prefecture. Population in the direct area of influence amounts to about 70,000 inhabitants, if a strip of about 20 km on each side of the road is considered. The population is mainly rural even though throughout the area there is emigration to towns. Only three of them exceed 1,000 inhabitants; Tsiroanomandidy, which has had an explosive 14% p.a. growth since 1963, now has about 18,000; Maintirano has increased at about 9% p.a. to 9,630 inhabi- tants; and Morafenobe has increased about 7% p.a. to 1,500 persons. Annual growth rates of the corresponding three subprefectures are much lower: 6%, 3.5% and 1.5% 1/. About 90% of this population depends on agricultural activities and has a per capita income as low as US$70. The area produces mainly paddy, groundnuts, maize and manioc for subsistence and some surplus. There are an estimated 300,000 cattle in the road area and Tsiroanomandidy town is the major market which handles virtually all cattle (about 75,000 animals are sold here annually) coming from the west towards Tananarive city. 9. A 1969 Bank loan for a Beef Cattle Development Project provided for the development of four breeding and fattening ranches and construction of access roads near Tsiroanomandidy. Tsiroanomandidy subprefecture and the west have again been identified by the Bank as high priority for livestock development, with good potential for mixed farming, as increased crops are the best opportunity to improve farmers' incomes in the short term. Accor- dingly, in 1974 the Bank appraised a Village Livestock and Rural Development Project to assist village livestock and rural development over four years in Majunga Province and Tsiroanomandidy subprefecture 2/. Because difficulty of access hampers extension efforts, limits social and economic services, and makes marketing crops difficult outside producing villages, the project in- cludes a local feeder road component where the basic network is poorest 3/. 1/ From 1963 to 1972. 2/ Report No. 403a-MAG; Credit 506-MAG. 3/ The livestock project foresees annually the upgrading of 40 km and maintenance of 280 km of feeder roads, at about US$5,000 and 300 per km respectively. They should, be no more than a graded 4 m wide track, following the ground profile with good drainage ditches and small bridges, concrete aprons and culverts as required. The MTP is responsible for these works, half of which will be in the Tsiroanomandidy-Maintirano area.  ANNEX 2 Page 4 However, a main axis must exist as an outlet for the feeder roads and Govern- ment gave assurance, during negotiations, "...that the Ministry of Public Works would repair and maintain the Maintirano-Morafenobe-Tsiroanomandidy road before any access roads are constructed or improved in the area under the project." 1/ 10. Furthermore, Government's Midwest Development Operation (ODEMO), already active in the region, is planning to settle 500 five-member families starting in 1976 in the Kiranomena area which already exports 25,000 cattle annually to Tananarive and whose high crop potential is hampered by lack of communications. Traffic 11. Traffic estimates include: a) normal road traffic, based on the Ministry's and the mission's counts; b) diverted air traffic, assuming that 50% of air passengers shift to sur- face transportation, even though travel time is about four times longer. Taxi-be tariffs will be about 75% less than air fares; c) diverted coastal shipping traffic; only the paddy surplus has been taken into account; d) livestock project development traffic, assuming that the resulting increase in income is proportionally reflected in normal road traffic. No cattle trucking is expected since cost of animal weight loss is less than trucking cost; and e) generated passenger traffic, assuming that total proportion of income spent on transportation remains unchanged; that is, passenger fare savings will be used in additional trips. No quantification of generated crop surplus transport has been attempted. 1l. We have also assumed that only taxi-bes will carry diverted and generated passenger traffic and that 7 ton-load or smaller trucks will be used for freight. If buses and larger truieks are used, vehicle traffic will be less, but the economic savings estimate may increase. Traffic growth rate is assumed to be 6% p.a. 13. Based on considerations outlined above, vpd for 1980, the year the whole road opens, and for 2000 are: 1/ Para. 4.08, Report No. 403a-MAG.  ANNEX 2 Page 5 1980 2000 Light Light Cars Trucks Total Cars Trucks Total -----------------------vpd----------------------- Tsiroanomandidy-Ambaravanala Normal I/ 5 13 18 16 41 57 Generated 18 - 18 58 - 58 36 115 Ambaravanala-Morafenobe Normal 1 1n 11 3 32 35 Generated 3 - 3 10 - 10 14 45 Morafenohe-Maintirano Normal 9 13 22 29 42 71 Generated 20) - 20 64 - 64 Ts2 135 = _= 1! Including a) to d) above. Benefits 14. Estimated benefits are shown in Table 11. The main road construc- tion benefits are those of the livestock project, which cannot be realized without an all-weather road. Based on Government assurance, the livestock project appraisal assumed that the Tsiroanomandidy Maintirano road would be passable all year and therefore did not include any investment or maintenance cost for it. As evaluated, the rate of retturn was 69%, through development of an intensive veterinary service; provision of technical services and training; improvement of communal pasture through introductin of stylo; three pilot development programs in the Middle West Zone; construction of minor feeder roads; and provision of water, education and health facilities over a four year period. It was estimated that annual carcass meat production would increase by 10,600 tons, in the Majunga province and Tsiroanomandidy subprefecture, about one fourth of which was expected to materialize in the project road's area of influence. 15. Other benefits considered are normal traffic operating savings, savings from diverting some air amd coastal shipping traffic to the road, and generated passenger traffic. When markets become accessible and farmers are encouraged by favorahle prices, they will probably produce crop surpluses, but this benefit has not been inc:Luded in the basic evaluation due to quan- tificati.rn and timing uncertainties. Government settlement schemes in the  ANNEX 2 Page 6 mid-west will also benefit from, and may even be stimulated by all-weather road availability, but they have not been considered in the evaluation either. 16. Benefits will accrue mainly to low income rural farmers. Also, Air Madagascar may be able to decrease by 50% the number of flights on this route, which is subsidized, and so reduce its losses. June 1976  ANNEX 3 Page 1 DEMOCRATIC REPUBLIC OF MADAGASCAR APPRAISAL OF A FOURTH HIGHWAY PROJECT Ministry of Public Works (MTP) Draft Terms of Reference for Engineering, Management and Supervision of Tsiroanomandidy-Maintirano Road Construction A. Introduction 1. The Government of the Democratic Republic of Madagascar intends to improve the present link between Tsiroanomandidy and Maintirano, about 390 km, to all-weather gravel standards. The existing track is almost impassable even by four-wheel drive vehicles in dry season. The new road will connect Tsiroanomandidy, Anibaravanala, Beravina, Bemahatazana and Maintirano and provide access tc Morafenobe from Bemahatazana. The road will carry low traffic volumes (between 15 and 40 vpd in opening year) and is only economically viable if construction costs remain within US$15,000 per km for flat terrain and US$25,000 per km for more difficult terrain, excluding bridges. 2. Based on the limited scope of the earthworks involved, their scattered location along the len,gth of the road and previous departmental experience in earthmoving, the Government has decided to carry out these works by force account. The MTP's earthmoving unit, established within the Infrastructure and Maintenance Department (DIM) would be employed for this purpose. Bridge construction will be executed by contractor. 3. The Arab Bank for the Economic Development in Africa (BADEA) has proposed to assist the Goverrment, with a US$5 million loan, in financing equipment requirements and part of the operational cost. The International Development Association (IDA) will assist in financing the proposed consultant services. B. Objectives 4. The obje.tives of the consultant services are: i) to assist Government in procuring equipment and mobilizing the force account unit; ii) to set out the road alignment and to prepare all required drawings ahead of works as they proceed; iii) to direct and supervise the activities of the force account unit and assume financial control of expenditures;  ANNEX 3 Page 2 iv) to train on the job Malagasy personnel in the planning of road betterment and maintenance and in the operation and proper maintenance of mechanical equipment; v) to coordinate the earthworks with the bridge construction executed by contractor. C. Scope of Services General 5. The consultants shall cooperate fully with the MTP and other public authorities involved. The MTP will employ the necessary personnel, assign counterparts and provide the data, studies, services and facilities outlined in Section E of these terms of reference. The consultants shall report directly to the Secretary General of MTP who administers, coordinates and supervises all activities under the project and provides liaison with other Government agencies. The consultants, responsible for the orderly progress of the works, will have the right to transfer permanent staff and labor provided by the MTP between the working sites or away from the force account unit if they are considered unsatisfactory for any reason. The consultants will, however, be expected to act in these matters with dis- cretion, and with primary regard for attaining the Government's objective of completing the works satisfactorily. Preliminary Stage 6. Based on the preliminary studies carried out by the MTP, the existing 1:8000 aerial photography, the meteorological conditions and a thorough site inspection, the consultants will: i) prepare a detailed program for engineering and construction works showing the work to be completed by mid-1980; ii) determine the approximate requirements of personnel and equipment needed to implement the above program; iii) prepare a schedule of tentative unit prices for all work items; and iv) determine the amount of a revolving fund to be financed by Governmental contributions and the proceeds of the BADEA loan, based on the unit prices and the quantity of works to be executed.  ANNEX 3 Page 3 7. For the mobilization of the force account unit, the consultants will: v) review the number and qualifications of the staff, the mechanics, the equipment operators and the laborers of the existing earth- moving unit; vi) make recommendations to MTP regarding employment of additional personnel judged necessary; vii) review the existing equipment of the earthmoving unit; and viii) make recommendations to MTP for any necessary reconditioning or replacement of the equipment. 8. To assist MTP in the procurement of equipment to carry out the force account works the consultants will: ix) review the tender documents prepared by the MTP and revise if necessary; x) make recommendations regarding the type and quantity of any additional equipment and spares judged necessary; and xi) prepare a tender evaluation report on tenders received and make recommendations to MTP for award. Construction Stage 9. Parallel with but aheacl of actual construction Droeress) the consultants will: i) define and stake out the proposed road alignment, connecting the proposed bridges located previously by the MTP; ii) carry out all such engineering design and prepare all such plans and drawings required for the orderly execution of work; iii) consult with the Laboratoire Nationale des Travaux Publics et du Batiment (LNTPB) concerning pavement design and soil problems. (The LNTPB is staffed and equipped to carry out all necessary soils and material investigations and will be seconded to the consultants by the MTP free of charge.); iv) prepare quantity estimates; and v) determine the location End dimensions of all drainage structures, with the exception of bridges