Senegal - Third Highway Project

CIRCULATIG COPYs FILE COPY Document of TCI BE RETURNED TO REPORTS DESK FILl: burl The World Bank FOR OFFICIAL USE ONLY Report No. P-1744a-SE REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF SENEGAL FOR A THIRD HIGHWAY PROJECT March 4, 1976 This doeument has a restricted distribution and may be used by recipients only In the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - CFA Franc (CFAF) EXCHANGE RATES Currency Unit Official Floating (as of December 31, 1975) US$1 CFAF 230.21 CFAF 225.00 CFAF 1,000 US$4.20 US$4.44 CFAF 1,000,000 US$4,200 US$4,444 The CFA Franc is officially valued at the equivalent of FF 0.02. As the French franc is now floating relative to the US dollar, the US dollar/CFAF exchange rate is subject to change. The exchange rate on December 31, 1975 of US$1 = CFAF 225 was retained for conversions made in this report. FISCAL YEAR July 1 - June 30  FOR OFFICtAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF SENEGAL FOR A THIRD HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Senegal for the equivalent of US$15.0 million to help finance a Third Highway Project. The loan would have a term of 20 years, including 5 years of grace, with interest at 8.5 percent per annum. PART I: THE ECONOMY 2. A report entitled "The Economy of Senegal" (212-SE) was distributed to the Executive Directors on September 10, 1973. A s:pecial mission on public finance visited Senegal in October 1974; its findings are included in this report. Country data appear in Annex I. Past Development 3. During the 1960's, the Senegalese economy experienced virtual stag- nation, as real output increased less rapidly than population, and per capita GNP declined. Two factors were responsible for this situation. First, with independence, Senegal lost its privileged position as the center of French West Africa and therefore had to adjust to reduced economic, administrative, and political dimensions. Secondly, the difficulties of adaptation to the new situation were compounded in the latter part of the decade when ground- nut production fell by 50 percent due to unfavorable weather and falling export prices. In 1971, weather conditions improved Lemporarily, but 1972 and 1973 brought the Sahel's most severe drought in tuis century. Food emergency operations avoided widespread starvation, but both the fiscal and balance of payments situations sharply deteriorated. 4. Public savings net of amortization, which had substantially improved during the preceding years, were all but wiped out in 1972/73 and 1973/74. Revenues were affected by the decline in economic activity; and recurrent expenditures were further increased by a rise in salaries to compensate for the rapidly increasing cost of living, substantially higher debt service pay- ments, and perhaps most importantly, heavy consumer subsidies which resulted from maintaining low domestic prices in the face of skyrocketing food import prices. Thus, at mid-1974, in spite of a US$46 million higher transfer to the Stabilization Fund from groundnut sales than in the previous year, the public finance situation was more serious than it had been since 1960. 5. Faced with a difficult situation in public finance, the Government took a number of steps in November 1974 which were excpected to put public finances on a sounder footing. Consumer prices for rice, sugar, and ground- nut oil were raised to bring them more closely in lire with world market This document has a restricted distribution and may be used by recipients only in the performance I of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  prices. Thus, the consumer price of rice was increased by 70 percent (com- plete elimination of the subsidy), the price of sugar was increased by 90 percent (leaving a subsidy of about 20 percent) and that of groundnut oil was raised by 43 percent (leaving a subsidy of about 20 percent). However, high world market prices for wheat required an increase in domestic flour prices which the Government was reluctant to pass on to the consumer and which led to a subsidy on flour. At the same time, when subsidies were re- duced, Government salaries were raised by 16 percent on the average, but with actual increases rangirg from 60 percent for the lower salaries to 3 percent for the higher salaries, to compensate for the rapid increase in basic food prices. Farmer prices for groundnuts were brought closer to world prices which were particularly high at that moment. The Government thought it could safely reduce its take from the groundnut crop since world phosphate prices had increased five-fold and compensating revenues from this source were assured through expanded government participation in the phosphate mining company and a 100 percent tax levy on excess profits accruing from the price rise. How- ever, during FY75 a good part of the additional public savings was absorbed by payments for the increased participation in the phosphate mine and the servicing of debt incurred to finance new investments and state acquisitions of two foreign-owned public utility companies. 6. Through FY75 the current budget of the central Government showed record surpluses but deficits started to build up again in the Stabilization Fund due to the consumer subsidy on flour and sagging world market prices for groundnuts. The falling trend in wheat prices may enable Government to phase out the flour subsidy in the course of FY76, but the financial situation of the public sector will nevertheless become difficult again; groundnut prices are continuing to fall and the world fertilizer market has been unable to support the earlier five-fold price hike. 7. The balance of payments also came under pressure in 1973 and 1974, in the former year because of a widening of the trade gap and in the latter year because capital outflows from the private sector partly offset a sub- stantial improvement in the current account. Net foreign reserves at the end of 1974 stood at minus US$44 million. In January 1975 Senegal drew its full US$19.2 million allocation under the IMF oil facility. 8. Balance of payments problems persisted through 1975 largely because of cyclical factors. The good 1974 crop was harvested at a time when world groundnut prices were still high; this created an atmosphere of optimism both in the private and public sector. At the end of 1974, the state marketing organization purchased the crop from the farmers at generous prices thereby injecting massive purchasing power into the economy. In summer 1975 private and public expenditures were booming, but the bulk of the groundnut crop remained unsold, world market prices were 30 percent lower than a few months earlier, and foreign exchange reserves fell rapidly under the pressure of excess demand. The Government responded by introducing selective credit restrictions which so far have been effective in reducing total credit out- standing and stabilizing domestic inflation. Foreign exchange reserves  - 3 - stood at minus US$66 million by the end of November 1975; this was financed by a drawing in September of US$11.7 million under the second IMF oil facility, by the monetary union to which Senegal belongs, and by the mostly foreign-owned commercial banks. 9. The first half of 1976 will see a continuation of the problems experienced in 1975; the Government's reluctance to cut incomes of groundnut farmers has encouraged it to maintain producer prices in the face of slack- ening world demand for groundnut products. UnfortunatEly, phosphate rock prices are weakening as well; this will effectively eliminate the cushion which has enabled Senegal to absorb the recent rises ir oil and other import costs while implementing a policy of income distributicon in favor of the rural areas. Hopefully, this income redistribution policy will not fall victim to the current difficulties Senegal is experiencing. There are strong indications that several OPEC countries are willing to provide increased capital aid; more- over, there remain substantial sources of additional balance of payments assist- ance the Government can tap such as the IMF, Stabex and the monetary union to which Senegal belongs. Finally, the Government has already demonstrated its willingness to use credit restrictions and to eliminate costly consumer subsidies to maintain control over the short-term situation. Prospects 10. As demonstrated during the last five years, weather conditions and groundnut world market prices remain critical for Senegal's growth prospects. The Government is striving, with our support, to reduce its vulnerability to variances in these factors. Its long range program calls for development of areas less affected by rainfall fluctuations (Casamance and Eastern Senegal) where cash crops other than groundnuts can be grown. Irrigation is being developed in the arid northern part of the country; this will reduce depen- dence on cereal imports. With substant:ial gains also in industry, tourism and fisheries, weather conditions and groundnuts by 1980 will be far less decisive factors than today. However, groundnut cultivation is the mainstay of the economy and provides the livelihood for the ma ority of the rural poor. The Government is, therefore, introducing animal tracLion, fertilizers and crop rotation techniques to raise the productivity of the groundnut farmer. 11. The Fourth Development Plan (1973/74 - 1976,'77) continues to give highest priority to rural development (36 percent of i-he total), housing/ public utilities (18 percent) and transport infrastructure (16 percent). Industry and tourism, quite justifiably, see their share increase from 5 to 10 percent of the total. Assuming average rainfal:L conditions, Senegal's growth in real terms in the remainder of the 1970s wiLl be of the order of 4.5 percent or about 2 percent per capita, which is si:ill a considerable improvement over the past decade. A new plan is unde-: preparation and will be reviewed in the course of a basic economic mission scheduled for the Fall of 1976. 12. The structure of Senegal's balance of payments will gradually im- prove, but in the next few years the benefits of thes2 favorable trends will be reduced by falling terms of trade. Tourism, some new export industries and  an important expansion of phosphate rock mining will provide additional foreign resources, and the implementation of existing irrigation plans will progres- sively diminish the large food imports for urban centers. These prospects combined with a favorable long-term outlook for groundnut production should result in a healthier trade balance in the early eighties. The favorable long- term prospects remain contingent on the execution of the investment program which will have to be largely financed from abroad at a rate cf about US$125 million annually on concessionary terms. Traditional sources of aid will probably not suffice, and it will take time before new aid flows from Midd-le East OPEC colntries are developed. Therefore, for the coming two or three years supplemental foreign funds, over and above foreseeable project aid, will be needed. 13. The financial pressures of the past three years have already led the Government to borrow on the Eurodollar market for a total amount of US$85 million, partly to roll over previous debts. Part of the expected balance of payments deficits over the next two or three years could be financed through access to the expanded IMF facilities or the Stabex fund; but additional foreign exchange resources at a rate of about $25 million a year will pro- bably be needed. Assuming additional borrowing to cover the gap is done on Eurodollar terms, debt service would increase from six percent of exports of goods and non-factor services in 1975 to roughly ten percent by the end of the 1970s. 14. In view of Senegal's performance in economic development and the expected shortfall in the amount of concessionary aid needed to implement the Government's development program and to raise the incomes of the rural poor Senegal is considered eligible for Third Window loans from the Bank. The country is creditworthy although foreign reserves are at the moment low and will stay so for the rest of the decade because of the recent reverses in the terms of trade. By extencling the grace period an their loans foreign donors can help to alleviate the balance of payments situation during this period of financial stringency. PART I1: BANK GROUP OPERATIONS IN SENEGAL 15. The Bank Group has had 23 operations in Senegal to date. Total lending amounts to US$116 million (net of cancellations), including fourteen IDA credits, four Bank loans, two blends of Bank and IDA funds, two IFC opera- tions, and one blend of Bank and IFC funds. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of January 31, 1976 and notes on the execution of ongoing projects. 16. Execution of these projeces, apart from the Railway Project and the Site and Services Project, is moving forward without exceptional delays. The procurement for the railway has been slow due to time consuming contract  - 5 - approval procedures, but most project components have now been received or ordered. The Site and Services Project is about one year behind schedule, although physical execution is now progressing satisfactorily. The Bank Group and Senegal held discussions recently on delays in reorganizing the executing agency, Office des Habitations a Loyer ModEre (OHLM), and in implementing Government's commitment to reorient its housing policy in favor of lower income groups. Two agricultural credits (140-SE and 404-SE) pro- vided for technical assistance designed to facilitatE! the reorganization of the Office National de Cooperation et d'Assistance au Developpement (ONCAD); while this program failed to achieve meaningful results for some time, the Government recently took a number a steps to strengthen ONCAD's management and financial operations. Some improvement, especially in accounting, resulted from these efforts. But ONCAD's overall performance has not improved and the organization remains overstaffed, which is costly in times of high wage inflation (see Annex II). 17. In view of Senegal's need for substantially higher capital inflows, the scale of Bank Group lending is expected to increase significantly in the future. The Bank Group share of foreign aid disbursements (including grants) is expected to increase from about 6 percent in 1970,/71 to 24 percent over the 1974-80 period. By then the Bank Group is likely to be the largest aid donor. This will increase the Bank Group's share of the outstanding and disbursed debt from 12 percent at the end of 1973 to about 25 percent by 1980. IBRD/ IDA share in public debt service will probably go up from 2.2 percent in 1973 to about 13 percent by 1980. 18. The objectives of Bank Group project lending in Senegal fall under four main headings. Priority will continue to be rural development, including development of irrigation in the Senegal River Valley Region (e.g., the Debi- Lampsar Engineering Credit), intensification of grou:dnut production and diversification into new crops and new regions (e.g., the Sine Saloum and Terres Neuves projects and the proposed Eastern Senegal Livestock Project). As in the past, our agricultural lending is expected to exceed one-third of the total. Secondly, we shall assist diversification of the economy by lending for the growing sectors of tourism and industry (e.g., the proposed tourism infra- structure project on the Petite Cote and a proposed second loan to SOFISEDIT, a development finance company established with assistance from the Bank Group in 1974). Thirdly, we shall continue investment for modernizing and expanding the country's infrastructure (e.g., the project described in this report and a Feeder Roads Project, and a proposed fishing wharf at Dakar Port). Finally we shall continue lending to reorient and expand the country's education system, as in the Second Education Project.  - 6 - PART III: THE TRANSPORT SECTOR 19. Senegal possesses a relatively well-developed transport system, including some 13,300 km of roads, 1,032 km of railways, a modern deepwater port and international airport at Dakar, and three secondary ports and 18 local airports. The system is concentrated on Dakar, the rest of the Cap Vert Penin- sula, and the Groundnut Basin to the east which are the areas with the largest population and economic activity. Dakar's airport and port serve as points of entry for international traffic to landlocked Mali and to Mauritania. 20. Government's transport strategy focuses on: (i) developing local transport infrastructure in support of overall economic growth, particularly in the agriculture and tourism sectors; (ii) promoting regional integration, especially in rural areas and with the Casamance region; and (iii) maintain- ing the already extensive investment in the sector. In addition, Senegal will continue to provide Mali with a link to the sea and to upgrade its international transportation facilities - air, port and rail. The Bank Group has supported this strategy with six projects totalling US$35.7 million. Roads 21. Roads are the principal mode of domestic transport, carrying about 75 percent of commercial inter-urban passenger and freight traffic excluding phosphates. About 2,600 km of the 13,300 km road network are paved and 6,300 km are all weather gravel roads. The remaining roads consist of partly improved earth roads and ill-defined tracks. Government strategy in the highway sector has been to extend roads throughout the country, especially in remote areas with agricultural potential; the Bank Group's First Highway Project (Credit 198-SE, 1970) included the construction of 78 km of feeder roads in the southern Groundnut Basin and purchase of maintenance equipment. The proposed Feeder Roads Project submitted for your consideration concurrently with this project will finance a comprehensive program of feeder road rehabi- litation and maintenance of 1,000 km and maintenance of 250 km of existing feeder roads. 22. Most of Senegal's primary roads, which carry the bulk of the traffic, are now more than 15 years old and underdesigned for present traffic levels. In addition, road maintenance has been inadequate and much of the paved network has deteriorated and is now in unsatisfactory condition. Recognizing the im- portance of preserving its substantial investment in the present road network, Government has begun to give increasing attention to rehabilitation of its paved roads and to maintenance. The Second Highway Project (Credit 366-SE, 1973) provided for pavement strengthening of 109 km of primary roads and a four-year program of highway maintenance. Cost increases due to a one-year delay in execution, inflation, and changes in the exchange rate forced a re- duction in the scope of this project. Government decided, and the Bank Group agreed, to give priority to the highway maintenance program and consequently the pavement strengthening component was reduced from 109 km to 35 km; the sections left out remain economically justified and are included in the pro- posed Third Highway Project. Project execution under the Second Highway Pro- ject started slowly but has substantially improved in the last year,  - 7 - particularly for highway maintenance where Government has successfully com- pleted an action program agreed upon with the Bank as n condition for going ahead with the proposed project. In addition, there has been a noticeable improvement in the productivity of Government's maintenance operations due in large part to improved training and technical assistance. The preinvest- ment studies financed under the Second Highway Project were satisfactorily finished and serve as a basis for construction items included in the proposed Third Highway Project. Railways 23. Senegal Railways consist of a main line extending from Dakar to Kidira on the Mali border and branch lines, including those connecting Dakar with St. Louis in the north and with the Taiba phosphate mine. The Bank Group has financed two railroad projects (Credit 96-SE, 1966; Credit 314/Loan 835-SE, 1972) which have concentrated on improvements in physical infrastruc- ture. Project implementation has been slow, and until recently the railway's operating and financial performance has been poor. As a result, traffic has been lost to other modes of transport, primarily roads in Senegal and to the Ivory Coast railway for international traffic to Mali. However, the rail- way's performance has improved over the last two years due to higher tariffs approved by Government, increased financial autonomy from the Ministry of Finance, reorganization of technical assistance, Government subsidies for unprofitable branch lines, and special efforts to improve maintenance produc- tivity and thereby increase locomotive availability. The long-term prospects of Senegal Railways depend in part on a number of proposed mineral projects being studied by Government including the opening of a, new phosphate mine at Tobene and an iron ore mine and pelletizing plant at Faleme in Eastern Senegal. Ports and Aviation 24. Traffic at the Port of Dakar, consisting mainly of phosphates, pet- roleum, general merchandise and international traffic for Mali and Mauritania, has doubled over the last ten years and now totals about 6 million tons annually. The Port's financial performance has been good, due primarily to temporary additional traffic generated when the Suez Canal was closed but also because of new tariff increases. The Bank Group's Port Project (Loan 493-SE, 1967) extended the Port's facilities and was successfully completed. A second proj- ect for a fishing wharf will be appraised by the Bank in March 1976. Govern- ment is also considering possible development of an ancillary mineral port facility near Cayar, north of Dakar, initially to handle imports for a pro- posed refinery/petro-chemical complex and for export of phosphate from the new Tobene mine, and in the long-term for export of iron ore from Faleme. If the Cayar Port were built it would not have a substantial impact on Port of Dakar operations. 25. Aviation centers on the Dakar airport, a major international transit point for Europe-Africa-South America traffic which handled 560,000 passengers in 1974. A Bank project (867-SE, 1972) helped to finance extension of the runway and other improvements, and was completed only two months behind sched- ule and within the CFAF cost estimates made at appraisal. Domestic air traffic  - 8 - is insignificant, although Air Senegal provides scheduled services to 13 of the 18 regional airports and airfields. The Road Transport Industry 26. Of the approximately 73,000 registered vehicles in Senegal in 1973, about one-third were trucks and buses. The road transport industry is comprised of three major segments: (i) a few large firms generally with significant for- eign ownership in the modern private sector. These firms have their own main- tenance and repair facilities and carty the products of trading companies and modern businesses; (ii) a large number of owner-drivers and small firms in the highly competitive traditional private sector; here traffic is highly seasonal, depending to a large extent on the groundnut harvest, and many firms sustain themselves only by overloading vehicles, neglecting maintenance and insurance, deferring vehicle replacement, and underpaying drivers; 1/ and (iii) vehicles owned by public and semi-public agencies. The number of trucks in the road vehicle fleet increased by about 6 percent annually in the middle 1960s, but the growth rate has since declined to about 5 percent per annum as a result of reduced economic activity during the drought period and as small trucks are replaced by larger ones. Administration 27. The Ministry of Public Works, Urban Development and Transport (MPWUT), through its Department of Public Works (DPW) is responsible for administration of all classified roads. Following the reorganization of MPIWUT in July 1974, DPW consists of five divisions: road maintenance (including feeder roads), road construction, building construction, equipment, and administration. At present a number of ministries and organizations are involved in various as- pects of the transport sector and there is no single agency responsible for planning and coordination. MPWUT which executes Government policy in the transport sector had three separate planning units. The July 1974 MTWUT re- organization combined the three planning units into a single Directorate of Studies and Programming (DSP) which should increase MPWUT's capacity to exe- cute economic and technical studies and to determine sector strategy and invest- ment priorities. The Bank was asked to assist in drawing up the terms of reference and staff requirements for DSP and a mission visited Senegal in December 1975 for this purpose. Technical assistance to DSP will be included in the proposed project (para. 34). The Second Railway Project financed a sector study carried out by consultants Berenschot-Bosboom on aspects of trans- port coordination including improvements in regulation, taxation and collection of statistics. The recommendations of this study have been discussed with Government which agreed that issues requiring further investigation will be included in DSP's terms of reference for further investigation, MPWUT has a shortage of staff at the upper and middle levels which is partially alle- viated by French technical assistance which provides 14 engineers. However, 1/ A program for assisting the development of the domestic trucking industry, particularly in the traditional sector, would be included in the terms of reference for the Directorate of Studies and Programming in MPWUT (para. 27).  - 9 - from 1976 onwards, four Senegalese technical colleges and universities will provide about 60 engineers and technical personnel annually which should form the basis for filling MPWUT positions with qualified local personnel. Financing 28. Highway expenditures exclusive of foreign financing have risen from US$11 million in FY 71 to US$13 million in FY 75. Assistance from external donors, primarily the Bank Group, FED and ADB, has averaged about US$9 million annually during this period. Road useT taxes totalled about US$35 million in 1972 accounting for about 10 percent of Government revenues but only about 30 percent of these taxes were expended on the highway sector. Investments in new roads are financed primarily by ioreign donors or alterna- tively by a Road Fund financed mainly from taxes on fuel. Maintenance works and MPWUT's administrative expenses are financed primarily out of the general budget with maintenance also assisted by the Bank Group through the financing of equipment and consulting services to improve maintenance operations and by the Road Fund for periodic maintenance operations consisting of paved road resurfacing. Government appropriations for ma:intenance operating costs have increased from US$3.2 million in 1970/71 to US'j4.6 million in 1975/76, still not quite enough to cover the impact of inflation and to maintain adequately a growing road network. Government has agreed to provide suffi- cient funds to maintain the roads rehabilitated under the proposed project in addition to continuing its current maintenance program (Section 4.04 of the Loan Agreement). The Construction Industry 29. Public investment in transport infrastructure is expected to total about US$255 million during the period FY 1974-77, of which about 50 percent would be for road construction. At present about 16 major civil works contrac- tors are engaged in road construction and rehabilitation; these are primarily foreign-owned but there are two companies which are Senegalese controlled and three which are joint ventures of foreign and Senegalese companies. Minor works are carried out by about 110 small and medium sized domestic firms. The development of domestic contractors has been hampered by lack of capital, long-term credit, personnel experienced in modern management and construction techniques, and by time consuming Government contract approval and payment paying procedures. The proposed project would include technical assistance to domestic contractors by identifying and helping to implement a program of action to train contractor personnel in modern management and construction techniques and to promote closer cooperation between contractors and already established institutions such as SONEPI and SOFISEDIT 1/ which have the potential to assist them. 1/ SONEPI provides limited financial assistance through funds for loan guarantees and equity investments and SOFISEDIT, a DFC established with Bank Group assistance in 1974, can provide long-term financing.  - 10 - PART IV: THE PROJECT 30. The Government of Senegal has asked the Bank to expand financing of road strengthening and maintenance started under the Second Highway Project (Credit 366-SE). The proposed project is based on studies carried out by consultants BCEOM and Louis Berger under Credit 366-SE. The project was appraised in May 1975 and negotiations were held February 9-11, 1976 in Dakar, Senegal with a Senegalese delegation led by Mr. Tidiane Ndiaye, Director of Finance in the Ministry of Plan and Cooperation. The appraisal report (No. 975a-SE) is being circulated separately to the Executive Directors. Annex III provides a loan and project summary and the attached map (IBRD 11900) shows the project area. Project Description 31. The proposed project consists of: (a) pavement strengthening of 204 km of primary roads; (b) procurement of equipment for highway maintenance and for a soils laboratory and DSP; (c) technical assistance to MPWUT for: (i) transport planning in DSP, (ii) scholarships for training of local DSP personnel, and (iii) advisory services for promotion of the domestic construction industry; (d) consulting services for: (i) construction supervision under item (a) above; (ii) preinvestment studies for improvement of the Louga-Dahra road (80 km), and for pavement strengthening of about 180 km of primary roads; and (iii) road maintenance begun under the Second Highway Project. Strengthening of Paved Roads 32. The proposed project will finance pavement strengthening of 75 km of roads dropped from the Second Highway Project and of 129 km of new roads identified by consultants BCEOM; these roads, primarily in the Groundnut Basin, along the Senegal River, and near Dakar, serve areas with substantial agricul- tural activity and high population densities and form part of major inter- regional transport routes. The roads were built between 15 and 25 years ago and regular maintenance cannot halt further deterioration. The pavement strengthening would consist of reconstruction of the base and surface course, regravelling shoulders, improving drainage and widening pavement and platform where necessary. Equipment Purchase 33. Funds provided for procurement of highway maintenance equipment under the Second Highway Project have proven insufficient due to delays in project execution, rapid inflation (para. 22), and a higher than expected  rate of deterioration of existing maintenance equipment. Given the high priority of the maintenance program to protect the country's investment in its road network, the proposed project will include US$1.0 million for more road maintenance equipment procurement plus US$100,000 for equipment for MPWUT's soils laboratory. Technical Assistance 34. In order to improve transport planning and coordination, the pro- posed project will provide technical assistance to DSP including: (i) the services for three years of four experts (senior transport planner, senior transport economist, a highway planning engineer, and a transport economist); (ii) the purchase of equipment for DSP; and (iii) scholarships and training for local DSP staff. The terms of reference for the experts and their annual work program will be reviewed with the Bank. Governzrent has agreed to employ counterparts for the experts and to nominate candidates for the scholarships within three months of the date of signature of the Loan Agreement. 35. A two phase program of technical assistance will aim at helping domes- tic civil works contractors increase their participation in major road works now dominated by foreign contractors. Under the first phase investigations will be carried out on the structure and needs of the domestic construction industry, Government procedures for awarding civil wcrks contracts and paying contractors in this sector, and the potential role of existing institutions such as SONEPI and SOFISEDIT in assisting domestic contractors. The recommen- dations resulting from the first phase would, following discussions between Government and the Bank, form the basis for an action program to assist domestic contractors. This program might include, inter alia, improved coordination and assistance among existing institutions and the domestic construction indus- try, changes in Government contract approval and billing procedures, and advisory services and training courses for domestic contractors in submitting contract bids, accounting and cost control, and organization and management. Consulting Services 36. Transport for the Louga-Dahra region in the northern Groundnut Basin is presently dependent on a branch line of the Senegal Railways which provides irregular and unprofitable service and remaLns open only with a Government subsidy. Feasibility and detailed enginearing studies of the Louga-Dahra road (which is at present only an 80 km sand track) will investi- gate the possibility of replacing the railroad servi:e with a road. In addi- tion the proposed project will include updating studies of 98 km of pavement strengthening investigated by BCEOM under the Second Highway Project which should be economically justifiable after 1977 plus an additional 80 km of new roads or other improvements to be defined during project execution. These studies may be carried out by DSP and DPW using consultants as required. Supervision of the pavement strengthening component of the project will be done by consultants. Because of the higher than expected work load and, until recently, slow project implementation, additional consultants are needed for the highway maintenance program financed under the Second Highway  - 12 - Proj ect. The Third Highway Project will provide consulting services for the pro ect manager, one highway engineer and four mechanics (two locally employed) for a total of 96 man/months to continue supervision of the maintenance program and equipment repair operations and to train local personnel. The Third Highway Project will include US$2.4 million for 500 man/months of tech- nical assistance. Project Cost and Financing 37. The total cost of the project net of taxes and including contingencies is US$20.5 million. The proposed loan of US$15.0 million will finance 100 per- cent of the estimated foreign exchange component or 73 percent of total project costs net of taxes. The local costs (US$5.5 million equivalent) will be pro- vided by Government. Execution and Procurement 38. MPWUT would be responsible for execution of the project and would be assisted by consultants employed on terms and conditions acceptable to the Bank for supervising pavenment strengthening and highway maintenance activities and possibly for feasibility and detailed engineering studies. Contractor CSE, the lowest bidder for the pavement strengthening component under the Second Highway Project, will execute the pavement strengthening of the 75 km of roads dropped from this project and included under the proposed Third Highway Project on the basis of prices and conditions of its original bid received in April 1974, adjusted to take account of price increases as stipulated in CSE's December 1974 contract. International bids will be called for the additional 129 km of the pavement strengthening program in accordance with Bank Group guidelines. Equipment and spare parts for highway maintenance and for the soils laboratory will be procured on the basis of international competitive bidding in accordance with Bank Group guidelines. Items costing under US10,000 may be procured on the basis of quotations obtained following local procedures acceptable to the Bank; the total amount of such purchases should not exceed US$100,000. Disbursement 39. The Bank loan will be disbursed to cover 58 percent of total expendi- tures for construction contracts; 75 percent of total expenditures for consul- ting services and technical assistance; and 100 percent of foreign expenditures of equipment and spare parts or 91 percent of the total costs of these items if procured locally; and 100 percent of expenditures for scholarships for training of DSP personnel abroad. Benefits 40. The Government of Senegal has begun a program of public investment to extend and diversify the economy, emphasizing the development of rural areas and the agricultural sector. The success of this effort will depend in large  - 13 - part"on increasing production and utilizing resources from every region of the country, for which a reliable and efficient transport system is essential. The primary purpose of the proposed project, in line with this objective, is to protect past investments by rehabilitating and maintaining the existing highway network. Benefits from road improvement will primarily result in cheaper, safer and more reliable transport and in savings in road niaintenance costs. On the basis of conservative traffic projections, and savings on vehicle operating costs alone, the economic return on the pavement strengthening component, which accounts for 80 percent of project cost, is estimated at 30 percent with returns for individual sections ranging between 22 and 42 percent. For the purpose of sensitivity analysis, cost increases and benefit decreases of 25 percent would yield returns of at least 18 percent ror individual road sections. With regard to the highway maintenance component, which accounts for eight per- cent of project cost, the program started under the Second Highway Project, is now estimated to have an economic return of 28 percent. The economic return for the whole project is about 30 percent. 41. Institution-building is also an important goal of this project. The technical assistance included in the project would provide key staff, equip- ment and training for MPWUT's newly created Directorate of Studies and Pro- gramming and will help improve its capacity to evaluate investment proposals and prepare a coordinated investment plan for the transport sector. In addition, technical assistance will help establish an action program to improve the capacity of the domestic construction industry to participate in major road works. PART V: LEGAL INSTRUMENTS AND AUTHORITY 42. The draft Loan Agreement between the Republic of Senegal and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank and the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately. 43. A feature of the Loan Agreement of speciaLl interest is referred to in paragraph 28 of this report. 44. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 14 - PART VI: RECOMMENDATION 45. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by J. Burke Knapp Attachments Washington, D.C. March 4, 1976  Page 1 of 3 Pages ODUNTRY DATA- SENEGAL AREA POPULATION l ; NSITY 1 _2 km 2 T5.0- mion (mtd-1974) Par ke2of arable land SOCIAL INDICATORS Neferasc- Countries Senegal Ghn Ivory Coast TonisioeO 1970 190 10 ONP nER CAPITA us$ (ATLAS BASIS) 280 /oab 300 380C5 460 L DEP2CRAPHIC Crude birth rate (per thousand) 43.2 32.3 h7 46 37 Crude death rate (par thousand) 25.6 18.3 18 Ic 23 16 Infant mortality rate (Per thousand lies births) 156 /d 106 Life espactaocy at birth (years) 37 41 47 hi 56 Oross reproduotion rate 3.0 3.2 3.1 3.4 Population growth rats 2.2 Is 2 .7 /f 2.6 /f 3.8 /f 2.1 /f Population growth rats - urban 3.5 4 5 - 9- 3 T Age structure (percent) 0-i4 42 42 47 42 46 15-61 51 51 19 55 50 65 andover - 4 4 3 4 Age dependency ratio 0.9 0.9 1.0 0.8 1i0 Econosic dependency raLio 1.1 1.2 1.4 1.0 /h 1i3 /h Urban population as percent of total 23 29 32 28 44 /i Fawily plannIng: No. of acceptors cunulatiee (thous. 11 .. l No. of users (% of married wean) 2 12 ENPLOINENT Total labor foroe (thousands) 1,300 1,700 7 3,500 2,600 1,500 /k Poros.tags employed in agriculture 73 55 78 53 7; Percentage unesploynd ,, 7 9 9 7; INCORE SI3TRISUTION PercD.tl ofoItonl t.ocos-s -rei-d by highest 5% 36.8 ...7.1/ Percent of natinal i-ncoa ro.eivod by highest 20% 62.5 58.5 71 Percnt of nationol i-coo ra-ai-ad by 1os-t 20% 3.2 3.9 71 Poronit of natIonal hrione roo-itad by lo.et 40% 9.4 10.6 I DISTRIBUTION OF LAND OWNERSHIP % owned by top 10% of owners 53 /I % noned by sMallest 10% of nes .5 T HEALTH AND NUTRITION Population per physician 20,000 In 14,940 12,950/0 12,110 5,950 Population per nursing person , 2,410 1,070 7 2,480 / 730 /p Populatitn per hospital bsd 760 /qr 730 Lr 760 68o0 L i Per capita calorie supply sa S Of requiressots 97 97 96 108 86 Per capita protein sopyly, total (gross per day) 64 6L 16 60 / 4 Of ehich, anboal and poles . 28 75 10 /n 18 is 11. / Death rate 1-4 years 1.5 71 EDUCATION AdJuted primary school enroll-ent ratio .' 38 / 89 77 107 Adjueted.s.condary school enrollmdnt rntin ,, 15 7t5u 5 11 20 Years Of schooling providsd, first and ..cond level 13 13 15 13 13 Vnoctional enrol aent as % of se.o school enrollment , 7 23 7 34 Adlit literacy rate 5 10 20 55 /k HOUSING Average No. of persons per rooa (urban) 1.5 2.7 /i Percent of occapied units withoat piped water 12 . 607 7 Ac-sss to electricity (as % of total pepulation) 96 17 24 7i Per cent of toral pepulatiso connected to eisctricity CONSUMPTION Rsdio 5rfoiners per 1000 population 47 68 /k 78 17 77 Passenger oars per 1000 pepulation 8 11 4 11 13 Electric power cone-mption (kwh p.c.) 47 77 lb 338 120 155 Newsprint consumption p.c. kg per year o.06 0.1 0.4 0.2 0.1 /a 1973; /b In mid-1975 on the basis of new population figure, the per capita OIP would be $320; L. Registered only; T 1968; I 1956-60; 7 1960-73; ag 1956-66; a Ratio of population under 15 and 65 and cvsr to otal labor force; LI 1966; L 1972-73; /k 1972; L Income recipient; I5 Covering 4.5 million heotares of private land, encluding 0.8 million hentares in public ownership, and 2.1 milflion henlares of collective land; Ln 1963; L. Registered, not all practicing in the country; 75 Personnel in governoent services; 75 1962; Lr Governwent hospital establishments; /. 1964-66; Lt Unadjusted; 7u Lower secondary levl. o In a recent demographic study on Senegal, BHnk experts found under-enumeration of children in the last population s-r-ey and increased the 1975 esistant population frnms 4.3 csilli-n to 5.0 million. Per -apita GNP for 1975 on the cld banis would have been $358. Tunsia ban been selected because of some sinilarity of its econony with the Seneg:aleae econ.sy, including favorable prospocts for the development of fisheries and tourisw. R5, February 27, 1976  Page 2 ECONOMIC DEVEGLOPMENT 06TA (A.oInt it elIlione of11 dollars) A-toa Estimated Proiectd 1971 - 1974- 1972 1973 19 74 1975 19 76 1987 1974 1999 1971 1 974 1989 NATIONAL ACCOUNTS ThEm.-v... Av-Ran mE 1971 Price and Escha-oe Rate An .tona Ototae As Pa-oes it 40 GosDomsi P"od"oc 914.8 979.4 918.6 1,939.8 1,089.6 1.281.4 3. 2 4.8 98.9 97.6 102.0 GaisfcnTors of Trada_t Is) 5.8 27.9 74.2 2.4 -15.8 -25.4 . . 1.1 2.4 72.0 -rsoDoesi Inco- 930.6 957 .3 1.005.8 1,04 2 .2 1,073.8 1,256.0 3. 7 4.4 100.9o 1500.8 100. 0 leoi-1iE] NFPS) 264.5 2 77 .8 298.5 378.3 391 .2 390.1 4.6 5.7 26.9 29.1 91.0 Enpotta linciOPS - Ieportnopoctty) 2 56.40 281.5 273.0 286. 3 286 .3 365.8 2. 3 6.95 28. 2 2 7.2 79.1 osrC.,Ga -8.5 3 .7 -25.5 -34.0 -44.9 -24.3 . . -0.7 7.1 1.9 Goosooption Enp.ndIcate. 758.3 711.4 863 0810.1 923.4 1,054.4 2. 4. 841 71 39 Eapondiccoas (tool. scocka) 180.8 172.2 2~05.0 16. 195.3 225.9 112 4.2 16. 20.4 16.0 0n~~~ntio tooltot ~~~~~~1,72.3 71759 179.6 161. 1250.4 21.1,6 7.8 55 1. 17.9 ~ 16 Notional Sacinos 157.7 156.9 158.9 137.1 125.~ ~~~~~~~ ~~~~ ~~~ 1 175.67 7.0 31 1. 58 1. MEtt-aOoS TRADE A s.o.l Dat tCaoo Pie As Pe-cent Of Total a,p Ita 70070 67 77 91' 127 1316 1399 24.93 13.i1 21.6 180 8. -s=ridl-t good (eon. Caste) 54 67 15 15 12 21 96.8 141 87 20 2. Foels aed related at-iala 17 24 63 79 94 286 65. 28.7 6.4 12.'5 27.6 Goosoin odsi 142 191 246 241 262 331 29.8 5.1 53 .5 46.7 31.9 To-1 tterh. Is.ott (d 8 0 35 0 82 64 183 318 12.8 100.0 100.1 110.0 E..o..i C... ~~~ ~~~~114 69 133 L150 164 1 74 43.5 5:5 41.6 36.9 22.4 P-hoshae 19 25 tIt 123 87 177 95.3 9.1 13.0 2 9. 2 22.9 P-.clo- -od-cta 9 i 22 23 30 201 46.6 44.9 65 6.1 25.8 .... aaf-atotdgod 48 72 10-0 107 122 226 32.8 14.6 38.9 27.8 29.0 Tota fetch. tPoete (fnb) 190 177 368 403 600 1778 4~9 .0 20-.7 1560.0 116.0o 1~00. Sc--adi-etd Indicee Ano,,na. 1971 -I 10 Ecpor rito ndos 100o 20 180 162 151 225 Inpo ft Pice Inde 109 1300 165 I153 172 242 Ton f Trade ndan 92 92 109 105 88 90 E Ior I-n lo,den 168 117 139 168 197 243 -ALUE 00015 tY SEClER Alnn.. I Dat-a 1914 Peir- aed Enchas- R.-o ogr,colnite ~~~~ ~~~~ ~ ~~225 259 00 26 326 376 0.7 3.8 35.7 2 34.2 0. Ioasrynd Omit071 17 I188 201 218 278 6. 6.7 16.6 21.4 2. sorvico ~~~~ ~~~~ ~~~~395 376 390 403 418 481 0. 35 46.2 44.4 47.3 T011 -791 810- 676 900 962 1.135 1. .4 100.0 110.0 100.0 PU00LI410 pioCT Fi-cL --ar (Jot1- l/Jose 301 ttco,--o -rice ",Prort f GOP C.ons-v ...tot )c-ntta ,-ot 169.1 19. 28 271.3 307.8 409 481 1. 59 1. Ct,tiavt Enandi tarot C _ota Coot) 1 50.-7 184.8 209.0 269.5 2~. 526 1. 50 1. todgotaty Sanings ~~~~~18.4 5.4 12.3 33.0 23 45 1 1 0I 9 I. Ocher Poblin Soctncsanioio 7~~~.5 0.4 17.6 -6.2 -o 6 0.9 i.3 0. PotliC toto- Iooss 62.6 68.9 98 3 852 LON 190 1.7 7.1 1.0 CliosFol E-PNI0ToREi oF.00ALn Aciom Polia. Bodgr (An, 0 Tnta1 -ooe- FnYdiao) E 72 8Y73 P374 8075 05 ill-d"n D00T1IL 08 PUBLIC SECTOt tdc..tii- 21.9 22.2 21.9 21.7 INVES3TMENT PR0OG.RAN Th969/7 - 1727 OtocSocia Soooo.4 E8. 7.6 7.2 16/0 9773 Agricolioco, 5.7 5.6 4.9 4.7 Sgcinlttoe2. 11.3 Otheri tc_nioiii S_aior 7.9 7.4 8.0 7,7 A,ticoltor 62 .4 2190 Adiiscticad ffna 56.5 54.9 55.6 56.7 I,,d-tt I Min,ing (iod. P00-) 15.3 71.1 Otto 1.6 1L.8 2.0 -2.0 aste SopIl 24.8 11. Ictal IGorr..c E,,ond itoro 102.0 100.0 100.0 100.0 Tcn..pnrtandi . ...tc.t.n. 45.0 21. Tota Enpoditn-r 215.3 100.0 SELEC'TTO 1621101O60 1971- 1974- 1971- (GoC. lat-d Eron 3-y-a ao-rgod dat) 1974 1960 1980 FINANCING AoccgeOco 5.6 4.0 4.4 Poblic Sector Il 7 lorEl,sictI1. 1.0 C. rnaadOfciltot 2. 8. Mtcginal Ootsestic Savings Rate ~~~~~~35.1-2 . 16.5 LonSco--ae oce 37. 7 17.6 Marginal tostionol Savings Rate 77.9 6.6 12.9 lolal Pinmeoing 215.3 000.0~~T..I Fi... i., 15.3 ina. 00TP02 PER WORKER In Millions. . ofT Total In , 0.. Nolarm Per-e- of A--rge 197 1971 1971 1921 Agoic-io--0. 70 356 5I Ilndoatcp0.1 8 1. 667 2317 Sos-cr0. 22 1,429 203 Tc.. 1.2 1007. 703 1007. I/ ba ti ..atded 2/ High sainge -ata doe to good cop and fm--cble te- of -cda Ia 1974.  Page 3 uo1.o1O11 01 I'1021t51 tOTEPOOl. OtOotTlol1 ANt DEBT rutisared ~~~~~~~~~~~~~Pro erred Avrge An-ua Grouh rat 1970 1971 1972 1973 1971 1975 1976 3977 1978 7979 1980 1974 -18 1SUMARY RA1,lANE OP PAT88NTS Eprs(Butt. lOPS) 217 216 3 12 322 529 563 679 679 760 910 1, 098 3. amot Inl iS 23 259 328 414 54 3 663 693 75 8 38 90 179 1. Raturt Buls-o (0--) 468 -43 -it -92 40 Blop -84 -7 9 78 -70 -8 ....r.s (public debt) -l -4 -s-7 -14 -16 -19 -2-24 .27 -30 13 .5 ttrrer Itnrstamrr Ino~~~~~~~~~~~~~,a -BA -~~~~15 -19 -7 -21 -2 -2.31-4 -37-11. 0tberf-eturiacas 7 9 11 12 4 1 -2 -2 -4 -5 .3 eurrerepranaprrtlsoetl ~~~ ~~~ ~~ ~ ~ ~ ~~-4 ~ 3 .4 -2 -2 -1 -2 -2 -2 -2 -l Balance an Current Acraunte -3~~~~~~~~~L2 -56 -3O -.116 -73 -136 -134 -136 -142 11 -3 Prinare liratt lines nnenr 8 13 17 -22- -22- -r 12 16 39 Al 43~~~~~~~~~~~~4:1 22 5 12' i OffIcial eapital CranEs lb 30 15 ~~~~ ~ ~~~ ~~~ ~~~ ~~~ ~~ ~ ~~ ~ ~~~~~~~38S 32 36 36 36 38 41 43 b- -irerut 19 23 16 97 45 103 166 126 134 148 148 22.0 Repty-nta s -_4 -d -8 -22 -19 -20 -34 -46 -39-4 -65 22.'9 tat Dteb---art 15 15 10 75 26 83 72 74 75 83 83 2 1. 3 therE-Bern Capital Ba-B 'l 4 0 -14 -6 71 -l .4 9 3 -4 8 CDpiBBI n... 31' 61/ 41'/ -9 16 7 --- - - In-ett in' ItoBtetrnt(l 28 -2 2 40 -7 -3_-8 2 1 43 t27 L_olrrrfaspled y-a) 7 6 7 -30 -44 -70 -88 -87 -76 -54 -314 GRANT9 83ND L081 COMMITMENS00 OffIi-1 Cran 6 Gro-BIika 16 30 15 38 22 1970 1871 1972 1973 1974 Pubtic M 6 1L2Tar Public Debt Oat & DiabArecd 1t0.9 127 .5 138.5 201.3 299.3 ED 2 7 11 23 - InrreaPubl lclbB B. 4 4.4 4.6 7 .0 13.6 Orher - - - - - R.p.,--rB anPbi er j- . .2 21.6 19.4 Orhc PUlilaEe-I - B 1 3 89 TutaI PuiBe Debt be--c 5.5 12.3 82.8 28.6 33.0 Canersuarote ~~ ~~~ ~~~ ~~~ ~~ ~ ~~~~4 12 14 59 34 Other Debt Semite (-a) :. ., .. Sopple 1 4 1 1 - TuBal osbE Sertlr (rel . .. Eluaea 1-firt-ian I0B 6 63 6 - - - -- Border -nrE--rtErnsi. 72 Public oneaC - - - -- Total PublIc 0 6 .2 kn -7 3-6 ~ 49 ~ 169 353 Pulteah terne 2.2 5.1 3.7 6.3 6.3 TutaIl Bbe S-roce ottoal Oeht Oottandtna no re-eb-r 3,1 19731 DDoirr _ l2iC__nc UE1RNnAL. BEET oaaeTanyo Poblie Debt Onrld -an 3.2 1.6 721 1~~~~~~~~~~~~~~~~0.8 73lR as I pri-c Y-a 204 t 1.t 4 .3 3.6 5.I . Othrr tivttileteral ~~~~~~~~4. 1 2. Aro. t5 Ert-r Ycor 00 & 4 .7 7 .7 6.7 15.6 9. hoppliars 8~~~~~~~~~~~~~.4 4. 1 lODlhrPt 4 DI,,bursed 2. 2. 2,I I3 2. 33 Etnetetal Isoettrotlant 87.~~~~1 17I2 I IBOaPhlettA 2.3 1 I. 1.6 2. Bands 5.6 3.0 1120 at 7 PobIlt Dbt ServIc 25 35 33 3.1 1 .9 1. TualPbBli 0 6 LT Osb, 701B.5 127.0 ID Ors nt 4 DIshor-d 0. 17.6 15.. 76 3. I., at . Publlr orbs 06 o 8.5: 8.3 11.4 10.3 133. CEh-r M8 41. DerT... DA aa7. Euhlit Dbo he-uta- 0. 5 7.6 0.3 3.17 Short-tr Debt (deb. only) IuefEtprtrjae-ooa-soac tu-d-oo1-oare650-700lbho...ant reose hcialevht-kaoe--oeetetofail--aotcleli tour e-t notappiralrb~--l noI oiabs5 tltatnt outhoatala erparuts. -,y -y tIl-- .oronr.ltd-rIhle11 1)Irhuur Tl)ballou2ioo 9-- ls- tor al tl1 ana  ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN SENEGAL A. Statement of Bank Loans and IDA Credits (as of January 31, 1976) Amount, less cancellation Loan or (US$ million) Credit No. Year Borrower Purpose Bank IDA Undisbursed Three loans and three credits *fully disbursed 13.6 14.3 140-SE** 1969 Senegal Agricultural Credit 6.0 0.1 252-SE 1971 Senegal Rice Development 3.7 0.9 253-SE 1971 Senegal Technical and Agricul- tural Education 2.0 0.4 254-SE 1971 Senegal Settlement Scheme 1.3 0.3 835-SE 1972 Senegal Railway 6.4 3.6 336-SE 1972 Senegal Housing Site & Service 8.0 6.6 866-SE 1973 OPTS Telecommunications 6.25 4.8 350-SE 1973 Senegal River Polders 4.5 0.2 366-SE 1973 Senegal Highway Maintenance 8.0 4.3 404-SE 1973 Senegal Agriculture Credit 8.2 4.2 S-3-SE 1974 Dakar- Ship Repair marine Engineering 0.6 0.2 446-SE 1974 Senegal Drought Relief 3.0 0.8 987-SE 1974 SOFISEDIT Development Finance 3.0 2.2 530-SE 1975 Senegal Education 15.0 14.9 S-18-SE 1975 Senegal Irrigation Eng. 1.0 1.0 549-SE) 1975 Senegal Agric. Diversifi- 1113-SE) cation 7.0 7.0 14,0 578-SE 1976 Senegal Terres Neuves II 2.0 2.0 Total, 36.85 84.0 60.5 of which has been repaid 8.49 - Total now outstanding 28.36 84.0 Amount sold 3.0 of which has been repaid 3.0 Total now held by Bank and IDA* 28.36 84.0 Total Undisbursed 17.8 42.7 60.5 * Prior to exchange adjustments. ** A loan of US$3.5 million for agricultural credit (584-SE) made in 1969 was cancelled on March 25, 1971.  ANNEX II Page 2 B. Statement of IFC Investments (as of January 31, 1976) Amount (US$ million) Type of Equity Year Obligor Business Loan Investment Total 1967 Societe Industri- Fertilizer 2.45 1.01 3.46 ell d'Engrais Plant au Senegal 1972) Bud Senegal, Vegetable 1973) S.A. Export - 0.18 0.18 1974 SOFISEDIT Development Finance Company - 0.23 0.23 Total Gross Commitments 2.45 1.42 3.87 Less Cancellations, Terminations, 1.68 .20 1.88 Total Commitments now held by IFC .77 1.22 1.99 Undisbursed balance - - - C. Bank and IDA Projects in Execution 1/ Cr. No. 140 First Agricultural Credit Project: US$6.0 Million Credit and Ln. No. 584 US$3.5 Million Loan; Credit of February 10, 1969 and Loan of same date (cancelled); Effective June 25, 1969; Closing Date: December 31, 1975 The credit is almost fully disbursed and a completion report is being prepared. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  A4NEX II Page 3 Cr. 252 Casamance Rice Project; US$3.7 million Credit of June 18, 1971; Effective January 6, 1972; Closing Date: June 30, 1977 Project progress is satisfactory although the number of farms super- vised has not increased as much as anticipated. On the other hand, production targets established at appraisal will be reached. Adequate rainfall will ensure a satisfactory 1975/76 campaign, although maize production suffered from heavy rains in August. Because of cost overruns, mainly due to the increased number of extension staff, salary increases and changes in the US dollar exchange rate, the project was running out of funds. However, Govern- ment has made available US$960,000 to finance project implementation between July 1975 and June 1976. Together with undisbursed IDA funds (US$900,000) this would ensure enough money to maintain project activities until a second project is submitted to the Board for consideration. Cr. 253 Technical and Agricultural Education Project; US$2.0 million Credit of June 18, 1971; Effective November 30, 1971; Closing Date: October 1, 1976 All components except the University Institute of Technology (IUT) have been implemented. This item is 2.5 months overdue and is now expected to be completed In March 1976. Delay has been due largely to technical problems. A cost overrun of about US$500,000 on the project as a whole is anticipated; the Government will finance it. Cr. 254 Terres Neuves Settlement Project; US$1.35 Million Credit of June 18, 1971; Effective January 31, 1972; Closing Date: December 31, 1977 The project's settlement program was completed in 1974 as antici- pated at appraisal. Adequate and evenly distributed rainfall ensured good crops during the last two seasons. The project has been successful in pro- viding higher incomes than expected for settlers and has attracted families with more adult workers than anticipated. STN (the state corporation in charge of the project) has taken over project management from the management agency agreed upon at appraisal. During negotiations of the second project, satisfactory arrangements were worked out to ensure adequate project manage- ment and coordination with other regional agencies involved in the area. The credit will he fully disbursed in the near future.  ANNEX II Page 4 Cr. 314/Ln. 835 Second Railway Project: US$3.2 Million and US$6.4 Million Credit and Loan of June 23, 1972; Effective December 29, 1972; Closing Date: June 30, 1976 The original project was substantially modified to reduce track renewal works in favor of funds for spare parts for track laying and maintenance equipment and for locomotives. By the end of 1975, US$6.0 million had been disbursed out of the total Loan/Credit of US$9.6 million; track re- newal had been completed, as well as procurement for workshop rehabilitation and orders had been placed for all track equipment and spare parts for loco- motives under the project; bids for the civil works to rehabilitate the work- shops had been submitted and were being analyzed. In recent months, as a result of sustained efforts by supervision missionE, the railway has been granted financial autonomy, locomotive availability has been increased result- ing in a higher carrying capacity, and steps have been taken to strengthen technical assistance. Much improvement is still needed, however, in manage- ment efficiency, and a proposed Third Railway Project, scheduled for FY 1977, will focus on this. A drop in international traffic (end of the Mali drought relief program) and in phosphate traffic (slump in world phosphate market) has weakened railway finances. Cr. 336 Site and Services Project; US$8.0 Million Credit of September 29, 1972; Effective August 31, 1973; Closing Date: June 30, 1979 Progress has been made in removing the major bottlenecks to project execution. To accelerate physical execution the Government has: (a) created a separate Site and Services Project Capital Account authorizing OHLM's Director General to make direct withdrawals under a post hoc audit control and permitting accelerated payments to conl:ractors; and (b) permitted the continued use of a "procedure d'urgence" to accelerate tender award proce- dures. As these measures have only recently been Lmplemented, physical pro- gress remains slow, although construction activity has visibly quickened. These and other agreed upon measures should contribute to recouping some of the delays now amounting to about one year. Some 1,100 plots have now been allocated by public lottery. Plot occupation is expected to begin in early 1976. Rather than reduce the size of the project, the Government and IDA have agreed to reduce the disbursement percentage on civil works from 67% to 45% to ensure the availability of IDA funds for all project components. Although improved working performance has been achieved at the executing agency level and some counterpart personnel have been elevated to project responsibility, adequate counterpart staffing continues to pose difficulties and will warrant close attention.  ANNEX II Page 5 Ln. 866 Telecommunications Project; US$6.25 Million Loan of December 19, 1972; Effective June 5, 1973; Closing Date: December 31, 1976 Large cost overruns have raised the cost of this project from US$8.9 million at appraisal to US$19.9 million according to recent esti- mates. A co-financing formula was successfully worked out which included a loan from the French Caisse Centrale de Cooperation Economique (CCCE) of US$4 million, new French suppliers' credits of US$4 million, and an increased contribution from our borrower, Office des Postes et Telecommunications du Senegal (OPTS). The new financial package and conditions of the CCCE loan were accepted by the Senegalese Government and the agreement would enable the project to be completed as originally appraised. However, recently OPTS has been informed that the Government intends to levy an income tax on OPTS's profits from operations in FY 1975 and also for previous years. OPTS has never before been subject to tax. This change of policy towards the OPTS is causing doubts about the financing plan drawn up at the time the CCCE loan was negotiated. These matters are being discussed with the CCCE and the Government. Ln. 867 Airport Project; US$3.0 Million Loan of December 9, 1972; Effective May 22, 1973; Closing Date: June 30, 1976 All project work was completed, the runway in full opera- tional service and the loan fully disbursed by the end of January 1976. The total cost of the project did not exceed the CFA franc costs made at appraisal although the devaluation of the US dollar resulted in the proceeds of the Bank loan financing a smaller percentage of the works than originally contemplated. Cr. 350 River Polders Project; US$4.5 Million Credit of Janluary 9, 1973; Effective June 8, 1973; Closing Date: December 31, 1977 Procurement has been completed for the main components of the project and contracts have been awarded. Construction of works is progres- sing satisfactorily. The Senegalese authorities requested that the Debi/ Lampsar components of the project be deleted from Credit 350-SE and be reform- ulated within the broader framework of integrated development of the Senegal River Basin. The proposed reformulation was agreed upon by IDA and an en- gineering project for Debi/Lampsar was appraised in December 1974 and approved by the Board in April 1975. Because of price increases, US dollar devaluation and additional works, the proceeds of Credit 350-SE will not be sufficient to complete the project, despite the deletion of the Debi/Lampsar component. The project authority SAED (Societe d'Amenagement et d'Exploitation des Terres du Delta), is presently seeking supplementary financing from Government of about US$3.6 million to complete the project.  ANNEX II Page 6 Cr. 366 Second Highway Project; US$8.0 Million Credit of April 9, 1973; Effective November 28, 1973; Closing Date: December 31, 1978 Implementation of the maintenance program and engineering studies started about six months behind schedule and execution at the begin- ning was slow but has improved since 1975. Engineering studies for the next phase of pavement strengthening were completed during the first half of 1975. Work on pavement strengthening began in February 1975, about 18 months later than appraisal estimates. The pavement strengthening component originally comprising 109 km of road rehabilitation had to be reduced to 35 km due to higher construction costs than expected at appraisal, changes in the exchange rate of the US dollar and the shifting of funds from pavement strengthening to higher priority road maintenance. Cr. 404 Second Agriculture Credit Project; US$8.2 Million Credit of June 25, 1973; Effective November 28, 1973; Closing Date: June 30, 1977 The 1974/75 campaign was good: groundnut and cereal production (1.0 million and 0.7 million tons, respectively) reached their highest levels since 1969. Demand for short and medium-term credit under the 1975/76 campaign remained stronger than anticipated, but available credit funds were sufficient to cover requirements for this campaign, the output of which is expected to be even higher than that of 1974/75. Government intends to cancel the subsidy on equipment but the subsidy on fertilizers will not be reduced significantly, as required. However, the on-going study on fer- tilizer applications financed under the Credit should provide a basis for policy review. Major organizational and financial problems still exist at ONCAD despite technical assistance provided since 1969. Steps taken by Government in early 1975 to remedy this serious situation--maintaining staff level, giving ONCAD management more financial autonomy and strengthening it with qualified accountants--resulted in some improvement, especially in accounting. However, ONCAD's overall performance has not improved and the organization remains overstaffed. High wage inflation increased operating costs without compensation through higher tariffs for its interventions. ONCAD credit requirements attained record levels, partly because of accumu- lating operating losses but mainly because of the large groundnut and millet stocks and prolonged prefinancing for Government's account. Ln. S-3 Ship Repair Engineering Loan: US$0.6 Million Loan of September 20, 1973; Effective February 5, 1974; Closing Date: March 6, 1976 The project consists of carrying out the following studies to determine the feasibility of a dry dock project:  ANNEX II Page 7 (a) Technical studies including those of physical and geophysical factors affecting site selection. (b) Economi,c studies including a market survey, a revision of the dry dock project feasibility study and a survey formulating a training program. The studies have now been completed; they indicate low economic and financial returns, and a relatively high market risk. The Government is exploring possible financing and ways of reducing the market risk. Cr. 446 Drought Relief Project; US$3.0 Million Credit of December 7, 1973; Effective February 5, 1974; Closing Date: June 30, 1976 The project is part of the Senegalese plan to rehabilitate people In drought affected areas by assisting them to redevelop and improve their farms and lands. Operations, including strengthening of health and water supply services, have been proceeding satisfactorily and the project is expected to be completed on schedule. Ln. 987 SOFISEDIT Project; US$3.0 Million Loan of May 24, 1974; Effective November 22, 1974; Closing Date: December 31, 1978 SOFISEDIT was created by the Government in March 1974 for the purpose of providing long-term financing for industry and tourism develop- ment. To recruit the initial staff and to find office space took several months and the company did not start operations until November 1974. During its first fiscal year of operations which ended September 30, 1975, SOFISEDIT approved nine loans totaling US$2.4 million and three equity investments for a total of US$320,000. The loan to SOFISEDIT is expected to be fully committed by the end of 1976 and a second project was appraised in December 1975. Cr. 530 Second Education Project: US$15.0 Million Credit of February 19, 1975; Effective April 22, 1975; Closing Date: June 30, 1980 The project management unit has been strengthened and is functioning well. Design work on the four lower secondary schools is well advanced and is proceeding satisfactorily in the case of the lower secondary science/technology centers. Construction at the Dakar Industrial Worker Upgrading Center has begun and a tender has been issued for the National Marine Training School. Equipment lists and bills of quantities of construc- tion materials for the nonformal rural youth training program have been approved by IDA. The Hotel/Tourism Training Center is delayed due to pro- longed contract negotiations between the Government and the selected archi- tectural consulting firm. Also the Government has yet to complete the terms of reference for a preinvestment study of primary education.  ANNEX III Page 1 SENEGAL - THIRD HIGHWAY PROJECT Loan and Project Summary Borrower: Republic of Senegal Amount: US$15.0 million equivalent Terms: 20 years including five years of grace with interest rate at 8-1/2 percent per annum Project Description: Pavement strengthening of 204 km of primary roads; purchase of equipment for highway maintenance and for a soils laboratory and DSP; technical assistance for the promotion of the dcmestic construction industry and for transport planning; consulting services for project supervision, including road maintenance begun under the Second Highway Project, and for preinvestment studies for a further 260 km of roads.  ANNEX II Page 8 Cr. 549/Ln. 1113 Sine Saloum Agricultural Development: US$7.0 million Credit and Loan of May 22, 1975; Effective October 31, 1975; Closing Date: June 10, 1981 This project, which started in late 1975, aims at increas- ing and diversifying agricultural production In the Sine Saloum region through the reinforcement of SODEVA'S activities. Activities under the project, includ- ing the setting up of extension services, are underway as planned. Cr. S-18 Debi-Lampsar Irrigation Engineering Credit, US$1.0 million Credit of May 22, 1975; Effective February 13, 1976; Closing Date: December 31, 1977 The credit finances the execution of the engineering studies needed for the implementation of the Debi-Lampsar irrigation scheme. Despite delays in effectiveness, the studies are well advanced and the original schedule for project implementation will not be substantially delayed. Cr. 578 Terres Neuves II Resettlement and Eastern Senegal Technical Assistance Project, US$2.0 million Credit of August 6, 1975; Effective November 14, 1975; Closing Date: December 31, 1979 The project, due to start in 1976, consists of the resettle- ment of 600 families, and studies and surveys for a master plan for the Eastern Senegal region.  ANNEX III Page 2 Estimated Cost: (including taxes) U'$'ooo equivalent Local Foreign Total A. Pavement Strengthening - Civil Works 6,280 8,670 14,950 - Construction Supervision 215 645 860 Subtotal A 6,495 9,315 15,810 B. Studies and Technical Assistance - Louga-Dahra Road 90 270 360 - Pavement Strengthening 87 263 350 - Supervision of Highway Maintenance 125 375 500 - Technical Assistance - Directorate of Studies (DSP) 279 836 1,115 - Domestic Construction Industry 30 90 120 Subtotal B 611 1,834 2,445 C. Equipment Procurement - Highway Maintenance 90 910 1,000 - Soils Laboratory 9 91 100 - Directorate of Studies 12 125 137 Subtotal C 111 1,126 1,237 D. Fellowships - 150 150 E. Contingencies 1,764 2583 4347 GRAND TOTAL 8,981 15.008 23,989 (rounded) (9,000) (15,000) (24,000) Percent 39X 61% 100% Financing Plan: The proposed loan of US$15.0 million will finance all the foreign costs of the project or 73% of total costs net of taxes. The Goveranent will finance the local costs amounting to US$5.3 million equivalent.  ANNEX III Page 3 Estimated Disbursements: In US$ millions FY77 FY78 FY79 FY80 Yearly 8.0 6.2 0.6 0.2 Cumulative 8.0 14.2 14.8 15.0 Procurement Arrangements: Contractor CSE, the lowest bidder, will execute the pavement strengthening of the 75 km of roads dropped from the Second Highway Project on the basis of prices and conditions of its original bid received in April 1974, adjusted to take account of price increases as stipulated in CSE's December 1974 contract. Inter- national bids will be called for the additional 129 km of the pavement strengthening program in accordance with Bank Group guidelines. Equipment and spare parts for highway maintenance and for the soils laboratory will be procured on the basis of international competi- tive bidding in accordance with Bank Group guidelines. Items costing under US$10,000 may be procured on the basis of quotations obtained following local procedures acceptable to the Bank; the total amount of such pur- chases should not exceed US$100,000. Consultants: Total consultants services would amount to about 500 man/months. Economic Rate of Return: 30% Appraisal Report: No. 975a-SE of March 4, 1976.  (~~~~~~~ - o> g c=m 2 - 0 0 0 0 r - C> _0 .} @ bo_ (r~~~f ~~0.~ ~ 0.- _ Oo \ /5 /) D~~~~~~ itt~~ r'0(o l AC DN 0