Senegal - Third Highway Project

Report No. 975a-SE Appraisal of a FPY Third Highway Project FILE C Senegal March 4, 1976 Western Africa Projects Department Highways Division FOR OFFICIAL USE ONLY International Bank for Reconstruction and Development International Development Association This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - CFA franc (CFAF) US$1.00 - CFAF 225 CFAF 1 million - US$4,444. WEIGHTS AND MEASURES Metric US Equivalents 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) 2 - 0.62 mile (mi) 1 square kilometer (km ) - 0.386 square mile (sq mi) 1 metric ton (m ton) - 2,204 pounds (lb) ABBREVIATIONS AND ACRONYMS DOT - Directorate of Transport DPW - Directorate of Public Works DSP - Directorate of Studies and Programming CEREEQ - Centre Experimental de Recherches et d'Etudes pour l'Equipement FED - Fonds Europeen de Developpement LBTP - Laboratoire du Batiment et des Travaux Publics MOF - Ministry of Finance and Economic Affairs MOP - Ministry of Planning MPWUT - Ministry of Public Works, Urban Development, and Transport ONCAD - Office National de Cooperation et d'Assistance au Developpement OMVS - Organisation pour la Mise en Valeur du Fleuve Senegal vpd - vehicles per day FISCAL YEAR July 1 - June 30  FOR OFFICIAL USE ONLY SENEGAL APPRAISAL OF A THIRD HIGHWAY PROJECT Table of Contents Page No. SUMMARY .. .............................................. i - iii 1. INTRODUCTION ...................................... 1 2. THE TRANSPORT SECTOR .............................. 2 A. Economic Setting .............................. 2 B. The Transport System ..... ............. 2 C. Transport Planning and Coordination ......... . 5 3. HIGHWAYS .................... 7 A. The Road Network ...... ....................... 7 B. Characteristics and Growth of Road Traffic ... 8 C. The Road Transport Industry .. ................ 8 D. Administration ...... ..................... . 10 E. Financing ........ ............................ 10 F. Engineering and Construction ................ . 11 'G. Maintenance ....... ........................... 13 H. Sector Lending ...... ......................... 14 4. THE PROJECT ....................................... 15 A. Description .................................. 15 B. Cost Estimates .............. . ................. 19 C. Execution ................... ................. 21 D. Financing and Disbursements ........ .. ........ 22 5. ECONOMIC EVALUATION .............. .. ............... 22 A. General .......... ............................ 22 B. Pavement Strengthening .......... .. ........... 23 C. Extension of the Highway Maintenance Program 24 6. AGREEMENTS REACHED AND RECOMMENDATION . .25 This report has been prepared by Messrs. E. Fellinghauer (Engineer) and P. Parker (Economist) following an appraisal mission in May 1975. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS - Continued TABLES 1. Estimated Traffic by Rail and Road in 1971 2. Actual and Planned Capital Investments in Transport, 1965-77 3. Rail, Port, and Air Traffic, 1963-74 4. Development of the Highway Network, 1964-74 5. Annual Vehicle Registrations, 1963-73 6. Annual Road Vehicle Fuel Consumption, 1963-73 7. The Privately-Owned Trucking Industry in Senegal, 1975 8. Representative Road Transport Rates in 1974 9. Personnel of the Directorate of Public Works in 1974/75 10. Annual Highway Expenditures, 1970/71 - 1975/76 11. Road User Taxes 12. Equipment Needs for Maintenance Program and Soils Laboratory 13. Project Cost Estimates 14. Estimated Schedule of Disbursements 15. Economic Evaluation of Strengthening Paved Roads 16. Estimated Economic Vehicle Operating Costs on Paved Roads ANNEXES 1. Outline Terms of Reference for Experts to be attached to Directorate of Studies and Programming 2. Outline Terms of Reference for Expert to assist in promotion of the Domestic Construction Industry 3. Description of Paved Roads to be Strengthened CIHART Organization of the Ministry of Public Works, Urban Development, and Transport (World Bank 15279) IAP Senegal - Third Highway Project (IBRD 11900)  SENEGAL APPRAISAL OF A THIRD HIGHWAY PROJECT SUMMARY i. The transport system of Senegal consists essentially of about 13,300 km of roads, about 1,030 km of railway lines, one major and three secondary seaports, an international airport and 13 airfields for domestic services. The system is focused on Dakar, the capital city, principal sea and airport, as well as the commercial and population center. Roads are the principal mode used for domestic transport, carrying about three-quarters of both interurban freight and passenger traffic, exclusive of phosphates. ii. The highway network is well developed compared to other West African countries, providing links to most areas, although inadequate maintenance has caused many roads to be in unsatisfactory condition. The railway is the principal long-distance carrier for freight, primarily groundnuts and phos- phates, the country's major exports. It is also the primary means of trans- port for neighboring landlocked Mali, whose highway network is connected to that of Senegal only by an inferior earth road. Foreign trade is centered almost completely on the Port of Dakar. The international airport is one of the busiest in West Africa, and an important stopover for flights between Europe, South America, and Africa. iii. After about 13 years of stagnation and a decline in the early 1970s following the Sahelian drought, the economy improved temporarily, partly as a result of exceptionally high world prices for groundnuts and phosphates bet- ween 1973 and 1975. In the last two years, crop production was excellent, but terms of trade returned to pre-1973 levels due to declining phosphate and ground- nut prices. In order to promote development, the Government is undertaking a program of economic diversification through increased public investment which emphasizes developing objectives is the availability of a reliable and efficient transport system. Investments in the sector are geared to meeting these requirements. The current transport plan correctly emphasizes: (i) up- grading of existing primary roads, construction of new roads to improve access especially to tourist areas, and improvement and maintenance of secondary and feeder roads in agricultural areas; (ii) improvements to the airport and the port at Dakar; and (iii) continued modernization of the rail- wqay and improved maintenance of its infrastructure and equipment. iv. Implementation of the above investments requires action to improve the mechanism for overall transport planning and coordination, and to increase the capacity and competitiveness of domestic civil works contractors. The proposed project includes technical assistance to the Ministry of Public Works, Urban Development, and Transport (MPWUT) to strengthen its recently created Directorate of Studies and Programming (DSP) by providing key personnel and equipment required to make the unit operational in the short run, and to train Senegalese staff. The project will also finance advisory services to the domestic construction industry, aimed at increasing its capacity for partici- pation in major road works now dominated by foreign contractors.  - li - v. Previous Bank Group lending in the transport sector has totalled US$35.7 million. Two highway loans have helped finance construction of about 78 km of feeder roads, strengthening of about 34 km of paved roads, equipment procurement, and technical assistance for highway maintenance; an additional 420 km of feeder road construction and improvements are being carried out under agricultural projects. Two railway operations have pro- vided for track improvement works, procurement of equipment, and technical assistance for operational improvements. Bank Loans have also helped finance extensions to the port of Dakar and to the runway of the international airport. vi. The proposed project is directed towards preserving the existing network of high-priority paved roads, continuing the improvement of highway maintenance operations started under the Second Highway Project, and streng- thening of MPWUT's institutions. It will be complemented by the planned investments for improvement and maintenance of feeder roads under the proposed Feeder Road Project being presented concurrently. The proposed Third High- way Project consists of: (i) pavement strengthening of about 204 km of major trunk roads; (ii) procurement of equipment for highway maintenance and for the soils laboratory of the Research Center (CEREEQ); (iii) technical assist- ance to MPWUT to set up the Directorate of Studies and Programming, and to study, make recommendations, and provide advisory services for promotion of the domestic construction industry; (iv) consulting services for preinvestment studies for about 260 km of primary and secondary roads, and for improvement of highway maintenance; and (v) scholarships for training DSP personnel. Total project costs are estimated at US$20.5 million equivalent net of taxes, including foreign costs of about US$15.0 million (73%) proposed for Bank financing; taxes and duties are estimated at US$3.5 million equivalent, and other local costs at about US$5.5 million equivalent. vii. MPWUT will be responsible for execution of the project, with cons- truction supervision, technical assistance, and selected preinvestment studies by consultants to be selected in agreement with, and under terms and condi- tions acceptable to the Bank. The remaining preinvestment studies will be carried out by DSP and DPW, using consultants and CEREEQ's soils laboratory as subcontractors. An outline of the proposed scope of all consulting ser- vices, and tentative time-tables including availability of local counterpart staff as trainees have been discussed and agreed with the Government. viii. Construction contracts will be awarded following international com- petitive bidding in accordance with Bank Group guidelines. Prequalification of contractors and preparation of specifications and bidding documents by consultants have been completed. Works are expected to start in September 1976, and to take about 1-1/2 years to complete. 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, with due regard to the requirements for standardization. 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 purchases not to exceed US$100,000. Separate contracts will be prepared for  - iii - each type of equipment and spare parts, or each group of similar types. Specifications will be prepared by DPW and reviewed with the Bank. Suppliers for the maintenance equipment will be required to provide adequate local after-sales service. Details of equipment items to be procured have been discussed and agreed with the Government. ix. Loan proceeds will be disbursed on the following basis: (i) 58% of total expenditures for construction contracts; (ii) 75% of total expenditures for consulting services and technical assistance; (iii) 100% foreign expendi- tures for equipment and spare parts, or 91% of total costs; and (iv) 100% of foreign expenditures for scholarships. The Government will provide all the local costs of the project. x. The primary purpose of the proposed project, in line with the Gov- ernment's ongoing program of economic diversification, is to protect past investments by rehabilitating and maintaining the existing highway network. This is expected to reduce the uneconomic use of scarce foreign exchange to pay for the high cost of operating vehicles on poor roads. The economic return from proposed investments in pavement strengthening, quantified on the basis of vehicle operating cost savings, is estimated at 30%. The benefit/cost ratio for the maintenance component, based on an opportunity cost of capital estimated at 10%, is 1.6:1, corresponding to a rate of return of 28%. Benefits from generated traffic, time savings, and accident reduction, have been omitted from the calculation. The overall rate of return from the project is about 30%. xi. The proposed technical assistance to DSP will help in strengthen- ing the machinery for transport planning. It will ensure, among other things, the capability of MPWUT to formulate a national transport policy, to evaluate investment proposals, to prepare a coordinated transport investment plan, and to carry out a program of special studies of sector issues. The proposed technical assistance to domestic contractors is seen as an important step in helping to strengthen this industry, consistent with Government objectives, and will eventually provide the country with additional domestic capacity for executing civil works. xii. The proposed project is suitable for a Loan of US$15.0 million to the Government of Senegal. An appropriate Loan term would be 20 years including a 5-year grace period.   SENEGAL APPRAISAL OF A THIRD HIGHWAY PROJECT 1. INTRODUCTION 1.01 The Government of Senegal is following a policy of expanding the base of the country's economic development, now largely dependent on export of groundnuts and phosphates, through diversification and development of agriculture, and promotion of industry and tourism. As part of this strategy, the Government is placing considerable emphasis on the improvement of trans- port facilities. The current Four-Year Plan (1974-77) for economic and social development sets the following objectives for the road sector: (i) maintenance and rehabilitation of the existing network; (ii) improvement of transport facilities for agricultural products; (iii) improvement of access to tourist areas; and (iv) connection of areas not yet served by roads. The Bank Group is making an important contribution to this program through two previous highway operations, three agricultural projects with road compo- nents, and the proposed Feeder Roads and Third Highway Projects. 1.02 A First Highway Project (Loan 198-SE, US$2.1 million, 1970) con- sisted of construction of about 78 km of feeder roads, purchase of maintenance equipment for secondary and feeder roads, and consultants' studies for road improvement and maintenance. The project was satisfactorily completed in 1972, and the Loan fully disbursed. The ongoing Second Highway Project (Credit 366-SE, US$8 million, 1973) consists of pavement strengthening of about 109 km of paved roads, a four-year program for improving road mainten- ance, including reorganization of operations and equipment procurement, and preinvestment studies for about 220 km of paved roads as well as review of feeder road requirements. Implementation of the project started slowly. The effects of high inflation currency realignments and reallocation of some funds from pavement strengthening to higher priority road maintenance caused a shortage of Credit funds. This allowed execution of only 34 km of pavement strengthening and prevented procurement of all the maintenance equipment and consulting services considered necessary to meet project objectives. The preinvestment studies for pavement strengthening have been satisfactorily completed, and serve as a basis for construction items included in the proposed Third Highway Project. Bank Group involvement in the highway sector has also included about 420 km of feeder road improvements carried out under three agricultural projects (Credit 252-SE, US$3.7 million, FY71; Credit 254-SE, US$1.35 million, FY71 and Credit 578-SE, US$2.0 million FY76). 1.03 The proposed Third Highway Project will continue the pavement streng- thening and maintenance program started under the second project. It will also provide technical assistance to strengthen transport planning within the Ministry of Public Works, Urban Development, and Transport (MPWUT), and pro- mote development of the domestic construction industry. This effort, together with the feeder road improvement program under the proposed Feeder Roads Project, is expected to provide a balanced improvement of the entire network of primary, secondary, and feeder roads.  1.04 This appraisal report is based on studies carried out by consult- ants BCEOM (France), and on the findings of an appraisal mission consisting of Messrs. E. Fellinghauer (Engineer), P. Parker (Economist) and P. Ostenc (Consultant), assisted by J. Brown (Loan Officer), which visited Senegal in May 1975. 2. THE TRANSPORT SECTOR A. Economic Setting 2.01 Senegal is located primarily in the Sudano-Sahelian zone of Africa and contains a population estimated at about 5.0 million in 1975 within a land area of about 196,700 km . Per capita Gross National Product (GNP) was estimated at about US$320 in 1975. Per capita GNP failed to grow during the first decade after independence in 1962, due initially to the loss of Dakar's political and economic influence as the capital of French West Africa. More- over, the economy was under a severe strain by 1972/73, following the worst series of droughts in the century, and a fall in the export prices for groundnuts. Rainfall was satisfactory in 1974 and 1975, and world prices for groundnuts and phosphate rock were at record high levels during these years. However, recent declines in the phosphate and groundnut prices have put a serious strain on the balance of payments. 2.02 The Government has taken several positive steps to accelerate development, including increasing national investments from 11% of GDP in the mid-sixties to 17% in the early seventies, and shifting the emphasis of investment and development toward the rural sector. In addition, the Government in 1974 sought to lessen the country's reliance on imported food- stuffs, which absorb 15-20% of export earnings, by developing irrigation and substantially reducing consumer subsidies on imported rice and cereals, while at the same time increasing domestic producer prices for rice, millet, and groundnuts in order to stimulate domestic production. Based in part on the availability of sufficient foreign finance to meet future public investment requirements, the Bank Group expects that GDP will increase at about 4.5% through 1980. B. The Transport System 2.03 Senegal has several unique characteristics which shape its transport system, including (i) the concentration of population and economic activity in the Cap Vert Peninsula and in the groundnut basin, resulting in short travel distances and a substantial flow of agricultural commodities from rural to urban areas; (ii) the strategic location of Dakar as an international port and airport, and the port's use as a point of entry for international traffic to landlocked Mali and to Mauritania; and (iii) the partial division of the country by Gambia (see Map).  - 3 - 2.04 The domestic transport system consists essentially of: (i) a 13,300 km road network (discussed in Chapter 3), which carries about three- quarters of commercial inter-urban freight and passenger traffic, exclusive of phosphates; and (ii) a 1,032 km railway which carries primarily phosphates and international traffic to Mali (Table 1). The port of Dakar is the only protected deep-water port in the Sahel, and in addition serves as a bunkering point for north-south trade routes. Three secondary seaports handle a small additional volume of traffic. Dakar airport also serves as a strategic stop- over on routes from Europe to South America, and from New York to East and West Africa. Domestic air transport, river transport, and coastal shipping, are not significant transport modes. Apart from the location of Gambia, there are no major physical barriers to the development of transport within Senegal. 2.05 Senegal's transport infrastructure was relatively well developed at the time of independence in 1962. With additional investments since that time, it2has become one of the most extensive in West2Africa with, for example, 12.8m/km of paved roads compared with about 6.2m/km in the Ivory Coast, and similar density relationships for rail and aviation facilities. There still remain, however, regional disparities in the provision of infrastructure, with some enclaves such as Eastern Senegal having few facilities. At the same time, the quality of some services, particularly railways, remains low. Trans- port investments represented about 1.5% of GDP in the first years of independ- ence but with the Second Plan, Government changed priorities to favor the more directly productive sectors, and transport investments fell to 0.8% of GDP. In the early 1970's investments in transport infrastructure averaged about US$15 million annually, the recent revision of the Fourth Plan (FY1974-77) increases this annual figure to an ambitious US$56 million, or 2.4% of fore- cast GDP, due primarily to growing maintenance requirements and opening up of remote regions. 2.06 Several major public investments presently under consideration have significant implications for the transport sector. The proposed iron ore mine at Faleme in Eastern Senegal near the Mali border, about 250 km from the exist- ing rail line, has potential reserves of about 1.4 billion tons of high-grade iron ore.- The Government is considering construction of a new rail line from the mine to a major new port at Cayar which would handle iron ore, all phos- phates, and oil imports from Iran (para. 2.12). The 1974 development plan for the Organization for Development of the Senegal River Basin (Organisation pour la Mise en Valeur du Fleuve Senegal, OMVS) proposes investments of around US$3.5 billion equivalent over 40 years. This would include a multi-purpose dam at MIanantali, tIali; a barrage in the river delta at Diama, Senegal; river ports, dredging, and a river transport fleet; and major irrigation works. Other developments affecting transport include the possible expansion of the phos- phate mines near Taiba, and increased migration to Eastern Senegal.  -4- Railways 2.07 The Government-owned Senegalese Railway System (Regie des Chemins de Fer du Senegal) consists of 1,032 km of line, almost all single track. The main line extends from Dakar to Kidira on the Mali Border, while branch lines connect Dakar with St. Louis in the north, and serve Linguere, Touba, and Kaolack in the groundnut basin, as well as the Taiba phosphate mine. The Government agreed under the Second Railway Project (Loan 835/Credit 314-SE, US$9.6 million, 1972) to subsidize uneconomic branch lines which could not be closed down for social or political reasons, and in FY 1975 provided CFAF 300 million (US$1.3 million) for this purpose. The proposed project includes a feasibility study for upgrading the road parallel to the uneconomic branch line from Louga to Linguere (para. 4.10). 2.08 Freight traffic has been growing about 4.2% p.a. during the last ten years, reaching 386 million ton-km in 1974, while passenger traffic has been declining about 2.3% p.a., reaching 224 million pass-km in the same year (Table 3). Despite the growth of phosphate traffic and international traffic to Mali, most of the system is lightly travelled. 2.09 Mineral traffic and international freight traffic to Mali are generally captive to rail. Nonetheless, in 1974 about 20% (1.6 million tons) of the phosphate traffic from Taiba to Dakar (111 km) went by road, primarily because of the low availability (approximately 50%) of railway motive power. Phosphate trucks were frequently overloaded, damaging the roads on which they travelled. Truck-weighing equipment financed under the Second Highway Project is currently being procured (para. 3.09), and enforcement of axle-load regula- tions is expected to be strengthened. 2.10 The railway's operating and financial performance were unsatisfa-- tory until recently, primarily due to: (i) cumbersome and restrictive super- sion and control by the Ministry of Finance and Economic Affairs (MOF); (ii) lack of competent and motivated staff; (iii) unsatisfactory technical assistance; and (iv) delays in implementing tariff increases. However, the railways' 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, and a Government subsidy for unprofitable branch lines. A reallocation of US$1.5 million in 1974 from the Second Railway Project to purchase spare parts is expected to increase locomotive availability and improve operating efficiency. The long-term future of the Senegal Railways will depend on a continued improvement in operating efficiency and the generation of new traffic to replace an expected loss of phosphate traffic. Ports and Waterways 2.11 Senegal's port system consists of major international facilities at Dakar, supplemented by secondary ports at St. Louis, Kaolack, and Ziguinchor. Cargo throughput at Dakar port has doubled in the last ten years, and now  - 5 - totals about 6 million tons (Table 3). Major traffic consists of petroleum, international traffic for Mali and Mauritania, and phosphates. The port's financial performance has improved in recent years, due primarily to temporary additional traffic generated by closure of the Suez canal, and the imple- mentation of necessary tariff increasees. 2.12 The Government is considering development of a major port facility north of Cayar, initially to handle imports of Iranian oil and exports of phosphates from a new mine at Tobene, and possibly the eventual export of iron ore from Faleme. However, further studies are required to determine whether or not it would be less expensive to ship the phosphates and petroleum through Dakar, following operational and track improvements to the railway. Additional port capacity may be required to handle phosphates and Faleme iron ore, but probably not before the 1980's. 2.13 River navigation is possible during most of the year on the Senegal, Saloum, and Casamance Rivers, but traffic volumes are modest and declining due to the substitution of road transport. Possible improvements currently being studied by OMVS include increasing the use of river transport on the Senegal River, but this is still a long-term prospect of uncertain economic justification. Aviation 2.14 Aviation activity centers on the Dakar airport, which is a major international transit point. Dakar airport is efficiently managed by the international Aviation Safety Agency for Africa and Madagascar, and is equip- ped with a 2,550 m runway recently lengthened under a project partly financed by Loan 867-SE (US$3.0 million, 1972). Total passenger movements through Dakar reached 560,000 in 1974 (Table 3), due primarily to the growth of internation- al transit and tourist traffic. Air cargo shipments are not yet significant, although international markets for the export of shellfish and fresh vegetables are developing. Domestic air traffic is insignificant, although Air Senegal provides scheduled services to 13 out of 18 regional airports and airfields. C. Transport Planning and Coordination 2.15 The responsibility for transport planning and coordination is shared among several Ministries and organizations, including the Ministry of Planning (MOP), MPWUT, and MOF. MOP has overall responsibility for preparation of the four-year development Plans. MPWUT executes Government policy in the trans- port sector, and also includes three major departments concerned with inter- city transport: Public Works (DPW); Transport (DOT); and the newly created Directorate of Studies and Programming (DSP) (paras. 2.17-2.18). DPW is responsible for administration of the national highway system. DOT is res- ponsible for the regulation, control, and development of the various trans- port modes. MOF also exercises substantial influence on transport by specify- ing overall amounts to be invested in each mode, determining the structure and amount of taxes on transport, and until recently, maintaining strict finan- cial supervision of the railway and port. A number of Interministerial Com- mittees address particular problem areas in the sector. However, the output of the transport planning process continues to be less than fully satisfactory.  - 6 - 2.16 The Government has specified commendable sector objectives in the update of the current Fourth Quadrennial, Plan including minimizing the total cost of transport, and making the fullest use of existing infrastructure investments. Investment planning in the sector is carried out in principle on the basis of (i) requests by the operating agencies for project financing, supported by feasibility studies; and (ii) selection by Interministerial Committees and MOP, on the basis of criteria established by MOP and the financial envelope specified by MOF. The availability of foreign financing also influences which projects are finally chosen. Selection of the best projects is sometimes difficult, however, since all projects are not equally well prepared. This is primarily due to a lack of basic transport planning data, as well as a shortage of trained personnel to execute the necessary preinvestment studies. As noted previously (para. 2.06), the Government is currently considering several investments which have significant implications for transport planning. 2.17 The United Nations Development Programme (UNDP) provided a team of experts who helped prepare the 1974-77 Plan. MPWUT is also taking positive steps to strengthen its investment planning through the creation of DSP. MPWUT was reorganized in July 1975, and one of the major aspects of that re- organization included combining the three study bureaus formerly under DPW, MOT, and Urban Planning, into DSP, a new department reporting directly to the Minister. DSP will be subdivided into four divisions: (i) General Pro- gramming; (ii) Transport Studies and Infrastructure; (iii) Urban Planning, Architecture, and Land Use; and (iv) Administration. Its principal functions will be the execution of economic and technical studies within the competence of MPWUT, including transport sector surveys and determination of investment priorities. DSP is expected among other things, to increase the coordination of activities between DPW and DOT, and to make better use of the expertise of available technical staff. 2.18 The Government has appointed a director for DSP, identified its staffing requirements, and defined its areas of responsibility. It has been agreed that DSP will assist the Minister of MPWUT in formulating and elabo- rating transport policy, and will undertake, and supervise or coordinate as necessary, technical and economic studies in the transport sector. In parti- cular, DSP will be responsible for the planning and evaluation of all pro- posed investments, including coordinating studies undertaken by other organi- zations involved in transport, with a view to establishing an integrated transport planning policy. The proposed project provides for the services of four experts (a senior transport planner, two transport economist, and a road planning engineer), each for a period of three years. The experts' principal tasks will include providing assistance in: (i) preparation of transport investment projects to be executed under the Fourth Quadrennial Plan, including advising Government on their policy implications; (ii) preparation of an inte- grated development plan for the sector, including preparing and coordinating MPWUT's input to the Fifth Quadrennial Plan; (iii) execution of a number of specific studies in the transport sector; and (iv) training of local staff to enable DSP to perform its functions without outside assistance upon termina- tion of the above expert services (Annex 1).  - 7 - 2.19 A major outstanding transport coordination issue is defining the appropriate future role for Railways, and ensuring a proper allocation of traffic between road and rail. A number of aspects bearing on this issue will be investigated by DSP, which will develop recommendations for consider- ation by Government. In addition, technical assistance is to be provided under the Second Railway Project to address problem areas which are internal to railways. The Bank has discussed with the Government the need for following up and implementing recommendations of a Bank-financed consultant study on transport coordination (Study of the Coordination and Planning of Inland Transport, Berenschot-Bosboom (Netherlands), September 1975), and outstanding issues are included in DSP's terms of reference. 3. HIGHWAYS A. The Road Network 3.01 Senegal's road network totals about 13,300 km, largely concentrated in the western regions (see Map). Road links with the east are limited to a few low-standard connections, two of which run parallel to other transport modes - the Senegal River and the Dakar-Bamako (Mali) railway. About one- fifth of the network (2,600 km) consists of paved roads, and a further 3,300 km are all-weather gravel roads; the remainder of the system consists of partly improved earth roads and ill-defined tracks (para. 3.02 and Table 4). Of the total network, about 9,100 km are classified roads, i.e. their mainte- nance and improvement is financed by the national budget. These roads are subdivided into four categories (national, regional, departmental, and urban); the remainder of the network is under the jurisdiction of local authorities, whose limited financial means permit only spot improvements or minor mainte- nance works. 3.02 Almost all the paved roads have two traffic lanes and were con- structed to 6 m pavement width, which for some sections has been reduced by traffic to between 5.0 and 5.5 m due to inadequate maintenance. About 50 km of roads near Dakar, which carry especially heavy traffic volumes, have three traffic lanes with a 9 m pavement width. Many of the paved primary roads were built before independence; most of them are now more than 15 years old and generally underdesigned for present traffic loadings. As highway mainte- nance was inadequate before the start of the ongoing maintenance program, a large proportion of the paved network is now in unsatisfactory condition, marked by uneven surfaces, potholes, pavement cracks, ravelled edges, and washed away shoulders. A similar situation exists in the secondary and feeder road system, where transport on some roads is possible only during part of the year depending on the weather conditions. This fact, combined with the in- adequate road mileage in some regions, hampers development of rural areas. 3.03 The Government has started a program of pavement strengthening of the most deteriorated main roads, as well as construction of feeder roads, and it is also currently implementing a four-year program to improve road  - 8- maintenance. The Bank Group has already played an active role in these efforts, and will continue its assistance under the proposed Third Highway and Feeder Roads Projects. Further contributions to the country's road program are made by several foreign agencies, particularly FED and the African Development Bank (ADB), as well as bilateral assistance from various Governments. B. Characteristics and Growth of Road Traffic 3.04 The composition and growth of the vehicle fleet is shown in Table 5, and annual road vehicle fuel consumption in Table 6. The fleet increased at a compound growth rate 6.1% p.a. over 1963-68, then declined about 5.0% p.a. over 1968-1973,partly as a result of reduced economic activities during the drought period, and partly because larger trucks are replacing smaller ones. Of the 73,000 vehicles registered in 1973, about 64% were light vehicles and 34% trucks and buses; about 60% of the fleet is used predominantly in the Cap Vert Province. It is difficult to estimate accurately the number and compo- sition of vehicles in the country, since statistics are known to overstate the vehicle population as the removal of vehicles from the fleet is not always recorded. Improvement in collecting road vehicle statistics will be one of the tasks of the DSP. 3.05 Collection of traffic data is done by DPIJ. Consultants Louis Berger (US) in their 1971 road improvement and maintenance study were the first to carry out country-wide traffic counts. Annual collection of traffic data has been executed since 1974 on all classified roads under the four-year road maintenance program as a basis for programming maintenance operations. Traffic volumes are highest in the Cap Vert Province, especially in and around Dakar, reaching an annual average of 6,000 to 10,000 vehicles per day (vpd). Traffic decreases rapidly with distance from Dakar, averaging about 2,000 vpd on the major road link to the east between Dakar and the city of Kaolack about 150 km away. Traffic on the remainder of the paved road network ranges from about 50 vpd to about 1,000 vpd. Consultants have investigated future traffic development during the preinvestment study carried out under the Second High- way Project, and have forecast a growth rate of between 4% and 6% p.a. for the immediate future (para. 5.04). C. The Road Transport Industry 3.06 The road transport industry comprises three major segments: (i) a modern private sector, generally with significant foreign ownership parti- cipation; (ii) a traditional private sector of owner-drivers and small firms; and (iii) vehicles owned by public and semi-public agencies such as the Office National de Cooperation et d'Assistance au Developpement (ONCAD), (Table 7). The modern sector is made up of a few large firms, generally with new vehicles, which have their own maintenance and repair facilities, and which carry the products of trading companies and modern businesses (petroleum, logs, refrigerated products, etc.) at economical rates. The traditional sector is made up of owner-drivers or small firms carrying prima- rily groundnuts, foodstuffs, cattle, and small loads, generally in small,  - 9 - older trucks and at low rates. Most of the income in this sector is earned from the seasonal transport of groundnuts; off season, competition is severe for the decreased volume of traffic. Tariffs charged by the traditional sector appear to be uneconomic (Table 8), but are sustained by frequently over- loading vehicles, neglecting maintenance and insurance, deferring vehicle replacement, and frequently underpaying drivers' wages. This in turn accen- tuates the difference between the modern and the traditional sectors, and prevents small firms from gaining access to the more lucrative modern markets. The industry is thus dualistic, with excess capacity in the traditional sector (outside of the groundnut season), and at the same time there is a lack of high quality transport, leading some trading companies to build up their own fleets. In order to develop a program for assisting the domestic trucking industry, DSP, with subcontracting as required, will further investigate this issue (para. 4.07 and Annex 1). 3.07 The regulation of the road transport industry is generally satis- factory, and is the responsibility of DOT which was created in part for this purpose in 1963. The application of regulations does not appear to have had any inhibiting impact on development of the industry, as evidenced by the rapid growth of the vehicle fleet (Table 5). Vehicle licenses are quickly granted by the Minister of MPWUT upon recommendation by DOT. In 1971, the Govern- ment limited entry into the trucking industry to Senegalese nationals, a measure which had the positive effect of strengthening local control of the profession. 3.08 Road transport tariffs are partly regulated and partly free; repres- entative tariffs are shown in Table 8. Groundnut tariffs are set by ONCAD, and vary widely according to the type of road travelled. This system appears to adequately reflect relative differences in vehicle operating costs, travel times, and the need to use small vehicles on poor roads. Official tariffs tend to be respected by the traditional sector of the trucking industry only when hauling for public and semi-public agencies. Inter-urban bus and taxi fares are regulated, typically ranging in 1975 from CFAF 4 -18/pass-km depend- ing on road condition. The road tariff system does not appear to have inhibited development of the industry, and will be considered further in the above men- tioned industry study (para. 3.06). Rail tariffs are set by Interministerial Decree, and in some instances where there is road competition, appear to be set lower than marginal cost. Accounting improvements are currently being under the Second Railway Project to develop required cost data on which to base tariff changes. 3.09 Regulations limiting vehicle weights and dimensions are satisfactory, and specify the maximum single axle-load as 10 tons. However, the regulations are not enforced, and a 1974 survey by consultants BCEOM showed that 3-20% of all trucks checked were overloaded. This was particularly prevalent among phosphate trucks travelling from Taiba to Dakar, and for sugar transport between Richard Toll and Dakar, resulting in considerable damage to these roads. Enforcement of axle-load egulations is considered essential in order to jus- tify the investments in pavement strengthening under the Second and the pro- posed Third Highway Projects. Funds were provided under the second project to purchase weighing scales, and the Government is now in the process of procuring and installing this equipment.  - 10 - D. Administration 3.10 MPWUT, through its Public Works Department (DPW), is responsible for the administration of classified roads; local authorities are in charge of the remainder of the network. Following MPWUT's reorganization, DPW com- prises five divisions, one for road maintenance with a subdivision for main roads and feeder roads, one each for new works for roads and buildings, and a central equipment division; a central office handles administrative affairs (Organization Chart). Construction and maintenance works done by DPW are executed through its seven regional subdivisions, each headed by a Resident Engineer. 3.11 There has been a shortage of experienced staff at the upper and middle levels of DPW. The Director and most of the Regional Engineers, tech- nicians, foremen, and operators are Senegalese nationals, but DPlW's head office functions are carried out primarily by 14 French engineers provided under the French technical assistance program (Table 9). Middle- and lower-level per- sonnel required for the reorganization of highway maintenance operations are secured primarily through transfer within the various subdivisions, and train- ing of existing DPW staff. Four fellowships for DPW engineers, to be provided under the proposed project, will alleviate the staffing situation at the upper levels. MPWUT will also require additional personnel for the feeder roads section created to implement the proposed Feeder Roads Project, and to fill key positions in DSP. The Government has had difficulty in hiring qualified personnel for engineering positions, primarily due to the relatively low scale of Government salaries compared with those offered by private industry. Efforts have been made to relieve the staffing situation by raising the salaries of Government employees in 1974, but little progress has been achieved so far in recruiting qualified local personnel. 3.12 The Government has long realized that its staffing needs can be met only through extensive efforts in technical education. Several training programs are now being implemented at two technical colleges (St. Louis and Dakar), a technical university at Dakar, and a polytechnic school at Thies. Together they will provide about 60 engineers and technical personnel annually from 1976 onwards. In addition, training of middle-level staff required for maintenance operations will be provided at the Center for Permanent Technical Training as part of the four-year maintenance program financed under the Second Highway Project. Therefore, prospects are good that MPWUT can in the near future fill its positions with qualified local personnel, and that positions now held by foreigners can progressively be taken over by Senegalese staff over the coming years. E. Financing 3.13 Highway expenditures, exclusive of foreign financing, increased from about CFAF 2.5 billion (US$11.1 million) in FY 1971 to CFAF 3.0 billion US$13 million) in FY 1975, an average of 3.8% p.a. (Table 10). About one- third of the amount was used for new construction, with the remainder allocated  - il - to maintenance and general administration. An additional CFAF 2.0 billion (US$8.9 million) annually in new construction was financed by foreign borrowing during FY 1970-75, with the Bank Group, FED, and ADB, the principal sources. A Road fund, financed by an earmarked portion of fuel taxes was established in 1953 for the financing of investments in new roads; the major part of new road construction however is financed by external sources. Maintenance works and administrative expenditures are financed from the general budget. 3.14 Road-user taxes totalled about CFAF 7.8 billion (US$35 million) in FY 1972, and account for about 10% of Government revenues, or about 14% of the general budget. This amounts to about three times the highway budget, or al- most double the total amount spent on roads, including the average amount of foreign financing during the 1970-74 period. Government income from road-user taxes consists primarily of fuel taxes (58%) and vehicle entry taxes (36%), the remainder being taxes for vehicle registration and annual taxes (Table 11). About 11% of total road tax revenues, consisting of 19% in fuel taxes (CFAF 7 per liter for gasoline and CFAF 5 per liter for diesel oil), are earmarked for the Road Fund; the rest goes into the general budget. 3.15 Road-user taxes account for a significant proportion of vehicle operating costs: for example, about 26% in the case of automobiles, 36% for light trucks, and 30% for heavy trucks. Consultants Berenschot-Bosboom commented that the 1972 tax structure did not always charge users in pro- portion to their cost responsibility for the road network. In particular, import duties favored the use of large trucks which pay only about one-quarter of the entry taxes paid by small trucks, thus benefiting primarily the large trucking companies. The Government has recently reported to the Bank that the tax structure has been revised to make the rates for small and large trucks more equitable, thereby resolving the most urgent taxation issue. As a result, the number of small trucks being imported into Senegal has recently increased. F. Engineering and Construction 3.16 Engineering studies for road construction works are carried out either by consultants, mainly foreign, or by DPW's Bureau of Studies with the assistance of a subdivision of CEREEQ (Centre Experimental de Recherches et d'Etudes pour l'Equipement), soils laboratory (Laboratoire du Batiment et des Travaux Publics, LBTP) and local consultants as subcontractors for the geo- logical and engineering surveys (para. 3.19). The few domestic consulting firms have as yet little experience in major civil works, and only one has so far carried out major road design and economic studies. In 1974, a 60% Government-owned engineering bureau (Societe Nationale des Etudes de Developpement, SONED) was created for the purpose of executing studies relating to the country's economic and social development; this company however is only now in the process mf recruiting staff, and has not yet participated in any major works. Project supervision for road construction is generally carried out by foreign consultants, with LBTP executing the required soils investigations. The remaining works are supervised by the regional sub- divisions of DPW, assisted by LBTP (para. 3.19).  - 12 - 3.17 Contracts for highway projects are normally awarded on the basis of competitive bidding. DPW's Bureau of Studies is charged with calling bids and evaluating them. Approval and signature of contracts are the responsibility of the National Tender Board, and either the Minister of Finance or the Prime Minister, the latter if the contract amount exceeds US$250,000. This involve- ment of various Government agencies, together with the time-consuming pro- cessing procedures, usually requires about six months to one year for the award of major contracts. This procedure has resulted in considerable cost increases for the pavement strengthening works under the Second Highway Pro- ject. In order to avoid similar delays under the proposed project, the Govern- ment has started bidding procedures in mid- 1975, with bid opening expected during the second quarter of 1976 (para. 4.15). The issue of improving Gov- ernment procedures in contract awards, and expediting payment of contractors' invoices, will be addressed by the technical assistance expert to be recruited under the proposed project to study the domestic construction industry (para. 3.21 and Annex 2). 3.18 Senegal follows French design practices. Pavement width is general- ly 6 m with a platform width of 8-9 m. Earth and gravel roads are about 7-9 m wide. Feeder roads are constructed 4-7 m wide, depending on traffic loads and following recommendations by consultants employed for the various studies. A uniform set of local design standards has not yet been established. DSP will make the necessary investigations in this matter, and develop appropriate standards to fit local conditions. 3.19 LBTP is charged with executing the required soils investigations for road planning and construction supervision. LBTP has been staffed with French engineers, under the sponsorship of the French Centre d'Experimentation du Batiment et des Travaux Publics. In April 1975 the Government created CEREEQ, a new research center, which incorporates LBTP (para 3.16), and which will also be responsible for technological research and utilization of cons- truction material. This institution is not yet fully equipped, and the pro- posed project includes a provision for the procurement of required soil-testing equipment (para. 4.06). The Construction Industry 3.20 Public capital investment in transport infrastructure is expected to total about CFAF 50 billion (US$255 million) during the period FY 1974-77. The volume has increased at about 4.2% p.a. over 1960-1972. Capital expendi- tures for road construction constitute about 50% of total transport infra- structure investments, and has increased from CFAF 4.4 billion (US$20 million) from FY 1965-69, to an expected CFAF 28 billion (US$125 million) during 1974-77 (Table 2). At present about 16 civil works contractors are engaged in major road construction and/or overlaying of bituminous surfaces. Of these, two companies are Senegalese-controlled and three are joint ventures of foreign and Senegalese companies, with the foreign companies the major shareholder. The two Senegalese-controlled companies are currently engaged in major civil works, including the Bank-financed extension of the runway at Dakar Airport, and the pavement strengthening program under the Second Highway Project.  - 13 - Minor works are carried out by about 110 small and medium-sized domestic firms The latter group is classified by Government into two categories, according to which about 80 contractors are entitled to respond to bids of up to CFAF 15 million, and about 30 may participate in contracts up to CFAF 55 million. These firms are engaged primarily in the housing sector, but also participate in water supply and drainage projects, as well as con- struction of city streets. 3.21 Until two or three years ago, major civil works were executed entirely by foreign contractors. Since then domestic companies have been able to participate in this sector, and their share during the last two years has been about 25% of the total volume. Major difficulties which have so far hampered the development of domestic companies include: (i) lack of capital and non-availability of long-term credit for equipment procurement; (ii) difficulties in obtaining contracts, since the scope of many road projects far exceeds the capacity of most domestic contractors; (iii) lack of qualified staff experienced in modern management and construction techniques; and (iv) time-consuming contract payment procedures by Government departments. The Government is now showing an interest in promoting the domestic construction industry, and has encouraged local contractors to merge and thereby increase their capacity. Assistance is being provided in management techniques and organization through the Government-subsidized Societe Nationale d'Etude et de Promotion Industrielle (SONEPI), which grants limited financial assistance for loan guarantees and equity investments. This type of assistance is how- ever only available for the building sector and not yet for civil engineering works. In addition, the Bank has started a DFC operation (Credit 987-SE, US$3.0 million, FY74), which is making long-term loans available to the local industry through the Societe Financiere Senegalaise pour le Developpement Industriel et Touristique (SOFISEDIT), whose services are available to domestic civil engineering contractors. Considering the above, conditions are now favorable for strengthening the domestic construction industry. Despite these encouraging signs, however, a major effort will still be required to overcome the noted deficiencies of this industry. In order to initiate action required for improving the situation, it will first be necessary to determine in detail the particular needs of civil works con- tractors, and secondly, to define appropriate actions and assistance required to increase their capacity and thereby their participation in major works. The proposed project provides technical assistance to help in this effort (para. 4.07 and Annex 2). G. Maintenance 3.22 The 1971 Berger study of highway administration and maintenance carried out under the First Highway Project stressed the need to reorganize operations by creating within MPWUT a division for road maintenance and a central equipment division. This would allow centralized planning of mainte- nance operations and introduction of efficient maintenance techniques. The study also recommended rehabilitation and expansion of DPW's equipment fleet and training of personnel. These recommendations are being implemented under the Second Highway Project, with technical assistance provided by consultants.  - 14 - 3.23 Execution of the above program started at the beginning of 1974. During the first years of its implementation, the program was adversely af- fected by slow progress in execution, rapid inflation, currency realignments of the CFAF against the US dollar, and a higher rate of deterioration of existing equipment than anticipated in the 1971 Berger study which formed the basis for appraisal of the second project. This combination of factors resulted in a shortage of about US$1.0 million in the Credit funds available for equipment procurement. However, additional funds have been earmarked by Government for maintenance, and significant improvements in organizing and executing maintenance operations, equipment, and vehicle utilization have led to an increase in efficiency. Completion of the reorganization of maintenance operations and adequate training of DPW personnel will require an additional 96 man-months of consulting services (including 48 man-months of locally employed mechanics). In order to meet the objectives of the maintenance program as originally established, the proposed project provides financing for the required equipment and additional consulting services (paras. 4.04 - 4.05). 3.24 Government appropriations for maintenance operating costs have increased steadily from CFAF 710 million ($3.2 million equivalent) in 1971 to CFAE 1,025 million ($4.6 million equivalent) in 1975/76. Despite more effective use of funds, this increase has not been sufficient to fully offset the effect of inflation which has increased the cost of maintenance by about 50% over the same period. This matter has been reviewed with the Government and agreement reached that CFAF 1.60 billion (7.1 million equivalent) would be an appropriate amount for MPWUT to request under the FY 77 budget for maintenance operations including periodic maintenance executed by contractors, but excluding personnel. A further CFAF 250 million has been requested for equipment renewal. Allocations for subsequent years will be adjusted to take into account cost variations, and will reflect changes in the maintenance re- quirements of an expanding highway network, including the cost of any addi- tional capacity to ensure its efficient maintenance. H. Sector Lending 3.25 Senegal's institutions responsible for transport planning and project execution still need strengthening to become fully effective. The Government is committed to move in this direction and the current reorganization of MPWUT is a major step in this effort. Bank-Group financed technical assistance under the previous and the proposed highway projects is expected to play an important part in helping the country reach the level of technical and administrative efficiency required for sector lending. In particular, training through tech- nical assistance and scholarships provided under Bank projects will help meet the need for qualified personnel in Government services. Assistance to the civil works industry will strengthen the country's capacity to carry out projects in that field. The feasibility of sector lending will be explored in detail during the preparation of the next highway lending operation, tenta- tively scheduled for FY79.  - 15 - 4. THE PROJECT A. Description 4.01 The proposed project consists of: (a) pavement strengthening of 204 km of primary roads; (b) procurement of equipment for highway maintenance for CEREEQ's soils laboratory, and for DSP; (c) technical assistance to MPWUT for (i) advisory services for promotion of the domestic construction industry; (ii) transport planning within DSP including scholar- ships for training of DSP personnel; (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 primary roads or other road improvements to be defined; and (iii) road maintenance started under the Second Highway Project. Strengthening of Paved Roads 4.02 The proposed project will provide for pavement strengthening of 75 km of roads dropped from the Second Highway Project, and for similar works on an additional 129 km as proposed by consultants BCEOM under that project. This item forms part of a long-term pavement strengthening program Identified by the 1971 Berger study. Under this second phase of the rehabi- litation program, the following nine road sections will be strengthened: M'Bour-Thiadiaye 20.0 km /1 Thiadiaye-Fatick 34.9 km /1 N'Gath-Birkelane 20.3 km /1 Ross Bethio-Rosso 36.0 km Rosso-Dagana 33.5 km M'Bayakh-Sao 24.5 km Cayar-Keur Moussa 8.6 km Gapakh-Nioro Du Rip 16.0 km N'Doffane-Gapakh 10.0 km Total 203.8 km /1 Sections dropped from the Second Highway Project.  - 16 - 4.03 These roads were built about 15-25 years ago, and now carry traffic volumes ranging between 200 and 950 vpd. Maintenance expenditures are high, and these operations cannot arrest further deterioration. The works proposed consist of: (i) either "heavy" improvement, comprising construction of a new base course with a double surface treatment, or "light" improvement of a 3 to 5 cm bituminous overlay on existing pavement; (ii) regravelling of shoulders; (iii) improvement of drainage structures; and (iv) widening road- way to 9 m and pavement to 6 m on sections now below these standards. Road design is based on a maximum permissible axle-load of 10 tons. It is expected that resurfacing will be required after 7-8 years. A detailed description of each of the roads and of the improvement proposed is given in Annex 3. Extension of the Highway Maintenance Program 4.04 The proposed project component will provide for continuation of improvement of road maintenance started under the First and Second Highway Projects, through provision of consulting services for reorganization of maintenance operations, and procurement of maintenance equipment (para. 3.23). On the basis of discussions held at project appraisal with DPW and with consultants implementing the program, it has been agreed that about US$1.0 million for equipment procurement and about 96 man-months of consulting services, will be required. This project item will be complemented by works under the proposed Feeder Roads Project which will include a three-year pro- gram of improvement and maintenance of selected feeder roads. Details of equipment to be purchased have been agreed with the Government (Table 12). 4.05 The consultants' team which is now helping DPW implement the four-year maintenance program consists of nine experts who took up their assignment starting end-1973. Until now, they have been primarily occupied with (i) preparing staffing proposals for the new maintenance organization; (ii) organizing traffic counts and outlining the annual maintenance program; (iii) carrying out an inventory of existing equipment and procurement of new items; (iv) introduction of a cost accounting system; and (v) training of local personnel in modern maintenance techniques. Considering the tasks still to be performed, especially with regard to the training of Senegalese person- nel, the number of man-months financed under the Second Highway Project will not be sufficient. This is due primarily to a higher than expected workload, and also partly to slow progress on the program during the first year of project implementation. Additional consulting services will therefore be required for the project manager, one highway engineer and four mechanics (two locally employed) for a total of 96 man-months. This will continue services of the project manager, the highway engineer and the two mechanics already in the field by 12 months each, and partly complement the present team by two local mechanics for 24 man-months each. The experts will be expected to assist in: (i) planning and organizing the annual maintenance program; (ii) supervising and training maintenance brigades in the field; (iii) training DPW personnel in cost accounting procedures; and (iv) organiz- ing and supervising equipment repair at the Central Equipment Division and local workshops, and training local personnel in all these activities. Details of the scope of consultant services have been agreed with Government.  - 17 - Equipment for Soils Laboratory 4.06 The Research center (CEREEQ) through its soils laboratory (LBTP) is carrying out research on utilization of construction material in addition to executing soils investigations for road planning and construction super- vision. The proposed project will provide for procurement of laboratory equipment to help CEREEQ in this task. Details of items to be purchased have been agreed with the Government (Table 12). Technical Assistance to the Domestic Construction Industry 4.07 The proposed project will provide for technical assistance to streng- then the capacity and competitiveness of domestic civil works contractors, so as to increase their participation in major road works now dominated by foreign contractors. This project component will be executed in two steps. Under a first phase, the services of one expert will be provided for a period of 4-6 months to evaluate the present capacity, organization, financial situa- tion, and technical and managerial competence of domestic contractors. The expert will also investigate Government procedures for contract award, pay- ments, and all other relevant regulations. Based on his findings, the expert will outline needs in the construction sector and actions required for im- provements. When the details for financial assistance to the industry are established, follow-up action by a DFC operation or by other means can then be initiated. The second phase could consist of experts' services for 1 to 2 man-years to help Government implement recommendations made under phase one. This could include advisory services and training courses for domestic con- tractors' personnel in contracting procedures, cost estimation, accounting and cost control, and work organization, according to needs established under phase one. Execution of this project component in two steps will guarantee close monitoring of the assistance provided, and will allow the Government and the Bank to review the recommendations proposed under the first phase, before starting implementation under the second phase. An outline of terms of reference for the expert to be selected (Annex 2), the method of recruit- ment, and a tentative timetable for the required services have been agreed with the Government. Technical Assistance to MPWUT's Directorate of Studies and Programming 4.08 The proposed project provides for technical assistance to the recently established DSP, in order to improve transport planning and coordina- tion. Technical assistance consists of (i) the services of four experts for three years, including a senior transport planner, a senior transport economist, a highway planning engineer, and a transport economist (preferably with experience in railway problems); (ii) the purchase of equipment for DSP; and (iii) scholarships and training for DSP staff.  - 18 - 4.09 An outline of the experts' terms of reference, and the responsibi- lities of DSP for transport planning and coordination, were discussed and agreed with the Government. It was also agreed that within four weeks of the arrival in the field of the senior transport planner and senior transport economist, and annually thereafter during the execution of the Project, MPWUT, in consultation with the Bank Group, will review the progress of work to date, and will establish an annual work program for DSP specifying the particular responsibilities to be undertaken by the technical assistance experts. One of their major responsibilities will be to train local staff so that DSP can function effectively without outside assistance by the com- pletion of their assignment. It was also agreed that the Government, with the assistance of the Bank Group, will attempt to recruit suitably qualified experts on an individual basis; however, if their employment cannot be reasonably ensured within three months of the date of effectiveness of the proposed Loan, the Government will attempt to obtain the services of a consulting firm to supply a team of experts. The Government agreed to employ counterparts for the experts, and to nominate candidates for the above scholarships, within three months of the date of signature of the Loan Agreement. Preinvestment Studies 4.10 The project also provides for a feasibility study of the Louga- Dahra road (80 km), to be followed by detailed engineering if road improve- ment is found economically justified. This road is at present a sand track which runs parallel to the Louga-Dahra-Linguere railway branch line and is now only passable for trucks and four-wheel-drive vehicles. Traffic in the corridor presently consists of about 3,400 tons/year, plus some additional unrecorded traffic on the rail line, as well as about 10,000-15,000 tons of groundnuts on the Louga-Coki section. A study carried out by DOT found that operation of the rail branch line was uneconomic. The Government is currently providing a subsidy to the railways to compensate for this unprofitable service, in accordance with a covenant under the Second Railway Project. The Government has indicated that it is committed to providing transport service in this corridor, and the proposed road feasibility study will therefore consider the optimum design for road access to the area. 4.11 In July 1975, consultants BCEOM completed preinvestment studies for about 228 km of pavement strengthening of primary roads as part of the Second Highway Project. About 130 km of these roads are planned for im- provement under the proposed Third Highway Project; the remaining 98 km will justify improvement only after 1977. The project therefore provides for updating the studies for these 98 km, plus an additional 80 km of new pave- ment strengthening or for studying other road improvements to be defined. It has been agreed that preinvestment studies will be executed by DSP and DPW with subcontracting to consultants as required. The project provides sufficient funds to finance works subcontracted to consultants.  - 19 - B. Cost Estimates 4.12 The total cost of the project including contingencies is tentatively estimated at US$20.5 million net of taxes, of which about US$15.0 million in foreign costs; taxes and duties are estimated at US$3.5 million equivalent, and other local costs at US$5.5 million equivalent. Details of cost estimates are given in Table 13 and summarized on the following page:  - 20 - ----(CFAF millions)--- ----(US$ '000)-------- Foreign Local Foreign Total Local Foreign Total ComPonent A. Pavement Strengthening (a) Civil Works (204km) 1,413 1,950 3,363 6,280 8,670 14,950 58 (b) Construction super- vision 48 146 194 215 645 860 75 Subtotal A 1,461 2,096 3,557 6,495 9,315 15,810 B. Preinvestment Studies and Technical Assistance (a) Studies for: -Louga-Dahra road 20 61 81 90 270 360 75 -Pavement strength- ening 20 59 79 87 263 350 75 (b) Advisory service for highway maintenance 28 85 113 125 375 500 75 (c) Technical Assistance to: -Directorate of Studies (DSP) 63 188 251 279 836 1,115 75 -Domestic Construction Industry 7 2C 27 30 90 120 75 Subtotal B 138 413 551 611 1,834 2,445 C. Equipment Procurement (a) Highway Maintenance 20 205 225 90 910 1,000 91 (b) Soils Laboratory 2 20 22 9 91 100 91 (c) Directorate of Studies 3 28 31 12 125 137 91 Subtotal C 25 253 278 111 1,126 1,237 D. Fellowships - 34 34 - 150 150 100 E,. Contingencies (a) Physical (5% on Item A(a) 70 98 168 314 433 747 (b) Price Variations 326 484 810 1,450 2,150 3,600 Subtotal D 396 582 978 1,764 2,583 4,347 TOTAL A - E 2,020 3,378 5,398 8,981 1S,008 23,989 63 (rounded) (9,000)X15,000)(24,000)  - 21 - 4.13 Cost estimates for civil works are based on bids received by contractor Compagnie Senegalaise d'Entreprises (CSE) in April 1974 following international competitive bidding for the 75 km of road sections dropped from the Second Highway Project as stipulated in CSE's contract (paras. 4.02 and 4.15). For the remaining 129 km, costs are based on consultants' estimates following engineering studies carried out in 1974/75 and updated for the latter to reflect prices at January 1976. Cost estimates for about 500 man- months of consulting services and technical assistance (including 48 man- months of local services) are based on current unit prices applied in Senegal and other West African countries ranging from $4,000 to $8,000 per man-month, including all overheads. Physical contingencies for construction works are estimated at 5% of basic construction costs, considering that quantities for the type of works proposed can be predicted more accurately than for new construction. Price contingencies have been calculated to take account of the following inflation rates: (i) for the construction items, 25.6% from March 1, 1974 to December 31, 1974, in line with data obtained in the country, and 16% in 1975, 14% in 1976, and 12% in 1977-78; and (ii) for the other project items, 12% in 1975, 10% in 1976, and 8% in 1977-79. C. Execution 4.14 MPWUT will be responsible for execution of the project, with con- struction supervision, technical assistance, and preinvestment studies by consultants to be selected in agreement with, and under terms and cond4tions acceptable to the Bank. Outlines of the scope of all services have been discussed and agreed with the Government. Construction Works 4.15 Contractor CSE, the lowest bidder, has agreed to execute 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 contract of December 30, 1974. International bids will be called for the additional 129 km of the pavement strengthening program in accordance with Bank Group guidelines. Prequalification of contractors and preparation of specifications and bidding documents by consultants are now underway. Bidding documents will be prepared for a single contract package divided into three lots to allow participation of domestic contractors. Bidders will be allowed to tender for a single lot, or for any combination of lots. Construction works are expected to start in September 1976, and to take about 1-1/2 years to complete. The above arrangement, as well as a time schedule for con- struction have been discussed and agreed with the Government. Equipment Procurement 4.16 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 US$10,000 may  - 22 - be procured on the basis of quotations obtained following local procedures acceptable to the Bank; the total amount of such purchases not to exceed US$100,000. Separate contracts will be prepared for each type of equipment and spare parts, or each group of similar types. Specifications will be prepared by DPW and reviewed with the Bank. Suppliers for maintenance equip- ment and spare parts will be required to provide adequate local after-sales service. The above arrangements have been discussed and agreed with the Government. D. Financing and Disbursements 4.17 The proposed Loan of US$15.0 million will finance the entire foreign exchange cost of the project, representing about 63% of total project costs, or about 73% of the total cost net of taxes. The Government will provide all the local costs of the project. 4.18 Loan proceeds will be disbursed on the following basis: (a) 58% of total expenditures for construction contracts; (b) 75% of total expenditures for consulting services and technical assistance; (c) 100% of foreign expenditures for equipment and spare parts or 91% of total costs; and (d) 100% of foreign expenditures for scholarships for training of local personnel. Table 14 shows the estimated schedule of disbursements from the Loan Account. Any funds remaining on completion of the project will be made available for execution of additional items related to the objectives of the proposed project following agreement between the Government and the Bank. 5. ECONOMIC EVALUATION A. General 5.01 The Government has embarked on a program of economic diversific- ation through increased public investment, which emphasizes developing the rural areas and the agricultural sector. The success of this effort will depend in large part on extracting production and resources from every region, for which a reliable and efficient transport system is required. The primary purpose of the proposed project, in line with this objective, is to protect past investments by rehabilitating and maintaining the existing highway net- work. This is expected to reduce the uneconomic use of scarce foreign ex- change to pay for the high cost of operating vehicles on poor roads. Tech- nical assistance to domestic contractors is seen as an important step in  - 23 - helping strengthen this industry, consistent with Government objectives, and will eventually provide the country with additional domestic capacity for executing civil works. The proposed technical assistance to DSP will provide a needed continuation in strengthening transport planning. It will help ensure, among other things, the capability of MPWUT to evaluate investment proposals, and to prepare a coordinated transport investment plan. 5.02 The economic return from proposed investments in pavement streng- thening, quantified on the basis of vehicle operating cost savings, is esti- mated at 30%; the benefit/cost ratio for the maintenance component, based on an opportunity cost of capital estimated at 10%, is 1.6:1, corresponding to a rate of return of 28%. The overall return for the project is about 30%. Benefits from generated traffic, time savings, and accident reduction, have been omitted from the calculation. B. Pavement Strengthening 5.03 The roads proposed for pavement strengthening generally serve zones with high agricultural activity and population density, and form part of major interregional transport routes. Important commodities carried include ground- nuts, sugar and other agricultural products, and phosphates. Brief qualitative economic data for each of the routes are shown in Table 15. 5.04 Traffic on the project roads is estimated to range from 200 to 950 vpd based on 7-day direct counts and 30-day mechanical counts carried out by consultants BCEOM in January/February 1974. Traffic growth rates were fore- cast on the basis of recent trends in traffic and economic indicators, and the anticipated growth of GNP. The consumption of motor fuel has been grow- ing at about 6% p.a. over the period 1968-73 (Table 6), while available statistics on vehicle registrations and other indicators suggest slightly lower growth rates. GDP grew an estimated 1.7% p.a. during 1967-73, but is forecast by the Bank Group to accelerate to around 4.5% p.a. during the remainder of the 1970s. Traffic growth rates of 4.7%-6% p.a., forecast by consultants BCEOM, were therefore adopted as reasonably conservative for purposes of this analysis. 5.05 The vehicle operating costs used in the analysis are based on esti- mates by consultants BCEOM. Vehicle operating costs on good running surfaces vary between CFAF 21-147/km (15-105 d/m) depending on the size of the vehicle, while operating costs on deteriorated bitumen surfaces range up to 105-145% higher, consistent with other recent studies in West Africa (Table 16). 5.06 The economic justification for the pavement strengthening program rests on the rapidly deteriorating condition of the roads as pavement struc- tures approach the end of their respective service lives. The riding surface of many sections of these roads is presently in poor condition, and cannot economically be improved by intensified maintenance. Pavement structures are expected to worsen to a "ruined" condition within a few years unless re- habilitation is carried out. Such a situation would lead to very high vehicle operating and maintenance costs for traffic still using the roads.  - 24 - 5.07 Consultants BCEOM investigated in detail two levels of pavement strengthening, recommending "heavy" or "light" reinforcement on the basis of anticipated traffic loadings, the present condition of the road and local availability of materials (para. 4.03). The recommended level of rehabilita- tion was then evaluated against the "without" alternative, consisting of continuing a high level of recurrent and periodic maintenance on the existing pavement without reconstruction. Anticipated vehicle operating cost savings, and capital and recurrent expenditures, were discounted over the life of the pavement strengthening, conservatively taken as 15 years. 5.08 The economic return from the nine sections proposed for inclusion in the project are estimated to range from 22% to 42%, with first year returns ranging from 10% to 29%, as shown in Table 15. The economic return on individual links of the nine sections were generally in the same range, with some minor exceptions, which were however retained in the project to provide continuity to the works. The overall economic return from the pro- posed pavement strengthening is about 30%. Sensitivity Analysis 5.09 The various components of the economic evaluation have not been forecast with equal reliability. The greatest risks are that: (a) vehicle operating cost savings, traffic growth, or pavement life have been over- estimated; or (b) the impact of inflation and/or project delays will be greater on project costs than on project benefits. However, it is noted that if project benefits decrease 25%, the lowest economic return on a road section is 19%; if project costs increase 25%, the lowest return is 18%; if traffic grows only 4% per year, the lowest return is 21%; and if the strengthened pavement lasts only 10 years, the lowest return is 16% (Table 15). The rates of return are therefore sufficiently high, based solely on vehicle operating cost savings, to absorb any combination of reasonably probable adverse circumstances. C. Extension of the Highway Maintenance Program 5.10 The net of tax cost of the maintenance program financed under the Second Highway Project has increased from about US$3.9 million including contingencies (US$3.3 million in foreign costs) at the time of appraisal, to about US$6.3 million (US$5.4 million in foreign costs) at present, due primarily to inflation and the need to purchase additional equipment. The maintenance program was re-evaluated to consider changes since appraisal, which include (i) the above cost increase; (ii) the estimated 45% increase in vehicle operating costs; and (iii) the approximately one-year delay in project execution (para. 4.05). Traffic estimates from the original project appraisal were adapted; costs and benefits were calculated for eight years, the estimated average life of maintenance equipment. The combined effects of these changes have tended to offset each other. The re-calculated benefit/cost ratio is 1.6:1 with a 10% discount rate, corresponding to an economic return of 28%, compared with an economic return of 31% at the time of appraisal. The maintenance program therefore remains justified as appraised in the Second Highway Project.  - 25 - 6. AGREEMENTS REACHED AND RECOMMENDATION 6.01 During negotiations on the proposed Loan, the following items were discussed and agreed with the Government: (i) the role of DSP as the focal point for transport Investment planning, and details of terms of reference and staffing arrangements for the Directorate (paras. 2.17-2.18, 4.08-4.09, and Annex 1); (ii) the annual budget over the project period FY 76/77 - FY 79/80 will include adequate allocations for road maintenance operations and equipment renewal (para. 3.24); (iii) consultants for construction supervision, technical assistance, and preinvestment studies, will be selected in agreement with and on terms and conditions acceptable to the Bank; outlines of the scope of all services have been discussed and agreed (para. 4.14); (iv) arrangements for the award of contracts for the pavement strengthening program, and for procurement of equipment and spare parts, will be on the basis of international competitive bidding in accordance with Bank Group guidelines (paras. 4.15-4.16); and (v) the Government will provide all the local costs of the project (para. 4.17). 6.02 The proposed project is suitable for a Loan of US$15 million to the Government of Senegal for a period of 20 years, including 5 years of grace. March 4, 1976.   Table 1 SENEGAL THIRD HIGHWAY PROJECT Estimated Traffic by Rail and Road in 1971 Rail Road Freight (millions of ton kilometers) Domestic - Phosphate 126 - - Other 60 165 International - to/from Mali 136 - - to/from Mauritania - 75 Total 332 240 Commercial Passenger Traffic (millions of 247 7501' passenger-kilometers) 1/ Does not include private automobile passenger traffic. Source:; Directorate of Transport July 1975.  1:'\.TVf' AT THIRD HIGHWAY PROJECT Actual and Planned Capital Investments in Transport, 1965-77 (CFAF billions) 1974 - 77 Initial Readjusted Financing 1965 - 69 1969 - 1973 Plan Plan Acquired Mode Planned Actual Planned Actual (7/73) (5/75) at 5/75 Roads 7.8 4.4 9.9 n.a. 8.9 28.1 19.0 1/ Road Transport- n.a. n.a. 2.1 n.a. 1.6 2.0 0.4 Rail 4.3 2.8 3.4 4.2 4.4 6.3 3.5 Ports & Rivers 2.6 1.6 1.7 n.a. 4.2 8.6 3.2 Aviation 0.7 0.2 1.4 n.a. 2.5 5.9 1.3 Total 15.4 9.0 18.5 14.1 est. 21.6 50.9 27.4 1/ Includes transport studies Note: Planned investments are as of the date the plan is published. Source: Ministry of Planning m July 1975.  Table 3 SENEGAL THIRD HIGHWAY PROJECT Rail, Port, and Air Traffic, 1963-74 RAIL DAKAR PORT DAKAR AIRPORT Ton - Passenger- PassengeA e Year Kilometers Kilometers a.2ports Exports Movements- Air ?reJght2/ llions) (thousands of tons) (thousands) (thousands of tons) 1963 134-93/ 295.0 2,085 1,015 330.7 4.1 1964 257.0 302.9 2,243 1,397 246.6 4.7 1965 276.8 291.5 2,248 1,477 114.9 4.7 1966 303.7 289.7 2,200 1,753 257.5 4.7 1967 335.5 295.2 2,691 1,451 268.4 4.5 1968 288.9 277.3 2,725 1,707 263.1 5.1 1969 332.5 291.4 2,574 1,559 271.7 5.7 1970 323.5 279.8 2,453 1,671 322.7 5.9 1971 322.2 247.0 2,553 1,858 344.0 6.4 1972 333.7 241.4 2,626 2,389 382.2 6.9 1973 362.6 227.1 3,043 2,385 483.0 10.8 1974 386.0 224.0 n.a. n.a. 560.0 n.a. Annual Compound Growth Rate (%) 1963-68 16.4 -1.5 5.5 10.9 -3.6 6 1 1968-73 4.7 -3.4 2.3 6.9 7.0 16. 1/ Include arriving, departing, and transit passengers. 2/ Arriving plus departing. _/ Mali frontier closed. Source: Directorate of Transport October 1975.  Table 4 SENEGAL THIRD HIGHWAY PROJECT Development of the Highway Network 1964-1974 (km) 1/ 1964 1968 1972 1974 1. Trunk road network Paved roads 1,658 2,035 2,256 2,586 Engineered gravel roads 409 642 645 456 Other all-weather gravel roads 1,526 1,840 1,640 2,794 Subtotal 3,593 4,517 4,541 5,836 2. Feeder road network Partly improved earth roads 4,926 4,474 4,480 3,285 Other earth roads and tracks (mostly unclassified) n.a n_a n.a 4,150 TOTAL 8,519 8,991 9,021 13,271 1/ Breakdown according to the new classification approved in June 1974: Law NO 74-20 dated June 24, 1974 and Presidential Decree NO 74-718 dated July 19, 1974. Source: Directorate of Public Works July 1975  .i.aDie - SENEGAL THIRD HIGHWAY PROJECT Annual Vehicle Registrations, 1963-73 l/ (Units) Passenger Trucks and Truck/ Special Year Cars Buses Pickups Tractors Vehicles Total 1963 24,973 2,257 14,421 353 604 42,608 1964 26,802 2,376 15,107 364 637 45,286 1965 28,142 2,395 15,647 378 635 47,197 1966 29,789 2,393 16,084 412 653 49,331 1967 33,068 2,441 17,126 463 695 53,793 1968 35,965 3,337 16,910 501 684 57,397 1969 38,235 3,407 17,481 532 688 60,343 1970 40,380 3,4d5 13,078 563 691 63,197 1971 42,169 3,724 18,728 568 715 65,904 1972 44,444 4,oal 19,453 675 754 69,407 1973 47,177 4,222 20,202 767 775 73,143 Annual Compound Growth Rate (%j 1963-68 7.6 8.1 3.2 7.3 2.5 6.1 1968-73 5.6 4.8 3.6 8.9 2.5 5.0 1/ Does not include motorcycles, or trailers and semi-trailers. Note: Statistics are believed to overstate the size of the fleet, since the removal of vehicles from the vehicle fleet are not always recorded. Source: Directorate of Transport February 1976.  Table 6 SENEGAL THIRD HIGHWAY PROJECT Annual Road Vehicle Fuel Consumption (7thousands of cubic meters) Year Gasoline Diesel Fuel Total 1963 83.8 11.3 95.1 1964 82.5 10.6 93.1 1965 83.1 10.6 93.7 1966 83.2 10.6 93.8 1967 83.3 14.5 97.8 1968 87.9 14.6 102.5 1969 90.4 15.0 105.4 1970 93.0 15.7 108.7 1971 99.5 19.6 119.1 1972 105.8 22.0 127.8 1973 109.8 28.5 138.3 Annual Compound Growth Rate (%) 1963-68 1.0 5.3 1.5 1968-73 4.5 14.3 6.2 Source: Directorate of Transport July 1975.  SENEGAL THIRD HIGHWAY PROJECT The Privately Owned Truckinn Industa in Sene al, 1975 Region Nur,mber of Number of Aggregate Number of Firms by Number of Vehicles Firms Vehicles c it >50 l26T - =16 25 1I - lb b-LU J-b I-e Cap Vert 23 182 2,068 - 1 1 5 3 4 9 Casamance 52 1G 0 1,093 - - 1 2 4 49 Diourbel 24 354 4, 068 21/ 2 3 9 3 4 Fleuve 2 15 189 . - - - 2 Oriental 12 92 595 - - 2 2 4 2 3 Sin6 Saloum 90 565 4,857 1 4 3 3 14 24 38 Thies 34 147 1,505 - - 1 1 6 9 16 'Total benegal 247 1,515 15,175 3 6 10 19 42 48 119 1 Including one cooperative of small transporters (55 vehicles) 2/ Consisting of one cooperative of small transporters (46 vehicles) Source: ONCAD  Table 8 SENEGAL THIRD HIGHWAY PROJECT Representative Road Transport Rates in 1974 (CPAF/tkm) Paved ------Unpaved Road