Togo - Third Highway Project

Document of The Woirld B~ank~ VOIR OFFECRAL USE ONLY Rleport No. P-1957-TO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A THIRD HIGHWAY PROJECT March 299 1977 This documnent has n restdicted dDistributinon and imay be wsed by reedptewts only in the peformmnce of their o#cinl duties. Its contents imry not otherwlse be disclosed withont Woirid Bank antborintbon.  CURRENCY EQUIVALENTS Currency Unit = CFA franc (CFAF) Present Rate US$ 1.00 = CFAF 245 CFAF 100 = US$ 0.444 Fiscal Year January 1 - December 31 System of Weights and Measures Metric British/US Equivalents 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 2 0.62 mile (mi) 1 square kilometer (km ) = 0.368 square mile (sq mi) 1 kilogram (kg) 2.2 pounds (lb) I metric ton (m ton) = 2,204 pounds (lb) Acronyms and Abbreviations BCEOM - Bureau Central d'Etudes pour les Equipements d'Outre-Mer (France) CFT - Chemins de Fer du Togo CIMAO - Ciments de l'Afrique de l'Ouest DIWI - Dr.-Ing. Walter Kg., Consulting Engineers (Germany) EDF - European Development Fund FAC - Fonds d'Aide et de Cooperation (France) FRG - Federal Republic of Germany GDP - Gross Domestic Product KfW - Kreditanstalt fur Wiederaufbau (Germany) MCT - Ministry of Commerce and Transports MEPS - Ministry of Equipment and Postal Services MRI - Ministry of Rural Infrastucture PWD - Public Works Department RD - Roads Division (Arrondissement des Routes) RMWA - Resident Mission in Western Africa RTS - Road Transport Service SRCC - Societe pour la Renovation du Cafe et des Cacao USAID - United States Agency for International Development vpd - vehicles per day  FOR OFFICIAL USE ONLY CONFIDENTIAL INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A THIRD HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Togo for the equivalent of US$10.0 million on standard IDA terms to help finance a road construction project in Togo. PART I - THE ECONOMY 2. The most recent economic report on Togo, Report No. 458a'-TO "Cur- rent Economic Situation and Prospects of Togo" was issued on December 30, 1974. A basic economic mission visited Togo in March/April 1976 anid the draft report will be discussed with the Government in the spring oE this year. Its main findings are incorporated below. Annex I contains basic country data. 3. Togo's long-term annual average growth of GNP per capita in real terms has been more than 4 percent during 1960-73. From 1966 to 1970, GDP growth in real terms was steady, averaging 6 percent yearly. The sustained expansion of Togo's economy was due, in great part, to a vigorous expansion of external commerce which, in turn, was spurred on by favorable market con- ditions for two of the country's principal exports, cocoa and coffee. With its low-tariff structure - a legacy from trusteeship days - Togo developed into an important regional commercial entrepot and, with fast commercial growth, accumulated substantial foreign reserves. Between 1965 and 1970, Togolese exports increased by 22 percent a year in current prices. During this same period, imports - particularly of consumer goods, of which a high percentage were subsequently- re-exported - also rose sharply. 4. In the early 1970's economic growth slowed down. Adverse weather conditions affected agricultural production, particularly during the years 1971-73; a sizable reduction in border trade, coupled with unfavorable market conditions for Togo's main exports led to a deterioration of the balance of payments. In 1974, however, there was a marked improvement of Togo's finan- cial and economic position. The 1974 trade balance showed a sizeable surplus (14 percent of GDP) due to substantially higher world market prices for the country's principal export commodities, especially phosphate. This surplus turned into a deficit (7 percent of GDP) in 1975, and a further deficit is expected in 1976 due to reduced quantities exported and falling prLces of phosphate. Togo's 1975 per capita GNP is tentatively estimated at US$270. IThb dwcumnw has a rwhatrce diatribution and may be used by recipients only in the purfoarmoc of their officia duties. ItB contents may not otherwine be disclosed without World Bank authofiutlon.  5. The Togolese Government has generally followed prudent financial policies which have led to some budgetary savings during periods of high export growth. For instance, budgetary revenues rose from about 13 plercent of GDP during 1966-72 to nearly 19 percent in 1974/75, and budgetary savings increased from an average of 2.2 percent (1966-72) to 3.7 percent of GDP in 1974/75. Selected tax increases as well as public savings generated through the Office des Produits Agricoles Togolais (OPAT) as a result of favorable world market prices for coffee and cocoa, have helped improve domestic re- source mobilization. However, average export prices and volume both fell in late 1975 and early 1976 and, due to slackening world demand, phosphate sales, in particular, dropped significantly. Foreign exchange reserves, which rose to record highs of seven months of imports during 1974, decreased to the equivalent of about three months' import requirements in 1976. Togo's market- oriented economy has historically shown the capacity to adjust rapidly to swings in agriculture and trade, but the magnitude of the recent fluctuations in phosphate earnings was unprecedented. The Government has had to review expenditure plans which were based on expectations of high phosphate revenues, and is taking steps to restrain expenditures including decisions to freeze new hirings during the 1976 fiscal year and to postpone or slow down public investment. Moreover, it has the capacity to adjust further, if necessary, through use of short-term credit and financing facilities from BCEAO, the IMF, and the European Community's Stabex arrangement. 6. The position of city dwellers employed in commerce, industry, construction and the Government -- particularly in Lome -- has improved con- siderably in recent years, but much of Togo's rural population has remained untouched by the modern sector's economic expansion. To improve conditions in the countryside the Government is accelerating the promotion of food crops and important cash crops like cocoa, coffee and cotton, especially in less developed regions of the country. The Government's growing concern with social equity is shown by its policy to distribute more widely the benefits of economic growth. For instance it raised producer prices of virtually all agricultural products substantially and selectively increased minimum wages and salary levels -- especially for lower-paid staff -- and abolished the regressive head tax. 7. Togo's development outlook is favorable with prospects for GDP growth during the next decade of about 7 percent per year and further im- provement in income distribution and employment. The new Five-Year Devel- opment Plan assesses the physical and institutional bottlenecks to future growth with considerable realism, although financial targets have had to be revised in the light of recent price movements. Its strategy is designed to further diversify the economy and exploit natural resources, to rehabilitate and expand both food and cash crop production, to further improve the coun- try's infastructure in order to lay the ground for new, directly productive investments, and to promote international regional cooperation. The 'Gov- ernment's longer term development policy gives emphasis to equity and em- ployment, including basic education reform, rural development programs and extension of the feeder road network, promotion of small- and medium-scale indigenous enterprises and the search for more labor-intensive techniques.  Nevertheless, some further reallocation of current and capital expenditures towards the rural sector may also be needed to achieve the Government's objectives in this sector. 8. While domestic resources available for public investment more than tripled between 1966-70, foreign financing doubled thus reducing the average foreign share in the financing of total public investments from nearly 70 percent during the First Plan period to close to 50 percent in 1971-75. While the Bank Group has become a major donor, EDF, Germany and France pro- vided more than 75 percent of total capital aid disbursements, which averaged between 5 to 7 percent of GDP during the past 10 years. The bulk of this assistance was primarily for infrastructure projects. The expected level of public investment will require continued efforts by the Togolese Government to mobilize increasing amounts of domestic resources. Traditional donors are likely to provide relatively large amounts for public investment, but Togo has already begun to diversify its sources of assistance by approaching OPEC and other Western and Eastern countries. 9. During 1971-74, aid to Togo was provided on relatively soft terms, with grants accounting for about 50 percent of foreign capital inflow. As of December 31, 1975, the country's external public debt, including undis- bursed (about 50 percent), amounted to US$163 million (excluding a line of credit from the People's Republic of China of about US$54 million) most of which was incurred at low interest rates and with repayment periods of more than 10 years. More recently, the share of suppliers' credits and commercial borrowing has increased. Average debt service payments amounted to about 5 percent of exports from 1971 to 1975 but this ratio is estimated to increase on the average to a range of between 10 and 15 percent of export revenues during the remainder of the decade. GLven Togo's good longer-term economic prospects, the Government should be able to keep debt service within manage- able limits and sustain a moderate amount of foreign borrowing on conventional terms. In view of the country's low per capita income, the growing need for external funding of priority projects in an expanding economy, and Togo's exposure to widely fluctuating world market conditions, the major part of foreign financing necessary to sustain economic growth should continue to be provided on concessionary terms. Because Togo is expected to be able to finance about 30 percent of its public investment programs, foreign donors should continue to provide at least 70 percent of total project costs includ- ing -- in appropriate cases -- some financing of local costs. PART II - BANK GROUP OPERATIONS IN TOGO 10. To date the Bank Group has extended four credits to Togo amount- ing to US$27.9 million and two loans totalling US$53.0 million for the CIMAO regional clinker project (a loan of US$3.5 million to Togo and one of US$49.5 million to CIMAO). Two of the credits were for highway  - 4 - construction and maintenance and two for agricultural projects. Annex II con- tains a summary statement of Bank Group operations in Togo as of December 31, 1976, as well as notes on the execution of the projects. 11. The Highway Maintenance Project, the Bank Group's first lending operation in Togo, was satisfactorily completed. The second Highway Project evolved from preinvestment studies financed under the first and provided for the construction or upgrading of three highways and the continuation of the maintenance program. This project is progressing satisfactorily alt:hough, due to inflation, the scope of the road construction component had to lbe reduced (reference, Semi-Monthly Report to the Executive Directors, R76-187, July 8, 1976). 12. The first agricultural project for which a credit was apl?roved in 1974, covers part of a long-range program for the development of the Plateau region's coffee and cocoa potential. This project, which includes planting and maintenance of 4,400 ha of cocoa and 4,000 ha of coffee, is proceeding well with planting a year ahead of forecasts. This lead is expected to decrease in 1977 for cocoa because drought has limited seed production, but will be maintained for coffee. The second agricultural credit which was approved in June, 1976, provides financing for a rural development project in clhe Mari- time Region geared primarily to increasing foodcrop production and providing support services and rural infrastructure for 20,000 farm families. Project implementation has begun on schedule. 13. Togo is the host of the CIMAD project, one of the largesl: interna- tional industrial ventures so far undertaken in West Africa. Implementation of this US$284 million clinker project, financed by the Bank and seven other official aid-agencies, is proceeding satisfactorily. 14. The future lending program will include a cotton developilent proj- ect which was recently appraised, a follow-up of the ongoing cocoa--coffee project, a rural development project ia the north and a Fourth Highway Proj- ect concentrating on the construction and maintenance of secondary roads. The program also features an education project. PART III - TRANSPORTATION IN TOGO General 15. Togo is a small country (56,785 km ) with a 50 km coastline on the Gulf of Benin. It forms a narrow, 600 km corridor between Ghana to the west and Benin to the east. Except for a long mountain range in the north along the border with Benin and in the center along the border with Ghana, Togo's terrain is flat and presents no major topographical obstacles to transport. Togo's northern neighbor is Upper Volta. The Transport Sytem 16. Togo's transport system is relatively simple. It is geared to meet the country's domestic transport needs and consists mainly of about 7,400 km  of roads and of 436 km of railways linking the new deepwater port of Lome, the nation's capital and economic center, with the rest of the country. There is also a phosphate wharf at Kpeme, which is connected to the railway and road network. Lome has the country's only international airport. Five other small airstrips, mainly in the north, are open to internal general and military aviation. 17. Road transport is the predominant mode. About 1,100 km of the road network are paved; three times more than in 1970. The network is densest in the south. The 717 km, south-north road, running the length of the country from Lome to the border with Upper Volta, forms the backbone of Togo's national highway network and is complemented by an east-west coastal road linking Lome with Accra and Cotonou. 214 km of the south-north axis remain to be paved; EDF is financing the Kante-Mango section (90 km) of that axis and may also finance the remainder with regional funds. 18. Togolese railway (CFT) operates three lines, Lome-Blitta (276 km) in a south-north direction, Lome-Palime (116 km), northwestward to the Ghana border, and Lome-Aneho (44 km), eastward along the coast. Extension of the network will take place with the construction of a 50 km branch line, from the Lome-Blitta trunk to Tabligbo, site of the CIMAO regional clinker plant. 19. The free port of Lome was opened to traffic in 1968. Traffic, which has been increasing at an average annual rate of 13 percent since 1968, reached 590,000 tons in 1975, including some temporary traffic for Nigeria diverted because of the congestion of the port of Lagos. T'he port of Lome's estimated capacity of about 300,000 tons is expected to lie reached in the early 1980's. The port authority is independent, well manag;ed, finan- cially autonomous and basically self-siipporting. 20. Air transport in Togo is only important for international traffic via the airport at Lome. Between 1970 and 1975 international traff'ic almost quadrupled. Interior traffic is marginal and limited to military and general aviation. There is limited need for interior air transport, becauE,e of the good condition of the primary road network, which puts Lome within eight hours' travel of almost any part of the country. Transport Planning and Coordination 21. The Ministry of Commerce, and Transport (MCT) is responsible for overall transport planning and coordination. The coordination between trans- port modes, particularly between road and rail, was extensively studied in the 1960's before major investments in the sector by EDF, KfW and IDA started. These studies led to the introduction of covenants in the First and Second Highway Projects to the effect that the Aneho and Palime lines should be phased out over a 10 year'period after parallel roads were paved (completed in 1968 and 1971 respectively), and that the Blitta line should not be extended without satisfactory economic justification.  - 6 - 22. In 1976, the Association re-evaluated the situation and found out that the Palime and Aneho lines still incur losses ($400,000 per year each), but that the proposed fertilizer plant at Kpeme would generate a substantial volume of phosphate bulk traffic to warrant keeping the Aneho line open. The study also indicated that the Blitta line is now incurring the heaviest losses ($1.0 million per year), and CFT continues to be overstaffed and to have a low productivity. 23. At negotiations, the Government explained that the three railway lines continued to serve a useful role as passenger carriers and th.at it could not consider the closure of any of them. The Government pointed out that long-term regional development would justify the extension of the Blitta line northward in the 1980's. The Government asked that, instead of closing the lines, the Association should finance, under the proposed project, a study for the improvement of the railway operations. The Association agreed to this and under the project, the Government would carry out a study and implement the recommendations made, not later than December 31, 1979,after reviewing them with the Association (Sections 3.01 and 4.04 (c) of the draft Credit Agreement). The previous covenants requiring the closing of the Aneho and Palime lines were annulled (Section 4.04 (b) of the draft Credit Agreement). With respect to the Blitta line, it was agreed that the provisions originally included in the Second Highway Credit,namely,that the line would not be extended without satisfactory economic justification and that the Association be consulted prior to any major investment in CFT, were to be reincorporated into the proposed Credit Agreement (Section 4.04 (a) of the draft Credit Agreement). 24. Main transport issues other than rail/road coordir,ation and low railway productivity, are the imbalance in expenditures for road construction and maintenance between the primary and secondary road network and the feeder road network (paras. 27 and 28), and the rationalization of the transport industry (para. 30). The Government is aware of the fact that Togo's prospec- tive transport demand has evolved to the point where there is need for strength- ening the country's overall transport planning organization. To this effect the proposed project would provide for technical assistance to help set up in the Ministry of Commerce and Transport (MCT), a Transport Planning and Coordi- nation Unit that can give adequate and continuing guidance on different transport issues and transport investments needs. This unit would be estab- lished no later than March 31, 1978. (Section 3.04 of the draft Credit Agreement). Transport Investments 25. Togo's transport infrastructure has grown rapidly in the Last decade as a result of heavy investment in the sector financed mainly from abroad (EDF, KfW, FAC, and IDA). From 1971 to 1975, about 25 percent of total public investment was earmarked for transportation, amounting to US$61 million or about US$12 million a year. About 55 percent of this amount was spent in the highway sub-sector, mainly for the construction of the South-North axis and 35 percent for the expansion of the Port oE Lome.  - 7 - For the period 1976-80 the Government plans total investments in the'trans- port sector of almost US$143 million, of which more than half would be in the highway subsector. A third of this amount is again earmarked for the completion of the south-north road axis. Other objectives include construc- tion or improvement of two small rail sections to serve ongoing industrial projects, completion of the expansion of the Port of Lome, and improvement of the airport at Lome and five regional airports. The Highway Subsector 26. The highway network has been described briefly in para 17. The size of the motor vehicle fleet is estimated at about 14,000 vehicles or 1 vehicle per 150 inhabitants. Between 1971 and 1975 traffic increased by about 8 percent or nearly twice the rate of increase of the gross domestic product. 27. The Roads Division (RD) of the Public Works Department (PWD) of the Ministry of Equipment and Postal Services (MEPS) is responsible for con- struction and maintenance of the primary and secondary road network. This division has been handicapped in the past by lack of experienced personnel and inadequate office space. The latter problem is being remedied by the construction of a new office building. The Ministry of the Interior, with assistance from PWD, is responsible for the maintenance and improvement of feeder roads. Certain regional and agricultural development agencies also undertake limited feeder road construction and maintenance. SRCC, and SORAD Maritime, for instance, are carrying out feeder roads construction and improvement programs under the Small Holder Cocoa-Coffee Project and the Maritime Regional Rural Development Project respectively, both financed by IDA. A feeder road component would also be included in a forthcoming IDA- financed Cotton Project. However, no adequate overall financial or admin- istrative structure exists for these road programs. The proposed project would provide for a study for organizing feeder roads construction and maintenance to be carried out before June 30, 1978 (Section 3.01 (b), of the draft Credit Agreement). 28. Expenditures for maintenance of the primary and secondary road networks are financed almost entirely from PWD's ordinary budget. PWD's expenditures for maintenance of the primary and secondary roads are adequate while annual expenditures on feeder roads are insufficient ($400,000 per year). Following the conclusion of the feeder roads study (para. 28), the Association would consider a separate feeder roads project focussing mostly on organization and maintenance. 29. Short-term planning for primary and secondary road construction and maintenance is done annually in conjunction with the preparation of the MEPS's budget. There is no overall coordination of road planning and until recently there was no systematic long-term highway planning; projects were selected on an ad hoc basis. In order to improve road planning and also to develop the country's capability to undertake preinvestment studies the proposed project would include technical assistance to strengthen the Road Planning and Design Unit within the Road Division (Section 3.03 of the draft Credit Agreement).  -8- Road Transport Industry 30. At present all road transport is in private hands in Togo except for a few bus lines which are operated by the railway authority, and the newly created semi-public national transport organization (Togo-Route) 1/. The Government, anxious to develop the traffic of goods through the port of Lome (to and from Mali, Upper Volta, Niger and Nigeria), negotiated agreements with these states on the division of international truck traffic between their nationals. To ensure that Togo has enough equipment to carry its share of the goods, the Government established Togo-Route, equipping it initially with 55 trucks and 70 trailers. Too fast a development of Togo-Route might lead to overcapacity in the trucking industry. Therefore, the Government has agreed that a study of current and future supply and demand for surface transport would be carried out by the proposed Transport Planning and Coordination Unit. 31. In 1969 the Government created a Road Transport Service (RTS) to organize and oversee road transport. RTS activities include inter-alia transport licensing, studying costs and preparing transport legislation. This agency has been hampered by lack of qualified personnel. The ongoing Second Highway Project provides for an expert to improve RTS's operations and train its staff. The recruitment was delayed by the Government but steps are now being taken to hire this expert. Highway Sector Financing 32. The Government has pursued a conservative highway sector financing policy, with road user charges covering more than 100 percent of highway expenditures, except in 1975 when investments increased by almost 40 percent and coverage fell to 96 percent of expenditures. Continuing this financial policy, the Government doubled road user taxes in early 1976. The proposed Transport Planning and Coordination Unit would look into the implications of of this policy. PART IV - THE PROJECT 33. A report entitled "Staff Project Report - Third Highway Project - Togo" (N. 13332a-TO) is being circulated separately. A credit ancl project summary is contained in Annex III. The project is based on consultants studies financed under the First and Second Highway Credits. A field apprai- sal mission took place in March 1976. Negotiations were held in Washington in December, 1976. The Togolese delegation was led by Mr. Mivedor, then Minister of Public Works and Mines, and included representatives of the Ministries of Planning and Finances. 1/ Togo-Route is authorized to engage in international and domestiLc transport of both passenger and cargo, but has so far limited its intervention to international cargo traffic.  -9- Project Description 34. The proposed project has, as its main objective, the improvement of two important roads serving mainly agricultural areas and the preparation of future projects through pre-investment studies. It would also initiate certain institutional reforms in the transport sector by strengthening the Government's overall transport planning and coordinating capacity through the creation of a specialized unit in the Ministry of Commerce and Trans- ports. In addition it would continue the efforts begun under the two previous highway projects, to build an efficient Public Works Department within the Ministry of Equipment and Postal Services by providing technical assistance, and highway maintenance and workshop equipment. The main components of the project would be: (a) reconstruction of the Aneho-Tabligbo road (45 km) to two-lane paved standards; (b) construction of the Agou-Notse road (51 km) to two-lane gravel standards; (c) provision of technical assistance and fellowships to the Roads Division for road maintenance and road planning and design; and to the Ministry of Commerce and Trans- ports for overall transport planning and coordination; (d) studies for improving CFT's operations, and for organi- zing feeder roads construction and maintenance; and (e) preinvestment studies of the Bassar-Mango road (137 km). 35. The Aneho-Tabligbo road crosses the densely populated Maritime Region. The road ends at Tabligbo, close to the site of the CIMAO clinker plant. The road was paved between 1957 and 1963 as a low-standard, one- lane road. Several sections, subject to frequent floodings, have dete- riorated. The road would be reconstructed as a two-lane paved road. 36. The proposed Agou-Notse, two-lane, gravel road would link two agricultural marketing centers and would help open up an isolated, sparsely populated area to migration and agricultural development. It was to have been constructed under the Second Highway Project but work was postponed for lack of funds resulting from costs overruns on other items. 37. Under the First Highway Project, the Roads Division of MEPS was supplied with new maintenance equipment. The proposed project would finance the procurement of 23 additional trucks, as well as equipment for the Equip- ment Division workshop in Sokode. 38. Technical assistance for the Roads Division would consist of pro- vision for about (i) 77 man-months of expert services to complete the training of road maintenance and central workshop staff and to fill organizational  - 10 - gaps which still hamper productivity; and (ii) 20 man-months for the services of an engineer/economist for the Road Design and Planning Unit. There is also provision in the proposed project to strengthen the soil-testing road labora- tory by closely associating it with the supervision of construction of the two project roads. 39. Technical assistance to the Ministry of Commerce and Transports would consist of provision of about 72 man-months of consulting services to the Transport Planning and Coordination Unit. This unit would, inter-alia, assist the Government in solving the main issues in the transport sector and in formulating a national transport policy. In particular, it wouldl supervise the execution of the proposed studies for improving CFT's operations and organizing feeder road construction and maintenance. 40. In the past the main difficulty with technical assistance has been the lack of personnel for counterpart training. The Government has indicated that it would step up its recruitment efforts so as to provide the proposed Planning and Coordination Unit and the Roads Division with qualifiecd and experienced personnel in sufficient numbers to enable these units to carry out satisfactorily their respective tasks (Sections 3.03 and 3.04 of the draft Credit Agreement). The proposed project would also provide fellowships for four DPW engineers to receive 2 years of supplementary education in Mali. 41. The study to improve CFT's operations would be directed at reducing the railway's losses by reducing operating costs, improving training and pro- ductivity and increasing tariffs. ThE study for organizing feeder road con- struction and maintenance would lay the groundwork for the Bank's proposed feeder road project. 42. A preinvestment study would be undertaken of the Bassar-Mango road in the northern part of the country. The area to be served by the road is underpopulated but has good agricultural potential. The study should be completed before December 31, 1979 (Section 3.01 (b) of the draft Credit Agreement). Project Cost and Financing 43. The total cost of the project, excluding taxes, is estimated at US$12.9 million, of which foreign exchange expenditures are US$11.0 million, corresponding to 85 percent of the total. The proposed IDA credit of US$10.0 million would finance 78 percent of the total project cost (net of taxes). The Government would finance the remaining 22 percent (US$1.0 million of for- eign exchange and US$1.9 million of local cost). Taxes are estimatetd at US$2.4 million.  - 11 - Project Costs (US$ million) Cost Local Foreign Total Net of Taxes Aneho-Tabligbo 0.7 4.2 4.9 Agou-Notse 0.6 3.0 3.6 Equipment Purchase 0.1 0.9 1.0 Consultants Services /1 0.5 2.9 3.4 TOTAL 1.9 11.0 12.9 /1 Including studies, and supervision of the two roads. 44. The cost of reconstructing the Aneho-Tabligbo road has been esti- mated on the basis of unit prices and quantities from the detailed engi- neering, to which 10 percent for physical contingencies has been added. Construction costs for the Agou-Notse road are based on the lowest bid received in November 1974, when the road was originally scheduled for con- struction (para. 36). Due to the generally poor soil conditions found in the area, physical contingencies of 15 percent have been added. Costs for the road maintenance and workshop equipment are based on consultants' estimates using CIF prices of January 1976. All project base cost estimates have been updated to January 1977 prices and appropriate price contingencies have been added beginning January, 1977. Consulting services are estimated to cost an average of $6,900 per man-month. Implementation 45. The Ministry of Equipment and Postal Services, through its Public Works Department, would be responsible for project implementation, except for the Transport Planning and Coordination Unit and the studies for improving CFT's operations and for organizing coxnstruction and maintenance of feeder roads which would be the responsibility of the Ministry of Commerce and Transport. The proposed project would take nearly four years to complete (April 1977 to December 1980). Technical Assistance for the maintenance program under the Second Highway Project, which was to end early in 1977, would be extended for another two years. Technical assistance for the Planning and Design Unit would also be provided for two years as soon as the new PWD premises are completed in early 1978. Technical Assistance for the Transport Planning and Coordination Unit would be provided for three years (1978-80). Procurement 46. The reconstruction of the Aneho-Tabligbo road would be carried out by contract awarded after international competitive bidding in accordance with  - 12 - the Bank's guidelines for procurement. International bids for the construc- tion of the Agou-Notse road were called and opened in 1974. The Association would not object to the Government awarding the contract to the bidder with the lowest evaluated bid of 1974, provided that the contractor extended the validity of his bid. Otherwise, bids would be called again. Road mainten- ance equipment would be procured after international competitive bidding in accordance with the Bank's Guidelines for Procurement. Workshop equLpment up to US$50,000 (including contingencies) would be procured on the basis of local procurement procedures acceptable to the Association. Domestically manufactured goods would be allowed a preference of 15 percent, or the level of applicable duty, whichever is less, when comparing domestic bids with those of foreign manufacturers. 47. Construction supervision contracts would be awarded to the consult- ing firms which carried out the detailed engineering of the roads, Gendron Lefebvre for the Aneho-Tabligbo road and DIWI for the Agou-Notse road. Technical assistance for the continuation of the maintenance program would be procured by mutual agreement between the Government and the consultants Louis Berger International, Inc., who carried out the previous programs under the First and Second Highway Projects. Other technical assistance and study items would be carried out by qualified consultants under terms of reference satisfactory to the Association. Disbursements 48. The IDA credit would be disbursed to cover 57 percent of the total cost of the road construction works and 100 percent of the foreign exchange cost of equipment (or 60 percent of local expenditures for imported equipment locally procured) and 100 percent of the foreign exchange cost of consultants services. Benefits and Risks 49. The two roads to be constructed would serve areas with considerable agricultural potential. The overall rate of return for the portions of the project having quantifiable benefits is 22 percent. The justificaticin for the Aneho-Tabligbo reconstruction is based on vehicle operating cost savings. In 1974 the road carried an average of 362 vehicles per day of which about 40 percent were trucks, and the remainder passenger cars. Based on a 2C0-year economic life and an annual traffic growth of 10 percent p.a. in the first 10 years following reconstruction and 5 percent thereafter, the economic return of the reconstruction of the road which accounts for 38 percent of project costs is estimated at 26 percent. Even under highly unfavorable assump- tions in the sensitivity analysis, the economic rate of return remains over 11 percent. The Aneho-Tabligbo road would also improve access to the CIMAO clinker plant. 50. The new Agou-Notse road would connect a food deficit area near Agou with the food surplus area of Notse. The road was first studied between 1970 and 1972, and was estimated then to yield an economic return of over 10 percent, based primarily on an increase in value added agricultural produce in the area  - 13 - affected by the proposed road. Additional studies in 1976 indicate that the construction of this road, which accounts for 28 percent of project costs, is likely to have an even higher return, 18 percent under conserva- tive assumptions, because of the new development planned in the area. A large part of the benefits would result from immigration to the area by Cabrais people from the north who traditionally resettle in the region. 51. The institution building aspects of the project are important but the benefits are, of course, much less tangible. Improving the transport planning capacity of the Ministry of Commerce and Transports is particularly appropriate since Togo's network has an important role to play in the devel- opment of a sound West African regional network serving the interests of landlocked and coastal countries alike. Improvements in the Ministry of Equipment and Postal Services' capacity with respect to road planning and design are urgently required. 52. The main risk of the project is the, thus far, slow response of the Togolese authorities under, for example, the Second Highway Project, to technical assistance components. Delays in the implementation of the technical assistance component of the proposed project would be serious, and close attention would have to be given to this aspect during supervision. PART V - LEGAL INSTRUMENTS AND AUTHORITY 53. The draft Development Credit Agreement between the Republic of Togo and the Association, the Recommendation of the Committee prov.ded for in Article V, Section l(d) of the Articles of Agreement of the Association and the draft resolution approving the proposed Development Credit, are being distributed separately to the Executive Directors. 54. The draft Development Credit Agreement conforms substantially to the pattern of recent agreements used for highways projects. Special conditions of the project are listed in Section III of Annex IV. 55. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATIONS 56. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments Washington, D.C. March 29, 1977   ANNEX I Page 1 of 4 pages TODD 5OCgAIL nDJ