Chad - Third Highway Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2131-CD REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF CHAD FOR A THIRD HIGHWAY PROJECT July 5, 1978 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 245 1/ CFAF 1,000 US$4.08 ABBREVIATIONS FED Fonds Europeen de Development/ Commission des Communautes Europeenes European Development Fund UNDP United Nations Development Program CTT Cooperative des Transporteurs Cooperative of Chad Tchadiens Transporters USAID United States Agency for International Development ADF African Development Fund 1/ CFAF Floating Exchange Rate tied to the French Franc (FF) (CFAF50-FF1).  FOR OFFICIAL USE ONLY CHAD THIRD HIGHWAY MAINTENANCE PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Chad Amount: US$7.6 million Terms: Standard Project The proposed project is designed to improve road main- Description: tenance and to strengthen transport planning and opera- tions; it would consist of the following main components: (i) support of a four-year maintenance program covering approximately 5,300 km of unpaved roads and tracks; (ii) regravelling of about 400 km of main roads by a production brigade, which will also serve as a vehicle for on-the-job training; (iii) a training program for staff of the Directorate of Public Works; (iv) construction of four ferry boats; (v) technical assistance and fellowships to strengthen (a) the Directorate of Public Works; (b) transport planning in the Directorate of Transport; and (c) operations of the trucking industry; (vi) a study to prepare a rural roads project; and (vii) completion of the improvement program for cotton feeder roads, started under the Second Highway Project. The proposed project is expected to establish a permanent road maintenance capacity and to contribute to improving accessibility to administrative and commercial centers and to some of the main agricultural production areas. Project implementation could be impaired by the following factors: certain roads and tracks may become inaccessible for maintenance due to political unrest; a shortage of funds may limit operations; and the training programs may fail to produce sufficient personnel to expand maintenance operations. However, the divisible nature of the projects would permit adjustment of the maintenance program in 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.  - ii - light of prevailing security conditions at any given time. Economic ana:Lyses have also indicated that the project would yield satisfactory returns even under rather pes- simistic assumptions regarding physical achievements. Estimated Costs (net of taxes except on fuel): 1/ -------US$ million------- Local Foreign Total % of Base Cost Maintenance program 0.8 5.3 6.1 35.9 Technical assistance, 0.3 2.1 2.4 14.1 Training program and fellowshiLps 1.2 5.4 6.6 38.8 Construction of ferryboats 0.2 1.0 1.2 7.0 Completion of 5 year cotton feeder road improvement program 0.2 0.2 0.4 2.4 Rural road study 0.3 0.3 1.8 Total base costs 2.7 14.3 17.0 100 Physical contingencies 0.3 1.3 1.6 Price contingencies 0.5 2.8 3.3 Grand Total 3.5 18.4 21.9 Financing Plan: IDA USAID ADF Government Total Maintenance Program i) Equipment, tools & spare parts 5.1 5.1 ii) Civil works, office furniture, and supplies 2.7 2.9 Technical assistance and training 2.6 9.0 0.2 11.6 Ferryboat construction and maintenance 1.5 1.5 Completion of 5 year cotton feeder road program 0.4 0.4 Rural Road Study 0.4 0.4 Total 7.6 9.0 5.1 0.2 21.9 Percentage of Total Cost 34.7 41.1 23.3 0.9 (100.0) The Government will finance the recurrent costs of the maintenance program - approximately US$8.1 million during the four year project implementation period - from a Road Fund into which taxes on gasoline and diesel oil and ferryboat tolls are paid. It is estimated that the Government contribution can be made available by its reserving 87 percent of the proceeds of the Road Fund for the project. 1/ The project will be exempt from all duties and taxes, except those on fuel, totalling US$0.2 million, which will be paid by the Government.  - iii - Disbursement Plan: IDA Fiscal Year : 1979 1980 1981 1982 Annual 600 3,900 1,900 1,200 Cumulative 600 4,500 6,400 7,600 Rate of Return: The overall economic rate of return is estimated at 50 percent based on an evaluation of project components accounting for 85 percent of total project cost (excluding price contingencies). Appraisal Report: Chad - Third Highway Project Appraisal Report No. 1834-Cli, dated 20th June 1978   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF CHAD FOR A THIRD HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Chad for the equivalent of US$7.6 million on standard IDA terms to help finance a Third Highway Project. The United States Agency for International Development (USAID) is expected to contribute US$9.0 million as a grant and the African Development Fund (ADF) US$5.1 million as a loan, on the same terms as the IDA credit. PART I - THE ECONOMY 1/ Background 2. The following paragraphs incorporate the conclusions of an Economic Memorandum (Report No. 1340-CD) which was distributed to the Board in July 1977 and was based on missions that visited Chad in April 1976 and March 1977. The findings of a short economic mission that went to Chad in November 1977 are also incorporated in this report. 3. With scarce natural resources, a harsh climate, limited social and economic infrastructure and a pervasive lack of skilled manpower, Chad faces unusually large handicaps in its economic development. High transportation costs to and from the outside world compound the problem. The main centers of activity of this vast landlocked country are about 2,000 km from the sea; in early 1976 freight rates from the port of Douala in Cameroon to Southern Chad were about US$130/ton for bulk goods and US$180/ton for general goods. 4. In 1977, Chad's GNP per capita was estimated at US$122. Chad is therefore one of the poorest countries in Africa and is classified as one of the world's 29 "least-developed" countries by the United Nations. Close to 90 percent of the population, estimated at about four million, lives in rural areas deriving its livelihood from agriculture and livestock. About half of the rural population lives in the southwest, where rainfall levels are rela- tively favorable to agriculture (about 1,000 mm/year). In this region millet and sorghum are grown as subsistence crops and cotton as the predominant cash crop. The other half of the country's inhabitants are mainly pastoralists living in the dry grassland belt with lower and less reliable rainfall. Recently, efforts have been made to intensify traditional rice growing on the flood plains of the Logone River and to accelerate the development of the rich polders in the Lake Chad area. 1/ Substantially unchanged from the President's Report for the Third Educa- tion Project (Report No. P2205-CD).  -2- 5. During the 1960s, real GDP increased about 2 percent annually. The highest growth rates were achieved in the market economy (mainly import substitution industries and services), while the growth rate of livestock and subsistence crops probably did not reach that of population, which was estimated at about 2.1 percent per year. Incomes have risen faster in the small urban sector than in the rural areas and, within the latter, producers of cash crops have gained more than pastoralists and subsistence farmers. Recent Developments 6. Three factors have affected economic growth and the financial situation since the late 1960s: internal security problems, droughts, and a deterioration in the terms of trade. The rebellion that broke out in 1968 rendered large areas insecure and cut off traditional cattle routes. Since then the internal conflict has flared up occasionally. A cease fire was agreed upon in April 1978 but has not been respected. Efforts are underway to bring the opposing parties to the negotiating table. Pending a definitive solution the northern half of the country is considered insecure. The impact of the internal security problems was compounded by severe droughts, which occurred in three of the five yesars 1969-1973. Water levels in the rivers reached an all-time low, and Lake Chad shrank to one-third of its normal size. Livestock losses were substantial, resulting in a reduction in the cattle herd by one-third. Foodcrops were aLso severely affected: in 1972 production of millet and sorghum fell to about 70 percent of pre-drought levels and to about 60 percent in 1973. Emergency i-ood shipments from abroad helped the hard hit areas. With the return of normal rainfall, food production recovered to pre-drought levels in 1974/75. However, in 1976, a localized drought again occurred in Chad's Sahelian zones affecting agricultural output and requiring the resumption of food aid. Drought again occurred in 1977 but with a com- paratively limited impact. 7. After the 1973 drought, cotton production picked up considerably reaching a record volume of 175,000 tons in 1975/76. The upturn in cotton production stimulated industry, transportation and trade. However, cotton production decreased in 1976/77 to about 150,000 tons and in 1977/78 to an estimated 130,000 tons. The principal factors responsible for the continued fall were inadequate rainfall leading to conflicting needs between foodcrop and cotton production and perhaps the declining motivation of extension agents whose salaries have stagnated since 1970. Offtake from livestock has de- creased substantially (after an upsurge in the drought years because of emergency slaughterings), reflecting the reduction of the herd and the be- ginning of reconstitution efforts. While the livestock sector was also constrained by past marketing policies, the Government has recently improved the situation by adopting a more liberal approach through the establishment of an export cooperative involving state and private enterprises. Finally, the economy was also affected by variations in the terms of trade due to increased import prices and fluctuations i'n cotton export prices. The terms of trade worsened by about 11 percent between 1972 and 1974, improved with the increase  of commodity prices between 1975 and 1977 and began to deteriorate again in mid-1977 with the decline in cotton prices. This deterioration is expected to persist through 1978. 8. Until 1968 the Government succeeded in balancing the budget, and fiscal performance was satisfactory despite development constraints. After 1968 expenditures began to grow more rapidly than revenue as military spending increased; security and defense expenditures now account for about one-third of the current budget. The drought also increased demand for Government relief services while reducing revenues. 9. Higher import prices and the rise in Government employment-- military as well as civilian--also contributed to the Government's financial difficulties. Combined with stagnant public revenues these factors resulted in an increase in budgetary deficits from CFAF 2.0 billion in 1970 (15.5 percent of revenues) to CFAF 4.4 billion in 1976 (about 30 percent of revenues). The Government financed part of this deficit with limited domestic resources, but the remainder of the gap was covered by accumulation of payment arrears to local and foreign suppliers and creditors. Arrears of payments were estimated to amount to CFAF 10.5 billion by end-1976, or about 70 percent of budgetary revenues for that year. For this reason, foreign budgetary assistance, which had been instrumental in closing the gap in the past, was stepped up in 1976. The use of part of this assistance to repay local and foreign suppliers, as well as the Government's efforts at containing expenditures, have stemmed the growth of arrears and reestablished confidence on the part of suppliers. 10. The Government's recent attempts to stabilize public finances have included measures to increase revenues by collecting tax arrears and raising the cotton export tax, as well as measures to reduce expenditures by main- taining a freeze on wages and limiting the increase in public employment. The Government has also restricted purchases of certain materials and supplies, ceased budgeting for investment purposes, and deferred maintenance of capital assets. To isolate resources for priority uses, the Government has reinstated the Road Fund, to finance road maintenance, and established the Autonomous Amortization Fund, for debt repayment. The Government is also reviewing the fiscal structure to improve revenue collection and to increase resources. Structural changes will be implemented only gradually, however, and will not contribute, in the immediate future, to alleviating the critical shortage of public revenues. Therefore, the effectiveness of most Government services will continue to be hampered. External Aid 11. Since 1973, aid flows have been substantial, with grants alone almost equalling tax revenues in 1973 and 1975, and exceeding them by 24 per- cent in 1974. Total disbursements of external aid in 1973-1976 were US$327 million, three-quarters of which were grants. In 1976, aid disbursements reached a record level of about US$105 million. Nearly two-thirds of this was bilateral aid from OECD countries (France, 52 percent; USA, 5 percent; Germany, 4 percent; Canada, 3 percent). OPEC countries accounted for 18 per- cent (rising from zero in 1972). The remainder was from multilateral sources  - 4 - (FED, 26 percent; UN organizations, 6 percent; IDA, 3 percent). External aid financed most public investments. Up to 1975, the inflow of foreign aid offset the large deficits in the current account of Chad's balance of payments so that its reserve position with the Central Bank was stable. Since 1974 private investment in petroleum research has also helped to offset increasing deficits. Moreover in 1976, record cotton sales, along with stagnating imports, substantial foreign aid and private investment, produced an un- precedented balance of payments surplus of about US$25 million. At the end'of 1976, net foreign assets stood at about US$4 million compared to a December 1975 low of minus US$19 million. 12. Chad's external debt is a considerable burden for a country with such limited resources. At the end of 1976 total outstanding external debt (including undisbursed) was estimated at approximately US$250 million or about 52 percent of GDP for that year. Of this about 40 percent had been disbursed. The largest increase in outstanding debt occurred between 1973 and 1975 during the worst period of the drought, at a time when the Government was undergoing severe budgetary difficulties. These difficulties also led to Chad's increasing inability to service the debt, resulting in the accumulation of arrears of about US$10 million at the end of 1976 equivalent to about 25 percent of overall arrears due to creditors and suppliers. For 1976, the external public and guaranteed debt service due, excluding arrears, was estimated at US$10.5 million or 9 percent of exports of goods and non- factor services; it is estimated under reasonable assumptions that the annual debt service will remain at about: the same level in the mid-1980s. While the ratio of debt service to exports is manageable, the bulk of service payments has to be financed by budgetary revenues. The debt service ratio with respect to budgetary revenues, excluding arrears, was estimated at 17 percent in 1976. The Government has established a Caisse Autonome d'Amortissement re- sponsible for overall debt management and administration. The Caisse is financed with earmarked revenues and its Director reports directly to the Head of State. The Bank has assisted the Caisse Autonome in setting up debt reporting and monitoring procedures. The Government has successfully reached a debt rescheduling agreements for debt owed to Caisse Centrale de Cooperation Economique and for arrears owed to Air Afrique. The Government is also dis- cussing rescheduling of debts with other bilateral creditors. Prospects 13. Chad's development potential lies primarily in agriculture and related activities. The Government is carefully exploiting available in- vestment opportunities (textiles, sugar, edible oils and soaps, irrigated agriculture) and has obtained FED and FAC support to launch a south Chad agricultural development program aimed at improving cotton production and at promoting crop diversification. This program is part of an overall interim development plan which, in addition to cotton productivity, emphasizes the improvement of Chad's domestic and international transport infrastructure as well as the delivery of basic services, particularly primary education.  - 5 - Recently, the Government announced the discovery of oil in the northwestern and southern parts of the country. For the time being, the Government is concentrating on solving its domestic petroleum supply problems through the construction of an import substituting refinery. This would somewhat reduce the trade gap while providing some extra budgetary resources. Prospects for a larger oil development project are uncertain. Other mineral prospects are being investigated with the assistance of UNDP. 14. The fiscal situation is a serious obstacle to development, since- the Government cannot contribute to the financing of required investments nor finance all recurrent costs of ongoing and new high-priority projects. The Government has undertaken a review of the tax system with the help of the IMF and has, recently, increased export taxes on cotton. However, the narrow tax base and the rising cost of maintaining even the present level of public services, make it unlikely that substantial budgetary sav- ings can be generated during the remainder of the 1970s. In view of Chad's financial constraints, its poverty and modest growth prospects, external funds should be provided on the most concessionary terms possible. Moreover, in the next few years foreign aid agencies should finance a high proportion of total project costs, including local costs and some development-related recurrent costs. PART II - BANK GROUP OPERATIONS IN CHAD 1/ 15. Development of Chad's agriculture, transportation and human re- sources continues to be the main objective of Bank Group assistance to the country. Twelve IDA credits to date amount to US$70.9 million. Six credits and a supplementary credit were for agricultural projects, two credits for transport projects and three credits for education projects. Finally one credit, which was approved in September 1977 for a Sahelian Zone project, includes mostly agricultural development schemes and also has transport and rural water supply components. Five of the eleven projects are either com- pleted or near completion; four are progressing satisfactorily; and three have yet to commence. Delays have occurred in project implementation mainly due to lack of counterpart funds and supplies, but also because of building design problems and late signing of consultant contracts. A common constraint to development in all sectors is insufficiency of Government funds for main- tenance and recurrent costs. Annex II contains a summary statement of IDA credits as of April 30, 1978, and notes on the execution of approved projects. 16. In agriculture our main objectives are: (a) to help Government assure a sufficient food supply for the growing urban as well as the pre- dominantly rural populations; (b) to help expand income from cattle exports; and (c) to protect Chad's overall economic base against the vagaries of climate. In rainfed agriculture, past IDA lending has been designed to raise 1/ Substantially unchanged from the Third Education Project (Report No. P2205-CD).  - 6 - rural productivity mainly through the provision of infrastructure, equipment and storage facilities. In irrigation, IDA is assisting in the financing of the Sategui-Deressia and Lake Chad Polders Projects which will produce, among other products, rice, wheat and cotton. The Sahelian Zone Project will ini- tiate drought-alleviating measures that will sustain or step up crop, live- stock and forestry exploitation in the zone. Our First Livestock Project assisted the Government with the rehabilitation and construction of Sahelian pastoral wells and with studies oiE the livestock sector; the Second Livestock Project, with animal health services, animal husbandry and pastoral develop- ment, pastoral wells, credit and marketing components, will further expand our assistance in this sector. 17. In transportation, we are giving priority to road maintenance and to improvement of feeder roads and agricultural export routes. The first Highway project helped to focus Government's attention on the importance of road maintenance and provided the necessary physical means to carry out a five-year maintenance program. Our Second Hlighway Project and the road component of the Rural Projects Fund are designed to improve feeder roads; the proposed Third Highway Project would build on the! experience gained under the First Highway project to strengthen the maintenance capacity and transport planning and operations while maintaining and improving about 5,300 km of primary and secondary roads in the south and in the Sahelian Zone. We are also consider- ing projects which would improve Chad's transport links with the sea, although much of the improvement will come from transport investments in the coastal countries. 18. Two education projects in 1968 and 1971 assisted the Government in constructing schools for training both teachers and agricultural and industrial technicians--the most needed skills in the economy. The recently approved Third Education Project would mainly improve primary education in rural areas. 19. Chad's severe financial constraints limit investment opportunities and necessitate special arrangements for counterpart funds and recurrent costs. IDA and other donors have assisted the Government in financing local costs. Recurrent cost-financing problems have been resolved in different ways: by designing projects which promote cost recovery; by establishing special funds replenished with earmarked revenues; and by providing technical assistance grants which do not increase the burden of debt service. Further- more some donors, primarily France, make direct contributions for covering recurrent cost expenditures in many sectors. 20. Most of our operations in Chad have been coordinated with other donors and several projects are being executed under joint or parallel fi- nancing. The recent focus on the problems of the Sahel has increased the number of donors seeking cofinancing with IDA. The amounts of co-financing tentatively pledged in FY78 and FY79 is likely to match the proposed IDA lending to Chad during this period. IDA lending accounted for 17 percent of total outstanding external public debt at the end of 1976 and on average represents 4 percent of Chad's projected debt service over the 1979-1985 period.  - 7 - PART III - THE TRANSPORT SECTOR 21. Road hauling dominates Chad's transport system and accounts for nearly 85 percent of total freight. Other means of transport include air transport and inland waterways (the Logone-Chari river system and Lake Chad). 22. The road network. consists of about 7,300 km of roads (about 4,600 km of national roads and about 2,700 km of prefectural roads) and 24,000 km of unmaintained tracks. 253 km of roads are paved and about 1,050 km are all-weather engineered gravel roads. Most of the remaining roads and tracks are passable only during 7-8 months of the dry season. The major portion of the network is in the cotton zone which is located in the southern part of the country and covers about 10 percent of Chad's total area. The sparsely populated northern part of the country is served mainly by desert tracks. Construction of all-weather roads began in Chad in 1964 with the east-west trunk road from Sarh to Pala; this was followed by the paving of N'Djamena- Guelendeng and N'Djamena-Mas4aguet roads. No further extensions or major improvements of the road infrastructure have been made since 1972. Except for the paved road between N'Djamena and Guelendeng, the classified network carries less than 100 vehicles per day (mainly trucks), varying from 30-60 vehicles per day on the most used national roads to fewer than 10 vehicles per day on prefectural roads. 23. For its international traffic the country relies primarily on three routes, i.e.: through Nigeria (via Maidugari to Lagos); through Cameroon (via Garoua and N'Gaoundere to Douala); and through the Congo (via the Transequa- torial route through Bangui and Brazzaville to Pointe Noire). Since 1974 the bulk of Chad's imports and exports has relied on the Cameroonian route (except for petroleum products which are imported from Nigeria) thereby reducing the earlier dependence on the Transequatorial route. 24. Chad's road network is characterized by its inadequacy as regards basic standards and its state of repair. The agricultural southern region is cut off from N'Djamena and the northern part of the country approximately 3-4 months per year. Lack of funds, and of a trained workforce, results in minimal maintenance and further deterioration. The remoteness of Chad's urban centers from ocean ports (1,700-3,000 km), further aggravates the situation since the prices of imports and most consumer goods increase while the competitiveness of exports, particularly of cotton, is weakened. 25. Chad has 44 air fields and air strips of differing quality but air transportation is at present very limited. Some products (meat, fish and gum arabic) are exported by air, while domestic transport is seasonal peaking in the rainy season when many roads are impassable. The Government and the Bank are discussing the preparation of a study to review the role of air transpor- tation in the country. 26. The waterways of Chad are trafficked by barges which carry about 15-20,000 m tons of goods per year. The major commodities are beer, timber, sugar, fuel, natron, and fish. While traffic between Lake Chad and N'Djamena is open the year round (and could be expanded) traffic between N'Djamena on one side and Moundou and Sahr respectively is seasonal. Prospects for expan- sion of river traffic are limited because of river regime constraints.  -8- Institutional Arrangements 27. The primary responsibility for transport planning and coordination rests with the Ministry of Economy, Planning and Transport, while the Ministry of Finance establishes road user taxes and approves budget requests and propo- sals for tariff modification. The Ministry of Civil Works, Mines and Geology is responsible for road construction and maintenance. The Government agencies concerned with transport and public works are staffed with qualified Chadian personnel supplemented by expatriates, mostly provided by French bilateral assistance. However, this staff is not sufficient to meet the requirements of the agencies. As a consequencie highway maintenance and transport planning and operations have suffered. 28. An important organization in the transport sector is the Cooperative des Transporteurs Tchadiens (CTT) which consists of 350 active truckowners, 65 percent of whom own only one truck. The CTT exercises certain official functions and its Director GeneraL is appointed by the Government. Although the CTT is responsible for all trucking industry operations, including allo- cating freight, billing customers and paying the truckowners, its control is in fact only exercised on international routes and for larger shipments on domestic routes; smaller shipments are not regulated. 29. A number of factors have impeded the efficient development of the trucking industry. Lack of coordination among shippers, carriers and transport intermediaries and imbalance between imports and exports have contributed to low truck utilizatiLon (50 percent) and high transport costs. Also, transport tariffs were established in 1974 and are by now frequently lower than actual transport costs. Financing 30. Capital expenditures on roads between 1971-1975 totalled some US$13.1 million equivalent and expenditures for road maintenance during the same period amounted to approximately US$7.8 million equivalent. About 63 percent of total expenditures was provided through external assistance, of which IDA accounted for some 50 percent. 31. The Govern,ment has established a Road Fund into which all taxes on gasoline and diesel oil and ferryboat tolls should be deposited. The funds thus earmarked should primarily be used to finance road maintenance costs. However, prior to 1976 only 50 percent of these taxes were paid into the Road Fund and used to finance maintenance costs. In view of the fact that ex- ternal assistance cannot be fully utilized without adequate local funds, the establishment of the Road Fund in a separate account outside the Central Treasury was a pre-requisite for the submission of the proposed Third Highway Project for approval. Although this step was agreed upon with Government already under the Second Highway Project, the Government could not implement it earlier because of severe drought, inflation, and the ensuing difficult budgetary situation. The special account has now been opened.  -9- IDA's Role 32. The Bank Group has so far placed emphasis on road maintenance rather than encouraging new construction. This would also be the primary objective of the proposed project. Nevertheless the Bank Group is also considering supporting the Government's efforts to establish an all-weather trunk road between N'Djamena and the trans-Cameroon corridor. 33. The (First) Highway Maintenance Project (Credit No. 125-CD, US$4.1 million) included: provision of the equipment, spare parts and material and workshop improvement required for the implementation of a five year maintenance program for primary and secondary roads; feasibilities studies of the Djermaya- Djimitilo road and lake-side facilities; and a program of traffic counts. A training program, initially included, was largely deferred to the follow-up project. Although the project initiated the process of building up a mainte- nance organization it fell far short of its maintenance target and covered a maximum of 2,800 km during the project period as compared to the 4,350 km which had been expected at appraisal. The shortfall was partly due to internal security problems caused by political unrest but, more importantly, to shortage of local funds and to insufficient attention to institutional aspects. The Operations Evaluation Department's Project Performance Audit (No. 1883) points to the need to provide increased local funds for maintenance personnel; to emphasize training of local staff, and to develop the Government's ability to plan and execute maintenance work. The proposed project takes full account of these suggestions. 34. The Second Highway Project (Credit No. 490-CD, US$3.5 million, June 1974) included: a five-year program of improvement and maintenance of cotton feeder roads; a three-year interim maintenance program for ferryboats; a training program for Directorate of Public Works personnel; a two-year traffic counting program; preinvestment studies of about 120 km of cotton roads; a feasibility study for replacement of ferryboats; and a road transport industry study. The improvement and maintenance of cotton feeder roads is proceeding satisfactorily. The interim maintenance of ferryboats, the feasi- bility study for replacing ferryboats, and the transport industry study have been completed. Traffic counting has been carried out for one year, and the training program is in progress. Detailed engineering of the two cotton export roads was not undertaken because the proposed investment in one road was not economically justified, and the other was contingent upon the implemen- tation of a soap factory project, which did not materialize. In view of the increased training requirements for the implementation of the proposed project, the duration of the training program has been extended to provide continuity in the training activities between the two projects. The additional cost (US$400,000) is being covered by funds allocated to the 5 year cotton feeder roads program, the completion of which would therefore be financed by the proposed project. 35. The proposed project serves as a logical extension of the (First) Highway Maintenance Project but endeavors at the same time to support efforts to improve transport planning and transport operation to ensure that a solid  - 10 - foundation is laid for the continuation of permanent maintenance operations. In addition - and more urgently - the project would ensure the serviceability of a road network which at present risks deterioration beyond repair. PART IV - THE PROJECT 36. The Government of Chad is concerned about the rapidly deteriorating condition of the transport network of the country which contributes to in- crease already exorbitantly high transport costs. The proposed project is therefore aimed at strengthening the highway maintenance program, transport planning and operations. The road maintenance component of the project was prepared by the French consulting firm BCEOM, with assistance from the Government. An appraisal mission visited the country in March/April 1977 and the report "Appraisal of the Third Highway Project (No. 1834-CD)" dated June 20, 1978 is being distributed separately to the Executive Directors. A Summary of Key Events and SpecLal Conditions is presented in Annex III. Negotiations were held in Washington from May 22 to May 26, 1978, and the delegation from Chad was led by Mr. I. Gami, Director of Public Works. Project Objectives and Description 37. The proposed project would primarily support the Government's efforts to improve road maintenance and to strengthen transport planning and operations. It would consist of: (i) support of a four-year road maintenance program covering about 5,300 km of unpaved roads and tracks and including purchase of road maintenance and workshop equipment and spare parts, and renovation and construction of workshops and office buildings; (ii) a four-year regravelling program covering a total of about 400 km to be executed by a brigade, which would also serve as a vehicle for on-the-job training; (iii) a training program for personnel of the Directorate of Public Works; (iv) construction of four ferry boats; (v) technical assistance and fellowships to strengthen (a) the Directorate of Public Wforks; (b) transportation planning in the Directorate of T'ransport; and (c) operations of the trucking industry; (vi) a study to prepare a rural roads project; and (vii) completion of the cotton feeder roads program started under the Second Highway Project.  - 11 - Project Implementation Routine and Periodic Maintenance: 38. Routine maintenance would be carried out on some 5,300 km of un- paved roads and tracks. Both mechanical and labor intensive methods would be employed on about 2,400 km of gravel and earth roads and major tracks. On the remaining 2,900 km maintenance would be limited to mainly mechanical grading in view of the low traffic intensity. The different types of roads would be maintained to standards acceptable to the Association (Section 3.07 (a) of the draft Development Credit Agreement). Of the total 5,300 km of roads and tracks to be maintained each year 4,000 km have been selected for the full project period, while some 1,300 km, mainly tracks in the Sahelian zone have been selected for the first year of operation but could change from year to year in accordance with Government priorities. Any changes in the network to be maintained during each year would be proposed to the Association by end-October of the previous year (Section 3.07 (b) of the draft Development Credit Agreement). 39. The laterite, or sand clay, surfaces of engineered roads (about 1,050 km) are in generally poor condition due to inadequate routine and periodic maintenance. Regravelling of roads carrying a minimum traffic volume of 45-50 vehicles per day would be undertaken under the project. A work brigade with support of technical assistance, would regravel about 100'km each year and would also serve as a vehicle for on-the-job training (para. 43). The Government would submit a list of roads to be regravelled, accompanied by statistics on actual or estimated traffic on these roads, by October 31 each year for approval by the Association (Section 3.07(b) of the draft Devel- opment Credit Agreement). 40. The effective implementation of the maintenance operations would require adequate offices and workshops as well as equipment. The proposed project would provide for the financing of such buildings as well as equipment and an initial stock of spare parts. 41. To facilitate the coordination of the project, the liaison with the Association and cofinanciers and the preparation of reports and handling of day-to-day matters, the Government will appoint a Project Coordinator (Section 3.05(d) of the draft Development Credit Agreement). Training Program 42. Implementation and subsequent continuation of the maintenance operations would require an extensive training program. The Directorate of Public Works would need approximately 75 additional staff, to implement the proposed road maintenance program and similar programs supported by the European Development Fund and the United Nations Sahelian Office. In addi- tion most of the existing staff needs retraining. Allowing for an esti- mated drop-out and staff turnover rate of about 30 percent a total of 225 mechanics, equipment operators and technicians would need to be trained under the project to satisfy projected manpower requirements.  - 12 - 43. The training program would consist of classroom instruction and field training with emphasis on tFhe latter. A mechanized brigade would be used for field training. As parl: of the training program the brigade would be responsible for the regravellLng program. Training in road maintenance practice for sector chiefs would also be provided for under the project. The training curriculum would be submitted to the Association for approval by December 31, 1978. The overall training program would be reviewed jointly by December 31, 1979 in the light: of experience gained (Section 3.08 of the draft Development Credit Agreement). 44. The implementation of the training program would require additional workshop equipment and teaching materials for the training center (established under the Second Highway Project); it would also require equipment for the brigade, operating expenses for the training program and 230 man/months of technical assistance. These items would all be provided for under the project. 45. A problem encountered hitherto under previous training programs has been that the Government has not paid subsistence allowances to trainees thereby making it virtually impossible for selected candidates to participate. Under the project such allowances would be financed. Furthermore an incentive system consisting of performance prizes to outstanding participants would be established, with the assistance of USAID. Construction of Ferryboats: 46. The ferryboat traffic across the Chari and Logone rivers is a crucial part of the transport system, since construction of bridges is not economically justifiable in view of the low traffic intensity and wide riverbeds. Under the Second Highway Project a feasibility study reviewed the need to replace all ferryboats which were deteriorating. The study concluded that it would be justified to replace the ferryboats at Bongor and Lai on the Logone river and those at Bousso and Hellibongo on the Chari. 47. The proposed ferryboats would have a capacity of 50 tons and would thus be able to carry the heaviest truck-trailer combinations in use on the national roads. The ferryboats would be constructed by the Directorate of Public Works by force account at their boat yard which has in recent years partially renovated existing ferryboats. Should it, however, appear that the construction could not be finalized on schedule some work would be contracted to local mechanical workshops. The project would finance materials, workshop equipment, labor, preparation of designs and 16 man/months of technical assis- tance. The cost of the completed ferryboats is expected to be substantially lower than the cost of imported ferryboats. The designs prepared under this component and the expertise gained could subsequently be used for construction of other ferryboats as and when the need arises. Technical Assistance and Fellowships: 48. Technical assistance would also be provided to the institutions listed below to strengthen road maintenance operations and transport planning.  - 13 - 49. Directorate of Public Works: the Government intends to set up an Equipment Inspection Office, a Procurement Office and a Road Planning and Design Office in this directorate. (i) Equipment Inspection Office. This office would introduce and maintain a cost accounting system, inspect equipment maintenance carried out by the sub-divisions and supervise the Procurement Office. The services of an expatriate mechanical engineer and four mechanics to work in sub- division workshops would be financed for approximately 3 years. (ii) Procurement Office. This office would be responsible for procurement of spare parts and other materials required to maintain equipment belonging to the Directorate. In addition, it would establish and maintain a central spare parts store with proper inventory and bookkeeping procedures. The services of an expatriate Chief Mechanic would be financed for approximately 3 years. (iii) Road Planning and Design Office. This office would carry out basic road planning and engineering studies, evaluate projects, and supervise construction. One expatriate engineer-economist would be financed for 25 months. 50. About six fellowships would be provided for practical training abroad. Candidates for these fellowships should be satisfactory to the Association (Section 3.09 of the Draft Development Credit Agreement). To ensure the adequate establishment of the three offices, the appointment of qualified national staff as counterparts to the technical assistance would be a condition of credit effectiveness (Section 7.01(a) of the draft Development Credit Agrement). The relevant positions would be: (i) Equipment Inspection Office. One mechanical or road engineer, one chief mechanic and three equipment controllers. (ii) Procurement Office. One procurement and one forwarding officer. 51. Assistance to the Equipment inspection and Procurement Offices would also include construction of buildings and improvement of workshops. The effective utilization of the assistance would depend on the availability of certain national staff, the appointment of which would be a condition for disbursement of funds for construction of buildings (para 3(b) of Schedule I of the draft Development Credit Agreement). 52. Directorate of Transport: The Directorate will be strengthened to improve its planning function. The particular activities identified in this context are: (a) collection and publication of transport data, (b) prepara- tion of transport sector studies, (c) inter-departmental coordination for  - 14 - transport planning and road traffic regulation and enforcement, and (d) regulation of the road transport industry. The services of a transport economist would be financed for 30 months. Furthermore a fellowship would be financed for training in transport planning and operations. The selection of a transport economist and of the recipient of the fellowship would be subject to approval by the Association (Section 3.02 (a) and 3.09 of the draft Development Credit Agreement). 53. Trucking Industry: The Cooperative des Transporteurs Tchadiens (CTT) controls most trucking operations. Its present organization and its capacity to organize the industry requires strengthening particularly as regards coordination among truckers, shippers and transport intermediaries. The project would therefore include fifteen months of services of a trucking industry expert. The project would also provide training abroad for CTT's assistant director, who is responsible for trucking operations, and a fellow- ship in transport industry operations. Rural Roads Study 54. A study to review the transport requirements of the rural areas and to prepare a rural roads project for possible financing by the Association would be financed under the project. Thirty-five man/months have been allo- cated for the study and the terms of reference have been agreed upon. Completion of the Improvement and Maintenance Program for Cotton Feeder Roads 55. The training program, ;started under the Second Highway Project, was recently extended to ensure continuity between this initial program and the training activities envisaged under the proposed project. To finance this additional cost of about US$400,1000 the cotton feeder roads program also in- cluded in the Second Highway Project was reduced. The proposed credit would finance the completion of this five year cotton feeder road program. Cost Estimates 56. The total cost of the lproject net of taxes is estimated at about US$21.7 million, with a foreign component of about US$18.4 million. In addition, recurrent expenditures during the four year project implementation period would amount to some US$8.1 million, and unwaived taxes on fuel required for the project to $0.2 million. 57. The cost of equipment and spare parts is based on estimates prepared by the consultants BCEOM and updated by the appraisal mission following a survey of local dealers. The construction cost of buildings and workshops is based on the current cost per surface unit of similar works. The cost of technical assistance and consultLng services is based on the cost of similar services rendered in Chad. The average cost of services of staff from con- sulting firms (including overheads and the firm's fees) are estimated at $8,600 per month. 58. As in previous Bank Group financed projects, the Government will waive all customs duties and other taxes on project-related goods and ser- vices, except for fuel.  - 15 - Financing 59. The costs of the proposed project would be financed on a parallel basis by IDA (US$7.6 million on standard terms), USAID (US$9.0 million grant) and ADF (US$5.1 million on terms which are the same as IDA's). 60 Signature of agreements with USAID and ADF and fulfillment of initial disbursement conditions under these agreements, except for the effectiveness of the IDA credit, would be a condition of effectiveness (Section 7.01 (b) of the draft Development Credit Agreement). 61. The Government is expected to provide US$8.3 million equivalent which would primarily finance recurrent costs related to the maintenance and ferryboat components. The Government contribution would be obtained from the Road Fund (about US$7.3 million) and from the regular budget for permanent labor wages (about US$1.0 million over the project period). 62. In order to obtain the amounts required for its contribution the Government would earmark 87 percent of Road Fund revenues for project-related costs (Sections 3.01(c) of the draft Development Credit Agreement). A separate account has been opened for the Road Fund outside the Central Treasury. In addition the Government has agreed to introduce appropriate accounting pro- cedures for the Road Fund and semi-annually inform the Association about the Road Fund's revenues and expenditures (Section 4.02(a) and (b) of the draft Development Credit Agreement). Disbursement 63. Funds from the credit would cover: (a) Civil works for construction and improvement of offices and workshops - US$1.9 million, (b) Design and construction of four ferryboats and technical assistance for execution of this component - US$1.2 million, (c) Technical assistance, office furniture and equipment for the Directorate of Public Works - US$2.0 million, (d) Consultant services for preparation of Rural Roads study - US$0.3 million, (e) Construction material for completion of the cotton feeder roads program - US$0.5 million, (f) 90 percent of the operating costs to complete the cotton feeder road program - US$0.35 million, and (g) an initial advance of US$0.1 million for a revolving fund. An amount of US$1.7 million would remain unallocated.  - 16 - 64. Disbursements under (a), (b) except for labor, (c) and (d) would be fully documented, and disbursements under (e) and (f) and labor costs of (b) would be made against certificates of expenditures which would be retained by the project for inspection by IDA supervision missions. The Government would have difficulties prefinancing certain expenditures, particularly under the ferryboat program. To overcome this problem a revolving fund of US$0.1 million would be established (Section 2.02 (b) of the draft Development Credit Agreement). IDA would make a first disbursement to this fund and would replenish it upon receipt of evidence of disbursements for allowable expenses. Should any such disbursements prove ineligible for financing the Government would deposit the corresponding amount in the fund account. The establishment of an account with the Banque de Developpement du Tchad (BDT) for the revolving fund would be a condition for credit effectiveness (Section 7.01(c) of the draft Development Credit Agreement). 65. The USAID grant would be used to cover the costs of the training program and the technical assistance to the Directorate of Transport and C.T.T. and of fellowships while the ADF loan would be used to purchase equip- ment, tools and spare parts for the road maintenance program. Procurement 66. Construction and improvement of workshops and buildings (highest expected contract price about US$:365,000) and office furniture, equipment and supplies (totalling about US$250,000), would be procured following, local competitive bidding procedures acceptable to the Association. Bidders for construction and improvement of workshops and buildings would be prequalified. Building materials for ferryboats to be constructed under force account would be procured following international competitive bidding in accordance with Bank Group Guidelines. A small quantity of materials (paint, electrodes, bolts, etc.) might be required during ferryboat construction; these items and some office supplies would be purchased following solicitations of price quotations, provided that the aggregate amount does not exceed US$60,000. Should the need arise, the Directorate of Public Works could subcontract the construction of some ferryboats or parts thereof to local steel workshops following procedures acceptable to the Association (Part D of Schedule 3 of the draft Development Credit Agreement). Consultants services for tech- nical assistance to the Directorate of Public Works, ferryboat building, and the rural roads study would be secured under procedures and on terms accept- able to the Association. 67. Project components financed by the African Development Fund and by USAID, would be procured under the respective procurement procedures of these agencies. Benefits and Risks 68. The economic rate of return is estimated at 51 percent for the mainte- nance and training program the cost of which is approximately US$14.7 million; 1/ 1/ Excluding price contingencies.  - 17 - and at 44 percent for the ferryboat program, the cost of which is about US$1.2 1/ million (including technical assistance). The overall economic rate of return for the proposed project is estimated at 50 percent, based on an evaluation of about 85 percent of project costs. The main benefit of the maintenance component would be the reduction of vehicle operation costs. The ferryboat program would likewise contribute to reduction of operating costs by allowing transfer of larger truck-trailers than at present, thus permitting diversion of these trucks to shorter routes. Furthermore, lower maintenance and operating costs of the ferries themselves would contribute to lower costs. 69. Cotton and related production inputs, fuel, sugar and beverage are the most imoprtant cargoes transported by road in Chad. Reduced trans- portation costs would thus benefit the cotton industry (which is the main contributor to exports) and the economy as a whole. Furthermore reduced costs are expected to encourage expansion of agricultural production. The maintenance of about 1,300 km of roads and tracks in the Sahelian zone is likely to benefit some of the poorest inhabitants in as much as it will improve accessibility of the area. This would not only contribute to im- proved management of livestock and agriculture resources but also facilitate transport of food and other relief supplies during droughts. 70. Other non-quantifiable benefits relate to the transfer of know-how and institution building effects of the project: i.e. strengthening the Government services responsible for road maintenance and establishing the nucleus of a local ferryboat construction industry. 71. The risks of the project are not negligible and may be divided into three different categories: i) Some 1,000 km of the proposed road maintenance program would be in areas which have been intermittently regarded as mili- tarily insecure. It cannot be predicted whether this will change during the project period. A remedy permitting suspen- sion of disbursements is provided for should any part of the project areas be inaccessible to IDA representatives for efficient supervision of the execution of the project (Sec- tion 5.01(b) of the draft Development Credit Agreement). ii) Under present arrangements the Road Fund would finance a bare minimum of recurrent costs and would not contribute to cover equipment depreciation. Any reduction in the Road Fund would result in a reduction of the maintenance program. A review of the funds required, and of the possibility to increase the Road Fund's revenues should be made jointly by the Government and the Association not later than December 31, 1979 (Section 3.01(d) of the draft Development Credit Agreement). 1/ Excluding price contingencies.  - 18 - iii) The training program could fail to train the required number of staff and this would reduce the coverage of road mainte- nance operations. Economic analysis has, however, shown that even a reduction of the road maintenance program to 3,500 km and of the regravelling program to 80 km per year would still yield satisfactory rates of return. Consequently the risks are not of such magnitude as to affect the basic justification of the project particularly in view of its institution building and training benefits. PART V - LEGAL INSTRUMENTS AND AUTHORITY 72. The draft Development Credit Agreement between the Republic of Chad, and the Association and the Report of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being dis- tributed to the Executive Directors separately. 73. The following features of the Credit Agreement, also listed in Section III of Annex III of this report, are of particular interest: (a) A remedy would be provided permitting suspension of relevant disbursements if any part of the project area should be in- accessible to IDA representatives for efficient supervision of the execution of the project (Section 5.01(b) of the draft Development Credit Agreement). (b) Conditions of effectiveness (Section 7.01 of the draft Development Credit Agreement) include: (i) appointment of counterpart staff; (ii) signature of agreements with USAID and ADF and ful- fillment of initial disbursements conditions, under these agreements, except for the effectiveness of the IDA Credit; and (iii) opening of a special account for the revolving fund. (c) A condition for disbursement for civil works for Directorate of Civil Works buildings would be the appointment of certain key national staff (para 3(b) of Schedule I of the draft Development Credit Agresement). 74. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.  - 19 - PART VI - RECOMMENDATION 75. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments July 5, 1978  - 20 - ANIX I TAB LE IAPaeIo4pgs CHAD - SOCIAL INDICATORS DATA SHEET Page 1 of 4 pagec LAND AhEA - T- OU K- 2) CHACD REFERENCE COUNTRIES (1970) TOTAL 1284.0 MOSTC RECEIRT AGRIC. 520.0 -19O 1970 ESTIMATE MALI BOLIVIA CENTRL AL RICN EMPIRE** GNP PER CAPITA (USS) 70.0* 9C.0h 120.1*0 70.0* 220.0* 170.0 -__ __ ____ _ __ _ _ POPULATION AND VITAL STATISTICS POPULATION (MID-YR, MILLION) 3.1 3.5 4.1/a 5.1 4.9 POPULArION DENSIIY 30 30 , . . PER SQUARE KM. 2.0 3.