Ghana - First and Second Highway Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5189 PROJECT PERFORMANCE AUDIT REPORT GHANA FIRST AND SECOND HIGHWAY PROJECTS (CREDIT 438 AND CREDIT 594/LOAN 1182-GH) June 27, 1984 Operations Evaluation Department '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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT GRANA FIRST AND SECOND HIGHWAY PROJECTS (CREDIT 438 and CREDIT 594/LOAN 1182--G) TABLE OF CONTENTS Page No. Preface....... ................. ......................... I Basic Data Sheet..................................... i1 Highlights........................... ..................... v PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT PREPARATION AND BACKGROUND......... . ... 1 II. PROJECT IMPLEMENTATION.............. ..... .. 2 III. POINTS OF SPECIAL INTEREST............... ......... 9 IV. CONCLUSIONS..................... ........................ 13 PROJECT COMPLETION REPORT - FIRST HIGHWAY PROJECT I. Introduction................................... is II. Project Identification, Preparation and Appraisal......... 16 III. Project Implementation and Cost..... . ... 19 IV. Institutional Development .............................. 26 V. Economic Reevaluation.............................. 27 VI. Bank Performance................................ ...... 29 VII. Conclusions................ ........... 29 Tables 1. Status of Road Sections for Rehabilitation and Improvement ............................... ....... 31 2. Actual and Appraisal Estimates of Project Cost........... 32 3. Schedule of Disbursements................... ....... 33 4. Comparison of Actual and Forecast Traffic on Project Roads........... .............. o...... .o. 34 5. Estimated Economic Vehicle Operating Costs at 1979 Prices............. ....... .... 35 6. Economic Reevaluation of the Anyiuam-Konongo Road.a.... 36 7. Economic Reevaluation of the Yamoransa-Daboase Junction Road............. ........ .- ....... oo.. 37 ma IBRD 3691R1 IThis document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (cont'd.) Page No. PROJECT COMPLETION REPORT - SECOND HIGHWAY PROJECT I. Introduction.............................................. 41 II. Project Identification, Preparation and Appraisal......... 43 III. Project Implementation and Cost........................... 48 IV. Institutional Development............ ................. 56 V. Economic Reevaluation.......................... ....... -. 59 VI. Bank Performance............ ............................ 60 VII. Conclusions.......................... ....... 61 Tables 1. Actual and Appraisal Estimates of Project Costs.......... 62 2. GHA's Road Maintenance Budget 1976-82................ ... 63 3. Estimated and Actual Periodic Maintenance Performed, 1976/77-1979/80......................................... 64 4. Estimated Progress of GRA's Maintenance Contractors........ 63 5. Schedule of Disbursements.......... ...................... 66 6. Recommendations of Consultants on Commerical Banking Operations of BHC.......................... .......... 67 7. BHC: Income Statements, 1975-81 ........... ........ 68 8. BHC: Balance Sheet as at June 30, 1975-1981...... .... .. 70 9. BHC: Financial Ratios............ ... .............. .72 10. Economic Reevaluation of Force Account Maintenance Operations.................... ........................ 73 11. Economic Reevaluation of Regravelling by Private Contractors........................... ................ 74 12. Economic Reevaluation of the Achimota-Nsawams Road........ 75 Annexes: 1. Bank of Housing and Construction Comments ............... 77 2. CIDA Comments -...................... ............... 79 Map IBRD 3691R2 PROJECT PERFORMANCE AUDIT REPORT GHANA FIRST AND SECOND HIGHWAY PROJECTS (CREDIT 438 and CREDIT 594/LOAN 1182-GB) PREFACE This is the performance audit report on two projects in Ghana: the First Highway Project (of October 1973 for US$13.0 million), and the Second Highway Project (of December 1975 for US$28.0 million). Excluding US$10,000, which were cancelled under the Second Project, credit and loan funds have been fully disbursed and bilateral as well as multilateral aid, mainly in the form of technical assistance, has been provided to the Government for the implementation of project-related activities. This document consists of two Project Completion Reports (PCRs) prepared by the West Africa Regional Office in 1981 and 1982 but subsequently updated, and of a Project Performance Audit Memorandum, prepared by the Operations Evaluation Department (OED). The audit of the two projects has been combined because they were executed more or less concurrently, because their implementation was subject to identical politico-economic factors, and because a joint review allows broader conclusions on the Bank's role in project inception and execution. OED has reviewed the PCRs for the two projects. To the extent possible, forecasts and estimates in the Appraisal and President's Reports have been compared with actual results. Legal documents, the transcripts of the Executive Directors' meetings which considered the projects, and the relevant documentation preserved in the Records Center lhave been studied. Discussions were held with Bank operational staff and with consultants who worked on various project components. An OED mission visited Ghana in November 1983, had discussions with the Ghanaian authorities, and travelled on project roads. The audit finds that the PCRs prepared by the West Africa Regional Office provide a comprehensive deseription of the experience secured during the preparation and implementation of the two projects. It concurs with most of the PCR conclusions and elaborates on certain institutional, procedural and operational issues. The audit was sent to the Borrower and to co-financiers for com- ments. Responses received- are attached at the end of the Performance Audit Report and points raised have been incorporated in the text as appropriate. PROJECT PERFORMANCE AUDIT BASIC DATA SHEET GHANA FIRST AND SECOND HIGHAY PROJECTS (CREDIT 438 AND CREDIT 594/LOAN 1182-GB) KEY PROJECT DATA FIRST HIGHWAY PROJECT SECOND HIGHWAY PROJECT Appraisal As Amended Appraisal Item Estimate 12/23/75 /a Actual /b Estimate Actual Total Project Cost (US$ million) 19.5 31.2 41.2 35.8 43.2 /e Overrun (US$ million) - 11.7 21.7 - 7.47e Overrun (Z) - 60 111 /c - 20.6 Credit/Loan Amount (US$ million) 13.0 13.0 13.0 10.00/18.00 10.00/18.00 Disbursed 13.0 13.0 13.0 10.00/18.00 9.99/18.00 Cancelled - - - 0.01/ - Repaid (as of 11/30/83) - 0.0 - 0.00/00.97 Outstanding - 13.0 - 10.00/14.00 If Date Physical Components Completed early 1977 - 06/82 06/30/79 11/30/83 Proportion Completed by Above Date 100 - 51 100 70 Proportion of Time Overrun (Z) - 125 - 125 /e Economic Rate of Return (%): - Reconstruction Component 22 15 25 Id 14 15 Maintenance Component - - - 54 34 Cumulative Estimated and Actual Disbursements (USS million) First Highway Project FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY 81 (Credit 438-GH) (i) Estimated 0.7 5.0 10.5 13.0 13.0 13.0 13.0 13.0 (ii) Actual 0.1 0.5 3.3 6.6 10.3 12.6 12.9 13.0 (iii) % of (ii) to (1) 14 10 31 51 79 97 99 100 Second Highwa Project FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 (Credit 594/oan 1182-GH) GRA BBC GRA BHC GRA BBC GRA BHC GEA BBC GRA BBC GEA BRC GRA BHC (1) Estimated 5.0 0.9 13.1 3.7 16.7 6.5 19.7 7.5 20.5 7.5 20.5 7.5 20.5 7.5 20.5 7.5 (ii) Actual - - 7.5 - 12.0 - 13.0 5.8 15.2 6.8 15.8 7.5 17.0 7.5 20.5 7.5 (iii) % of (ii) to (1) - - 57 - 72 - 66 77 74 91 77 100 83 100 99.9 100 COUNTRY EXCHANGE RATES Name of Currency and Abbreviation Cedi/L Exchange Rate 1972 at Appraisal US$1 - 1.15 Cedis 1978 Second Quarter US$1 - 1.35 " 1978-August 1981 US$1 - 2.75 1983 November US$1 - 30.00 " /a A second amendment extending the project scope was approved on 10/07/77 (see PCR, pars. 3.14). 71 Parts of project left incomplete (see PCR, para. 1.05). /c Overrun for the two road sections on which work was performed is roughly 50C% of the project cost estimate, but these were built to much higher than the original design standards. /d PCR estimate; audit unable to calculate return but concludes that rate shown in PCR may be taken as an approximation. /e PCR estimates derived from best available information. 7T Borrower's obligation excluding exchange adjustment of US$3.02 million. 2j GHA: Ghana Highways Authority. BHC: Bank of Housing and Construction. PROJECT PERFORMANCE AUDIT BASIC DATA SHEET GHANA FIRST AND SECOND HIGHWAY PROJECTS (CREDIT 438 AND CREDIT 594/LOAN 1182-GB) Key Project Data FIRST HIGHWAY PROJECT SECOND HIGHWAY PROJECT Appraisal As Amended Appraisal Item Estimate 12/23/75 Ia Actual /b Estimate Actual Total Project Cost (US$ million) 19.5 31.2 41.2 35.8 43.2 /e Overrun (US$ million) - 11.7 21.7 - 7.4 7e Overrun (Z) - 60 111 /c - 20.6 Credit/Loan Amount (US$ million) 13.0 13.0 13.0 10.00/18.00 10.00/18.00 Disbursed 13.0 13.0 13.0 10.00/18.00 9.99/18.00 Cancelled - - - 0.01/ - Repaid (as of 11/30/83) - 0.0 - 0.00/00.97 outstanding - 13.0 - 10.00/14.00 If Date Physical Components Completed early 1977 - 06/82 06/30/79 11/30/83 Proportion Completed by Above Date 100 - 51 100 70 Proportion of Time Overrun (Z) - 125 - 125 /e Economic Rate of Return (%): - - Reconstruction Component 22 15 25 /d 14 15 Maintenance Component - - - 54 34 Cumulative Estimated and Actual Disbursements (US$ million) First Bighway Project FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY 81 (Credit 438-GH) (i) Estimated 0.7 5.0 10.5 13.0 13.0 13.0 13.0 13.0 (ii) Actual 0.1 0.5 3.3 6.6 10.3 12.6 12.9 13.0 (iii) Z of (ii) to (1) 14 10 31 51 79 97 99 100 Second Highway Project FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 /& (Credit 594/Loan 1182-GR) GRA BHC GRA BHC GRA BHC CHA BHC GRA BHC CHA BBC GRA BBC GRA BHC (1) Estimated 5.0 0.9 13.1 3.7 16.7 6.5 19.7 7.5 20.5 7.5 20.5 7.5 20.5 7.5 20.5 7.5 (ii) Actual - - 7.5 - 12.0 - 13.0 5.8 15.2 6.8 15.8 7.5 17.0 7.5 20.5 7.5 (iii) Z of (ii) to (i) - - 57 - 72 - 66 77 74 91 77 100 83 100 99.9 100 COUNTRY EXCHANGE RATES Name of Currency and Abbreviation Cedi/4 Exchange Rate 1972 at Appraisal USS1 = 1.15 1978 Second Quarter USS1 - 1.35 1978-August 1981 US$1 - 2.75 1983 November US$1 - 30.00 /a A second amendment extending the project scope was approved on 10/07/77 (see PCR, para. 3.14). 7-b Parts of project left incomplete (see PCR, para. 1.05). 7_ Overrun for the two road sections on which work was performed is roughly 500% of the project cost estimate, but these were built to much higher than the original design standards. /d PCR estimate; audit unable to calculate return but concludes that rate shown in PCR may be taken as an approximation. /e PCR estimates derived from best available information. ?Y Borrower's obligation excluding exchange adjustment of US$3.02 million. &- HGRA: Ghana Highways Authority. 5BHC: Bank of Housing and Construction. -iv - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET GHANA SECOND HIGHWAY PROJECT (CREDIT 594/LOAN 1182-GE) OTHER PROJECT DATA Appraisal Item Estimate Actual First Mention in Files 01/16/74 Government's Application - 12/06174 Negotiations 05/75 11/10-11/75 Board Approval Date 07/75 12/23/75 Loan/Credit Agreement Date - 12/23/75 Effectiveness Date 02/23/76 03/30/76 Closing Date 12/31/80/ 03/31/83 06/30/82 Borrower Republic of Ghana Executing Agency Ghana Highway Authority Bank of Housing and Construction Fiscal Year of Borrower July 1 - June 30 Follow-on Project Third Highway Project Credit Number 1029-GH Credit Amount (US$ million) 25 Credit Agreement Date 08/27/80 MISSION DATA Month/ No. of No. of. man- Item Year Weeks Persons Weeks Date of Report Identification /a Preparation 01/74 1.5 4 6.0 02/12/74 03/06/74 Preparation 10/74 2.0 2 4.0 11/20/74 Appraisal 01/75 4.0 3 12.0 02/26/75 Post Appraisal 09/75 0.5 3 1.5 11/25/75 Supervision I 02/76 1.0 1 1.0 04/28/76 03/76 1.0 2 2.0 04/23/76 Supervision II 06/76 1.0 4 4.0 08/06/76 Supervision III 10/76 1.0 3 3.0 12/10/76 Supervision IV 03/77 1.0 2 2.0 05/27/77 03/77 1.0 1 1.0 04/22/77 Supervision V 06/77 0.5 2 1.0 07/15/77 Supervision VI 04/78 1.0 2 2.0 05/18/78 04/78 1.0 2 2.0 06/25/78 Supervision VII 09/78 1.0 1 1.0 11/10/78 Supervision VIII 12/78 0.5 1 0.5 01/08/79 Supervision IX 03/79 0.5 1 0.5 06/14/79 Supervision X 06/79 0.5 2 1.0 06/29/79 Supervision XI 10/79 1.5 3 4.5 11/02/79 10/79 1.5 2 3.0 01/22/80 Supervision XII 03/80 2.0 2 4.0 05/01/80 Supervision XIII 06/80 0.5 2 1.0 07/29/80 Supervision XIV 11/80 0.1 3 0.3 L2/15/80 Supervision XV 03/81 0.5 3 1.5 05/21/81 Supervision XVI 03/81 0.5 1 0.5 Supervision XVII 06/81 0.5 1 0.5 07/16/81 Supervision XVIII 12/81 0.5 1 0.5 01/13/82 Supervision XIX 05/82 0.5 2 1.0 07/16/82 Supervision XX 09/82 1.0 1 1.0 10/22/82 Supervision XXI 01/83 0.5 2 1.0 02/15/83 Supervision XXII 03/83 0.1 1 0.1 04/08/83 Supervision XXII 04/83 0.5 1 0.5 05/05/83 Supervision XXIV 08/83 0.2 2 0.4 09/23/83 /a Project was identified during the preparation of Highways I. - v - PROJECT PERFORMANCE AUDIT REPORT GHANA FIRST AND SECOND HIGHWAY PROJECTS (CREDIT 438 and CREDIT 594/LOAN 1182-GH) HIGHLIGHTS The two projects were to strengthen domestic capabilities for plan- ning, executing and maintaining roadworks. The Ghana highway network in the early 1970s had deteriorated to the point where extensive reconstruction and systematic maintenance were urgently needed and this dictated the reorganiza- tion of road services in the Public Works Department and the development of an efficient domestic construction industry. Politico-economic difficulties plagued the country throughout the 1970s and early 1980s, and the resulting climate of uncertainty affected the economy, public administration, economic management, and the implementation of development projects. Changes of Government, shortages of foreign exchange, absence of incentives for greater efficiency in the public sector, have mitigated against the full achievement of project objectives. The main com;.onent of the First Project was a three-year rehabili- tation program, which originally encompassed 345 miles of trunk roads, subse- quently reduced to 138 miles, but only 96 miles were completed under the project (PCR, Highways I, paras. 3.07-3.11). At appraisal, rehabilitation of the 345 miles had been estimated to cost US$19.5 million equivalent, or about US$41,000 equivalent per mile at the official exchange rate. When the Credit was closed on December 31, 1980, the 96 miles that were rebuilt had cost about US$37.5 million equivalent, or about US$390,000 per mile at the official exchange rate. To a large extent, the cost increase was due to a shift from rehabilitation to major reconstruction which has been defended on the grounds that traffic was growing on poorly maintained roads and road failure could no longer be arrested by rehabilitation (para. 15). The Second Project had two parts. Part (A) was to help with insti- tution-building in the Ghana Highways Authority (GHA) and to support the 1975-79 road maintenance program and some road construction. Part (B) was to encourage the development of a domestic construction industry: project funds would be lent for equipment purchases to private domestic contractors through the Bank of Housing and Construction (BHC), a domestic development bank. Part (A) had two main components: (a) Execution of the first four years of the road maintenance program Appraisal targets: routine annual maintenance of 7500 miles of trunk and of 6000 miles of feeder roads, plus periodic maintenance of 5000 miles of main and feeder roads. Actual results: less than 30Z of the appraisal target (para. 21). - vi - (b) Reconstruction of the Achimota-Nsawam Road This 16 mile length was completed in late 1983, 54 months later than planned and with local costs three times higher than the appraisal estimate. Due to the prolonged contract period, super- vision costs amounted to 15 per cent of the total (para. 23). Part (B) had four components of which the main two represent on- lending facilities to road contractors and quarry operators. After some initial difficulties, loans to road contractors proved to be beneficial. Three quarry operators have been granted loans but none of the equipment pro- cured has been put into operation (paras. 26 and 27). Project organization was conceptually sound for both projects. In 1974, GRA became the agency responsible for all public roads (para. 5), and with the training and technical assistance provided through the two projects (paras. 15, 20, 22 and 24) was expected to become, over time, the focus for all road planning, construction and maintenance activities. In actual fact, genuine institutional development has not progressed at all because of the very poor terms of service for technical staff. Although this has been the situation for many years, three Bank-supported highway projects (the first two plus the Emergency Maintenance Project of 1980) have been unable to tackle the problem of staff incentives in GRA and Government is unwilling to show preferential treatment to the technical manpower in its work force. The audit considers that unless progress is made in this matter, no institution- building will take place (para. 39). Similarily, the audit considers that experience gained during the early period of implementing the First Project was not fully taken into account during the inception of the Second (para. 37). Project reevaluation in precise economic terms is not possible. Specifically with respect to the First Project, the audit has been unable to retrieve the computations which lowered the economic rate of return from 22% at the November 1972 reappraisal to 15% in the December 1975 project reduc- tion so as to judge whether the 25% shown as the ex post reevaluation figure has been calculated in a manner consistent with previously held assumptions. A major difficulty is to arrive at realistic cost estimates after taking due account of foreign exchange rate and price variations (PCR, Highways I, paras. 5.04-5.08; PCR, Highways II, paras. 5.01-5.03). Because of severe motor fuel shortages, traffic on the project roads showed no increase over the volumes recorded in 1975 although, in November 1983, the proportion of heavy vehicles had increased noticeably and amounted to about 50 per cent of the total. With the above reservations, the audit concurs with the PCR con- clusion that the economic rates of return for the completed sections would probably range between 27% and 23% for the Highways I items and would be about 34% for the maintenance component and about 15% for the road recon- struction component in Highways II. Despite the frequent changes of Bank staff working on Ghana highway projects (PCR, Highways I, para. 6.01), relations between the Government and the Bank have been amicable and cordial throughout. However, the Bank's - vii - desire to accelerate project processing was allowed to obscure cautionary warnings indicated by developments and events in Ghana (para. 45). In addi- tion, the Bank's attitude concerning bidding procedures was ambivalent (para. 13) and insufficient attention was paid to the distorting effect of Government-owned firms participating in the bidding process without a rigor- ous application of prequalification criteria. The Bank ought to take a firm position regarding the relative importance it assigns on the one hand to com- petitive bidding and, on the other, to the nurturing of Government-owned con- struction entities (PCR, Highways II, para. 7.05). Other points of special interest are: - the need for project reappraisal when there is a changing and deteriorating country environment (paras. 11, 13 and 36; PCR, Highways I, para. 3.08); - the need for greater integration of macroeconomic work with project lending (para. 35); - the need to keep project targets at realistic levels (para. 37; PCR, Highways II, para. 7.03); - the need for careful prequalification of contractors (para. 13, PCR, Highways II, para. 7.05); - the need to explore the scope for using more labor and fewer machines, at least for the construction of feeder roads (para. 51); - the opportunity afforded by the appraisal of the proposed Fourth Highway Project for a thorough discussion of the Government's views on the role and functions of the Ministry of Roads and Highways (paras. 40 and 49); - the need for open-ended definition of project scope and objectives to allow modifications when changed conditions render unrealistic the original targets (para. 53; PCR, Highways I, para. 7.01); - the need for 100 per cent financing of foreign exchange require- ments (para. 53); and - the encouraging signs of cooperation among GRA, BHC and the domes- tic contractors (para. 44). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM GHANA FIRST AND SECOND HIGHWAY PROJECTS (CREDIT 438 and CREDIT 594/LOAN 1182-GH) -- I. PROJECT PREPARATION AND BACKGROUND 1. By the late 1960s, the Ghanaian road network had seriously deteri- orated because of inadequate maintenance, rapid growth of heavy traffic on roads designed for lighter vehicles, and administrative inefficiency. Road transport catered for much of the freight and passenger movements and network failure impeded economic development in general and the movement of agricul- tural commodities in particular. Sound maintenance practices had to be introduced and selected road segments had to be strengthened to accommodate heavier vehicles. 2. The Bank Group's initial involvement in the highway sector was an Engineering Credit (57-GH of 1969 for US$1.5 million) which helped finance the design of two major roads. Higher than anticipated costs and lower than estimated traffic led the Government to defer construction. Since the network as a whole continued to deteriorate, the Government and the Bank proceeded with the preparation of a rehabilitation project encompassing a larger number of fairly short road sections. Bilateral aid was secured for the additional studies needed and the project was appraised in October 1971. At the beginning of 1972, Ghana underwent a change of Government and project processing was deferred. In September 1972, the Government asked that the project be reactivated and proposed certain revisions which necessitated a November 1972 reappraisal (PCR, Highways I, paras. 2.03-2.04). 3. The First Highway Project was negotiated in June 1973, presented to the Board in October, signed in November and became effective in January 1974. The delay in Board presentation arose from problems related to Ghana's debt repayment to foreign creditors, an indication of the financial difficul- ties which, over the years, would continue to plague the economy. 4. The origins of the Second Highway Project go back to 1972 when consultants were retained, with bilateral aid financing, to draft a study for improving road maintenance practices in the Public Works Department (PWD) and to draw up a four-year maintenance program. While this study was being prepared, the processing of the First Highway Project was sufficiently advanced and maintenance issues were deferred to the second project. In early 1974, a Task Force of PWD staff was established to translate the study findings into a work program and the Government engaged a different consul- tant, financed by a different aid agency, to provide technical assistance to the Task Force. 5. The July 1974 report of the Task Force led to the creation, in December 1974, of the GRA and to the assignment of responsibility for all - 2 - public roads to the new agency. This was a sound move since, up to that point, PWD had been responsible for 6,800 miles of main roads while various Government agencies administered about 13,000 miles of feeder roads. The previous arrangement had been unsatisfactory because little maintenance was performed on feeder roads and PWD could not effectively control either its budget or its regional staff who reported to the regional chief executives. The establishment of the GHA simplified and rationalized the lines of respon- sibility and the new agency was significantly assisted by the Task Force which served as the technical arm for the reorganization itself and inven- tcried the feeder roads network which became GRA's official responsibility in July 1977. 6. The Government recognized that GHA lacked the capacity to perform by force account all necessary periodic maintenance on both former PWD roads and on feeder roads. Furthermore, the poor bidding response experienced under the First Highway Project suggested the need to strengthen the domestic construction industry. The Second Highway Project consequently included a component to use private domestic contractors to execute regravelling and resealing works initially and, eventually, for them to undertake more complex civil works. With this objective in mind, project funds would be lent for equipment purchases to private domestic contractors through the Bank of Housing and Construction (BHC), a domestic development bank. 7. The Second Highway Project was appraised in January/February 1975 when financing and contractual difficulties over the rehabilitation component of the first project were beginning to emerge. A post-appraisal took place in September 1975, negotiations were in November, the project was approved and signed in December and became effective in March 1976. The delays were caused by various reasons and are also attributable to the combination of a conventional highway maintenance project with a Development Finance Corpora- tion (DFC) operation which, at the time, represented a completely new lending approach for the Bank. II. PROJECT IMPLEMENTATION A. First Highway Project (Credit 438-GH) 8. The project consisted of a three-year road rehabilitation program; of preinvestment studies for high priority road segments; of preparatory work leading to the formulation of a road maintenance program; and of the acquisi- tion and installation of equipment for traffic control and traffic surveys. 9. Thirteen road sections, totalling about 345 miles, were scheduled for rehabilitation under the project. The prequalification notice in Decem- ber 1973 elicited responses from 32 contractors, including three domestic firms. Prequalified contractors were invited in May 1974 to apply for tender documents for the three highest priority road sections. Ten contractors applied but only two submitted tenders which were opened in August 1974. The lowest evaluated bid was submitted by a wholly-owned Government firm and, with the Bank Group's concurrence, the firm was to be awarded contracts for all three sections. The award for the first section was made in October 1974 but before contracts for the other two sections could be awarded, the con- tractor learned that the Bank of Ghana would not issue import licenses to local suppliers from whom equipment could be purchased with local currency. As a result, the contractor declined to extend the bid validity for the remaining two sections. Alternatives were explored to resolve the Impasse but with no success partly because the highway services of the Public Works Department (transformed by that time into the Ghana Highway Authority), had decided to upgrade the design standards of the two sections due to increased traffic (PCR, Highways I, paras. 3.03-3.04). 10. In view of the earlier poor bidding response, bidding documents for the two sections were revised to include a mobilization advance. In May 1975, the Ghana Highway Authority (GRA) called for tenders but only on the second section. Four tenders were opened in August 1975 and were all rejected because they were considerably above the engineer's estimate and displayed a wide spread. New tenders were opened in November 1975 and this time the successful tenderer was below the engineer's estimate (PCR, Highways I, para. 3.07). 11. By late 1975 it was evident that the project would cost double the appraisal estimate because the scope of work had been expanded from partial rehabilitation to reconstruction. Further cost increases arose out of price escalations caused by delays in starting the work. A reappraisal was considered but rejected and the Government and the Bank agreed to go ahead with the project on a reduced basis. The Credit Agreement was amended by a President's Memorandum to the Board (dated December 23, 1975) to reduce the total length of road to be rehabilitated from 345 to 138 miles. 12. Of the 138 miles of road reconstruction included in the reduced project only 96 miles were completed. About half of the completed length has a single seal surface instead of the double seal planned. Details on the changes in specifications and scope of work, as well as on the problems encountered during works execution, are given in paras. 3.07-3.11 of the Highways I PCR. In agreement with the Bank, items dropped from the rehabili- tation program have subsequently been, or are being completed but not under the project. The standard of work done under the project is variable and sometimes very good. The length left with only a single seal surface has stood up to traffic surprisingly well, although a second seal is now urgently required if it is not to fail. 13. The audit agrees that the more than three-year delay between the completion of the engineering studies in 1971 and the commencement of construction in 1975 could justify a review of the scope of work. No plausi- ble explanation has been forthcoming as to why the desireability of modifica- tions was not apparent when the first contract was signed in October 1974. Three months later, in January 1975, the need for drastic modifications was recognized and significant revisions were made in March 1975 in the scope of - 4- the contract already signed and in a further contract signed in May 1975. Considered together, these contract modifications and the poor response to bid invitations one year earlier (cf. para. 9 above), raise two questions to which the audit has not found satisfactory answers. First, did participation in the bidding of a firm wholly-owned by the Government discourage other contractors and thus inhibit both international competitive bidding (ICB) and local competitive bidding (LCB)? If this did happen, and experience from the project suggests that it did, the Bank ought to take a firmer position regarding the relative importance it assigns on the one hand to competitive bidding and, on the other, to the nurturing of government-owned construction entities. The second question is: given the resources and experience of the Government-owned firm (PCR, Highways I, para. 3.07), on what basis was it prequalified in the first place? The Highways I PCR (para. 3.19) raises the same question but the audit finds that the answer put forward is not satis- factory; namely that the Government stressed self-reliance in the construe- tion and engineering fields and was consequently prepared to prequalify its own company. Quite apart from queries regarding the role of the consulting engineers who accepted this line of reasoning, such an attitude defeats the purpose of prequalification which is to identify firms that can do the job efficiently now rather than to provide work for firms which will hopefully do so at some point in the future. The possible distorting effect of Govern- ment-owned firms participating in the bidding process without a rigorous application of sound prequalification criteria deserves serious thought and consistent action on the part of the Government and the Bank. 14. Preinvestment studies for further road improvements were carried out as planned (PCR, Highways I, para. 3.20). Preparatory work for a road maintenance program, financed by a donor agency, consisted of translating the findings of the 1972 maintenance study (para. 4, above) into an action program, and was satisfactorily completed and led to the Second Highway Project (PCR, Highways I, para. 3.21). Equipment for traffic control and traffic surveys was procured but weighbridges were not purchased, probably because of lack of political commitment to reduce the circulation of over- loaded vehicles (PCR, Highways I, para. 3.22). 15. The combined cost of these three components was slightly abore the appraisal estimate. The road rehabilitation component registered very significant cost increases. At appraisal, rehabilitation of 345 miles was estimated to cost about US$19.5 million equivalent, or about US$41,000 equivalent per mile. The Credit was closed on December 31, 1980 and, at that time, 96 miles had been rebuilt at a cost of about US$37.5 million equiva- lent, or about US$390,000 per mile, and a part of this length was not com- pleted fully according to specifications (cf. para. 12 above). Thus, although the cost of the component had indeed doubled (PCR, Highways I, para. 3.17), the cost per mile had increased some ninefold. Higher costs were due to necessary changes in the scope of work, to high domestic inflation, and to the international inflation provoked by the 1973 oil crisis. Cost increases officially recorded may reflect an overestimation of cost increases in economic terms because of the divergence between cost of - 5- inputs in the official and parallel markets and because of differences between the officiall/ and the unofficial exchange rates.2/ Project inputs were procured in the official market and valued at the official exchange rate. Taking into account these enormous price increases and considering the financial constraints imposed upon Ghana by its faltering economy, the audit questions the rationale behind the Government's decision, and the Bank's concurrence, to increase construction standards and thus, by shifting from partial rehabilitation to reconstruction, to allow such massive cost increases. 16. The credit became effective in January 1974 and work was planned to be completed by early 1977. The original closing date of December 31, 1977, was subsequently extended to December 31, 1980. At the time of this audit (November 1983), work remained to be done even on the reduced length of the reconstruction program shown in the amended Credit Agreement of December 1975 (cf. para. 11 above). The prolonged implementation period, which contributed to the cost increases already discussed, was primarily due to the politico- economic climate which made it difficult for contractors who, at any event, suffered from management and organizational problems, to operate efficiently or at all (PCR, Highways I, paras. 3.12-3.16). 17. The audit agrees with the PCR (para. 5.02) that calculations to reevaluate the economic return of the project should be treated with caution. The principal stumbling block is to arrive at a realistic cost estimate after taking due account of foreign exchange rate and price varia- tions. Because of severe motor fuel shortages, traffic on the project roads at the time of the audit showed no increase over the traffic volumes recorded in 1975 (PCR, Highways I, Table 4), although the proportion of heavy vehicles in the traffic composition had increased noticeably, according to spot counts by the audit mission, and amounted to about 50 per cent of the total. The audit has been unable to retrieve from the files the computations which gave a 15% rate of return for the reduced rehabilitation project (para. 11 above) and cannot therefore say whether these represented more realistic estimates, especially when compared with the similar rates registered for the Second Project (PCR, paras. 5.01-5.03), than the results shown in the First Project PCR. With the above reservations, the audit concurs with the PCR that the economic rates of return for the completed sections would most likely range from 27% to 23%, as against 23% and 19% estimated at appraisal (PCR, Highways I, paras. 5.04-5.08). 18. Para. 3.24 of the PCR for the First Project highlights the fact that Government did not make available in time the foreign exchange necessary for the project. This omission was found by the audit to be the root cause for most of the implementation delays. In addition, the audit considers that 1/ 41 .15 = US$1.00 at appraisal and 30 = US$1.00 in 1983. 2/ Using late 1983 GRA unit rates and the 1983 official exchange rate, road improvements of the scope carried out are estimated to cost between US$200-300,000 equivalent per mile. - 6 - Government was in breach of Section 4.05 of the Credit Agreement by not purchasing the weighbridges for which funds were available under the project (PCR, Highways I, para. 3.22). B. Second Bighway Project (Credit 594/Loan 1182-GH) 19. Project components fall into two parts. Part A (six components under GHA) was to help with institution-building and to support the Govern- ment's 1975-79 road maintenance program. Part B (four components under BHC) was to encourage the development of the domestic construction industry. Part A (i): Strengthening GHA in planning, supervision and maintenance 20. The component was undertaken with the assistance of consultants whose recommendations have been generally accepted and put into practice by GRA. Reasonable planning and budgeting for road maintenance is still carried out in GHA but the results are ineffective since continuing shortages of funds, materials and supplies do not allow the implementation of the planned programs. Part A (ii): Execution of the first four years of the road maintenance program 21. The overall appraisal cargets were routine annual maintenance of 7,500 miles of trunk roads and of 6,000 miles of feeder roads, plus periodic maintenance of 5,000 miles of main and feeder roads. From the beginning of the project, annual objectives were not met due to delays in equipment deliveries to contractors and to shortage of spares, fuel, lubricants and bitumen. Considering that GRA was short of staff, the audit concludes that the targets must have been known to be overambitious even as they were being set. Work was carried out by contractors and by force account but although outputs of individual gangs and contracts were sometimes above appraisal estimates, less than 30% of the appraisal target was achieved under the project. The Third Highway (Emergency Maintenance) Project of 1980 was conceived as a rescue operation to provide the spares, lubricants and bitumen necessary to continue the road maintenance program not completed under the Second Highway Project. Part A (iii): Staff training 22. A staff training program was set up within GHA with equipment and training aids provided under the project. Training activities continue both on an ad-hoc basis (with audiovisual material) and in the form of a regular program offering four road maintenance-related courses every year with about 20-30 trainees per course. Part A (iv): Reconstruction of Achimota-Nsawam Road 23. This 16 mile section, dropped from the rehabilitation program of the First Project (cf. paras. 11 and 12 above), was completed in late 1983, - 7 - 54 months later than planned and with local costs three times higher than those in the appraisal estimate. Due to the prolonged contract period, supervision costs amounted to 15 per cent of the total. The finished result, although adequate, has a riding surface inferior in parts to the standard of roads completed under the First Highway Project, possibly due to works execution by a local contractor with no previous experience in paving. Part A (v): Studies 24. Three studies were planned to investigate local construction materials, the optimal level of feeder road investment, and the optimal level of labor-equipment mix for a range of maintenance activities. The first study yielded useful results. The second showed that in Ghana road access is not necessarily a constraint to agricultural development. The third study suffers from the fact that it regarded labor-intensive and equipment- intensive methods as diametrically opposed alternatives rather than as complementary techniques. Part A (vi): Technical assistance to the Planning Division of GHA 25. Under this component, one advisor, financed by a donor agency, was provided to improve transport planning procedures and, specifically, to assist with a road-rail coordination study of the Kumasi-Takoradi corridor. GHA was responsible for data collection and the Ministry of Transport and Communications for coordinating the synthesis. Data were partially collected but the study proceeded no further because study team members realized that investment funds were not available and that the study had become a pointless exercise. Part (B) (i): Loans to Road Contractors 26. Through BHC, the project provided loans to domestic contractors for the procurement of mechanical equipment and spares to be used on road maintenance contracts. Although the component generated complications and the results from the assistance extended to contractors are still uneven, the audit has concluded that the long-term benefits for the domestic contractor industry will be considerable if only the climate in which contractors have to operate becomes more predictable and less onerous. In May 1982, 90 per cent of the loan portfolio was in arrears but during the November 1983 audit, BUC reported that 40 per cent of the borrowers had fully repaid or were repaying on time, a further 40 per cent were repaying with some delays, and 20 per cent were regarded as unlikely to repay fully. Part B (ii): Loans to Quarry Operators 27. Under the project, loans were available for quarry equipment and spares but due to the lack of fuel and, most important, technical expertise to set up and oversee the initial operation of the equipment supplied, two of the three sites assisted have never come into production. Equipment has been standing unused for up to four years and many of the electronic acces- sories now require replacement. - 8 - Part B (iii): Technical assistance to BHC 28. The UNDP-financed technical assistance to BHC for the appraisal of loans and supervision of the use of equipment was provided but was not fully effective. BHC are critical of one expert provided under the project and whether the criticism is justified or not, harmonious relations did not develop. This emphasizes the necessity for the most careful selection of technical assistance staff and speedier arrangements for staff replacement whenever friction emerges between experts and the host organization. Part B (iv): Technical assistance to contractors and quarry operators 29. Technical assistance was also planned for contractors and quarry operators but results were minimal. Staffing was too limited to be able to assess loan applications, to assist with selection, delivery and commission- ing of equipment, and then to advise on correct procedures for equipment use and care. Insufficient technical assistance was particularly significant in the poor performance of quarry operators. 30. As with the First Highway Project (cf. para. 14 above), post- completion evaluation of the Second Project is problematic. Once again, varying exchange rates, the large differences between the value of the cedi in the official and parallel markets, and high local inflation make it virtually impossible to calculate a realistic total cost of the project. For less than one third of the maintenance output planned, costs in local currency have more than doubled in comparison to the appraisal estimates. Unit costs of project work cannot be calculated with any claim for precision due to the same combination of factors noted for the First Highway Project and to the fact that optimistic estimates of domestic inflation were used. 31. In view of the above uncertainties, the audit did not attempt to recalculate the rates of economic return for the maintenance program and for the reconstruction of the Achimota-Nsawam Road. Under the circumstances, the economic reevaluation summarized in paras. 5.01-5.03 of the Highways II PCR may be accepted as an approximation. 32. Para. 3.28 of the Highways II PCR details cases of non-compliance with the conditions of the Loan and Credit Agreements. The continuing dete- rioration of the macroeconomic environment did confront the Government with considerable problems in respect of funding in general and of foreign exchange in particular. This notwithstanding, the audit cannot see why only US$200,000 of foreign exchange were released for this project over two years (1977-79) when, even at that time, this sum represented a minute fraction of Ghana's foreign exchange holdings. While making every allowance for the country's debt problems, the extent of such a small allocation suggests a lack of Government commitment to the project specifically and, in more general terms, to road maintenance as a whole. Government reticence in this regard should have been taken more into account than it appears to have been in planning the Third Highway (Emergency Maintenance) Profect. - 9 - III. POINTS OF SPECIAL INTEREST A. The Country Context 33. In the 1960s, the human and resource endowment of Ghana allowed scope for optimism. From the road-building viewpoint, the country was particularly fortunate: it had a history of reasonable road communications, generally good supplies of road construction materials, and a reasonable number of able highway engineers. Unfortunately, the economic and social considerations which thwarted the launching of self-sustained growth led to a climate of pervasive uncertainty. In turn, this led to ineffective decision-making, inadequate macroeconomic planning, insufficient funding for many government operations, including highway maintenance, and perhaps most important of all, to the gradual loss of staff from public service to the private sector and eventually to other countries. 34. The record shows that the appraisal team for the First Highway Project was aware of the negative factors. However, since this was the first highway project financed by the Bank in Ghana, optimism prevailed that positive aspects could be assisted effectively enough for the discouraging indications to be neutralized. This turned out not to be the case and the first project proved to be more than the country could achieve within the time-frame estimated for its completion. The Second Highway Project was a continuation of the efforts begun under the first. The Third Highway Project was a 1980 emergency operation for the provision of fuel and spares, to allow the continuation of the efforts begun under the first two. 35. The two highway projects in Ghana projects were prepared, negotiated and approved with only limited examination of the socio-economic environment within which they were to be implemented. Even before appraisal of the First Project, Bank staff had noted the problem areas: budget shortages; scarcity of foreign exchange; rising unemployment and underemployment; shortfalls in PWD staffing. For each problem area, Bank and Government officials were in agreement concerning both the causes and the need for solutions. Neverthe- less, a few substantive measures were taken for reasons unrelated to the project as, for instance, in the case of the June 1973 Bank proposal to provide incentives for the repatriation of Ghanaian engineers. 36. Initial optimism about the First Highway Project is understand- able. On the other hand, the reaction of contractors at the time of pre- qualification and first bidding (December 1973 through August 1974) was a clear warning that those whose business it is to assess and take risks were unwilling to do so for the type of work proposed and in the climate then prevailing in Ghana, or that they would undertake risks but only at a very high price. Subsequent experience showed these reservations to have been correct. In view of the need to redesign the roadworks, a reassessment of the project, before the award of any contracts, would have been appropriate. - 10- Although this would have delayed the start of work, it would have helped avoid the changes and reductions in contracts that later took place. In addition, a reappraisal would have highlighted the mounting problems over foreign exchange; it might have suggested to the Bank that a higher propor- tion of IDA financing would be necessary; and it may have led to some formula whereby contractors would be given direct access to foreign exchange. For all these reasons, the audit has concluded that a reappraisal would have helped to ensure completion of a possibly modified work program. The fact that reappraisal was considered and rejected suggests that projects underway tend to be overprotected. Where there is a changing and deteriorat- ing country environment, as was the case in Ghana, the audit considers it to be incumbent upon Bank management, alerted by the Country Programs Depart- ment, to take the initiative in suggesting to the Government the need for reassessment and, if appropriate, redesign of projects at any time. 37. From the above perspective, it is difficult to see why the 1975 appraisal of the Second Highway Project did not take into account the difficulties encountered during implementation of the First and once again set ambitious targets and, furthermore, expected Government to provide human and material resources which, in the immediate past, had not been forth- coming. The audit received the strong impression that GHA and the Bank saw the Second Project as a means to put pressure on Government for an increased allocation of resources for road maintenance. Tactically, this may have been adviseable for GHA but the Bank should have questioned the efficacity of the tactic and should have investigated more closely the feasibility of the targets set. B. Institutional Development 38. Institution-building has been, and continues to be, the fundamental objective behind the Bank's assistance to the Ghana highway sector. At the beginning of the First Project, administration of highways was weak and the GHA was established in 1974. Consultant assistance was provided to PWD/GHA for design of the project roads, prequalification of bidders, award of contracts, and supervision of works. Issues related to design and contractor prequalification are discussed in the Highways I PCR (paras. 7.02-7.03) and the audit agrees with the comments made. On the whole, consultant supervi- sion of works seems to have been done competently, although the presence of consultants appears more to have provided continuity during a period of frequent institutional and staff changes in PWD/GHA, rather than markedly adding to technical expertise. Where sections of roadworks have been super- vised entirely by GHA staff, the audit found that finished standards and performance under traffic are not significantly different from those super- vised by consultants. 39. The continuation of long-term institution-building in GHA was an explicitly stated objective of the Second Project. Since its inception, GHA has had to contend with chronic lack of foreign exchange for plant, vehicles and spares, with uncertain budget allocations, and with shortages of quali- fied staff. With factors such as these outside GHA control, the audit cannot - 11 - assess the status and potential of the organization itself. Individual staff are often well trained and competent but the professional staff strength is only a quarter of establishment and has remained at this level for several years. Salaries are unrealistically low and are subject to tax rates ranging from about 25 per cent for junior staff to about 70 per cent for senior posi- tions. Professional staff have no real incentive to seek promotion or responsibility. Official fringe benefits are few and it is hard to see how an engineer can live on his salary alone. Although this has been the situa- tion for many years, three Bank-supported highway projects have been unable to tackle openly the problem of staff incentives in GHA, and Government cannot bring itself to show preferential treatment to the technical manpower in its work force. The audit recognizes that low salaries constitute a nation-wide problem affecting not only GHA but all public sector agencies and that attempts to solve the problem for one agency will probably be futile since the only promising approach is to frame salary increase recommendations in an overall national context. By the same token however, the audit considers that unless progress is made in this matter, no institution- building will take place in GHA. 40. Para. 3.28 of the Highways II PCR illustrates the temptation to undertake organizational changes in the hope that this will somehow result in better use of available resources. In 1981, Government removed the respon- sibility for feeder roads from GHA and transferred it first to the Ministry of Youth and Rural Development where it was before GHA was organized in 1974, and early in 1982, to the new Ministry of Roads and Highways. The audit believes that Government is, by undertaking these changes, in default of Article 5.01 (c) and (d) of the Second Highway Project Loan Agreement which specifically deals with changes in the terms of reference of the GHA. C. Development of the Domestic Construction Industry 41. The efforts begun under the Second Project to assist domestic contractors are laudable and continue under the Third Project. The operation was grafted onto the BHC, a relatively new and untried organization, which required, and continues to need, technical assistance. Technical assistance is necessary on the one hand to help BHC in their unbiased and realistic appraisal of loan applications and, on the other, as a source of advice for borrowing contractors in their selection, procurement, commissioning, use and maintenance of equipment. To be effective, in the sense that BHC staff and contractors will put confidence in the advice given, the advisors must be knowledgeable and in place over an extended period of time. For various reasons, neither of these conditions was met during the Second Highway Project and the effort to impr. ie the domestic construction industry suffered thereby. 42. Contractors borrow funds from BHC to purchase equipment. In order to speed up procurement, the choice of make, model and even type is often made by BHC rather than by the contractors themselves, although a few individuals have made their own selection. The majority of contractors at the time of the audit was apt to blame BHC for shortcomings in equipment, - 12 - spares, or servicing by agents and it does appear that no sufficient weight was given at the time of equipment selection to the need for agents and servicing facilities. The audit has been given to understand that BHC continues to take the lead in procurement arrangements under the Third Highway Project and if this is so, it may be unfortunate: the essence of contractor development should be that, within sensible limits and subject to competent advice from the financing agency, the contractor himself ought to be free to decide what will be his equipment, organization and management structure. 43. In the case of the Second Project, any advantage of standardized ordering was lost due to delays in issuing equipment to contractors. The delays were due to a variety of reasons: the World Bank changed its requirements for loan appraisal after a previously agreed process had commenced; delivery times from overseas to Ghana were long; BHC took a long time in processing contractors' loan applications; contractors frequently found it difficult to raise the 20 per cent down payment required. In some cases, delays in delivery after equipment had arrived in Ghana were so long that the manufacturer's warranty period had expired before the equipment was put into use. In other cases, it is reported that World Bank approval on equipment procurement matters took up to two months from the time of dispatch of a request from Ghana. On the other hand, suppliers often requested assurances from the Bank that they would be guaranteed payment and the fact that the Bank does not usually provide such assurances, in addition to the commitments made in the Credit/Loan Agreements, probably contributed to these delays. 44. For a number of years, GHA, BHC and the domestic contractors regarded one another as adversaries but the November 1983 audit received the impression that a much better than heretofore spirit of collaboration now prevails among the three parties. Technical assistance under the Third Highway Project is being extended to highway contractors; the arrears situa- tion has improved in BHC; and a Coordinating Committee, consisting of repre- sentatives of GHA, BHC and the Contractors' Association has now been revived and meets regularly to resolve problems as they emerge. These are positive signs suggesting that past efforts for the development of the domestic con- struction industry deserve to be continued and assisted further. D. Performance of the Bank 45. Relations between the Borrower and the Bank have been amicable and cordial throughout, despite the frequent staff changes (PCR, Highways I, para. 6.01). The audit noted that changing strategies within the Bank during the mid-1970s (from conventional infrastructure improvements to projects with an explicit focus on poverty alleviation; from stage construction to major reconstruction of roads) caused confusion in GHA. The review of project files and supervision reports seems to indicate that the desire to proceed with the next lending operation was sometimes allowed to obscure cautionary warnings indicated by developments and events in Ghana. - 13 - IV. CONCLUSIONS 46. The two projects set out to correct important defects in the highway system and its administration through institution-building, the establishment of sound maintenance practices, and the reduction of backlog in rehabilitation work. Major emphasis was placed on assistance to the domestic construction industry. The objectives were sound but the targets were unrealistically high. 47. Institution-building, better maintenance and development of con- tractors met with mixed success. Physical work targets were achieved in part and only after major increases in cost and time for completion. Budgetary limitations, foreign exchange shortages and lack of qualified staff were major constraints. 48. The audit has concluded that targets for almost all project compo- nents were unrealistically high because negative aspects of the socio- economic environment were either discounted or overlooked. Adverse develop- ments during the initial years of project implementation suggested reappraisal of the First Project and scaling down of the physical output planned for the Second. No such modifications were planned. 49. Institution-building is to create the environment within which a country's human capital can be best cultivated and used. Measures for insti- tution-building must be designed after a realistic assessment of prevailing conditions and the Government should be committed to confront the political and financial complications of the action program to be pursued. The audit did not see evidence of such commitment insofar as institution-building in the highway sector is concerned. The proposed Fourth Highway Project will afford opportunities for a thorough discussion of the Government's views on the role and functions of the new Ministry of Roads and Highways. 50. The development of local institutions and domestic capabilities through a series of projects is a reasonable approach. However, in environ- ments such as that of Ghana, the primary consideration should be the current and likely future condition of the country as a whole. Purely technical and strictly sectoral matters, though important, ought to be seen in the proper context. Growing politico-economic uncertainty is bound to result in slow decisions, erratic funding, and a public service whose officers, constantly shifted from one position to the next, have priorities other than the efficient and expeditious implementation of a given project. Throughout the past fifteen years, shortages of foreign exchange have had a debilitating effect on project execution. Even more crucial, the unsatisfactory condi- tions of service have not only produced staff shortages but have deprived the staff still in public service of any incentive to become more effective. The audit has concluded that unless terms of service are drastically improved all efforts for institution-building will not succeed. - 14 - 51. Both the First and the Second Highway Projects have relied on equipment-intensive construction technologies and the audit found this to have been appropriate for two reasons. First, because Ghana has no tradition in using labor-based methods in a technically sound and financially competi- tive manner. Second, because two or three years of preparation are required for a large-scale and successful substitution of men for machines in the civil construction process. The audit has concluded that continuing short- ages of foreign exchange will very likely render the exclusive dependence on equipment-based methods a financially prohibitive option. It would be a worthwhile investment for the Government to explore the scope for using more labor and fewer machines, at least for the construction of feeder roads. The two techniques should be regarded as complementary, rather than as mutually exclusive, and for this reason much care ought to be shown in the selection of properly qualified experts. 52. The audit has noted that late release of maintenance funds has frequently upset all GHA efforts for proper works scheduling. Considering the extent to which both force account operations and contract work can be adversely affected by late payments, the audit believes that maintenance scheduling and execution will benefit considerably if funds are released slightly in advance of the quarter for which budget approval has been secured. 53. The audit agrees with the First Highway Project PCR, (para. 7.01) that, for conditions such as obtained during the execution of the two projects, a more open-ended definition of scope and objectives is appro- priate. This would encourage modifications when changed conditions render unrealistic the original targets. A circumscribed local capacity, whether technical, economic, or managerial, is likely to respond best to clearly defined and realistically targeted projects. The audit has also concluded that when foreign exchange is extremely short, financing of 100 per cent of requirements may well be considered since lack of the percentage expected from Government, no matter how small, will have implications far more adverse than the size the amount might seem to suggest. -15- REPUBLIC OF GEANA FIRST HIGHWAY PROJECT CREDIT 438-GH PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 According to the appraisal report (November 1971) the national road network of Ghana was at one time probably the best in West Africa. The road network amounted to about 20,000 miles, of which 6,300 miles con- sisted of trunk roads. The network had been built at low cost to standards which were appropriate at the time. By the early 1970s, however, the network bad deteriorated significantly due to inadequate maintenance, the rapid growth of heavy traffic, and administrative inefficiency. As road transport was the dominant mode for-the movement of freight and passenger traffic, the deterio- ration posed a serious constraint on the growth of the economy, and parti- cularly on the movement of agricultural comandities. 1.02 The project was executed during a period of increasingly severe economic difficulties in Ghana, which disrupted its implementation. The most significant factor was the decline in the volume of exports,-namely cocoa, timber, manganese, gold, and diamonds. Cocoa output fell to 265,000 tons in 1978 and 296,000 tons in 1979, compared with well over 400,000 tons in the early 1970s due principally to low producer prices, inadequate rehabilitation efforts, and shortages of labor, imported inputs and transport. Production of most minerals also stagnated because of the depletion of mineral ore reserves, poor transport facilities, run-down equipment, and the discouraging. effects of an overvalued currency. Manufacturing also declined progressively due to lack of raw materials and spare parts caused by continuing foreign exchange shor- tages, and currently most plants are operating at around 20-30Z of installed capacity. These difficulties were exacerbated by iicreased oil prices, with crude oil absorbing 25% of Ghana-s export earnings in 1980 compared with 12.5% in 1978. 1.03 Ghana's economic performance has also been characterized by widenine, budget deficits, high inflation, and a persistent foreign exchange shortage. This deterioration took place notwithstanding a relatively good natural resource endowment and significant Improvement in the country-s terms of trade, and has to be ascribed essentially to.poor economic management, which was caused in part by political constraints. The uneconomic operations of a large number of government enterprises also contributed to the boudgetary Imbalance. The rate of inflation accelerated throughout the 1970s, reaching a maximum of 116Z in 1977 and ranging between 50 and 100% p.a. since then. -16- 1.04 The purpose of the First Highway Project was to rehabilitate and- strengthen important sections of the trunk road system. A second objective was to prepare the way for further improvements to the road network through pre-investment studies of r6ad Improvement needs and the formulation of a program for road maintenance. The project followed a 1969 ID& engineering credit but was based primarily.on an economic andengineering study financed by the U.K. Government. 1.05 In December 1975, as a result of Ghana's economic difficulties and a serious project cost overrun, the scope of the rehabilitation component of the project was substantially reduced to concentrate on high priority sections of two main trunk highways in the country, i.e., between Accra and Takoradi and Accra and Kumasi. The economic situation in Ghana continued to deteri- orate to the point that the two local contractors involved in the project were placed under a severe strain, which was a contributing factor to the default of one and the failure of the second to fully complete his contract. The amended project was approximately 67Z completed and the credit fully disbursed. Work is still continuing on two contracts with Government financing and these are expected to be coapleted in 1982, leaviug about 44 out of 137 miles of the revised project uncompleted. One section of the originally appraised project (Accra-Nsawam) on the Accra-Kumasi Road was completed in late 1983 under the Second Highway Project, while the rehabilitation of the remaining sections of the two main trunk roads may be included in the proposed Fourth Highway Project. Both the Second (1975) and Third (1980) Highway Projects included maintenance components. In late 1974, following discussions with the Association, the Public Works Department (PWD) was reorganized and the Ghana Highway Authority (GHA) was created with responsibility for the maintenance and construction of all public roads, which was a significant institutional improvement. 1.06 The information for this report was obtained from the Appraisal Report of a First Highway Project (Report No. 76a-GH) of June 29, 1973; the President-s Report of October 15, 1273 (Pl254a-GH); the President's Semorandum (IDA/R75-104) of December 12, 1975, to the Board recommending an amendment to the Credit Agreement No. 438-GH; supervision, Government and consultant reports; a review-of the Association's files, and discussions with staff members associated with the Project. II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Identification and Preparation 2.01 The Bank Group's first operation in the highway sector was an Engineering Credit (57 GB, US$1.5 million, 1969) which helped to finance the design of two highways, one between Accra and Kumasi and the other from Kumasi to Takoradi, both on new alignment and to high standard. The appraisal report stated that in view of the estimated construction cost being higher than expected, and the rate of traffic growth being lower, and oecause -17- of taprovements (proposed or underway) to existing roads along the two corri- dors, the Government had taken the sound decision to defer construction of these two new highways for some years. In view of the continuing deteriora- tion of the highway network, the At sociation began to consider the prepara- tion of a highway rehabilitation and maintenance project which called for additional stUdies over those financed under the Engineering Credit. 2.02 Shortly after the Engineering Credit was approved, the United Kingdom offered to finance rehabilitation and maintenance studies under terms of reference prepared by the Association. After considerable discussion, terms of reference were agreed for a rehabilitation program. A consultant was appointed to carry out the survey, and another consultant was assigned to carry out a maintenance study. 2.03 The resulting rehabilitation program was appraised in October 1971. It consisted of 18 sections of road totaling 515 miles with an estimated cost of US$19.9 million. The appraisal mission noted that progress in preparing the maintenance study was slow and went on to point out the many problems besetting maintenance. These included: lack of central financial control leading to diversion of funds, weak and poorly staffed regional organizations, poor work discipline, ineffective organization and lack of equipment and spare parts. At the beginning of 1972, Ghana underwent a change in Government and processing of the project was deferred. The Cedi was devalued, the economy faltered and problems of commercial indebtedness arose. Appraisal 2.04 In September 1972, the new Government asked that the project be reactivated and submitted a revised list of about 500 miles of road which it wanted to improve with the request that the Association finance the work. The proposed revisions in the scope of the project and the changes in cost estimates necessitated a reappraisal which was carried out in November 1972. 2.05 The reappraisal mission recommended a rehabilitation project con- sisting of about 400 miles of trunk roads at a total cost of US420.5 million. 2.06 A factor affecting the possible size of the Bank project was the possibility that the United Kingdom might consider financing road rehabilita- tion. Unfortunately, lack of progress on the part of Ghana in settling its debt problem closed off that source. 2.07 The cost estimates for rehabilitation works were based on economic and engineering studies carried out by consultants under U.K. financing. The cost estimate for the rehabilitation of the 13 sections of trunk roads included in the project ranged from US$17,300 to US$76,000 per mile (exclu- sive of engineering, supervision and contingencies). Since the project as appraised was for the widening, base reconstruction and bitumenization, the engineering was less than required for major realignment and reconstruction which is what was eventually carried out. The appraisal mission considered that the work done by the consultants was adequate to enable it to prepare -18- - reliable cost estimates. These were prepared prior to the Biddle East oil crisis, and the contingencies did not allow for the substantial inflationary impact of that event. 2.08 Both the Association and PUD considered that the consultant's maintenance study, which was to recommend a program of action to eliminate a backlog of deferred maintenance on trunk roads, needed more work. Further- more, it had to be expanded to take account of the additional maintenance requirements of secondary and feeder roads which were taken over by the PWD after the study was completed. Further economic analysis was also needec. Provision for all of these elements was included in the project. 2.09 The appraisal mission considered that equipment was needed to control traffic loading and to carry out pavement surveys. Looking to the future, the mission included in the project studies to prepare additional trunk road sections for rehabilitation and improvement. 2.10 A review of the files dealing with the preparation of the project raises a number of difficult issues. The preparation was carried out over such a long period (six years) that the road system substantially deteriorated and priorities changed. The delay was due to: (a) macroeconomic difficulties and - changes of Government during the preparation period; (b) the preparation of an engineering credit for new road construction which turned out not to be economically justified; (c) the involvement of a bilateral donor whose views and priorities differed greatly from those of the Bank; and (d) the consequent need to change the scope of works to reflect the changing condition of the road network. Less easy to identify was the influence on the Bank of steadily rising costs in determining the scope of the project which changed from construction on a new alignment in 1969 to rehabilitation at the time of the reappraisal, and eventually to reconstruction during implementation, mainly on the existing alignment. Road rehabilitation projects need to be implemented in a timely manner in order to be effective. 2.11 The increasing emphasis placed on maintenance was probably correct but unfortunately, the maintenance part of the proposed project was not ready -at the time of appraisal and had to be deferred to the Second Highway Project. Credit Negotiations 2.12 Negotiations for the project were held in Washington June 4-8, 1973. Agreements were reached on all the items usually included in a highway pro.3ect at the time, such as: provision for adequate road maintenance funds and ensuring their proper use, collection of traffic data and introduction of regulations to control vehicle weights. Detailed agreement was reachea as to the formulation of a program to improve maintenance of the highway network and the procedure for Implementing it. The Government requested protection from possible US dollar devaluation, and was told this could not be done but that the cost estimates had been updated to include most recent cntrency changes and- included a special contingency to cover price escalation. The Government was also told that - consideration could be given to preparing a follow-up project if necessary to cover major short-falls on the rehabilitation component. There were no major disagreements. -19- Credit Signing and Effectiveness 2.13 The project was presented to the Board and approved on October 30, 1973, nearly five mouths after negotiations. The delay in Board presentation is attributed to concern over problems related to Ghana's debt repayment to foreign creditors. During presentation, several board members referred to the country-s debt repayment problem and expressed hope for an early deot 3ettlement. OThere were no questions on the project itself. 2.14 The credit was signed on November 21, 1973, and became effective on January 22, .1974. The project was scheduled to be completed by early 1977 with a closing date originally set as December 31, 1977 which was later changed to December 31, 1980. III. PROJECT IdLEMENTAION AND COST 3.01 As negotiated the project comprised: (i) a three-year program for rehabilitation and improvement of 13 sections of trmnk roads totaling- about 345 miles, including consulting services for supervising these works; (ii) pre-investment studies to prepare future projects for rehabi- litation and improvement of trunk roads; (ii) formulation of a program to improve the maintenance of trunk, - secondary, and feeder roads; and (iv) acquisition and installation of equipment for traffic control and pavement survey. Road Rehabilitation and Improvement 3.02 Early progress on the project was encouraging. The PWD proceeded immediately with the selection of consultants to supervise road rehabilitation and carry our studies for future rehabilitation. On April 10, 1974 tne Government, with the Association-s approval, signed a contract with a British consultant to do this work. 3.03 In December 1973, the PWD advertised its intention to prequalify contractors for the road rehabilitation program. Thirty-two contractors, including three domestic firms, applied for the prequalification (ocments; sixteen of these including to domestic firms were prequalified. On May 1, 1974 the prequalified contractors were invited to apply for -tenaer aocuments for all or any of the three highest priority road sections (Sections 1, 2 and 3 in Table 1) comprising the first phase -of the program of 13 sections. The files indicate some concern on the part of PWD over the Association-s slow response in commenting on the tender documents, but these were handled through addenda circulated later to the bidders without causing any delay. - 20 - 3.04 Ten contractors applied for the documents, but only two submitted tenders which were opened on August 15, 1974. A fully Government-owned con- struction firm, which was obliged to respond to all Government tender calls, submitted a tender for each of the three road sections, while a foreign firm tendered only for the largest section, quoting a price about twice that of the other, and a construction period of about 80% longer. After an analysis of the tenders, the PWD, with the Association's approval, decided to award contracts for all three sections to the bidder which had submitted the lowest evaluated bid. After the contract for Section 1 (Anyinam-Kumasi) had been awarded on October 29, 1974, and before an award was made for the two remaining sections, the contractor learned that the Bank of Ghana would not be able to issue import licenses to local equipment suppliers from whom the equipment could be purchased in local currency. Accordingly, the contractor declined to extend the validity of its bids for the two remaining sections. However, it offered to negotiate a single contract for all three sections provided it was given a mobilization advance sufficient to purchase its plant requirements. PWD supported this proposal and requested the Association to approve a mobilization advance of 30% of the contract sum of 09.5 million including US$1.6 million in foreign currency. The Association agreed to this on January 10, 1975; however, the PWD (now GRA) did not proceed with the award apparently because of the need to up- grade the design standards of Sections 2 and 3 due to increased traffic. 3.05 The supervision report of November 20, 1974, attributed the poor bidding response to the following: (a) the work consisted mainly of small fragmented improvements which were not attractive to contractors, and (b) two privately-owned domestic contractors which could have prequalified were not interested for various reasons. These were cited as: (a) cumbersome import licensing requirements which restricted the purchase of equipment and spare parts; (b) a fundamental shortage of foreign exchange; (c) lack of credit facilities to help in procuring new equipment; (d) sufficient work available by direct negotiations to discourage seeking work througn competi- tive bidding; and (e) the standard of quality control exercised by foreign consultants required more managerial ability and technical skills than called for under domestically-financed road works. 3.06 It is difficult to accept that the poor bidding response was due to the fragmented nature of the works as they totalled USS6.5 million in value, with the first section amounting to two-thirds that amount. The works would appear large enough to have attracted international interest. More likely, the lack of interest was caused by burgeonins opportunities for larger civil works in Nigeria, concern over the growing problem of Ghana-s external debt, the increasing difficulty of working in Ghana caused by eco- nomic and political problems, the 1973-74 oil crisis, and reservations on tne part of contractors in bidding on Government work against a state-owned construction firm. 3.07 To attract more tenderers, particularly domestic firms, bidding documents for Sections 2 and 3 were revised to include a mobilization advance. On May 1, 1975, GRA called for tenders on Section 2 (Yamoransa-Takoradi) only (see map and line diagrams). The Yamoransa-Sekondi Junction Section was -21- extended 11 miles to Takoradi because of the deterioration of the pavement caused by the rapid growth of timber and cocoa traffic due to the decline of the railway (para. 5.04). Four tenders were opened on August 1, 1975. They ranged from .10.4 million from SCC to V22.9 million from an Italian firm; the engineers' estimate was 08.2 million. The Government-owned firm's bid was rejected because of its poor performance on the Anyinam-Kumasi contzact and the others because of the wide spread in prices. The bidding documents were amended to reflect desirable changes brought out in the review of the initial bids, and new tenders were called. These were opened on November 3, 1975. The spread was greatly reduced with the low bid of V9.6 million again submitted by the Gov- ernment-owned firm. A foreign contractor was the successful tenderer at .11.9 million; the engineers' estimate was 014 million. 3.08 In 'late 1975, it bad become apparent that the project would cost 200% over the appraisal estimate. That was due mainly to the increase in the scope of works, which had been expanded to major reconstruction due to intervening road deterioration, but also to delays in starting the work and consequent price escalation. A reappraisal of the project was considered, but rejected because it might lead to delays in the progress of the works already underway, possibly damage the reputation of the newly established GHA (para. 4.01), and would not -likely have resulted in a very different project. The Government and the Association therefore decided to go ahead with the project on a reduced basis. 3.09 Accordingly, the Credit Agreement was amended by a President-s Memorandum to the Board (IDA/R75-104) on December 23, 1975, to redizce the total length of road to be rehabilitated from 345 to the 138 miles 1/ for which a contract had already been awarded for one section. It was agreed that the Accra-Nsawam section (No. 1, Table 1) would be included in the proposed Second Highway Project which was approved by the Board on the same date, and that the remaining 10 smaller road sections including Section 3 would be provided with extensive maintenance in GHA-s 1975/78 maintenance budget in order to postpone rehabilitation. The provision and installation of labora- tory equipment for testing road strengths and road-making materials were added to the project. 3.10 The economic justification of the Anyinam-Kumasi and Yamoransa- Takoradi sections was reevaluated in the memorandum to the Board to consider: (a) changes in design standard, and an increase in estimated construction cost subsequent' to appraisal; (b) the- increased volume of traffic and the higher percentage of heavy vehicles based on counts in March 1975; and (c) increases in vehicle operating costs based on consultant studies carried out for the proposed Second Highway Project and the increased operating savings resulting from the faster than expected deterioration of the road sections. The reevaluation indicated that the proposed level of improvement was justified for both roads since they would still yield an economic rate of - return greater than 15%. 1/ Shown elsewhere in the report as 137 miles because of minor alignment and other adjustments. - 22 - 3.11 At the time of appraisal, it was intended to rehabilitate Sections 1 and 2 by scarifying the existing road surface, adding a 15 c= gravel base and widening, repairing and partially reconstructing the pavement. In view of the increased traffic loading, it was decided to substantially increase the standards including raising the design speed from 50 to 60 miles/hour. While these changes reflected the traffic growth, it called for essentially new roads with heavier pavement on improved horizontal and vertical alignments. These roads, while safer, cost substantially more to build than the originally planned rehabilitation work.- However, they will eliminate the need for new construction as studied under the engineering credit, for the forseeable future, as well as reduce the consequences of inadequate maintenance. Contractors' Performance Anyinam-Kumasi Section (81 miles) 3.12 The.original contract which was signed on October 29, 1974 with SCC for a construction period of 24 months was revised on March 13, 1975 to reflect the increased.scope of work and the contract time was accord- ingly.extended to 40 months. Progress was slow from the start largely because a promised license to import equipment was denied. Even after this problem was overcome through the advance of foreign-exchange from the Credit, progress was slow. During meetings between Government officials, the consul- tants, and the contractor, the latter agreed to add an additional construction unit but did not do so, and it became evident that the contractor did not have the capacity to complete the project within the contract period. Early in 1976, the Government decided to reduce the contract to 31 miles from Anina to Pra River and to negotiate a contract for the balance from Pra River to Kumasi (50 miles) with a quasi-domestic contractor. The Association did not object to this decision. The Government was aware that IDA-could not participate in financing the contract as the award did not conform to Bank Group's pro- curement guidelines. The first contractor continued to work intermittently and the subsection of road from Anyinam to Pra River is now complete except for the placing of a second dressing which recently was undertaken after a long delay. The quality of the work was somewhat less than satisfactory. 3.13 Early progress on the new Pra River-Kumasi subsection was reasonable though major delays were experienced as a result of shorta&es of spare parts and materials. The contractor was promised foreign exchange but it was not forthcoming. IDA discussed the problem of shortares for all rehabilitation contracts with .the Government in September 1978 which promised to look into the matter. In the meanwhile, the Association agreed that some US$170,000 originally allocated to SCC for the whole'Anyinam-Kumasi section could be used by the contractor to purchase spare parts. It was also agreed that he could apply for a loan for US$500,000 in foreign exchange for the same - 23 - purpose through the Bank for Housing-and Reconstruction under procedures set up under the Second Highway Prqject. The possibility of providing a further US$500,000 under the Third Highway Project was also discussed. However, the contractor did not take-up the first offer because he estimated that more foreign exchange would be needed to complete the job than he believed the Government would provide.- In 1980, the contractor stopped work on all but one contract in Ghana (including the project contract), because of his inability to obtain any foreign exchange to repair the equipment. About 50z of the works were completed, and the quality of the work done was satisfactory. The Govern- ment assumed responsibility for completing the remaining 25 miles, including supervision, and against the advice of the Association awarded a contract to the Government-owned contractor to complete the work to Kumasi. The work was done by the contractor until mid-1983. GRA started to rebuild the section with a departmental construction unit. Tanoransa-Takoradi Section (56 miles) 3.14 The contract with the foreign contractor was signed on January 26, 1976 for US$10.3 million equivalent with a construction period of 30 months. Early progress was satisfactory. In February 1977, the GRA also awarded the same con- tractor a large contract to resurface about 300 miles of trunk roads including the three rehabilitation contracts under the project, but no works were ever carried out due to Ghana's shortage of foreign exchange. In April 1977, it was agreed to alter the base course on the Yamoransa-Takoradi section from lateritic gravel to a crushed stone because of the heavy traffic loading and the absence of suitable lateritic materials in the vicinity. Following a second amendment to the project scope on October 7, 1977, the contract was extended to include rehabilitation of the Yamoransa-Mankesim section (16 miles) which had been originally included in the project but was excluded at the time of the amendment to the project in December 1975. By April 1978, serious cost overruns were foreseen. With Association concurrence GHA instructed the contractor not to proceed further with the extension to Mankesim, on which some work had been started, but to complete the Yamoransa-Takoradi section first. 3.15 In January 1979, the contractor went bankrupt, apparently due to external reasons including problems on contracts in Nigeria. At that time, the cost was almost twice the original estimate. About 27 miles of the road were complete except for the second course of the double surface treat- ment; about 13 miles were partially complete and 32 miles had not been started. A Bank Group mission visited Germany and Ghana to review the status of the bankruptcy, the position regarding the validity of the performance guarantee, and to discuss proposals to complete the project. The mission discussed with the Government ways to complete the partly completed sections of road which included preparing new quantity estimates and tender documents and inviting bids to complete the works. The Government assumed responsibility for completing the work, and in January 1980 negotiated a new contract with a company set up in Ghana by a director of the original German contracting fiz=,with a local partner. The new contract was limited to a 12-mile section but was later extended one mile to Daboase Junction, leaving about 19 miles to be completed to Takoradi. 3.16 The Association, which had been asked to consider supplementary financing, decided not to participate in financin the new contract because: the negotiated contract did not confoza to Bank Group procurement guidelines; the negotiated contract was linked to a "settlement" of the bankruptcy concerning which there was considerable legal uncertainty; and it considered that the new contractor did not provide an adequate guarantee witn regara to technical expertise, equipment or financial resources to carry out a contract of the size. The Association decided that its involvement would be restricted to ensuring copletion of the road in accordance with the Credit Agreemenz, and agreed to continue financing the services of the consultants to supervise the work out of remaining funds in t1ie Credit (about US$200,000). However, the new contract proceeded satisfactorily and completed the works to Daboase Junction in 1983. The quality of work done is satisfactory In late 1983, the Government awarded a contract for the completion of the 19-mile section from Daboase Junction.to Takoradi. The Government attaches importance to the comple- tion of this section because of its condition and because it is part of the Accra-Abidjan Highway. Project Cost 3.17 The cost to complete the project as amended in December 1975, less the 44 miles of road not yet started, is US$41.2 million. On this basis, the cost was more than double the appraisal estimate. However, the final cost of the reconstructed sections is about six times more than the appraisal estimate for rehabilitation to a lower standard. It is not possible to estimate reliably the cost of completing the 44 miles of roads not yet started. The consultant estimates that the large increase in foreign exchange cost of the revised project was caused by delays coupled with inflation and foreign exchange rate variation and the increased scope of works on the sections completed (67Z). The high rate of domestic inflation was not fully reflected in contract adjustments. The annual price variation of local cost contracts generally paralleled the international sate of inflation due to Government policy, but wherever a new local cost contract was awarded the price was larger, but still less than the real increase in local costs. These types of adjustments contributed to the contractors' financial problems, although they were in line with the controlled price increases of fuel, equipment and bitumen. The consul- tant says the major cause of the overrun was a change in the concept of the project from one of providing a new base and surfacing to one of major recons- truction, whereas the Government believes the cause was inadequate detailed engineering. There is probably some truth in both statements in that the engi- neering was done for rehabilitation and improvement and not for reconstruction. In light of the problems besetting the project and the cost overruns, the project was declared a problem project in August 1975 and following the amendment to the project scope (para. 3.09), it was dropped in October 1976. It was reinstated as a problem project in May 1979. .25- Performance of Consultant 3.18 Sam criticism has been made that the original engineering by the consultant was poor, but this does not appear justified, as it was carried out for an entirely different purpose, i.e., widening and strengthening of the existing sections whereas the roads eventually required full reconstruction. The decisions to expand the scope of the works including raising the design standards were made on a piecemeal basis throughout the execution period. At some time there should have been a complete revision of the engineering requirements to suit the changed circumstances, and it was the consultant"s responsibility to have indicated when this was required. This would have involved a suitable modification to the consultant s terms of reference. There were some inaccuracies in the revised detailed engineering of Section 2 which led to increased quantities and underestimation of costs. As regards supervision, the consultant's work was generally satisfactory although there were a few instances reported where the consultant had authorized payment for defective works and had made inaccurate measurements of wori performed; these were corrected in subsequent certificates. Also, the consultant did not fol.- low project costs accurately, e.g., in October 1977 he proposed an extension to the project scope on the grounds that the financing available was suffi- cient, while in April 1978 cost overruns were foreseen (para. 3.14) and the extension dropped. The consultant reported regularly and thoroughly on the work undertaken. 3.19 The Government-owned firm's poor performance raises the question as to the basis on which it was originally prequalified (para. 3.07). As it turned out, the contractor did not iave the managerial and financial resources to do the work, particularly the paving operations. Undoubtedly, the Government was prepared to take the risk in prequalifying its own firm as heavy emphasis was placed at the time on self-reliance in the construction and engineering fields, and the Associa- tion did not have sufficient reason to reject the consultant's recommendations. Pre-Investment Studies to Prepare Future Projects for Rehabilitation and Improvement 3.20 A preliminary study of about 700 miles of trunk roads selected from the original list of 14 sections of roads totalling about 750 miles, was carried out by consultants leading to a more detailed economic and engineering analysis of three road sections totalling about 180 miles. One of these three road sections, Accra (Achimota)-Nsawam (16 miles) has been reconstructed under the Second Highway Project. Reconstruction of the remaining two sections has been deferred until the country's economic situation improves. All the studies have been completed satisfactorily including one concerning ways of improving the domestic contracting industry which was added to the consultant's contract at the Association's suggestion. The results of this study were used in defining IDA assistance to domestic road contractors and quarry operators in Ghana under the Second and Third Highway Projects. - 26 - Program to Improve the Maintenance of Trunk, Secondary and Feeder Roads 3.21 The preparation of a program to improve road maintenance was financed by the Canadian International Development Agency (CIDA.) and carried out by c6psultants. This work was used in defining the maintenance program financed under the Second Highway Project and continued under the Third Highway (Emergency Maintenance) Project. At the time the First Highway Project was prepared, CIDA's participation was not certain and the credit thus included a provision of US1200,000 to finance advisory services to the PXD task force which was to prepare the maintenance program (Table 2). These funds were eventually used for other project purposes. Aqquisition and Installation of Equipment for Traffic Control 3.22 GRA satisfactorily procured and is making use of equipment for measuring pavement strength and counting traffic. Funds originally intended for weighbridges were also used for these purposes. No weighbridges were procured under the project.because GRA never reached an agreement on their operation with the police, who wanted elaborate buildings ana yards for which therd were no local funds, and apparent political resistance to enforcing . regulations. The climate for enforcement has now improved because of public clamor over the condition of the network, and the Government is interested in buying the appropriate equipment under a future projetc. Disbursements 3.23 Disbursements (Table 3) have been slow compared with what was expected at appraisal. By the original closing date, December 31, 1977, only about half of the expected disbursements had been made. The delays were caused, in part, by changes in the project scope. Three years later, by the revised closing date, December 31, 1980, some US$100,000 still remained undisbursed. The Credit was fully disbursed on February 11, 1981. Covenants 3.24 The Government has complied with all the covenants in the Credit Agreemedt except those which involved the provision of foreign currency needed for spare parts, materials and equipment, and local funds for mainte- nance. These exceptions were caused by the poor economic performance of Ghana over the past decade. Under the Second and Third Highway Projects private domestic contractors are being provided with foreign exchange, while the Government is generally complying with a satisfactory maintenance oudier covenant under the Third Highway Project. IV. INSTITUTIONAL DEVELOPMENT 4.01 At the time of appraisal, responsibility for the road network was diffused. In the regions, engineers were technically responsible to PWD headquarters but were administratively and financially controlled by the Regional Chief Executive. Control over road expenditure by PWD headquarters - 27 - was not really possible under these circumstances, a situation which was exacerbated by staff and equipment shortages. The Government and the Associa- tion discussed alternative administrative and financial arrangements during the preparation and implementation of the First Highway Project. In 1972, the new Government undertook a reorganization of the PWD by removing its. non-highway responsibilities so that the headquarters and regional engineers would concentrate entirely on highway matters. A semi-autonomous Ghana Highway Authority (GHA) was then estab*shed in 1974 and made responsible for all public roads, including feeder roadd' which were poorly adminiatered until that time. 4.02 The consultants supervising road improvement reported regularly on progress in the works. The files indicate that the PWD/GHA was closely involved,in executing the project and carefully analyzed the technical and procurement issues with which it was confronted. GHA also responded promptly in cutting back the SCC contract when the contractor fell behind schedule; however, it was understandably unable to cope with the effects on the contrac- tors of Ghana's worsening economic situation. 4.03 Under the Second Highway Project, a staff training program whica was drawn up by consultants under the First Highway Project was established. Further technical assistance and training is being provided under the Third Highway Project. - V. ECONOMIC REEVALUATION 5.01 The objective of the project was to support Ghana-s economic devel- opment by facilitating the flow of goods and passengers on key trunk roads. Although the.Ghanaian economy deteriorated sharply during the project imple- mentation period (paras. 1.03 - 1.04), and only about 20% of the planned roads were rehabilitated albeit to a higher standard, the project itself remains economically justified. The substantial increase in construction costs experienced during project implementation was generally offset by a greater than anticipated growth of heavy traffic, and increased vehicle operatin6 cost savings. 5.02 The economic return for project roads completed was recalculated using actual construction costs, current maintenance costs, recent traffic counts (Table 4) and recent vehicle operating cost estimates (Table 5). Foreign costs were shadow priced at 1.6 times the official excnange rate, and all costs and benefits discounted to constant 1979 prices at a rate of 15% p.a. Although the rate of local inflation greatly exceeded 15% p.a. (para. 1.04), the Government restrained annual contract price increases to a much lower level, and most inputs (equipment, fuel, bitmen) were imported by contractors at low "controlled- prices. New local cost contracts were increased somewhat more, but again by less than the overall rate of inflation. The results of the calculation should nonetheless be treatec with caution because of the uncertainty over the appropriate exchange and discount rates to use during a period when the local currency was overvalued and the system of Mcontrolled' prices was being increasingly bypassed. - 28 - 5.03 The economic return for the reduced project is estimated to be 25Z, compared with the appraisal estimate of 22% for the entire ploject. The higher reevaluated return is due primarily to the selection of high priority sections, and the faster than anticipated growth of heavy traffic. Anyinsm-Eumasi Section 5.04 The completed part extends 56 miles from Anyinaa to Konongo, a section of the main road between Accra and Kumasi. It is the most hevily trafficked artery in the country, carrying most imports moving to the inte- rior, foodstuffs moving south to Accra, and part of the cocoa crop which is exported via Accra/Tema. For purposes of the analysis, it -was assumed that the small remaining works would be completed in 1982, and that the section would receive an asphalt overlay in 1984. 5.05 Traffic grew 7% p.a. between 1971 and 1981 to 1845 v.p.d., despite the decline in economic activity, which is slightly above the appraisal fore- -cast-of about 5.7% p.a. (Table 4). -However, heavy traffic grew more rapidly than anticipated. It was therefore decided to also construct this road to a higher standard after an-economic reevaluation carried out in 1975 concluded that the road would have an economic return of at least 15%. Future traffic was assumed to grow at a more conservative 4% p.a., because of the poor condition of the economy. The economic return for this section was reesti- mated to be 27%, which compares with 22.5% estimated at the time of appraisal for a lower design standard and traffic levels (Table 6). Tamoransa-Takoradi Section 5.06 The completed part of this section extends from near Yamoransa to Daboase Junction (40 miles). It forms part of the main coastal road which links the capital city of Accra with Takoradi, the third largest city and the principal export port. Most of the timber and cocoa for export are trans- ported over this link, as well as supplies for the gold mines and timber camps moving from the port to the interior. The section from Daboase Junction to Takoradi (19 miles) is scheduled for completion in mid-1986. 5.07 Heavy truck traffic increased rapidly on this section between appraisal in 1971 and 1975 when the rehabilitation contract was awarded, due in part to the failure of the railway to carry its normal share of timDer and cocoa for export (Table 4). GRA therefore deci4ed to reconstruct the road to - a higher standard, after an economic reevaluation in 1975 conduced that the new design would yield an economic return of at least 15% (para. 3.10). The standards were further increased in 1976 to include a crushed rock base, after a second economic reevaluation showed that this amendment was also justified. The economy then deteriorated sharply between 1975 and 1981, with both cocoa and timber exports falling by more than one-third. However, total traffic remained constant on the section during the period, although the proportion of heavy traffic declined. Actual traffic in 1981 nonetheless exceeded appraisal estimates by about 19%. Future traffic was assumed to grow 3-5% p.a., gen- erally consistent with the appraisal forecast, due to the eventual recovery of the economy and the expected opening of the Accra-abidjan dighway in about 1983. - 29 - 5.08 The economic reevaluation was based on an assessment asde in 1979 by the consultant, adjusted to take Into account current traffic levels and cost estimates. The economic return for this section was reestimated to be 23Z, which compares with 19L.2Z estimated at the time of appraisal for lower design standard and traffic levels (Table 7). VI. BANK PERFORMANCE 3 6.01 The Association seemed to have been unduly slow in identifying and preparing the project, as it took about five years from inception to appraisal although some of the reasons were beyond its control (para. 2.10). During that time, the needs and priorities changed and .the highway network deteri- orated rapidly to a level requiring more and more resources to maintain it. An earlier start on the rehabilitation of almost any of the project components considered for financing from 1967 to 1973 might have helped to defer this deterioration. 6.02 Supervisory staff changed frequently; the appraisal team never carried out a supervision mission because they were transferred to other regions of the Bank under the reorganization of 1972, and because of the unusually long implementation period six different engineers were concerned with supervising the project from early 1974 to aid-1981. However, admini- strative continuity was provided by the involvement of a single project economist during much of the implementation period. 6.03 On the whole, Association/Government relationships were good. Supervision was adequate in terms of number of visits throughout the execu- tion period of the project and averaged approximately two visits per year by project staff. There were also visits by staff of the Programs and Con- trollers Departments as well as from the Resident Mission in West Africa. VII. CONCLUSIONS 7.01 The project was designed and implemented during a period of in- creasing economic difficulties and political upheaval, which resulted in considerable delays. As time went by, the roads kept deteriorating and the rehabilitation works, which had been tailored to particular road conditions, no longer applied. This necessitated numerous modifications to the project design, which in turn led to further delays. In retrospect it is difficut to envision how any project could have been implemented smoothly during this difficult period. However,the lesson is that where there is significant risk of delays in the future, projects should be designed so that the effect of delays on the achievement of project objectives is minimized. This could be accomplished by accepting a somewhat open-ended definition of project scope and objectives at the outset. 30 - 7.02 In retrospect, reliance on an unproven state-owned contractor proved to be a mistake. The contractor was prequalified because it appeared at the time to have sufficient qualified personnel, equipment, and experience on large earthworks (although perhaps not in pavement works). moreover, the promotion of domestic contractors was a Government and Bank objective. How- ever, as it turned out, the contractor was particularly vulnerable to the effects of the deteriorating economy and suffered the same problems which beset Ghana's numerous public corporations including low salaries, inability to lay off personnel, ill-conceived Government directives, administrative inefficiency and lack of foreign exchange. In hindsight, it may have been more prudent to package the works with a view to encouraging domestic contractors to bid on shorter sections. 7.03 One of the most striking features of the project Implementation is the frequency with which road sections were added or deleted from the project and design standards were changed. This can be principally understood as necessary responses to the changing condition of the roads, the decline of the economy, the delays in implementation, and the shortage of project funds. In retrospect, however, the Association may have been too lenient in accepting some of the proposed changes. Under normal circumstances, a contractor may welcome an increase in the size of his contract; but given the acute foreign exchange shortage that existed in Ghana, the changes may have added to his problems. As a result of the foregoing difficulties., none of the contractors satisfactorily completed their contracts, and the project remains incomplete, including the last stretches of road to Takoradi (19 miles) and to Kumasi (25 miles). 7.04 Although institution-building was not given the explicit attention at the time the project was formulated that it is today, important achievements can be attributed to the project. It is doubtful whether the Government would have been convinced to establish CHA, a significant institutional improvement, were it not for the framework provided by the implemeztation of the First Highway Project. The project also included a component for preparing a program to improve road maintenance. Later, funds were made available to study the domestic contracting industry and this formed the basis for helping to strengthen the industry under the Second and Third Highway Projects. 7.05 The economic reevaluation shows that the major reconstruction was well justified. The rate of return for the reduced pi..ject is 25% as compared to the appraisal figure of 22% for the entire project because increase in the VOC and a greater than anticipated traffic growth more than offset increased construction costs. However, fewer roads were rehabilitated than planned, due to the need to construct the roads to a higher standard. This has placed the Government in the difficult position of having to spend more to maintain the network during a period when their resources and efficiency are considerably reduced due to the poor state of the economy. 31L - TABLE 1 REPUBLIC OF GRANA CREDIT 438-MR, FIRST HIGEWAY PROJECT PRDJECT COMPLETION MEORT Status of Road Sections for Rehabilitation and laprovement Included in Project Appraisal Approximate Length =es) Present status 1. Anyinam - Kumsi 81.0 56 miles completed 2. Yamoransa - Sekondi Jct. 46.1 Extended 10 miles to Takoradi; works com- uleted to Daboasi Jet; 40 miles completed 3. Yamoransa - Mankesin 16.5 Deleted from project 1/, 2/ A. Kumasi - Anwiankirtnta 15.3 Deleted from project - 5. Anwiankwanta - Bekwai 5.1 . WIneba Jct. - Nankesia 28.5 7. Accra - Winneba Jet. 34.0 8. Wineba Jet. - Winneba 2.5 9. Wineba Jet. - Swedru 11.3 10. Adaiso - Kade 37.4 Al. Accra - Nsawam 19.4 12. Trom Jet. - Kpong 9.8 " 13. Kpong - Anyirawasi 36.2 TOTAL 343.1 11 By amendment to project description dated December 12, 1975 and approved by the Board on December 23, 1975. 21 Added to project at the request of GBA dated July 28, 1977 and approved by the Bank on October 7, 1977. This work was not carried out. December 1983 CREDIT 438-;11. FIRST IITIWAY PROJECT PRO.JECT COMPL,ET10N REPORT Actual and Appralsal Estimates of Project Cont S~~~~~~~(US$ '000>)____ ______ grejec ien Antroe Mi Appuateat estirae vink% Come bI t rep 6 d e. C49INGct Ur-på. al. ,lång. <@ ti e g . tratt Valu rt~ ia l Caep $$$Aaé Datie 2%te "lrvaré 'E är a tav leal lCaheeTet i CMI beha t b itt beJ by Catrdetter A.RAeet.iver 4 1 10/29/14 03/01/t Jume -43) 2, e 1,11 4,55P , ,,e 3 ' ) $^0 3,1%t 4,100 8.r • 06 f& M G sM 042/ Dec, 8) -3.600 .. 14401660 •.- 1...1 ,G: tabitedec-Taleradåill/3 01/24116 01126/14 bep&. 'I1 1,000 1,300 3,310 3,960 6,190 19,1»0 g,30 i 1 ,s0 9,844 19 ge illi • 8/0/8001/0/81Ges '8 •• 3,374 3,~0 6,719 350 4,490 A 1 ,90' *3,tr0 -Var% 9 Tog it IIMIG 4 34M 411 a A. Censesructies lpervidies to 8. fre BIiettCter4 stutid 4/1/j4 9/1118 *cc, ogck 000 all al 00 ,d t ,1g j,g l,ga st et ao AkhJed 649ne149 C,A'v1r sriestr3 0 0 13 0 0 ...06,0 .. .. ..10 lite Nn tensacc ../Il *1 dis 1 ,3 3,60, 0 300 .3 2.W00 1 o 3 et 3. 9qu060,.4 tfr Trallec Cepte 40 0 340 si 383 3M3 6 a%ten sugv IN -----------.----- ---------- - ..-.. 2=5,d OVIN.4 Vrojfect hcope 1 j. s e ocialnal civil verka trntrocen for a and 0 a memt opetet t e ö 89¥ 169 Utfar eheo r erwitear 9s 0he fttiesgle * with 10vern et re sg e es tad tal to oesha b @d s e.entrectvtatild ut 6a 0otan0intel o viev kf*e v e irsm Vå e o di 3 0d d 4~41C ga itt«e1 &% Cochmse #"I@" Pr"" Ilin C et tienetrect mia. 31 Calculated on the basis of weighted average exchange rates ranging from US$1.00 • ¢ .1.41 -SL...8.862.75I AB a0 -0 ev,e sae ,at e1.4,1 - .7,5 5/ At average exchange rate of US$1e00 •DM 1.75 3. quIe,44 ter Tteg rae et 110,0 31 M3 3003 333 70 pta 661t mLN mi t by ca tett 0191tioft datt et &e«.anii eurluce arensag re es asl te doe eBbseaatt " U 0EIlngels of @Nittnat contracc Tesorancn-léheredt Extdi.elen [tog Tenerenbd-Hfankeate ' TOTAL P-set ef textenöet droppdåt becayea et herttageoft ftwxdl Leåtth et Centracc at &im- of hanlägWA-a Lenolh coopleted de Mim t b.inkruptcy lNuth uncespadted de tle de hankrupter Lknac -verd4d , itoluvå-gast .unac atl e ta a mop e (DAe GAe 8 .JudetisT e uer d e. ) 33- CEEDII 438-G- TIES EIGEa 2E0=JECT. PROJECT C07PLETION REPORT Schedule of Disbursements (as of March 31. 1981) - (gss nmU±ani - END ACraL DISEURSEvES7S TISCA. AS Z OF APPRATIL Es-I4C ACMAL TOTAL AR ES AE 1974 0.1 0.7 14 1975 0.5 5.0 10 1976 - - 3.3 10.5 31 1977 6.6 13.0 51 1978 10.3 79 1979 12.6 97 1980 12.9 99 1981 . 13.0 100 12/31/80 12131177 - ./ Credt was fully dlsbured -on February 11, 1981. -34- TABLE 4 GHANA FIRST F"IMAY PROJECT - CREDIT 438 C PROJECT COMPLETION REPORT Comparison of Actual and Forecast Traffic on Project Roads 1981 Appraisal 1971 Actual 1975 Actual Forecast Current Estimate Z Heavy Z Heavy Z Heavy Z Heavy Section AADT Vehicle AADT Vehicle AADT Vehicle AADT Vehi- yamoransa (30 Wi) 1 1/ 1,170 10 2,000 15 1,540 9 2,000 9 Bebuasi-Daboase 1/ 1/ Junction (16 mi) 1,170 10 1,300 18 1,540 9 1,300 13 Anyinam-Konongo (56 mi) 940 8 1,350 9 1,650 7 1,845 10 11 Estimated from 1978 traffic counts on project roads, and 1981 traffic counts on adjacent sections. Source: Ghana Highinay Authority. * TABLE 5 -35- GRANA FIRST HIGWAY PROJECT - CREDIT 438 GH PROJT COMPLETION REPORT Estiuated Economic Vehicle Overatine Costs at 1979 Prices (Cedis/mi net of tax) 30 =ph 60 mph Bitumen Vehicle Class Bitumen Ofoderate Failure) Savings Light 0.26 0.31 0.05 weast. "0.74- 0.92 0.18 Heavy 1.47 1.89 0.42 Note: Includes a 60Z foreign exchange premium. Source: Adapted from estimates by consultants. * * -36- TABLE 6 . CHANA FIRST HIGHWAY PROJECT - CREDIT 438 GR PRDJECT COMLETI0N REPORT Economic Reevaluation of the AIman-onono Road U000 net of tax at 1979 prices) Construction Kaintenance YOC ear* C6sts Benefits Benefits 1975 2,547 1976 3,919 1977 14,565 1978 7.220 1979 5,974 600 9,848 1980 - 660 10,237 1981 726 10,662 1982 2.504 798 11,067 1983 876 11,510 21 1984 10,016 966 11,970 1985 1,063 12,448 1986 1,169 12,947 1987 1,286 13,464 1988 1,414 -14,003 1989 1,556 14,563 1990 1,711 15,145 1991 1,82 15,751 1992 2,277 16,381 1993 2,505- 17,037 1994 (23,372) . 17,718 Internal economic return - 27% 1/ Assuming completion of surface dressed road in 1982; includes supervision costs. A1 Assu:ed asphalt overlay at. a cost of #201W at 1979 prices. 31 Assumed residual value of works. * Note: Includes a foreign exchange premium of 60%. -37- TABLE 7 GHANA. PIRST HItAY'PROJECT - CREDIT 438 CE -PROJECT 'COMPLETION REPORT I Economic Reevaluotion of the Yaoransa-Daboase Junction Road (S000 net of tax at 1979 prices) Construction Maintenance VOC / Tear Costs 1{ Benefits Benefits 1976 3,664 1977 3,686 1978 24,143 1979 44 1,614 1980 14,962 196 2,923 1981 15,005 196 3,032 1982 900 17,732 1983 990 18,451 1984 1,089 19,061 1985 1,197 19,978 1986 1,317 20,610 1987 1,449 21,592 1988 1,594 22,988 - 1989 1,753 23,751 1990- 1,929 24,536 1991 21 2,121 25,393 1992 (jO, 708) - 26,172 Internal Economic Return - 23Z 1 Assuming completion with an asphalt overlay, and including the supervisiot costs. 2/ Assumed residual value of works. 3/ Includes a distance savings of 1.3 km. Note: Includes a 60Z foreign exchange premium. 19 91 L ccl Approx. 150 S69 01 •5 " 3 -.52 -.. 16j...a 1 3 -11. ．・―巨’ -41- REPUBLIC OF GHANA SECORD HIGHVAY PROJECT CREDIT 594 GKAOAN 1182-GH PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 In 1971, when the First Highway Project was appraised, the national road network of Ghana totalled about 20,000 miles, of which 6,3DO miles were tram roads. The purpose of the First Highway Project was to rehabilitate and strengthen important sections of the trun road system, to identify further road sections for rehabilitation, and to prepare a comprehensive maintenance program. Up to the time of the Second Highway Project, Bank Group involvement in the transport sector had been limited to an engineering credit (57-CH of 1969 for USS1-5 million) to help finance detailed engineering for two new highways and the First Highway Project (Credit 43B-GH of November 1973 for USS13.0 million). 1.02 At the time of appraisall of the Second Highway Project in 1975, the execution of the First Praject was noted as being generally satisfac- tory, although the scope of the rehabilitation works had to be reduced as costs had overran the original estimates (PCR dated November 13, 1981). Considerable progress had been made in preparing a maintenance project with the assistance of the Canadian International Development Agency. The primary purpose of*the Second Project was to protect past highway investments by improving road maintenance in the light of the deteriora- tion in infrastructure and equipment which had taken place during the last two decades. TheSecond Highway Project was designed to strengthen the maintenance capacity of the Ghana Highway Authority (GHA), which was created in 1974 in anticipation of the Project. 7he project also provided for the reconstruction of one road section origlinAlly -included in the First Highway Project. 1.03 Both the First and Second Projects were executed during a period of increasingly severe economic and political difficulties in Ghana, which disrupted their implementation. As noted in the PCR for the First Highway Project, exports fell sharply during the 1970s. Ghana's economic performance during thl period was characterized by widening budget deficits,, high inflation, and a persistent foreign exchange -42- shortage. This deterioration took place notwithstanding a relatively good natural resource endowment and significant improvement in the country's terms of trade and has to be ascribed essentially to poor economic management caused in part by political constraints. The uneconomic operations of a large number of Government enterprises also contributed to the budgetary imbalance. At the time of appraisal, a 15% rate of inflation was considered high. However, the rate of inflation accelerated throughout the 1970s, reaching a maximum of 116% in 1977 and ranging between 50 and 100% p.a. thereafter. 1.04 The 7irst Highway Project experienced considerable delays. As time went by, the roads kept deteriorating and the rehabilitation works, which had been tailored to particular road conditions, were no longer adequate. This necessitated several increases in design standards, which in turn led to further delay- and cost overruns and a considerable reduc- tion in project scope. The reduced project was finally completed in 1981 with an economic return that was, nevertheless, satisfactory. 1.05 During the execution of the Second Highway Project, the Govern- ment did not provide GRA with foreign exchange for recurrent expendi- tures, and there were frequent fuel shortages; the declining purchasing power of Government salaries also began to result in the loss of quali- fied personnel, a decline in productivity and morale, and an increase in pilferage and other abuses. As a result, the output of the maintenance program under the Second Highway Project deteriorated. The reconstruc- tion component of the project was finished in late 1984. 1.06 Due to the shortage of foreign exchange, a Third Highway (Emer- gency Maintenance) Project was approved by the Association in 1980 to provide urgently needed spare parts, lubricants, bitumen and technical assistance, and thereby, continue the maintenance program initiated under the Second Highway Project. A Fourth highway project is under prepara- tion. 1.07 The information for this report was obtained from the Appraisal Report of a Second Highway Project (No. 903a-GH) of December 2, 1975, the President's Report of December 9, 1975 (No. P-1703-GH), the President's Report on the Third Highway Project of May 5, 1980 (No. P-2716-GH), su- pervision reports, a review of Bank files and discssions with Bank staff and Government and consultants' staff who were assigned to the project. - 43 - II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Identification and Preparation 2.01 During the late 1950s and early 1960s, the Government carried out a major program of road construction, upgrading, and paving to design standards appropriate at that time. By the early 1970s, however, the road system had deteriorated into a generally poor condition, primarily because of unexpectedly high traffic increases particularly of heavy vehicles, and also because little maintenance was carried out. At that time, public roads were maintained by six agencies. PWD was responsible for 6,800 miles of main roads, while various Government organisations administered about 13,000 miles of feeder roads. This arrangement was unsatisfactory in that little maintenance was performed on feeder roads, and PWD could not effectively control its budget or regional staff, who reported to the regional chief executives. Moreover, PVD was burdened with a number of tasks unrelated to .rLads, such as building maintenance. 2.02 The Government undertook the phased implementation of a road rehabilitation program, and also made increased funds available for main- tenance, but only limited improvements were achieved. It became clear that a more comprehensive maintenance effort was required, and in 1972, consultants were appointed (with ODM financing) to prepare a study and make recommendations for improving the organization, staffing, and methods of PWD' s road maintenance operations as well as to draw up a four-year maintenance program. However, the processing of a road rehabi- litation project was well advanced by the time this study was completed, and further preparation work was required to deal with institutional issues. Maintenance was, therefore, deferred to a Second Highway Pro- ject. A Task Force of PWD staff was created in early 1974 to prepare a maintenance implementation program, and the Government engaged consul- tants, who were financed by CIDA, to provide technical assistance. 2.03 The Task Force submitted a draft final report in July 1974 covering immediate and future road maintenance needs of the trunk road system in terms of operations, management, labor and equipment, and fi- nancing. Following discussions with Bank staff during the preparation of the project, GHA was created in December 1974 with responsibility for the administration of all public roads. The Task Force served as a technical arm for this reorganization and also invento.ied the feeder road network which became GHA's responsibility in July 1977. 2.04 On the basis of the Task Force's report and at the Government's request, CIDA extended its technical assistance arrangement to cover the services of six experts in management, road maintenance, planning, equip- ment control, accounting, and training until early 1976, when their ser- vices were taken over by the project. CIDA also approved two loanb 44 totalling Can$7 million for the purchase of road maintenance equipment and related procurement services. 2.05 The Government recognized that.GHA did not have the capacity to perform all necessary periodic maintenance on both former PWD roads and feeder roads by force account. The project therefore included a compo- nent to assist private domestic contractors to execute regravelling and resealing works and eventually to undertake more complex civil works. Under this component, funds would be lent to private domestic contractors participating in the maintenance program and to quarry operators through the Bank for Housing and Construction (BBC), a domestic development bank. Appraisal 2.06 The project was appraised in January/February 1975. The mis- sion, in its Issues Paper dated February 26, 1975, recommended a loan/credit of US$25 million for a project estimated to cost US$33 million with a foreign exchange element of US$24.5 million. The Issues Paper raised some matters such as who should bear the foreign exchange risk on the funds to be lent to BEC. It was decided that Gov- ernment, as the ultimate borrower, should bear this risk. BBC would repay the Government as it received payment from GRA contractors. A timetable was agreed upon at the Decision Meeting held on March 17, 1975, which foresaw negotiations as starting on May 27 with Board Presentation in July. 2.07 Costs for equipment and spare parts were based on consultants' estimates, taking into account bids received in early 1975 for CIDA-financed purchases. Costs for the reconstruction work were also estimated by consultants, based on substantially completed detailed engi- neering and updated bid prices received from international contractors in August 1975 for similar works. Cost estimates for consulting services took into consideration current unit prices of ongoing assignments. The overall cost estimate included allowances for both physical (10%) and price (20%) contingencies; anticipated local and foreign price increases were the same. 2.08 The inclusion in the project of a component for BHC to assist the domestic contracting industry represented a new approach in highways lending for the Bank, combining a traditional highway maintenance project with a DIC operation. The appraisal team included a consultant to ap- praise the BEC component. Special consideration iap given to formulating the component, in assessing DC's capabilities and in determining the procedures for onlending and eventual repayment. The VAP Highway Divi- sion (now Transportation 1), which had overall responsibility for prepar- ing the project, worked closely with the DFC Division. The respective responsibilities of the two Divisions for processing and supervising the project were clearly spelled out in a memorandum dated July 25, 1975. - 45 - Loan/Credit Negotiations 2.09 It was necessary to send a post appraisal mission in September to update the appraisal report including the cost estimate and to secure additional information regarding the financial status of BC. As a result, negotiations were postponed to November 1975. Agreement was reached on a Bank loan of US$18.0 million and an IDA credit of US$10.0 million. The Ghanaian delegation asked for an adjustment in the Bank Group financing so that only the lending to EC which was the sub- ject of a Project Agreement would be financed from the IRD loan, the balance being provided by the IDA credit. The Bank was unable to accom- modate this request because of a shortage of IDA funds but pointed out that the repayment period of the Loan, which on projects grounds should have been for 15 years, had been increased to 25 years. 2.10 The Gbanaian delegation initially expressed reservations about a clause in the Loan Agreement requiring D3C's accounts to be audited by "independent auditors acceptable to the Bank, " which could unduly inter- fere with the prerogative of MC's shareholders and Board of Directors to appoint the auditors. The Bank's position was stated as wanting to en- sure its investment would be effectively and economically utilized and that auditors would continue to be appointed by DEC but that the Bank' s concurrence would be obtained prior to such appointment. The Government accepted this position. 2.11 - The draft Loan/Credit documents included a supplemental- letter on the coordination of road/rail in the Kumasi-Takoradi corridor. The Gbanaian delegation requested that this be excluded from the loan agree- ment and stated that it would be willing to submit a letter in line with an agreed draft to accommodate the Bank's requirement prior to Board presentation. The Bank accepted the Government's proposal. Three other side letters were also agreed on covering agricultural feeder roads in the Upper Region, budgetary allocations to GRA, and eligibility criteria for contractors. 2.12 A condition of Board presentation was the receipt by the Bank of the first audit report of DEC which was satisfactorily met. During consideration by the Board, the more important questions asked were about the apparent high cost of Bank and UN technical assistance compared with that of bilateral agencies, and whether local consultants would be used. Bank staff replied that when total technical assistance costs were considered, there was little difference between Bank/UN and bilateral costs. The staff also said that a local agency would be used for the studies to be carried out under the project. Anot%er question was why it was necessary for a Bank loan to have a loan period of 25 years when relending to contractors would be on the basis of a 10 year maturity. - 46 - Staff replied that the reason was to permit BEC to roll-over its loans in local currency to contractors, thus furthe promoting the domest.c cone- traction industry. The project was approved by the Board and signed on December 23, 1975. The Loan and Credit became effective on March 30, 1976. Project Description 2.13 During negotiations, the Bank and the Government agreed on the following project: Part A (GUm) i) strengthening GHA's maintenance and planning organization, including the establishment of a management system, program%ing of operations, cost accounting, and acquisition of maintenance and workshop equipment; (ii) execution of the first four of an eight year road maintenance program which would include annual routine maintenance of about 7,500 miles of main roads and about 6,000 miles of feeder roads, and periodic road maintenance of some 5,000 miles of main and feeder roads; (iii) establishment of a program ly September 1, 1976, to train GRA and contractors' staff to carry out the road maintenance program; (iv) reconstruction of the Achimota-Nsawan Road (16 miles) to two lane paved standard; (v) studies to determine: (a) alternative materials for road construction and maintenance due to the limited availa- bility of laterite; (b) optimum level of feeder road investment; and (c) optimim combination of labor and equipment for selected road maintenance activities; and (vi) technical assistance to the Planning Division of GHA. - 47 - Part B (BHC) (i) term loias to domestic road contractors for road maintenance equipment and spare parts; (ii) term loans to domestic quarry operators for equipment and spare parts; (iii) technical assistance to EKC in the appraisal and supervision of sub-loans under (i) and (ii) above; and (iv) -technical assistance to contractors and quarry operators. 2.14 Total project cost, including US$4.1 million equivalent in local taxes and duties, was estimated at US$35.8 million of which about US$28.7 million was in foreign currency. The foreign currency was pro- vided by a loan of Ui$18.0 million, a credit of US$10.0 million and 3880.7 million in technical assistance provided by UEDP, ODE and CIDA. The estimates included a 10% physical contingency to cover possible quan- tity variations in Part A of the project and a price contingency for Parts A and B of the project. 2.15 The project was scheduled to be completed by mid-1979 with a closing date originally set as December 31, 1980. Estimated dates for project execution and the actual and estimated project costs are shown in Table 1. -48- III. PROJECT aAPLUE:TATION AWD COST Part A (GRA) (i) Strengthening GU's Maintenance and Planning Organization 3.01 The framework for improving maintenance operations was esta- blished with the creation of GKk (para. 2.03). The same tm of Canadian consultants which helped develop the program under CIDA technical assist- ance earlier was selected to assist GRL in implementing the road mainte- nance program. The consultants helped GEL design and implement a mainte- nance management system including defining activities, work quantities, performance standards and an annual work program, and in developing a performance budget and monitoring output. The consultants' recommenda- tions were generally adopted and put into practice. (ii) Execution of the Road Kaintenance Program 3.02 The Second Highway Project aimed at implementing during 1976-79 routine maintenance on about 7,500 miles of nain roads and about 6,000 miles of feeder roads, and periodic maintenance on about 5,000 miles of main roads and selected feeder roads, with a view to achieving a fully adequate level of maintenance output by the end of an eight-year program. Routine maintenance was to be carried out by force account by GRL's regional offices, while 75% of regravelling and 50% of resealing were to be carried out by private contractors, and the balance of perio- dic maintenance operations by GRA. 3.03 GHL purchased about US$12 million of maintenance equipment including a two-year supply of spare parts under the project. Purchase orders were placed in 1976 following international competitive bidding, and delivery was substantially completed by early 1978. This equipment complemented the Can$7 million recently bought under CIDA assistance. The Government had agreed to provide an adequate road maintenance budget to operate the equipment, including the foreign exchange needed to import spare parts and supplies totalling US$3-5 million per annum. In prac- tice, however, the Government provided GEA with only USS200,000 in spare parts and' equipment over 1977-79, and GHA soon depleted the initial stock of spare parts provided under the Second Highway Project. In addition, GHL' s local currency budget declined by about one-half in real terms during the project period, after adjustment for Ghana's rapid inflation (Table 2). By early 1980, about 40% of GRL's fleet was out of service with the actual utilization ratio varying between 20 to 50% depending on the type of equipment. 3.04 GEL did manage to temporarily increase its maintenance output, although the increase was less than planned at appraisal. Before the - 49 - project, PVD's practice was to intervene only after the main roade had already deteriorated significantly, generally by rehabilitation or re- construction. No precise records are available, but GRH staff estimate that they resealed about 12 miles, resurfaced about 16 miles and regra- velled about 47 miles of main roads, a total of 75 miles in 76, the year before the project effectively started, all by force account (Table 3). Following the institutional improvements made with CIDA assistance under the project, periodic maintenance (resealing, resurfacing, regravelling) increased to a maximum of 431 miles in P11978. The short- age of foreign exchange for spare parts and low Government pay scales eventually reduced GHA's (and WHC's) efficiency, and periodic maintenance output declined to 403 miles in FY1980. Private contractors were able to deal on the unofficial market and make other arrangements, and were therefore able to perform better than GHA. Private contractors regra- velled 1,067 miles of roads during P11977-80, compared with 396 miles which were regravelled, resealed, or resurfaced by GHA force account during the same period. Progress was also made on labor intensive routine maintenance operations, which were less dependent on imported supplies. Overall, however, the execution of the four year maintenance program was estimated to be 29% of appraisal expectations; 14% for GRA's program and 49% for the contractors' program. 3.05 Following an advertisement for local contractors interested in undertaking road maintenance works, GHA and EEC jointly selected 2B con- tractors from among 1,000 applicants who were provided with a limited amount of equipment to complement the equipment they already owned. They were awarded road maintenance contracts for 50 mile sections for about i 1.6 million for regravelling and resealing to be carried out over about two years. However, progress was slow because the equipment, which was procured in bulk, was not received by EEC until late 1978, as suppliers were unwilling to make delivery because of instability in Ghana. The equipment was not delivered to the contractors until mid-1979 because BHC was slow in processing their sub-loans. 3.06 By the end of 1981, twenty-five contracts were awarded for regravelling, while two were for regravelling and resealing, and one for resealing only. Three completed their first contract and have received a second assignment from GEA. The progress of. the remaining contractors is as follows: eleven are between 50 and 80% of the original assignment, seven are between 25-50% of completion, five have completed less than 25% of their assignment, while two never started (Table 4). Output was low with even the best contractors regravelling slighbly above 2 km/month which is about one-third of the output which- could be expected under normal conditions. Progress on resealing was particularly poor because of shortages of bitumen and stone chips, and the unfamiliarity of local contractors with this work, which is more complicated to execute than regravelling. The quality of the work was fair and cost performance was good with all but three of the contractors keeping their average cost - 50 - below the original estimate of 3 32,000 per mi. It is concluded that about half the contractors have performed reasonably in the light of conditions at the time. Their overall performance was much better than GHk's. (iii) Training Program 3.CYT A training program for GHk's road maintenance personnel was organised at the Authority's training center. The program was supplemen- ted by a training course for GA instructors given by equipment manufac- turers. About 2,400 staff were successfully given a variety of short technical training courses. Training was handicapped from time to time by a lack of electricity to run teaching aids and power tools, and by a shortage of equipment. The Third Highway Project provided generators for the training center, and some. courses continue to be given by GRA ins- tractors. (iv) Reconstruction of the Achimota-Isawam Road (16 miles) 3.08 About 25 bidders were prequalified for the reconstruction of the Achimota-Isawam. Road on a generally new alignment parallel to the badly deteriorated existing two-lane road.1/ Invitations to tender were issued on April 9, 1976. Bidding interest was low and only four firms tendered; bids were opened on August 2, 1976. The lowest bid, which was submitted by a domestic contractor, was accepted on October 29 in the sun of A 8.64 million subject to (i) the firm being able to satisfy GHA con- cerning the provision of suitable experienced personnel for the contract; and (ii) the Bank of Ghana providing A 2.0 million equivalent (US$1.7 million) in foreign exchange to purchase plant. The conditions were fulfilled and a contract for the reconstruction of the road was signed on December 10, 1976, with a contract completion period of 27 months. 3.09 Progress on the contract was handicapped from the start because of shortages of equipment, fuel, cement and spare parts. Furthermore, the contractor, who was mainly experienced in earthworks, lacked key personnel and other resources needed to manage a high-standard base and paving operation. To overcome these problems, the Bank arranged to pay directly to a foreign agent of the contractor, the foreign exchange needed for expatriate supervisory personnel, equipment and supplies. The work of the contractor was handicapped by delays id relocating telephone and electric power poles which blocked the right-of-way; these were only moved in aid-1982. During the early part of 1982, the contractor was I/ Where possible, the old road will be improved to provide a third and fourth lane when justified by traffic levels. - 51 - faced with a critical shortage of spare parts for his track fleet. The Bank provided an advance of US$150,000 to secure parts which were air- freighted to Accra. This enabled the contractor to repair broken-down equipment and speed up his operations. Work was completed in November 1983. 3.10 The work was completed about 54 months behind the initial con- tract completion date or 38 months behind the revised date after allow- ance for extensions granted by GHA. The foreign construction cost re- mained within the appraisal estimate of US$6.5 million, but the local currency costs, which were borne by the Government, rose to about three times the appraisal estimate because of rapid inflation and the long delay in execution. While prequalification was conditional on the con- tractor acquiring expatriate technical assistance, in hindsight, the contract proved too large and difficult. 3.11 Supervision of construction is being carried out by foreign consultants. They were unable to expedite the works, so the cost of supervision has become more than 15% of the cost of the works, greatly exceeding the appraisal estimate. (v) Studies 3.12 On September 27, 1976, GRA awarded a contract to the Building and Road Research Institute (ARRI) in Kumasi (Ghana) for three studies of road materials, feeder roads and road maintenance. BRRI was assisted closely by the Transport Road Research Laboratory (TERL) with financing from the British Government. Interim reports were submitted on the three studies in November 1980, and the working papers on the maintenance study have been distributed. Final agreement has been reached on the first two studies between the two collaborators, and it is hoped that they will be published shortly. 3.13 The road materials study updated earlier work on identifying and locating road building materials throughout the country, thus provid- ing a useful guide to highway englneers in locating suitable materials as close as possible to work sites with consequent reduction in haulage costs, a major factor in regravelling, resealing and paving works. The feeder road study concluded that road conditions in agricultural areas were not usually the principal constraint to production, but that farm- gate prices were inadequate, and that lack of storage, late harvesting and lack of vehicles contributed to spoilage. The maintenance study noted the serious deterioration which has taken place in the main road system on both pared and unpaved roads. It brouiht out the high cost of rehabilitation as against the lower coats of routine and periodic mainte- nance, and the influence of increasing roughness on vehicle operating costs. The maintenance study was supposed to monitor and evaluate dif- ferent maintenance methods, i.e., labor intensive vs. equipment intensive - 52 - methods; this objective was not achieved because GHA had problems in maintaining the test sections and SHRI staff were not given adequate allowances for field travel. (vi) Technical Assistance to the Planning Division 3.14 The U. K. Government provided an adviser to GRA's planning division, who assisted GH in establishing a traffic counting program, and helped to prepare an investment plan and evaluate various project proposals. His work was satisfactory. 3.15 A study of road-rail transport coordination in the Kumasi-Takoradi corridor was begun jointly by the Ministry of Transport (NOT), the Ministry of Finance and Economic Planning and GEA (para. 2.11). Data collection for the study was completed and a report issued, but no progress was made in analysing the data because of eventual lacK of interest on the part of the Government and a scarcity of professional talent within the NOT which had primary responsibility for the analytical phase. As the economy deteriorated, it became evident that GHA and the other ministries had far more urgent issues to deal with and that the study was increasingly academic; completion of the study was therefore dropped. Part B (BHC) i) Loans to Domestic Road Contractors 3.16 Financial and technical assistance to the domestic construction industry to enable it to participate in GRA's maintenance program was provided through the Bank for Housing and Construction (BEC), a publicly-owned development bank established in 1972. Project funds were channeled through BHC to 2B private domestic contractors under a DFC type project component. In 1974, BHC created a wholly-owned subsidiary, Plant Pool, as a commercially-run firm leasing equipment to contractors. 3.17 Three contractors have faifed to comply with the terms of their purchase contracts, and about 90% of the portfolio was in arrears at Nay 1982. One company made an outright sale of the equipment received under the project without doing any maintenance work and repaid BHC in full out of the proceeds. Two other contractois dropped out of the road maintenance program, but were allowed to keep their equipment to do road development work for GHA. In May 1982, GRA and BHC agreed to submit an action plan to the Association for taking steps, including the possible seizure of equipment, to persuade contractors to use their equipment primarily on their maintenance contracts, and repay their BHC loans on time. - 53 - (ii) Loans to Domestic Quarry Operators 3.18 Of the three approved quarry subprojects, two are majority-owned by BHC, and one is wholly private. Due to serious manage- ment and financial problems, one of the BHC subsidiaries is currently being reorganised, and project equipment has been released to it. The privately-owned company experienced delays due to expiration of the lease on its concession. However, BHC has assisted in its extension, and en- gineering and other works were started this year. 3.19 In addition to the Second Highway Project, CIDA and KfW also provided funds to expand quarry capacity throughout the country. However, by 1979, only a few quarries were producing crushed stone on a regular basis because of the shortage of spare parts and fuel. The re- sulting scarcity of crashed stone seriously affected the maintenance activities of GRA as well as the construction industry in general. (iii) Technical Assistance to BHC 3.20 The initial BHC appraisal reports for contractors were incom- plete, and the Bank insisted that BHC recruit additional qualified staff before approving any subprojects. BHC complied, and following substan- tial advice and assistance extending over two years, the first quarry sub-loan was approved in June 1978, and the first contractor sub-loan in January 1979. Sub-loans to 2B contractors and three quarry operators were eventually approved under the project. 3.21 Hire-purchase loans to contractors are supervised by the Engi- neering Services Unit, which is also responsible for loan collection. Projects under supervision are grouped into three risk categories, and inspected at least twice a year. Quarry sub-loans are classified as industrial projects, and supervised by a ten-man Project Development Department, which provides management advice to borrowers and assists in setting up accounting systems for a cost-covering fee. Once a year, an operational report is submitted to BHC management which discusses the general performance of projects, the progress made in loan recovery during the year, and highlights certain major issues with the aim of providing feedback for the appraisal of new projects. 3.22 Although the basic objectives of project supervision are well understood by BHC, and projects are inspected more frequently than is the practice in many other development banks, fewer substantive results were achieved under the project than expected. Supervision procedures are not well developed because the guidelines for follow-up reports have not been disseminated throughout the department. Hire-purchase loans were often defaulted because they were granted before it was certain that the contractors would be able to start work on their contracts. If no work was done, the loan facilitiy was often extended, aggravating the - 54 - situation. In addition, GRA had insufficient funds to increase contract rates to keep pace with inflation. 3.23 BBC needs to put increased emphasis on project supervision, including improving the organization of the supervising departments and their cooperation with the Finance and Legal Departments, hiring experienced staff, preparing guidelines for supervision reports, and establishing an integrated management reporting system. Consultants provided under the Third Highway Project have made a number of recommendations in these areas, some of which have been implemented (Table 6). (iv) Technical Assistance to Road Contractors and Quarry Owners 3.24 The UNDP, with the Bank as executing agency, provided for two technical assistants for a- two year period under the project. One, a quarry adviser, completed his assignment in February 1978 well before the quarry equipment provided under the project was delivered. Considerable difficulty was experienced in locating a suitable individual expert to advise domestic contractors. An adviser was finally recruited who arrived late in 1977 but left for health reasons after only six months in the country. BBC suggested that he be replaced by a Ghanaian, but no qualified replacement was located. Because of these problems, the impact of this project item was minimal. Performance of Consultants 3.25 The performance of the consultants was on average satisfactory. Project Cost 3.26 The total foreign exchange cost of the project remained within the appraisal estimate (Table 1)1/; however, the local currency cost is expected to double because of the delays in executing the work and the rapid rate of domestic inflation, which was not fully reflected in con- tract price revisions. Disbursements 3.27 Disbursements covered the full foreign exchange costs. As* shown in Table 5, disbursements for the DEC component were satisfactory, but for the GEA component they substantially lagged the appraisal estim- ates because of slower than anticipated ordering of maintenance equipment and supplies, and slow progress on the construction component. By the I/ The estimate excludes operating costs. - 55 - original closing date of December 31, 1980, 80% of the Loan/Credit had been disbursed. It was extended to June 30, 1982, at which time 87% of the Loan/Credit was disbursed, and then to March 31, 1983. The exten- sions were mainly necessitated by continued slow progress on the recon- struction component. Loan/Credit Covenants 3.2B With regard to the GRA part, the Government did not comply with three major covenants. First, the maintenance budget was not increased hufficiently to offset the effect of inflation, and budgeted funds were not released on time. More importantly, the Government provided GHL with only US$200,000 in foreign exchange during 1977-79, so that the mainte- nance component suffered from severe shortages of spare parts, fuel and supplies. Secondly, the road system was not properly maintained, primar- ily because GHL was not provided with adequate resources. Thirdly, in 1981, the Government removed the responsibility for feeder roads from the GRA and transferred it first to the Ministry of Touth and Rural Develop- ment where it was before GHA was organised in 1974, and early in 1982, to the new Ministry of Roads and Highways. BHC is in general compliance with the major covenants for its part of the project. - 56 - IV. INSTITUTIONAL DEVELOPMENT Part A - GRA 4.01 GA. The project was intended to strengthen GRA's road mainte- nance organization and planning. A satisfactory maintenance management system was set up by consultants, but the work accomplished was far below that planned because of lackoof funds and the gradual loss of some higher caliber personnel. Institutional development of GHk has been slowed by the deteriorating economy, and it is unlikely that much permanent pro- gress can be made until this problem has been resolved. Institutional development of GA mst be looked upon as a slow process which will re- quire a decade or more of technical assistance inputs. In view of GHA's problems, and the performance on periodic maintenance by domestic con- tractors which was better than GA's, any further assistance should include efforts to further develop the domestic construction industry in assuming a larger role in periodic maintenance and reduce GRA's involve- ment accordingly. 4.02 BRI, a domestic university condected institute, was strengthened by the assistance of TRRL in executing the studies of road materials and feeder roads. This arrangement worked out well, but some of this effort was diluted by the departure of key BRI personnel because there was insufficient work to keep the staff employed. 4.03 The domestic contracting industry has benefited through carry- ing out small civil engineering projects which should provide experience for larger works. While some contractors have successfully carried on regravelling works, others have done poorly, and overall regravelling operations have been curtailed by the severe shortages of fuel, parts and supplies throughout the country. However, the contractors performed better than GHA, but most are in default with loan repayments. Further financial and technical assistance is being provided to the domestic contracting industry under the Third Highway Project. Part B - BHC Operational and Technital Performance 4.04 Improvements were introduced between late 1977 and 1979 through direct intervention by the Bank and recruitment of competent staff to manage BHC's project activities. Nevertheless, BHC's overall performance has been uneven. In particular, financial management has been deficient, although the new senior management is more competent. The Bank agreed in June 1978 to provide US$150,000 under the project for consultants to analyze BXC's problems. The consultants made recommendations for . improving control over the commercial banking, accounting and lending procedures; reducing arrears; training staff, improving organizational - 57 - integration and reporting procedures; to preparing standard financial information, policy statements, and operating procedures. BRC accepted most of the consultants' proposals in principle, but requires further intensive long-term assistance to implement them (Table 6). Financial Policies 4.05 BHC's By-Laws stipulate that the Bank and its subsidiaries shall maintain a debt equity ratio of 3:1 which, in its calculation, shall exclude short-term deposits and 80% of the total outstanding prin- cipal amount of debt for mortgage loans. BBC maintained its debt equity ratio of 2.4:1 as of its most recent audit (June 30, 1981). However, BBC has not yet prepared a consolidated debt equity ratio. Given disburse- ments from the Bank's Second and Third Highway Projects, and loans from Kf and Banco do Brazil, consideration will need to be given to expanding BHC's capital base since BRC estimates that its consolidated debt equity ratio is about 4:1. The Bank has suggested to Government that portions of existing Government loans to BHC might be converted to quasi-equity or subordinated debt as one possible way of temporarily adjusting BBC's equity and allowing continuation of disbursements under the Third Highway Project, until final determination of BKC's performance could be made as a basis for assessing the appropriate strategy for its further capitali- zation. 4.06 Prom September 1978 to Nay 1982, when the Central Bank raised the interest ceiling from 12.5%, BHC charged the maximum allowable inter- est rate of 18.5% on all loans, except mortgage loans which by law are limited to 15%. In addition, BBC charged a 15 per annum commitment fee on undrawn balances and a small fixed investment fee. Balances and reserve requirements held by the Bank of Ghana, which represented about 40% of BEC's deposits and current liabilities, earned between 2 - 13% per annum. BBC paid interest ranging from 12-13% per annum on savings and fixed term deposits. Overall, BHC earned about an average spread of about 4% on its local resources. 4.07 EC does not have a set of written policies and procedures for the use of its staff. The result has been a lack of coordination and a gap in understanding and knowledge within departments of their respective roles and the functions of other parts of BHC. Often, projects staff may not be informed of those projects for which loan recovery has been a problem, thus technical and financial staff, instead of providing mutual support through a reporting and follow-up system, operate independently. These problems are being dealt with through technical assistance provided under the Third Highway Project. - 58 - Financial Performance 4.08 Financial statistics on ERC's performance are shown in Tables 7, 8 and 9. As of June 30, 1980, BHC's total assets had reached A 606 million representing almost a ten-fold increase since 1975. Net worth reached 1 30 million while long-term liabilities amounted to A 71 million, resulting in a debt equity ratio of 2.4:1. Total loan portfolio outstanding amounted to A 274 million. Net profit, as a percentage of average net worth, decreased to 1.5% in 1981. BBC's gross income and net profit decreased slightly in 1981 to 10.7% and 0.1%, respectively, of average total assets. This is due in part to the accounting policies adopted in 1981 to deduct provisions and tax liability from the year's profits. One objective of these policies is to reduce profits in the accounts for tax purposes, since the Government may etart to collect taxes from the banks. Recently, loan income as a percentage of average loan portfolio has gone down slightly while loan expenses have increased. The changes in the interest rate structure could have a substantial adverse impact on BEC's profitability. Furthermore, high arrears continue to impair the financial benefits that could be obtained. 4.09 Comments on the past financial performance can only be made with the reservation that BEC's accounts do not fully reflect the finan- cial position since they have not been consolidated with the accounts of five subsidiaries, since they have been presented in the short form only, and since uccounting procedures themselves are weak in many respects. These are three areas the consultants, and the Bank through supervision, are continuing to work to help BHC improve under the Third Highway Project. 4.10 Initially, arrears posed a major problem for BC, but the situ- ation was reported to be improving in late 1983. The first attempt to determine the extent of BC's arrearages was carried out directly by the Bank in mid-1978 when it was estimated that over 60% of term portfolio outstanding was affected by arrears. In 1979 EC's own calculations showed an exposure rate of 40% on term loans, largely due to late pay- ments of seven large industrial clients. Arrears on hire-purchase and short-term prefinancing were more pervasive and chronic. However, it appeared that loan lose provisions and reserves, A 10.7 million as of June 30, 1979, were adequate to cover the abiolute amounts in arrears of A 3.2 million under the industrial loan term portfolio and 84% of the absolute amounts in arrears under the hire-purchase contracts. In any case, the nature of hire-purchase agreements allows BHC more than ade- quate collateral against possible losses. - 59 - V. ECONOMIC REEVALUATION 5.01 The economic return from the maintenance program and the recon- struction component was recalculated using actual and estimated costs, recent traffic counts, and recent vehicle operating costs. Costs and benefits were adjusted to constant 1981 prices at a rate of 10% p.a. for foreign, and by applying the local consumer price index to local benefits and costs. Benefits and costs were then converted to local currency at a shadow exchange rate of US$1 - A 15. The result should be treated with caution because of uncertainty over the appropriate exchange and discount rates to use during a period when the local currency was sharply over- valued, and an increasing proportion of goods was being purchased through the unofficial market. Maintenance Program 5.02 The maintenance program was reevaluated by comparing the bene- fits and costs of the additional maintenance performed under the pro- ject. As noted, periodic maintenance output increased from an estimated 75 miles before the project, to 431 miles in Fr1978, but declinin to 342 miles in 711979 and 403 miles in 11980 (Table 3). The program was imp- lemented during a period of increasingly severe economic difficulties which eventually resulted in a decline in maintenance output. The benefit/cost ratio of periodic maintenance performed by GH was reestim- ated to be only 0.9:1 (IRR 7%) (Table 10). The benefit/cost ratio of regravelling performed by contractors was, on the other hand, reestimated to be 2.7:1 (IER - 89%), as shown in Table 11. The overall B/C ratio for the maintenance component was reestimated to be 1.6:1 (IRR - 34%) com- pared with an appraisal estimate of 2.5:1 (IRR - 54%). Although mainte- nance output failed to increase as much as anticipated at appraisal, the additional output was sufficient to justify the investments made in the case of maintenance performed by contractors, but not in the case of force account aintenance. Road Reconstruction 5.03 The cost of reconstructing the Achimota-Nsavam Road increased by about 55% relative to the appraisal estimate. Traffic increased to only 3,800 vpd in 1981 compared with about 4,600 vpd forecast at ap- praisal, although the proportion of heavy vehicles grew faster than anti- cipated. However, cost increases and lower than expected traffic were offset by increases in vehicle operating cost savings. On the basis of revised inputs, the economic return from reconstructing the Achimota-Neawam Road was reestimated to be 15%, compared with 14% estima- ted at appraisal (Table 12). - 60 - VI. BANK PERPORMANCE 6.01 The project was well conceived and could have progressed satis- factorily had it not been for lack of foreign currency and country-vide shortages of fuel, spare parts and supplies and the hse of qualified personnel. Neither GHA nor the domestic construction industry could be expected to perform as planned under these conditions. It is relevant to ask whether the Bank should have foreseen the downward trend in the econ- omy and its inhibiting effect on the project, as it is evident from a - review of supervision reports and the appraisal report for the Third Highway Project that the Bank was overly optimistic as to the capability of GHA and the domestic construction industry to perform under increas- ingly adverse circumstances. 6.02 Although fraught with institutional problems, the involvement of the private sector via .a local development bank in implementing a road maintenance program was an innovative and positive step. 6.03 Bank supervision was adequate, averaging almost three missions per year and relationships between Government officials and Bank staff were good. A* - 61 - VII. CONCLUSIONS 7.01 The project responded to the need in Ghana to improve the main- tenance of its road network. The Bank reacted to that need #hrough its efforts under both this project and its successor, the Third Highway Project, which was an emergency project aimed at providing foreign cur- rency for much-needed spare parts, supplies, and materials. 7.02 GHA and its contractors were faced with almost continuous shortages during the execution of the project which greatly hamp6red the maintenance and construction components. Nevertheless, some contractors did good work, the construction component is nearing completion; and certain other components, notably training and studies by the domestic institute of RERI were eventually substantially completed. 7.03 In retrospect, the project was perhaps too ambitious for the increasingly adverse climate which developed in Ghana, and a project which included financing for some of the operating costs of fuel, spare parts and supplies would likely have been more successful. The decline in the economy was due primarily to inappropriate Government policies, including the failure to provide sufficient foreign funds for recurrent expenditures to most sectors, including highways. 7.04 Maintenance output increased somewhat under the project, although significant improvements were thwarted by the macroeconomic decline. In addition, some progress on institutional development was made. These include the establishment of GHA during the preparation of the project, the adoption of a maintenance management system, and the training of domestic contractors for periodic maintenance operations. 7.05 With regard to the reconstruction work, it seems evident from the experience gained on the First Highway Project and again on the Second Highway Project that local contractors should not be entrusted with large construction contracts which are beyond their capabilities to - organize and manage (para. 3.10). While the objective of giving domestic contractors an opportunity to gain experience is laudable, there is litle to be gained by awarding them work that is beyond their technical and financial ability to execute. 7.06 WC suffered the same problems from the deteriorating economy as did GHA. While some progress was made in improving BHC's appraisal capability and financial performance, BHC remains a weak development bank. APIUMLIC OF CHAM aIOND HICUAY PEoJCT CEDIT 594-CliLAA i1S2-a ROJEC? COMPLETION asoT Actual and Appraisal Eetiastes of project Coat (all amounte In US$'000) Contract Data Appraisal Etiate estimate or contract complen (Inc. continganctee) Contract Value Actual Fans) Cost Bank Group Phye. Project Item contract Compl. Date if y -. Contrthutone Comp. ligned Date (set.) LoZal Foreign Total Local Foreign Total Local Foreign total I A. CA Project Element 1. Road Maintenance Equipment 'nd ipares 250 10,680 10,930 285 8,565 6,85S 300 11,300 11,60 11,300 97 95 2. Workshop Improvement and Proturement 260 1,020 1,280 -- 460 460 300 300 100 3. Training Center Improvement and Procurement . 130 250 380 -- 144 144 190 200 39 200 51 100 4. Reconstruction of Acor (Achimets)-Nsavas Road 12/10/76 06/12/79 12/31/82 3,760 6,930 10,690 2,905 4,605 7,510 0,00C 6200 16,200 6o200 38 85 5. Consulting Services and Technical Aseiltance: a) Road Maintenance February 3, 1976. 122 m/ 340 800 1,140 155 155 310 140 880 1,04 680 i5 100 b) Supervision of reconstruction works and preparation of Continuation of Fourth HiAhway Project existing contract . 350 350 700 400 400 800 670 1,050 1#720 1050 SS 90 c) Studies for (I) feeder road investment; iii) labor equipment six in road maintenancel and (Ali) road building materials 09/27176 06/30/79 06/30/81 180 470 650 1,032 193 1,225 1,080 520 1,600 520 32 100 TOrAL - Category A 5,270 20,500 25,770 4,777 14,52: 19s299712700 20,150 32,850 20,150 61 94 ' S., BHC Project Element 1. Produrement through INC of Equipment & Spare Parts fori a) Domeastic Road Contractor@ 04/78 12/78 1.440 6,560 6,000 1,430 6,200 7,630 6,200 f1 100 b) Quarry Owners 05/78 210 940 1,150 300 1.000 1.300 11000 77 100 2. Lubricants for Contractors a Quarry ownere 300 300 300 100 n.e. TOTAL - Category 1 1,650 7,500 9,1SO _ 1,730 7,500 9,230 7,500 61 100 TOTAL - Category A + 5 6,920 28,000 34.920. 14,430 27,650 4200 27,650 78 s BALANCE 330 350 350 C. ton-IBRDIIDA Technical Assistance 1. UNDP for Road Contractors and Quarry Owners 106 247 355 33 200 233 - 0 100 2. ODH - Adviser to CHA Planning Division 43 120 163 - 0 100 3. CIDA - Continuation of 3 1 6 Maintenance Program (43 w/o) 53 309 362 53 309 362 - 0 n.e. TOTAL - Category C 204 676 880 129629 756 - 0 100 PROJECT TOTAL - - 124 28,676 15,800 14.359 26,629 3,156 28.000 65 96 1/ U11.00 0 1 1.15 1/ t1i1.00 8 d 2.75 or US01,00 * 1 1.15, whare contret vas I/ Includes 05$150,000 for supervision under ighways I completed before the devaluation of the cedl. Sources CdA, Consultants, and Histion Estimatees, September 1982 63 -AX REPUBLIC OF GANA SECOND RIHWI PROJECT CREDIT 594-S U82-GB PROJECT CONFLETION EPHORT CA's Road Maintenance Budget, 1976-82 --Amstea(oi- =monss -AUMS7RATION-I --- Eontant Piscal Routine Periodic Current 1981 Foreign Exchange Tear Maintenance Other aintenance (1) Prices Ghana CPI Prices Provided 1976 4.5 12.7 8.6 25.8 216.2 294 None 1977 6.1 15.6 11.6 33.3 337.8 243 None . 1978 13.4 31.7 14.6 59.7 584.8 251 1979 19.0 29.9 12.7 61.6 903.C 168 0.55 (us$ 1980 -.A. 200.000) 1981 - 68 28 96 2,460 (4) 96 None -1982 - 105 (2) 112 (3) 227 3,700 (4j 151 Rone (5) (1) excluding minor works (2) approved budget (3) approved budget; however, only let quarter released as of .05/82. (4) estimated (5) as of May 1982 TABLE 3 - 64 - REPUBLIC OF CHANA SECOND HICRWAY PROJECT CREDIT 594-4/LOAN 1182-GR PROJECT COIPLETION REPORT Estimated and Actual Periodic Maintenance Performed, 1976/77 - 1979/80 (Miles) Estimated Actual Actual Actual Actual 1975/76 (1) 1976/77 1977/78 1978/79 1979/80 Regravelling Trunk Roads Force Account ) 47 85 79 64 22 Contract (2) ) 0 128 '102 168 233 -Regravelling Feeder Roads (Contract) (2) 0 0 143 96 197 Resealing (contract (2) plus force account) 12 51 73 8 .29 Resurfacing (contract (2) plus force account) 16 23 34 6 -10 TOTAL 75 287 431 342 403 (1) Assumed to be average annual output prior to project implementation (2) Includes maintenance performed by contractors assisted under the Project as well as other contractors NOTE; A total of 1,463 miles of periodic maintenance were performed during FY1977-80, or 29% of the appraisal forecast of 5,000 miles to be performed during CY1976-79. - 65 - TABLE 4 REPUBLIC OF GEANA SECOND HIGHW'AY PROJECT CREDIT 594-CHILfAN 1182--GW PROJECT COMPLETION REPORT Estimated Progress of GHA Maintenance Contractors * 31st Dec., 1981 C.d";C T A A lED W TLL VD K V E O MOE VI D 5 C AW = tR NS AMT amrr%h CootIe c. %C M "'M Are conots 3ar kcc ar= kn= CD.3:3 1400000 0 a 0 0 0 0 DmtdIeth 7 oC 1 400 coo 54-c 73 2 02t 0 123 28 2a8237 70 1 40 COO 25-C 19 26722 0 0 0 To 7poCmaast Z'S WLig . quarters.* 0 1o0000 11.C 24 201 317 0 0 a -.- 3 quarters. 70 1 400 00D 27-C 34 469 723 12 24 195 251 40 C 216 517 3-c 54 2036 674 3.55 1 391417 20s 26.5'-z - 7 C 1 400 000 42-C 39 552457 0 0 0 Xo psecess Ust 5 U.S-T= wnar. *--. 70 C 400 OD 50-C 62 664 580 0 0 0 So P"oreas ti ta 70C c 4 000 46-C 53 737159 0 0 a wek is piccrwas us .a csam. 40 C 1 00 COO 34-C 40 55542o 0 a a 0 ore..a.f2f. t 25 5 2 Cnrters. 70 C 1 4000 c 38.5-C 49 6pi2 3.5 7 9o 64 70c : 1 400 000 20-C 22 174 695 a 0 0 -d.- 4 quarese. 700 C 000 - - - - & - moves re .22C 30a7178 20.c 5Z 2 5739 4 225 559 8 680- 1 670644 0 a 0 srsa 6U-as0samt. 91 aC 1726 0V 91-c 2o 1 726 05a8 0 a at st-r1 se I amelcmentk asoa 1 oo oco 5 64 90" 0 a bork sa prcgress Is 7. s claim. T0 G 1 400 000 20-C B8 1 233 022 s 8 Stt 599 Preftalwatly zwrevansmt works. 70 1 400 COD 55-0 71 557 221 0 0 S so pareress lUst 3 ID 70 C I O000 36-C 43 558 46 6 8 10 O 70 G I OO COO 67-c 83 1157579 6 9 22B134 70 G 1 4cO 000 28-c 20 266 145 0 0 0 6erk In prrGress but an cum. 5017gM 70 1 ? 400 000 GD-V 79 1 102 424 0 0 0 So precress 2nst 2 quartce. 70 a I 4CO oo 45-0 47 660 !73 0 0 0 -de- 700 oo co 61-C 55 823-y8s a 0 1 0 o prgress "st 2 -11 anWters. 7 C 1 4G00 G 51-0 61 817 U6 -8 4 W9 924 rrr In 7reet-*@ 417. or "vrk dan. To C 1 400 000 CG-c 73 1 OZ 423 a C 0 ver a p-eass at mpglais. 7 C I £00 000 3--C 32 48 F62 0 0 0 N* Vrgrcxe last 4 5A OTA. 1 s6 23 73B13 Sos A-.C 4 247 47 =3 35 - 53 5" 0513. G = REGRAVELLING S = RESEALING Source: GEA Quarterly Maintenance Progress Report, as reproduced in "Report on Evaluation of Contractor Performance," Louis Berger, International, May 1982. *Financed by BBC SCulAative since 1978/79- -66 - TAM 5 REPUBLIC OF GEANA SECOND HIGHAY PROJECT Credit 594-GR/Loan 3182-GH Project Completion Report Schedule of Disbursements (as of December 31, 1983) Accumulated Disbursements U. S. $ million Actual Disbursements as % of Appraisal End Appraisal Estimates Fiscal Actual Estimate Year__ _ _ _ _ _ __ _ _ _ _ _ GHAB BHC GHA :BC GHA EEC 1976 0 0 5.0 0.9 0 0 1977 7.5 0 13.1 3.7 57 0 1978 12.0 0 16.7 6.5 72 0 1979 13.0 5.8 19.7 7.5 66 77 1980 15.2 6.8 20.5 7.5 74 91 1981 15.8 7.5 77 100 1982 17.0 83 1983 2o.S S 99.9 Closing Date 12/31/80 Note: Following a first extension, on July 30, 1982, the closing date was extended again, to March 31, 1983. TADLE 6 IEPUBLIC aF CRANA - SECND RIGMY PROJECT CREDIT 594-G/LOAN 1182-G ROJECT CMPLETION REPORT Reco2~edations of Consultents on Conmecia BanUng Opeations of 3&C KEC":DJCH- CCP£- -T2 C -g Parchase of ,er.crators as stand-by for Coa 3 cmcratorsanted, p:wer cut-~Oil • Accepto d 4ra- arrived. , , -rPract.ce iamal to bo prep;ired for Brar.cis. ••Accepted Dr:ft or Lnual re.d7. ~spectcd to be isua -'' __in J le i L Ter-. -.ry Irrey.:r mres-Systc: of Acecpted Daily and Nonth2y røt,n da.ij, ard :.aL.y roter.s to be .ntrod::ced. Impement.d. '. Lrod..c'en of r.nth17 sto-t.tants. .teck ieeticn rnd stock rc-isters Accept d ReClstera introduce. e bc intra.'uccd. (re.ers to recuriti..,s . -.3n accelpted !ry Bc). -r rain.wal of c=pircd Accepted 3=Immtød tiion of 2own collecticn drive. Accpt,d Lon collectcn ur.iis set. up 5.n al. Bra-.c.Ne. - Chronic C&s•ft referad to Ljal Ecprtment. Creation of' Etf-'r.3 Cprtic:s Deatie. Cret:.ng of Dept Chie. Br.:<i ;: Cpra.ier. (C.EO) to riøpo .d z0partnzrt Ce.OI. dlroc. to ar : Dirc•cc. lino n e.d. CSO raporting BHIC w:s C"O o report to Cai±of Kana~or8Fanco I Institut4on of rezala-r z::ctinr. betwecn !rnch AccptCd Impes dtc!d acr, -:d C.ief - BarkinC Cp~ration .Closuro or currcnt/savLnZs ceci-unts iPLt very Accepted .mpanted anall or nql balmces. Centrali=.ation or all Savinr.s Accounte of Not rcceptcd. Idea looks. . råobil flouIse ad T.du. Dran-cacs 2n :crica . sound. Pract.cal aspect not iphit~d louse, lv.2ald bc Irconveient to customeCrs. Interest suspcnzs account. for doubtful Accopted 3 ~=plemnted Stra-alnin;; o perain of F±eld-ware- Acc~pted New Polcy on o aclty. facllity Introduccd bi * Enagemnt.- EUBLIC OF emND DIGNVAY PROJECT CREDIT 594-CRILOAN 1182-G2 PROJECT COMPLETION REPORT Rank for Rosing and*Coms~tructiö Income Statemets -1975-1981 (Cedis. 000) 3've.we 197_5_ 297 19 - 1 IScmonts (Treasury &Ills 460 973 1 915 1,693 1,830 1.362 Ceverw=ent Stock/bonds - -.1.045 -322 . - a-Lont-Tera Loan. 2.418 6.151 2.733 4.178 6.479 30.801 15.828 short-Terr and other Loans ,218 9.319 17.371 20,545 19.151 Co 95tMen. reokerage. DIchavse 577 735 2.091 2.396. 1.844 3,958 Ce..itont rees . "15 . 39 Professiors1 yerm 21 .4. 30 Wre Peouse P.nc 303 43 35 Other Incomec - 928 43 59 Crom 7necese 3.807 7.920 11.752 38.03 • 2,539 37,8u9 31,491 It.terets - Uont-Tern Liabilitieo s.9o4 6.173 3,424 Current Liablltces/Dcpoats 8.895 11.630 34."3 1Sg4*cial :>penses 1.577 3.763 4.306 7.473 11.859 17.83 20,359 relsovinel se.vices 577 830 1,114 3,705 5.567 ,410 8.795 WDfSce Fxpr=cs 379 £14 - 1,270 23.205 2.48 2.40 Iravel4Inr ana 1otor Expeses 34 54 2.128 526 . 858 814 1,824 aaaov >eprns 36 17 - 202 299 305 574 Ir.ch Dr.-clo-rne. rUpensca - 193 472 - 307 22 30 eprLc1.taion 301 337 526 576 715 866 180 Sepa«arSon 'or Bad Debts • - 41 - - ~52 31 ID Oher I.d=:risers.ive aed Geeral rapense5 228 - 224 53 251 2216 25 - .397 Mjstr..•.t ve and -earal Uxpensea 1..325 2.330*• 4,293 - 6.537 10.519 31.770- 17,714 Pro.sjo. I., P.d/P>ultful Debts* - - - - 6.931 11.507 ?.ta _lptn. 2.82 6.073 8.599 14,010 22.378 36,424 .:9,560 vet rrefft lerore Tran-fer ta Rezerves 915 1.817 3.153 4.593 6.161 1.405 3.931 TIeRs.e - - - - - - 1,416 et ftoist ater Tax 15 -1.847 3.153 4.593 6.161 1.40 35 T er o (.re.' K,wenue Reeves) Losa Lovs 200 3.000 2.200 3.000 4.300 -- 17.600> Puilding - - 100 .300 270 345 1,000 - Co.ttsCercy - 100 100 200 100. 100 - flnk1ig lrn - - 500 1.100 1,200 - - 1.000 200 1.200 2.900 4,470 5.945 1,00 <5.600) Trea m-er to (fra= lncome Surplus Mcmunt Profit and Loss Acount . 1.405 335 erece *tid reserves 0o00) 15.f'' rTer Years' Adjust&ent: Tax Arreare - 15.983) 305 132 U rprIate ItAft tasrferrercd o senere."~tun.: . 5 647 253 123 216 305 132 eace po-sey. Sed'acen<Gnt p en.. Chauzm ta ~cUntfa; PORSCY. TABLE 7 -69- Page 2 of 2 NOTES Changes in Accountina Policy Provisions. In the past, BIC's practice was to transfer an amount each year, representing about 2% of outstanding ]oans, from net profit for the- year to an account called "Loan Lozz" in overall Revenue Reserves. Provisions were thus considered as part of not worth. 'The policy has been changed, starting with the year ending June 30, 1.981. Provisions for bad and doubtful debt, in an amount based on the actual quality of the total portfolio, appear as expenses *in the Profit and Loss Account. Profit for the year and net worth are thereby more representative. STax Liability. In the past it had been assumed that BHC would be exempt from payment of income tax. Therefore no provision for ta%es was made. The new Government now appears to want to remove the exemption, and possibly even collect back taxes. Therefore in 1981 adjustment was made for tax arrears (0 16 nillion) and starting in 19S1 taxes are pro- vided for annually from profit for the year. The tax liability appears under "Accounts payable: other liabilities." Asets 1975 1976 1977 1978 1979 1980 1981 Liquid Assets Cash in hand and tlancas with Dank of GhanA 6,888 10,544 21,020 47,802 57,611 - 52,488 172,838 Balances with other Banks 10,223 4,866 6,600 3,690 5,701 929 2,591 Coverneent .Stocks and Treasury Bills 8,141 19,966 . 24,383 31,533 8,290 52,638 148,844 25,252- 35,376 52,003 83,025 71,602 106,055 324,273 Equity Investments. 1,036 1,146 .,281 4,581 5,344 5,318 5,482 Short-TUrm Loans Bills Di%counted 1,085 1,215 1,106 1,258 1,371 8ills Rceivable 3,531 * 2,072 . 2,592 3,417 11,137 7,546 OverdLntts 9,852 - 26,763 47,190 70.259 91,448 75,088 Coniercial Loans 929 1,870 2,462 2,723 3,415 4,084 FieldvarejlousinS 1,733 5,310 6,296 19,271 18,099 13,344- Pre-Financing 6,139 21,037 26,892 33,605 38,895 45,504 ce Other Accounta 823 3,073 8,526 25,518 16,575 34,610 23,012 62,010 95,073 155,899 180,827 181,548 Mediur,long-Term Loans Hire-Purihase 7,100 10,465 10,184 12,301 29,759 29,828 Morteage Loans 1,831 5,131 6,115 7,235 7,450 . 7,741 Industrial Loana 1,847 11,927 21,254 22,419 27,199 55,276 10,778 27,523 37,,S3 '1955 64,408 92,P!.4 Total Loans 33,790 66,3Z6 8,>33 132,626 .197,855 245,235 274,392 Fixed Asset@ 465 840 1,250 1,649 1,995 2,12 * 2,277 Total Assesi 60,543 103,638 147,067 221,C81 276i795 358,731 606,423 Liabilities ad Equity 1975 1976 1977 1978 &979 1980 181 Current LiAbilities/Deposits Dearn.d Deposits 40,202 60,346 61,064 79,792 241,437 FIxed Deposits 45,808 53,985- 52,999 64,582 68,378 Savings Dnposits 13,033 26,817 39,278 71,255. 108,781 Other AccountO 9,806 18,225 33,770 36,850 87.801 46,735 74,714 108,847 159,373 187,111 2S2,479 506,397 Long-Term Liabilities 6% Housing cod Construction Bonds - 9,962 10,000 10,000 10,000 10,000 8 - 1/2% BIIC Morteage Bonds 343 20,000 20,000 20,000 20,000 Bank of Ghana Loan 1,000 1,000 1,000 767 70n Government of Ghana Loan 11,000 11,000 11,000 11,000 11,000 World Rank Loan - - - * 16,015 19,050 21,796 KFW Loan - - . - - - 463 5,526 Brdailion Loan - - - - - - 1,499 7,093 . 16,612 22,305 42,000 58,015 61,279 70,521 Share Capital and Reserves Share Capital 5,800 9,600 10,000 10,000 15,000 20,000 20,000 Reserve Fund 715 1,302 1,615 1,738 1,95 2,258 2,390 Rovenuo Reserves - 200 900 2,370- 4,015' 15,815 7,115 Net Worth 6,515 11,162 .12,515 14,108 20,969 38,013 29,505 Lohn Lois Pecerve* 200 1,200 3,400 6,400 *10,700 6,900 - Total Linbilities znd Equfty 60,343 103,088 147,067 221,881 276,795 358,731 606,423 Contincent ItabilItieq 3,35e8 11,3S2 12,466 13,358 15,63 6,240 7,209 (111 of Lcding, Indanities, - -- - - - . - . S Confirred DocumancM.y Credits and other enSnturentp for accounts of custors). * Snu r.ccoapanying notes on changes In aecount.r.3 policy. C,n c"MI3A. ?mJZr C~fLTION 12FCRT Income/Exensoes as 2 of average Total Assets Cross Income 9.6 9.4 10.1 11.4 11.9 10.7 Financial Expenses 4.6 3.4 4.1 4.8 5.6 4.2 Administrat ve and other Expenses 2.8 3.4 3.5 4.2 3.7 3.7 Net Prof tA 1.0 0.8 0.9 0.7 0.4 0.1 I/ Mat Proit- as 2 of Average Net 1rth 9.0. 8.4 12.0 10.8 4.5 1.5 Loan Incone2V as 2 of average Loan Portfolio 12.8 12.0 14.4. 14.1 13.7 Ttva Loan V as X of average Term Lcan Portfolio 12.8 16.3 20.3 20.1 Loan Expanses as X of average loans * * (liabilities) 3.2 3.9 4.5 * .3 8.0 7,8 Torm Loan Expenses as 2 of average Turr. to:ns 5.9 11.6 6.9 Liquidity Ratio 1.0 1.1 1.2 1.1 1.0 Term debt/Equity Ratio 1.5 1.8 * 3.0 2.8 1.6 . 2.4 Adjusted Term Debt' Equity Ratio. 1.3 2.6 2.5 1.3 2.2 Provisiony as S of outstanding Loan fard Pquity Portrfol 1.8 3.6 . 4.7 5.3 2.8 4.1 l*roidIe, as 3 of outstandirg .cru Loan and Iquity rortfntio 10.7 15.2 22.6 9.9 11.7 Interest Coverage Ratio 3.3 2.7 2.7 Terk Interest Coverage Ratio 2.5 Term Debt Service Coverage RAtto r1 1/ After Less Reserve up to 1979; thereafter After Tax. T/ Only interest since other fees and charges rot separable. Term Debt reduced by 602 of the outstanding principal acont of housis Loans aured by real estate noTtgages Loan Losa Reserve up to 1979. B 8 52 [9t 8SEEE -- b i B Ui . SW 4 .4 m> 'iå I s I s aU.N IjIJO - 74 - *REPULIC OF CHANA TAKE 1 SECOND HICUAY PROJECT CREDIT 594-GHILOAR 1182-CR PDJ1E.T COMPLEIO REPORT Economic Reevaluation of Regravelna by Private ContracCora (U millions at 1981 prices) Routine Fiscal RegravellIng Maintenance Vehicle Operating Tear Costs (1) Costs Cost Savings (2) 1977 45.58 0.82 22.2 1978 50.26 2.40 46.0 1979 113.98 4.10 79.3 1980 33.38 6.87 127.9 1981 18.09 9.25 169.7 1982 -19.93 10.38 189.5 1983 9.56 167.3 1984 7.98 143.5 1985 6.28 110.2 1986 3.51 61.6 1987 1.13 19.8 3C Ratio at 12% discount rate = 2.7:1 Economic Return = 89% (1) Regravelling Costs Equipment. Equipment. Constant I,t Total Constant Fiscal Lubricants. Constant 1981 Lubricants. Trunk Road Feeder Road Ghana 1981 19h1 Expenditurl Year Adviser Expenditure (a) Adviser Contracts Cc) Contracts (d) CPI Expenditure la ilic.s) (gy 1977 6.26 337.8 45.58 -5.5B 1978 5.90 6.05 .584.8 50.26 50.2*, 1979 5.2 6.3 1.13 4.02 2.00 903.0 19.48 113.98 1980 0.9 1.0 0.20 5.52 4.26 1,335.4 18.38 * 33.38 1981 0.6 0.6 0.13 4.80 4.16 2,460.0 (f) 9.09 18.09 1982 Ce) - 1.6 Cb) - 1.5 - 0.36 Cb) 2.14 2.08 3,700.0 (f) 2.57 1, - 19.93 (a) discounted at 10Z p.a. Cb) estimated residual value of equipment(252 of $6.2 million foreign plus il.43 million local costs) (c) estimated contract cost, less 20 for depreciation of balancing equipment financed under the project (d) partly estimated (e) first six months () estimated () based on shadow exchange rate of SS=dl5 (2) Vehicle Operating Cost Savings if/kz, net of taxes at 1981 Vehicle Fair/Good Gravel Poor Gravel VOC Savings Light 2.41 3.45 1.04 Hedium 6.67 10.70 4.03 Heavy 12.32 20.71 8.39 Weighted Average (50. light. 402 zWdin. 10 heavy vehicles) 1 2.97 Trunk road benefits: 100 vpd x 2.97 x 365 days x 1.6 (km)173,6"8/milelyear Feeder road benefits: 25 vpd a 12.97 x 365 days x 1.6 (akm)=J43.362/mile/year Fiscal Benefits from Improvements made in . . milions) Year 1977 1978 1979 19b0 1951 a) 1982 (a) Total 1977 22.2 22.2 1978 23.8 46.0 1979 33.3 79.3 1980 48.6 127.9 1981 41.8 169.7 1982 19.4 189.5 1983 - 167.3 1984 143.5 1985 110.2 1986 61.6 1987 19.8 (a) estimated from partial data Other Assumptions (a) no contract m.intenance performed VI project (b) zoads regravelled every six years (ci traffic levels average 100 vpd on trunk roads and 25 vpd on feeder roads (d) routine maintenance costs are estimated to be 4,000 im at 1981 prices (e) regravelling and routine maintenance ill keep road in good condition (40 mph driving speed) whereas roads will remaa in poor condition (20 mph driving speed) w/o project TANLE 12 75 - nEULIC OF AA SECam uzCMAT, FP0JECT CRDIT 59r.-COAS 1182-mf p»CTC COHPIErI0P 1EFURT EcUo.L uee~alaton of the Aehtmota-UaeW Road (dOe. er of tas at 1981 prisn) Teer ConWtruion Costa. faltenance Costa 10C ze~eftts *1977 35.168 1978 36.160 1979 27.287 1980 24.575 1981 24.563 21 1982 31.681 161 26.955 1983 161 26.955 1984 161 28.572 1985 161 30.287 1986 141 32.10. 1987 161 34.0303 1988 161 54:336 1989 6.655 57.596 1990 161 61.5 1991 161 6..15 1992 161 68.598 1993 1/ 161 77.73 199 - 97.588 161 77.077 Ecoom~c Return = 152 1A - 17.743 <residual vale of existing road for constrtion of 3rd plus 4th ane) - 79.8.5 (residual value of m. road) (See nots.) 21 40.79 (OC savings) u 3800 <1983 ADh> x 24.6 (ka) x 365 (days - 26.954.958 3/ 41.19 (DOC savnga) x 3800 (1983 ADT) x (1.065 (1981-88 traffic g~rwth) x 24.6 (ka) x 365 (days) - 54.336.024 N0TIM f 1. Contruction Coste Forin Costa- le. Cos .- TAl Tear Actual frice 21 Constanz 1981 Constant 1983 Constmot 1%. Espnditures Index Expend[turem Espenditures Chana CP! Expenditure. Ependitures (000) (5000) <4000> (4000) <4000) 1977 8 654 68.0 961 2.850 337.8 20.753 35.168 1978 1.563 75.1 2.082 696 58..8 2.910 3..1r3 1979 1.17e 82.6 1.420 2.165 903.0 5.597 27.2m7 1980 1.0r9 90.9 1.153 3.961 1.335.4 7.280 2r.1575 1981 985 100.0 985 9.788 2.£60.0 3/ 9.788 2&.563 1982 1.911 110.0 1.737 8.440 3.700.0 31 5.626 1M.6i 20TAL $ 7.360 11 27,900 i77..34 1/ Construction consa 801 of consultant east. Averag echange rate: US5=42.57 2/ asm 10% p.a. inflation 31 estiated t/ uing shado exchange rate of CWs15 2. Emtiemted Traffic Crowth Rate Copusitio- (13 Test AADT <2 P.a.) Lh Mdiur Hean 1971 2.17 15.4 ) 77 1B 5 1974 (appralsed) 3.300 4.8 765.9 1977 3.800 0 D 68 24 8 1981 1/ 3.800 68 24. 8 1/ Emtimated to be the sam as 1977 an the basis of 1981 traffic counts on adjacent sections. 3. VehicIe Operati"g Costa p41... net of taxen at 1981 1 tmC Savings Good Msderately Falled Severely Falled Good vs. Moderately Cood vs. Severely AsIhalt Surface Dressing Surface Dressing Faled Falled Light Vebicles 2.11 2.78 3.09 0.67 0.98 medium Vehicles 5.06 5.88 6.36 0-82 1.28 meavy Vebiles 9.93 11.61 12.58 1.68 2.65 Viaahted Average (1981 veblcle cpoition) 0.79 1.19 4. Other Asseptöns 1. Road life la 20 ymars (appraisal aoumpiton); road reealed in 1989 at en econamic comt of é264.000/km(1981 prics). 2. Ptad opn to traffit in 1983. 3. Ramd widened to four lanes in 199 1en traffit forecant to be about 7.000 pd (appraisa a~au~ptton). Nasid=al valse of eisting road for secoand carraeway is 10% af construction coast (apprasal aeumption>. 3a1dnal value of new comtruttian proratad. 4. åortie ainteance costs are D10..00Iele at 1981 prices. 5. go beefita fra. aintename cor saviags. since axisting road not betag effactivaly umintaised at present. 6. go traffic nh from 1981 to 1983 de to poor state of the ecowoy; traffic gran~h thereafter 62 p.a. (1971-78 eperience). 7. go gemerated traffic. 8. Emluting road in a moderataly falled condition deteriorating to meverely falled by 1988. 9. Shada exchange rate is t15^D531 at 1981. 一〉‘一 才《，＇夕〞二j為斤 77 AM= I I of 2 ZCZC DIST77P7 JUS0860 DIST REF : TCP HT <! - DD JUS0860 7.lS0J TN 7R/13:12 Util 29/13:25 22-38 CERCO R H sHrV KAPUR DTRECTOR OPFRATTONS FVAIUASTIDN REPT. RE: PRIMEM PERFORMANCE 111!gff REPORT ON GHANA FIRST AND SFrnND HIGHWAY PRD.IFCTS - (CREDIT 4.387 i:Rk:Dxr 438 AND CREDIT sqvi.onx tie?-sH) PROJErT TMPLFMFN7ATION kl--FFRI.q: PAGE 12v PARAGRAPH 2? IT IS NOT TRUF THAT NONE OF THF 7 1MAr.RXFS IS WORKING. GIIANA STORE MARRY HAS BEEN 114 tJMITFRR'.JP''EV pRentio"mm sxx.,F rHE SUPPLY OF ADDYTZfINAI flfllJTPMFNT. USU Xg THE MAIN SOURCE OF CHIPPINGS TO ONA AND courRaCTORS XM GREAYUR i^(:(:RA REGION. AS A RFS111T OF FXCF-l I ENT PFRFSkMANCF7 IHE COMPARY HASS UIVEN ADDETIONAt. FAcri-ITY UNDER rim THIRD HfUHMAY PROSRAMME. PAGE 20 PARASRAP 47 PHr- Al.ttlWFP FAM CONTRACTOR TO STATE IYPF UF PRESENT MACHXNERY N01-PTUS AND TYPE OF FuturpmEtur itEmimclFil. AFTVR THF TFNPFRP THE WORLD BANK WAS N131 PRI-PhRE-11 10 CONSIDEk INDIVIDUAL RFOUESTS WHICH frEXCEEDED THE MINIMUM C ,IMMFF.,! BY ! PFR CFNT. SEr(JN.nl Yy FArH rONTRA1;T')R AG%FF!, AFTER EXAMINING PRXCI.-S l!; TAKE THE EOUTPHENUMACHINERY SIFIE1,'TED BY THE TF*IDFR VAL.U.tryom EXCEPT OMF CONTRACTOR. -78 - ANNEX 1 Page 2 of 2 THE BULK OF THE FtUIPMENT MERE SIMILAR TO THOSE BOIUGHT INTO GHANA BY GHA. GENERAllY, THE PIANT AND MACHINERY HAVE DONE WELL IN GHANA. SOME CONTRACTORS HAD PROBLEMS FROM SHEER MISUSE FROM INFXPFRTFNCED OPERATORS. PROJECT IMPLFMFNTATION AND COST PART A (GHA) REFERS: PAGE 9p PARAGRAPH 3.05 THE DELAY IN THF SUBMISSION OF THE APPRAISAL REPORIS ON SUB- FRO.Jf,*TS WAS DUE M-.ixNLY TO THE INnBIL-irY OF CONTRACTORS TO SUBMIT AJDlIFP ACCn(INTS AS REPUESTED BY WORLD BANK AND SrCONDLY iHE F ;JF"I CHANGES OF THE POSITION OF WASHINGTON ON THE FORMAT FOR THF PRFSENTATION OF THESE REPORTS. Y. OSAFO-MAAFO BANKHOLSFP ACCRA 223;1 CERCOR GH - 79 - It Agence canadienne de Canadian International d6veloppement international Development Agency ANNEX 2 Hull K0ue" Hul. Ouebec Canada Canada KiA0G& KIAOG4 Iage 1"re"M Vbw Na May 14, 1984 M"a Ifdwwwo ou u 400/00207 Mr. Shiv S. Kapur Director Operations Evaluation Department The World Bank 1818 H Street, N.W. Washington, D.C. 20433 U.S.A. Dear Mr. Kapur: RE: Project Performance Audit..Report on Ghana First and Second Highway Projects (Credit 438 and Credit 594/Loan 1182-GH) This will acknowledge receipt of the audit report dated March 29, 1984 on the above projects. We have now completed our review of the report and consider it an accurate account of those aspects of the projects with which we are acquainted. we are pleased to note that your report describes in some detail the difficult political and economic environment in Ghana. In our view, the extent to which the objectives of the projects were met must be measured against these constraints. It is obvious, for example, that terms of service in Ghana's public sector undermined our mutual efforts at institution-building. Nonetheless, we concluded that the work Performed on these projects with CIDA financing was satisfactory. Thank you for giving us the opportunity to review this report. We look forward to receiving a copy of the final version once completed. Yours very truly, AR.W. FarrZ;? Country Program Director Ghana/Regional Section Anglophone Africa Branch Canada" AM T 0 G 0 VA z A 4 . im. P z b z jaa z ota .L s v 0 0 A U 0 Al