Mali - Fifth Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY c#A7 /6&?2-4C Report No. 5315-MLI STAFF APPRAISAL REPORT REPUBLIC OF MALI FIFTH HIGHWAY PROJECT June 28, 1985 West Africa Projects Department Transportation 1 This document has a restricted distribution and may he used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - CFA Franc (CFAF) US$ 1.0 = CFAF 490 US$ 1.0 - SDR 1.042 FISCAL YEAR January 1 - December 31 SYSTEM OF WEIGHTS AND MEASURES (METRIC) 1 meter (m) 2 3.28 feet (ft) 1 square meter ( ) = 10.76 square feet (sq ft) 1 cubic meter (m ) - 35.3 cubic feet (cu ft) 1 kilometer (km) 2 = 0.62 mile (mi) I square kilometer (km } 0.39 square mile (sq mi) 1 metric ton (t) = 2,205 pounds (lb) E 1i~ND Aanv ~~~gUsh ~~~~~French adt aerre daily trafic tr5ffic journaier moyn AfDF African Developinent Fd- Fond Africain de Dveloppenent CEM Mali RaTlxay Company Clendn de Fer du Mali CEflP Public Works Traini Center Cente de- des Travaz Publics DHP General Studies & Programnig Divisin Division des Etbies Girales et des Progrmmes MT Technical Studies and Works Divisiom Divsimn des Etudes TechAques et des TravaLtc DNBP Natioal Directorate of Public Works Directin Naticnale des Travaux PubLics EKR EcoKdc Rate of Retun Taux de rentilite &:ocique FAC French Bilateral Aid Agency Fonds d'Aide et de Coopiratis ICB tnteriata Czetive Bidding Appel 5 la concurrence internatLonae ICBL Toa Coipetitive Biddilg Appel . la nurrence locale lMflTP Ministry of Transport & Pubic Works Mirdst6re des Tramspors et des Travawc Publics CNr Natinal Transport ffice Office Nationl des Transports PCS Postal .aeking Service Service des dciques postauX SDC Sviss Develoepnt Cooperationc Suisse pour le D&eloppemeait 9DP Public Works Fqiipant Service Service du Matkriel des Traan Publics SER Road Stregffining Service Service de Renforcement des Roures SIN Rgrelinzg Maintenance Unit Service des Travanux Neufs  FOR OMCIAL USE ONLY STAFF APPRAISAL REPORT FIFTH HIGHWAY PROJECT TABLE OF CONTENTS Page DOCUMENTS IN THE PROJECT FILE ............................. . i CREDIT AND PROJECT SUMMARY ........ ...... .... . s .... . ii I. INTRODUCTION ..............1.*...... II. THE TRANSPORT SECTOR ............................ ...... I The Transport System ................................ 1 The Road Transport Subsector ........................... 3 IDA Involvement in the Road Subsector .................. 8 Road Traffic and Road Transport Industry ..... 9 III. THE PROJECT ............................................ 11 Project History and Objectives ......................... 11 Project Description ....... ...... ....................... 12 The Road 4aintenance and Rehabilitation Program ........ 12 The Institution Strengthening Program .................. 13 Reconstruction of Bamako-Bougouni ...................... 15 Project Cost and Financing ............................. 16 Implementation ............................. ........ 17 Procurement .. ... .... . . . .. .**.***a*s******. a . a ..a.. .a.a..a 17 Disbursements ............. ............................. 18 Reporting and Auditing ................... 19 VT. ECONOMIC EVALUATION ................................ 19 Benefits and Risks ........... ................ 19 V. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ........... 21 The project and this report were prepared on the basis of an appraisal mission in May 1984 by Mr. Jaffar Bentchikou (mission leader, Highway Engineer), Mrs. Brigitta Mitchell (Economist) and Mr. Roger Le Bussy (Mechanical Engineer). Mr. Jean-Michel Verdier (Training Specialist) appraised the training component in July 1984. Secretarial work was done by Ms. F. Felah and Ms. T. McMahon. I Tbis docwmet has a restricted distbution and may be uswd by recipients only in the performance of the ocial duties. Its cntents may not otherwie be discbsed without World Bank autorin |  ANNEXES 2-1 Distribution of Traffic by Transport Mode for Selected Years, 1966-1983 2-2 Merchandise Imports and Exports by Itinerary for Selected Years, 1966-1983 2-3 The Priority Network: Present Status and Proposed Project Works - Paved, Gravel and Earth Roads 2-4 Road Fund Revenues and Expenditures: Past Performance and Forecasts, 1985-1990 2-5 Summary Data on Road Transport 3-1 Details on Routine Road Maintenance Operations 3-2 Terms of Reference for Technical Assistance to STN and SRR 3-3 Periodic Maintenance and Rehabilitation - Detailed Cost Table 3-4 The Public Works Equipment Service 3-5 Terms of Reference for Technical Assistance to the National Transport Office (ONT) 3-6 Terms of Reference for Technical Assistance to the National Directorate of Public Works (DNTP) 3-7 Reorganisation and Technical Assistance - Detailed Cost Table 3-8 Training of Public Works Personnel 3-9 Reconstruction of Bamako-Bougouni - Detailed Cost Table 3-10 Project Cost Estimates and Financing Plan 3-11 Implementation Schedule 4 Economic Evaluation MAP: IBRD 18705  - i - MALI FIFTH HIGHWAY PROJECT DOCUMENTS IN THE PROJECT FILE Reference WAIC Number Document Code 1. Divers Plannings du CinquQame Projet Routier 221.196 (E) 2. Cinqulame Projet Routier - Planning 221.196 (A-C) 3. Etude Bamako - Bougouni, BCEOM, 1978 121.648 (A-H) (Mali-Cr 1104) 4. Route Bamako - Bougouni: R6vision des Etudes 121.648 (I) Techniques et Actualisation du Rapport (Mali-Cr 1104) Economique, BCEOM, 1983 5. Influence du Second Pont de Bamako our Is 221.301 Rentabilite de la Route Bamako - Bougouni, BCEOM, September 1984 6. L'Evaluation du Troncon Urbain, Bamako - Faladie 221.054 7. Dossiers d'Appel d'Offres. Bamako - Bougouni 121.648 8. Termes de Reference / Avis de Consultation 221.785 -789 9. Arretes et decrets concernant is R6glementation 220.803(A-E) Mali LEAP General 10. Training: The Present Situation of Personnel 221.100(C-E) Management and Training in NTTP 11. Documents on Road Fund Revenue and Expenditures, 221.792(11) and Alternative Strategies for Inc;easing Revenues 12. Estimation sur les Couts des Travaux 221.792(12) 13. Work Incentives: Proposals and Programs 221.792(13) 14. Le Reseau: Les Statistiques et lea Tableaux 221.792(14) 15. Feasibility Study of the Kayes - Nioro du Sahel 221.793(1-3) Road, TANS, September 1980 16. Details of Calculations of Economic Rates of Return 221.792(16a) 17. Various other working papers concerning the 221.792(17) Fifth Highway Project WAPTI April 1985  - ii - MALI FIFTH HIGHWA. PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Mali Credit Amount: SDR 50.7 million (US$48.6 million equivalent) Terms: Standard Project The project would support: (i) preservation of the priority Description: road network; (ii) a growing involvement of the local private construction and mechanical industries in road maintenance operations; (iii) development of a reduced but more efficient capacity of force account works; (iv) the introduction of measures ensuring full financing of recurrent road mainte- nance costs from local sources; (v) a balanced allocation of resources to road investments and maintenance and continued and expanded institutional development of the road transport subsector; and (vi) increased efficiency of the country's transport industry. The project would provide funding for spare parts, fuel, construction materials and labor, as well as for new equipment, consultants services and civil works, to carry out a road maintenance and rehabilitation program, an institution strengthening program, and reconstruction of the Bamako-Bougouni road (160 'km). ProJect The project would improve the efficiency of road maintenance Benefits and and rehabilitation activities and, by reducing the cost of Risk: vehicle operation, would benefit road users and reduce the price of road transported goods. The project would also bring about institutional benefits which would have the effect of maintaining other benefits after project completion. The main risks stem from a decreased maintenance effort as a result of insufficient or illiquid local funds. However, since the Government has agreed on a timetable for revenue raising measures for the Road Fund during negotiations, and implementation of these measures would be closely monitored, project risks are considered reasonably small.  - lli - Summary Proaect Coat Eetimate (US* Million) Estimated Costs a/ Local Foreign Total (USS Milion) - 1. Road Maintenance and Rehabilitation Program (a) Routine Road Maintenance 5.2 4.6 9.8 (b) Periodic Maintenance & Rehab. 4.1 14.0 18.1 (c) Overhaul & Renewal of equipment 0.6 3.5 4.1 2. Institution Strengthening and Technical Assistance (a) Reorganization & Tech. Assistance 0.8 3.6 4.4 (b) Training 0.3 1.1 1.4 3. Reconstruction of Baeako-Bougouni 4.0 16.1 20.1 Base Coat 15.0 42.9 57.9 Physical Contingencies 0.8 3.2 4.0 Price Contingencies 2.9 8.6 11.5 Total Project Cost 18.7 54.7 73.4 Financing Plan Local Foreign Total - (USs Million)-- Organization IDA 7.1 41.5 48.6 African Development Fund 1.0 9.8 10.8 Sviss Development Cooperation 1.0 3.0 4.0 French Bilateral Ald Agency (FAC) 0.! 0.4 0.5 Govermnent 9.5 - 9.5 TOTAL 18.7 54.7 73.4 aI not all taxes and duties are exempt under the project; a total of USS5.5 million equivalent In taxes will be financed by Government and are included in local costs (US$18.7 million equivalent). Estimated IDA Disbursements IDA Fiscal Year FY86 FY87 FY88 FY89 FY90 FY91 - - (US$ million) - - Annual 3.3 8.1 11.3 12.2 9.4 4. Cumulative 3.3 11.4 22.7 34.9 44.3 48.6 Economic Rate of Return ERR exceeds 12% for any individual road and overall exceeds 50% for the Road Maintenance and Rehabilitacion Program portion of the project. The overall ERR for Reconstruction of the Bamako-Bougouni road is 282. MEp: IBRD 18705 VAPTI June, 1985  MALI FIFTH HIGHWAY PROJECT I. INTRODUCTION 1.01 The Government of Mali has requested IDA's assistance in financing a follow-up project to the ongoing Fourth Highway Project (Cr 1104 - MLI). The proposed project would support (a) preservation of the country's essential road infrastructure through maintenance, rehabilitatiou and reconstruction; (b) growing involvement of the local construction industry in the execution of periodic maintenance works, and of local private mechanical workshops in the repair and maintenance of equipment; (c) development of a reduced but more efficient force account maintenance organization focussed mainly on routine maintenance operations; and (d) introduction of measures ensuring full financing of recurrent maintenance costs from local sources, and a balanced allocation of resources to road investments and maintenance. The estimated cost of the project is US$73.4 million equivalent. Of these, Government will contribute US$9.5 million equiralent in local funds (13X), US$ 5.5 million of which are taxes. The remainder will be financed by IDA, the African Development Fund (AfDF), the Swiss Development Cooperation (SDC) and the French Cooperation (FAC). 1.02 While other donors have been involved in the road sector, IDA has been instrumental in gradually reducing over-ambitious investment programs and in bringing about improvements in the planning and execution of maintenance works. IDA's strategy of involving the private sector where feasible, and of improving the quality of force account work through training, improved management procedures and incentives to local personnel, initiated under the ongoing Road Maintenance Project has begun to show results. IDA's support of the proposed project is therefore crucial to consolidate this strategy and intensify the policy dialogue on road maintenance financing and investment planning for the sector. II. THE TRANSPORT SECTOR The Transport System 2.01 In a vast (1.24 million km 2), landlocked country with a widely dispersed population like Mali, the transport sector is of vital importance. Despite the sector's share of 15-25% of public investments over the past decade, the country's internal commmmications remain difficult. Also the long distances between Bamako and the ports of Dakar (1,000 km by rail) and Abidjan (1,250 km by road) have been a constraint on the country's economic development.  2.02 Road transport, the dominant mode, accounts f or some 55Z of total freight (in ton-kilometers), while rail and water transport move the remaining 36Z and 9% respectively. Road transport also accounts for close to 90% of all passenger-kilometers. The road network adequately covers the sovch and south-east of the country where population is concentrated. By contrast, the regions west of Bamako, the capital, which are supposed to be served by the railway, are only very poorly equipped with feeder road access to the railheads and lack main road access - a situation which significantly curtails the flows of agricultural products from potential surplus areas to the main market in Bamako (Annex 2-1, Distribution of Traffic by Transport Mode for Selected Years and Map IBRD 18705). 2.03 The Mali Railway (Chemin de Fer du Mali, CFM), runs a single line (642 km) from Bamako to Kidira on the border with Senegal. CFM's share of the country's foreign trade handled has been declining steadily from two thirds of the total (460-580,000 tpy) merchandise imports and exports in the sixties and early seventies to no more than two-fifths of the total today. Despite the railway's comparative economic advantage, until 1983 an increasing portion of international traffic had been using the Abidjan road route. This shift reflected a decline in the reliability and speed of rail services due to poor maintenance of track and rolling stock, and to poor cooperation between the Senegalese and Malian Railways. IDA has been supporting both railway systems and has just completed its Third Railway Project in Mali (Credit 713-MLI, 1977, US$10.5 million), which financed a time slice of the railway's investment program and provided training and consulting services. Measures to improve operating efficiency and to strengthen CMF's budget and procedures have been successful only in the last two years. Since December 1983, both Mali and Senegal railways have simultaneously improved motive power availability and coordination of operations, and as a result Malian import traffic through Dakar has increased by almost 50X in the first half of 1984. (Annex 2-2, Merchandise Imports and Exports by Itinerary for Selected Years). 2.04 Water transport is important for the vast inland delta area of the Niger northeast of Mopti. The river connection will become less important when the paved road from Sevare (Mopti) to Gao is completed in 1986. The Senegal river is also presently navigable from St. Louis (Senegal) to Kayes (Mali), the trans-shipment place to the railways, from August to October; it will be navigable all year round on completion of the Manantali dam southeast of Kayes. Traditional canoes carry all Senegal river traffic and about half that on the river Niger. The state-owned Compagnie Malienne de Navigation dominates traffic on the Niger with more modern vessels. 2.05 In a large and sparsely inhabited country like Mali, air transport plays a significant role. Mali has two international airports at Bamako and Gao, and some 30 small airfields for domestic traffic, of which only seven have regularly scheduled commercial services. In recent years, international air transport has shown a stagnating trend for passengers and a declining trend for freight, while local traffic has remained at 15-18,000 passengers annually, limited by available  - 3 - capacity. International freight traffic is almost exclusively handled by UTA (70%) and Air Afrique (20%). Air Mali, a state-owned coupany created in 1961, carried all domestic and about a third of the international passenger traffic in 1982, down from two-thirds in 1973. Heavily overstaffed, plagued by deficits, and with accuuulated short-term debts of about CFAF 2.5 billion at end 1983, Air Mali is bankrupt. Liquidation of the company is expected in the near future. Meanwhile, a private local air charter company (Societe de Transport Aerien du Mali) with experienced management will reportedly provide essential domestic and regional services. The Road Transport Subsector 2.06 The Network: Mali'c road network consists of about 13,460 km of national, regional and local roads, of which 2,460 km are paved, 6,320 km are gravel and improved feeder roads, and the remaining 4,680 km are unimproved earthroads and tracks. Paved roads now link the capital Bamako to the border with the Ivory Coast (Basako-Bougouni- Zegoua, 460 km), as well as to the eastern regions (Bamako-Segou-Mopti axis). A direct link from the Ivory Coast to Mopti is also fully paved (Zegous-Sikasso-Koutiala- San-Mopti axis) and has in part served as an alternative road to Bamako which, although about 130 km longer than the direct road, allows truckers to avoid the narrow and severely degraded Bamako-Bougouni section that is to be rehabilitated under the proposed project. Paving of the Sevare (Mopti)-Gao road (556 km), although not of high economic prlority, began with the financial support of several financing agencies in 1980 and is expected to be completed in 1986. For thb country as a vhole, road density averages no more than 1.1 kml1OO km . Even in Mali's southern regions, thl most heavily populated in the country, road density aj 8.5 kmtlOO km is well below the average density of 14 km/100 km for neighbouring Ivory Coast. Annex 2-3 contains the Priority Network: Present Status and Proposed Project Works. 2.07 Road Administration: The National Directorate of Public Works (Direction Nationale des Travaux Publics, DNTP) within the Ministry of Transport and Public Works (Ministere des Transports et Travaux Publics, MTTP) plans, designs, constructs and maintains roads, and supervises technical studies for railways, river ports and airports. DNTP's organization, with two dlvisions and three technical services, is satisfactory. The General Studies and Programing Division (Directlon des Etudes Generales et des Programmes, DEGP) prepares investment and maintenance programs and budgets, and controls expenditures; the Technical Studies and Works Di-ision (Division des Etudes Techniques or des Travaux, DETT) handles project studies and supervision of works; the New Works Service (Service des Travaux Neuf8, STN) carries out gravel road construction and improvement; the Road Strengthenlng Service (Service de Renforcoment des Routes, SRR), deals with periodlc mainte- nance of paved roads; and the Public Works Equipment Service (Service du Materiel des Travaux Publics, SMTP) purchases and repairs road equipment. DNIP's eight Regional Directorates of Public Works carry out maintenance and other public works activities through 19 subdivisions. An Accounting Office. supervised by an Administrative and Financill  Unit, performs accounting work. The organization chart for MTTP and DNTP is shown below. , _ I 111' , 1 ,1 1, 2.08 DNTP's all-Nalian professional staff has increased from about 20 engineers and 60 technicians In 1979 to about 68 engineers (adequate) and 53 technicians ia 1984 (not sufficient for the tasks on hand). In additlon, DNTP employs about 1,100 permanent workers and between 300-500 seasonal laborers, depending on requirements and available budgetary allocations. Generally, engineers are adequately trained but many lower-echelon technicians are not. Training, especially of technicians. has been increasingly stressed in the four previous highway projects. More structured training courses and a better coordination between training results and career development for DNTP employees will be supported under the proposed project. 2.09 Construction: Engineering and supervision of road construction projects are the responsibility of DNTP's Technical Studies and Works Division (DETT). DETT has been taking on supervision of increasingly important projects with only a small advisory staff of foreign consultants. but for major engineering studies of foreign aid financed projects DETT still uses foreign consultants, assisted by its own engineers. DETT Is supported by the Surveying Institute for topographical surveys *and the Public Works Research and Experimentation Center for laboratory tests. The center vhich has received assistance under a FAC project (building, equipment, technical assistance), is now well equipped and can perform all regular soil and construction material tests requlred for road design and constructlon. A state-owned consulting firm, the Societe d'Etudes du Mali. has also carried out  - 5 - feasibility studies and detailed engineering, often in association with foreign consultants. Road construction has until recently been the domaine of foreign contractors, but local contractors are becoming competitive in executing all but the largest construction and rehabilitation projects. STN has acquired skills in feeder road construction under IDA and other foreign-financed projects. 2.10 Maintenance: DNTP, through its 8 Regional Directorates and 19 subdivisions, is theoretically responsible for maintaining over 901 (12,300 km) of the road network. Some para-public entities maintain local roads in their areas of operation. Under the Fourth Highway Project, periodic maintenance has been carried out partly by contractors, with satisfactory results. Periodic maintenance outputs by force account are lower but improving. Overall, however, Mali's capacity to maintain existing road infrastructure is still far from adequate. Routine maintenance is regularly carried out on only about 5,000 km of the most trafficked roads. Effective execution of road maintenance has been hamstrung since the mid-seventies by two major problems, one technical and one financial. The technical problem has been the inability of the Public Works Equipment Service to keep a minimum of equipment in acceptable running condition. Lax management, inadequately trained and poorly motivated personnel, and lack of funds, all contributed to create a backlog of equipment repairs that has slowed down periodic maintenance and paralyzed the work in the subdivisions. Although some improvements occurred with the provision of technical assistance and funds for equipment renewal and maintenance under the Fourth Highway Project, which will continue under the present project with no gap in continuity, major changes - including both involvement of the private sector and a re-orientation of technical assistance - will also be required under the present project to eliminate equipment bottlenecks and thereby improve all maintenance operations (paras. 3.08 and 3.12 below). The financial problems resulted from inadequate allocation of revenues to the Road Fund, discussed in more detail below (paras. 2.12 ff and Road Fund Revenues and Expenditures: Past Performance and Forecasts, Annex 2-4). 2.11 Choice of Construction Technology: Except for a small number of feeder roads In the Dogon country near Mopti, which are being built by labor-intensive methods under an agriculture project, all road construction in Mali uses equipment Intensive technology as population in most of the country is too scattered to effectively allow for labor-intensive methods. A reasonable balance in the use of labor and equipment in road maintenance operations has been introduced under the ongoing Fourth Highway Project. Manual labor is used in operations such as filling potholes, cutting grass, clearing ditches and culverts and loading small-capacity trucks chosen for this purpose ("cantonnage"). A mix of labor and equipment is used for patching, spot and emergency repairs, and regravelling of shoulders. Heavy maintenance operations such as grading, coupacting and brush dragging are carried out with equipment. 2.12 Road Financing: Road Investment and maintenance expenditures over the period 1979-83 averaged CFAF 8.3 billion (US$20.5 aillion) per  year, a figure two and a half times higher than that for the previous five year period. The increase was due mainly to the high investment outlays on the Sevare-Gao project (over 60% of total expenditure), but it reflects high 4nflation rates as well. Annual maintenance expenditures have doubled over the last ten years (from CFAF 0.9 billion in 1974 to CFAF 1.7 billion in 1983): they have thus grown at just over 7% annually in nominal terms, compared to an average annual inflation rate over that same period of 10%. Consequently, maintenance expenditures have declined both in real terms and as a proportion of total road expenditure (from about 24% between 1974-78 to around 18% during 1979-83). This decline would have been much sharper had it not been for the Association's intervention in the sector through the Third and Fourth Highway Projects, both of which have focussed on periodic and routine maintenance. They were instrumental in securing allocation of some additional local funds to the maintenance budget through increased earmarking of fuel taxes for the Road Fund . However, in view of Mali's difficult economic situation and the competing demands for scarce resources - including some non high priority investments - the provision of adequate funds for road maintenance remains an issue which is addressed under the present project. Annual Road Construction and Maintenance Expenditures and their financing for the 1971-1983 period are shown in Annex 2-4, Table 1. 2.13 Recovery of recurrent cost of roads through taxation of road users in Mali has been sufficient to cover the cost of adequate maintenance of the country's road network. However, all revenues raised from duties on vehicles and spare parts imports, from taxes on vehicle insurance and from vehicle registration, as well as 55% of the taxes on transport fuel (gasoline, diesel) go to the Treasury for general budgetary purposes, leaving the Road Fund with no more than 45Z of the taxes levied on transport fuel. From these insufficient revenues, the Road Fund is supposed to finance road maintenance including equipment renewal, local counterpart funds for road studies and investments, the debt servicing of loans for roads, and some urban street improvements. Government last increased the pump price of fuel by almost 50% in 1981. This major increase reflected both rising refinery prices and the introduction of additional taxes including a small proportion for the Road Fund. It resulted, however, in a sharp drop in fuel consumption. In addition, for a limited period, some local merchants took advantage of loopholes in the taxation system to import Nigerian fuel and market it untaxed. However, in the beginning of 1985, Government took satisfactory measures to ensure that Nqigerian fuel imports are subject to the same taxation as other imported fuels. 2.14 Despite a covenant under the Third Highway Project stipulating that all road maintenance expenses were to be met before any Road Fund proceeds were allocated to investment, existing contractual obligations on foreign-financed road projects compelled Government to continue using a large part of Road Fund revenues for road investments. This, combined with a steep rise in debt service requirements since 1981, has kept funds available for maintenance at a static level of around CFAF 1.6 billion annually. Forecasts of Road Fund revenues and expenditures over the 1985-90 horizon show that, following the expiration of the grace  period on a number of earlier road investments, expected revenues are insufficient from 1985 onwards to cover even Government's debt service obligations, and would therefore preclude any local counterpart financing for ongoing road investments, any expenditures for maintenance and, a fortiori, any new investment well into the 1990s (Annex 2-4, Table 5 and graph). 2.15 The shortfall in Road Fund revenues is compounded by the fact that most of the revenues received are illiquid in the form of postal checks. Mali's Postal Checking Service (PCS) has not been liquid for many years, that is to say, post offices do not have cash to honor postal mandates or checks. Since they cannot be cashed, postal che_ks are usually refused by banks and merchants although they remain legal tender. This problem resulted from Government's mixing of PCS funds with other funds and using them to settle its liabilities. Since Government has, among others, also been paying a major portion of its fuel bill with postal checks, it has had to accept, in turn, that suppliers use them to settle their tax bills, thus spreading the liquidity problem to the Road Fund. The Government has engaged a consultant under Credit 1200-MLI (Second Telecommunications Project) to recommend an action plan for putting the postal service on a sound financial footing, including measures to liquify the PCS. Measures being considered include separation of the accounts of telecommunication, postal services and the PCS; restriction of Treasury access to PCS funds; strengthening of financial staff of the postal service; and use of counterpart funds generated under the Public Enterprise Project for, inter alia, payment to the PCS of funds borrowed from it by Treasury. At negotiaticns, Government has agreed to make the adoption of a plan of action satisfactory to the Association, a condition of effectiveness for the present project. 2.16 During negotiations, Government has agreed to increase tax revenues directly and automatically available to the Road Fund sufficiently to ensure that the Road Fund's revenues cover debt service and maintenance requirements in the highway sector (i.e. CFAF 28,950 million over the period January 1985 to December 1990 - Annex 2-4). The following are already allocated to the Road Fund: (i) the revenues of the existing fuel tax (estimated at CFAF 13,500 million over the same period); (ii) CFAF 700 million transferred to the Road Fund on May 8, 1985; and (iii) CFAF 500 million scheduled to be transferred by project effectiveness. In addition to the foregoing, Government has decided to allocate directly to the Road Fund: (a) revenues collected from the Droit de Traversee Routiere net of collection cost (corresponding revenue estimated at CFAF 1,500 million between January 1986 and December 1990, or CFAF 300 million annually); and (b) increased fuel taxes to be collected from road users from January 1986 onwards to generate additional revenues of CFAF 12,750 million over the same period; that is, CFAF 2,550 million annually. Government has appointed an Interministerial Committee to determine, inter alia, whether the increase in the fuel taxes earmarked to the Road Fund would be more appropriately combined with: (i) savings in the fuel import bill through renegotiation of supply contracts; (ii) reallocation to the Road Fund of fuel taxes now allocated to other sectors of the economy; (iii)  - 8 - an increase in the pump price of gasoline and diesel fuel; or (iv) some combination of the above. The Committee has been asked to conclude its study by June 1985. Its recommendations will be incorporated in a plan of action. Deposit in the Road Fund of monies required for 1985 and adoption by Government of an IDA approved plan of action for covering the shortfall in Road Fund revenues through 1990 are conditions of credit effectiveness. IDA Involvement in the Road Subsector 2.17 IDA first became involved in the road subsector in Mali in 1967-68 as executing agency for a country-wide transport survey financed by UNDP. The survey concluded that the sector mainly needed improved highway maintenance and construction of agricultural feeder roads. The four highway projects implemented since 1970 have responded to these needs. 2.18 The first three projects financed by Credits in 1970, 1975 and 1976, included construction and improvement of workshops, procurement of road maintenance equipment and spare parts, studies and later on rehabilitation of one paved road (Faladie-Segou, 222 km), and lmited technical assistance to DNTP. Feasibility studies and detailed engineering of the Bamako-Bougouni road, a trucking industry study, a national transport plan study, as well as construction of a training center and of feeder roads, have also been financed under these projects. 2.19 All three highway projects have been satisfactorily completed. The Project Performance Audit Report of the first one, (February 1978). as well as the Project Completion Reports for the second and third proj ects (July 1983), concluded that the initial institution building objectives (reorganization of DNTP and reactivation of the Road Fund) were mostly achieved, although training outputs under the third project were only about half of those estimated at appraisal, due to delays in the training of trainers and the delivery of office and teaching equipment; limit--i training is continuing satisfactorily under the Fourth Highway Project. Technical assistance was somewhat narrowly focussed on a few units within DNTP and, in some instances, was less effective than expected because of poor receptivity on the part of the agencies and units, and poor integration into their activities. In all these projects, road maintenance results fell considerably short of expectations, mainly because of a shortage of local funds due to drought and inflation (first project), insufficient liquidity of funds due to the use of postal checks (second project), and repeated breakdown of equipment coupled with intermittent and late intervention of technical assistance (third project). The lessons learned under these projects, particularly regarding the problems facing road maintenance, have been incorporated into the design of the proposed project. 2.20 The ongoing Fourth kighway Project (Credit 1104-NLI, SDR 13.4 million, co-financed by Switzerland with a grant of SF18 million, September 1981) covers periodic maintenance of 680 km of paved roads and  220 km of gravel roads by force account and by contract; a two-and-a-half (now extended to three-and-a-half) year program of routine maintenance of 6,600 km of national, regional and feeder roads; technical assistance and training; and equipment for vehicle axle load control. After a slow start and an increase in the very modest technical assistance envisaged by the project, implementation is now satisfactory: periodic maintenance of paved roads by contractors is on schedule, and has been extended to gravel roads. The quality of periodic maintenance by force account has been Improving and outputs are above target for the days when equipment is working. However, equipment down-time remains a problem, traceable mainly to the continuing poor performance of the Equipment Service which, even with technical assistance inputs in advisory functions, has improved only marginally. To ensure acceptable efficiency of force-account operations, better institutional arrangements for equipment maintenance involving the contracting out of certain tasks are being introduced under the proposed project. Training at the Public Works Training Center (CPTP) has continued with satisfactory results, but needs to be better integrated with career development prospects of trainees for productivity gains to be realized. Road Traffic and Road Transport Industry 2.21 Vehicle fleet estimates for Mali are based on annual vehicle registrations. In a major effort over the past two years, the National Transport Office (ONT) has brought up to date and consolidated all documentation on road transport (vehicle registrations, driver licences, freight documents, etc.) in preparation for the computerisation of its data bank, expected to be carried out starting in 1986 under the proposed project. From the available figures which are probably underestimated, Mali's vehicle fleet has grown only moderately (at just over 4% p.a.) over the past decade, from a total of about 19,100 vehicles in 1974 to 27,900 vehicles in 1983. The adequacy of overall transport capacity is difficult to judge: there is an excess of supply, especially of large semi-trailers, for several months of the year, but supply is not sufficient to handle peak demand. Also, small truck capacity is not sufficient to handle the demand of the harvest season mainly because, in response to a tariff structure based on ton-kilometers handled and therefore favoring the operation of large vehicles, the number of small and medium size trucks (which are needed to operate on earth and gravel roads) has declined significantly. Construction of storage facilities in key locations could do much to spread transport demand over a longer period and allow better fleet utilization. Moreover, a reform of the tariff structure (para 2.26) will reinstate a balanced incentive for purchasing of trucks of different types and sizes. (Details on vehicle fleet and traffic development are in Annex 2-5, Summary Data on Road Transport). 2.22 Fuel consumption, which had risen at an annual rate of 9.5% between 1974-1980, declined sharply following substantial price increases in 1981, and in 1983 reverted to 1977 levels, both for gasoline and diesel (Annex 2-4). March 1985 retail prices of gasoline and diesel in Mali, at CFAF 260/liter and CFAF 183/liter (equivalent to  - 10 - US$2.01/gal and US$1.41/gal) respectively, were well above those in Benin, about equal to those in Senegal, and well below those in Ivory Coast, the three countries from which Mali imports respectively 3Z, 34% and 63Z of its total fuel. Fuel prices were well above border prices of internationally traded fuels; in Mali, they include about 21% of taxes plus an additional 10% on average for gasoline and 3% for diesel to compensate for regional differences between the countrywide retail price and the officially determined cost of fuel in different locations, thus equalizing the differential cost of distribution. 2.23 Traffic count data also indicate that vehicle traffic has declined sharply between 1979 and 1983. The drop in vehicle traffic was particularly marked on the paved road network (-47%, Annex 2-5, Table 3), where heavy trucks and tractor-trailer combinations have replaced a larger number of small and medium size trucks during recent years. Due to the poor state of repair of feeder roads and tracks, traffic on these has consistently been limited to essential services and has varied very little over the years. Given the country's difficult economic situation, it is unlikely that traffic will quickly return to the 1978/79 peak, but there are indications that the downward trend is being reversed in 1983/84, mainly due to increased grain imports necessitated by persistent drought. 2.24 Mali's road transport industry is dominated by private operators that handle all passenger transport and own over three quarters of freight vehicles. Some 25 large operators (owning 10-20 vehicles each) are independent, while some 850 small operators (owning five vehicles each or less) are grouped in regional cooperatives. These, in turn, are affiliated to a loosely organized National Union of Road Transport Cooperatives, a lobby and mutual aid organization for transporters. A number of para-public entities, with some 15Z of freight vehicles, transport goods such as cotton and grains on own account. Only one of three state-owned transport firms remains operative with a small fleet accounting for less than 5% of freight capacity. State-owned trucking companies have consistently operated at a loss. Government has agreed at negotiations not to undertake any new investment nor provide any credit guarantee for any new investment in trucking firms unless, on the basis of economic and financial criteria, the Government and the Association have agreed such investment is justified. 2.25 The National Transport Office (ONT) is responsible for the coordination and management of all transport activities. Its main role in road transport is that of freight allocation: through its regional and international (port) offices, it centralizes transport demand and allocates freight between cooperatives, independent truckers and state trucking companies in proportion -o their share in overall transport capacity; within these groups, distribution is on a first come-first served basis. Unattractive transport runs of essential goods to the outlying regions are allocated to transporters in turn. Transport from the port of Abidjan is by law allocated in two-third/one-third shares to Malian and Ivorian operators. The official tariff applies to all ONT-allocated transport, whether by public or private carrier.  - 11 - 2.26 In its efforts to improve road transport efficiency, ONT has carried out a number of surveys to establish transports costs, transport demand by region, available transport supply, and transport bottlenecks (which exist mainly for crop collection in the regions and are due to unremunerative tariffs). While these studies resulted in some realignments of the tariff structure in the late seventies, adjustments proposed by ONT since 1981 have not been approved. Tariffs are now estimated t- average about 20% below the costs of vehicle operation, making it difficult for transporters to allow for equipment maintenance and renewal. Generally, transporters compensate for low tariffs by heavily overloading their vehicles, thus damaging their own equipment, and the country's road infrastructure. During negotiations, the Government agreed to prepare and furnish to the Association within a year of credit effectiveness, (i) a schedule of road tariffs structured to take into account the economic cost of different types of road transport and (ii) a system of vehicle weight control measures; it will thereafter adopt such measures as agreed with the Association (para 3.09). 2.27 A major impediment to road transport efficiency in Mali, as in most West African countries, has been the numerous semi-official road checks carried out along all major routes. In 1984, ONT eliminated some of them and established in their place a small number of official ones for the collection of an agreed toll (droit de traversee), the proceeds of which currently amount to CFAF 250 million annually but with the coverage scheduled to be extended to the whole paved network by December 1985, they are expected to amount to about CFAF 300 million annually. The proceeds accrue in a special fund administered by the Party. At negotiations, Government has agreed that the proceeds net of collection costs will be allocated to the Road Fund. III. THE PROJECT Project History and Objectives 3.01 The project was identified in April 1983, and prepared by DNTP with the assistance of consultants. Appraisal was carried out in May 1984. Credit negotiations took place in Washington, D.C. from March 11-16, 1985, with the Malian delegation led by H.E. Mamadou Haidara, Minister of Transport and Public Works and followed by post negotiations discussions in Bamako in May 1985. The main objectives of the proposed project are to protect the priority road network and strengthen the institutions concerned with road infrastructure and transport through (i) a growing involvement of the local private construction and mechanical industries in road maintenance operations; (ii) development of a reduced but more efficient capacity of force account works; (iii) strengthening of personnel management and development, including training; (iv) introduction of measures ensuring full financing of recurrent road maintenance costs from local sources and a balanced allocation of resources to road investments and maintenance; and (v) continued and expanded institutional development of the road transport subsector.  - 12 - Project Description 3.02 To achieve these objectives, the project would finance nev equipment,, spare parts, fuel, construction materials, labor, civil works and consultants services to carry out the following three components: first, a Road Maintenance and Rehabilitation Program starting July 1985 on an 8,200 km network of high priority roads and including (a) three-and-a-half years of routine road maintenance operations; (b) periodic maintenance and rehabilitation of 492 km of paved roads and 535 km of unpaved roads; and (c) overhaul and .enewal of road equipment; second, an Institution Strengthening Program including: (a) reorganization and technical assistance to (i) the National Transport Office (ONT) for transport sector planning; (ii) the General Studies and Programming Division (DEGP) for project coordination, implementation of planning and financing mechanisms and feasibility studies; (iii) the Technical Studies and Works Division (DETT) for engineering studies, supervision of civil works and improvements in force account works; and (iv) the Equipment Service (SMTP) for improving equipment maintenance and overhaul efficiency; and (b) a training program for public works personnel; and third, the Reconstruction of the Bamako-Bougouni Road (160 km). The Road Maintenance and Rehabilitation Program 3.03 Routine Road Maintenance Operations: Routine road maintenance will continue to be carried out by the regional directorates of DNTP. It will be implemented by force account using civil servants paid under Government's recurrent budget and locally hired laborers, as well as materials, fuel, lubricants and spare parts paid under the Road Fund. The 19 subdivisions will carry out standardized routine road maintenance tasks on the priority road network. The budget for routine maintenance has been cut back from that agreed under the previous project by about 1OZ to stay within available resources. Consultants estimates of unit costs per task have been used for both the project and forecast of Road Fund budgets. DNTP has agreed to streamline the regional directorates' staff and equipment fleet and to improve their internal discipline concerning the work program, the technical definition of tasks, and the cost accounting categories. These measures will improve the efficiency of routine road maintenance operations and its management through a better knowledge of actual costs. This streamlining together with a slight reduction in maintenance tasks will also reduce Road Fund budgets, in line with critically limited local funds in the near future. As the financial and fiscal situation of Government improves, additional roads will be added to the priority network (The strategy for routine road maintenance is described in Annex 3-1, Details on Routine Road Maintenance Operations'). 3.04 Periodic Maintenance and Rehabilitation: As there is an important backlog of periodic maintenance, a major component of the project is periodic maintenance and rehabilitation on 492 km of paved roads and 535 km of gravel roads. 382 of the works on paved roads and 26% on gravel roads will be carried out by force account and the remainder by contract. Efficiency of force account works should improve  - 13 - following renewal and rehabilitation of equipment, the use of 96 man-months (m-a) of technical assistance at the brigade level and the use of limited engineering studies. Outline terms of reference for technical assistance to SRR and STN, are in Annex 3-2. 3.05 Most of the incremental periodic maintenance and rehabilitation will be carried out by contractor, in line with a long-term strategy to gradually reduce force account works from these tasks. The local construction industry is starting with small entrepreneurs and one major private joint venture (Malian-French). International contractors are also active on the Malian market. Contractor and force account works will be supervised by DETT (para 3.11). 3.06 Experience under the Fourth Highway Project has shown tl-at ICB brings several competitive bids and that works by contractor are of better quality and completed faster than works by force account. However, the preparation and bid processes have been rather slow and time consuming. In addition, new procurement rules have recently instituted a National Committee on Procurement (Commission Nationale des Marches). To minimize the delays that the introduction of a new circuit of clearances before contract signature is likely to produce, DNTP will strengthen its procurement unit to expedite processing within MTTP and provide close follow-up throughout the subsequent admin'strative circuits. Technical assistance will also support DNTP in supervision of road maintenance works both by force account and by contractor. A detailed cost table for Periodic Maintenance and Rehabilitation Works is in Annex 3-3. 3.07 Overhaul and Renewal of Road Equipment: Road works by force account will be carried out mainly with existing DNTP equipment. Some renewals and some purchases of complementary equipment will also be necessary. A major portion of existing DNTP equipment is in poor condition but has a large residual life and can be overhauled economically. These revisions and overhauls will be carried out by the local Caterpillar dealer under SMTP supervision for the Caterpillar pieces (60% of the fleet) and directly by SMTP with technical assistance for the rest of the equipment and the transport vehicle fleet. A description of the current and proposed organisation of SMTP, terms of reference for technical assistance to SMPT, and details on equipment to be overhauled and procured, are in Annex 3-4. The Institution Strengthening Prog_am 3.08 Reorganization and Technical Assistance: Under previous projects technical assistance was not sufficiently integrated into road maintenance institutions and activities. Limited in scope, size and duration, it was often poorly timed with the availability of other resources, and unbalanced between divisions and services. Generally, it consisted of individuals in advisory roles or responsible for carrying out specific tasks (e.g. transport plan). There was no overall plan to improve management tools and skills of the Malian staff or to provide a work environment in which all resources including organization,  - 14 - operating procedures and training were adequately developed and used. As a result, those services receiving adequate technical assistance did not improve as much as expected, while others with little or no technical assistance became weak links in the organisation that hampered the effective operation of the system. During the ongoing project it has become increasingly clear that it is necessary to set up a comprehensive program of technical assistance to improve all elements of the structure in a coordinated manner. The Malian authorities have understood this and have requested increased technical assistance from both IDA and FAC to support the various divisions and services of DNTP and ONT. Accordingly, in addition to 150 m-m of consulting services for supervision of works or studies, the proposed project will provide 404 m-m of technical assistance (48 of these cofinanced by a grant from FAC, para. 3.04 and Annex 3-3, p. 1) to work within the structure of DNTP and ONT, to furnish new management tools or improve existing ones, to coordinate or actively participate in carrying out project tasks and to train local staff. The experts financed under the program will form teams with qualified local counterparts. In the production units, these teams will occupy in-line positions within the unit, most of the time under a Malian supervisor. The team members will be jointly accountable for the work of their respective units. They will also control incentives for local personnel to be financed under the project. The Incentives will be linked to better productivity and outputs in accordance with agreed performance standards for each unit. Moreover, the plan incorporates a monitoring and feedback system and foresees the gradual phasing out of expatriate personnel as local expertise becomes strong enough to handle the respective tasks. It is expected that the program will positively influence both the quality and sustainability of project outputs. The tasks to be undertaken by the different units are summarized below; detailed terms of reference for the technical assistants to the different services are provided in separate annexes as indicated in subsequent paragraphs. 3.09 The project will integrate the transport data collection cell established under the Fourth Highway Project into ONT's Study Division. The project will also provide for computing equipment and 60 n--m of technical assistance to enable ONT to carry out the review or execution of transport planning studies, intermodal feasibility studies, and the establishment of an action plan to improve the efficiency of the road transport industry (para. 2.26). Government has agreed at negotiations to prepare multi-annual programs of road transport investments which it would review annually with the Association; such programs will follow economic criteria and take into account the road maintenance capacity and the country debt servicing capacity. Under the first one, covering the period 1986-1988, Government will not initiate any new major road investment (i.e. exceeding US$1 million equivalent), except for the present project, resurfacing of the Ouan-Sevare road, and construction of a second bridge over the Niger river in Bamako, investments which are of high priority and for which financing is available on acceptable terms (Outline terms of reference for technical assistance to ONT are in Annex 3-5). 3.10 With computing equipment and 34 m-m of technical assistance, DEGP will be strengthened in its role of preparing annual programs and  - 15 - budgets for road maintenance and rehabilitation, analyzing cost accounting results, preparing or reviewing feasibility studies for new road investments, coordinating implementation of the present project and preparing a follow-up project. DEGP will also prepare, and follow up on, Government's actions to increase Road Fund revenues so as to arrive at full financing of recurrent costs of road maintenance by 1989. 3.11 With another 34 m-m of technical assistance, DETT will be strengthened in its role of preparing or reviewing technical studies and supervising works by contractor. DETT will also supervise periodic maintenance and rehabilitation works by force account. Outline terms of reference for technical assistance to DNTP for support of DEGP and DETT are in Annex 3-6. 3.12 As deficient and late repair or overhaul of equipment have been key reasons for inefficiency of the force account operations. the equipment fleet maintenance will be reorganized in order to reduce delays in procurement, payments and financing, increase SMTP efficiency, accelerate equipment maintenance and make it cheaper, and increase equipment availability. To these ends: (i) the revolving fund to be set up in DNTP (para. 3.21 below) will ensure inter alia availability of timely financing for spare parts. These will be purchased by a procurement agent with the exception of urgently needed spare parts available locally (terms of reference for the procurement agent are in Annex 3-4, Attachment 2); (ii) complementary tools and tooling will be provided for SMTP's and selected regional workshops; (iii) 140 m-m of technical assistance will be provided by an experienced mechanic firm. They will review SMTP's management structure, and methods and tools for equipment maintenance, and assist SMTP to implement the agreed improvements. Terms of reference for technical assistance to SMTP are in Annex 3-4, Attachment 3. A detailed cost table for Reorganization and Technical Assistance is provided in Annex 3-7. 3.13 The Training Program: With 68 m-m of technical assistance, training and transport equipment, per diem fees to trainees and honoraria to teachers, and an additional room to be used as a cafeteria, CPTP will carry out the training program for DNTP personnel. It includes short courses in Bamako and the use of two mobile training teams visiting the regions, as well as fellowships abroad. In addition, CPTP will develop an improved personnel management system and will be responsible for evaluating, on a regular basis, the work performance of personnel that have returned to their units after training. These evaluations will be part of the basis for incentive payments. A description of the proposed training program for public works personnel and outline terms of reference for consultant trainers are in Annex 3-8. Reconstruction of Bamako-Bougouni 3.14 The 30-year old Bamako-Bougouni road (160 km) is the worst paved section on the essential Bamako-Abidjan route which carries more than 60% of Mali's external trade. The project will: (i) on the rural section (152.2 km), where traffic varies between 260 and 530 vpd,  - 16 - reconstruct the road by using as much as possible existing pavement materials to raise the present road level, improve drainage, and strengthen and widen the pavement to 7 m to better adapt it to the large semitrailers now using the road; (ii) on the urban section (7.3 km), where traffic varies between 7,000 and 24,000 vpd (not including between 3,000 and 18,000 two-wheelers) upgrade i; to a 2x2 lane standard with cycle tracks. A detailed cost table for the reconstruction of Bamako-Bougouni is provided in Annex 3-9. 3.15 An Urban Investment Plan is being developped as part of the preparation of a Second Urban Project. The urban section Bamako-Faladie has been designed to reflect its function as an urban interchange system. However, its connection to a proposed second bridge on the Niger river and the insertion of both bridges in the urban road network will require a study to ensure optimum benefit from both investments as well as postponement of the need for an eventual third bridge. Government has agreed to undertake such a study, under terms of reference acceptable to the Association, by December 31, 1985, which should make it possible to adhere to the current implementation schedule. Adoption of a solution agreed to by IDA and effectiveness of the AfDF Credit will be conditions of disbursement on the Bamako-Bougouni component. Project Cost and Financing 3.16 Total cost is estimated at US$73.4 million equivalent of which 75% is foreign exchange, 25% local costs (including 7% taxes). Cost estimates are in January 1985 prices and include physical contingencies of 102 as appropriate (with the exception of 25% for ONT computing equipment), as well as price contingencies of 5% for 1985, 7.5% for 1986 and 82 thereafter. The project will be financed by IDA (US$48.6 million equivalent); SDC (US$4 million equivalent, joint financing of routine road maintenance and training); AfDF (US$10.8 million equivalent, parallel or joint financing of Bamako-Bougouni, depending upon the eligibility of the prequalified contractors); FAC (US$0.5 million equivalent, parallel financing of technical assistance to SRR); and the Government (US$9.5 million equivalent). The IDA credit will cover 71% of project costs (net of tax) while external financing in total covers 95% of the (net of tax) costs. For Bamako-Bougouni, the Government will finance US$1.08 million of local costs in addition to taxes. For routine road maintenance, IDA and SDC will finance 64% on average but on a declining basis (90% in 1985, 76% in 1986, 61% in 1987 and 462 thereafter) in order to ease the balancing of the Road Fund budget the first year and thereafter to foster Government progress towards full financing of recurrent costs with local funds. Also, IDA and SDC will retroactively finance up to US$400,000 for routine maintenance expenditures from July 1, 1985, to enable routine maintenance operations to continue uninterrupted following exhaustion of Fourth Highway Project funds. Effectiveness of the Swiss Contribution is a condition of credit effectiveness. Detailed cost estimates and financing plan are shown in Annex 3-10.  - 17 - Implementation 3.17 The project will be implemented by DNTP and ONT. In addition to the supervision of routine road maintenance by the Regional Directorates, DETT will be responsible for supervising works by contractors, and periodic maintenance and rehabilitation force account works by STN and SR. DEGP, meanwhile, will prepare, plan and coordinate all project activities. CPTP will implement and coordinate all project training as in the ongoing project. ONT will implement the new transport planning component. 3.18 The ongoing Fourth Highway Project finances studies, the preparation for the road maintenance program and the training program as well as the continuation of technical assistance to DEGP, DETT and SMTP until new contracts are awarded under the proposed project. The proposed credit is expected to be effective by November 1985 and the project is expected to be completed by December 1990. The implementation schedule is shown in Annex 3-11. Procurement 3.19 Reconstruction of the Bamako-Bougouni road will be by contract, awarded to prequalified contractors after ICB in accordance with procedures acceptable to IDA and AfDF. If some prequalified contractors are not eligible under AfDF procedures, the work will be divided into two contracts. The portion of periodic maintenance not done by force account will also be carried out under contracts awarded after ICB in accordance with Bank guidelines. Local contractors will have a 7.5Z preference for civil works contracts awarded under ICB although Government has indicated at negotiations that this clause will not apply to the Bamako-Bougouni civil works. Most equipment will be avarded after ICB, in accordance vith Bank guidelines. Goods manufac- tured locally will be given a preference margin of up to 15 or the applicable custom's duty, whichever is less. Spare parts for equipment rehabilitation will be procured either under contracts negotiated directly with the supplier of such equipment or under contracts awarded through limited international bidding on the basis of Bank guidelines. Contracts for a small training center, training equipment, road building materials, fuel and lubricants will be procured after LCB. The local procurement procedures which will be used under the project will be reviewed on a case by case basis to establish that they are acceptable to IDA. Technical assistance will be procured In accordance with the Bank's guidelines. All procurement decisions, the estimated costs of which exceed $200,000, would be subject to IDA's prior review resulting in a coverage of 85Z of the total estimated value. Procurement arrangements are summarized in the table on the folloving page.  - 18 - Amz6mt M hdx-d' of ProFhur t (US$ sul114) It. __C_ory Pieot r iothd a/ Total Project ICB LCB OdCer N b/ COt 1 Equpmnt cS 2.2 0.1 2.3 (2.1) (-(2.1) 2 RdbUilt tion of EqpuiXmmt 2.6d/ 2.6 (2.2Y (2.2) 3 Civill bWs by Camtrector 32.1 0.1 32.2 (20.8) (-) (720.8) 4 Civil Wsfk by Fbro Accxnit 7.2e/ 4.5f/ 2.6&f 14.6 (4.2T (2.63Y (1.8) (8.6) 5 Texdmcal Auistane, FeU3z1hps 5.7 O..b/ 6.2 *nd Trakrdog (4.4) (-) (4.4) 6 Ullnaocated 11.3 1.2 2.3 0.7 15.5 (7.7) (0.7) (1.7) (0.4) (10.5) Total Project 45.6 8.6 15.4 3.8 73.4 (30.6) (9 (10.9) (2.2) (48.6) a/ Amounts financed by IDA are in parentheses b/ Not Applicable Including heavy equipment, vehicles, tools, initial stock of parts, training equipment and computer hardware and software. d/ Of which US$0.4 million is limited international bidding (LIB) for nou proprietary parts and US$2.2 million is direct procurement for proprietary parts and rehabilitation of Caterpillar equipment e/ For materials, fuel and lubricants f/ Of Which US$3.2 million is LIB for non proprietary parts and US$1.6 million is direct procurement for proprietary parts zi Salaries h/ Fellowships; honoraria and per diem for trainers/trainees. Disbursements 3.20 In line with the disbursement profile for IDA highway projects in West Africa, the credit is expected to be disbursed by December 1990. The IDA credit would be disbursed on the basis of the table on the following page, and on the basis of an estimated disbursement schedule shown in page 6 of Annex 3-10. 3.21 Disbursement for routine road maintenance and periodic maintenance and rehabilitation force account expenditures will be made against statements of expenditure (SOE's) using unit costs for each task. Estimated unit costs for 1985 are shown in Annex 3-1. They will be reviewed after each annual audit. No reimbursement of less than US$20,000 will be made by IDA. A Special Account for IDA/SDC participa- tion will be established in a commercial bank. Administered by DNTP, it will provide up to four months of project operations to SMIP (US$50,000 for locally procured spare parts), STN (US$320,000 for operations) and SRR (US$430,000 for operations), and to regional directorates for  - 19 - routine maintenance operations (US$500,000 for operations). An initial deposit of US1.1 million will be disbursed from the IDA credit at credit effectiveness upon receipt of a withdrawal request. Allocation and Disbursement of IDA Credit Category Description Amount z l.a Ciil Woks / (US$ million) l a Civil Works by Contractor a 14.4 93 l.b Civil Works: Bamako-Bougouni b/ 10.7 47 2 Civil Works by Force-Account - 3.5 91 3 Routine Maintenance Operations 4.5 Declining 1 d2 percentage 4 Equipment - e/ 2.1 100 5 Rehabilitation of Equipment - 2.4 100 6 Technical Assistance 5.1 100 7 Training and Fellowship - 8 Special Account 1.1 9 Unallocated 4.8 Total 48.6 a/ Other than Bamako-Bougouni t/ Other than Routine Maintenance Operation 'e Including Swiss financing: 90o of disbursements up to US$0.9 million 76% of disbursements from US$0.9 million to US$2.4 million 61% of disbursements from US$2.4 million to US$3.7 million and 46% of disbursements thereafter d/ Including heavy equipment, vehicles, tools, initial stock of spare parts, training equipment, computer hardware and software e/ Including spare parts Reporting and Auditing 3.22 A cost accounting system exists in DNTP. An independent auditor firm will review the system, help DNTP implement necessary changes and detailed payment and disbursement procedures and, thereafter, annually audit the project including the revolving fund with a mid-year review. DNTP and ONT will prepare quarterly progress reports. IV. ECONOMIC EVALUATION Benefits and Risks 4.01 The expected benefits of this highway rehabilitation and maintenance project can be divided into the tangible and quantifiable reductions in the cost of vehicle operation and of maintenance of the portion of the road network included under the project, and into equally  - 20 - important, but less tangible and non-quantified institutional benefits. The latter would result from (a) improved operational efficiency in DNTM's road maintenance activities and (b) phased introduction of legislative measures to allocate revenues from road user charges to the Road Fund in sufficient volume and in sufficiently liquid form to ensure financing for adequate routine and periodic maintenance of Mali's existirig road infrastructure in future years. Some efforts towards the realization of these "institutional" benefits have been made under earlier projects; these are gradually showing results and are reflected in the professed willingness of the Malian authorities to introduce the difficult managerial and revenue-raising measures now required. The project will facilitate this process by providing a significant contribution to the financing of recurrent costs on a decreasing basis, thus permitting a gradual adjustment of local revenues to the requisite level of project implementation. 4.02 The Highway Design and Maintenance Standards Model (HDM III) was used for the economic evaluation. On gravel road sections being rehabilitated, incremental net agricultural value added, attributable to year-round road access, has been taken into account. Vehicle operating cost parameters were provided by ONT; DNTP provided data on the current maintenance status of the road network; data on agricultural production and costs are based on agriculture project estimates and consultants feasibility reports. All costs and benefits in the economic evaluation of the maintenance program are in January 1985 prices net of taxes and duties. An economic evaluation of the Bamako-Bougouni reconstruction by means of the HDM II model was undertaken by consultants in 1984 using 1983 prices: this has been up-dated to 1985 levels, to reflect new construction characteristics for the 7.3 km urban section which was changed to include a number of traffic interchanges not foreseen in the orgiinal urban expressway design, as well as a number of cost revisions for an update of the 153 km rural section of the road. (Details on cost parameters and maintenance strategies are in Annex 4, Economic Evaluation). 4.03 Economic rates of return (ERRs) were established separately for the reconstruction of the Bamako-Bougouni road, for the maintenance program of the paved road network, and for the maintenance of the priority unpaved road sections included in the project. For the Bamako-Bougouni road, the high-traffic urban section and the rural highway section were also examined separately. The former has an estimated ERR of 65%; this is a conservative estimate since no benefits for congestion relief are included. The highway section has an estimated ERR of 15%, also conservative, since the costs of increasing diversion of international traffic to Bamako onto an alternative route that is 130 kim longer than the present one were not included in the analysis. The combined ERR for the Bsmako-Bougouni road component which accounts for 39% of total project cost is 28%. The paved road maintenance program includes pericdic maintenance of 492 km and routine maintenance of 1730 km. It accounts for 31% of project costs and has an overall ERR of 34%, assuming that traffic grows by 4% annually for the ten year analysis period starting 1986. The ratio of benefits to cost  - 21 - for the total package is 2.55:1 at a discount rate of 1OZ. Link-by- link details of the analysis are summarized in Table 4a of Annex 4. 4.04 The unpaved roads package includes rehabilitation of 535 km of gravel roads mostly serving areas with ongoing rural development projects, and routine maintenance of a priority network of about 3,330 km of gravel and 2,990 km of earth roads. It accounts for 30% of project costs and has an overall ERR of over lOOZ, assuming traffic grows by 3.5% annually on gravel roads and by 2% on earth roads during the 10 year analysis period. The benefit/cost ratio for the total package at a 10% discount rate is 1.99:1. Link-by-link details of the analysis are summarized in Table 5 of Annex 4. 4.05 Based on the experience under the ongoing Fourth Highway Project, and given the arrangements made to ensure timely execution of equipment overhauls at project start-up, there would be no major risks concerning periodic maintenance: force account operations have been improving and performance by contractors has been satisfactory. If the Government and the Association are unable to agree on the connection of the Bamako-Bougouni road to the proposed second bridge on the Niger river in Bamako, the Bamako-Faladie section wili be excluded from the project; no other problems are anticipated on the reconstruction of Bamako-Bougouni by contract. The reorganisation of the crucial Equipment Service, combined with intensified training and an improved incentive structure for Malian project personnel, should assure that the expected gains in operational efficiency will, in fact, be realized. The main risks stem from a decreased maintenance effort as a result of insufficient or illiquid local funds. However, since the Government has agreed on a timetable for revenue raising measures for the Road Fund during negotiations, and implementation of these measures would be closely monitored, project risks are considered reasonably small. V . AGREMEETS REACHED AND RECOMMENDATIONS 5.01 During negotiations, agreement was reached on the following points: (a) Government has agreed to increase tax revenues directly and automatically available to the Road Fund sufficiently to ensure that the Road Fund revenues cover debt service and maintenance requirements in the highway sector (i.e. CFAE 28,950 million over the period January 1985 to December 1990 - para. 2.16). (b) Government has agreed not to undertake any new investment nor provide any credit guarantee for any new investment in trucking firms, unless, on the basis of an economic and financial justification, the Government and the Association have agreed such investment is justified (para 2.24); (c) Government has agreed to prepare and furnish to the Association within a year of Credit effectiveness, (i) a schedule of road tariffs structured to take into account the economic cost of  - 22 - different types of road transports, and (ii), a system of vehicle weight control measures; and thereafter to adopt such measures as agreed with the Association (para 2.26); (d) Government has agreed that the proceeds net of collection cost from the road toll will be applied to the Road Fund (para 2.27); (e) Government has agreed to prepare multi-annual programs of road transport investments which it would review annually with the Association, such programs will follow economic criteria and take into account the road maintenance capacity and the country debt servicing capacity (para 3.09). 5.02 The following actions by Government are conditions for effectiveness: (a) adoption of a plan of action for solving the liquidity problems of the postal checking system (para. 2.15); (b) deposit in the Road Fund of monies required for 1985 and adoption of an IDA approved plan of action for the increase of CFAF 12,750 million in the fuel taxes to be collected from road users over the January 1985-December 1990 period and earmarked for the Road Fund (para. 2.16); (c) effectiveness of Swiss Contribution (para. 3.16). 5.03 Government has agreed to undertake a study on the connection of the Bamako-Bougouni road to a proposed second bridge on the Niger River in Bamako and the insertion of both bridges in the urban road network, under terms of reference acceptable to the Association, by December 31, 1985. Adoption of a solution agreed by IDA and effectiveness of the AfDF Credit will be conditions of disbursement on the Bamako-Bougouni component (para. 3.15). 5.04 The proposed project is technically feasible, economically sound and suitable for a Credit of SDR 50.7 million (US$48.6 million equivalent) on standard IDA terms. WAPT1 June 1985  - 23 - Ahmex 2-1 MALI FIFTH HIGHWAY PROJECT Distribution of Traffic by Transport Mode for Selected Years, 1966-1983 Distribution du Traffic par Mode, Annees 1966-1983 Average- Moyenne 1966 1973 1977 1979 1980 1981 1982 1983 1979-1983 Freight/Fret (t-km millions) Road/route 113 310 247 228 246 203 179 256 222 Rail/rail 116 156 149 143 131 138 151 174 147 Waterways/fluvial 41 30 22 45 40 35 38 35 38 Air/air n/a 16 n/a n/a n/a n/a n/a n/a - Passenger/Passagers (pass-km millions) Road/route 400 720 992 1,200 1,320 1,450 1,595 1,755 1,464 Rail/rail 68 95 129 150 151 156 160 165 156 Waterways/fluvial 31 20 28 30 26 25 28 26 27 Air/air n/a 65 n/a n/a n/a n/a n/a n/a - Source: 1966-1977, Mali Transport Plan Study, SEDES, 1980 1979-1983, National Transport Office (ONT), Bamako, May 1984 WAPTI December 1984  -24- Annex 2-2 MALI FIFTH HIGHWAY PROJECT Merchandise Imports and Exports by Itinerary for Selected Years, 1966-1983 Commerce Exterieur par Itineraire, Annees 1966-1983 (in thousand tons; en milliers de tonnes) 1966 1973 1977 1979 1980 1981 1982 1983 Imports/Importations 259 370 349 460 451 447 398 501 Dakar: Rail/tail 179 206 152 153 165. 187 167 192 Abidjan: Road/route 80 164 197 307 286 260 231 309 Exports/Ex ortations 74 94 189 107 129 98 68 79 Dakar: Rail/rail 29 53 92 48 43 42 25 29 Abidjan: Road/route 45 41 97 59 86 56 43 50 TOTAL/TOTAL 333 464 538 567 580 545 466 580 DAkAr: Rail/rail 208 259 244 201 208 229 192 221 Abidjan: Road/route 125 205 294 366 372 316 274 359 Domestic Freight/ n.a n.a n.a 141 182 174 186 196 Fret Interieur Rail/rail n.a n.a n.a 7 10 9 10 11 Road/route n.a n.a n.a 134 172 165 176 185 Source: 1966-1977, Mali Road Maintenance Project SAR No. 2597a-NLI 1979-1983, National Transport Office (ONT) Bamako, May 1984 WAPTI December 1984  - 25 - AmE 2-3 ELI FIFTN NIMh PD T TIX P3I1,11 IETU Table I - Prnut Status al Prapud Projct bks - Pomin Ilu Al aJ Piriudic Refruce Traffic Lgtb Itatn Nuirt. Ndat./ Itinerry SKtim (1933 Catuogor blab. (IT) (km) (khm CoUmm Iudo-ku 1071 17035 16 2 ll 16 lmkooKiti 1631 1312 is 2 3* a/ Paved odsl Saau-NOPU 1064 1154 13 3 3 Suou-Kukdt ion 4U0 133 3 3* 133 Status auakuiult d 1041 371 31 1 3* 31 kpinds-Foo 1062 371 9 nI 9 I bnd u -Kuo-ulkwo 2141 269 52 2 PA 2 Avrae Kuokile-hpi 1on 20 11 3 RA 11 3 Pow Soa-Pouit A 23 223 4. 2 R* 35 Subtotal. 412 2.1 325 lnthce CAtqory Touubctou4s1abr 3641 193 9 2 3 3 * Ilt Ila (OF ) 2201 Ouam-vw 103 14 II 1 3 RI I 1 a Arage cun 100-2201 Funa-Oankorp 1063 16 in 2 13 21 IC La hmI (AT ) 401 Ssvar-anodipui 1141 15t I I I a-iUhdr costructim Ouvanbro-Ou 1063 14 I19 2 1A Dla-Rob.gm 1121 133 73 2 is I Priodic ealntuaco vith FED fincirg. hIma-Zqo.a 1074 130 in 3 1a 1i Timnfala-lim 1073 105 50 3 11 SO ogouoi-Tiafala 1on 105s 9 3 U Suttotal. 94 2.4 I2 s3luuu-Zanlgu 11t1 94 106 ItC agasso-stial 1111 94 32 1 IC lauko-Lide 1031 69 0 3 IC Olohougu-orDklua 1122 b3 112 2 IC pint A-Mimsu 2232 63 a 1 IC Sadigut-bnt:a 1161 56 11 I 11 KaIUola-Siuou 1131 55 1 2 IC Kutiala-sswrola 1131 55 4 2 IC ahko-hbuikwo 1050 36 J 3 IC Kinparmaubory 1141 23 71 1 IC Damtwa-ui 1162 n 23! 1 3 Susi-Dj]1db 1163 12 171 1 3 talodabu- uimn 1021 0 6 3 RC kcn a iling.u o.c. B.a. 60 1 I Sbtotal 3117 1.3 0 Total, Pavu Roa 2469 1.3 52 Of theme Of tho: - ulitaind widw projKt. 1834 auakr.hgui: 160 - under contructios 579 Mw rodes 492  - 26 - The Pisrity I N11M1 2.3 Table 2 - Allot Kato Mi Popos Protjtt Orhk - Oar l bao hp 2 "erodic bhfsrc Traffic Lugth Al a* NaItt.I Itinrwry 9 tim E19331 Statu Nuit. HdA. fADl (klm Cater kId COSIM huka gao ba-lauauln 2151 144 135 1 A a/ gawl Ibait Isuaa urg-Dnisr go.e 4 42 1 A Farada-Tioribulg lOU 42 77 1 A Stat. Lidi-Frw IOU3 42 11 3 A - Fana-DioiIl 2131 4 40 1 A L kW Sututall 305 1.1 2 Avaru 3 Pow ThInm-hu,mna 2251 7 4u 3 g 4 WYpo Ievare dam 1151 37 17 2 B hakeoSUboikers 10o 34 3 3 3 elitmc CatGrM Sikusluhrkin 1101 3 44 3 3 Shb ikwoCWtreSue 1051 34 113 3 O IA N1bileh[ l (AN ) 44 Fan -iNw a 3231 0 a 4 * Avwag (SiT 20" U ing ii 1061 29 13 2 3 16 C Luulewl (AIT( 02 Acen a u lJ R.c. 22 42 * 35 Kgalikwro-3ai 2142 22 B7 I I Narkala-Tneks 2241 21 170 3 O Sandare-Viore 1013 21 134 3 3 134 Kayes-vers Smulu 1013 21 103 3 3 103 *rso-*erdru 1014 5 3 3 So rleh.kau 22U1 20 79 3 C hstutal. 902 2.3 20 .*n go-lllgr 1172 19 105. 3 C sgWuui-iia-lulru 1091 11 123 3 C 123 Zatidoieg-Kludis 2211 17 U 3 C KoarlKritze 2291 17 a 3 C life-GOB"" 2311 15 35 2 C Iu-Amuee 1171 15 t0o 3 C KwalseleCayes 1012 15 5 i C Ang.l@ 1171 15 7 3 C Dloila-anmigpi 2162 14 100 3 C Kuludieba-cto 3'Ilvre 2212 13 59 3 C Kignu-hlikao 2201 13 5 3 C 3io1la-Iogla-Kign. 2201 13 147 3 C Kayvs-Ndies 2041 15 12 4 C Rediss4ise 2042 13 U3 4 C beMW lit 11 95 3 C huwdaToebuttm 2312 U 97 4 C Tubsuctesula-rIe u gra 2321 3 145 4 C Iudaka-landslaara-Ku 1152 3 137 3 C Mibia-Ieia-latsdagu 1022 7 173 4 C Kati-S dkwo 2131 & 107 4 C Kayslt alafars 2011 1 159 4 C sallbm-Kita 2131 & 3 4 C Dialafuar-UjUiwou 2012 A 37 4 C hdqou-lua 2221 3 U 3 C a3 Nudiua-Iai.g.-hlue. 1032 5 97 4 C 9 Acc IbNrtali *.c. R.a. 40 2 C Stotala 2123 3.4 247 twal, tawl hwlt U2 3 53 Sewag etats eitb priject 2.7  - 27 - The Priuity Nutvwkt Palo 3 table 3 - Prnot Status and Propod Project lhks - Earth Roads a/ 1/ Priodic Ref.rMce Traffic Length Statue Raint. Neia.t.I Itinirwy sectium (193) Cateory Ihla. IADTI (km) (km) CifENT9 Tiaribougwa-Didinl 1034 37 64 D aI Euth Rods & Trackit 64 Statue Kita-Ijidiam 2121 17 14 5 E - DJidian-Korakoto 2121 17 % 5 E 3 Fair Rl-Uf ha 3561 0 25 3 E 4 Por IidieniDiua 1034 16 327 4 a 5 Very Poo Dim-liorO 1034 16 9 4 E llhrK-Kakole 1011 1i 93 4 E balitMunce Catqory Kuubore4oKkoata 2091 12 70 5 E Kinisba-Koshorma 2091 12 55 5 E ankhos-Iukwo 2271 11 s0 4 E I High levOl (AIT ) 20) akUe-SOdwe 202 10 46 4 E E LO Intl (4 ( 201 afOuIabe-le O 2081 10 112 4 E namba-3Doron 2143 8 49 4 E SOea-rhrme-hUrin 2322 8 184 4 E Koro-Dirkima 1153 0 32 3 E wour"-&fis 1192 7 195 4 E Kitb-ToukOto-Sefito 2111 5 160 4 E Klta-Froutier, Iiin 2101 0 76 4 E Ansefi-Kidl 1193 4 150 4 E K1dal-TiaztNt 1194 0 202 4 E Sadare-im 2071 3 135 4 E Nie-IOpal 223 nas. 195 4 E ampala-Niafouke 2234 n.a. 223 4 E Taal-d nara 2302 na.. 106 4 E Doutza-Taal 2301 n.a. 52 4 E Smunda-iafaU ke 2235 na. a 4 E h ara-uuru-hrOUS 2303 n.a. 15 4 E 9abtatal: 2925 Total Erth bade 299 4 0 TTIL PRIORIT I m g90 117 Sm t , 164 WTI April 19  - 28 - Annex 2-4 MALI FIFTH HIGHWAY PROJECT Road Fund Revenues and Expenditures Past Performance and Forecasts, 1985-1990 Purpose of the Road Fund 1. Since 1971, road expenditures in Mali have been financed from a Road Fund (RE). Clearly separated from the general budget, the RF is administered by the National Directorate of Public Works, and receive its revenues from an earmarked portion of taxes on transport fuels (gasoline and diesel). The RF is surposed to cover ti) road maintenance expenditures including equipment renewal; (ii) minor urban street improvements; (iii) local counterpart funds for road studies and investments; and (iv) the debt service on loans for roads. Level of Financing and Allocation of Resources 2. Nominally, annual RF revenues have been increasing from CFAF 0.7 billion in 1971 to CFAF 2.7 billion in 1983 or at about 71 p.a. But with annual inflation rates averaging about 10X over the same period, revenues have in fact declined in real terms. Road maintenance expenditures as a portion of RF revenues have fluctuated between 35Z and 55Z, with the highest shares in the 1978-1980 period. Since 1981, counterpart funding needs for new investments (Sevare-Gao road) have risen sharply; but for the support of routine maintenance activities under the Association's ongoing Fourth Highway (Maintenance) Project, road maintenance would have had to be reduced to unacceptable levels. Even with this project, maintenance expenditures as a portion of total road expenditure have declined from about 24% in the five year period 1974-78, to around 18X for the 1979-83 period (Table 1, Road Construction and Maintenance Expenditures and their Financing, 1971-1983). 3. From 1971 to 1982, local counterpart funding for investments and road maintenance have accounted for some 90Z of RE expenditures, while debt service requirements were negligible. The situation began to change in 1983, when debt service requirements increased by 76% over 1982, from about CFAF 290 million to CFAF 515 million. Even steeper increases will arise in the next three years, until debt service payments stabilize at around CFAF 2,700 million annually from 1987 onward. Unless additional sources of re-enue are found, RF receipts will thus be barely sufficient to cover the debt service on past investments, leaving no funds for maintenance, let alone new  - 29 - Annex 2-4 Page 2 investments. (Table 2, Development of Debt Service Payments to be Covered from Road Fund Revenues, 1982-1990). 4. To correct the situation and ensure that at least essential maintenance operations for safeguarding the most important links of the existing road network continue to be carried out, several alternative courses of action suggest themselves. One would be to free the RF from its debt service obligations on past road investments and integrate them into the overall public debt service. This could be 4ustified in view of the fact that well over 70% of total taxes (import duties on vehicles and spares, licenses, taxes on freight vehicles and on insurance, fuel taxes) levied on road users accrue to the general budget, while only about 45% of the taxes on gasoline and diesel fuel accrue to the RF. However, the general budget itself is deficitary and the country has experienced severe problems on its general debt service, which have already resulted in the temporary suspension of disbursements on a number of ongoing credits and postponement of new ones. No relief could thus be expected from shifting responsibility for the debt service to the general budget. (Table 3, Revenues from Road User Charges by Source and Fuel Consumption (Total and Taxed, 1974-1983). Revenue Requirements and Potential Sources 5. Since additional revenues must be found, and since there are few or no alternatives to raising them except from road users, 4t would seem preferable to have the additional revenues accrue directly to the RF, where they will be (and seen to be) used to pay for past upgrading and present maintenance of the priority network. Given the relatively high sensitivity to transport costs of the prices of basic staples and essential imports in a vast and landlocked country like Mali, it will be important that the additional taxes be limited to the strict minimum required to cover unavoidable road outlays. To do this, a series of coordinated actions by Government and foreign donors will be required. First, to avoid the recurrence of large revenue shortfalls in the future, it is important that investment planning procedures in the transport sector are improved to achieve a proper balance between investment and maintenance and to avoid uneconomic investments. Development of Mali's transport investment planning capability will be supported under the proposed project with technical assistance to ONT, and Government has agreed to prepare annually and adopt a multi-annual program of road transport investments satisfactory to the Association, which follows economic criteria and takes into account the road maintenance capacity and the country debt servicing capacity. Given the Road Fund's precarious financial situation, it is imperative that Mali in the near future not accept any financing for roads or road transport on non-concessionary terms and with short repayment periods. It may even be worthwhile to explore if obligations for debt servicing could be attenuated by rescheduling debts on past road investments, notably Sevare-Gao, so that the amount of revenue to be raised through additional taxes may be reduced somewhat.  - 30 - Annex 2-4 Page 3 6. Second, to help compensate the adverse financial situation in the short term, it is necessary that maintenance expenses be reduced to the minimum required to facilitate essential traffic flows. This would be achieved by (a) concentrating maintenance on a priority network; (b) reducing maintenance on unimproved tracks and on non-essential earth roads; and (c) implementing rigorous measures to raise equipment availability and improve overall efficiency of maintenance operations; all of these actions are being pursued under the project. 7. Third, revenues will need to be raised to the point where they will at least cover the debt service, essential routine and periodic maintenance expenditures, as well as counterpart funds to ongoing investments. Given the size of the revenue gap, this may be done over a four year period. The overall increase required is from a current revenue level of CFAF 2.3 billion to more than CFAF 5 billion annually. 8. During negotiations, Government has agreed to increase tax revenues directly and automatically available to the Road Fund (i.e. without recourse to special budgetary transfers) sufficiently to ensure that the Road Fund's revenues cover debt service and maintenance requirements in the highway sector (i.e. CFAF 28,950 million over the period January 1985 to December 1990 corresponding (in rounded figures) to CFAF 28,059 million of expenses over the period plus CFAF 920 million of Road Fund deficit as of December 31, 1984. Table 5, Local Cost Implications of Proposed Road Sector Investment and Maintenance Strategy: Road Fund Expenditures and Alternative Revenue Scenarios, 1984-1990, and corresponding graph). The following are already allocated to the Road Fund: (i) the revenues of the existing fuel tax (estimated at CFAF 13,500 million over the same period); (ii) CFAF 700 million transferred to the Road Fund on May 8, 1985; and (iii) CFAF 500 million scheduled to be transferred by project effectiveness. In addition to the foregoing, Government has decided to allocate directly to the Road Fund: (a) revenues collected from the Droit de Travers6e Routiare net of collection cost. These currently amount to CFAF 250 million annually but its coverage will be extended to the whole paved network by December 1985 and thereafter, they are expected to amount to CFAF 300 million annually (corresponding revenue estimated at CFAF 1,500 million over the same period); and (b) increased fuel taxes to be collected from road users from August 1985 or January 1986 onwards to generate additional revenues of CFAF 12,750 million over the same period. Government has appointed an Interministerial Committee to determine, inter alia, the exact timing of the increase in the fuel taxes earmarked to the Road Fund and whether this increase would be more appropriately combined with: (i) savings in the fuel import bill through renegotiation of supply contracts. By simply changing the source of supply for some 25,500 t of gasoline and 8,750 t of diesel oil to take advantage of ex-refinery price differentials - between Abidjan and Dakar - savings of the order of CFAF 1.7 billion on a total ex-refinery import bill of around  - 31 - Annex 2-4 Page 4 CFAF 17 billion for these two products might have been realized in 1982 (Table 6, Fuel Price Structure for Different Origins of Supply and Destinations of End Use, and Table 7, Potential ravings on Fuel Imports by Switching Supply Sources). (ii) reallocation to the Road Fund of fuel taxes now allocated to other sectors of the economy; (iii) an increase in the pump price of gasoline and diesel fuel; or (iv) some combination of the above. The Committee is considering the following options, which are satisfactory, for the increase of CFAF 12,750 million in the fuel taxes to be collected from road users over the January 1985-December 1990 period and earmarked for the Road Fund: (a) a single increase which should provide CFAF 2,430 million of additional annual revenues if implemented by August 1985 or CFAF 2,550 million of additional annual revenues if implemented by January 1986 (Table 5, hypothesis B; this increase in fuel taxe of CFAF 28.4/liter of gasoline and CFAF 20.0/liter of diesel corresponds to 10.9% of the April 1985 pump price); (b) three increases to be implemented by January 1986, January 1987 and January 1988, respectively. Each increase should provide CFAF 1,060 million of additional annual revenue (Table 5, hypothesis C; each increase in fuel taxe of CFAF 11.81liter of gasoline and CFAF 8.3/liter of diesel corresponds to 4.5% of the April 1985 pump price); The Committee has been asked to conclude its study by June 1985. Its recommendations will be incorporated in a plan of action. The adoption by Government of an IDA approved plan of action is a condition of credit effectiveness. 9. The project would cover RF revenue shortfalls in the early years by disbursing its contribution to routine road maintenance costs at a higher rate in the beginning, and by financing 100X of essential periodic maintenance. A year by year breakdown of routine maintenance expenditures over the project period and by source of financing is in Annex 3-1. para. 4. Liquidity of Funds 10. Assuming that the volume of RF revenues can be raised over the period of project implementation to a level sufficient to cover  - 32 - Annex 2-4 Page 5 essential maintenance and debt service on past investments, there remains a second problem to be resolved: that of the liquidity of Road Fund revenues. Over the past ten years, a rising share of RF revenues (42% in 1974 and 92% in 1981; in 1982-83, RF liquidity improved due to IDA's contribution to routine maintenance expenditures;) has been in the form of checks drawn on Mali's Postal Checking Service (PCS) which has not been liquid for many years. This has affected spare parts acquisition for road maintenance equipment and contributed further to the already considerable technical problems in equipment repairs. IDA's contribution of 40% to the routine maintenance budget under the ongoing Fourth Highway Project has provided the liquidity for covering a major part of the foreign exchange costs of routine maintenance, but this is only a temporary palliative and Government action is required to correct the problem at its source. 11. In fact, the problems of PCS, which affect the majority of public sector operations, have been the subject of repeated discussions between the Government and Bank/IMF missions over the past five years. Their solution is an important part of the ongoing efforts to promote comprehensive economic reforms. Injection of some CFAF 3 billion into the CPS from an IMF Standby Credit in 1983, in conjunction with the freezing of a similar amount in CPS funds held by various public institutions (CFAF 0.75 billion by the Road Fund alone) was expected to make the system solvent, but managed to do so only partially (for small private investors who were able to withdraw amounts up to CFAF 250,000). It did not, however, suffice to restore enough confidence in the system to promote significant volumes of new deposits. The Government has engaged a consultant under Credit 1200-MLI (Second Telecommunications Project) to recommend an action plan for putting the postal service on a sound financial footing, including measures to liquify the PCS. Measures being considered include separation of the accounts of telecomunication, postal services and the PCS; restriction of Treasury access to PCS funds; strengthening of financial staff of the postal service; and use of counterpart funds generated under the Public Enterprise Project for, inter alia, payment to the PCS of funds borrowed from it by Treasury. At negotiations, Government has agreed to make the adnption of a plan of action satisfactory to the Association, a condition of effectiveness for the present project. The substantial contribution of the project to costs for routine maintenance under the Fifth Highway Project would ensure that PCS problems will not jeopardize the realization of project objectives in the early years of project execution. WAPTI June 1985  EM~~~~~~~~~~~~~~~~ET LE mLE LEEm)M ilu 19f 19 3*1 3jm 1 112 Ji*ii its 2 146 3s 37 2 1114 |t b t 157 ISO ale9 75 36 1223 -. 71.873 151 125 * 3 3 1 13 27 1 m 1N . 3,,o" ____"t" .; ;. *il ;, I7I *.i ul 11* tl la ;; 1* tl' a12. ::. s11 3. gIJ. w OS Shims rot ImyosimeS (340) 41,1) (1,0)9) ) VA .) (1.136) J1.145) (2119) (1.6Th) (1,4A) (,243) (2.,25) (2,1,), nElk ii 1.32 t23 4,M *,3* 1.6 L3 m 9.- 3 144 II- 21.11 fee last. slue attest.) 3.6 30.6 41. 11.4 3.0 21. S .6 11.4 11.11 1.6 46.6 3.1 NIaltbtaea bpalteri 8 U.111 18.7 10.5 S of total bpadIAtur.a 3.13 14.9 35.1 35. ..4 4 2.6 22.3 111.2 21.1 3. 611. total e Go. . *41 46.8 11.9 11.6 1.2 82.1 12.2 fN.3 87.1 82.8 U . * Iml"t Iratnb EI y( amos e) Pnsjet_t eapnibroa ng NaSi jolmad th Uset AftIti e baste zim to J 136I . 111tibt , t4he I 'ili "-CI NO ths 331i rfm ow). I n 6.5 02r7. kimses 5lp, uhss, ril J96 go UA 1F m oefr1964  - 34 - -~~~~~~~~~~~~~~~~~ (i N 2LI .m 1m7 197 376 1377 1373 137