Chad - Highway Maintenance Project

Dowmsnz Of The World Bank FOR OMCLFCL USE ONLY Report No. P-4290-CD REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS FOR A PROPOSED DEVELOPMENT CREDIT OF SDR 17.1 MILLION TO THE REPUBLIC OF CHAD FOR A HIGHWAY MAINTENANCE PROJECT June 2, 1986 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = CFA Franc US$1.00 CFAF 360 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 kilometer (km) 2 = 0.6 mile (mi) 2 l ssuare kilometer (km ) = 0.39 square miles (mi ) I m = 1,000 liters (1) = 6.37 barrels = 267.54 gallon ABBREVIATIONS AND ACRONYMS AfDF - African Development Fund BDEAC - Banque de Developpement des Etats de l'Afrique Centrale BIAT - Banque Internationale pour l'Afrique au Tchad BTCD - Banque Tchadienne de Credit et des Depots CARE - Cooperative for American Relief Everywhere CCCE - Caisse Centrale de Cooperation Economique CFAF - Communaute Financiare Africaine (CFA) Francs CFDT - Compagnie Frangaise pour le Developpement de Textiles CTT - Cooperative des Transporteurs Tchadiens DGT - Direction Generale des Transports DPW - Department of Public Works EDF - European Development Fund EEC - European Economic Community ENTP - Ecole Nationale des Travaux Publics ERR - Economic Rate of Return FAC - Fonds d'Aide et de Cooperation FAO/OSRO - Food and Agriculture Organization/Office of Sahelian Relief GDP - Gross Domestic Product IBRD - International Bank for Reconstruction and Development IDA - International Development Agency LBF - Live Aid/Band Aid Foundation LENTP - Laboratoire d'Etude National des Travaux Publics MPWHUD - Ministry of Public Works, Housing and Urban Development MCT - Manufacture de Cigarettes du Tchad MTCA - Ministry of Transport and Civil Aviation NGO - Non Governmental Organization OFNAR - Office National des Routes SDR - Special Drawing Right SIMAT - Societe Industrielle de Materiel Agricole SME - Small and Medium Scale Enterprise SONASUT - Societe Nationale Sucriare du Tchad STEE - Societe Tchadienne d'Energie Electrique _ STT - Societe Tchadienne du Textile ND?P - United Nations Development Program UNDP/OPE - UNDP/Office of Project Execution USAID - United States Agency for International Development vpd - Vehicles per day WFP - World Food Program  FOR OMCAL USE ONLY CHAD HIGHWAY MAINTENANCE PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Government of Chad Beneficiaries and Implementing Agencies: The Ministry of Public Works, Housing and Urban Development; The Ministry of Transport and Civil Aviation. Amount: SDR 17.1 million (US$20.0 million equivalent). Terms: Standard IDA terms. Project Description: This project is an emergency operation in the road transport sector which is a top priority in Chad's post-war reconstruction effort. It would assist the Ministries of Public Works and Transport to rebuild their capacity to rehab- ilitate and maintain the country's high priority network, address important institution building objectives in the transport sector, help resolve constraints on the efficiency and competitive- ness of the road transport industry, and coordi- nate and complement other donors' activities in the sector. The principal components of the project are: (a) routine maintenance of up to 2,000 km of high priority roads; (b) rehabili- tation and routine maintenance of a road linking the industrial center of N'Djamena with the country's primary road network; (c) rehabili- tation of the ferry at Moissala and replacement of the ferry at Onoko, and construction of short access roads; (d) reconstruction of the bridge at Lere and construction of access roads; (e) provision of buildings and equipment to sup- port the priority program for routine mainte- nance; and (f) studies and technical assistance to support project implementation and prepara- tion of a follow-up operation in the sector. Project Benefits and Risks: The project would help to re-establish normal trade flows and would support restructuring of the cotton sector. It would reduce transport costs on 2,000 km of priority roads, and avoid higher costs that would be incurred if recently rehabilitated roads were allowed to deteriorate. Rehabilitation and maintenance of the N'Djamena | This document has a restricted distibution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization.  - ii - industrial road would significantly reduce transport costs and relieve urban congestion. Rehabilitation of the bridge and ferries would improve internal and external communications and effect significant operating cost savings. The project would have a substantial institutional impact on the Ministries of Public Works and Transport, OFNAR, and the trucking industry by developing the management and technical skills necessary for managing the road sector and by increasing productivity and competitiveness in the road transport industry. The physical components of the project are lo- cated in areas unlikely to be affected by po- litical unrest. Although the general economic situation and depressed cotton prices could constrain the rate of recovery in economic acti- vity, the most important risks would be an in- crease in project costs and inadequate absorp- tive capacity. Even with a 20% increase in total project costs, including technical assist- ance, the project would still be justified. The risks arising from possible limits on adminis- trative capacity are addressed through technical assistance and on-the-job training and through possible recourse to private contractors. Nevertheless implementation of the project will require intensive monitoring and supervision by IDA staff. Rate of Return: The overall economic rate of return is 21%, covering about 82% of project costs. The rates of return for individual project components vary from 12% for the bridge and access roads and 16% for the N'Djamena industrial road, to 46% for routine maintenance of rehabilitated roads and 59% for the ferries.  os - no  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF CHAD FOR A HIGHWAY MAINTENANCE PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Chad for SDR 17.1 million (US$20.0 million equivalent) to help finance a Highway Maintenance Project. The credit would be on standard IDA terms. PART I. THE ECONOMY 11 2. The last economic report on Chad (Report No. 1340-CD) was distri- buted to the Board on June 30, 1977. Bank activities, including economic and sector work, resumed in May 1985 after several years of interruption due to civil war. A new Country Economic Memorandum is scheduled for FY87. Annex I contains country data. Background 3. Chad is a landlocked, sahelian country with an area of 1,284,000 kM2 and three climatic zones. In the northern saharan zone, where rainfall is less than 300 mm per annum, the dominant activity is nomadic and transhumant livestock herding. Agricultural production is undertaken infre- quently and is only possible in oases and in lowlands during periodic flooding. In the middle sahelian zone, one finds transhumant and sedentary livestock herding as well as extensive rainfed cultivation centered on mi,let and sorghum. Because of the dependence on rainfed cropping, this zone is particularly vulnerable to climatic variability. The southern sudanian zone makes up a quarter of the country's area. The region receives rainfall ranging from 600 mm to 1,200 am per year, allowing the production of cotton as a cash crop and cereals, tubers, and groundnuts as major food crops. 4. The population of Chad was estimated at approximately 5 million in 1985, with about 40% in the southern sudanian zone, 57% in the middle sahelian zone, and only 3% in the northern saharan zone. Approximately 80% of the population lives in rural areas, although the urban population has 1/ Parts I and II are substantially the same as those in the President's Report for the Emergency Cotton Program Credit, which was presented to the Executive Directors on June 24, 1986.  - 2 - been growing at an annual rate more than three times faster than that of the total population (6.4% compared to 2.1%). The capital city, N'Djamena, is estimated to have about 400,000 inhabitants. Economic Constraints and Potential 5. With an estimated per capita income of about US$130 in 1985, Chad is one of the poorest and least developed countries in the world. It ranks at or near the bottom of the low-income economies with respect to life expectancy, literacy and health-related indicators. Moreover, in recent years, political conflict has disrupted economic activities and social services and has discouraged investment. Development is constrained by: (i) the country's landlocked position, which creates high transportation costs; (ii) internal distances, which hinder political and economic inte- gration; and (iii) climatic variability, which leads to fluctuations in agricultural production. Chad does have, however, a number of factors in its favor. The economic system is liberal and has produced a dynamic informal sector. The country is also blessed with considerable agricultural potential, thanks to its extensive areas of arable land, two perennial rivers (Logone and Chari), and low population density. Some five million hectares of land have potential for irrigation, and in years of normal rainfall, agricultural production already reaches self-sufficiency levels. In this respect, Chad is among the better-off countries of the Sahel. In addition, Chad has significant, but under-exploited, livestock resources. Ongoing petroleum exploration has revealed significant oil reserves in Chad, although it is too early to assess when and under what conditions they can be efficiently exploited. There are also indications of mineral reserves which have not yet been carefully evaluated. Structure of the Economy 6. Agriculture, broadly defined to include livestock and fishing, dominates the Chadian economy, providing the livelihood for the majority of the population, absorbing 85Z of the total labor force, and generating nearly half of GDP. Food crops are the principal output and, in 1985, contributed 23% of GDP, while cash crops other than food (mostly cotton) accounted for 4%, and livestock and fishing, together, for 17%. The sector, on the whole, is extremely vulnerable to climatic fluctuations. The "secon- dary" sector, comprising industry and energy, is relatively weak, accounting for only about 20% of GDP in 1985. Production derives mainly from six enterprises: MCT (cigarettes), SONASUT (sugar), Brasseries du Logone (beer), STT (textiles), Cotontchad (cotton lint, oil and soap), and STEE (electricity and water). Small- and medi 1-scale enterprises (SMEs) are still quite underdeveloped. The "services" sector, consisting largely of formal and informal commercial activities, generated about 35% of GDP in 1985. 7. The Chadian economy has two predominant features. The first is the dynamic nature of the informal sector which helped assure the survival of the country throughout the war period. However, the extensive use of informal channels today deprives the State of an important source of reve- nue. The second feature is the dominance of the cotton sector in the economy, accounting for approximately 80% of export earnings, 25% of  -3 - government revenues and 13% of agricultural production. The cotton sector is a source of cash income for two-fifths of Chad's population and absorbs more than 50% of domestic credit. Sector activities are organized by Cotontchad, a majority-government-owned company which is solely responsible for purchasing, processing and marketing Chad's cotton. The Civil War (1979-82) 8. The Chadian economy reached its peak production level in 1977, just prior to a devastating three-year civil war. GDP attained CFAF 162 billion (US$157 per capita) that year, fueled by a record cotton crop of 174,000 (metric) tons in 1975/76. At the time, Chad had four domestic banks, some large-scale domestic manufacturing industries, an estimated 80-100 small and medium scale enterprises (SMEs), and an active informal sector. 9. Little reliable data exist from the civil war period, but one can hardly overestimate the negative effects of the war, which produced wide- spread destruction of property and considerable human loss. Economic activity was seriously disrupted, leading to a reduction of at least 30% in aggregate output. Formal, modern sector activities were the hardest hit, with most industries severely reducing or totally suspending operations. The expatriate sector, always limited in Chad, withdrew completely. The banking sector shut down entirely, as did the Central Bank for a two-year period. Only the cotton industry continued to operate, overcoming great logistical difficulties, although production of cotton seed averaged only 80,000 tons per annum (65% of the average production during 1973-77). More than half of the known SMEs were destroyed or temporarily shut down. The population of N'Djamena fell to less than a third of its pre-war level of 300,000, and the city was largely destroyed. Political administration, at all levels, ceased to function, and public utilities and government services were abandoned. Much infrastructure and physical capital were destroyed, disappeared, or simply deteriorated from neglect. The road network, in particular, deteriorated severely, crippling internal trade and producing economic fragmentation. Post-War Developments 10. Hissein Habre, now President of the Republic, took control of N'Djamena in June 1982. His government has since gained effective control of the territory south of the 16th parallel, which contains 97Z of the country's population. In 1983, opposition forces with foreign support occupied a large part of the northern zone. The continued occupation of this barren zone has no significant direct impact on Chad's economic situa- tion, but it represents a constant political threat which discourages potential investment in the country. Recent rebel incursions below the 16th parallel have been reversed by Government forces. In the remainder of the country, the Government launched a program of national reconciliation in 1983 in a successful effort to rally exiled political opponents and former southern combattants to the Habre regime. In January 1986, the last remaining rebel leader in the south rallied to the Habre Government, raising hopes of lasting political stability in the sudanian zone.  - 4 - 11. Since 1982, the Habre Government has worked quickly and effect- ively to reconstitute key ministries and develop municipal administrations, and has been successful in establishing a core government. With the resto- ration of relative political stability, the economy began a period of recovery, with real GDP growing by 5.5% in 1983, to reach 78% of the 1977 level. Considerable reconstruction ensued and the population of N'Djamena has risen rapidly to far surpass its pre-war peak. Economic recovery was stalled, however, by the unprecedented drought of 1984-85, and is now threatened by a crisis affecting the cotton sector. 12. The Drought. The 1984-85 drought had lmmediate, severe and widespread effects. It caused Lake Chad to shrink to one-tenth of its normal size and dried up segments of the Chari River. Food production dropped from an average of over 600,000 tons/year for the 1975-80 period to only 310,000 tons, leading to a deficit of about 300,000 tons, or half of total requirements. The northern sahelian zone was particularly affected, creat- ing an influx of refugees to the south. A vell-coordinated international relief effort, led by the UNDP and carried out with full cooperation from the Government, averted widespread famine and avoided the establishment of refugee camps through the relocation and resettlement of displaced popu- lations in productive agricultural zones. Economic recovery ground to a halt, however, with a 4.5% drop in real GDP in 1984. Good rainfall in 1985 allowed food production to recover significantly, approaching self-sufficiency levels. The situation remains fragile, however, because of: Mi) the constant threat of drought; (ii) the risk of a premature return of the nomadic population to traditional but ecologically unstable areas in the northern Sahel region; (iii) the dilapidated road network, vhich contin- ues to frustrate commercial activity; (iv) the lack of resources for ag- ricultural support services; and (v) the potentially disruptive effect of the past season's massive food distribution and the remaining food aid stocks on normal production patterns and local market operations. 13. The Cotton Sector Crisis. A severe disequilibrium in the world cotton market caused the world price of this commodity, in dollar terms, to drop by 40% between mid-1984 and mid-1985. In conjunction with the depre- ciation of the dollar, this fall has brought about a drop in the CFAF price of Chad's cotton exports from nearly CFAF 800/kg (F.O.B. Douala) to less than CFAF 400/kg. The hitherto profitable Cotontchad company is now operat- ing at a loss, with a cumulative deficit of CFAF 23 billion (US$64 million) as of February 1986. This deficit surpasses estimated Government revenues for 1986 and is, therefore, beyond the ability of the company or the Govern- ment to support or correct, given market prospects. Owing to the high level of world stocks, no rapid price recovery is expected. Progress Towards Recovery 14. Despite the negative impact of drought and continued political difficulties, the Chadian Government and people have made progress towards economic recovery. As previously noted, reconstruction and resumption of economic activities were facilitated by exceptionally good cotton production and exports in 1983/84. These, together with favorable world market con- ditions, helped to replenish foreign exchange reserves and boost government revenues.  15. Reestablishment of the administration and the growth of revenues allowed the resumption of government services on a limited scale. In the education sector, schools have reopened, teachers are being trained, and enrollments, in absolute terms, are higher than pre-war levels. The average elementary school enrollment ratio remains low, however -- an estimated 30% -- a figure which masks wide variations by gender and by region. The health sector has benefitted considerably from foreign assistance. The number of public health facilities has surpassed pre-war levels, although the quality of facilities varies greatly. In 1982, the National School of Public Health reopened, and a village-level basic health care program was launched. Despite considerable progress, health status in Chad is quite low, with an estimated infant mortality rate of 184 per 1,000 births and a life expectan- cy of only 43 years. Both the education and health sectors face severe financial constraints and suffer from a lack of personnel, training pro- grams, equipment and supplies. 16. In general, with the exception of the drought year, Chad's economy has recovered rapidly since 1982. Given a good harvest, real GDP in 1986 is expected to surpass its 1977 peak. Because of population growth, however, real per capita income will remain below its 1977 level. Modern sector activities have largely recovered. The Central Bank reopened in 1983, and two banks, BIAT (Banque International pour l'Afrique au Tchad) and BTCD (Banque Tchadienne de Credit et de Depots), have resumed operations. Recovery in the subsistence sector and in small-scale entrepreneurial activities has also been impressive, despite the often complete lack of public services and domestic credit. 17. The resurgence of economic activity and the resulting growth in GDP allowed1 the Government to more than double revenues between 1983 and 1985: from CFAF 9 billion to CFAF 21 billion (US$47 million). New tax measures and improved tax collection should permit the Government to main- tain revenues at this level, despite the loss in cotton export tax proceeds. Although expenditures continue to outstrip revenues, the size of the fiscal deficit relative to revenues fell from 48% in 1983 to 22% in 1984 and 1985. Public expenditures remain relatively low compared to current needs, thanks to the restraint exercised by the Chadian authorities, particularly regard- ing the size of the civil service. Despite a recent pay increase, civil servants are still receiving only 60% of their 1977 wages in nominal terms. 18. Bank credit has expanded rapidly in the last three years, with credit to the public sector declining to the point where it represented only 5% of total domestic credit outstanding by the end of 1985. The expansion of credit, along with a balance of payments surplus (discussed below), led to a 60% increase in money and quasi-money in 1984. However, the cotton crisis and the recent deterioration of the balance of payments caused the growth in money supply to slow to an estimated 11 in 1985. No consumer price index has been compiled in Chad since 1979. On the basis of limited information available on selected commodities, the average annual inflation rate over the 1979-85 period was on the order of 8-10%. 19. Chad's balance of payments, like most economic indicators, has varied with the fortunes of cotton. The large increase in cotton exports and the high level of external financial assistance in 1983 and 1984  - 6 - produced surpluses in both the current account and the overall balance in those years. In 1985, a relatively small cotton crop led to a lower volume of cotton exports which, at a lower world price, severely reduced export earnings. At the same time, continued economic growth induced an expansion in imports and contributed to bring about a current account deficit of approximately CFAF 40 billion (US$89 million), equal to 13% of GDP. The deficit was financed by a combination of increased capital inflows for oil exploration and larger drawings on medium and long-term loans. The overall balance moved into deficit for the first time in several years. In recent years, even during periods of reserve build-up, Chad continued to accumulate external arrears because of the budgetary difficulties experienced and the statutory limit on the outstanding credit available to the Government from the Central Bank for Central African States. 20. The Chad Government is committed to resuming debt service payments and has worked with its major creditors to reconstruct its debt records, settle arrears with multilateral organizations, and begin repayment on a limited basis of arrears and current debt-service obligations. The recon- structed records show an end of 1985 stock of debt outstanding and dis- bursed of US$136 million, or a debt-to-GDP ratio of only 21%, among the lowest in Af;ica. Debt service was US$7.8 million in 1985, implying a debt-service ratio of just 14%. The Chadian Government earmarks revenues for a Debt Amortization Fund (CAA), about one-third of which have come from Cotontchad's cotton production and exports. Despite the loss of an esti- mated CFAF 600 million (US$1.7 million) in earmarked cotton revenues, CAA's total resources are expected to rise from CFAF 1.3 billion in 1985 to over CFAF 1.8 billion (US$5 million) in 1986, thanks to new tax measures and increased rates on other goods (e.g., beer, cigarettes). This level of resources, however, will permit Chad to pay only two-thirds of its estimated 1986 debt service of US$7.5 million. The Government intends, therefore, to seek Paris Club negotiations to reduce its 1986 debt service obligations to the level of CAA's available resources. In addition, the Government and its creditors must develop a plan to begin settling arrears estimated in late 1985 at US$61 million (US$44 million in principal, US$17 million in inter- est), a portion of which can be addressed at the Paris Club negotiations. Government Objectives 21. With the restoration of relative political stability and the alleviation of last year's drought situation, Chad is ready to begin the transition from ad hoc emergency operations to longer-term development planning. Last year, the Government prepared, with UNDP assistance, an Interim Plan for 1986-88, which was presented to the donors at a UNDP- sponsored Round Table Conference held tn December 1985. In that document, the Government identified the following broad objectives: achieving food self-sufficiency on a national and region-by-region basis; resettling the population displaced by the drought; reconstituting the livestock herd; improving rural water supply and combatting desertification; rehabilitating the transport system; rebuilding the industry sector and exploiting the country's -petroleum resources; intensifying and diversifying export produc- tion; rehabilitating the commercial and financial structures; and providing basic health care. In pursuing these objectives, the Government aims to follow two basic principles: (i) engaging in limited public sector  - 7 - intervention, and (ii) encouraging private, mostly small-scale and tradi- tionally-rooted initiat*ives. 22. The Interim Plan included a list of nearly 200 project proposals which require further study. The Government's goal this year is to work with the donors to define appropriate sector strategies and to transform this list of projects into a realistic public investment program - one which takes into account Chad's financial constraints (which are heightened by the cotton crisis) and limited administrative capacity. Chad has not produced an investment budget since 1975; it will use this 1986 exercise as a learning process, leading to more systematic investment programming in subsequent years. At the Round Table Conference, the donor community pledged to help build the Government's capacity for development planning and investment programming. In particular, the donors and the Government requested IDA to insure donor coordination in the transport sector. PART II. BANK GROUP OPERATIONS IN CHAD Evolution of External Assistance and IDA Operations 23. Before the civil war, Chad received a significant, although not exceptional, amount of external assistance. From 1971 to 1975, aid dis- bursements averaged US$57 million per annum, with the yearly total rising from about US$11 per capita to over US$20 per capita over the five-year period. An estimated 30% of this consisted of technical assistance and approximately 80% was grant aid. Although the absolute annual amount of grant aid more than doubled in this period, the share of grants feli from 86Z in 1972 to 77% in 1975 as a result of increased borrowing. Neverthe- less, Chad's external indebtedness has remained fairly low and on favorable terms. Annex II contains a summwry statement of Bank Group operations in Chad as of March 31, 1986. 24. Since 1968, Chad has received 16 IDA credits totaling US$79 million. Ten of these (amounting to US$30 million) have been fully dis- bursed; four (amounting to another US$30 million) are still disbursing; and two, totaling US$19 million, were cancelled due to the disruption caused by the civil war. Of the 14 disbursed or disbursing credits, six were for agricultural or rural development, five for education, two for highways, and one for livestock development. All Bank Group operations in Chad were officially suspended in July 1979 because of accumulated arrears on IDA credits. Escalating hostilities had already halted project activities and led to considLrable damage to project assets. Most official donors and non-governmental organizations (NGOs) withdrew from Chad during the war, although many returned in 1982 and 1983, soon after President Hissein Habr6 gained control of N'Djamena.  25. The donor community has since been quite active, contributing an average of US$117 million per annum in the 1983-85 period, 2/ 90Z of which was grant aid. More than half of the total (US$61 million per annum) took the form of emergency assistance, including large amounts of food aid; US$11 million per annum consisted of budget support (mostly from France and the U.S.), and US$45 million per annum was project-related development assist- ance, comprising the entirety of Chad's development budget. Key areas of intervention have been: reestablishment of the administration (France); technical assistance to ministries (France, UN); road rehabilitation (France, EDF, U.S., Italy); non-cotton agricultural development (U.S., EDF, France, UN, Switzerland); cotton production (France, EDF); livestock devel- opment (France, EDF); health planning and care (U.S., France, EDF, UN); and drought relief (U.S., UN). NGOs have also been very active in Chad's relief and development efforts through small, independent projects. In addition, official donors have channeled funds through NGOs during periods when, or in areas where, Chad's own administrative capacity was particularly weak. The proliferation of donor and NGO activities following the war has accentuated the need for improved aid coordination - a problem which was raised at the Donors' Round Table Conference late last year. Relations with the IMF 26. In September 1985, Chad purchased SDR 7.0 million under the compensatory financing facility in respect of a merchandise export short- fall. This shortfall was related predominantly to the effects of dis- cussions with the Fund on a possible adjustment program that could be supported by the Fund. In February i986, a Fund mission conducted Article IV consultation discussions with Chad and continued discussions on a possi- ble Fund supported program. At this time, the dialogue on an adjustment program is still actively continuing. An appropriate program could be supported with the resources of the Structural Adjustment Facility. Under this Facility, Chad would be able to make drawings of 20%, 13%, and 13.5% of its quota over the next three years (Chad's quota in the Fund is SDR 30.6 million). During the last two years, Chad has also received several techni- cal assistance missions from the Fund. These include a resident general fiscal advisor, who has been in place since June 1985, for a two-year period, and a resident advisor in the area of domestic and external debt for one year from August 1985. Bank Group Strategy and Future Operations 27. Bank efforts to resume IDA activities in 1982 and 1983 were foiled by renewed hostilities, although periodic supervision missions were undertaken. In 1983, the suspended projects were redesigned to fund priority activities in agriculture, education and institution building. Disbursements on these redesigned projects did not resume until September 1984, when Chad made its first payment on a plan to sectle US$1.9 million in IDA arrears. By May 1985, the arrears situation was settled, paving the 2/ Using the 1984 average exchange rate of 437 CFAF/US$.  - 9 - way for new IDA lending. An identification mission in October 1985 began to outline the Bank's strategy in Chad and also alerted the Government and the international community to the impending financial crisis in the cotton sector. 28. The Bank's current strategy supports the objectives of Chad's Interim Plan (para. 21), and focuses on helping to coordinate activities within the Government's priority program related to: (i) achieving regional and national food self-sufficiency; (ii) overcoming the cotton crisis; (iii) rehabilitating and improving essential infrastructure, especially recon- struction and maintenance of the road network; (iv) diversifying economic production, especially by increabing offtake in the livestock sector and exploiting oil resources; and (v) strengthening administrative, development management, and policy analysis capabilities through institution building. These goals will be pursued through policy dialogue, lending, and economic and sector work in the transport, agriculture, petroleum, and education sectors, as well as through intervention in the critical cotton subsector. In addition, the Bank has agreed to take the lead in coordinating donor assistance for transport, petroleum and cotton. Appraisal missions in February and March 1986 prepared projects in agricultural rehabilitation, cotton, and the one presented here, while petroleum and education activities are in the process of identifi_ation. The operations proposed for these sectors are intended to fit into "sectoral action programs" which have been defined to take into account Chad's priority needs as well as constraints. These action programs are briefly described below. 29. The Road Transport Sector Action Program. As part of a five-year comprehensive transport program, the Bank will coordinate donor efforts to rehabilitate existing roads and eliminate key bottlenecks in the road network; lay the foundation for routine and periodic road maintenance, to be financed increasingly from domestic resources; help finance maintenance operations over an extended period; assist in establishing an efficient, competitive transport industry; and strengthen the Government's institu- tional capacity for planning, maintenance, and supervision in the transport sector. The proposed emergency Highway Maintenance Project, scheduled to begin in FY87, will complement and coordinate efforts undertaken by other donors and will include: (i) investment and recurrent cost financing for routine maintenance, gradually increasing to cover 2,000 km of roads over a two-year period; (ii) rehabilitation of one critical road link and replace- ment of a key bridge; (iii) provision of ferries and reconstruction of access roads; (iv) technical assistance and training to support transport institutions; and (v) resources for follow-up studies on road rehabili- tation, cost recovery, and the transport industry. A follow-on project is planned for FY89. 30. The Agricultural Sector Action Program. An agricultural rehabil- itation project is planned for FY87 primarily as a technical development project consisting of: (i) a large technical assistance component to help define development policies and implementation strategies in areas such as research and seed production, extension and training, and rural engineering and agricultural planning; (ii) pilot schemes for smallholder crop produc- tion using supplementary irrigation (i.e., natural wadis and appropriate riverside sites with pumped water); (iii) initiation of a national scheme  - 10 - for organizing locally-autonomous maintenance of rural water points; and (iv) important subsector studies of crop diversification potential, rice production strategies, irrigation potential and national licencing author- ity, livestock processing and marketing, soil conservation and afforesta- tion, and rural credit needs. 31. The Petroleum Development Action Program. The Bank is having a 1983 study of petroleum potential in Chad revised and updated to analyze the costs and benefits of alternative options for petroleum development and identify a project suitable for Bank Group financing. The report became available in May 1986, and possible project components are now being specified. Any eventual petroleum project will require a large amount of cofinancing, the active participation of the private sector, and technical assistance to strengthen the Government's management of the sector. 32. The Education/Training Sector Action Program. The program for this sector has three components: (i) to mount (possibly under UNDP financ- ing) a training program aimed at increasing efficiency in the Ministry of Education and possibly in the Human Resources Division of the Ministry of Planning; (ii) to provide operational training in the sectors identified as top priority for the reconstruction of the country; and (iii) to prepare, on the basis of sector work to be conducted in FY87, a project aimed at restor- ing the basic education system and developing flexible training approaches in order to respond speedily to emerging employment needs, especially in the productive sectors. 33. The Cotton Subsector Action Program. The problems confronting the sector are currently being examined through two complementary studies, one supported by the French Government (CCCE/CFDT) and one executed by the Bank with UNDP financing. The former aims at identifying a set of immediate measures to be undertaken while the latter will identify the longer term needs. These two studies will determine how and when the sector can achieve financial viability and under what conditions. They will also define a detailed set of measures to reduce costs and improve efficiency, along with a precise schedule for implementation and a projection of the results. The Bank executed study includes: (i) a financial and technical audit of Cotontchad, and (ii) a review of all phases of the cotton industry (agricul- tural production, transport, storage, ginning, price and incentive policies. and ongoing and planned investment). The Bank will also reassess the overall macroeconomic framework in which Cotontchad operates, and will work to secure financing to meet short- and medium-term needs in the sector and reestablish Cotontchad on a viable long-term basis. An emergency cotton sector rehabilitation program has been prepared, to be supported by an IDA credit.  - 11 - PART III. THE TRANSPORT SECTOR General 34. Chad's survival and future development as a landlocked country almost 2,000 km from the sea, with vast distances between the main urban centers, depends on adequate transportation capacity and reduced transport costs. Most of Chad's domestic and international transport is provided by road, although air services are important for some isolated regions. River and lake transport are highly uncertain under Chad's climatic conditions and do not play a significant role at the present time. There is no railroad in Chad. To encourage national economic integration, Chad must develop the most efficient road transportation possible, focusing on road rehabilitation and maintenance, and the promotion of a competitive road transport industry. Given the additional need to establish internal transportation links which will enhance political integration and stability and facilitate commodity distribution, the transport sector is a top priority in Chad's post-war reconstruction effort. 35. Chad is heavily dependent on external trade routes through Cameroon, Central African Republic, the Congo and Nigeria. The opening of the Trans-Cameroon route in 1973 by extension of the Cameroon Railroad to N'Gaoundere and the paving of the highway from N'Gaoundere northwards to Kousseri on the frontier with Cameroon has profoundly changed the distri- bution and cost of imported goods traffic. However, Chad has not yet enjoyed the full benefits of these developments, nor the even greater benefit to be obtained by full use of the Nigerian route. The development of the internal transport system has been handicapped by difficult soil, climatic and hydrological conditions combined with a lack of suitable road building materials. These have contributed to high construction and mainte- nance costs for roads which are difficult to justify in the light of the limited resource potential of the country and the limited traffic demands. 36. While construction and maintenance of Chad's road network has always been severely hampered by internal distances, difficult conditions, and insufficient resources, road construction and maintenance ceased alto- gether with the advent of civil war in 1978, and most of the maintenance fleet disappeared or fell into disrepair in subsequent years. Despite rehabilitation efforts by several donors since 1983, the road network is still in a very poor state, with average speeds of 20-30 km per hour or less. Vehicle operating costs have doubled in real terms since 1980. 37. The transport industry lost over half its fleet during the war. Since the war ended, however, local transporters have proven resilient, with the number of trucks and level of activity increasing significantly since 1983. The fleet, however, is old and inefficient, and there is an almost complete lack of garages, spare parts, and formal credit to purchase new vehicles. Operating costs are extremely high due to poor road conditions and low capacity utilization, arising primarily from the imbalance between import and export traffic. 38. The decline of Chad's road network, transport industry, and transport administration became critical when the 1984-85 drought created  - 12 - the need for a massive food distribution effort. The subsequent mobi- lization of domestic and international resources succeeded in averting widespread famine, and has improved prospects in the transport sector as well. A number of donors (e.g. EDF, FAC, USAID, UNDP) have completed or committed themselves to rehabilitation of some of the principal roads and, starting in early 1988, to an important contribution to maintenance. The U.N.-coordinated relief operation brought in a fleet of over 300 vehicles, managed a well-equipped garage, provided some training for mechanics and maintenance teams, and organized private transporters to assist in the effort to move 150,000 tons of food aid in the short but critical period of April-September 1985. Now, as the emergency situation subsides, the UNDP fleet should in principle be turned over to the Government. However, this should only happen following the development of a plan for its efficient use and maintenance, probably including the privatization of at least part of the fleet. Assistance will be needed to evaluate present proposals and to prepare and implement an action program that will limit government respon- sibility for providing transport services and move towards more efficient organization of the sector. External Links 39. Since 1974, traffic has been concentrated more and more on the Ca-meroon route, which now carries about 95% of total external traffic, other than petroleum. The external route through Central African Republic and the Congo is mainly used today to keep open this strategic option. Use of the Nigerian routes, which should provide many material and commercial advan- tages, has been handicapped by lack of transit agreements with the Nigerian Government, and by Nigerian Government actions in closing its frontiers. On both the Cameroon and Nigerian routes, there exists the possibility of using modern ports with adequate capacity, rail transport over much of the dis- tance, and paved roads up to Kousseri near the Cameroon border, about 7 km from N'Djamena. 40. For external traffic serving the south, including most cotton- related trade, there exists a direct and considerably shorter route from Douala to Sarh and Moundou via Lere on the Cameroon frontier. At Lere a slow-operating ferry presently replaces a bridge destroyed by erosion. There is a reasonably good road between Lere and N'Gaoundere. Reconstruc- tion of the bridge at Lere would greatly speed up traffic on this route. Road Network 41. Road transport is the predominant mode in Chad's transport system, accounting for over 95% of total freight traffic. The road network consists of over 7,300 km of roads, including about 4,600 km of national roads and 2,700 km of prefectural roads, and some 24,000 km of unclassified tracks. Of the 4,600 km of national roads, approximately 2,300 km comprise the principal axes, mainly in the cotton growing areas and more populated areas of the southwestern savanna region; of these, some 1,000 km are all-weather engineered roads and 253 km were originally paved. Most of this network has fallen into disrepair, and is still in urgent need of rehabilitation.  - 13 - 42. The major part of the viable network, represented by the roads linking N'Djamena and the southern agricultural regions, is located in the southwest savanna region, covering about 1OZ of the country, falling largely in the triangle of N'Djamena-Lere-Sarh. The links between N'Djamena and the south are cut during the rainy season (June-October) by flooding. The sparsely populated north and the Sahel region, containing about one-half the population of the country, but with a density of less than 5 persons per kW2, is covered mainly by desert tracks and earth roads. To develop the agricultural and livestock potential of isolated areas in the Sahel region, the Government attaches considerable importance to bringing some 2,800 km of tracks, comprising the principal axes in that region, up to the level prevailing in the savanna network. 43. Traffic on the main road network depends on a number of ferries, the most important of these being: N'Djamena, Bongor, Lai, Bousso, Hellibongo, Onoko, Noissala, Ere, Baibokoum, Panzangue, and Niou. The first five of these ferries have been or are being replaced with finance provided by UNDP and BDEAC. The other six remain in a rundown condition, inoperable or continually breaking down or obsolete. The feasibility of providing replacements with spare parts and suitable access roads was studied as part of the preparation of this project. This project would provide for replace- ment of one ferry and rehabilitation of a second ferry which are related to the ongoing road rehabilitation program and are economically justified at the present level of traffic. 44. N'Djamena is the focal point for the network of roads serving the north and south and is an important distribution center for petroleum imports, growing traffic in consumer goods, and the redistribution of domestic food surpluses. At present external traffic (including flows destined for southern Chad), comprising 30-40 ton trucks and fuel tankers, arrives at the outskirts of N'Djamena and passes along the single main road through the center of the town. A former paved road built on a dike, bypassing much of the town, exists between the Logone bridge in the south and the Abeche road and industrial areas to the north of the town. This road has been seriously damaged by lack of maintenance and is now largely unusable. Reconstruction of this road would be included in the present project. Another important bottleneck in the transport network is the river crossing at Lere, on the important external supply route from Douala to southern Chad. A 90 meter bridge, constructed in 1955, has been destroyed by erosion. Presently traffic across the river is being assured by two ferries for food aid and general traffic respectively. Replacement of this bridge is included in the present project. The principal remaining gap in the economically important triangle N'Djamena-Lere-Sarh is the Guelengdeng-Bongor-Doba road, which is presently impassable. This route needs to be rehabilitated, possibly on a new alignment, to provide an all weather link between N'Djamena and Moundou, the industrial center of the south. A feasibility study and detailed design of the selected alignment for this link would be done under this project, and construction would be considered for financing under the follow-on project.  - 14 - Road Planning and Investments 45. Since 1983, EDF has completed the rehabilitation of the Sarh- Moundou-Lere road (623 km), at a cost of some US$7 million, and has provided technical assistance for construction supervision. EDF has also agreed to finance the rehabilitation of the N'Djamena-Guelengdeng-Sarh road (535 km) at an estimated cost of US$8.8 million; work started in 1985. In addition, EDF plans to finance spot improvements on the Ngoura-Mongo-Am Timan road for about US$2.5 million. France has committed itself to the rehabilitation of the N'Djamena-Abeche axis (756 km); work commenced in April 1983, and is continuing at an estimated annual cost of US$1.8 million. Italy plans to finance construction of a road around Lake Chad from Massaguet to the Niger border, and associated secondary roads, for about US$11 million. A USAID grant of US$27.5 million was approved in June 1985, for strengthening road maintenance in the N'Djamena region and for rehabilitation of a 63 km road from Djermaya to Dandi, to the north of N'Djamena (US$5.5 million). This project is designed to give the Office National des Routes (OFNAR) the capability of maintaining 1,600 km of road per year by 1990. but is limited in its geographical application to the immediate area of N'Djamena. 46. The Government has recently completed its first post-war planning cycle (1982-85) and envisages an expanded investment program for the next plan period (1986-88). In transportation, this program would include the ongoing projects listed above and the rehabilitation and maintenance activ- ities planned under the present project. Total committed financing for road investments over the three-year period, including this project, is estimated at US$77.2 million. Combined with a proposed air sector investment program of US$24.3 million and about US$2 million for rehabilitation of the Nationa'l School of Public Works, the total transport sector investment program appears likely to exceed US$100 million over the three-year (1986-88) period. 47. The sector expenditure program and financing plan will need to be revised in 1988 to take account of the progress reached and the priority to be attached to further road rehabilitation, maintenance, equipment purchase. and training respectively at that time. The Government has asked the World Bank to take the lead in donor coordination for the sector. It is proposed to establish a project management team to assist with donor coordination and to provide technical assistance for road management in the Ministry of Public Works. Institutional Capacity 48. The Department of Land Transport of the newly created Ministry of Transport and Civil Aviation is responsible for overall transport sector planning and policy formulation in consultation with the Ministry of Plan- ning. The Department presently has very limited staff and resources with which to carry out its functions. Technical assistance is needed to rees- tablish basic information systems and to enable this Department to play a more active role in the sector planning and project evaluation process. 49. The Ministry of Public Works provides the official oversight of OFNAR and remains responsible for the planning and programming of road  - 15 - works. This Ministry has a Division of Studies and Hydraulics which in- cludes a subdivision for Road Studies and Highway Design. This subdivision should be strengthened to develop a capacity for road planning, design and the development, supervision and evaluation of pre-investment studies for highways, the technical preparation of road plans, and the monitoring of work execution, subject to guidelines and priorities determined in the Ministry of Plan and the Ministry of Transport. The Ministry of Public Works is also responsible for the field organization of traffic counts and analysis of traffic flows. Technical assistance will be required to enable the Ministry to carry out this responsibility. Facilities for soil and materials testing at the Ecole Nationale des Travaux Public (ENTP)'s labo- ratory in N'Djamena need to be rehabilitated and assisted to provide appro- priate services to the Ministry of Public Works and OFNAR. Repair, operat- ing costs and technical assistance are being provided by several donors, including a proposed contribution from IDA for technical assistance. The Office National des Routes and Road Maintenance 50. The Office National des Routes (OFNAR) was created in 1984 with responsibility for the construction, rehabilitation and maintenance of the national road network of 7,600 km. OFNAR has taken over the divisions of the Department of Public Works (DPW) formerly responsible for highway develop- ment and maintenance. It has central services at headquarters in N'Djamena and four regional subdivisions at N'Djamena, Moundou, Sarh, and Abache. A subdivision was legally established at Mongo in 1979 but never materialized in the field. As a result of the war, serious gaps exist in regard to offices, road maintenance equipment, workshops and workshop equipment, spare parts, and training facilities, particularly in the regions. Road mainte- nance is to be carried out by the five subdivisions which will also be responsible for minor equipment maintenance in the small subdivision work- shops, while heavy repairs will be executed in central workshops in N'Djamena and Sarh. OFNAR's organizational structure needs to be modernized to separate the functions of financial control, execution and inspection, and measures are needed to improve management efficiency and accountability. These problems would be studied under the proposed project. 51. The central management of OFNAR is receiving assistance under the USAID Highway Maintenance Project approved in June 1985. The technical assistance personnel are already in place and the training program/produc- tion brigade which is a central feature of the USAID project will eventually provide for basic and on-the-job training of all of OFNAR's managerial and technical staff and equipment operators. However, the annual output of this unit is limited by the one-year length of the course and by its operation in the geographical vicinity of N'Djamena, and it will take many years to provide fully trained staff for all subdivisions. The proposed IDA project would complement the USAID contribution by providing for the rehabilitation of offices, equipment, and workshops in the subdivisions which would be fully mobilized during the period of the proposed project, as well as technical assistance for on-the-job training and operation in three of the four regional subdivisions outside of N'Djamena. It is expected that technical assistance to the N'Djamena subdivision will be provided by FAC.  - 16 - 52. The Government has agreed on 3,800 km of high priority roads to be covered by the proposed road maintenance program. For most of these roads agreements have been reached with external donors on provision for rehabilitation, which is a prior condition for their inclusion in the maintenance program. Some donors have also agreed to provide external finance for routine maintenance, but this will not become available to assist in financing the priority program until after January 1, 1988. The USAID project's emphasis on formal and on-the-job training means that it will not make any contribution to routine maintenance outside the work performed by the training brigades, which will not become operational until early 1988. EDF plans to provide two operational brigades and operational expenses for three years to maintain the roads it is currently rehabili- tating, but again no effective contribution can be expected before January 1, 1988. The proposed IDA project would provide for financing the regional capacity for maintenance of up to 2,000 km per year through 1988, when other sources of finance may become available to assist in expanding the program to cover the 3,800 km of priority roads. Staffing and Training 53. The ongoing USAID Project for Strengthening Highway Maintenance is designed to provide trained personnel for Chad's road maintenance and improvement works. Five expatriates will direct the recommissioning, equipping and operation of the OFNAR equipment maintenance units and will conduct on-the-job training for their Chadian counterparts and progressively for all other workshop personnel. Two expatriates will create, equip and operate a Road Maintenance Training Brigade with a 12-month training cycle for on-the-job training of 25 personnel at a time. The technical assistance program proposed under this project would complement the USAID program by giving practical experience to staff not immediately scheduled for training by USAID, and by insuring that road maintenance is carried out during the interim period. Use of force account brigades would be complemented as needed by use of contractors during the period of building up a minimum capacity. 54. The full manpower needs of OFNAR for its high priority program have still to be established. The Government would submit to the Asso- ciation within six months of credit effectiveness a detailed assessment of current personnel and personnel needs, and within six months thereafter an assessment of training requirements, in consultation with the USAID project team and the Association. Traffic 55. Starting from the latest available traffic counts, dating back to 1970 and 1977, current traffic levels have been estimated using an analysis of administrative and police records in 1985 supplemented by a short period count in February 1986 over a limited area. On this basis, traffic levels have been estimated for each of three groups of roads: (i) paved or former- ly paved main roads, (ii) unpaved main roads, and (iii) secondary roads and tracks. Traffic levels in 1986 are estimated to be lower than the levels recorded in 1970 and 1977 for each of the three groups, which were about 100 vpd, 30-60 vpd, and less than 10 vpd respectively. The volume of goods  - 17 - carried appears to be somewhat higher in 1985 than the average for 1970-77, due to the unusual volume of food aid and high cotton output. If a lower assumption is made for traffic in 1986, reflecting improved self-sufficiency in food production and a more normal output for cotton, then the present volume of freight traffic is estimated to be less than the average in the pre-war years. However, it is reasonable to expect that traffic will grow by at least 2-3% per year from 1986 onward, in line with population growth and assuming a normal output of cash and food crops. A growth rate of 6Z per year is assumed from 1990 on. Road User Charges and Cost Recovery 56. During the period 1971-1975, the last period for which it has been possible to find meaningful statistics, revenues from road user charges averaged about CFAF 1.1 billion per year and were commensurate with the Government's financial outlays in the road transport sector. Following several years of inaction due to war and its aftermath, the Government in 1984 established OFNAR and endowed it with road related revenues, including its principal source of revenue, a tax on petroleum of CFAF 26.5 per liter. OFNAR revenue is significantly less than might be expected due in part to exemptions granted to several state companies, international food aid operations, donor aid operations and embassy activities, in part to a low rate of tax in relation to other sub-Saharan countries, and in part to the ready availability of fuel through unofficial channels. 57. In 1985, instead of the CFAF 1 billion expected by Government, OFNAR revenues from petroleum taxes amounted to about CFAF 500 million, and total OFNAR revenues to about CFAF 577 million. It is expected that about the same amount will be received in 1986. Of this amount, CFAF 190 million in 1986, CFAF 228 million in 1987, and CFAF 334 million in 1988 are commit- ted as counterpart financing for the USAID project. OFNAR will also con- tribute about CFAF 235 million per year to the IDA-financed project. In addition, there is a possibility that OFNAR may have to finance operating costs for the FAC brigade maintaining the N'Djamena-Abeche road. The annual operating costs for routine maintenance of the 2,000 km priority network to be maintained by 1988 are estimated at around CFAF 700 million in 1985 prices. 58. By 1990 the annual cost of routine and periodic maintenance and equipment replacement will amount to about CFAF 3 billion in 1985 prices for the priority network of some 3.800 km (para. 52). Even if external donors continue to finance the main burden of periodic maintenance and equipment replacement, OFNAR should be expected to assume full responsibility for routine maintenance and to make some contribution towards the cost of periodic maintenance and equipment renewal before 1991. This calls for a substantial increase in OFNAR's revenue. 59. The recent dramatic decline in world market prices for petroleum means that the Government should be in a position to capture a larger share of the retail price. The Government has already taken some steps in this direction but is presently assigning the increased revenues to a price stabilization fund rather than to road maintenance. However, the existence of an unofficial market (estimated to account for 75% of total fuel  - 18 - consumption) and inadequacies in the system of tax administration in regard to fuel taxes may handicap the Government's ability to benefit from the recent decline in the absence of suitable measures to improve the system. It will also be necessary to re-establish basic data on the size of the vehicle fleet, total fuel consumption, the true incidence of road user taxation, and the rates of tax needed to provide for future expenditure needs. The issue is complicated by the possibility that Chad may develop domestic petroleum resources and by the need for revenues to support the general economy as well as the road sector. Under this project, the Govern- ment would raise OFNAR revenues to CFAF 800 million for 1987, and would consult with IDA on measures to increase revenues further in the following years. Progressively improving enforcement of existing legislation should be sufficient to raise OFNAR revenues from. the earmarked petroleum tax alone to CFAF 1 billion by 1990. A study would be conducted to determine what further measures would be appropriate, and the issue would also be addressed during the preparation and execution of the follow-on sector project. Road Transport Industry 60. There is no scheduled intercity passenger road transport in Chad nor statistics on passengers transported. In general, intercity passengers travel atop freight transport vehicles under hazardous conditions but at very low costs; mixed passenger-freight vehicles (taxis-brousse) also operate over short distances in the more densely populated partb of the country. There are four main groups of transport operations: the Coopera- t1-,e des Transporteurs Tchadiens (CTT), the Compagnie Cotonniare du Tchad (Cotontchad), the UNDP managed transport fleet of the Emergency Food Program (para. 38), and a small number of enterprises which provide for their own limited needs. The last group is not significant. 61. The Cooperative des Transporteurs Tchadiens (CTT), an association of private truck owners, has a de jure monopoly of all internal and external public transport activity in Chad, except for the domestic transport op- erations of Cotontchad and a small number of other enterprises. Small shipments on the domestic market are de facto not controlled by CTT. Following the war, the activities of CTT have improved with the number of active members of CTT rising from 247 in 1982-83 to 382 in July 1985, and the number of vehicles from 210 (with a capacity of 6,200 tons) at the end of May 1982, to 581 trucks (with a capacity of 16,700 tons) and 108 tankers (with a capacity of 3,427 m3) at the end of July 1985. Tonnage transported has increased in the same proportions, with an estimated 150,000 tons of dry cargo moving in 1985. Because of the aging, rundown truck fleet, and the difficult, almost impassable road conditions in the interior, most of CTT's operating capacity has been concentrated on external transport over the paved roads of the Cameroon route from N'Gaoundtre to N'Djamena in 1984 and 1985. The present system does not provide efficient or equitable transport services to meet the needs of Chad's population. Under this project, action would be taken to analyze the CTT monopoly and to restructure the regulatory system, with special attention to systems of pricing and freight allocation. 62. Cotontchad is a majority-government-owned company providing exclusive services to cotton farmers in the southwest, carrying most import- ed inputs, and arranging for the collection of raw cotton, delivery to the  - 19 - ginneries and cottonseed processing plants, and then shipment to the export and domestic markets. It is a relatively efficient, self-contained opera- tion with its own workshops in Moundou, Sarh and Pala, and a spare parts inventory. Cotontchad presently operates 130 15-ton trucks, 30 25-ton tractor-trailers, and 60 25-ton trucks. Under the proposed restructuring program for the cotton sector, Cotontchad will soon divest itself of at least part of its fleet. 63. The lack of organization and transport capacity of the Government after the yar, and of CTT with its limited and 3bsolescent truck fleet, prompted the U.N. Emergency Program to undertake increased responsibility for the management, transport and distributior. of emergency food aid. By the end of December 1985, the truck fleet of UNDP/OPE and FAO/Italy avail- able for the emergency food aid program included approximately 191 trucks of 15 to 35-ton capacity, and 150 trucks of 8 to 12-ton capacity, all new and well maintained, with a supporting network of workshops and stores, and an organization to provide spare parts and replacements, with recourse to air freight where needed. These trucks are provided by various independent organizations (UNDP/OPE, FAO/OSRO, CARE TCHAD, WFP), but services are co-ordinated by UNDP. This fleet of trucks, supplemented by vehicles made available by CTT, Cotontchad, CARE, etc., worked in conjunction with Cameroon Railways to supply an average of over 20,000 tons of food aid per month between April and August 1985. Cameroon Railways provided two block trains of 30 wagons delivering 600 tons from Douala to N'Gaoundere every other day. The effective carrying capacity of these groups is now estimated at 30,000 tons per month between N'Gaound6r6 and N'Djamena, including distribution in Chad. 64. A number of factors have impeded the efficient development of the trucking industry. The lack of coordination among shippers, carriers, and transport intermediaries and an imbalance between exports and imports has resulted in low truck fleet utilization (around 50Z load factors) and high unit costs. The regulated road transport tariffs, established in 1974 and revised only in 1984, do not correctly reflect road operating costs on individual routes. Liberal import policies and generous, provision of transport for emergency food aid have resulted in excessive vehicle imports in recent years, while insufficient attention is paid to the maintenance of the truck fleet and its distribution. 65. A wide range of issues remain to be resolved relating to the disposition of the U.N. transport fleet and the Cotontchad fleet, the role of CTT, government regulation of the industry, and the provision of credit and technical assistance. In addition, the role of the Government in monitoring the system of freight allocation, in tariff determination and in international negotiations, and in traffic and vehicle legislation and enforcement raises serious issues which have been recognized for many years, but are not yet resolved. A study to be conducted under the proposed project (para. 84) would systematically examine these issues, specifically including pricing and freight allocation, and technical assistance would be provided to start implementing agreed measures to resolve them. These issues would also be addressed under the follow-on project.  - 20 - Domestic Contracting Industry 66. The domestic contracting industry is at an early state of devel- opment. A small number of contractors deal mainly irith building construction, although an additional number of small contractors carry out building repairs and other minor works. During the proposetd project, efforts would be made to determine the willingness and capacity of small contractors to do road maintenance works with labor-intensive methods and to evaluate the need for possible training and technical and financial assis- tance to enable small contractors to participate in road rehabilitation and maintenance works under the follow-on project. Experience with Past Lending 67. Bank Group assistance to Chad's transport sector thus far has been confined to three highway projects and transport components in two other credits: (a) the Rural Fund Project (Credit 664-CD, US$12 million, December 1976) included maintenance operations on selected feeder roads sections, and (b) the Sahelian Zone Project (Credit 730-CD, US$1.9 million, October 1977) included rehabilitation of six airstrips. The First Highway Project (Credit 125-CD, US$4.1 million, August 1968) was geared to improving road maintenance but was only partially successful due to severe budgetary constraints. The Second Highway Project (Credit 490-CD, US$3.5 million, June 1974) included: (a) a five-year program of improvement and maintenance of cotton feeder roads; (b) a three-year interim maintenance program for ferries; (c) a training program; (d) a program of traffic counts; and (e) pre-investment and road transport industry studies. The project was not fully implemented due to the severe economic and political difficulties with which the country was confronted in the late 1970s. Taking into account the initial delays in starting the project, the Government's general performance under the project was regarded as satisfactory at least until the end of 1978, i.e. until the beginning of the civil war. 68. The Third Highway Project (Credit 840-CD, US$7.6 million, Septem- ber 1978) was initially estimated at US$52 million but was reduced to US$21.9 million by the elimination of a road construction component and a reduction in operating costs of the road maintenance program. The project's main components were: support of a four-year maintenance program covering approximately 5,300 km of unpaved roads and tracks; regravelling of about 400 km of main roads by a production brigade, which was to serve as a vehicle for on-the-job training; a training program for staff of the Directorate of Public Works; construction by force account of four ferry boats; technical assistance and fellowships to strengthen: (a) the Direc- torate of Public Works, (b) transport planning in the Directorate of Trans- part, and (c) operations of the trucking industry; a study to prepare a rural roads project; and completion of the improvement program for cotton feeder roads, started under the Second Highway Project. Because of the political situation the project, appraised in April 1977, and signed in September 1978, never became effective. Credit 840-CD lapsed in October 1980 when the limit date for effectiveness was not further extended.  - 21 - PART IV. THE PROJECT Background 69. This project is designed to implement an emergency program for highway maintenance, following rehabilitation of roads in the priority network. It has been designed to complement the efforts of other donors in the sector and to lay the foundation for effective donor co-ordination. It covers the first two years of a five year program intended to establish an ongoing maintenance capacity covering the priority road network, and should be followed up by a second project in FY89. In addition to high priority civil works to fill gaps in the network, and the two year maintenance program, the project would support studies and technical assistance for restructuring OFNAR and strengthening and training staff in OFNAR and other agencies associated with policy formulation and the development, management and operation of transport infrastructure, in particular the Ministries of Public Works and of Transport. The goal of the project is to develop, at least in nucleus form by 1988, the physical and financial capacity to plan, manage and implement a continuing program of rehabilitation and maintenance of the high priority network. Negotiations were held in Washington on May 22-23, 1986. The Government delegation was led by Mr. Ahmed Kerim Togol, Secretary General of the Presidency. Since the project has been identified and appraised on an emergency basis, no Staff Appraisal Report has been prepared; however, the project file contains all Important background and vorking papers, including draft terms of reference for technical assistance and studies, and details of co-financing. A supplementary Project Data Sheet is given in Annex III. Objectives 70. The project's specific objectives are: (a) to develop the logistical (material and managerial) capacity within the Office National des Routes (OFNAR) to maintain and manage a reduced high priority road network; (b) to safeguard the road rehabilitation works already completed by foreign aid and for the maintenance of which no provision has been made; (c) to overcome the most important obstacles to the normal use of the road network, namely a damaged bridge, dilapidated ferries, and an unserviceable industrial road serving N'Djamena; and (d) to assist in organizing the transport sector as a whole and, in particular, the road transport sector. 71. To pursue the above objectives, the project would finance an emergency program covering: (a) rehabilitation and equipment of the OFNAR subdivision offices and workshops in N'Djamena, Moundou, Sarh and Mongo; rehabilitation of existing road maintenance equipment and supply of new equipment; technical assistance zo the Ministry of Public Works (MPW) and OFNAR subdivisions; studies covering ;-etroleum marketing and pricing and road user cost recovery, an organizatiLmal study of OFNAR, use of local materials and lo,cal contractors, and preparation of follow-on projects; (b)  - 22 - a routine maintenance program for the roads recently rehabilitated by foreign aid, including emergency maintenance works by contract on the 623 km Lere-Moundou-Sarh road; (c) reconstruction and maintenance of a road linking N'Djamenals industrial district with the Cameroon border and the country's primary road network; (d) reconstruction of one bridge and one ferry and rehabilitation of a second ferry serving the cotton area; and (e) technical assistance to the Ministry of Transport, including an organizational study of the trucking industry and implementation of its recommendations. Project Components 72. Rehabilitation of the Logistical Capacity of OFNAR and its Subdi- visions: The OFNAR road maintenance su'odivision offices and workshops were badly damaged during the civil war. The OFNAR 1985 and 1986 budgets made provision for the most urgently needed repairs to these facilities. The project would provide for the complete rehabilitation and re-equipment of these buildings in the subdivisions of N'Djamena, Moundou and Sarh, and for the construction and equipment of new buildings in the subdivision of Mongo. 73. Most of the existing road maintenance equipment located in the N'Djamena, Sarh and Moundou Subdivisions is still recuperable. Spare parts for repairs will be purchased partly under the USAID project. The IDA project would provide the remaining spare parts, workshop equipment and tools, two man-years of technical assistance in the subdivisions of Moundou and Sarh for rehabilitation and further maintenance of the equipment, and supply of new equipment in order to complete at least one maintenance brigade per subdivision. A description of the different types of road maintenance brigade and an estimate of their annual operating costs are included in the project file. 74. In addition to the technical as-sistance for repairs and mainte- nance of road c-juipment, the project would provide a technical- adviser for two years to each of the subdivision chiefs of Moundou and Sarh, and for one year for the subdivision chief of Mongo, and one field engineer for one year in each subdivision of Moundou and Sarh to train the operators, drivers and field mechanics on the job after reconstitution of the two maintenance brigades. Technical assistance to the Ministry of Public Works would also be provided under this project, consisting of two man-years of a Project Manager/Sector Coordinator as technical adviser to the General Director of Public Works Administration, two man-years of an Engineer Advisor to the Division Chief of the Division of Studies and Hydraulics in the Ministry of Public Works, who would be responsible for timely execution of the project, and one man-year of a geotechnical expert in order to implement a laboratory study on the use of local soils in road construction and maintenance works. 75. A study of the role and structure of OFNAR would be started immediately following project effectiveness. This is designed to identify measures to improve the technical efficiency and managerial capacity of OFNAR and to separate the functions of financial control, execution of works and inspection. The recommendations of the study would be reviewed with IDA by September 1987. The proposed project would also provide technical assistance to begin implementing the agreed recommendations, and further assistance would be provided under the follow-on sector credit. Provision  - 23 - is also made for updating and implementing several engineering and laborato- ry studies and updating other studies, including further proposals for highway rehabilitation and possible construction works. 76. The financial capacity of OFNAR is entirely dependent on the Government's capacity to transfer to OFNAR revenues from earmarked taxes on fuels and some other products related to road transport. During negotia- tions, the Government agreed to increase OFNAR revenues from CFAF 577 million in 1986 to CFAF 800 million in 1987 with appropriate further in- creases in succeeding years. Immediately following credit effectiveness a study would be undertaken to analyze fuel prices, marketing and taxation and to evaluate the prospects for increasing revenue from petroleum taxes as well as from other sources, and to formulate measures to increase OFNAR revenue in order to cover the needs for 1988 and later years. These pro- posals would be reviewed with IDA before September 1987. Technical assis- tance would be provided to assist in implementing the necessary measures, to be completed by March 1988. 77. Routine and Emergency Maintenance of the Priority Road Network: Under the EDF and FAC financed projects initiated in 1983, about 900 km of roads have been rehabilitated and other work is in progress. There has been no provision for an immediate follow-up maintenance program. This project would assist the Government in establishing a routine maintenance capacity on rehabilitated parts of the priority network. The Government has agreed that all rehabilitation and mechanical maintenance works during the project implementation period would be concentrated on the priority network of 3,800 km, and that prior rehabilitation would be a condition for including roads in the mechanized maintenance program. 78. Of the 900 km of presently rehabilitated roads, about 100 km on the Sarh-N'Djamena road are still under the contractor's responsibility and about 200 km on the N'Djamena-Abeche road are being maintained by FAC. However, rehabilitation of the 623 km Lere-Moundou-Sarh road was completed more than two years ago on several sections and emergency measures are now needed to avoid the destruction of the works completed. To take advantage of favorable conditions toward the end of the rainy season, maintenance works should start in August 1986. In light of the limited capacity of OFNAR these works, for an estimated cost of US$1.7 million, can only be carried out by a private contractor. The tender documents were prepared in early April and bids will be submitted in June 1986 following acceptable local competitive bidding prccedures. These procedures do not excl].e foreign contractors, and the process is expected to attract proposals from several firms operating in neighboring countries. Due to the pressing time constraints, international competitive bidding is not recommended in this case. In the interest of continuity, it may be proposed LO appoint the consultants in charge of the preparatory study to supervise the works. The Government has agreed that, if necessary, OFNAR, which has the required liquidity of funds, would pre-finance initial outlays on the civil works. The credit agreement provides for reimbursing retroactively the disbursement percentage of these expenditures up to US$1,000,000. 79. Meanwhile reconditioning of the maintenance equipment fleet and purchase of new equipment and technical assistance would be undertaken in  - 24 - order to organize a routine maintenance program by force account in the subdivisions of N'Djamena, Sarh, Moundou and Mongo. Detailed estimates of the annual maintenance costs for the priority network are included in the project file. The needs for new equipment have been estimated taking into account the fact that periodic maintenance works would be carried out mainly by private contractors and that OFNAR may ledse equipment to small local contractors for routine maintenance. 80. Overcoming the Main Obstacles to the Normal Use of the Road Network: The Live Aid/Band Aid Foundation, presently based in London, has agreed to finance the reconstruction of the Lere bridge and contracts have already been awarded for the civil works and their supervision. However, the access roads to this bridge remain to be financed for an estimated amount of CFAF 200 million. These roads would be financed by IDA under the project. Of the six ferries for which the Government requested financing, replacement or rehabilitation of two is economically justified at present levels of traffic. The proposed project would therefore provide for the supply of one 40 ton ferry at Onoko and spare parts for the overhaul of a second ferry at Mbissala, and construction of ferry access roads. 81. It is proposed under this project to improve the passage of heavy commercial traffic linking the industrial district of N'Djamena with the CGameroon border and the priority road network. Two possible solutions for this improvement have been considered, either by rehabilitating and strengthening the urban route presently used by a high volume of traffic, or by rehabilitating a bypass road which is now completely out of service. The bypass road would be less costly and could be completed In a shorter timeframe. The Government confirmed at negotiations the choice of the bypass alignment. Engineering design of the selected solution and imple- mentation of the works would be part of this proposed project. 82. The project would also include a detailed technical and economic study of rehabilitation works for the Guelengdeng-Bongor-Moundou Road, in preparation for the next highway project. The Government confirmed at negotiations that the Terms of Reference for these and all other studies to be carried out with project financing would be agreed with IDA and that the Government would consult with IDA on actions to be taken to implement study rewommendations. 83. Improving National Capacity to Manage and Operate the Transport Industry: To address the need for strengthening the technical capacity of the General Directorate of Transport (DGT) in the Ministry of Transport, the Project provides for both technical assistance and technical upgrading of local staff. A Transport Economist assigned as Adviser to the General Director for a two-year period and a Systems Analyst for one year to create a sector databank would constitute the permanent technical assistance staff. Provision is also made for twenty additional man-months for short-term specialists in analysis of vehicle operating costs, tariff determination, legal aspects of transport, regulations, transit operations, technical inspections of vehicles, and other specialized tasks. Several fellowships for training abroad of the medium-level local staff and computer specialists are also included in the project.  - 25 - 84. The Government has agreed to review in July 1986 with UNDP and IDA representatives the recent UNDP-financed study of the options for transfer to Chadian control of the UNDP-uanaged fleet of trucks used for the emergen- cy food aid program. These options could include: (a) sale to the private sector in Chad; (b) sale to the private sector outside of Chad; and (c) transfer of all or part of the fleet to government institutions with jus- tified needs. This review should lead to a program to turn the agreed recommendations into action. Existing studies concerning the operations of the trucking industry and civil aviation would be updated and/or reviewed by the technical assistance provided to DGT. In addition, to improve the structural organization of transport services, the proposed project would finance a study of the role, managerial structure and procedures, including freight allocation and pricing, and logistical needs of the trucking indus- try. The purpose of this study would be to liberalize sector operations in order to make them more efficient. The Government agreed at negotiations to undertake such a study within three months of credit effectiveness, to review its recommendations with IDA by March 1988, and to prepare promptly an Action Plan for implementation of the agreed recommendations. Technical assistance would be provided to assist in implementing the most urgent recommendations of this study, and full implementation of the agreed Action Plan would be an integral part of the follow-on sector project. 85. Donor Coordination: In addition to its supervisory role, IDA has been asked by the Government and the other donors to take the lead in coordinating investment planning and maintenance in the transport sector. Consequently the Project Manager/Sector Coordinator (para. 74) would ex- change information on a regular basis with all foreign missions in Chad developing programs in the transport sector. The Sector Coordinator would submit to the General Director of Public Works and to IDA an annual report containing findings and recommendations to improve the general efficiency of foreign aid in the road sector. The report would review progress over the past year, identify needs and suggest changes where necessary in project design or implementation. The Sector Coordinator would also review the annual budget and work program of OFNAR in order to ensure that all the Government's obligations resulting from donor financed projects are taken into account in forward planning. 86. The Government plans to convene a donor meeting in early 1987 to discuss progress in its road sector program of rehabilitation and mainte- nance. This meeting would be held as soon as possiDle following completion and internal Government review of the preparation report for the follow-on Road Rehabilitation and Maintenance Project. The Government would distri- bute at the same time, for discussion, a transport sector memorandum, and it is expected that a first report of the Project Manager/Sector Coordinator might also be available. Subject to experience with the first sector review, this meeting might be repeated at yearly intervals. Project Costs 87. Project costs have been estimated in end-1985 prices based on preliminary estimates made by the Consultants in charge of the preparatory study.  - 26 - Project Cost Estimates CFAF Million US$ million Foreign Local Total Foreign Local Total A. Restoring Road Maintenance Capacity Buildings 403 217 620 1.1 0.6 1.7 Equipment & Spare Parts 907 101 1,008 2.5 0.3 2.8 Technical Assistance (MPW) 866 96 962 2.4 0.3 2.7 B. Road Maintenance Operations Emergency (contract) 281 151 432 0.8 0.4 1.2 Routine (force account) 515 277 792 1.4 0.8 2.2 C. Closing Critical Gaps in the Network Lere Bridge & Access Roads 325 175 500 0.9 0.5 1.4 Ferries & Access Roads 141 60 201 0.4 0.2 0.6 N'Djamena Industrial Road 1,388 463 1,851 3.8 1.3 5.1 D. Institutional Development Technical Assistance (MTCA) 357 40 397 1.0 0.1 1.1 Studies 764 85 849 2.1 0.2 2.3 Training 49 5 54 0.2 0.0 0.3 Total Base Costs 5.996 1,670 7,666 16.6 4.7 21.3 Physical Contingencies 899 251 1,150 2.5 0.7 3.2 Price Contingencies 1,232 666 1,898 3.5 1.8 5.3 Total Project Cost 8 127 2 587 iO^714 22.6 7.2 29.8 On this basis the cotal cost of the project is estimated at US$29.8 million equivalent. Of this, approximately US$22.6 million (76%) would be foreign exchange costs. The Government would exempt from local taxes all construc- tion, purchase, consultant and technical assistance contracts exceeding US$300,000 equivalent each. A 15% allowance has been made for physical  - 27 - contingencies; price contingencies were calculated on the basis of the following schedule: Price Contingenci-s (in 2) 1986 1987 1988 i989 1990 1991 1992 Local 10 9 9 9 9 9 9 Foreign 7.2 6.8 6.8 7.0 7.1 4.0 4.0 88. Live Aid/Band Aid Foundation (LBF) has already committed itself for the financing of the Lere Bridge, a contractor has been selected, and construction is under way. Therefore, no cross-effectiveness is needed. The final cost of the bridge has been estimated at US$0.97 million equi- valent plus contingencies; LBF will thus participate in project financing 'for a total amount of US$1.3 million equivalent. The African Development Fund (AfDF) has been asked to contribute US$7.2 million to finance the construction of the road linking the N'Djamena industrial district to the Cameroon border and the main road network. While this road would contribute significantly to the reduction of transport costs, it is not directly linked to the rest of the project and a delay in implementation would have no significant effect on execution of the rest of the project. Consequently, cross-effectiveness is not required in this case either. LBF and AfDF participation would be parallel financing. AfDF credits are made on terms equivalent to IDA's, and the LBF participation is grant funding. The Government of Chad would contribute to project costs an amount of CFAF 235 million in each of two calendar years for a total of US$1.3 million equi- valent, representing 5% of the building construction and workshop equipment costs, 20% of the road maintenance equipment rehabilitation and maintenance costs, and 20% of the road maintenance operating expenditures. The remain- ing components, including road and bridge construction, equipment purchase, access roads, ferries, technical assistance and studies, would be 100% externally financed. 89. Total external financing would amount to US$28.5 equivalent, of which IDA would contribute US$20.0 million. A portion of the external financing would be used to help cover local costs. The financing plan is summarized in the table below (in US$ million equivalent):  - 28 - Local Foreign Total LBF 0.3 1.0 1.3 AfDF 2.0 5.2 7.2 Government 1.3 - 1.3 IDA 3.6 16.4 20.0 7.2 22.6 29.8 =mm At negotiations, the Government agreed to these financing arrangements. Project Implementation and Present Status 90. Given the fragility of Chadian institutions in the transport sector, this project would be implemented largely through technical assist- ance, consultants and contractors. Considerable progress has already been made on implementation of critical components such as the Lere Bridge (already under construction) and emergency maintenance of Sarh-Moundou-Lere (tender documents prepared and bids to be submitted in June). Terms of reference for technical assistance to OFNAR have been prepared, and through the proposed prefinancing arrangements, additional work could be undertaken before the credit becomes effective. The execution of routine maintenance works by force account would begin in early 1987. Tender documents for a replacement ferry would be ready by March 1987 and the ferry should be in place by mid-1988. The preliminary study of the N'Djamena industrial road conducted in preparation for this project would be complemented by a full engineering design study, which would be completed by June 1987. The actual works (covering less than 15 km) would be completed by the end of 1988. A project implementation schedule is shown in Annex IV. This schedule was discussed and agreed with the Government at negotiations. 91. The emergency actions and studies to be undertaken under this project are also intended to lay a firm foundation for a follow-on sector project, currently scheduled for FY 89. The technical assistance to OFNAR, the Ministry of Public Works, and the Ministry of Transport would assess and to the extent possible strengthen the capacity of these institutions for long-range planning and managemant of the road network. The special studies on cost recovery and organization of the transport industry would address key issues which should form part of the policy dialogue associated with the forthcoming sector credit. The road maintenance program itself has been conceived as the first part of a longer term program enabling OFNAR to assume responsibility for the entire priority road network. Successful execution of the rest of this longer term program would be the principal feature of the follow-on project. 92. Because of the present weakness of both sector institutions and sector knowledge, this project includes a high proportion of technical assistance. The project provides for 11 staff-years of technical assistance in three OFNAR subdivisions to repair equipment, supervise workshop con- struction, and build up routine road maintenance capacity; five staff-years of technical assistance to the Ministry of Public Works to develop road  - 29 - network planning and management capacity and to assure donor coordination; and the equivalent of six staff-years (part of which is in short term expertise) to the Ministry of Transport to develop a data base and to address sector policy issues. To support this, the project contains specif- ic studies to investigate and quantify major issues in the sector. An important feature of this technical assistance input is the support it would give to training of Chadian staff, both by releasing some staff for training abroad (for which fellowships are provided under the project), and by on-the-job training provided to counterparts who remain in place. Although technical assistance costs are expected to be high in Chad because of the difficulties of logistics, use of volunteers is not recommended for this project, because of the major management and training responsibilities assigned to the technical assistance staff. Volunteer technical assistance, however, may well be suitable for the follow-on project. A detailed list of planned technical assistance and studies is given in Annex V. Procurement and Disbursement 93. Procurement arrangements are summarized in the following table (amounts include contingencies). Amounts in parentheses represent IDA financing: Procurement Arrangements (US$ million) ICB LCB Other Total A. Buildings -- 2.4(2.3) -- 2.4(2.3) B. Bridge, ferries, access roads -- 0.4(0.4) 2.3(1.0) 2.7(1.4) C. Paved roads 7.2(0.0) - 7.2(0.0) D. Road maintenance 1.7(1.3) 3.1(2.5) 4.8(3.8) E. Equipment and spare parts 2.7(2.7) -- 1.2(1.0) 3.9(3.7) F. Studies, TA & -- -- 8.8(8.8) 8.8(8.8) Training 9.9(2.7m 4. 5 15 . 132 29.85O0)0 Technical assistance, consulting services, and all contracts for works and supplies financed with the proceeds of the IDA credit would be procured in accordance with Bank guidelines. Since this is an emergency project, the  - 30 - contract for initial emergency road maintenance (US$1.7 million) would be awarded through local competitive bidding (LCB) procedures acceptable to IDA and would be pre-financed by the OFNAR budget if there is any delay in credit effectiveness. Construction/rehabilitation of buildings and ferries, works which are small and scattered, will also be procured through LCB. Routine maintenance works will be carried out by force account as OFNAR's capabilities permit; should OFNAR output fall short of requirements, the balance would be made up through works by contract awarded through LCB. The IDA-financed contracts for major purchases of equipment and spares would be awarded through international competitive bidding. Minor items of spares, and fuels and lubricants for force account works, would be procured locally through shopping. The Government will submit to IDA for prior review all contract documents and awards of a value exceeding US$100,000; this would cover at least 80Z of IDA financing for the project. 94. A revolving fund of US$2,000,000 equivalent is proposed to cover project disbursements for IDA financing. The Government agreed at negotia- tions to open and maintain a special account in CFAF for this purpose. The revolving fund would be replenished upon submission of withdrawal applica- tions by the Government. The minimum withdrawal application amount would be US$100,000 equivalent. Disbursements would be made against full documenta- tion for civil works executed by contract, equipment purchase, and consul- tant services, and against statements of expenditures for force account works. The Government also agreed to establish a special account for the Government share of investment costs for the project. An initial deposit of CFAF 50 million in this account would be a condition of credit effective- ness. The special account would be replenished quarterly by Government. 95. IDA funds would be disbursed to cover 80% of eligible expenditures for equipment rehabilitation, road maintenance operating costs by force account or road maintenance works by contract; 95% of eligible expenditures for building construction, furnishings, and workshop equipment; and 100% of eligible expenditures for access roads, road maintenance equipment purchase, technical assistance, and studies. During negotiations the Government confirmed that 20% of the equipment rehabilitation and road maintenance operating costs and 5% of building costs will be financed by OFNAR. The disbursement profile shown in this report (p. iii) represents experience with highway projects in West Africa. Reporting and Auditing 96. The Ministries of Public Works and of Transport would submit for IDA review in April and October of each year reports on project expenditures and progress, annual reports by October of each year on sector expenditures and planned investments, and a final report on the implementation and experience of the project within six months after the credit closing date. The project accounts would be audited annually by auditors acceptable to IDA whose report would be submitted to IDA within six months following the end of each fiscal year. Statements of expenditures would be subject to the standard semi-annual auditing requirements and would be submitted to IDA by April and October of each year.  - 31 - Economic Evaluation 97. The dilapidated condition of the road network and the lack of physical and organizational capacity for road maintenance are serious constraints to Chad's post-war recovery and the regeneration of economic growth. Reduced road transport costs are a vital precondition for restored health in the agricultural sector. External donors funded the civil works and technical assistance needed to rehabilitate over 900 km of high priority roads which have been completed and a further 1,300 km of roads on which works are in progress. However, no maintenance has yet been undertaken on 600 of the 900 km of completed roads, which are now deteriorating, and proposals for maintenance operations financed by other donors will not become effective until 1988. The prime object of this project is to fill the gap as an emergency measure, and to complement and support the institu- tion and capacity-building activities of other donors. 98. The overall economic rate of return for the project is 21%. This rate underestimates the true value of the project, which would establish a foundation for significant additional economic improvements in subsequent years. The analysis takes into account the quantifiable benefits from vehicle operating cost savings and costs avoided in subsequent rehabilita- tion and periodic maintenance. Project costs include directly related technical assistance on the main physical components of the project, 50% of the costs of offices, buildings, workshops and workshop equipment (a very conservative measure of the amortization of these assets in the two-year time slice of the project), and 50% of the remaining technical assistance. Purchase of new road construction equipment and spare parts is not included in the ERR calculation as these are reflected in the unit costs of rehabi- litation and routine maintenance. With a 20% increase in project costs and a l0 reduction in benefits, the ERR remains an acceptable 12%. Each component is economically justified by itself, as shown below: Percent Component ERR Routine Maintenance of 2,000 km 46 (including Technical Assistance to OFNAR and 50% of Building and Equipment Costs) Rehabilitation and Maintenance of N'Djamena Industrial Road 16 Bridge and Access Roads 12 Ferries and Access Roads 59 Studies and Technical Assistance non- (excluding OFNAR) and 50% of Building quantifiable and Equipment Costs  - 32 - Project Benefits 99. The project would help to re-establish normal trade flows and would support restructuring of the cotton sector through significant re- ductions in transport costs. The Government would also be an important beneficiary of the project, as the routine maintenance of rehabilitated roads would reduce subsequent costs of rehabilitation and periodic mainte- nance, thus minimizing future demands on external aid resources and domestic funds. Vehicle operating cost savings would accrue predominantly to private transport operators, and to the future owner/operators of the UNDP Emergency Program transport fleet. However, the benefits would only be fully realized when the majority of the priority road network is brought to the same minimum standards. These savings should be passed on to producers and consumers as the local transport industry becomes more competitive. The project would have a substantial institutional impact on OFRAR, on the Ministries of Public Works and Transport, and on the trucking industry, by creating the management and technical skills necessary for managing the road sector and increasing productivity and competitiveness. Finally, the project would be an important vehicle in further strengthening coordination among donors and improving future investment choices in this important sector. Project Risks 100. The threat of military activity in the north and some political unrest in isolated spots in the south continues but has been largely con- tained. The 2.000 km of high priority roads and the other physical compo- nents of the project are located in areas unlikely to be affected by politi- cal unrest. Although the general economic situation and depressed cotton prices could constrain the rate of recovery in economic activity and thus in the volume of traffic movements, the levels of traffic postulated for 1986 and the expected growth of 2.5% per year have been set well below the average levels of pre-war years and benefits have been conservatively estimated. The most important risks would be an increase in project costs and/or shortfalls in the projected absorptive capacity of the institutions concerned, resulting in delayed project implementation. However, even with a possible increase in total project costs of 20%. including technical assistance, the ERR would remain above 15%. The risks arising from possible limits on administrative and executive capacity are addressed through technical assistance, job training provided under the project, and possible recourse to private contractors. Nevertheless, implementation of the project will require intensive monitoring and supervision by IDA staff.  - 33 - PART V. RECOMMENDATIONS 101. I am satisfied that the proposed IDA Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit, Attachments A. W. Clausen June 2, 1986 President Washington, D.C.  - 34 - ANNEX I T A A L S 34 PACK I Page I,of 6 CHAD - SOCtIAL IDICATORS DATA SNHlT CHAD Br&Mlic GRiours (CUMUOD AWRSS 1i mHDST (tMOT khECk? SST4Atl) fl I_C SIN? LOW INCOM AFRICA l