Malawi - Northern Transport Corridor Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6022-A STAFF APPRAISAL REPORT NALAWI NORTHERN TRANSPORT CORRIDOR PROJECT January 27, 1988 Southern Africa Department Infrastructure Operations Division |11s document hs a resrcted Aud may be used by redplu only il the pouauice of lther ofc dutids. Its coue_t may not GbwWs be dsd Wodd Book Iaubudou.  CURRENCY EQUIVALENTS Currency Units Malawi Kwacha (MK) and Tambala US$1.00 - MK 2.3 MK 1.00 a 100 Taibalas WEIGHTS AND MEASURES 1 foot (ft) - 0.305 meters (m) 1 mile (mi) - 1.609 kilometers (km) 1 square mile (ml2) = 2.590 square kilometers (km2) 1 ton (t) - 0.907 metric tons (m ton) GLOSSARY OF ABBREVIATIONS AfDB - Airican Development Bank AfDF - African Development Fund DRIMP - District Roads Improvement and Maintenance Program EDF - European Development Fund EPDD = Economic Planning and Development Department (Office of the President and Cabinet) ERR = Economic Rate of Return FRR = Financial Rate of Return KfW = Kreditanstalt fur Wiederaufbau LS = Lake Service (Malawi Railways) MCC - Malawi Cargo Center MR = Malawi Railways MRHC = Malawi Railways Holding Company MTC - Ministry of Transport and Communications MWS = Ministry of Works and Supplies NTC = Northern Transport Corridor ODA - Overseas Development Administration (UK) OPC - Office of the President and Cabinet PCR = Project Completion Report PPAR - Project Performance and Audit Report RSA = Republic of South Africa SADCC = Southern African Development Coordination Conference TANZAM - Tanzania-Zambia Highway TAZARA - Tanzania-Zambia Railway Authority TEU = Twenty Foot Equivalent Unit (Containers) THA = Tanzania Harbours Authority TPU = Transport Planning Unit USAID - United States Agency for International Development VOC - Vehicle Operating-Costs vpd = Vehicles per day Government of Malawi Fiscal Year April 1 - March 31  ]FOR Off CWAL USE ONLY HAIAWI Northern Transogrt Corridor Proiect Staff Asraisal Report Table of Contents Credit and Project Summary ....... (i)-(ii) I. The Transport Sector -...... 1 A. Transport and the General Economy. ..... . 1 B. The Transport System - 2 C. Transport Policy and Coordination 6 D. Previous Bank Group Involvement in the Sector. 8 E. Rationale for Bank Group Involvement. 10 II. Transport Routes Between Malawi and Indian Ocean Ports ... 11 A. Existing Transport Routes ....................11 B. Transport Costs on Alternative Routes . ....... 12 C. Commodity Flows on Alternative Routes . ... 14 D. Need for Improvement of NTC ...15............... 15 E. Future of the Alternative Routes through Mozambique and south Afrioa .*.... ....... *..... 16 III The Project 8........ 18 A. Objectives .......................i B. Project Scope ............... .... ..... ...... 18 C. Detailed Project Description ............ 20 0. Financing , .....ooe .... . 26 E. Implementation and Procurement ........*.............. 28 F. Disbursements ..... ., .......*........ 30 G. Accounting, Auditing and Reporting Requirements ...... 32 H. Environmental Impact .. ............. 32 I. Resettlement of Squatters .............*.. 32 IV. Financial Evaluation . 34 A. MR ......*4.o..... .......s .... 34 B. LS ................... .... 36 V. Economic Evaluation ....... 52 A. Evaluation of Project Overall .................... 32 B. NTC Traffic Forecast . ... .... .* .. ......... . ... 53 C. Economic Analysis ............................. 53 D. Sensitivity analysis .............. ............. 63 E. Risks ... .. ................... so ....... ... 64 VI. Agreements Reached and Recommendations ..* ......... 65 This document has a stice ditbuton and may be usd by rcipints ony i the perfomfance of thir okcal duties Its contns may no oterwie be Sdbckosd without Wodd anBk au'fmftbon.  ANNEXES 1. Transport-Related Bank Group Projects in Halawi 2. LS: Assumptions Used in Financial Projections 2. Chart 1 1.s Estimated 1985186 Traffic and Traffic Pattern 2. Table 1 LS: Historic Financial Performance 2. Table 2 LSt Projected Financial Performance Without Project 2. Table 3 1St Projected Financial Performance With Project 2. Table 4 LS: Forcast Cash Flow With Project 3a. MCCs: Breakeven Analysis 3b. MCCss Operating Costs 3c. MCCs: Projected Financial Performance 3d. MCCss Projected Fuel Handling Costs 3e. MRHC: Projected Financial Performance 4. Related Documents and Data Available in Project File 5. Economic Analysis: Benefit/Cost Tables for Particular Components of NTC Project Charts 1. Target Project Implementation Schedule %aRs IBRD 19421 - Northern Transport Corridor Project - International Transport Routes IBRD 19422 - Northern Transport Corridor Project - Project Components This report is based on the findings of a Bank mission which visited Malawi in October 1985, comprising Messrs. Motoo Konishi (Economist and mission leader), Kek Chung (Port Operations Specialist), Yusupha Crookes (Financial Analyst), Preben Jensen (Higbway Engineer) and Kenneth Clare (Economist (consultant)). Mesdames. Marie-Martha Jerome and Bernadette De Souza assisted in processing this report.  MALAWI NORTHERN TRANSPORT CORRIDOR PROJECT CREDIT AND PROJECT SUMHNRY Borrowers Republic of Malawi Executina Asencv: Ministry of Transport and Comunuications, Ministry of Works and Supplies, and malwi Railways Amounts SDR 11.1 million (3$13.4 million equivalent) Termas Standard IDA Terms Proiect Descriptions The main objective of the project is to provide a shorter and cost effective route to the sea for Malawian Imports and exports by Improving the Northern Transport Corridor (NTC) leading from southern Malawi to the port of Dar es Salaam. The project would also facilitate the expansion of regional trade, principally between Malawi and Tanzania and help develop Malawi's northern region. The project includes improvement and .ehabilitation of roads in Malawi and Tanzania; construction of dry-cargo and fuel storage transshipment facilities in Dar es Salaam and Mbeya in Tanzaniat provision of fuel tank wagons and tank containers to be used by TAZARA railway; improvement of shipping services on Lake Malawi; construction of a border post and weighing station on the Malawi-Tansania border; and related consultancies and technical assistance. The project would benefit the entire population of Malwi through lower prices on a wide variety of Imported products and through increased exports brought about by more competitive export prices. Risks: Possible risks includes (i) transit delays due to possible procedural or other disagreements between the two countries; and (ii) reduction in traffic volume on NTC due to earlier than anticipated opening of traditional routes to the sea. The risk of transit delays has been minimized through a bilateral transit agreement between the two countries, covering transit procedures (signed on August 15, 1987). In terms of the impact of earlier opening of the traditional routes, NTC will continue to remain cost competitive and economically viablo for import and export traffic for the northern and central regions of Malawi.  - lii - Estimated Cost: Local Foreltn Total US$ Milion Road Construction- 7.1 32.9 40.0 Malawi Cargo Center - 16.6 16.6 Fuel Handling Facilities - 7.3 7.3 Fel Tank Containers & Wagons - 1.5 1.5 Improvement of Shipping Services on Lake Malawi 2.7 11.3 14.0 Border Post and Weigh Bridges 0.3 0.3 0.6 Consulting Services and Technical Assistance 1.5 7.4 8.9 Training - 0.3 0.3 Total Base Costs 11.6 77.6 89.2 Physical Contingencies (102) 1.2 7.6 8.8 'Price Contingencies (25Z) 6.0 5.8 11.8 Total Costs 18.8 91.0 109.8 (of which taxes) (1.5) _ (1.5) Total cost net of taxes 17.3 91.0 108.3 Financina Plan: IDA 2.8 10.6 13.4 EDF 6.0 14.0 20.0 KfW 3.3 15.6 18.9 ODA 0.4 18.9 19.3 USAID 3.2 14.8 18.0 Goverrment of the Netherlands 0.2 17.1 17.3 Government of Malawi 2.9 - 2.9 Total 18.8 91.0 109.8 "mom u. Estimated Disbursement of IDA Credits IDA FY: 88 89 90 91 92 93 94 Annual 1.6 1.7 3.1 3.2 2.4 1.3 0.1 Cumulative 1.6 3.3 6.4 9.6 12.0 13.3 13.4 Economic Rate of Return: 162 Financial Rate of Returns 122 (Malawi Cargo Center) 102 (Lake Service) Staff Appraisal Revort: Report No. 6022-NAI, dated January 27, 1988. IBRD No. 19421, 19422.  NUALA Northern Transiort Corridor Proiect Staff Ab2raisal Rboort I, The TranaMort Sector A. Transport and the General Economy 1.01 Males" is a landlocked nation dependent on a number of neighboring countries f.or access to the sea. Historically, this access has been mainly through Mosambique but transport difficulttes in recent years (para. 2.02) have caused Malawi to divert traffic to the much longer and more costly routes through other countries of the region. This problem has focussed attention on improving access through a more economical northern transport corridor (NTC), through Tanzania, with consequent substantial savings in transport cost to Malawi. 1.02 Malawi is a long, narrow country with a land area of about 94,30O) km2 and a lake area of 24,200 km2 (see Map IBRD 19422). The lake on the eastern side of the country, some 600 km long, is important as a means of transport and has considerable potential for further transport use. A major escarpment runs th* length of Malawi, separating the lake plain from the plateau to the west; altitudes range from 60 m above sea level in the southern Shire Valley to over 2,500 a in the northern plateau. Rainfall averages between 750 mm and 1,600 mu and Is relatively heavy in the plateau areas. 1.03 Economic development of Nalawi, which has a rapidly growing (2.9X p.a.) population of 7.15 million, was heavily concentrated, prior to 1970, in the southern part of the country where nearly three-fourths of the population lives. In 1971, the Government announced In a Statement of Development Policies that high priority vould be given to achieving more balanceb regional development. To this end, it moved the administrative capital from Zomba in the south to Lilongwe In the Central Region, and has undertaken several agricultural projects in the northern half of the country, including major projects near Lilongwe, Salima and Karonga and smaller projects around Kasungu and Mi4mba. The road network Is also being upgraded in the Central and Northern regions, and further developmwnt in these areas Is underway and planned. Since almost 90S of the population lives in rural areas, and agriculture contributes over 90X of Malawi's exports, rural development is a primary economic and social objective. Notwithstanding the greater regional balance that has been achieved, Blantyre in the Southern Region remains the leading commercial center of Malawi. 1.04 Gross domestic product increased in real terms at the rate of 6.0% per year over the period 1975-80. In 1980 and 1981 Malawi met with serious difficulties due to world economic condition and GDP contracted by 61 over those two years. Since 1982, recovery has been underway, with growth averaging 3.21 through 1985. Per capita GNP was an estimated US$170 in 1985, and Malawi is classified by the United Nations as one of the least developed countries of the world.  -2- B. The Transport System 1.05 The transport system Includes an Infrastructure of about 13,300 km of roads, 678 km of railway lines, 4 lake harbors and a number of lake landing points, and 4 commercial airports. In addition, the system includes about 29,000 road vehicles, 51 locomotives, 906 railway freight wagons and passenger coaches, 11 lake vessels and a variety of commercial aircraft. The principal features of this system ares a main road network of about 2,900 km concentrated-in the south but including an important link to the north; the railway which lies entirely in the southern half of the country; lake transport serving mainly as a north-south link; and air transport handling principally domestic and regional passenger traffic. Road haulage dominates internal transport. The railway, until recent yearst, carried substantial amounts of export-import traffic between various Malawi points and two Hosambique border transfer stations; this traffic has voaished, however, because of closure of the Mosambique rail lines linked to the Malawi railway. As a result of this disruption, Malawi's external trade since mid-1985 has moved on other routes, particularly through Zambia, Zimbabwe and the Republic of South Africa (RSA) (IBRD Map 19421). Highway and Road Transport 1.06 The 13,300 km classified road network consists of 2,520 km of paved roads (192) and 390 km of engineered gravel roads (32); the rest are earth roads and tracks. In addition, there are about 2,000 km of as yet unclassified feeder and crop extraction roads constructed to minimum all- weather standard under agricultural development projects and an undetermined length of additional unclassified earth roads and tracks in forestry plantations and reserves and in national parks. Road density is about 141 km per 1,000 sq km or 2 km per 1,000 inhabitants which is above average for East African tountries. The coverage is adequate for the country's present needs, but road standards and conditions are not satisfactory. Although some improvements have been made, principally by upgrading roads to paved qtandard (712 increase in kilometers during 1975-84), low standard roads pitvail, resulting in high transport costs. About 852 of tho paved and improved roads are located in the southern half of the country, reflecting the general pattern of regional imbalance in population and economic activity. 1.07 The principal cities sad towns are connected by main roads and about three-fourths of these roads are paved. During recent years, construction of paved roads has concentrated on the 1,100 km north-south spine road, the most important road in Malawi, running from Bangula In the deep south via Blantyre and Lilongwe to Karonga in the far north. The only remaining unpaved section is that between Champhoyo and Mbowe (50 km) which is scheduled for completion by 1989 based on financing from the Africean Development Bank (LfDB). Government is also undertaking rehabilitation of other roads under the Bank's Fifth Highway Project (Loan 2363/Credits 1423 and SF-6-MAI). Further road rehabilitation is included in the present project with work specified for the Balaka-Salima road, an important link between the Blantyre area and the principal lake port of Chipoka. 1.08 The completion of the north-south spine road, which has been the centerpiece of the Government's paved roads program, will mark a beginning  of a new strategy of expanding its paved roads network. The new paved roads construction program for 1988189 being considered by the Government indicates the strategy will be to upgrade roads which run parallel to the north-south spine road and also to begin constructing east-west links cutting across the country. The basic trade movement continues to be north- south, with relatively riinor east-west traffic movement much of which connects with the splne road or moves to Nchinji or Nwansa, the main outlets to Zambis and Mosambique. Each new construction project will need to be evaluated on its own-merit, but given the expected completion of the north- south spine road, new policy direction as well as a standard method of prioritizing various investments will need to be developed. The Association is assisting the Government in this regard through the preparation of a proposed First Infrastructure Project. Apart from the new construction program, the Government will also continue its paved and unpaved roads rehabilitation program with a view to eliminating the backlog of rehabilitation works required on its network. Periodic and routine maintenance programs are executed in a systematic and timely manner, and the quality of the work is good. 1.09 The road vehicle fleet in 1984, excluding motorcycles, totalled 28,568 or 4 vehl-les per 1,000 inhabitants, above average for East Africa. The fleet includes 10,673 goods vehicles, 14,431 passenger cars, 1,067 buses and 2,397 other vehicles. More than two-thirds of the goods vehicles have less than a 3-ton carrying capacity. Only 32 of the goods vehicles, mainly owned by companies involved in international movement of freight, have more than a 10-ton capacity and truck-trailer combinations are common on the main routes. The great majority of trucks are owned by various private (75 percent of fleet) and public agencies (18 percent of fleet) for transport of their own goods. Among transport companies hiring out their trucks, about 470 companies operate an aggregate fleet of some 1,400 trucks of 3-ton or more capacity. More than 602 of these trucks are owned by small operators, and 341 by 9 large operators with over 30 vehicles each. The average size of the for-hiro fleet operated by small companies is 3 vehicles with an average capacity of 7 tons, compared to 9 tons operated by large companies. In addition to domestic truck operators there are a considerable number of foreign operators transporting freight between centers within Malawi particularly Blantyre and Lilongwe, on the one hand and foreign points such as Lusaka, Harare, Durban and Dar es Salaam, on the other hand. Railways 1.10 The main railway line extends from the southern border northward through Blantyr- to Lake Malawi and then westward through Lilongwe to the Zambian border. At the soutiarn border this line is linked to the Mozambique rail line serving the port of Beira. An extension of the Malawi railway to the eastern border is connected to the Mozambique rail line serving the port of Nacala. Rehabilitation of the southern part of the Malawi railway has been underway during the last several years with 8ritish aid and is expected to be completed in 1988. The 1979 extension westward from Salima to the Zambian border (210 km), financed by a grant from the Canadian Government, will soon be furthor extonded to Chipata in Zambia (about 25 km). Linking Malawi railway with the Zambian railway system would require a costly construction of 390 km of track and such a project is unlikely in the foreseeable future.  -4- 1.11 The railway's rolling stock, which in 1984 comprised 51 locomotives, 752 freight wagons and 79 tank wagons, handled a high proportion of MC -St's exports and imports until recent years; this Included nearly all of Malawi's Imports of o4troleum products. Traffic carried on the railway In 1984 amounted to sbout 586 thousand tons of freight or about 121 million ton-km. Ralilway freight traffic in 1984 was only half the level of 1980. This sharp traffic decline Is explained largely by the drop in exports and imports handled by Malawi Railways (MR) between points in Malawi and the Mozambique border as performance on the Mo2ambique rail lines deteriorated. In contrast to freight traffic trends, the number of passengers carried on the railway increased to 1.6 million in 1984, the highest level ever attained. Until 1982, railway operations earned a modest surplus but incurred sizeable losses in the years 1983-1986, due mainly to the closure of Mozambique lines leading to ports of Beira and Nacala. Lake Transport 1.12 Relatively little has been done thus far to realize the large potential of Lake Malawi as a means of transport. Freight and passtnger transport on Lake Malawi is provided by a division of MR, Lake Service (LS). The system includes not only a fleet of vessels but also a complex of 21 ports and landing points. Chipoka port is the only one served by the railway; the ports of Chilumba, Nkhata Bay and Monkey Bay are served by main roads. Construction of a new jetty at Dwangwa was begun in 1984, primarily for sugar shipments. The lake vessel fleet consists of 3 passenger/cargo ships, 3 cargo ships, 1 fuel tanker, 1 container pontoon, 1 oil pontoon, 4 barges and 5 tugs; among these, the vessel with the largest cargo-carrying capacity is the 600 ton container pontoon. For ship repair, LS has a maintenance facility at Monkey Bay which includes a slipway, floating dry dock and pontoon jetty. 1.13 Freight traffic on the lake, as shown in Table 1.1, has fluctuated widely in recent years but reached 39,100 tons or 13.1 million ton-km in 1984. In the same year, 188,400 passengers were transported by LS, a 42% increase over the 1977 level. Freight revenues have historically exceeded freight operating costs but passenger service has shown heavy losses over the years because of extremely low passenger fareL. Table 1.1 LS Traffic. 1977-1984 ('000 tons) 1977 1978 1979 1980 1981 1982 1983 1984 Freight tons (000) 40 34 35 31 29 37 28 39 ton-km (000,000) 14 12 12 11 10 13 9 13 Passengers (000) 132 111 105 105 133 *70 198 188 1.14 The composition of freight traffic on the lake has varied widely from year to year but during the past few years the principal commodities have been fertilizer, fuel and maize which together have accounted for  three4-ourths of the tonnag. Cement snd ri,a are other notable traffic items. Fuel and fertilizer move northward from Cnipoka principally to Nkhata Bay and Chilamba while maixe and rice are trassported in the opposite 4irection. Traffic Imbalances are significant between the two principal lake ports with heavier southbound than northbound traffic. Fuel is transported in bulk while dry cargo is shipped largely as breakbulk. A container service was Initiated in 1985 for NTC traffic. 1.15 Lake vessels are operated at speeds of 6 to 11 knots and since the distance between Chipoka and Chilumba Is about 400 km, it would take approximately 30 hours sailing time for a cargo vessel to make a one-way trip. However, under present operations the vessels usually make calls at Intermediate ports thus incroasing the total time for a trip between the major ports. Vessels are available for service about 330 days per year and ship maintenance, mainly done at Monkey Bay, requires 35 days per year. Port operations as well as vessel operations are the responsibility of LS. Fteight service is reasonably reliable and the rates for such services, Including transshipment charges in the ports, are significantly lower than rates for competitive road transport services (pars. 5.28). Air Transport 1.16 Within Malawi, air transport accounts for far less passenger or freight traffic than road, rail or lake transport but it nonetheless makes a significant contribution to the economy, particularly in passenger movement where travel time savings are important. Of the four azports with scheduled services, Lilongwe handled the greater amount of traffic, followed by Blantyre, Msuzu and Karonga. Lilongwe airport, completed in 1983, is capable of handling long-range wide-body aircraft. In 1984, Lilongwe airport accounted for 62Z of the 339,218 total passengers handled at all Malawi airports while Blantyre airport handled only 33Z of the total. Air Malawi, a Government-owned airline, provides some of the international services and all scheduled domestic services. Several foreign airlines also provide international services, and one local company and Air Malawi furnish unscheduled domestic services. 1.17 Air Malawi's total passengers carried in 1984 of 127,541 was 392 higher than the 1978 level. Air freight increased more rapidly than passenger traffic in this perlod because of the disruption of Malawi's traditional transport routes through Mozambiqute rail lines and ports and difficulties encountered in using alternative road and rail ro-xtes. Despite these traffic increases, however, Air Malawi has shown heavy losses during recent years, with the exceptions of 1981 and 1982.  -6- Tablo 1.2 AIr Malawi Performance 1978-1984 ('000) 1978 1979 1980 1981 1982 1983 1984 Passenter Passengors 91.6 91.7 94.3 106.6 130.1 96.9 127.5 Pass-Km 68,743 57,910 57,520 68,830 95,796 59,533 77,866 Freitht tons 1.4 1.1 1.2 1.4 1.6 1.1 2.3 ton-km 1,349 829 1,058 1,248 1,008 723 1,067 Net Operating Income (MK) (2,757) (3,754) (1,647) 1,313 545 (3,885) (2,413) C. TransDort Policy and Coordination 2.18 Nalawi's transport policy has had three broad alms (a) to Improve the administrative, social and economic integration of the country by linking Its three regions with reliable all-weather connections; (b) to support rural development by improving access to rural are-s; and (c) to provide efficient links with external transport routes to Indian Ocean seaports for exports and Imports. Substantial progress has been made toward the first two of these objectives. In the case of (c), however, great difficulties have been experienced because of serious disruptions in traffic flow on Nozambique rail lines (see para. 2.02), problems beyond the control of the Malawi Government. 1.19 To cope with the transport crisis that arose In 1982-83, the Government In 1983 formed the contingency planning unit in the Ministry of Transport and Comunuications to monitor international transport of Malawi's external trade and to take appropriate steps to expedite the movement of such goods. A specialist, financed by UNDP and the Bank's Fifth Highway Project, also made recomendations for achieving, over the longer term, lmproved means of transport; one of these recommendations was that the NTC route be developed. Two other actions taken by the Government aimed at alleviating the transit problem werei (1) engagement of consultants to undertake a transport system study of the Blantyre-Dar es Salaam Corridor; this was completed in July 1985 under financing by the Bank's Fifth Highway Project; and (2) engagement of consultants to undertake detailed engineering of the Raronga-Ibanda road link of NTC under EDF financing. Malawi Government officials have worked closely with officials of transit countries, transport companies, shippers and Importers In a continuing program to expedite, on a current basis, the movement of Nalawi's transit traffic and to Improve, over the longer term, vital access routes. The success of the Government's efforts are reflected in the speed with which the disruptive shortages of key Imports were reduced; the success in lowering transport costs on the southern route to Durban (South Africa); and the effectiveness of a monitoring and enforcement mechanism In maximizing the load factors (i.e. ensuring return loads) on trucks moving goods in and out of the country. Additionally, the Governmnt has been successful in preparing the Investments necessary in developing NTC to the Port of Dar es Salaam with the full cooperation of the Tanxanian Government (pars. 2. 10).  -7 1.20 Goveroment's overall sector priorities art given in lts Statement of Development Policies, 1971-1980', and are specified in more detail in a 3-year rolling public sector Investment program which is revised annually during budget preparation. The program for the fiscal years 1986-1988, as shown in Table 1.3, indicates that transport in this period will represent 19S to 302 of total Investments and that road investments Will constitute about three-fourths of the total investments in the sector. Table 1,3 Public Investment Proiram in The Transpott Sector 1986-1988 (MK millions) Financial year 1985186 1986187 1987188 Roads 37.2 38.0 32.6 Railways and Lake 3.3 4.8 7.4 Aviation 2.2 0.9 0.0 General 6.1 6-5 5.2 Total transport 48.8 50.2 45.2 Investment in all Sectors 161.9 22240 232.1 ' of Total Investment Represented by Transport 30 23 19 Source: Halawi Ministrt of Finance Public Sector Investment Prosram. 1985 Actual public investments in the transport sector, shown In Table 1.4, havo recently been relatively low as indicated by the figures for the fiscal years 1983184 and 1984/85 compared with data for either earlier years or the program for 1986-1988. This represents a reasonable shift of investment funds to productive sectors of the economy. The amounts Invested in roads have risen modestly and have been more stable than those for other subsectors. Table 1.4 Public Investment in the Transport Sector. 1979-1984 (MK million) Financial year: 1979/80 1980/81 1981/82 1982/83 1983/84 1984185 Roads 25.6 17.4 20.0 28.1 26.2 noa. Railways and Lake 17.1 11.5 14.9 3.3 2.1 n.a. Aviation 16.3 11t3 31.7 16.3 5.3 n.a. Total transport 59.0 41.2 66.6 47.7 33.6 37.8 Investment in all Sectors 113.5 127.9 174.9 124.2 139.6 146.0 S of Total Investment Represented by Transport 52 32 38 38 24 26 Source: Economic Recovery: Resource and Policy Needs. July 1985  -8- 1.21 Coordination of transport investment plans is the responsibility of the Transport Planning Unit (TPU) of the Economic Planning and Development Department (EPDD) of the Office of the President and Cabinet (OPC), which reviews proposals put forth by the Ministry of Works and Supplies (MWS) for roads and by the Ministry of Transport and Communications (MTC) for other modes. The transport planning and coordination capability has been strengthened by technical assistance financed under the Fourth (Credit 1099-MAI) and Fifth Highway projects. The credit agreement under the proposed project contains a covenant requiring that, the Government will consult with the Association prior to undertaking any new investments in its transport sector (pars. 6.01(a)). D. Previous Bank Group Involvement in the Sector 1.22 The Bank Group has been involved in Malavi's transport sector since 1966 when Credit S-2-MAI was approved to help finance detailed engineering of the Zomba-Lilongwe road (290 km). This was followed by the First Highway Project (Credit 112-MAI, 1968, US$11.5 million) comprising the reccnstruction and bituminous paving of that road, the refinancing of Credit S-2-MAI, and a conrultants' study of road transport licensing regulations and road-rail coordination. A Project Performance Audit Report (PPAR) of the project (No. 946, December 15, 1975) concluded that all of the project's objectives were achieved. Construction costs were within appraisal estimates, although the road was completed about one year behind schedule.l/ Traffic was greater than projected at appraisal, and the rate of return was conservatively reevaluated at 13S, compared with the appraisal estimate of 122. The consultant's study recomiaended deregulating road transport, raising axle load limits to 9 tons, improving trassport statistics, and relating rail tariffs more closely to economic factors, all of which have been Implemented, although there Is scope for further refinement of rail tariffs. The study expressed misgivings about planned rail projects, but Government did not share IDA's reservations and proceeded with these Investments. Both the consultants' study and the PPAR agreed that the country mignt soon have an oversupply of transport services in the Blantyre- Lilongwe-Zambian border corridor. The major recommendations of the PPAR called for closer project supervision by IDA staff and rectifying the negleet of lower class roads--although the PPAR did not question the composition of the First Highway Project, noting that the "Zomba-Lilongwe road ... is undoubtedly the most important highway in Malawi.' Both of the recommendations made In the PPAR were addressed under the Second, Third, Fourth and Fifth Highway Projects and in the agricultural projects financed by the Bank Group. 1.23 The Second Highway Project (Credit 523-HAI, 1974, US$10.0 million) originally comprised construction of the Lilongwe-Kasungu road (113 km) and a pilot scheme for the improvement and maintenance of district roads serving rural development in the Kasungu District. Both components have been completed; the construction in March 1978, a few months behind schedule, and the pilot scheme in September 1978. Substantial cost savings were made on the construction component which were used to finance completion of the 11 The first contractor selected for the Zomba-Lilongwe road section performed unsatisfactorily and had to be replaced, leading to the delay In completion.  - 9 - pilot scheme in the Kasungu district and extension of the scheme to three other districts, following the recommendations of a consultants' study which evaluated the results of the pilot program. The four districts made up the first phase of a District Roads Improvement and Maintenance Program (DRIMP) planned to cover all of Malawil's 24 di;tricts in three phases. This first phase was completed in September 1981. According to the Project Completion Report (PCR), the economic rate of return was estimated at 23 percent compared with 14 percent at appraisal. Both the PCR and PPAR of the project (PPAR No. Sec M84-617, July 6, 1984) found that it was successfully implemented. 1.24 The Third Highway Project (Credit 758-MAI, 1977, US$10.5 million) comprised construction of the Kasungu-Janda road (85 km) and a feasibility study and detailed engineering of the Jenda-Mzuzu road. The road construction was completed in October 1980, a few months behind schedule, and the detailed engineering in September 1980. The PCR concluded that the quality of the physical components was satisfactory, but due to the general deterioration in Malawi's economy in recent years, the economic rate of return was then (1984) estimated at 8 percent compared with 14 percent at appraisal. However, with the increased traffic generated by linking Malawi to the TANZAM corridor, the traffic flows and rate of return are expected to Improve significantly. 1.25 The Fourth Highway Project (Credit 1099-MAI, 1981, SDR 25.9 million or about US$33.0 million equivalent) comprised construction of the Jenda-Luwawa Turnoff road (32 km), the Mbowe-Mausu-Ekwendeni road (32 km) and spot improvements on the Luwawa Turnoff-Hbowe road (about 100 km), the second phase of DRIMP extending the scheme to 10 additional districts, a comprehensive study of Malawi's road maintenance needs, provision of minor road maintenance equipment, construction of a new training facility for road personnel, technical assistance in transport planning for TPU in EPDD and overseas training of two of TPU's transport economists. This project was completed in 1985. The PCR, completed in March 1987, concluded that the objectives of the project were largely achieved and the project was successfully implemented. 1.26 The Fifth Highway Project (Credit 1423, November 1983, SDR 12.4 million or US$13.1 million equivalent, and IDA Special Fumd Credit SF-6-MAI of SDR 13.1 million or US$13.8 million equivalent and Loan 2363- MAI, of US$18.0 million equivalent) comprised the third phase of DRIMP, implementation of a four-year maintenance and rehabiliiition program for the main and secondary road networks, construction of a two-lane bituminous- paved road between Luwawa Turnoff and Champhoyo, provision of weighbridges and vehicles for axle load control, provision of equipment for an MWS training center and consultant services. Implementation of the project is well underway and proceeding satisfactorily. 1.27 Finally, transport components have been included in IDA projects in other sectors (Annex 1). Credit S-17-MAI, 1974, provided US$2.0 million for planning and engineering of infrastructure for the proposed Viphya timber exploitation scheme. In addition, agricultural projects in the Lower Shire Valley (Credits 114, 363 and 823-MAI) and the Lilongwe area (Credits 113, 244 and 550-MAI) and the more widespread National Rural Development Project (Credits 857-MAI) have included improvement and construction of about 4,000 km of feeder and crop extraction roads, while the Karonga Rural  - to - Development Project oleo included port improvements at Chilumba and Chipoka on Lake Malawi as moll as procurement of a self-propelled barge for the lake service. 1.28 The Bank Group's involvement in the transport sector has been largely in the highway subsector although its projects have included significant technical assistance and studios concerned with tho entite sector. Through a series of highway projects the Bank Group has made a substantial contribution to the strenygthening of local institutions, particularly in NWS, MTC, and EPDD; these efforts have enhanced institutional capabilities for effective highway administration and transport policy formulation. The strategy for highway development followed by MWS over the past several years has been aimed mainly at (i) construction of a basic road network with particular focus on development of a main north-south road; (ii) improvement and maintenance of district roads; and (iiI) strengthening of maintenance of the main and secondary road system. The Bank's highway projects, from the First through the Fifth, accomplished much with regard to items (i) and (li) and the Fifth Highway Project is also contributing significantly to the realization of objective (iii). The proposed project will contribute primarily to aims (i) and (iii) and in addition will assist in the development of the lake transport subsector. E. Rationale for Bank Group Involvement 1.29 Although the proposed project Is justified technically, financially and economically, giving a high rate of return, the Association's involvement is mainly justified on: (i) the contribution the project makes In improving the macro-economic condition of Malawi through improving the term of trade of Malawian goods, reducing foreign exchange outlay on the transport cost of Importlexport goods, and assisting in keeping down the domestic cost increases through reducing the cost of imported materials; (ii) promoting institutional development by improving the capacity of the Government and the private sector to manage and operate a new transport corridor; and (iii) contributing to the Government's sectoral policy objective of promoting greater economic integration of the country through development of the northern region (least developed region in the country) as a major origin and destination for Malawi's importlexport traffic. Perhaps more important is the contribution the Association has mLide In developing the concept of NTC as an alternative access to the Indian Ocean, as well as coordinating donor participation and assisting the Government in preparing a financial package for the project. The Association has assisted the Government from the initial conceptual stage2l through the formulation of terms of reference and financing the consultant study on NTC, as well as provided continuous analysis of project features and participated in numerous discussions and exchanges of ideas on NTC with the Government. As a consequence, the Association has been requested by the Government, as well as by the donors interested in the project, to assist the Government in managing the final preparations of the project and its implementation. The Association's catalytic role in managing and implementing the project is crucial not only in terms of successful implementation of the project but also to ensure maximum Impact of funds being provided by other donors. 21 World Bank 'Transport Bottlenecks In Nalawi's Access to the Indian Ocean,' Report No. 5316-MAI, October 31, 1984.  - Ii - II. Tressport Routes Between Malawi and Indian Ocean Ports A. Existing Transport Routes 2.01 The several alternative routes available to Malawi for handling Its external trade to and from Indian Ocean ports vary greatly in length and reliability (IBRD Map 19421). Table 2.1 summari2es these routes and also includes the two rail lines to Mozambique ports; although these latter routes are closed as a result of disturbances in Mozambique, they provide an important reference for comparison with alternatives. Recent traffic diversion from the Mozambique routes to those serving the distant port of. Durban has not only Increased transport distances dramatically but also has increased the number of countries transited and has required the use of relatively costly road transport for a part of the through movement. Table 2.1 Transiort Routes from Blantyre for Malawi's External Trade Port Key Points Countries Length Served Mode(s) En Route trasited (km) Beira Rail MOZ 640 Nacala Rail NOZ 815 Durban Rail/Road Tete, Harare MOZ,ZIH,RSA 2,667 Durban RaillRoad Lusaka, Harare ZAM,ZIM,RSA 3,467 Durban Rail/Road Lusaka, Harare ZAM,ZIM,RSA 3,609 Durban Rail/Road Lusaka, Gabarone ZAM,BOT,RSA 3,806 Durban Road Lusaka, Harare ZAM,ZDM,RSA 3,500 Dar es Salaam Rail/Road Mbeya TAN 1,770 Dar es Salaam Road Hbeya TAN 1,789 Dar es Salaam Road Lusaka, Nbeya ZAM,TAN 3,030 Dar es Salaam Rail/Road Lusaka, Nbeya ZAM,TAN 3,100 Source: GITEC, Consultants "Transport System Study of the Blantyre - Dar- es-Salaam Corridor", July 1985. 2.02 Until recent years, the rail lines to Beira and Nacala handled over 902 of Malawi's external trade, reflecting the clear advantages of short distance, all-rail movement and one-country transit. In the late 1970's, frequent interruptions in service developed as a result of equipment breakdowns and line failures, partly because of inability to repair equipment and track and partly as a result of repeated attacks by armed bandits. By December 1983, the line to Beira was closed and in July 1985 the line to Nacals was closed. The condition of these facilities is now such that even if security were assured, some years would be required to bring them back to their former capacity. Continuing security problem in the areas transited by these lines make it mpracticable to rehabilitate them in the foreseeable future. The Harare-BeIra rail line is still in operation, secured by the Zimbabwean army, but since Zimbabwe traffic has preference, no Malawi traffic is moving over this line.  - 12 - 2.03 There are a number of alternative routes for Malawi traffic between Malawi and Durban, and over 90Q of the country's external trade moved over these southern routes since 1985. The comparatively short road route through the Tete area of Mozambique is presently unsafe because of activities by armed bands but is used to a limited extent with armed truck convoys. All of the other routes to Durban require road transport between the Malawi-Zambia border and Lusaka, and the overall distances range from 3,467 to 3,806 km. The length of the principal all-road route is similar to that of the best roadirail combination route. The choice of specific route for a particular shipment depends on many considerations such as rates, delivery time, capacity constraints, customs procedures and the like. A large number of international truck operators are available to provide transport services on this corridor for the entire route or for some segment of a combination road-rail route. 2.04 Routes between Halawi and Dar es Salaam represent other options for the movement of Malawi's external trade. Among them are circuitous all- road and road/rail routes via Lusaka. While somewhat shorter than those via Lusaka and Harare to Durban, they are nonetheless more than 3,000 km in length. Less use has been made of these routes to Dar es Salaam than those to Durban because of the greater amount of transport related services on the latter and greater reliability of transport in the southern corridor. Seeking to shorten the distance to ocean ports, MWS opened a gravel road of limited capacity in October 1984 between Karonga in Malawi and Ibanda in Tanzania, which provided the first significant direct link between the Malawi and Tansania road systems and thus reduced the road link between Blantyre and Dar es Salasm to 1,789 km. Moreover, the TAZARA railway can substitute advantageously for road transport over about half of this distance, that is, between Hbeya and Dar es Salaam. While some international traffic moves on the corridor, there are certain physical and institutional limitations that cause many Malawian shippers and importers to continue using the much longer but more reliable southern routes. 2.05 Among the limitations of NTC is the poor quality of the Karonga- Ibanda gravel road, in part single lane, on which there are Bailey bridges over two rivers near the international border. Another problem is the lack of efficient transshipment facilities at the Nbeya railway station. Also, there is a need to establish an inland cargo center outside the ort of Dar es Salaan to expedite movement of Malawi's transit traffic. Witnin Malawi, lake transport has the potential for carrying substantial exportlimport traffic at substantially lower cost than road transport but this would require additional vessel capacity and port handling facilities. These various requirements will be met by the project. B. Transport Costs on Alternative Routes 2.06 Comparative transport costs constitute a fundamental consideration in evaluating transport routes. The historic routes to Beira and Nacala, as shown in Table 2.2, reflect the lowest transport cost, among the routes represented. Since the Mozambique routes are closed, however, the appropriate comparison in terms of costs is between the southern and northern transport corridors. It is evident that NTC represents substantially lower transport costs than the route to Durban. For important export items such as tobacco, tea and sugar, the costs on NTC are half to  - 13 - two-thirds of the costs on the southern route. For fertilizer and general cargo imports, NTC costs are about two thirds those on the southern transport corridor and the cost advantage for petroleum products is even greater. Table 2.2 Transport Costs, by Transport Routes Between Blantyre and Ocean Ports (HK per ton) Route to Route to Durban Dar es Salaam Route to Via Lusaka via Karonga Beira Commodity and Harare and Mbeya or Nacala Tobacco in container 310 235 90 Tea in container 270 210 85 Sugar in bags 225 155 60 Fertilizer in bags 220 130 35 General Cargo in container 275 185 100 Diesel 440 200 45 Petrol 520 210 75 Source: GITEC, Consultants "Transport System Study of the Blantyre-Dar es Salaam Corridor," July 1985. 2.07 One of the concerns which arose during the preparation of the project was the capacity of the Dar es Salaam Port and TAZARA to handle the additional traffic generated by thrwighput of Malawian cargo. In regard to the capacity of the Dar es Salaam port to handle the transit traffic of falavi, the on-going Bank financed Tanzania Port rehabilitation project (Credit 1536-TA) will increase the effoctive port capacity from 2.2 million tons currently to 2.4 million in 1988 and 3.2 million tons in 1992 (at 1983 berth occupanc rate). Given the forecasted traffic throughput of the current users,_ addition of Halawi traffic (81 of total forecasted port throughput) will not add significantly to the borth side congestion. Addition of Malawi traffic, however, would materially contribute to the congestion of the storage area of the port, particularly in the container stacking area. Significant increase of containerized traffic (802 increase between 1988 and 1992) is forecasted for the port of Dar es Salaam. The creation of a Malawi Cargo Center (MCC) at Dar es Salaam under this project will avoid this potential problem by providing an inland cargo storage and transshipment facility, dedicated to handle Malawian cargo (see para. 3.07). In regard to the capacity of TAZARA to handle the forecasted Malawian transit traffic, there are sufficient numbers of general covered wagons and container flats to carry the traffic at normal availability levels. In terms of its locomotive fleet, TAZARA will have enough capacity to carry the Malswian traffic after completing the on-going locomotive rehabilitation program. The main concern is whether a satisfactory availability of locomotives and wagons can be achieved. One of the requirements for NTC traffic to develop is the confidence of the shippers that a prompt and regular service between Mbeya and Dar es Salaam will be provided by TAZARA. 31 Tanzania, Zambia, Zaire, Burundi and Rwanda.  - 14 - A solution which has been devised to circumvent this potential problem is a locomotive and wagon leasing contract to be agreed upon between MCC and TAZARA. This possibility was discussed bet*ewn HR and TAZARA. TAZARA (under a bilateral agreement (para. 2.10)) has a8reed to provide a scheduled shuttle service between Mbeya and Dar es Salasm, dedicated to Malawi transit traffic. Additionally, there is a general shortage of fuel tank wagons on TAZARA and these will need to be procured to transport Malawi fuel. C. Commodity Flows on Alternative Routes 2.08 The predominance of Mozambique routes in the flow of Malawi's exportlimport traffic prior to 1983 is shown in Table 2.3. In 1976, the rail line to Beira handled two-thirds of the total traffic flow and the line to Nacala nearly all of the remainder. Traffic on both these routes declined sharply in later years; in 1984 only 152 of the traffic moved through the Mozambique ports. By mid-1985, none of Malawi's importlexport traffic was handled through these ports as increasing interruption the Mozambique rail lines led to closure. In 1984, nearly two-thirds of the external traffic moved over the Mchinji-Lusaka road. Most of the traffic over the Mwanza-Tete-Harare road was transported in convoys with security personnel providing protection. In the first 9 months of 1985, some 15,000 tons of traffic moved over NTC which was stimulated by the opening in late 1984 of the gravel road link between Karonga and Ibanda. Table 2.3 Commodity Flows. By Transport Route ('000 tons) 1976 1980 1981 1982 1983 1984 1985 11 Malawi-Beira (rail) Imports 322 313 260 193 23 10 21 0 Exports 142 198 195 113 19 12 71 0 Malawi-Nacala (rail) Imports 143 147 125 109 129 50 31 Exports 53 87 74 56 88 35 7/ Mchinii-Lusaka (road) Imports 8 12 36 42 248 245 189 Exports 6 18 11 34 146 198 122 Mwanza-Tete-Harare (rail/road) Imports 7 20 81 73 38 76 160 Exports 6 12 12 18 46 70 138 NTC (roadlrail) Imports NA NA NA NA NA 1 7 Exports NA NA NA NA NA 1 8 Total Imports 480 493 502 417 437 382 356 Exports 208 315 293 222 300 316 268 Note: These tonnages include small amounts of regional trade. 11 January through September. 21 This traffic moved between Malawi and the Tete area of Mozambique via Beira. 3/ Insignificant. Sources GITEC Consultants 'Transport Systems Study of the Blantyte-Dar es Salaam Corridor," Jul; 1985.  - 15 - D. Need for Improvement of NTC 2.09 The transport of Malavi's external trade largely by southern routes at costs greatly in excess of those on historical routes through Mozambique has had a significant negative impact on Mslawi's export earnings, import prices, balance of payments and other economic indicators. The total lose to the economy in 1984 was at least US$50 million, or 201 of the value of all exports, taking into account direct and indirect costs including excess transport costs, procurement of replacement supplies, port storage charges, interest on tied-up capital and loss and deterioration of goods. Prospects for reestablishing the historical pattern of transit traffic through Mozambique in the foreseeable future are not encouraging and therefore Malawi needs to develop the best possible alternative means of handling this traffic. Improvement of NTC represents a significant opportunity to lower transport costs for Malawi's exportlimport trade. The principal deficiencies of NTC are lack of a paved road between Karonga and Ibanda, poor surface on some sections of the Ibanda-Uyole road, inadequate transshipment facilities at the Mbeya rail terminal, inefficient facilities in Dar-es-Salaam for transshipment of Malawi cargo between the port and TAZARA railway, limitations in ship and port facilities on Lake Halawi and the poor condition of a road link on the route between Blantyre and the principal lake port of Chipoka. The project is designed to overcome these various deficiencies. 2.10 Apart from the physical improvements required on NTC, the two Governments and their related agencies (TAZARA, Tanzania Harbours Authority (THA) and MR) had to agree on the procedures and regulations governing the transit of Halawian cargo through Tanzania and the operation of various transport facilities to be installed on NTC. A bilateral commission, made up of high level Nalawian and Tanzanian goverrment representatives, has finalized a detailed bilateral agreement governing NTC. It includes agreement on documentation and procedures governing the transit traffic, leasing of land for MCC, rates, charges and payment arrangements for various services to be provided by TAZARA, THA and MCC, ownership of assets and its maintenance, road transport agreement, right of transit, customs control, visa and other privileges and restrictions. The Agreement, in particular, includes protocols on (i) port operations, (1i) MCC and (iii) competent authorities, as well as annexes on (1) road transport, (Ui) agreement between Malawi Railways and TAZARA, and (iiI) Lease Agreement. It should be noted that the road transport agreement which is incorporated as Annex I to the bilateral agreement was signed by the two Governments on December 4, 1984 and has been in effect since. The Association reviewed and commented on the draft final Agreement and considers it acceptable. The Agreement was signed by the Minister of Transport and Communications for Malawi and the Minister of Communications and Works for Tanzania on August 15, 1987, and officially cleared the way for the NTC investments to be made in Tanzania.  -16- E. Future of the Alternative Routes throuth Mozambigue and South Africa 2.11 Reactivation of the Beira and Nacala railways to carry Malawian transit traffic is dependent upon the cessation of activities by armed bands in Mozambique and the capacity of the lines to operate services after many years of neglect and heavy damages. The Southern African Development Coordination Conference (SADCC) has undertaken to formulate a program of rehabilitating various transport corridors crucial to the Independent Southern African countries. Work has already begun In two of the transport corridors in Nozambiquet the Nacala Cor-idor and the Beira-Zimbabwe Corridor. A consortium of French, Canadian, and Portuguese government aid agencies has been formed to finance the rehabilitation of the Nacala railway. The first phase (rehabilitation of 200 km of rail from Nacala to Nampula) which began in mid 1983 is scheduled to be completed in 1987. The remainder of the rehabilitation works (second phase) is expected to be completed in 1989, barring any disruptions and delays. The Nacala line, however, has carried a maximum of only 250,000 tons (302) of Malawian cargo in the past. Until other aspects of railway operations are also improved (e.g. maintenance capacity, rehabilitation of rolling stock and locomotives, and manpowerimanagerial capacity) the Nacala transport corridor is not expected to carry more than a third of the total Malawian importlexport traffic. The other active rehabilitation program is the Beir, transport corridor program (to Zimbabwe border). This corridor has been kept open, despite many attempts to disrupt the traffic, by Zimbabwean security forces. USAID and the Zimbabwe Government have begun rehabilitation of certain rail sections and replacement of sleepers on this corridor. A large consortium of donors (World Bank, USAID, EEC, Netherlands and Nordic group) have also been formed to develop a rational investment program to rehabilitate the entire corridor (including Beira port and railway and manpower development). This work, however, will not have much importance for Malawian traffic, due to the fact that this route will be used predominantly for transport of Zimbabwian import/export traffic. The rehabilitation of Beira rail line to Malawi border has not begun due to the security problems in the area. The years of neglected maintenance and exte%sive damage done on this line by armed bandits preclude the line from regaining its former capacity to carry Nalawian traffic until the hostility has completely ceased and extensive rehabilitation work carried out. Based on these circumstances, it would take at least three to five years from cessation of armed activities in Nozambique for Malawi to return to its traditional pattern of using the Beira and Nacala corridors. 2.12 Another possible complication for Malawi's future access to the sea is the possibility that the southern route to Durban will also be closed to transit traffic. In a reaction to the international community's call for sanctions, RSA has already begun limiting the access of neighboring land- locked countries to its transport system and outlet to the sea. Complete closure of the border is an eventuality which Malawi, as well as the neighboring land-locked countries, may face. The affected countries (namely, Zimbabwe, Zambia, Botswana, Swaziland and Nalawi) have begun making contingency plans against such eventuality. The four main alternative routes for these land-locked countries are through the ports of Maputo, Beira and Nacala in Mozambique, and the port of Dar es Salaam in Tanzania. However, only the two transport corridors to the ports of Dar es Salsam and Beira (from Zimbabwe) are currently open to traffic, and the other corridors in Mozambique are closed due to armed bandit activities in the area.  - 17 - 2.13 Closure of the South African transit routes will force nearly 3 million tons of international transit traffic to be diverted to these two ports, resulting in an unmanageable excess demand on the transit facilities; the main constraints will be in the port capacities. In the port of Dar es Salaam, significant congestion will be encountered until the end of 1989 when the on-going port improvement project (Cr. 1536-TA) will be completed. In the port of Beira, apart from the security problem surrounding the corridor, the proposed port rehabilitation project (scheduled to begin in 1988), will reduce the port throughput capacity by half until its completion in 1990. The net Impact of the two ,ort improvement works is that during the period between 1987 and 1991, demand for transport services will substantially exceed supply if transport routes through RSA were closed. This in turn may significantly reduce the trade acetivities of the independent Southern African countries. 2.14 In regard to the impact of such an eventuality on the viability of NTC, there are three factors to consider. First, Malawi will have a certain advrctage over Zimbabwe and Botswana in terms of having already negotiated the various procedural requirements for using TAZARA and the port of Dar es Salaam. Second, the required investments to operationalize NTC are ready for Implementation. Third, nearly 1 million tons of Zambian traffic will be diverted to the Tanzanian route if its access to the South African route is diminished, causing significant reduction in availability of TAZARA services for Malawian traffic. The third point is a major concern for Malawi, but given that NTC would be the only available transit route for Malawi, efforts to secure rolling stock and motive power from TAZARA would be the best possible alternative. Another possibility would be to increase the use of TANZAM Highway. The proposed NTC project, however, can only make an impact in the medium term (two to three years). Under these circumstances, the Malawi Government has begun to formulate a short term contingency plan to use the existing facilities on NTC until the required investments are in place. A few cargo handling equipment items will be procured and placed at Mbeya for transshipment. A freight forwarding and cargo handling company will be contracted to operate the equipment and to make arrangements with TAZARA aud the Dar es Salasm port authority to expedite the transport of Malawi cargo. Experience gained during this period will certainly enhance the ability of the Malawian authorities to efficiently utilize NTC once it comes into full operation.  - 18 - III. The Proiect A. Objectives. 3.01 The main objective of the project is to assist the Government of Halawi in improving NTC, thus enabling the route to handle one-third of Malawi's external traffic at reduced transport cost as compared with alternative southern routes through Zambia, Zimbabwe and RSA. The anticipated diversion of one-third of Malawi's transit traffic to the northern route is expected to reduce the far-reaching economic Coats attributable to the use of the lengthy and costly southern routes. An additional affect of the project is that the development and operation of NTC will alleviate high transport costs on the southern routes-for Malawi cargo by giving Malawi a stronger bargaining position in seeking reduction of transport charges on the southern routes. 3.02 In general, the project will contribute to the important objective of developing improved transport links between various countries of Southern Africa, thus facilitating the expansion of regional trade and industry. While the primary purpose of the NTC is to handle the transit traffic of Ma:awi, it will, in addition, serve as an expeditious route for trade between Malawi and Tanzania. The development of such international links is one of the primary goals of the SADCC. The project will also contribute to the expansion of regional trade between Malawi and Tanzania, as well as to the Government's policy objective of promoting greater economic integration of the country through development of the northern region (least developed in Malawi). 3. Proiect Scope 3.03 The project consists of: (A) improvement of roads including: (i) construction of a two lane, bituninous-paved road between Karonga (Malawi) and Ibanda (Tanzania)(54.6 km); (ii) rehabilitation of the Ibanda-Uyole bituminous-paved road in Tanzania (98 km); (iii) rehabilitation of the bituminous-paved Saliia-Balaka road (145 km), including a short access road to the port of Chipoka (2.5 km); and (B) construction and equipping of dry-cargo transshipment facilities in Tanzania, including: (i) MCC, near the port of Dar as Salaam, for the handling and temporary storage of dry cargo; (Ui) MCC, at the Mbeys railway station, for the handling and temporary storage of dry cargo; (iii) infrastructure improvements at the resettlement site; (C) construction and equipping of fuel storage and transshipment facilities in Tanzania including:  - 19 - (i) fuel storage and handling facilities for petroleum products near the port of Dar es Salaam; (ii) fuel storage and handling facilities for petroleum products at the Mbeya railway station; (D) procurement of railway fuel tank wagons to be used by TAZARA and tank containers for transport of jet fuel; (E) Lmprovements In facilities of LS on Lake Malawi, including: (iM procurement of a containerlfuel carrying vessel suitable for transport of exportlieVort traffic; (ii) construction of dry cargo and fuel storage facilities in Chipoka port and procurement of cargo handling equipment for the port; (iii) port improvements, construction of dry cargo and fuel storage facilities in Chilumba port and procurement of cargo handling equipment for the port; (iv) improvement of ship maintenance facilities at Monkey Bay including construction of a repair jetty, the provision of equipment for the maintenance workshop and rehabilitation of existing slipway; and (P) (M) construction of border post; and (ii) provision of a weighbridge at the Malawi/Tansania border crossing; (G) consultancy services for: (i) technical assistance to NTC it project coordination, project financial control, traffic facilitation and establishment of 1CC; (Ii) technical assistance to LS for cargo operations; (iii) supervision oft - A(i) and F(U); - A(i); and - B (iv) supervision of: - A(ii); and - C, D, E and F(i) (v) supplemental detailed engineering. (H) training of transport sector personnel.  - 20 - C. Detailed Proiect Descrintion Road Construction and Rehabilitation 3.04 The Karonga-Ibanda road (54.6 km), built quickly in 1984 as a high priority link to the TANZAM corridor, will be upgraded from a narrow, emergency gravel standard to two-lane bituminous-paved standard. Included in the construction are two sizeable bridges over the Songwe and Kivira rivers presently spanned by Bailey bridges. 3.05 Selected segments of the Ibanda-Uyole road (98 km) will be rehabilitated. The existing road has some steep grades but the horizontal alignment is relatively good. Its asphalt surface is also good except for some sections amounting to 12 km between Ibanda and Tukuyu. Reconstruction work will be done on those 12 km and, in addition, other spots as required based on detailed survey. 3.06 The Salima-Balaka asphalt road (145 km), which has deteriorated seriously throughout its length, will be rehabilitated. Though not a major bottleneck in the corridor, it is a main connection to the lakeshore road which is the preferred road for transporting NTC traffic, and also connects the port of Chipoka and the major commercial city of Blantyre. The work will include Improvements in road formation and drainage as well as resurfacing and paving of the Chipoka access road (2.5 km). MCCs 3.07 An inland freight station, MCC, is to be established outside the port of Dar es Salaam to avoid the problems within the port itself of a shortage of container storage area and the high incidence of loss and damage to Malawi cargo. A site less than a kilometer from the southern port boundary has been identified. The site would provide 10,000 m2 of covered storage area for break-bulk cargo, and an open area for container storage, providing 225 ground slots fo. containers based on gantry crane operation and an annual throughput capacity of 45,600 T%U. Project Improvements include concrete surfacing of 5,660 m2 of container stacking, 5,540 m2 of break-bulk storage area, 6,020 m2 of maneuvering area, provision of adequate lighting, construction of a workshop, construction of a 400 a port access road and installation of 850 m of railway track within the storage area. Equipment procurement includes 16 tractor trailers to move cargo between shipside and MCC, 14 forklifts (3 tons each) and a gantry crane for container handling. Optimal storage and equipment requirements were determined on the basis of a system study taking into account traffic flows and performance factors for equipmenr of various types. 3.08 At Mbeya another MCC will be constructed in the northwestern part of the TAZARA railway station. A container stacking area of 1,970 m2 is to be concrete-surfaced. A break-bulk stor6ge shed of 4,460 m2 will be constructed as well as 4,800 m2 of maneuvering area and a workshop. Equipment procurement will consist of 5 forklifts (3 ton capacity each), a gantry crane for container handling, and workshop equipment. 3.09 The current residents at the designated site for HCC Dar es Salaam will be resettled in an area 9 km outside the city center (para. 3.38). Infrastructural Improvements are required on the new site. These Include:  - 21 - (i) improvement of the .xisting road to gravel standard (3.0 kmn), (ii} construction of a new gravel road (1.5 km); (iii) extension of electrical line; (iv) construction of a borehole well; and (v) construction of a dispensary. Fuel Storage and Transshiument Facilities 3.09 Separate fuel storage and handling facilities for Malawi petroleum protucts moving through NTC will be required because Malawi and Tanzania have adopted different atandards for these products. In Dar &a Salaam Malawi requires storage for petrol and diesel of 7,500 =3 and 14,000 respectively. A site identified for the fuel storage is located adjacent to MCC Dar es Salaam. For jet fuel and illuminating paraffin, storage can be shared with Tansania as the standards for these products in the two countries are about the sase and no additional storage is needed; fuel handling facilities in the port of Dar es Salaam for these products are adequate for the needs of both Malawi and Tanzania. 3.10 In Mbeya, no fuel handling capacity exists; fuel storage of 1,900 =3 for diesel and petrol will be provided under the project adjacent to the proposed site for MCC Nbeya. In addition, 5 unloading points will be installed for emptying rail tankers and 5 loadiug points established for filling road tankers. The optimum storage and pumping facilities were estimated on the basis of a system study which took into account the estimated flow of traffic and performance factors for pumping. Railway Tank Watons and Tank Containers 3.11 In view of the limited inventory of tank wagons in the TAZARk fleet and to ensure that such wagons are available for Malawi fuel transit, the project includes procurement of about 22 tank wagons for the railway (to be owned by MR and operated by TAZARA). These wagons will be sufficient to move the anticipated volume of Malawi's diesel and petrol on the line. Jet fuel, however, must be transported by a different tank dedicated to it to ensure purity of the product. About 33 tank containers will be procured to carry the estimated annual jet fuel throughput of 5,000 tons. Improvements for LS 3.12 A new 600-ton pontoon vessel will be procured for LS, suitably designed to carry the type of exportlimport traffic expected to move in volume on the lake. The new ship will be capable of handling break-bulk, containers, and fuel. Because of limited volumes of each type of cargo, however, some compromise in design is required. For the commodity mix and traffic levels projected, various types of vessels were considered and a 600-ton vessel with capacity to carry fuel, break-bulk and container was cho3en as most suitable. 3.13 NTC traffic on the lake will be transported mainly between the northern port of Chilumba and the southern port of Chipoka. The capacity of Chipoka port will be expanded to accommodate the anticipated traffic. A container stacking area of 730 m2 will be concrete-surfaced, break-bulk storage of 670 m2 and workshop will be constructed; in addition, the port will obtain a gantry crane, 3 forklifts (3 ton each) and minor changes in the fuel handling system will also be made.  _ 22 - 3.14 The port of Chilumba w*ll require additional cargo handling equipment, expanded storage capacity and a gantry crane. Specifically, the port will be provided with 6 forklifts of 3 tons each, 1 forklift (6 tons) and a gantry crane. A container stacking area of 1,830 m2 will be concrete- surfaced and a storage shed of 2,600 m2 will be constructed. Minor changes in the fuel handling system will al60 be introduced. 3.15 Improvements are required in the ship repair facilities at Monkey Bay to service vessels and shorten their annual overhaul periods. A new jetty will be built to allow two vessels to berth on either side while also providing direct access to the floating dock. In addition, a workshop will be provided with suitable machinery and tools. Border Post and Weighbridges 3.16 A border post and staff housing will be constructed and a weighbridge installed at the Karonga-Ibanda road border crossing. As agreed by the Malawian and Tanzanian governments, the border post will be opened twenty four hours a day to allow continuous flow of traffic. Consultancy Services 3.17 LS management is in need of strengthening in the fields of marketing, positioning and schedu2ing of vessels, port operations and maintenance and vessel repair. Therefore, the project Includes 84 man- months of technical assistance for purposes of providing advice and training In these Important areas. 3.18 Technical assistance is also included in the project for a project coordinator and a financial controller (72 man-months) to enhance the capabilities of IMC to coordinate project Implementation and facilitate the flow of traffic over NTC, as well as to assist in establishing MCC. 3.19 Consultant services will be engaged for the purposes of supervising the construction work and equipment procurement involved in above-described project components. During negotiations agreements were reached with Government that consultants for services in this project component will bs employed under terms and conditions sctisfactory to the Association (para. 6.01(b)). Training of Transport Sector Personnel 3.20 Training for Government staff in the transport sector has also been included for higher degrees in transport economics and several short courses in areas such as transport management, economic and financial analysis to be held at institutions such as the Eastern and Southern Africa Management Institute (ESAMI) in Arusha, Tanzania. Status of Proiect Preparation 3.21 Detailed engineering of the Karonga-Ibanda road which was carried out by a Greek firm in association with a UK firm has been completed. The contract for the works has recently been awarded. The detailed engineering for the rbanda-Uyole road, undertakon by an Italian firm, has also been completed. The Salima-Balaka detailed engineerlng, financed under the Fifth  -23- Highway Project, has been completed. The tender documents were issued to bidders In September 1987 and bids were received in early December 1987. The preliminary engineering for the LS improvements and the MCC8 was completed in July 1986. However, delays in completing the final engineering and preparing the tender documents were experienced due to a change in the sites designated for the MCCs and revisions to the design specifications for equipment and civil works at the lake ports and the MCCs. The derasled engineering and the preparation and issue of tender documents for all the civil works and equipment components for the LS improvements were completed in August 1987 and those for the MCCs are expected to be completed by March 1988. The contract for the preliminary and detailed engineering for the LS improvements and MCCs was awarded to GITEC, the firm of consultants that conducted the feasiblity studies for these components. Financing for these works was provided by the Association under the Fifth Highway Project supplemented by an advance from the Project Preparation Facility to cover the increased scope of work as a result of the revisions in design specifications and the changes in the site for MCC Dar es Salaam. 3.22. The sites where the two MCCs and fuel facilities will be erected have been identified. All the sites are under the jurisdiction of respective City Councils (Dar es Salaam and Mbeya) and lease agreements for each site have been prepared and are to be signed by MIHC (Malawi Railways Holding Company) and the City Councils (included as a project condition for the ODA grant). As for the Karonga-Ibanda-Uyole road, both governments have agreed on the constructionlrehabilitation works to be carried out on this road and have agreed under the bilateral agreement (para. 2.10) to maintain the road once it is constructed. Total delay of 14 months was experienced after negotiation in October 20, 1986 due to delays in signing of the bilateral agreement (condition of Board Presentation) and complications in securing the site for the construction of MCC Dar es Salaam. Cost Estimates 3.23 The total cost for the project, including contingency allowances, is estimated at IlK 252.5 million or US$109.8 million. Total cost includes (a) physical contingencies of 101 of base cost on all items and (b) price contingencies amounting to about 12.1Z of base costs on all itmem, ircluding physical contingencies, for an estimated implementation period of 6.0 years after Board Presentation. Escalation rates for foreign costs have been applied to the foreign component and local escalation on the estimates for local costs in the calculation of price contingencies (Table 3.1, footnote bi). Escalation estimate for local inflation in 1987 was 15S. It is assumed that any persistent divergence between local and foreign cost escalation will be corrected by exchange rate adjustments. The foreign exchange component is estimated at MK 209.2 million (US$91.0 million). Identifiable taxes and duties are about HK 3.5 million (US$1.5 million), and the total project cost net of taxes and duties is MK 249.0 million (US$108.3 million). 3.24 The length of the implewentation period is based on past experience on similar projects as reflected in the relevant standard disbursement profile. It is, however, possible that if the project is  - 24 - Table 3.1 Estimated Prolect Cost. 2/ WM hII oe US mllioten Locel Fer snTi Xstal Local Forelg Totl Forel. A. Road Construction (a rouse tgwe (46ke) 7.67 17-.6 25.7 J.34 7.70 11.12 76 tb Song-lbend (5 k-) - 6.2J S.23 - 2.27 2.27 16I (it) Ibanda-1Uyole (98 km) - 31.9 U.99 - 13.9) 13.91 1to (lli) (t) Stlims-Jet.U16 (63 ka) 4.24 9.91 14.16 1.64 4.11 0.15 is b) ChIpoka Access (t2.6 k) 6.14 6.25 6.39 6.00 6.1S1 .17 67 c1 Jet. M16-Uslaka (62 ha) 4.42 16.39 14.72 1.92 4.46 6.46 Subtotil 1i7 i6.Hi 9. vm1 " E 4Jl U S. Mlwi Cargo Center ( a) r cry Cop - 23.16 23.16 - 19.97 16.O7 in (it lbeyo Dry ar - 13.36 13.36 - 5.1 6.61 1I4 Vit SquatteuRttt_tsnt - 1.68 1.68 - 0.73 6.73 16 Subtotal - JE SEW 1ER - I1 C. fuel H 4itnn IjI Dar4FiiiFStorag - 11.68 11.68 - 6.08 6.08 16 (tt) Mboyn-Fu.l Storags - 5. 5.24 2.26 2.26 io Subtotal - Jr11JrS vurvu t 0. Fuel Trnnert 13 Tank continers 1.04 1.04 - 0.45 6.45 164 (i) Rall tank wages - 2.42 2.42 - 1.065 1.5 164 Subtotal - a r.4 = l C C i E. Loke Fae lit?.s p) V"sel 1.61 2.99 4.60 6.76 1.30 2.06 65 (Ii) Chipok& Port 1.22 6.95 6.17 0.68 3.e2 3.55 es (tii) Chilumba Port 1.82 16.26 12.10 0.79 4.47 5.26 6s (IV) olnkey Bay Shipyard 1.45 6.62 7.27 o.63 2.53 3.16 of Subtotal 2li 2P SET.i n in! I1.2 71 F. Border Post S Weigh Bride ,1) Border Pet~ 6.56 6.56 1.16 0.25 0.25 0.560 s (tt) Weig Brg e 6.02 0.30 0.82 0.01 0.13 0.14 90 Subtotal 0e Fs r14 7l F. a :ii ia 0. Con wIttns S rice ltr.A er. 0irc 6.32 1.34 1.66 0.14 0.56 6.72 W 5I,I T.A. - Lake Servies 0.26 1.08 1.36 0.12 0.47 0.59 so (iti Superviston of: 4(1)* F(tli) 0.96 3.92 4.90 0.43 1.70 2.18 a A(1?) 0.46 1.91 2.39 0.21 S.63 1.04 Uo B 6.37 1.46 1.62 6.16 6.63 6.79 of (IV) Supervision of: 4(111) 0.46 1.91 2.39 6.21 D.63 1.64 80 C, 0, E & F(t) 0.62 2.51 3.18 0.27 1.09 1.3t as (v) Supplementary detail d Engieering - 3.46 8.46 - 1.60 1.560 16 Subtotal 1.37 I1B 2C 147.47 77 38 M. Trainina (I) Staff Training - 0.68 0.68 - 0.26 6.26 164 Subtotal - CF 6 87a U1 B 0C Base Cost A-H 26.s 178.63 206.06 11.54 77.61 66.15 67 1. Conttin as Physical (lSO 2.65 17.51 20.16 1.16 7.61 6.77 es Prie (12.1)* 14.14 13.13 27.27 6.83 5.62 11.95 C0 Subt4t0 -. M 0I6 47.48 7 TI iTM lV.42 u TOTAL PROJECT COST 43.82 269.17 252.49 16.73 91.64 169.7 63 TOTAL PROJECT COST (net of taxes) 89.65 269.17 249.62 17.22 91.04 108.26 84 / Noveber 1937 prices Di Expected price increase (U) 1967 1963 1969 1996 1991 1992 1993 Ialaui (local cost) 1 Cr "-r 12 --Ir 4 -- Foreign (interantional) 1.0 2.5 2.5 2.5 2.2 2.2 2.2 Decebr 197  - 25 - implemented more efficiently and with fewer delays, the implementation period could be reduced to 3.5 years. This would result In project costs being reduced by about 82 or from US$109.8 million to US$101.0 million, and improve the ERR by 51 to 211 (para 5.32). 3.25 The base costs are estimated as of December 1987 and have been derived as follows: (a) Road Construction and Rehabilitationt The cost estimates for construction of the Karonga-Ibanda and Ibanda-Uyole roads are based on quantities derived from detailed engineering and on the consultants' estimates of unit costs, in turn based on considerable experience from similar construction work In both Malawi and Tanzania. The cost of the Balaka-Salima road rehabilitation is derived from detailed engineoring and on the consultants estimates of unit cost for similar work currently being executed under the Fifth Highway Project. The foreign exchange component is assessed at 70X of total cost for work in Malawi and includes all elements except labor and taxes. Work in Tanzania is considered as 1001 foreign cost. (b) MCCs: The costs of the civil works are based on detailed engineering and the consultants' estimates of quantities and unit costs obtained from recently tendered contracts for similar works in TanzaDia. The cost of the equipment is based on information received from equipment manufacturers and suppliers. The costs of civil works for the resettlement area improvements are estimces based on recent experience in the area. (c) Fuel Storane and Handling Facilitiess The consultants prepared detailed estimates of quantities. The unit rates were derived from the consultants' data base on international construction projects. (d) Railway Tank Wagons and Tank Containers: Unit prices for tank wagons and tank containers have been obtained by direct enquiry from suppliers. (e) LS Facilities: For the civil works, an early tender was called for due to uncertainty in the strength of the existing structures, particularly at the port of Chilumba. Bids were received and found to be higher than the consultants' estimate. The report has incorporated the most recent cost data. The cost of the vessel has been estimated by the Bank mission and includes prefabrication in the suppliers country and transport to and assembled in Halawi. Cargo and container handling equipment has been costed based on information from suppliers.  - 26 - (g) Consulting Servicess The technical assistance for LS and project coordination will require a total of 131 man-months of consulting seivices and has an estimated base cost of US$1.3 million. The total estimated cost also includes provision for the cost of vehicles, local travel, and other minor expenses. The supervision costs have been estimated at about US$6.0 million, corresponding to about 7S of the estimated construction and equipment costs, which is in line with recent experience in Malawi. (h) Border Posts -The price of border post sad related housing to be built at the border is based on actual cost of such houses and post built by MWS's force account units. (i) WeixhbridLe: The cost of the weighbridge was based on recent quotations to MTC. (j) Staff Trainings The costs of master's degree for two candidates (48 man-months at $3,000 per month) and 35 candidates for training at ESAMI at $3,000 per course per candidate have been based on similar components financed under the ongoing Fifth Highway Project and the experience of MWS. D. Financing 3.26 In view of the severe domestic resource constraints, the Government contribution to the project financing would be limited to 102 of the IDA-financed components (net of taxes) and to the tax component (US$0.8 million) on the KfW portion of the Salima-Balaka road. The project will require external financing of about US$106.9 million to cover the foreign exchange component of US$91.0 million and local cost amounting to US$15.9 million. The external financing will be provided as shown in Table 3.2, through an IDA credit of US$13.4 million, an EDF contribution of US$20.0 million, a KflW grant of US$18.9 million, ODA grant of US$19.3 million, USAID grant of US$18.0 million, and a Dutch grant of US$17.3 million. 3.27 The following conditions for financing will apply for the project: USAID has stipulated (i) signing of project agreement between ODA (UK) and Malawi Government and (ii) signing of the bilateral agreement between the governments of Tanzania and Malawi, as conditions of disbursement. Agreement with the Government was reached during negotiations that (i) signing of the ODA (UK) grant agreement with Tanzania would be a condition of IDA credit effectiveness (para. 6.01(c); and (ii) no later than September 30, 1988, all co-financing agreements between the Government and the donors involved in this project shall have become effective (para. 6.01(d)).  - 27 - Table 4.2 f l_s Plan tUt at I llon) Total A. Road Co truction tl} (*} Ibren" (460) 14.42 14.42 (b) Song.-Ib.nds (5 b) 12.68 2.,0 (t,) Ibanda-Uyolo (OS ha) 10.40 1.40 (;tii (a) S 0ima-Jlt.M16 (08 ha) 6.41 7.26 0.6 ~ b) ChipokF MoAns (2.3 km* 0.22 90.2f .02 Jet. VlI-l8l4 (62 km L.J 7LE4 - - -- Subtotal .10 7.04 17.06 7.4 14.40 2.08 B. Iaw Cargo C.nter (i) De Dry Cio7 11.18 18.51 1.87 (tt) Mbeya Dry Cargo 0.8 6.40 1.7? (1ii) Squatter Resettlemet _ 0.66 --.6 Subtotal 19.0 16.36 2.74 C. Fu l Hand1in 1 POP-FPol FSterge 19.4 6.94 (1i) Mbeya-Fuel Storage 19 - - -.09 SubtoOal 6.68 6.08 0. Fool Trn por (TJTiiik74iisiiiners .58 0.58 (Is) Rail tank wagon 1.24 - - 1.24 Subtotal .7 1.77 E. Lak Factilttes 1yv jf7_ 2.68 2.68 (i)t Chipoke 4.44 0.81 4.18 (iii) Chi luba Port CS. 0.36 0.06 (Iv) monkey say Shipyard jjj - - - 0. .23 Subtotal 17.62 2.65 1.40 18.49 F Border Post