Mozambique - First Roads and Coastal Shipping Project

Document ok' The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 10336-MOZ Type: tSAR) ALVAREZ, C/ X34386 / j311A9/ Ab'63N STAFF APPRAISAL REPORT THE REPUBLIC OF MOZAMBIQUE FIRST ROADS AND COASTAL SHIPPING PROJECT MAY 6, 1992 Infrastructure Operations Division Southern Africa Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank 'aithorization.  CURRENCY EQUIVALENT (as of November 1991) Currency Unit = Mozambican Meticais US$1.00 = Mt 1783.00 (Official) = Mt 1900.00 (Secondary) = Mt 2150.00 (Parallel) FISCAL YEAR April 1 to March 31 WEIGHTS AND MEASURES 1 meter (m) = 3.2808 feet (ft) 1 kilometer (km) = 0.6214 miles (mi) 1 metric ton (tonnes) = 1.023 short tons GLOSSARY OF ABBREVIATIONS ASDI (or SIDA) = Swedish International Development Agency ADT = Average Daily Iraffic AfDB = African Develop.ment Bank BADEA = Arab Bank for Economic Development in Africa BCM = Banco Comercial de Mocambique BM = Banco de Moacambique BPD = Banco Popular de Desenvolvimento BSTM H Banco Standard Tcta de Mocambique CCCE = Caisse Centrale de Cooperation Economique (France) CFM = Empresa Nacional ce Portos e Caminhos de Ferro de Mo,ambique, E.E. CNA = National Commission for the Environment DANIDA = Danish International Development Agency DCA = Development Credit Agreement DCE = Department of Civil Engineering, UEM DEP = Provincial Department of Roads and Bridges, DNEP DN Alfandegas = National Directorate of Customs DNEP = National Directorate o' Roads and Bridges DNM = National Directorate of Maritime Affairs DNTR = National Directorate of Road Transport ECMEP = Provincial State Enterprise for Construction and Maintenance of Roads and Bridges EDI = Electronic Data Interchange EEC = European Economic Community ERP = Economic Rehabilitation Program ERR = Economic Rate of Return ESRP = Economic and Social Rehabilitation Program FINNIDA = Finnish International Development Agency FOB = Free on Board  FOR OMCILM USE ONLY FR, * Fooder Roads program r a Federal Republic of ermany FY * Fiscal Year BAPROMAR a Bureau of Maritime Projects. MTC OC a General Consultant ODP * Gross Domestic Product 00K * Govornment of Mozambique GT1 - Gesellsechaft fur Technische Zusa_enarbeit (Germany) HNM Highway Design and Maintenance Standards Model IDA - Internatlonal Development Association WIP . international CompetLtive Bidding Ila . Industrial Institute Belra IIH . Induetrial Institute Maputo YBAHBIW a National Institute for Hydrography and Navigation KDF * Kuvait fund for Arab Economie Development fU a Kreditanetalt fur Wiederaufbau (Germany) LCB a Local Competitive Bidding LRC . Local Road Contractors LRCI - Local Road Construction Indubtry *-S a man-months MCA * Ministry of Construction and Water HOT - Hinistry of Transport and Communications MDF - Ministry of Finance HTPU - Mechanical Training Production Unlt NAVIQUE a State Navigation and Shipping Enterprise N.A. a Not Applicable NAB a Center for SCHQP Support NORAD - Norwegian Agency For Development Ns - Nautical School OVA - Overseas Development Administration (U K.) OZD * Operations EvaluatLon Department XOL - Open General License Facility p.a. - per annum PDP * Priority Districts Program PFI a Participating Financial Intermediary PPF Project Preparation facility PS - Port School 3OC Roads and Coastal Shipplng Projects RSA - Republic of South Africa RTPU a Road TrainLng Production Unit RTSIX - Road TraLning Specialists & Instructors Consultancy Services (a.k.a. Road Traning Technical Assistance Services) 3SSC - Road Technical Training Center SADCC * Southern Africa Development Coordination Conference SATCC - Southern Africa Transport and CommunLcations Commission SEAC - Southern and Eastern African Conference SDC a Swiss Development Cooperation SMZ - Small and Medium Enterprises 201 a Statement of Eapenditures TA a Tochnical Assistance TD . Training Department, DNEP SZ V Twenty-foot Equivalent Unlt (Container) TOR - Terms of Reference TRANSMARXTXMA - Maritime Passenger and reeder Cargo Transport Company TSC - Training Steering Cormitteo TS - Technlcal/Vocatlonal Schools USK - University Zduardo Mondlane UNCTAD - United Nations Conference on Trade end Development UNCDF " United Nations Capital Development Fund VNDP - United Nations Development Progre_ USAID - lnited States Agency for International Development vee " vehLcle operating cost vpd - vehicles per day m . Vorld Food Progrmme 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.  MOZAMBIQUE FIRST ROADS AND COASTAL SHIPPING PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. CREDIT AND PROJECT SUMMARY ..... . . . . . . . . . . . . . *... i-iv I. TRANSPORT SECTOR AND THE MOZAMBICAN ECONOMY . . . . . . . . . 1 A. Iutroduction . . . . . . . . . . . . . . . . . . . . . 1 B. Current Status of the Transport Sector . . . . . . . 3 C. Government Objectives and Strategy . . . . . . . . . 4 Transport Sector Strateg . . . 4 . . . . . . . . . . . 4 Physical Infrastructure ... . . . . . . . . . . . . . 5 The Policy Environment ... . . . . . ... . . . . . 5 Human Resources and Organization . . . . . . . . . 6 D. Uncertainty and the Transport Sector Strategy . . . . 6 The Security Situation ... . . . . . . . . . . . . . 6 Agricultural Uncertainty . . . . . . . . . . . . . . . 8 E. irevious Bank Involvement and Lessons Learned . . . . . 8 F. Rational for IDA Involvement . . . . . . . . . . . . . . 9 -I. THE ROAD SUB-SECTOR . . . . . . ...11 A. Introduction ......................11 The Existing Road Network . . . . . . . . . . . . . . . 11 Major Problems ....... .. .. .. .. .. .. . 12 B. Diagnosis of Current Problems . ..... . . . . . . . . 12 Lack of Security . . . ............. .. 12 Institutional Capacity of DNEP . . . . . . . . . . . . 13 Operational Policies and Procedures . . . . . . . . . . 13 This appraisal report is based on the findings of an appraisal mission which visited Mozambique in September-October 1991. The mission team consisted of Messrs. Carlos Alvarez (Transport Engineer & Mission Leader), John Roome (Economist/Financial Analyst), Kenjiro Kohriki (Ports Engineer), R. Gopalkrishnan (Procurement Specialist), Charles Powers (Sr. Highway Engineer, Consultant), Giuseppe Morra (Sr. Training Specialist, Consultant), Carlos de Castro (Transport Operations Specialist, Consultant), Ken Rogers (Equipment Specialist, Consultant), Svein Jorgensen (Shipping Operations Expert, Consultant funded by NORAD), Bjcrn Gildestad (Ports Planning Expert/Economist, Consultant), Magda Lara-Resende (Environmental Expert, Consultant) and Erik Broens (Port Management Specialist, Consultant). The Legal Officer for Mozambique, Ms. Teresa Genta Fons, conducted appraisal of legal aspects during a separate mission in December 1991. The Peers Reviewers for this project are Messrs. Asif Faiz (INUTD), Thampil Pankaj (AF4IN), and Sture Karlsson (APTIN). The Chief of the Managing Division is Mr. Isaac K. Sam and the Director of the Managing Department is Mr. Stephen Denning.  Staffing and Manpower Development. . . . . . . . . . . 15 Road Funding .a. .. . . . . . . . . . . . . . . . .. 16 The Vehicle Fleet . . . . . ... . . . . . . . . . . . . 17 C. Strategy for Chang e . .................. 17 General . . . . . . . . , . . . . . . . . . . . . . . . 17 Staffing and Manpower Development... . . . . . . . . 18 Organizational and Operating Procedures . . . . . . . . 19 The Vehicle Fleet . t............................ 21 D. FinJacing and Resource Mobilization . . . . . . . . . . . 21 III. TEII COASTAL SHIPPING SUB-SECTOR. . .... . ..099999999 ... 23 A. Introduction . . . . . . . . . . . . . . . . . .. .. . . 23 D. Current Status and Issues . . . . . . . . . . . . . . . . 23 CoastalShipping ................... 23 Feeder Shipping................... 23 Regional Ports . . . ... *** e*0e* 9 24 Sma Local Ports . . t.. . .... ... . . . . . .. 24 InstitutionalWeakiLawse . 25 Custom and Trade Facilitatio. ........... 26 C. New Policy Framework and Coastal Shipping Strategy . . . 26 Coastal Shipping Recovery Strategy . . . . . . . . 27 Implementing a Now Regulatory Framework . . . . . . . 27 Structure of the Shipping Industry . . . . . . . . . . 27 Restructuring Coastal Shipping . . . . . . . . . . . . 28 Feeder Shipping Strategy ............... 29 Small Ports Recovery Strategy. . . . . . . . . . . . . 29 Regulatory Reform ...... ............ . 29 Investments in Small Ports .9.9. .9.99.9.9. .. 30 NavigationnlAid s .... . .............. ...... 32 institutional Capacity . .............. . 33 IV. THEPROPOSEDPROJCC ....................... . 34 A. Objective . . . . . . . . . . . . . . . . . . . ... . 34 B. Overall Project Scope . . . . . . . . . . . . . . . . . 34 C. .Mscription of the Roads Component . . . . . . . . . . . 36 institutional Support .Spo........ ...36 Mmnpower Development and Training . ... . . 9 . 38 Planning and Engineering Service . . . . . . . . . . . 39 Development of Local Road Contractors . . . . . . . . . 40 Trucking . . . . . . . . . . . . . . . . . . . . . 41 D. Description of the Small-Ports and Coastal-Shipping Component . . . . . . . . . . . . . . . . . . . . . 42 Institutional Support and Policy Reform . . . . . . . . 42 Manpower Development and Training. .......... 44 Credit Line Investments.............. 44 Supporting Port Infrastructure Investments . . . . . . 49 Shipping Investments .....Sa.iO50 Freight Transfers and Custom Facilitation . . . . . . 50 E. Cost stimates . ...... . . 9. . . . . . . . . .9.. 52 F. Financing . . . . . . . . . . . S 9 9 & 9 * 9 9 9 9 9 52 G. Implemntation and Project Monitoring . . . . . . . . . . 53 1. Procurement . .. .. .. . . . . . .... . . . . . .. 55 1. Disbursement . . . . .. . . . . . . . . . . . . . . .. 56 J. Accounting, Auditing and Reporting .... . . . . . . . 58 K. Supervision . . . . . . . . . . . ...... ... . . . 58  V. Is%ONOMIC JUSTIFICATION AND RISKS . . . . . . . . . . . ... 59 A. Project Justification . . . . . . . . . . . . . . . . . . 59 B. Roads Components . . . . . . . . . . . . . . . . . . . 59 Feeder Roads Program .................. 61 C. Coastal ghipping Components . . . . . . . . . . . . . . . 62 D. Technical Assistance and Training . . . . . . . . . . . . 62 E. Impact on Areas of Special Attention . . . . . . . . . . 63 Poverty Reduction . . . . . . . . . ua. .. . . . . . . 63 Role of Women and Other Traditionally Disadvantaged Groups . . . . . . . . . . . . . . . . . . . . . 63 Environmental Impact . . . . . . . . . . . . . . . . . 64 The Private Sector .................. 64 F. Project Risks . . . . . . . . . . . . . . . . . . . . . . 65 Security .......... ....... 65 Institutional Capacity . . . . . . . . . . . . . . . . 66 Fudng u nding o..o ..0* . 69 VI. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . . . . . 70 A. Agreements Reached at Negotiations . . . . . . . . . . . 70 D. Conditions of Credit Effectiveness . . . . . . . . . . . 73 C. Conditions of Disbursement . . . . . . . . . . . . . . . 73 D. Recommendation . . . . . . . . . . . . . . . . . . . . . 74 1-1 Major Policy Reforms 1-2 Past Lending in the Transport Sector in Mozambique and The Lessons Learned 2-1 Procurement Study - Terms of Reference 2-2 Equipment Management - Terms of Reference 2-3 The Road Fund - Terms of Reference 2-4 Overview of Road Transport Operations 2-5 Roads Organizational Structure 2-6 The Feeder Roads Program 3-1 Current Status of Each of the Small Ports 3-2 Outline of Proposed Shipping Patterns 3-3 Institutional Arrangements for the Management of the Ports 3-4 Traffic Scenarios for Coastal Shipping in Mozambique 3-5 Proposed Organizational Structure and Responsibilities for Coastal .hipping 3-6 Intermodal Trade Facilitation and Customs 3-7 Summary of NORAD assistance to Coastal Shipping 4-1 Summary of Technical Assistance and Studies for Roads 4-2 TOR for the GC - Roads 4-3 Training Annex - Roads 4-4 Trunk Roads to be Rehabilitated, by Years, Showing Distances 4-S Selection Procedures and Criteria for Rural/Feeder Roads 4-6 Trucking Action Plan and Components 4-7 Summaary of Technical Assistance and StudLes for Coastal Shipping 4-8 Training Annez - Coastal Shipping 4-9 Investments to be Made in Each of the Small Ports 4-10 Financial Sector in Mozambique  4-11 Implementation Arrangements for tha Credit Line 4-12 Regulatory Technical Assistance - Terms of Reference 4-13 TransLt Logistics and Customs Facilitation - Proposed Action Program 4-14 Table of Cost Items Showing Local Costs, Foreign Costs, Units, X Local, Principal Donors. 4-15 Cost Table and Donor F4nancing 4-16 Implementation Plan 4-17 Draft Framework for Review of Technical Assistance 4-18 Supervision requirements for next 3 years for IDA components 4-19 Reporting Requirements and Format (standard for all donors) 4-20 Technical Assistance - Transfer of Expertise Guidelines 4-21 Summary of General Technical Assistance 4-22 Civil Works Contracts 5-1 Summary of Economic Analysis - Roads investmerts 5-2 Summary of Economic Analysis - Port investments 5-3 Environmental Issues MAP: IBRD No. 23129  THE FOLLOW=I DOCORIIUTS AUE AVAILnARR II TME PROJECT FILEs I. Roads 1. IBRD Report No. 88.. d-Z. *Transport Sector Review" (two volumes), October 31. 1989. 2. FAO Report No. 151/91 CP-MOZ 23 PUP. 'Rural Rehabilitation Project, Preparation Mission", December 20, 1991. 3. UNDP Project Document D0191/ / / . 'Management Assistance to Labour-based Feeder Roads Rehabilitation and Maintenance Programs, Phase IV, August 1991. 4. *National Transport Survey-Main Report' by consultants VIAK (AB) and Hoff & O0ergaard, September 1978. 5. 'Estudo Nacional de Transportes-Volume I, Relatorio Final' by consultants VIAX(AB) and Hoff S Overgaard, September 1978. 6. "Report on Paved Road Maintenance Study' by Roughton & Partners, March 1987. 7. 'Components de Desenvolvimento Rural no PTIP (Distitos Prioritarios) - versao qzase-finalw by GOM. 1990. 8. 'Report on the Feasibility Study for the Road LN 262 Between Moamba and Sabie' (3 volumes) by consultants CONSULTEC and VWL International, January 1992. 9. 'Report on the Feasibility Study for Roads EN106 and EN242 Between Pemba and Montepuez' (3 volumes) by Van Wyk & Louw, Inc., December 1991. 10. Report on the Feasibility Study for Road ENS Between Nampula and Macala' (3 volumes) by CONSULTZC and VVL International, December 1991. 11. 'Marracuene-Manhica Road Feasibility Study, Vol. 1 Text - Final Report' (4 volumes) by DKJM International, January 1992. 12. "Draft Report - Feasibility Study for Rehabilitation and;or Upgrading of Quelimane-Namacurra Road' by RITES, October 1991. 13. 'Final Report - Feasibility Study for Road R*habilitation, Vanduzi-Changara Roadw by Civil & Planning Partnership. February 1992. 14. 'Staff Training and Development Plan' by Scott Wilson Kirkpatrick and Crown Agents, December 1991. 15. 'The Accounting Report' by Scott Wilson Xlrkpatrick and Crown Agents, December 1991.  16. Technical Report D' by Scott Wilson Kirkpatrick and Crown Agents, June 1991. 17. 'Technical Report C - The Five Year Plan' by Scott Wilson Kirkpatrick, Feb,uary 1991. 18. Final terms of reference and associated solicitation documents for consultancies for for: (i) General Consultant to DNEP; (ii) Road Training Technical Assistances (iii) Equipment Evaluation; (iv) Road Technical/"ocational Specialiet (RTTC evaluation); (v) Study of the Local Road Construction Industry; and (vi) Study of Procurement Procedures. 19. Ministerial Resolution designating DNEP as the GOM unit responsible for mangement and Implementation of ROCS-1 project. 20. Ministerial Resolution transferring MCA Training Center in Chimoio to DNEP. 21. Letter from Minister of Construction and Water formally adopting the Policy Statement on Training (for roads). 22. Copy of the 'diploma de criacao das ECMEPs' being processed by OM to legalize some parastatal construction/maintenance enterprises as autonomous coumercial entities. 23. Letter from DNEP affirming that GOM has no objection to the Bank divulging that portion of any DNEP road feasibility study which deals with environmental sssessment. 24. Map of the current classified national road network of Mozambique. 25. Map showing rehabilitation and maintenance works in the current DNEP five-year plan. 26. Various extracts of reports and data sheets relative to road kilometrage and condition by province; current unit prices for maintenance and rehabilitation works; work accomplished by provincial parastatal ECHEPs; recent and projected DNEP budgets, etc. II. Coastal ShipDing 1. *Development of Coastal Shipping in Mozambique - Preliminary Report on the Legal and Institutional Aspects' by Legal Consultant Services, February 1992. 2. 'Port Investment Appraisals - Mozambique' by Nordic Consultancy Group, November 1991. 3. 'Relatorio da Hissao de Avaliacao do Proyecto GAPROMAR' by Cooperation Francaise, November 1991. 4. "Mozambique Coastal Waterways Project (MC)t Feasibility Study Presented by the DELMAS Group', December 1991.  5. Final Report - DIivelopmnt of Coastal Shipping in Mozambique" (2 volumes) by 80GR1, October 1991. 6. 'Project Review of Maritims Sector - Mozambique' by NORAD. Septes0kr 1991. 7?.Outline Proposal for the Privatization of NAVIQtISZ by Nordenfjeldske Dampskilsselskab AS, October 1991. 8. 'Coastal Transport Studies - Mosambique (1: Passenger Transport), by the Norwegian Institute of Transport Sconomics, July 1989. 9. 'Development of Coastal Shipping - Final Report on Visits to Small Ports' by DANPORT, October 1991.  REPUBLIC OF MOZAMBIQUE FIRST ROADS AND COASTAL SHIPPING PROJECT CREDIT AND PROJECT StMKARY Borrowers Republic of M4ozambique Beneficiaries: The Ministry of Transport and Communications, National Directorate of Maritime Affairs, Bureau of Mar4time Projects, National Directorate of Road Transport, ti" finistry of Construction and Water, National Directora f Roads and Bridges, the Ministry of Finance, National oirectorate of Customs, and the Banco de Mocambique, of the Borrower. Amounts SDR54.1 million (US$74.3 million equivalent) Terms: Standard IDA Terms, with 40 years maturity OnlendiUg Terms: The Borrower will pass on US$5.8 million equivalent to the Banco de Mogambique (Central Bank), which would lend the funds to qualified PFIs under terms and condition satisfactory to IDA. Onlending interest rates charged by PFIs to sub- borrowers would be positive in real terms and will be periodically reviewed by IDA (interest rates are being liberalized under IM and IDA supervision). The foreign exchange risk would be borne by the Government. Co-financing: The Project, with a total estimated cost of the equivalent of US$144.7 million, is expected to be parallel co-financed by AfDB, BADEA, DANIDA, EEC, France, FINNIDA, Germany, NORAD, RSA, SDC, ASDI (SIDA), Spain, UNDP, UNCDF and USAID. As shown in the Financint Plan (page iv), total external financing amounts to the equivalent of US$123.8 million, with GOM contributing US$20.9 million, plus annual road maintenance budgets, from its own resources. The annual budget requirements are within the ceilings set in GOM's 1992-94 Public Investments Three-Year Plan (PTIP). Proiect Objectives: The primary objJctives of the Project are to: (i) develop the institutional capacity in MCA and MTC necessary to effectively plan and supervise the rehabilitation and maintenance of roads and the efficiency improvement of small coastal ports serving the priority districts, and (ii) implement policy reforms in the trucking and coastal shipping sub-sectors, required to effectively support the ESRP and the agricultural development contemplated in GOM's PDP. In particular, ROCS-1 would begin IDA's long-term assistance to GOM in developing the institutional and managerial capacity and the pct'icy and regulatory framework required to successfully implement and sustain transport improvements through this and forthcoming projects.  - il - Proiect Descriptions The proposed Project includess i) technical assistance to DNH/GAPROHAR and other coastal shipping organizations, and to DNEP, intended to provide guidance and assistance during implementation of this and the two proposed subsequent ROCS projects, includings (a) overall project management, (b) policy end regulatory reform, (c) facilitation of greater private sector involvement (awarding port management contracts, preparing transport state enterprises for diveititure), and (d) development and preparation of subsequent phases of a long-term roads and coastal shipping transport sub-sectors improvement programs (ii) the first five years of a comprehensive training pro&ram for road and coastal shipping personnel; (iii) studies and implementation of recommendations for policy and regulatory reform in road financing, procurement, trucking, and the local road contractors industry; (iv) initial assistance for intermodal facilitation, and for customs efficiency improvement; (v) small ports investments in infrastructure and in cargo handling equipment and tugs - the latter to be funded through a credit line, in five of the fifteen tertiary ports and in one of the five regional ports; (vi) investments in small port navigational aids and communications; (vii) final desiKn and preparation of tender documents for rehabilitation of about 1,800 km of priority primary roads (approximately 35Z of the paved national network); and (viii) the first phase of a long-term nationwide Feeder Roads Program (FRP), for the rehabilitation and maintenance in 22 priority districts of approximately 12? of the estimated 21,000 km feeder road network. Justification and Risks: Unless accessibility to primary agricultural areas is improved and transport costs are reduced, the economic recovery programs cannot be sustained and, without significant policy reform and institution building, existing transport bottlenecks will not be overcome. Therefore, substantial quantifiable and non-quantifiable short and long term benefits are expected from the Project, particularly in terms of institutional capacity and policy and regulatory reform necessary for the massive rehabilitation and efficiency improvement of the transport sector required upon attainment of peace to support agricultural production recovery, increase employment, reduce food costs, alleviate poverty and famine, increase export of cash crops, and reduce GOM's financial burden imposed by its transport state enterprises. There are significant risks, particularly the unpredictable security situation due to the ongoing hostilities, which may delay Project implementation or increase costs. The current lack of coordination between Government agencies involved in the transport sector and their limited institutional capacity are  - iii - also potential risks. Flexible design, substantial technical assistance, training and supervision, frequent formal reviews, and early implementation of policy and regulatory reform have been included in the Project to reduce the risks. The proposed Project is the second operation in the transport sector and the third investment in physical infrastructure supported by the Bank Group in Mozambique. It is also the first project addressing policy and regulatory reform in the infrastructure sector. Lessons learned from the Beira Transport Corridor Project (Credit No 2065 MOZ), in which IDA's participation includes significant capacity building and technical assistance, and from the road and street rehabilitation and maintenance component of the Urban Rehabilitation Project (Credit No. 1949 MOZ), have been given full consideration in the detlgn of this new operation, particularly in terms of addressing problems and delays in procurement of goods and services, and of providing for the prevailing lack of implementation capacity. Project design has taken full account of experiences described in the recent OED Report No. 8573: Free-standing Technical Assistance for Institutional Development in Sub-Saharan Africa, by including performance-based procedures for coordinating and monitoring the Project's TA. Cost Istimates, Costs (USf li IIIon) A INSTITUTIONAL SUPPORT 1 Roads TA -ndStudies 5.7 28.9 29.6 2 Roads Training and D.v-lopmnt 10.1 18.2 26.2 a Trucking Studies 0.1 0.6 0.5 4 Coastal Shipping TA & Studies 1.5 6.7 8.2 b Shipping Training and Devolop. 0.' 1.5 1.9 6 Custom4 A Trade Facilitation 0., 0.7 0.0 7 Transport Sector Institution 0.4 1.6 2.0 8 Environmantal Division 0.1 0.6 0.7 Sub-total Part A 13.8 8.a6 71.9 B ENGINEERING SERVICES 0.0 0.0 0.0 1 Roadn 1.8 7.2 9.0 2 Coastal Shi punm 0.1 1.2 1.8 Sub-toal Part e 2.1 12.4 14.5 C COASTAL SHIPPING REHABILITATION 0.0 0.0 0.0 rTrdit Lin Invostents 1.0 5.5 6.5 2 Other Port Investments 0.7 8.7 4.4 Sub-total Part a 1.7 9.2 10.9 D FEEDER ROAD REiJAIUTATION 11.6 9.9 21.5 TOTAL SASM COST 8. 65.1 118.8 Physical Contingencls 2.4 5.2 7.6 Price Continoencles 5.6 12.7 18 TOTAL COST 41.7 0io2.9 44  - Lv - Financing Plan: SOURCE AMOUNT Percent (US$ million) IDA 74.3 51.3 OTHER DONORS 49.5 34.2 SUB-TOTAL 123.8 85.5 MOZAMBIQUE 20.9 14.5 TOTAL 144.7 100.0 Estimated Disbursement of IDA Credit: (US$ millions equivalent) IPA FY9 FY94 FY96 FY96 FY96 FY07 ANNUAL DISBURSEMENTS 74.8 10.2 16.6 16.6 15.7 7.9 8.1 Annual Percentage 14X 25X 25X 21X llX 4X C5UULATIVE DISBURSEMENTS 10.2 26.5 47.6 S.8 71.2 74.8 Cumulatlve Percentage 14X ass 64X 4C% 96 1O0X Econamic 14Z to >150Z for feeder-road rehabilitation; >15Z for trunk- Rate of Return: road rehabilitaion with minimum traffic. Estimated to be in excess of 12Z for coastal shipping investments. map: IBRD No. 23129  MOZAMBIQUE FIRST ROADS AND COASTAL SHIPPING PROJECT I. TRANSPORT SECTOR AND THE MOZAINBICAN ECONOMY A. Introduction 1.1 For the last two decades the economy of Mozambique has experienced a substantial decline in output as a result of : (i) the war of independence and the internal civil strife that followed independence; (1i) the ensuing exodus of Portuguese skilled workers; and (iii) mostly exogenous constraints which precluded the adoption of adequate economic policies. Between 1980 and 1986 in particular, overall production fell by about a third while exports declined by approximately 752. At the same time external imbalances, aggravated by an overvalued currency, resulted in significant arrears in external debt servicing, while internal fiscal deficits and subsidies required by state enterprise tripled the money stock, despite a shrinking output. Administrative controls on prices and ineffectual allocation of goods created inflation, and barter and parallel markets for goods and foreign exchange. These produced such an inadequate allocation of resources that a series of corrective measures applied between 1980 and 1986 were not able to stimulate any economic recovery. By 1988 per capita GDP had fallen to about $120, making Mozambique one of the poorest nations in the world. As a consequence of the ensuing economic chaos and the insecurity brought on by the civil war, large elements of the population either fled the country, or have taken refuge in urban centers, with resulting chronic unemployment, poverty, famine and desperation. It has been estimated that two thirds of the population live in conditions of extreme poverty. 1.2 In 1987 the Government of Mozambique (GOM) launched the Economic Rehabilitation Program (NIP) to revitalize the economy and correct its structural distortions. The URP addressed both external factors (such as debt rescheduling and improvement in the utilization of foreign assistance), and internal macroeconomic and sectoral reform issues. The elimination of price distortions, especially in terms of an overvalued exchange rate, and below-cost prices for basic food items and public services, was central to the internal program elements. Specifically, the ERP includeds (M) devaluation of the metical by 96Z between January 1987 and November 1990; ($$) large changes in official price levels to correct Imbalances in marketing and to permit the price mechanism to play a more important role In the allocation of resources, goods and services; (1i1) demand management to relieve excessive domestic liquidity and contain recurrent expenditures; (iv) channeling of external resources through loans, bilateral assistance and emergency aid, to speclfic economic targets (such as goods and services for local consumption) to revitalize the economy and to stimulate the agricultural sector; and (v) strengthening of the tax revenue base aa a result of the EUP, matched by an improvement in the effectiveness of taz collection. 1.3 The results of the ERP have been favorable, reversing the collapse in production of the early 1980's and sustaining a GDP growth  2- rate of 5.31 per annum (p.a.) in real terms since 1986, implying an increase in real per capita income of nearly 2.SX p.a. Light manufacturing output 1s significantly higher following improvements in raw materials and spare parts availability, agricultural production has improved, and local markets in most major cities now have more to offer the domestic consumer than they did in 1987. However, Mozambique is still extremely dependent on donor community assistance (the 1990 current account deficit was about 542 of GDP before grants and 232 after grants). Real Average Annual Growth (X) 1987 1988 1989 1990 GDP 4.62 5.5Z 5.32 3.12 Agriculture 7.0 7.21 4.7? 2.01 Industry 8.91 7.5 7.41 3.01 1.4 As can be seen above, agricultural production responded well to increased producer prices and greater emphasis on Qmallholder production. For example, marketed maize production, which declined by 151 pa. between 1980-86, has increased 2.7 times since 1986. Unfortunately, the potential to turn policy reforms into increased overall agricultural production and hence higher farm incomes, and additional foreign exchange earnings, has been severely limited by: (i) the continuing insecurity, (ii) the severe transport and processing bottlenecks, (iii) the inability of the rural population to take maximum advantage of economic incentives due to displacement and disruption of storage/marketing, and (Lv) the negative effect on the urban poor of price increases on cons-umption items resulting from exchange rate adjustments. 1.5 Since 1989 the Economic and Social Rehabilitation Prograu (3SIP) has extended the ERP to ensure that the poorest Mozambicans benefit from the adjustment process. Central to the ESRP is the Priority Districts Program (PDP) which, by stimulating recovery and growth in the agricultural sector (in particular for the family sector), would both improve incomes for the rural poor, and provide surplus agricultural produce to feed hungry urban dwellers and for export. 1.6 The proposed First Roads and CoaWtal Shipping (ROCS-1) Project and subsequent ROCS projects will support the PDP by initiating the removal of transportation bottlenecks to agricultural production, distribution and marketing, through the rehabilitation and proper maintenance of basic transport infrastructure in selected priority districts and corridors. In so doing ROCS-1, and subsequent ROCS projects, will help to alleviate poverty and hunger by increasing employment, increasing food supply and reducing its cost, and improving rural income. In the short term, due to weaknesses In implementation capacity, limited financial resources, the lack of security in certain areas, and uncertainty as to how the economy will develop, the ROCS-1 Project will cover only a portion of the country's urgent needs for road and coastal shipping transport improvement. However, as the first of a series of Odevelopment' projects, as opposed to emergency  - 3 - rehabilitation, ROCS-1 will address the severe lack of institutional capacity in the transport sector by launching the first phase of a long range institutional development program that will build the capacity to manage the transport system effectively over the nezt decade and into the 21st century, while the proposed subsequent project, ROCS-2, would include the implementation of road rehabilitation and maintenance civil works. In order to improve allocation of l.mited resources and to ensure that no critical bottlenecks are left unresolved, ROCS-1 has been designed (and ROCS-2 is being prepared) with an integrated sub-sectoral programmatic approach. Hence, they integrate and include: (i) all significant transport activities from farmgate to market place, and (ii) everything that GOM and the donor comaunity plan to do over the next seven years in connection with rehabilitation and efficieucy improvement in the roads and coastal shipping sub-sectors. D. Current Status of the Transport Sector 1.7 Due to a variety of factors described earlier in this chapter, Hozambique's transport sector has deteriorated significantly over the past two decades. Activity has declined dramatically for all transport modes except aviation, with the rail system showing the most significant fall, from from 20.7 million tons in 1973 to 4.2 million tons in 1991. Highway network serviceability has fallen to the extent that less than 30Z of the approximately 29,000-km network is in fair to good condition. Where all-weather services can be offered, increasing pavement roughness is resulting in extremely high road transport costs. The supply of trucking services fell first as a result of shrinkage in the stock of vehicles (the current national fleet is still less than one-half of pre- independence levels), and then from repeated armed attacks on inter- urban vehicles, necessitating convoy protection. 1.8 The present poor condition of the transport infrastructure is attributable to many factors including: (i) the security problem which, especially since 1982, has led to much destruction of the transport infrastructure and has significantly curtailed the performance of timely and proper maintenance; (ii) the historical and ongoing shortage of managerial and skilled manpower in Hozambique; (iii) the diminished resources available for investment in infrastructure as a result of the serious deterioration in the economy; and (iv) inappropriate transport sector policies pursued by the Government. 1.9 Investment in the transport sector in Hozambique has traditionally been biased towards the major port-rail transit corridors serving Hozambique's inland neighbors. As a result of this lucrative commercial opportunity, the transport sector in 1973 contributed a surplus of US$110 million to the services account of the balance of payments. However, a decline of more than 70Z in the provision of international transport services by Mozambique over the subsequent decade resulted in a contribution of only US$34 million In 1984. By 1989 this had increased slightly in nominal terms to US$42 million. Even now this part of the transport sector accounts for just over 101 of the gross domestic product and could potentially again be a significant earner of foreign exchange and generator of employment.  -4- 1.10 Unfortunately, however, investments in transit corridors have led to relative neglect of the transport infrastructure to serve the needs of the Mozambican domestic and export economy. C. Government Oblectives and Strategy 1.11 Overall objectives of GOM for the transport sector are two-fold: (i) to complete the port-rail corridor rehabilitation program begun in the 1980's aimed at restoring their earlier ability to generate foreign exchange surpluses; and (ii) to stimulate and support economic recovery by selectively rehabilitating and adequately maintaining the principal elements of the transport network. 1.12 While the port-railway corridors rehabilitation program has the long term potential to generate foreign exchange, its development has been hampered by the security situation. Although the Beira Corridor is still relatively on target, the Maputo and Nacala corridors are still suffering significant reduction in their transit traffic, in part due to the ongoing security problems. In order to improve the commercial efficiency of the Maputo Corridor, serious consideration is being given by GOM to awarding private leasing contracts for the management of its land-side operations to arrest the significant reduction in transit traffic currently being experienced. Under current conditions these elements of Mozambique's transport sector are adequately supported by the donor commmnity. Transport Sector Strategy 1.13 Given the limits placed on economic recovery by the inefficiencies and bottlenecks in the transport sector and the inability of past ad-hoc policies to alleviate the situation, GOM's new transport sector strategy (based on the World Bank's October 1989 Transport Sector Review (Report No. 8656-MOZ)] shifts the rmphasis toward the coordinated development of a more efficient transport industry, capable of supporting the objectives of the ESRP and, more specifically, the PDP. This new Transport Sector Strategy has three key elements: (i) supporting the ESRP by removing the limitations that the present transport infrastructure and services place on economic activity by investing in physical infrastructure rehabilitation and maintenance, with emphasis on trans- portation routes between coastal ports and major domestic areas of production and consumption, and on increasing road transport and coastal shipping capacity; (ii) reforming the policy and institutional environments to improve efficiency in the sector and to ensure that investments made are properly and opportunely maintained; and  (iii) commencing the development of the institutional. organizational and human resources capacity required effectively to plan for, manage and operate the Mozambican transport sector once peace returns, and to support economic recovery into the 21st century. Physical Infrastructure 1.14 The new strategy will shift the focus of transport investments from the port-rail corridors to those that will assist in getting agricultural produce to markets and materials to farmers. Given that 'he development of cost-effective and safe North-South trunk roads is infeasible in the near future due to the security situation and the historical emphasis on east-vest transportation, the focus must be on rehabilitating transport routes to the sea and the associated ports, and on improving the efficiency of the coastal shipping sub-sector. This includes (i) the rehabilitation and maintenance of feeder roads and trunk roads leading to the railway-port corridors and to coastal shipping ports; (ii) the development of the appropriate and cost effective capacity to transport commodities to the port by road and rail; (iii) the rehabilitation and maintenance of *regional* ports (Pemba, Nacala, Beira, Quelimane and Maputo); (iv) the rehabilitation of small ports (such as Chinde, Angoche, Pebane, Macuse and Mocimboa da Praia), with focus on achieving cost effective operations; and (v) the enhancement of the coastal shipping industry's capacity and efficiency both between the small and regional ports, and between the regional ports. 1.15 Priority will be given to those investments that contribute most towards poverty alleviation through increased domestic production and marketing of food and traditional cash crops, and generation of employment. Priority will also be given to investments serving productive areas to facilitate export, and transport of basic inputs and consumer goods. The investments selected will take into account GOM's PDP aimed at rural rehabilitation in forty priority districts (the initial phase of the Feeder Road Program - a key element of the ROCS Projects - will encompass about 22 of these districts). Roads serving areas affected by insecurity will continue to receive only minimum maintenance, as available resources and security conditions permit, to mitigate further deterioration. The Policy Environment 1.16 The new strategy focusses on policy reform and mechanisms to create a more efficient transport system. It must be recognized that full development and implementation of some of these reforms may require several years, but will be initiated under this project. Revised policies and operating procedures are intended tos (t) stimulate the active participation and growth of the private sector;  (ii) improve the utilization and allocation efficiency of available physical resources (capital equipment, spare parts, fuel, etc.) and of foreign exchange; (iii) improve the pricing structure of transport services provided, leading to full cost recovery, plus adequate allowance for funding of capital investments; (iv) improve transport efficiency by coordinating policy- making, planning and usage of all transport modes (in particular roads and coastal shipping); and (v) implement GOH's divestiture of state transport enterprises to assure their long term viability. 1.17 Annex 1-1 outlines the policy changes adopted by GOH as a result of the recent Transport Sector Review. Human Resources and Organization 1.18 The new strategy also focusses on building the capacity to manage the transport sector in the decades to come. This will includes Ci) improving the management systems and procedures within the Government's transport sector organizations and (ii) expanding human resources availability and capacity. The latter will be achieved by strengthening the existing GOM personnel management system and formulating and implementing a coordinated long term manpower development plan. The challenges associated with implementing such a plan should not be under-estimated. Clearly these are long term objectives that will reap rewards only in the future. In the short term, Mozambican capacity will need to be supplemented by substantial technical assistance in order to ensure that the substantial volume of work that is required can be accomplished. D. Uncertainty and the Transvort Sector StrateRy 1.19 The new strategy is designed to meet the long term transport sector needs in Mozambique, but must at the same time take into account the short-to-medium-term realities by adapting tot (i) the difficult securitr situation; and (ii) the uncertainties surrounding the pattern and speed of agricultural recovery. The Security Situation 1.20 Lack of security has severely afflicted the Mozambican economy for two decades. Huge tracts of agricultural land have been abandoned as refugees fled the strife-torn areas and, in the rural areas, rampant banditry has resulted from the economic chaos. As long as the insecurity persists, agricultural production will not recover. Outside of the main cities, land transport operations have been significantly disrupted by the threat of attack, the destruction of infrastructure and rolling st3ck, and the inability to conduct routinely even basic maintenance. The rehabilitation of such services will require, at a  - 7 - minimum, that those carrying out the works be able to do so in relative satety. While the security situation wvil not have a d&rect impact on coastal shipping, it will have a significant impact on coastal shipping traffic demand. 1.21 Clearly, therefore, a key element to the success of the Project, and indeed of the recovery of the Mozambican economy, is the cessation of hostilities and the wide-ranging armed banditry at the earliest possible date. Peace negotiations have been going on for over two years, and there is hope that some agreement will be reached this year. Unfortunately, there has been an increase recently in armed attacks in the Maputo area, which may have an adverse effect on the peace talks. 1.22 Without peace, what can be accomplished in terms of transport sector rehabilitation will be very limited in comparison with the needs. On the other hand, should reliable countrywide transport service not be re-established, there will be little chance for significant and sustainable economic recovery in all sectors, and the originally politically-oriented civil war will increasingly become an ongoing strife motivated by lack of food and economic opportunity. 1.23 The challenge facing the transport sector is, therefore, to begin to implement an integrated long term strategy for transport to be ready to respond to an improvement in the securiti situation (which will require a correspondinp increase in road rehabilitation and other transport services) while, at the same time, commencing much needed priority rehabilitation under difficult conditions. Hence, the new transport strategy has been designed to be robust in that it will be appropriate regardless of the prevailing short-to-medium-term security situation. The rationale is as followss (i) first, to accomplish the limited rehabilitation program currently planned, substantial strengthening of skills is required. In order to manage any increase in the program, the development of human resources is essential. Given the long term nature of the skills development process, initiatives must begin now in order to reap the rewards later; (ii) second, the proposed institutional and policy reforms are vital for the rapid development of the transportation industry as soon as security conditions permit. Successful delivery and management of the increase in construction and transport services that will be required as a result of peace will necessitate significant private sector involvement, a shift in Government responsibilities from "doing" to "planning and regulating", and streamlined decision-making within GOM. The policy and institutional reforms envisaged explicitly address these issues; and (iii) third, the planned infrastructural investments are valid regardless of the security situation. Increased coastal shipping capacity and efficiency will be required in  peace time since this is expected to remain the most economical mode of north-south transport for many categories of commodities. Likewise, when peace is finally attained, the proposed investments in rehabilitation and maintenance of feeder roads and of primary and recondary road are still required. It is largely the timing of investments that will change with changes in the security situation - and the new strategy builds in flexibility to deal with this uncertainty. 1.24 In the short to medium term, security problems will determine which roads to rehabilitate first, and will initially limit road rehabilitation to a relatively modest program. Although a preliminary. list of priority roads has been identified, the rehabilitation and maintenance priorities will be modified as Pecurity conditions warrant. Agricultural Uncertainty 1.25 The transport sector strategy is to support the PDP, which is aimed at the recovery of the agriculture sector. There is, however, significant uncertainty over the likely structure and rate of recovery of the agricultural sector, and hence of the development of transport demand. While a useful working assumption is that production and processing capacity will recover to the same level as pre-1980 with the same geographical structure and withiu a reasonable period, there are likely to be significant variations around this norm. Furthermore, it is impossible at this stage to obtain accurate, detailed and disaggregated agricultural production data (or data that can usefully be used to project agricultural potential). The latest available whard data" is aggregated at provincial level (not district) and is based on the 1964 censusl Therefore, investments in road and port infrastructure will be closely coordinated with agricultural and industrial investments and recovery. First, the core districts for the feeder roads program are the same as the core districts for the PDP. Second, all investments in roads and ports will be phased so as to avoid over-investment. and decisions on some major investments will be postponed until better information becomes available. 1.26 To help mitigate the uncertainty, the IDA lending strategy envisages three successive ROCS projects to be initiated over the next five years covering the roads and coastal shipping sub-sectors within the same overall strategy, that will enable our lending operations to be adapted to the changing environment. In addition, it is proposed that an experienced IDA transport specialist be seconded to UNDP and assigned to Mozambique to assist GOM with the overall coordination of ROCS-1 and subsequent ROCS projects, and with the planning and integration of future transport projects. Lastly, a significant mid-term review has been built into the ROCS-l Project, and enhanced supervision is envisaged from IDA and other donors. Z. Previous Lank Involvement and Lessons Learned 1.27 This would be the firet IDA operation in Mozambique's transport sector involving policy and regulatory reform, and infrastructure  rehabilitation. However, lessons learned from the Beira Transport Corridor project (Credit No. 2065 MOZ), in which IDA's participation includes rail and port institution building and technical assistance (TA), plus procurement of locomotives, as well as from the road and street rehabilitation and maintenance component of the Urban Rehabilitation project (Credit No. 1949 MOZ), have been given full consideration in the design of this proposed new operation, particularly problems and delays in procurement of goods and services, and in managing civil works contracts. Also, Project design has taken full account of experiences under TA projects in Africa described in the recent OED Report No. 8573: Free-standing Technical Assistance for Institutional Development in Sub-Saharan Africa. The Africa PCR Data Base does not at this time contain a project aimed at rehabilitation and efficiency improvement of coastal shipping transport services. Lessons learned from the Small and Medium Enterprises Development Project (Cr. 2082-MOZ) and the Agriculture Rehabilitation and Development Project (Cr. 2175-MOZ) with respect to the provision of credit lines to the private sector have also been built into this project. Annez 1-2 summarizes relevant Bank operations. P. Rational for IDA Involvement 1.28 This is an integral part of IDA's assistance to GOM in accomplishing its macroeconomic reform and embarking on sustainable economic recovery. As recommended in the Transport Sector Review, such assistance should now focus on removing the transport sector bottlenecks that are obstacles to ESRP, and on extending manpower development efforts to the transport modes serving domestic development needs. 1.29 The objective of the proposed IDA Rural Rehabilitation Project (RRP), currently under preparation, is to promote recovery of agricultural production in the PDP districts. The ROCS projects would provide the transport infrastructure services essential for the success of the RRP. IDA, through the Agricultural Rehabilitation and Development Project (Cr. 2175-MOZ), is already supporting the cashew farmers in Central Mozambique, who will be major users of many of the small ports and roads to be rehabilitated under the ROCS projects. The Agricultural Services Project (Cr. 2337-MOZ), approved by the board on February 11, 1992 also supports agriculture in many of the priority districts. 1.30 IDA is already funding manpower development in the Beira Transport Corridor Project (Cr. 2065-MOZ) for the Beira Corridor and the Limpopo Line of the Maputo Corridor because they are key foreign exchange earners. 1.31 The emphasis on shifting investments to the private sector as far as possible, as well as on mobilizing private sector investment through supporting regulatory reform, is an integral part of the Bank's strategy to focus GOM's limited resources where they are most needed. 1.32 GOM and the donor community agree that IDA's main role should be to assist in implementing the detailed strategy, framework and  - 10 - priorities outlined by GOM for the transport-sector recovery and sustainability. as well as assisting the implementing agencies of GOM in the coordination of donor participation in the ROCS projects.  - 11 - II THE ROAD SUB-SECTOR A. Introduction The Existing Road Network 2.1 The national road network is estimated at approximately 29,000 km, according to current DNEP inventory data. Of this, about 5,000 km are paved roads (mostly primary), some 3,000 km were once engineered collector or distributor gravel roads that have reverted to earth surfacing, and approximately 21,000 km are stabilized earth roads or simply tracks. 2.2 The National Directorate of Roads and Bridges (DNEP) of the Ministry of Construction and Water (MCA) is responsible for planning and supervision of construction, rehabilitation and/or improvement, and maintenance of the network. It is estimated that less than 10 of the network is now in good condition, and more than one-third currently is not transitable on a regular basis, either because of actual war damage or because maintenance cannot be performed safely. These conditions have led to much higher transport costs, and have made it impossible to aove goods in and out of major areas of the country. 2.3 Road condition information for 1991 was compiled by the current ODA-funded DNEP planning consultants from inventory data supplied by DNEP representatives in the ten provinces. The following table gives, by province, the recorded length of paved and unpaved roads at the beginning of 1992, and the proportion of the network in fair/good condition, as well as that in poor condition or worses stlgaal Road Net"ork - 1991 Province Paved Unpovod Tot l I X of %Fair IP oor War - Iko _ ;50 TooTd . W .-. _ MAPUT0 416 1016 1482 C 28 77 GAmA 472 1747 2219 * 16 U4 INHBNE 617 1700 2897 a 14 ea SOFALA 494 2100 2594 9 14 e6 MANICA 48 1558 2096 7 85 65 TETE 61 2246 8107 11 14 _6 ZAMBEZIA 474 4081 5805 10 15 e6 NAMPULA 60 *299 J867 18 62 80 CABO DELGADO 630 2021 2651 9 41 s9 NIASSA 200 8090 8299 12 21 79 TOTAL$ 5266 28692 28967 100.0 Wel hted Aver.go 26 74 Sources DNEP, March 1992.  - 12 - 2.4 The so-called feeder roads are low-volume secondary and tertiary roads, most of which are in poor condition and many of which are currently impassable. The bad condition of these roads, coupled with the fair-to-poor state of the primary and secondary roads which link principal agricultural production areas to the small and regional ports, or to the port-rail corridors, constitutes a major bottleneck to the transport of farm produce to the points of consumption and export. Understandably, this has drastically disrupted agricultural production and rural life throughout Mozambique, and must be corrected if the ESRP and PDP are to succeed. Fortunately, a significant effort to rehabilitate and maintain some feeder roads in three priority districts has been underway for the past four years with the assistatce of the United Nations Development Program (UNDP), Gesellschaft fur Technische Zusammenarbeit (GTZ) of Garmany, and various other donors. Malor Problems 2.5 The major problems which currently impede effective transport service in the road network are: (i) lack of security; (ii) inadequate institutional capacity; (iii) inefficient operational policies and procedures; (iv) lack of adequate, assured funding; and (v) the advanced age, poor condition and low utilization of the trucking fleet. D. Diainosis of Current Problems Lack of Security 2.6 The inaccessibility of many areas due to the widespread guerilla activity and banditry, plus inadequate funds and not fully adequate operational procedures in the road infrastructure sub-sector (discussed later in this chapter), have reduced maintenance of much of the road network to totally inadequate levels, and precluded their timely rehabilitation. Furthermore, numerous road transport corridors are not transitable over much of their length because of war-related destruction of bridges and mining of roadbeds. Consequently, vehicular traffic is now very low and sporadic on much of the network. An early resolution of the security Droblem is a prerequisite to the full implementation of the necessary nationwide programs of rehabilitation and maintenance. However, it is reasonable to expect that, by project initiation, work can be carried out safely on the high priority portions of the network to be included in the ROCS-2 project (detailed design services for which are included in ROCS-1).  - 13 - Institutional Capacity of DNEP 2.7 DNEP suffers from the same lack of institutional capacity that characterizes most governmental agencies in Mozambique. This is attributable to inadequate or inappropriate governmental policies, as well as historical organizational, managerial and operational weaknesses. Long-term institutional development will require changes in GOM's personnel and pay policies, as well as the implementation of a comprehensive manpower development plan. Specific shortcomings which limit DNEP's institutional capacity are: (i) the absence of an appropriate functional organization with well defined lines of authority and job descriptions; (ii) a chronic shortage of capable, well trained staff, attributable to generally low skill levels nationwide, and a weak personnel management system within GOM which inhibits the recruitment and retention of scarce qualified personnel (the 1991 Bank Public Sector Pay and Employment Review for Mozambique strongly confirms the urgent need to reform the public-sector pay and personnel management system to eliminate gross inequities and distortions); (iii) the lack of a long-term training program within DNEP, and the low level of education and literacy, both of which hamper current training efforts; and (iv) the lack of an assured source of funds to cover normal recurrent expenditures, although a Road Fund for Maintenance based on fuel taxes has recently been established. Operational Policies and Procedures 2.8 Some operational policies and procedures of DNEP and its predecessors have contributed to the current low level of regular rehabilitation and maintenance of the road network. These include: (i) concentrating available funds and physical resources almost entirely on new construction during the 1970's; (ii) relying almost entirely on inefficient governmental organizations to execute road rehabilitation and maintenance programs (the provincial ECHEPs--Enterprises for Construction and Maintenance of Roads and Bridges), even though it is recognized that conditions in recent years have not been propitious for the development of local private road contractors (prevailing insecurity, a limited road program, and shortages of foreign exchange for the purchase of equipment and spare parts); (iii) providing large amounts of expensive road equipment as capital to the 'contractor" ECPs without an effective equipment management system being in place; and (iv) cumbersome procurement regulations.  - 14 - 2.9 DNEP already contracts out essentially all road maintenance and rehabilitation to the ECMEPs, which were formed between 1985 and 1987 to perform road rehabilitation and maintenance under contract on a comercial basis. Most design and construction supervision is performed by consultants. Although the contracting of road rehabilitation and maintenance has been shown in most countries to be cost effective, deficiencies in manpower capability and equipment availability have rendered the ECMEPs less efficient than is desirable. Because of the very limited market in recent years, private local construction firms have developed little capacity for roadwork and foreign firms have not been attracted to work on Mozambique's road network. Consequently, significant efforts will be required to attract foreign contractors to Mozambique and to strengthen the local 'contractor side' in order to accomplish the extensive rehabilitation and maintenance works needed to substantially improve road conditions in the country. 2.10 The concentration on new construction during the 1970s, followed by the security problems of the 1980s, has resulted in the virtual abandonment of all types of road maintenance on a systematic, programmed basis. Road maintenance planning (which is the responsibility of the Maintenance Department of DNEP in collaboration with its provincial representatives, the Departments of Roads and Bridges (DEPs), has been rendered futile by the security problem of the past several years, and the modern road maintenance management system borrowed from Portugal is not being properly applied except in isolated instances. Such recurrent maintenance (herein defined as pothole patching, crack sealing, grading or dragging, and spot re-graveling) as is feasible is done on a largely ad-hoc basis. Routine roadside maintenance, and some patching, is regularly performed by the ECHEPs on the national and regional roads that are accessible, but a major portion of their efforts are expended on machine-intensive road rehabilitation, and hardly any periodic maintenance (resealing, overlay, re-graveling) has been performed in recent years, except as part of donor-financed projects. 2.11 Although equipment maintenance by the ECMEPs has improved somewhat due to on-going (ODA-funded) technical assistance and training in this field, it is still inadequate because of: (i) insufficient qualified staff; (ii) low maintenance and repair budgets; (iii) inadequate planning of spare parts needs; (iv) difficulties in obtaining foreign exchange; (v) the cumbersome procurement and customs clearance processes within GOM; and (vi) the proliferation of different makes and models within the current road equipment fleet. Some private repair capability exists in the larger cities, but this is utilized by GOM agencies only to a very limited extent due to its perceived high cost and relative inefficiency. It must be noted, however, that the Ministry of Construction and Water (MCA), the GOM agency responsible for the ECMEPs, is adopting a policy to be out of the ownership and maintenance of road equipment as soon as possible (para 2.28). 2.12 It has been estimated that, if security conditions and available funding would permit the accomplishment, over the next ten years, of all the road rehabilitation and maintenance works shown to be justifiable, as much as US$50 million worth of additional heavy equipment would need to be imported into Mozambique. However, because of the poor record of  _ 15 - public agencies in managing heavy equipmant, GOM has agreed that, except for the US$9 million worth of equipment now scheduled for donation by traditional donors (in 1992/93)--and excepting equipment for the FRP, no more heavy road equipment will be acquired by Government unless it is needed to maintain a minimum effective fleet in those areas of Mozambique where equipment leasing may not bL feasible for many years. 2.13 GOM's cumbersome reRulations for procurement of goods and services, and the bureaucratic procedures of the Mozambican central bank, the Banco de Mo;ambique (BM), and the Ministry of Finance (MDF), all tend to be major obstacles in the procurement process, causing inordinate delays in the execution of contracts, and in obtaining spares and other goods which DNEP, through the newly created Center for ECHEP Support (RAE), purchases on behalf of the ECMEPs. A review of GOM procurement procedures was conducted in September 1991 under UNDP auspices, and standardization of some contracts has been accomplished recently by GOM and its consultants; however, there is urgent need for a more comprehensive study and recommended improvements of both general and particular application. Staffing and Manpower Development 2.14 Insufficient existing staff and training capacity is one of the most critical problems DNEP faces. Acute shortages of skilled workers, as well as of qualified and experienced managers, are particularly notable in the roads sub-sector. The tabulation presented below, taken from the December 1991 report on staff training and development prepared by DNEP consultants, shows that staff for more than 0S of the posts recommended for the new DNEP organization (including provincial representatives) need to be recruited. The report also points out that many of positions presently occupied are filled by staff lacking the necessary qualifications. Accordingly, there are insufficient experienced DNEP permanent staff to plan and monitor the work being carried out by local road contractors--mostly state enterprises at present--and many line positions will have to be filled by expatriates for the next several years. Future recruitment of personnel at management and skilled-labor levels, with no experience in road works, will not enhance the roads sub-sector unless supported by more effective staffing and training policies. DNEP has organized some training courses since the mid-1980's but results have been limited due to: (i) weak institutional capacity; (ii) lack of sound training policies and a long-term national training plan; (iii) low levels of education and literacy of most trainees; (iv) lack of funds; (v) shortages of trainees because of lack of incentives and other institutional constraints; and, most importantly, (vi) a government-wide, weak personnel management system which does not provide proper motivation through competitive salaries and career development opportunities.  - 16 - DIVISION EXISTING FORECAST TO RECRUIT DNEP: NATIONAL DIRECTOR'S OFFICE 2 3 1 MAINTENANCE DEPARTMENT 8 22 14 PROJECTS AND STUDIES DEPT. 7 10 3 TRAINING DEPARTMENT 1 93 92 ADMINISTRATION DEPARTMENT 26 24 -2 INVESTMENT DEPARTMENT 4 6 2 INSPECTORATE DEPARTMENT 9 18 9 FEEDER ROADS DEPARTMENT 1 15 14 PROV. DIRECTORATE (10 NO.) 0 150 150 SUBTOTAL | 58 341 283 2.15 Low levels of education and literacy of most trainees is a significant problem that training alone will not resolve. Technical/ vocational and university education also must be strengthened and expanded. At independence in 1975, Mozambique was hampered by an illiteracy rate of 93Z. Fifteen years later, notwithstanding some noteworthy progress, especially in the development of a higher education system, basic human resources development remains as the country's single greatest need. This problem is further compounded by the recent departure of several professors from the University's Department of Civil Engineering for more remunerative careers. The Bank has assisted the Faculty of Engineering under the Education I and II projects, by including funds for laboratories and mechanical workshops, as well as computers, audio-visual equipment and vehicles, but considerably more needs to be done to achieve lasting improvement. Road Funding 2.16 Fundins for road maintenance has been inadequate in recent years, even though DNEP is currently only able to carry out routine maintenance on less than one-fourth of the national network because of inaccessibility. Years of neglect, compounded by insecurity, the lack of forward planning, and comparatively high operating costs, have led to high per-kilometer expenditures, merely to keep surfaces in fair condition. 2.17 Unfortunately, the desirable objective of financing recurrent road maintenance costs from user charges has yet to be achieved in Mozambique. Although there are no reliable current figures, in 1976 vehicle taxes and duties brought in a net amount of US$16 million, which was less than half of the annual highway budget of approzimately US$33 million (contrary to the situation in most developing countries, where road users subsidize public expenditures in other sectors). The 1978 National Transport Survey, carried out by international consultants,  - 17 - reported that the trucking industry was heavily subsidized, leading to inefficient allocation of goods between modes, and between light and heavy trucks within the road sub-sector. A major recommerdation, to raise the diesel price by at least 10OX, with a concomitant increase in the fuel tax, was never implemented. User taxes paid by truck operators are insufficient to cover the additional cost of building and maintaining pavements for trucks, compared to what would be required for light vehicles only, and this situation should eventually be remedied. The Vehicle Fleet 2.18 Reliable figures on the current size of the vehicle fleet in Mozambique are not available. The World Bank's Transport Sector Review estimated the 1987 vehicle fleet at approximately 40,000 vehicles, of which some 23Z were trucks and buses, compared with total vehicle registrations at that time of 64,000. Fuel consumption data are more in agreement with the vehicle numbers estimated in the World Bank report. The present number of operational vehicles is reckoned at no more than 45,000, which is slightly more than one-half of the fleet which was operational in 1976 and, understandably, is older and in much poorer condition, on average. This means that vehicle operating costs are much higher than they should be, leaving aside road-surface condition, and that the cost of transporting goods and passengers is, therefore. substantially higher than it would be with a well maintained, reasonably modern fleet. 2.19 The trucking industry is riddled with inefficiencies, as evidenced byt (i) the prevalent low annual utilization in ton- kilometers; (ii) very short vehicle life due to poor roads, lack of maintenance, and inadequate repair facilities; and (iii) poor business management. A large part of the problem stems from the fact that many non-transport state enterprises operate large own-account ilests with extremely low utilization rates. In a way, however, the public enterprises fleet performance is typical of the environment of transport in Mozambique (poor roads, war hazards, vehicle destruction, unavailable maintenance. lack of spare parts, etc.) which is a deterrent to private ownership of vehicles and to the private sector entrepreneurial capacity. The composition of the state enterprise fleet reflects also the proliferation of vehicle models of disparate origins which results in difficult procurement and management of spare parts and represents a serious problem for vehicle rehabilitation and maintenance. Annex 2-4 contains a summary of trucking operations in Mozambique. C. Strategy for Change General 2.20 Restoration of the national road network is an expensive, long- term undertaking but is absolutely essential to recovery of the national economy. In consideration of the risks inherent in the current circumstances of insecurity, the core of the roads strategy lies in initiating as soon as possible the reform of the regulatory environment and strengthening of the institutional capacity of DNEP, through human  - 18 - resources development, reform of operating procedures, and reform of the road transport operating environment. This is to be followed by restoration on priority road links, through minimal-cost rehabilitation and deferred maintenance works, which will provide a reasonable running surface and retard deterioration, by which time it is expected that conditions will permit proper long-term planning for more permanent road works. The institutional and operating-environment strengthening, which would continue at least through the proposed ROCS-2 project, should ensure that DNEP has the capacity to manage the rehabilitation and maintenance of the entire road network by the end of the decade. 2.21 Given the magnitude of the required rehabilitation works and the likelihood that it will be several years before the country returns to complete normalcy, it will not be possible in the immediate future to rehabilitate the entire road network to a level that will enable regular maintenance to be performed at reasonable costs. Therefore, priorities in the roads sub-sector during ROCS-1 will be on institutional strengthening, through policy reform and capacity building, and preparation of final design and tender documents for high priority sub- projects which will support the national objective of economic recovery by improving access to markets for agricultural produce and inputs (the on-going Feeder Roads Program will continue under ROCS-1). ROCS-2 will be designed to continue institutional strengthening while implementing the following works: (i) rehabilitation of additional unpaved feeder roads in reasonably secure priority districts; (ii) rehabilitation or deferred periodic maintenance of selected paved main roThds serving coastal ports; and (iii) rehabilitation or improvement of unpaved collector/distributor roads leading to major cities, railheads or trunk paved roads. Staffing and Manpower Development 2.22 DNEP and the Local Road Contractors (LRC) are well aware of the inefficiencies caused by the acute shortage of managers, skilled and semi-skilled personnel and have begun recruiting additional staff. However, until sufficient personnel are engaged and trained, it is expected that many key positions must be filled by consultants. It is important to note that the recent Bank report on its review of the public sector pay and employment in Mozambique clearly states: OIt must not be forgotten that the central problem is that skilled labor is in extremely short supply. In the long run, the only solution is to expand the country's skill baue while permitting the import of highly skilled workers from abroad". In anticipation of a comprehensive staff development program to be financed under the project, DNEP has adopted a sound policy statement on training (available in the Project files) which stresses, inter alia, career development linkages to training and a system of professional standards and certification.  - 19 - 2.23 With assistance from UNDPIILO, SIDA, IDA and other donors, DNEP is taking formal steps to establish its training capacity at national level by setting up a permanent Training Division to be responsible for planning and implementing all road training activities. Special emphasis is to be given to those tasks dealing with the improvement of management and technical capability of DNEP and LRC personnel. Based on recent recommendations by DNEP's highway consultants and on data collected during the ROCS-1 appraisal, the Project will include funds for the first phase of a long-term training program aimed at training and upgrading sufficient DNEP and LRC road and equipment personnel for the anticipated road program. It is expected that the shortage of trained personnel should be alleviated by 1998 provided that public sector pay and other civil-service-related benefits are more in line with those prevailing in the private sector, which is expected to experience increasing demand for skilled personnel as GOM's contracting of works and services expands. 2.24 Within the context of the ROCS-1 Project, technical and vocational education will be strengthened through expansion of facilities at both the Industrial Institute of Maputo and the Beira Industrial Institute, and re-establishment of the three-year diploma course for road and bridge technicians. The Project will also provide funds for the University's Department of Civil Engineering (DCE) to enable it to conduct its full program more effectively. In addition, a Bank Education Capacity Building project is expected to be appraised in September 1992. The ROCS-1 Project will cover: (i) facilities, materials and training to strengthen the university; (ii) strengthening of upper secondary education through training, materials, facilities construction and curriculum reform; (iii) strengthening of legal institutions through training and provision of data base and library services; and (iv) strengthening of public administration through the creation of a unit to oversee civil service reform, technical assistance and training to support public-sector management, and the creation of a fund for public administration training. Organizational and Operating Procedures 2.25 There have been recent improvements in the DNEP organizational structure, including the strengthening of technical/administrative services to the ECMEPs through the creation of a support unit (NAE) at DNEP headquarters, and the formation of a project management group to deal with the ROCS projects' road components. A broad plan of institutional capacity building, staffing, and manpower development is now under consideration by DNEP. Training needs and resources required to prepare and implement the manpower development and training program for roads personnel also have been identified. 2.26 GOM is committed to implementing the regulations and procedural changes required to permit the expeditious procurement of civil works, goods and services by DNEP and its contractors (including reasonable access to required foreign exchange for purchase of spare parts and other imported goods). A study will be carried out under the project to identify essential improvements in GOM procurement management in connection with the roads and coastal shipping sub-sectors, and to  - 20 - outline an action plan for their implementation. Agreed terms of referenco are attached as Annex 2.1. '.he study consultant would liaise with the World Bank/ITC project "Public Procurement in Africa', and a subsequent study under ROCS-2 would examine Government-wide procedures. 2.27 A major responsibility of the Roads General Consultant (GC), which is being contracted by DNEP to assist in management of the highway program, will be to aid in developing and implementing improved cperational systems and procedures. One of the most important of these is the Road Maintenance Management System (RMMS). Maintenance service levels will be reviewed (in light of expected traffic and funding), level-of-effort and performance standards and unit prices updated, and reporting and control procedures strengthened. The experience of the DNEP consultant currently implementing the RMKS in the Beira-Machipanda corridor, and the work of the current ODA-funded consultant to DNEP, will be considered in determining what modifications to the system are needed. 2.28 ODA has recently funded technical assistance to aid the ECMEPs to implement an appropriate equipment maintenance management system, but much remains to be done to extend the system nationwide. Some ECMEPs have received considerable new equipment from GOM within the past two years, while others are scheduled to receive new units in 1992/93. However, in consideration of the long history of inefficient fleet management by public agencies in many countries, GOM has agreed in principle that management of most units of basic heavy equipment for roads will be transferred to the private sector (or a mixed-capital venture). An evaluation of GOM equipment now in the hands of the ECHEPs will be carried out to establish the size and condition of the fleet, and to quantify the cost of rehabilitating those non-operational units which can be cost-effectively reconditioned (see Annex 2-2). The actual transfer, and rehabilitation if needed, of road equipment units to private or mixed-capital management, would take place under the proposed ROCS-2 project. The provision of equipment by an "equipment and plant pool%, and by private leasing companies, equipment dealers and contractors, is expected to ensure that adequate equipment will be available for the road program at more favorable ratios of real cost to production. 2.29 The development of adequate road contracting capacity, including the entry into the Mozambican market of experienced regional and international contractors, will increase the efficiency of rehabilitation and maintenance operations, thereby reducing the total cost of road transport. A study on development of the local road construction industry will be funded under the Project, following which GOM would create conditions which will provide incentives to promote the establishment of small and medium local road contractors which can carry out a significant portion of the road rehabilitation and maintenance workload. A TA program to facilitate this creation of competent LRC also will be funded under ROCS-1. If suitable counterpart personnel can be found to take full advantage of the technical assistance and training proposed to strengthen the LRC industry, several of the ECMEP state enterprises, to which GOM has now indicated it will give complete commercial autonomy, may be capable of becoming competent road  - 21 - contractors within the medium term. It is encouraging that one large international private construction firm is presently doing rehabilitation work for DNEP in the Hanica province in joint venture with the local ECHEP. The Vehicle Fleet 2.30 A shift from public to private enterprise in road transport requires careful consideration of the environment in which private trucking services will grow. Divestiture of assets from public vehicle fleets and re-establishment of private-sector technical capacity are essential elements in improving access by private operators to agriculture markets--hence the rationale for trucking studies at this stage. The proposed trucking studies should pave the way for increased development of private-sector transport services, which in turn will contribute to better use of existing and future resourcs4. 2.31 After the adoption of policy changes needed to promote the growth of private-sector road transport companies, technical assistance to such companies will be required to help them establish adequate preventive-maintenance, costing and replacement practices which will ensure their commercial viability. The country's road transport pricing will need to be modified so that full cost recovery can be achieved by suppliers of transport services. In addition, proper pricing will allow for building a reserve to fund vehicle replacement and other capital investments. 2.32 It is estimated that about one-fourth of the non-operational vehicles in the Mozambican parastatal fleet could be rehabilitated at a reasonable cost, although a detailed fleet inventory and costing study would be required to confirm this. An important prerequisite to such rehabilitation would be the effecting of policy changes to encourage the development of greater capacity in private-sector maintenance and repair workshops. Required policy changes to address restricted spare parts availability and vehicle maintenance licensing will be documented in the studies to be conducted under the project (see para 4.19). D. Financing and Resource Mobilization 2,33 The 1993-1997 five-year financing plan for DNEP shows an estimated US$112 million being budgeted for road maintenance (including periodic) and repairsw. This entire amount is shown as being derived from the recently reestablished Road Maintenance Fund, which is overly optimistic judging from available data (e.g., the 1991-1993 PTIP-- Three-Year Public Investment Program document--indicates that the road fund's contribution to the DNEP budget will be only of the order of US$10 million by 1993). According to DNEP, the portion of the Road Maintenance Fund applicable to national roads has not yet received any money, with such fuel taxes as are presently being allocated to the fund being assigned to the rehabilitation and maintenance of urban roads and streets (para. 2.35).  _ 22 - 2.34 GOM has counitted itself to increase budgetary allocations for maintenance of the national road network so as to ensure the local funding, by 1997, of at least a reasonable level of routine/recurrent road maintenance. To finance this requirement the Government intends to improve cost recovery from road users in order to make the sub-sector financially self-sufficient in terms of covering the costs of routine and recurrent road maintenance operations, and eventually of normal periodic maintenance as well. Ideally, the sub-sector should also make a net contribution to the GOM general tax revenues which would cover the budget requirements for future road construction and/or improvement (after the network has been fully rehabilitated). 2.35 In order to ensure the availability of the required resources, additional revenues will be allocated to the Road Maintenance Fund. Revenues currently earmarked for the Fund are generated primarily by taxes on fuel, but the portion now being collected is dedicated exclusively to local municipalities for urban road and street maintenance (this policy is now under review). A road-financing study (terms of reference are attached as Annex 2-3) is included in the ROCS-1 Project to establish appropriate tax levels, distribution procedures, and a more effective revenue collection system, including recommendations as to the type and level of user charges which should be levied, and what proportion should be dedicated to the Road Maintenance Fund. Whatever the final form of the road financing scheme, it is intended that road-user charges generate at least enough revenue for DNEP to fund adequate routine and recurrent (and some periodic) maintenance of the national road network so that road users can be assured of a reasonable level of serviceability. 2.36 With allocation of a greater proportion to DNEP, the annual revenue estimated to accrue to the Road Maintenance Fund, at current fuel prices and using recent consumption figures, would be about US$ 12- 15 million during the life of the project. If this entire amount were to be dedicated to the national network, it would be sufficient to finance adequate routine and recurrent maintenance on the entire network, after it has been rehabilitated, but would be insufficient to provide for necessary periodic maintenance. Inasmuch as properly programmed and executed periodic maintenance is absolutely essential to obtain the service life and economic benefits expected from road rehabilitation, assured funding for this activity must be established by the end of the ROCS-1 Project. With increased operational efficiency, the average annual cost of periodic road maintenance of the entire national network is estimated to be at least US$12 million, at current prices. It is envisaged that ROCS-2 would include conditionalities regarding specific targets for road maintenace financing.  - 23 - III. THE COASTAL SHIPPING SUB-SECTOR A. IntroductLon 3.1 The Mozambican ports and shipping industry serves two distinct traffic needs. The first, transit traffic, comprises imports to and exports from Mozambique and its neighbors, the latter via the main road/rail corridors and associated ports. The second, coastal shippinR, provides North-South transportation, aimed at the evacuation of Mozambican produce either for export or to markets within the country. Given difficulties of overland transport, the efficient operation of the integrated coastal shipping sub-sector has a crucial role to play in the recovery of rural production and exports. In both the short-term and the long-term, the lowest cost development route for the evacuation of most agricultural produce is by sea via the small ports. S. Current Status and Issues 3.2 Unfortunately the small ports and coastal shipping sector is not adequately organized to play this .ole effectively because of: (a) inadequate coastal shipping capac'ty due to weak management and old equipment of the state navigatior. and shipping enterprise; (b) inadequate barging and feeder shipping capacity around the small ports; (c) inadequate infrastructure, navigational aids and handling equipment in the small ports; (d) poor operatLonal and financial management in both the shipping and ports sectors; and (e) an inappropriate regulatory environment that restricts private investment and commercial pricing. Coastal Shipping 3.3 Coastal shipping servlces between the regional ports is provided by NAVIQUE, the state-owned navigation and shipping company. Shipping capacity ls limited and costly due tot (i) inefficient management and aged equipment of NAVIQUE, and (ii) inadequate handling equipment and infrastructure, and inefficient operations in the main ports and in the regional and small ports. Shipping rates are regulated, but at a level that reflects the inefficiencies in the system. At an average of about US$40/tonnell, rates for containerized domestic cargo traffic within Mozambique are high in comparison to international rates (eg. US$50/ tonne Karachi to Maputo). It has been estimated that costs could be reduced by about 30Z through more efficient operatlons and vessel management. Feeder Shipping 3.4 Feeder shipping services transport passengers between the small tertlary and the reglonal ports, evacuate food crops from the small ports, and supplement the evacuation of the bulk cash crops that are shipped directly from the small ports. Feeder services are provided by 1/ Based on US$725/TEU and 15 tonnes per TEU which gives US$42/tonne.  - 24 - TRANSMARITIM and by a number of small informal operators who are unable to serve this market efficiently. Very few ships are operational as a result of poor maintenance and repair facilities and shortages of spare parts. The largest feeder operator, TRANSMARITIMA, which is owned by CFM, NAVIQUE and TERMAR, is poorly equipped, organized and staffed to effectively fulfill its role. Regional Ports 3.5 Five regional ports (Pemba, Nacala, Beira, Quelimane and Maputo) function as transshipment points for traffic to and from the small ports and as outlets for the major towns. Four of these are already receiving adequate donor support under present conditions as follows& Beira (Various), Maputo (NORAD), Nacala (FINNIDA), and Pemba (NORAD). A rehabilitation feasibility study is underway for Quelimane (funded by KfW) where additional multipurpose cranes may be required for efficient container cargo handling. KfW has expressed interest in funding any infrastructural investments that might result from the study. IDA is undertaking rehabilitation of the Beira Corridor (Cr. 2065-MOZ) (see Annex 1-2). In addition initiatives are currently underway, with IDA support, to see if the Maputo corridor can be rehabilitated with private sector participation. It is envisaged that these initiatives will be sufficient to serve the needs of transit traffic for the foreseeable future. 3.6 In the port of Maputo, a new coastal terminal has been dedicated for coastal shipping. By establishing this terminal, stevedoring, alongshore and storage activities for the coastal shipping have been integrated under one terminal operation and administration. The allocation of berths, laborers and cargo handling equipment to the coastal shipping sector has thus been made independent from the allocation of those to the international shipping in other sections of the port. In addition, documentation and certification for shipping by government agencies can be reduced substantially now that the coastal shipping cargo has been separated from the foreign trade cargo. 3.7 In some regional ports, facilities for feeder services between the regional ports on one hand and smail local ports on the other are either insufficient or rudimentary. For example, small boats which carry passengers and cargo to and from small ports cannot berth safely along quays in the Quelimane and Pemba ports. Small boats have to use the ill-maintained and defective private piers remote from the main harbor (in Quelimane) or try to share already congested narrow quays with far bigger coastal cargo ships (in Pemba). The inefficiency and inconvenience attributable to these poor conditions are primary causes of poor performance in maritime transport. Small Local Ports 3.8 About 15 soall coastal ports (mostly tertiary) in Mozambique are the main outlets for rural agricultural production areas not served directly by regional ports. In preparation for this project, the five high priority ports in Central and Northern Mozambique were studied in detail (Angoche, Chinde, Macuse, Mocimboa da Praia, and Pebane).  - 25 - Traffic levels in each of these ports is very low (ranging from 3,000 to 17,000 tonnes per year) due to limited agricultural production in the hinterland and the poor condition of the ports and the local shipping industry. 3.9 Traffic through the small ports consists mainly of emergency aid coming in and cash crops from both the commercial and family agricultural sectors going out. As the economy recovers, and food crop production in the hinterland improves, the level of emergency aid and food crop imports may be expected to fall. However, each port typically serves one dominant product (eg. copra in Macuse or cashew in Angoche) that accounts for the bulk of the traffic for that port, and recovery in this sector will dramatically increase traffic through the port. Depending on how the economy develops, traffic could grow by up to about 8Z p.a. compounded over the next twenty years. The table below shows traffic projections for the five small ports. Annex 3-4 sets out the detailed traffic projections for these small ports. Por'. Traffic, 1000 tonne. 1990 1998 2000 2012 X Growth Moc1.e.a de Pritl 1 07 I u:7T El: T 2% Macu.. 1$.0 1.0. 84.9 65.5 0.5X Chlnd. 6.0 12.2 3.0 17.0 1.61 P.b.s. 8.0 24.2 10.9 27.0 0.6X Ancoch 3.0 11.6 25.0 40.0 6.7X 3.10 Officially each port is owned and operated by CFH. However, since CFM has been unable to provide the necessary management, in many cases the port users (agricultural producers and shipping companies) are, in practice, running the ports. Most of the ports are cu-rently losing money due tot (i) the low traffic levels caused by to the current political and economic situation in Mozambique; (ii) poor, and in some cases non-existent, revenue collection; (iii) high operating costs and over-staffing; and (iv) port charges2/ that do not reflect the long- run costs of operations. 3.11 In general, infrastructure, navigational aids, and handling equipment in the small ports are insufficient and in such poor condition thatt (i) waiting times for ships are extremely long and shipping costs consequently high; (ii) palletization is not possible; and (iii) capacity will not be sufficient to meet the projected growth in traffic. Annex 3-1 sunmarizes the current status of each of the small ports. Institutional Weaknesses 3.12 Shortages of qualified personnel and inadequate organization are the most pressing shortcomings affecting maritime activities. The National Directorate of Maritime Affairs (DNM) and the Bureau of Maritime Projects (GAPROMAR) of the Ministry of Transport and 2/ Small port charges are typically: (i) 4-5 times lower than charges in the main ports, and (ii) standardized regardless of the cost structure of the particular port.  - 26 - Comunications (HTC), which are to be made responsible for the supervision and co-ordination of the small ports and coastal shipping sector, are not adequately staffed and lack the necessary organizational structure to manage the coastal shipping sub-sector in general and the small ports in particular. 3.13 The maritime resulatory framework is obsolete. Although agreement has been reached in principle to have a commercial and competitive sector, the maritime regulations have not yet been modified to support this objective. Customs and Trade Facilitation 3.14 Transit logistic inefficiencies contribute to high cost of transport to, from and within Hozambique. Dwell-time at portt for over 60Z of imported freight is over 50 days. This results in immobilization costs which are estimated to be eleven times normal CIF destination costs. At current traffic levels, the cost of transit inefficiencies (immobilization) at Maputo Port3/ can be estimated at well over US$ 25 million per year - penalizing importers (public, private, and donor agencies) and contributing to an extremely negative non-factor services (transport and insurance) balance of payments. 3.15 An assessment of the operations and financial returns of the public-sector enterprises performing freight-forwarding and customs brokerage services suggests that substantial gains in cost effectiveness could be obtained by liberalization of all freight-forwarding activities and of freight transfers to domestic shipping. In addition, obsolete customs documentation and procedures delay considerably the documentary credit process for foreign trade. Introduction of computerization of customs transactions compatible with both regional standards and with the domestic data information systems of banks, freight-forwarders and transport, is an urgent task. Finally, poor development of domestic freight-forwarding capacity results in less than optimum terms of trade (imports negotiated C&F, exports FOB) and prevents foreign currency flows, associated with forwarding activities, from reaching Hozambique. Annex 3-6 provides an analysis of the key issues with respect to trade facilitation. C. New Policy Framework and Coastal ShinninA Strateav 3.16 GOH has recognized the important role that the coastal shipping sub-sector plays in the distribution of agricultural produce and is embarking on a program to increase efficiency in both shipping and small ports sectors. GOM has agreed to adopt and promulgate a firm policy comiitment to promote and maintain full competitiveness in this vital transport sub-sector (para 6.2 iv). The recovery strategy involvess (i) 3/ 2.42 million tonnes of international freight handled in Haputo in 1990 (excluding domestic freight, and oil products handled at Hatola).  - 27 - *reforming the regulatory environment, (ii) encouraging greater private sector involvement, (iii) long term training and operational assistance; (iv) selective investments in shipping and ports; (v) re-orientation of the Ministry of Transport and Comunications into a planning and supervisory organization; and (vi) implementation of a facilitation program to remove bottlenecks to trade. Coastal Shippins Recovery Strategy 3.17 A viable shipping industry is the critical link in the recovery of the sector. With donor support, GOM is currently considering a number of options for the restructuring of the shipping industry, all of which include significant private-sector involvement and increased competition in this sub-sector. Implementing a New Regulatory Framework 3.18 With the guidance and assistance of TA financed under the ROCS-1 Project, a new regulatory framework for shipping will be implemented to ensures Mi) commercial pricings Fares to be more easily adjusted, but still subject to governmental review; (ii) suitable provisions for new private sector entry: It is envisaged that new entry will be on a concession basis with clearly spelled out service criteria; (iii) fair competition: The same rights and obligations will be assigned to all participants; and (iv) Consumer protections Since it is not certain that the Mozambican market can support, more than one coastal shipping organization in the foreseeable future, the regulatory framework will include provisions to protect the rights of Mozambican shippers in the event that unrestricted competition results in an eventual monopoly. Structure of the ShiDping Industry 3.19 Given the uncertainties surrounding traffic development and private-sector intentions, it is uncertain what the ultimate shipping pattern for marine transport for small local ports will be in Mozambique. There are three possible solutions which are summarized in the next table. (Annex 3-2 provides a more detailed description of these patterns).  - 28 - Shipping Barge Carrier Fed.r/B.ach.r Cargo/Lighters Pattern _ _ _ _ _ _ _ _ _ _ _ _ Maritim_ Barge Carrior atop. Convontional ship. serve New 1SO0t-2500t acess to In reglonal porte the min regional ports, conventional ships serve port and dlecharge/picke where transshipment reglonal port. and load up bar7.. oft-shore takes place to maller to/from lighters ___________ at maoer pofte bechehr offshore In *sma ports Cargo Barge. unloaded from C00t beachers provide Lightro transfer goods handling carrier transport feoder services to the to shore, stay In port operation goods to port, load Sm 11 porte. and carry cargo out to in small up and wait for cargo ships port carrier to return 3.20 In the short term, and perhaps even in the long term, a combination of systems is likely to operate and infrastructure investments will need to take account of this. In any event the futu..e of the shipping industry depends largely ons (i) provision of adequate feeder services; (ii) the restructuring of NAVIQUE; and (iii) the actions of private enterprise interested in entering the industry. Restructuring Coastal Shipping 3.21 GOM has agreed that, within one year of Credit Effective Date, and prior to the first annual Project review, it will take the necessary measures to: (i) present an acceptable action plan and timetable for the restructuring of all state-owned coastal shipping companies; (ii) adopt a policy commitment conducive to full competitiveness in the coastal shipping sub-sector; (iii) adopt a system of cost-based tariff policies applicable to small ports and coastal shipping; and (iv) adopt a policy allowing full private-sector access to the coastal shipping feeder- service market (see paras 6.2 ii and 6.2 iii). It is expected that, initially, GOM will empower NAVIQUE to operate in a comercial manner under a simple performance-based management contract with a private sector company. The action plan will include clearly monitorable targets and deadlines, covering both 'external restructuring", such as changes in the ownership structure and holding of shares, as well as linternal restructuring', involving staff and fleet rationalization. It is envisaged that any re-equipment will be funded from the private sector as part of the overall restructuring strategy. 3.22 Without staff rationalization and financial restructuring it will be difficult to interest a private sector organization in acquiring NAVIQUE. A strategy to resolve these issues will be developed by TA provided under the Project. Any action taken in this regard will require that an overall restructuring plan, as indicated above, be in place. IDA and NORAD have both expressed willingness to try to use credits or grants to assist in this process (under ROCS-2), if necessary. 3.23 A French shipping group has expressed to GOH an interest in providing coastal shipping services in Mozambique. The proposal envisages using a custom-built barge carrier to transport barges up the coast, with barges being dropped off in the small ports to be loaded and unloaded and collected on the return journey. Also envisaged is a fleet of smller conventional vessels. The estimated cost of the proposed  - 29 - project is about US$30 million. A full feasibility study for the project was submitted to GOH and IDA, and to potential financiers including the International Finance Corporation (IFC), the European Investment Bank (EIB) and the Caise Centrale de Cooperation Economique (CCCE) of France. The project requires further development to finalize a financing structure suitable for the risk of the operation. GOM has indicated that it is unwilling to take an equity stake in the venture. 3.24 As part of its conditions of entry, the French group would require assurance that: (i) land-side operations would be efficiently carried out (preferably in joint venture); (ii) improved navigational aids and comunuications would be installed; and (iii) GOM would adopt simplified downstream documentation and a levels regulatory framework (i.e. one that is fair to all competitors in the shipping industry.) Feeder Shipping Strategy 3.25 Recognizing the importance of the feeder shipping industry, GOM has agreed to: (i) restructure TRANSMARITIMA on a fully commercial basis, and (ii) allow private sector access to the feeder service market. A study to restructure TRANSMARITIMA, and to ensure that there are no legislative or other barriers to new entry and to assess the availability of finance for the small-port operators will be funded under ROCS-1. Financing for the restructured company (equipment, TA, training) will be provided, if necessary, under ROCS-2. Small Ports Recovery Strategy 3.26 The strategy for recovery of the small ports calls for (i) changing the regulations to allow private sector operators to manage the small ports in a commercial manner, (ii) awarding concessions for the management of the small ports, (iii) facilitating the rehabilitation and re-equipment or development of these ports, and (iv) supporting institutional development to allow the small-port operators to manage the facilities efficiently and GOM to regulate the industry effectively. Reaulatory Reform 3.27 Maritime regulations will be changed to allow cost-related tariffs to be charged for small port operations, and contracts for the coumercial management and maintenance of the small ports (concessions), to be issued to independent operators. Furthermore, IDA financing of investments in the small ports will be conditional on an acceptable concession being in place for that port. Guidelines applicable to the negotiation and award of management andlor concession contracts by GOM will be presented to IDA within six months following effectiveness of the Development Credit Agreement (DCA). 3.28 As a first step towards awarding the concessions, and prior to negotiation of the concessions, responsibility for the small (tertiary) ports will be formally transferred from CFH to DNMIGAPROMAR. Next, appropriate provisions will be made to grant long-term concessions to main users or experienced operators. In the longer term ownership may rest with DNM/GAPROMAR, with the local governments, or possibly with the  - 30 - concessionaire. This will be decided before the concessions are awarded, based on the recommendations of TA funded under the project. 3.29 While negotiating such contracts will be a challenge, it is believed that suitable concessions can be structured on a port by port basis. This may include users, shipping companies or joint ventures between various interested parties. Concessions may be awarded to the same concessionaire for the operation of multiple ports within a region (e.g. Moma and Angoche) to allow benefits to be obtained from economies of scale. To ensure transparency, open advertising for bids for the award of concessions would be required. 3.30 Once awarded, the concessions will be monitored by DNM/GAPROMAR to ensure that maintenance responsibilities are adhered to and that operating procedures and pricing structures are not implemented to the detriment of competitors. These issues will be addressed in the structure of the concession agreements, but GOM also will need to acquire or develop the skills to negotiate effective initial contracts and to subsequently supervise them. A summary of these institutional arrangements is included as Annex 3-3. 3.31 The structure of the concession fee will need to be negotiated between the interested parties, but preliminary analysis shows that it can be structured with both a fixed and a variable portion to split the investment risk between the Government and the operator such that: (i) the ports themselves will be financially viable, and (ii) overall fees (although higher than in the past) should be acceptable to shippers due to the improved service that they will receive. 3.32 TA to help draft concession documents and to assist GOM in negotiation thereof will be provided under the project (see the Terms of Reference in Annex 4-12). In light of the longer-term need to build capacity in supervision of small port contracts, longer-term TA and training will also be provided. GOM has agreed to assign Mozambican counterparts to work with the TA consultants to develop local capacity in supervision. Since port operation concessions are a priority issue (being a condition for investments in each port), initial funding for these TA positions has been provided under PPF advances for the Project. Investments in Small Ports 3.33 Given limited resources, five local ports in Central-Northern Mozambique were initially selected for priority rehabilitation, mainly because of their importance to agricultural production. However, detailed feasibility studies conducted using PPF funds in preparation for the Project and by the appraisal mission revealed that the level of ec,momically viable investments is unlikely to exceed US$6 million for the five small ports. In general, the economic analysis confirmed the stated preferences of the users in each port regarding what they were willing to pay for and why. The following would be the key elements of the small-port rehabilitation strategy: Mi) significant investments in new infrastructure are not economically viable and were not identified by port  - 31 - operators as high priority. Limited rehabilitation or reinforcing of the existing structures in Macuse, Chinde and Mocimboa da Praia is required, although without more detailed engineering the extent of economically justifiable requirements cannot be fully defined; (ii) more marine equipment (tugs, barges), is definitely required. Indeed, in most cases, the principal bottleneck in port capacity, for the level of traffic expected in the foreseeable future, is the availability of barges and tugs as opposed to the quay structure or land-side equipment. Given the high opportunity cost of the main ships, the high cost of dredging and of infrastructure construction, the lowest cost solution to improving port capacity is by investing in barges that would be pre-loaded prior to the arrival of the large coastal shipping vessels. Almost all users rated marine equipment as their most important need; (iii) land-side equipment requirements (cranes, tractors, etc.) are less significant to serve the operational needs of the ports, although in some cases new equipment would improve productivity; (iv) while beyond the scope of the initial feasibility studies it is clear that over and above the demand for port investments there is demand for: (i) more marine equipment (tugs and barges) to fetch and carry agricultural produce from up-river; and (ii) more land based equipment (tractors and trailers) to carry produce to and from the port; (v) ship repair facilities will allow the urgently needed barges and small ships to be rehabilitated (or constructed) and maintained in Mozambique; and (vi) improved small-port management would bring significant returns. 3.34 The following table summarizes the level of investment in the five small ports that is considered justifiable at this timp. (USS'OOO) TOTAL RADIO BARGES LAND INFRA- I FIR CONTINGENT eA COSTS LIG UGS EQUIP STRUCT. I COSTS I INFRASTRC SEA LAW Angche 60 70 400 106 0 575I 0 0 80 Chnd J0 70 120 1C 500 705 0 0 100 mecu. 2265 70 400 45 400 915 1100 240 0 Peban- OJC 70 240 15 20 945 0 240 100 MocXboo de Praia 1160 185 400 a"5 610 1510 0 0 170 Total FMv Ports 3hl2 i 1MAm I z I - 480 40 1/ Infrestructure Invetments thet mlght be Justiflablo depeding on detailed surveys 2 Additional Investment. In tus and bargoe to fetchf nd carry produce from up river 8, Tractors and tra lers to transport produce to and the port.  - 32 - 3.35 It is difficult to prove categorically a priori what the most appropriate investments are and what their economic rate of return will be, because of the current uncertainty with respect to: (i) how fast the traffic will develop; (ii) the shipping patterns and operational procedures likely to develop to meet that traffic; and (iii) current and potential productivity levels in each port. In order to mitigate the effects of uncertainty, it was agreed to maintain as much flexibility as poassible with respect to the exact structure and timing of investments, and to base investments primarily on local knowledge and commercial realities faced by the operators. Thus, decisions regarding the nature and timing of investments would be made by the private operators holding the concessions for the ports based on expected profitability. For land and sea equipment concessionaires would approach their commercial bankers for loans to finance their planned investment program. IDA would make finance available to the commercial banks for this purpose through an "apex' organization. The credit line will be open to any concessionaire that has an acceptable concession agreement with GOM. This allows the small-port rehabilitation and development program to be extended beyond the five already listed. It would have been very difficult for IDA to effectively finance a traditional investment project for the small ports and shipping project in Hozambique within the current environment since IDA's loan documentation and procurement procedures would be too cumbersome for small investments such as these. 3.36 For infrastructure investments the credit line approach is more difficult to apply since: (i) other donors (eg. EEC and AfDB) are keen to invest in port infrastructure but are unable to do so through the credit line mechanism; (ii) possible mismatches between the remaining term of a concession lease and desired term for infrastructure loans4/ may make it difficult to obtain wsecurity' for the loan; (iii) the long term required for infrastructure loans may also cause difficulties because local banks are reluctant to accept long-term loan exposures; and (iv) the legal inability to own the quay structures might make it difficult for concessionaires to raise funding for investments in real assets that they do not own. However, decentralized decision making and government recovery of investment costs will be maintained through a process under which the concessionaire would agree on the investments to be made with DNH/GAPROMAR, DNHIGAPROMAR would contract the works and the operator would then pay an incremental lease fee calculated on the say basis as the loan repayments would have been. Navigational Aids 3.37 Investments in, and maintenance of, channel buoys and other simple navigational aids, as well as of hydrographic surveys, will continue to be the responsibility of INAHINA, a national institute, rather than of the small port operators, since: ti) the needs are more easily identifiable, and tii) INAHINA already has the specialized skills and economies of scale that the acquisition, installation and 4/ In order to keep costs per tonne down to an acceptable level the term of an infrastructure loan would need to be quite long - possibly longer than the remaining life of the lease.  - 33 - maintenance of buoys require. INAHINA vill continue its proposed investment program for navigational aids in the small ports baead on the following principless (i) appropriate technology (low levels of maintenance required), (ii) investments as agreed with the users, and (iii) standardization as far as possible. A cost recovery program, currently in place to allow INAHINA to finance its ongoing operations, will be extended to the small ports; however, a study will be conducted under the Project to determine whether or not a more flexible and more cost-based pricing structure would be appropriate. 3.38 To control the increased level of pollution that might result from increased traffic, oil reception facilities vill be installed in the larger regional ports (Pemba, Nacala, Quelimane) under ROCS-1. Institutional Capacity 3.39 The new strategy implies a significant change in the role and responsibilities of GOH with respect to the coastal shipping industry. Within six months after the Effective Date of the DCA, GOH will prepare an action plan and timetable, acceptable to IDA, for transferring the responsibility of administration of the small ports from CFH to DNH. The eventual restructuring will allow GOH to effectively regulate and manage the newly privatized, ports and shipping industry. A draft of these responsibilities and of the new organizational structure is included in Annex 3-5. Technical assistance will be provided under the project to implement the new organizational framework. 3.40 Shortages of qualified personnel is one of the most pressing shortcomings affecting maritime activities. Regardless of the fact that responsibility for the management of the small ports will be passed on to private operators, improvement of managerial and technical skills will be required. This implies additional staffing, a well structured training effort, and continued monitoring and sustained investment by either GON, or the private sector, or both. Accordingly, the Project will finance a comprehensive program for the training and upgrading of coastal shipping and small port personnel at all levels, as well as selected staff of DNH/GAPROHAR. In preparation for this program, GAPROMAR will issue new training guidelines, stressing, inter alia, career development linkages to training, a system of professional standards, and certification including the recognition of diplomas in term of higher salaries. Satisfactory guidelines will be issued by DNH/GAPROMAR within one year after credit effectiveness (para 6.2 vii). 3.41 A consultant financed by IDA has identified basic training needs and resources required to strengthen DNMH/GAPROMAR and improve the technical skills of most port and shipping personnel. Funds have been provided under the Project for training TA and for the preparation and implementation of a staff development progrm. Donor Participation 3.42 Mozambique has received considerable assistance from various donors in the maritime sector, some related to cabotage, some to the sector as a whole, but supportive of cabotage activities. Annex 3-7 summarizes the activities of NORAD, the most active donor in the sector.  - 34 - IV. TUE PROPOSED PROJECT A. Oblectives 4.1 The principal objectives of the ROCS projects are: (i) to provide sufficient qualified human resources (skilled, semi-skilled and managerial) to the roads and coastal shipping sub-sectors by financing the first phase of a long-term manpower development and training program for transport personnel, in order for the sector to meet the peace-time needs of the Mozambican economy; (ii) by providing technical assistance and training at all management levels, to strengthen GOM institutions, state enterprises and newly formed, local private companies involved in the roads and coastal shipping sub-sectors, encompassing DNEP, local road contractors (including the ECMEPs), DNH/GAPROMAR, and new small-port operators, to allow them to cost-effectively manage transport infra- structure and services; (iii) to encourage and assist in implementing policy reforms necessary for effective management of national resources and increased involvement of the private sector in road rehabilitation and maintenance, small-port management, and the provision of adequate trucking and cabotage transport servicess and (iv) to support GOM's Priority Districts Program (PDP) by removing transport-related obstacles that are hampering employment generation, alleviation of poverty, self sufficiency in food production, expansion of exports, and improvement in business mobility. B. Overall Proiect Scope 4.2 To meet the above objectives, the ROCS projects will improve transport infrastructure and services through selective investment in rehabilitation and maintenance of key road and port facilities, and in increasing the capacity and efficiency of the trucking and co-istal shipping industries. The initial effort, to be supported by the ROCS-1 Project, will focus heavily on laying the groundwork for future initiatives in this sector through the provision of extensive technical assistance to strengthen institutional capacity, and the reformation of crucial GOM policies to improve efficiency in the transport sector and to provide reasonable assurance that rehabilitation investments will be properly and opportunely maintained.  - 35 - 4.3 Capital investments made under the ROCS projects will be primarily for rehabilitation of local feeder roads serving priority agricultural production areas, of badly deteriorated sections of the main roads leading to key coastal ports, of the small ports themselves, and of the local coastal shipping fleet. Policy reforms vill be directed to attaining greater efficiency in the transport sector through increased private participation, and the improvement of transport pricing and asset utilization to ensure comercial viability of transport enterprises. The first phase of a long-term manpower development program vill screngthen the planning, execution and control capabilities of transport sector personnel. 4.4 The original ROCS project was conceived because of the urgent need to strengthen the transport sector through an integrated strategy to facilitate the land/sea movement of goods and people between priority agricultural districts and the centers of consumption and distribution. However, because of the overwhelming magnitude of the required rehabilitation effort, and the difficulties inherent in preparing a comprehensive transport project under prevailing conditions of uncertainty due largely to the civil war, the ROCS project will be carried out in several stages. In view of the crucial importance of policy reforms, and the critical need to enhance GOH implementation capacity and to initiate long-term training, it is envisaged that the first stage, the ROCS-1 Project, will concentrate on policy issues, human resources development and improving the efficiency of the coastal shipping sub-sector while the second project would focus on investments in the roads sub-sector. Subsequent ROCS projects, which will depend on the implementation performance on the first two, have not yet been defined. The following are the principal elements of the first two ROCS projects: (i) ROCS-l: (a) studies and initial implementation of study recommendations for reforms in road financing. procurement, trucking, freight forwarding, custces and the local road construction industry, (b) first phase of a comprehensive training program for roads and coastal shipping personnel, (c) technical assistance to DNH/GAPROHAR and other coastal shipping organizations, (d) technical assistance to DNEP, (e) initial assistance for transport and trade facilitation, and for customs efficiency improvement, (f) seall ports investments, (g) coastal shipping investments,  - 36 - (h) final design of priority trunk-road rehabilitation, and (i) first phase of a nationwide Feeder Roads Program (FRP). (ii) ROCS-2: (a) trunk roads rehabilitation and maintenance, (b) feeder roads rehabilitation and maintenance (second phase of PRP), (c) technical assistance to roads entities, (d) strengthening of trucking and freight forwarding industries, (e) additional investments in coastal shipping and small ports, and (f) subsequent phase of assistance for transport and trade facilitation, and for customs efficiency improvement. C. Description of the Roads Component 4.5 The principal elements of road infrastructure and transport improvement, which are described in detail in this section, are as follows: Ci) institutional support to DNEP, (ii) manpower development and training, (iii) planning and engineering services, (iv) development of local road contractors, (v) the feeder road program (PEP), and (vi) strengthening the trucking industry. Institutional Support 4.6 To augment the agency's institutional capacity, substantial technical assistance (TA) and training will be provided to DNEP, of which a significant portion will be funded by IDA. This assistance is aimed ats (i) strengthening the planning and supervisory capabilities of DNEP and its provincial departments of roads and bridges (DEPs); and  - 37 - (ii) enhancing the capacity of the )arastatal ECMEPs (expected soon to become comercially autonomous), to efficiently perform road rehabilitation and maintenance. DNEP also vill benefit from the technical assistance and training included in the Project to develop private local contractors capable of undertaking road vorks. A summary of the TA to be provided to the road infrastructure sub-sector is included in Annex 4-1. Because of the dearth of managerial talent at the present time, the required TA is estimated at some 2,600 staff-months over the life of the Project (but of which nearly half are lower paid individual engineers or technicians involved in the Feeder Road Program). 4.7 Given the magnitude of problems facing the roads sub-sector, the Project vill represent only the modest start of a long-term effort to build adequate institutional capacity while attending to urgent rehabilitation and maintenance needs. A preliminary list of major tasks to be accomplished under this component of the Project includest (i) implementing an appropriate organization for DNEP, and for the provincial supervisory and executing entities (DEP/ECMEP), with adequate staffing; (ii) revisinR existing DNEP procurement regulations and taking suitable corrective measures for the entire procurement process, including reorganization of the materials-supply management function; and (iii) implementing appropriate policies to ensure adequate local funding of at least the necessary routine and recurrent road maintenance activities by the end of the Project. Annex 4-1 also includes a summary of studies to be financed under the Project. 4.8 In order to coordinate the activities of the various consulting firms expected to be vorking on key elements of the ROCS projects" roads component at any given time, assist in planning future roads programs and organizational responsibilities, and provide management support to the DNEP at headquarters level, a roads General Consultant (GC) will be financed under the project as a major component of the planned TA. Terms of reference for this GC are included in Annex 4-2. GOM will provide and maintain adequate counterpart staff to york with these consultants. DNEP has received and evaluated the proposals of four short-listed firma for the GC services, and contract award is expected in May 1992. Mobilization of at least the Teem Leader prior to credit effectiveness would be financed under a PPF advance granted by IDA, or under retroactive financing offered by GOM. 4.9 In order to enhance technology transfer as a result of technical assistance, guidelines have been developed and will be included in all TA contracts. These guidelines are included as Annex 4-20.  - 38 - Manpower Development and Training 4.10 A five-year program for the training, retraining and upgrading of road personnel at all levels will be administered by DNEP through the newly created Training Division. Improvement of technical skills is a long-term process which requires continuing monitoring and sustained investment (para 2.22). Accordingly, the Project would finance the first phase of a 15-to-20-year staff development program which would provide training for some 3,500 DNEP and LRC personnel, including managers, technicians, inspectors, equipment operators, mechanics and administrative staff. Upgrading of senior staff and managers will be conducted mostly by TA consultants through seminars and workshops, and through special study-visits abroad (fellowships). Training of road supervisors, foremen, and technicians will be conducted partly at the Road Technical Training Center (RTTC) in Chimoio, Province of Manica, and partly in the field with the Road Training Production Unit (RTPU) by adopting a system of *training by doing'. While various basic training courses will be the same for certain categories and levels of the workforce, specific courses will be designed for DNEP and LRC mid/high- level staff according to their expertise and particular responsibilities. Training of equipment operators and drivers will also be conducted through the RTPU. Although the purchase and management of heavy road rehabilitation and maintenance equipment will eventually be privatized, training of mechanics will be carried out through the mobile Mechanical Training Production Unit (MTPU) which will travel to provincial equipment workshops for an average of eight to twelve weeks according to an agreed priority schedule. In addition to some general theoretical training to be conducted in the vicinity of the MTPU, most training of mechanics would focus on repairing broken equipment under the supervision of experienced mechanical instructors, thus providing trainees with a continuous, practical production/training experience. Substantial training technical assistance will be provided to prepare and implement the program and train Mozambican trainers as they are gradually assigned to consultants or other positions (para 4.12). 4.11 DNEP has adopted a new training policy which will guide the activities of the recently established Training Division. A Training Steering Committee will be named, whose main responsibility will be to determine training priorities and assist in implementing the objectives of the training policy. The Training Division will be staffed initially almost exclusively by consultants and will be responsible for: Mi) the planning, budgeting, implementation, supervision, and evaluation of all training activities; (ii) setting up the RTTC by rehabilitating an under-utilized MCA center in Chimoio; and (iii) organizing one Road and one Mechanical Training Production Unit to complement training courses to be conducted at the RTTC. In addition, DNEP has entered into agreem nts with the Eduardo Mondlane University's Department of Civil Enginee'ring, and other technical vocational institutes and centers, to organize training activities which cannot be carried out at the RTPU or the MTPU. 4.12 The Project will provide financing for the resources needed to implement the program, such as: (i) technical assistance, encompassing training specialists and instructors; (ii) training equipment and  - 39 - materials, audio visual training aids, and *off-the-shelfl courses; (iii) training in-country and abroad (fellowships); and (iv) other training-related expenses. Training courses will be available to all interested personnel/entities directly connected with the road sub- sector, with course fees being established on the basis of gradually increasing recovery of most recurrent costs from the trainees or their sponsors. Upon satisfactory completion of training courses, MCA/DNEP will award trainees a certificate representing a record of competence, recognized by the Ministry of Education (MOE). Because of the existing uncertainties in Mozambique, some flexibility has been included in the training technical assistance services, to permit adjusting training activities to those which actually can be effectively carried out during the period 1993-1998. In view of the substantial amount of technical assistance and training inputs from other agencies/donors, close coordination will be essential among all those involved with training to prevent costly duplication of efforts. Financing has also been provided under the Project for an independent mid- and end-project triining evaluation, including the preparation of a follow-up training program. Annex 4-3 and attachments provide details of the training component, including the objectives, key elements of the program, staff estimated to be trained, cost estimates, and a brief outline of the terms of reference for the training technical assistance. Specific terms of reference fort (i) Road Training Technical Assistance Services (Training Specialists and Instructors); and (ii) Road Technical/Vocation Specialists (RTTC), have been agreed with DNEP and are available in the Project file. Planning and Engineering Services 4.13 Based on techno-economic studies by international consultants funded by IDA (under PPF funds) and other donors, the initial phase of the trunk road rehabilitation program to be prepared under ROCS-1, and executed under ROCS-2, is expected to encompass, over a six-year period, the following works: (i) the rehabilitation or improvement of about 900 km of paved trunk roads, as described in Annex 4-4; (ii) the upgrading of some 140 km of earth/gravel roads to paved standards (also included in Annex 4-4); and (iii) the procurement and installation of about 850 m of temporary Bailey-type metallic bridges at some 40 sites along primary and secondary roads (the list of tentatively agreed sites is available in the Project file). Design standards for the roads to be rehabilitated will be agreed at the time TOR for final design are approved, based upon final results of the feasibility studies and the general standards in effect in the SADCC countries. Under prevailing conditions, it is expected that minimum standards will be applied for initial rehabilitation works on most road links. 4.14 Planning and engineering services for the rehabilitation works described above, and for some six other trunk roads of second-tier priority, will be financed under the ROCS-1 Project. These services include the necessary economic and financial feasibility studies; preliminary engineering and environmental studies; and final design and preparation of tender documents. Civil works for these second-phase trunk roads will be included in ROCS-2, if practicable, or in a subsequent infrastructure project. Under ROCS-1, contract documents  - 40 - also vill be prepared for performance of deferred periodic maintenance on some 1,650 km of paved roads, and of intensive routine/recurrent maintenance on about 3,050 km of paved roads and 6,350 km of unpaved roads (following which normal routine activities can be performed on an annual basis). Development of Local Road Contractors 4.15 Several years of intensive rehabilitation and periodic maintenance will be required before the entire Hozambican national highway network can be brought to a condition that will permit normal road maintenance at a reasonable cost. Recent DNEP estimates indicate that routine (roadside) and recurrent (carriageway) maintenance of only those road sections presently expected to be rehabilitated under the ROCS-2 project, plus about 9,400 km (in total) of complementary, high priority sections, would cost nearly US$ 25 million over the six-year project period. When the cost of required periodic maintenance of the second priority level of paved roads is included, the amount rises to more than US$ 90 million. Although DNEP has requested annual funding, by 1994, of US$ 15 million solely for periodic maintenance of paved roads, it is noteworthy that its entire maintenance budget for 1991 was less than US$ 5 million. 4.16 Periodic road maintenance is particularly suitable for small/medium indigenous road contractors, but such firms do not yet exist. Assuming that the security situation will be normalized by the time the ROCS-2 project is initiated, the strengthening of the contracting capacity in-country is of utmost importance. For that reason, the formulation and implementation of a program to develop local road contractors LRC) capable of executing the planned road maintenance program has been included in ROCS-1. The first phase of this assistance is a study to evaluate the feasibility of developing small-to-medium LRC, including the pi.anned strengthenir,g of existing parastatals (ECMEPs), who would be capable of undertaking the rehabilitation and maintenance of an increasing share of the road network. Depending on the outcome of this study, and of the independent audit of candidate ECMEPs (para 2.29), financing will be provided for institutional development of the LRC. In addition, most ECMEP and other LRC personnel will receive operational training under the ROCS-1 Project. More effective use of the current DNEP road maintenance management system is also needed and should result from work underway by consultants in the rehabilitation of the Beira-Machipanda Road (funded by AfDB), conplemented by efforts of the DNEP General Consultants. The Feeder Roads Program 4.17 The rehabilitation and/or upgrading to engineered gravel standards, predominantly by labor-intensive methods, of about 2,600 km of feeder roads will be included in the Project as a continuation of the on-going Feeder Roads Program (PMP) funded by UNDP and other donors. A preliminary economic analysis was performed by DNEP, using vehicle operating cost data from the IDI model and representative vehicles and road lengths, to facilitate choosing the specific feeder roads to be rehabilitated and/or upgraded. However, these priorities may change as  - 41 - better information become available and as the security situation improves. Criteria for the definitive selection of specific secondary and tertiary roads to be rehabilitated/upgraded under the Project have been tentatively agreed with GOM and IINDP/ILO (see Annex 4-5). Within these criteria, a flexible approach to final selection will be adopted to reflect changing security and resettlement conditions. 4.18 As a complement to the MPP, a pilot program of improvement of access to villages in eight high priority districts has been suggested by the UNDP in its project document (in Project files) proposing a rural rehabilitation project for these districts. These access roads and bridges would be constructed by the villagers concerned, with the UNDP project providing technical assistance, maintenance training, hand tools and sae building materials and equipment hira. Trucking 4.19 With regard to the trucking industry, it is proposed that the ROCS-l Project include four studtes in support of improved road transport. The rationale for trucking studies is the high concentration of poorly utilized freight transport capacity in parastatal and government fleets and the need to propose flexible guidelines for its privatization, for the liberalization of the regulatory environment, for the professional development of private sector operators, and for the technical rehabilitation of the fleet. As a preliminary action, and while studies get underway, it is proposed that GOM remove entry barriers into the trucking industry for inter-city long-distance freight transport; it is also proposed that GOM remove compulsory tariff barriers by, as an ezample, setting up maximum and minimum levels for all freight services within the national and regional inter-city network. Consequently, the following four studies are proposed as part of a road transport rehabilitation program to be carried out jointly with USAID's private-sector development program: (i) establisLment of guidelines for shifting the balance of the trucking industry from the public to the private sector, thus reducing the inefficient use of own-account transpcrt; (ii) formulation of guidelines for the liberalization of regulatzons and other restrictions on private-sector road transport activities, including economic regulation, keeping government involvement to a minimum, while enhancing safety, insurance and technical standards; (iii) identification of types of training and/or assistance required by emerging private-sector operators and identification of training and/or TA needed by government agencies to fulfill their reduced role in road transport activities; and (iv) assessment of the potential for rehabilitation of existing vehicles, in particular, vehicle fleets of parastatals, complemented by an assessment of mechanical  - 42 - skills at the workshop floor level, with proposals for workshop licensing deregulation and improved distribution channels for spare parts. 4.20 A description of the action plan of this component is to be found in Annex 4-6. Terms of reference for components (i), (ii), and (iv), which have been agreed with USAID and GOM, are included in the Project file. It is envisaged that the ROCS-2 project will provide support to the trucking industry based on the outcome of these studies. USAID has indicated a willingnesa to support the private trucking industry in Mozambique. 4.21 Preparation of terms of reference for manpower training and assistance to private road transport operators will be part of the work assignment of the consultants selected for the initial inputs to the privatization and liberalization study. The end product of the training and assistance study should be a private-sector-oriented program complete with manpower targets, types of training, types of curricula and cost eatimates. The program will be aimed at encouraging private sector skills in trucking and mechanical workshop capacity. D. Description of the Small-Ports and Coastal-hiding Component 4.22 The component involving small ports and coastal shipping is structured to support the Project objectives in the following manner: first, reform the regulatory environment; second, transfer the ports to private sector operators; third, start long term training and operational assistance; and, fourtb, invest in port infrastructure and shipping operations rehabilitation and/or improvement. 4.23 This Project component will comprise the following elements: (i) institutional support and policy reform; (ii) manpower development and training; (iii) credit line for small ports investments; (iv) supporting investments in port infrastructure; and (v) trade facilitation. Institutional Support and Policy Reform 4.24 Institutional support will be included in the form of technical assistance and studies in the following areas: (i) regulatory reform of the coastal shipping and small ports industries by: (a) comprehensively reviewing the exieting regulatory arrangements; (b) designing and implementing revised regulatory frameworks to facilitate fair competition, and private operators' involvement in the  - 43 - sector, including the transfer of the management of the small ports to qualified private-sector operators; (c) assisting