Morocco - Fourth Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14651 PERFORMANCE AUDIT REPORT MOROCCO FOURTH HIGHWAY PROJECT (LOAN 2254-MOR) JUNE 21, 1995 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents Currency Unit = Dirham (dh) Appraisal Year Average US$1 = dh 6.1 Intervening Year Average US$1 = dh 8.7 Completion Year Average US$1 = dh 8.0 Abbreviations and Acronyms ADM Soci6t6 Nationale des Autoroutes du Maroc dh dirhams DRCR Road and Traffic Department (Direction des routes et de la circulation routi&re) EMENA Europe, Middle East and North Africa Regional Office ERR Economic Rate of Return FR Road Fund (Fonds Routier) IMF International Monetary Fund LA Loan Agreement Mdh Million Dirhams MENA Middle East and North Africa Regional Office MF Ministry of Finance MT Ministry of Transport MTPC Ministry of Public Works and Construction MTPFPFC Ministry of Public Works and Training (Minist&re des Travaux Publics, de la Formation Professionnelle et de la Formation des cadres). OD Operational Directive OM Operational Manual OMS Operational Manual Statement ONCF Office National des Chemins de Fer ONT Office National des Transports PCR Project Completion Report PAR Performance Audit Report PR President's Report SAP Special Action Program SAR Staff Appraisal Report SNA Societd Nationale des Autoroutes TOR Terms of Reference TSM Transport Sector Memorandum vpd Vehicles per day Fiscal Year Government January 1 - December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 21, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on Morocco Fourth Highway Project (Loan 2254-MOR) Attached is the Performance Audit Report on Morocco - Fourth Highway Project (Loan 2254- MOR), prepared by the Operations Evaluation Department. The main objectives of the project were to assist the Government in their strategy to restore, upgrade and maintain the national and provincial road system, to lower transport costs and help reduce income disparities between regions, and help poverty alleviation. The project made a substantial contribution to these objectives. It made, however, little progress towards deregulation of road transport services. Physical targets of civil works, which included the completion of the missing link of the Rabat- Casablanca expressway, were 95 percent achieved. The effort of road maintenance and upgrading was sustained, despite a shortage of counterpart funds due to the country's liquidity crisis, which the Bank tentatively alleviated by increasing the disbursement percentage, accelerating disbursement procedures and establishing a Special Account. Road maintenance equipment was delivered, repair facilities established and the management of equipment established on a sound basis. Technical assistance proved useful and was well appreciated. A study to elaborate a methodology on the impact of road projects in the region was completed, but the methodology is not yet complete and needs to be further developed. A study of the freight market with a view to deregulating it was not completed. The Audit rates the project outcome as satisfactory, the institutional impact as substantial on the Ministry of Public Works, responsible for road maintenance; it was negligible with respect to transport policies enforced by the Ministry of Transport. Sustainability is rated as likely. Maintenance receives the necessary attention and a Road Fund (not included in the project) was established by the Government in 1988, its revenue being earmarked for maintenance. But the Ministry of Public Works still needs to insist to obtain the necessary funding for all its maintenance operations. Two lessons can be drawn from this project. First, progress reports, especially when projects are implemented by different agencies, need to be carefully formatted and cover all project components. Second, as this project, the fourth in a series, demonstrates, a succession of projects creates the conditions for institutional development much better than isolated projects. The Audit issues recommendations in two areas. First, in view of the lack of an adequate system and format of progress reports on studies in this project, the Audit recommends (i) the elaboration of practical guidelines for evaluating the economic benefits of secondary roads; and (ii) a more systematic follow-up of studies, with the objective to elaborate guidelines on their selection, their treatment in appraisal documents and their monitoring during supervision. Second, because Morocco has a well developed transport system, an excellent monitoring of the Government budget, and abundant data on transport costs, the Audit recommends that the Bank review with the Government the establishment of National Transport Accounts. This would, inter alia, permit a better monitoring of the sector and of its macroeconomic impact. Attachment 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. g FOR OFFICIAL USE ONLY Contents Preface........................................................... 3 Basic Data Sheet..................................................... 5 Evaluation Sum m ary ................................................ 9 1. Introduction .................................................... 13 The Land Transport System .......................................... 13 Bank Assistance to the Transport Sector ................................. 13 2. Project Design and Implementation ................................... 15 Project D esign ... ................... .. ........ .. ........ ... .. .... 15 Objectives of the Project .............................................. 15 Evaluation of Project Design ........................................... 16 Objectives ...................................................... 16 Road W orks .. .................................................. 16 Road M aintenance .............................................. 17 Stud ies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Implementation . ................................................ 18 Road W orks .. .................................................. 18 Improvement of Provincial Roads..................................... 18 Road M aintenance .............................................. 19 Equipment and workshops .......................................... 19 Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Technical Assistance.............................................. 20 3. Compliance with Covenants ........................................ 23 Loan Documents .................................................. 23 Reporting ...................................................... 23 4. Bank Performance ............................................... 25 Appraisal and Negotiations . .......................................... 25 Compliance with Operational Directives (ODs) and Operational Manual Statements (OMS) .................................. .25 Staff Appraisal Report . ........................................... 25 Loan Documents . ................................................ 26 Implementation and Supervision ........................................ 26 General ........................................................ 26 Studies . .. ............................ ............. .... . .. ... 26 This report was prepared by Messrs. Albert Weckerle and Heman Levy (Task Managers), and Mr. Jean Grosdidier de Matons (Consultant) who audited the project in May 1994. Mmes. Maryvonne Mauprivez and Stacy Ward provided administrative support. 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. 2 5. Project Results and Sustainability .................................... 29 Economic Rate of Return ............................................29 Road Network Objectives ...........................................29 Institutional Objectives ...... .......................................30 Studies . .......................................................31 Sustainability ..... ..............................................31 Project Ratings................................................... 33 6. Issues and Recommendations........................................ 35 Supervision of Economic Aspects of the Project and Ex-Post Economic Analysis....... 35 Recom m endation I. ................................................ 35 S tu d ies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 Recommendation 2.................................................. 36 National Transport Accounts .......................................... 36 Recom m endation 3. ................................................ 37 Annex Comments from the Borrower .......................................... 39 3 Preface This is the Performance Audit Report (PAR) of the Fourth Highways Project in Morocco, involving a Bank Loan of US$85 million, of which US$8.4 million were canceled. The Loan was approved on March 29, 1983, and became effective August 24, 1984. The original Closing Date was December 31, 1988 and the Loan was closed on December 3 1, 1990. US$76.6 million had been disbursed by June 1991, when the final disbursement was made. This PAR is based on the Project Completion Report (PCR) (Report No. 12081) prepared by the Middle East and North Africa Regional Office and by the Borrower and issued in August 1993; the Staff Appraisal Report (SAR) dated March 2, 1983; the President's Report; the Loan documents; a study of the Bank files; and discussions with Bank staff. An OED mission visited Morocco in May 1994 and discussed the effectiveness of Bank's assistance with the Road and Traffic Department (Direction des routes et de la Circulation routi&e (DRCR)) at the Ministry of Public Works, Professional and Vocational Training (Minist6re des Travaux Publics, de la Formation Professionnelle et de la Formation des Cadres) - MTPFPFC). It visited the site of provincial roads reinforced under the project. The Moroccan authorities cooperated efficiently and with considerable courtesy with the mission and such a cooperation is gratefully acknowledged here. The main objective of the project was to assist the Government in their strategy to restore, upgrade and maintain the national and provincial road system, to lower transport costs and help reduce income disparities between the different regions. This audit report supplements the PCR. It highlights the difficulties inherent to a project involving two different ministerial agencies and offers related recommendations for the Government of Morocco and for the Bank. Copies of the draft PAR were sent to the relevant Government officials, agencies concerned, and cofinanciers for their review and comments. Comments received have been incorporated and are attached to the Report as an Annex.  5 Basic Data Sheet FOURTH HIGHWAY PROJECT (LOAN 2254-MOR) Key Project Data (Amounts in US$ million) Items Appraisal Actual Actual as % Estimates Of Appraisal Estimates Total Project Cost 131.4 106.5 81.0 Loan Amount 85.0 85.0 100.0 Physical Components Completed 12/31/87 12/31/90 - Financial Rate of Return (%) N/A N/A - Cumulative Estimated and Actual Disbursements As of December 31, 1990 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 Appraisal (US$M) 2.65 25.60 50.80 70.60 83.20 85.00 - - Actual 0 2.43 7.18 21.85 44.20 60.36 74.68 76.60 Actual as % of Appraisal - 9.92 14.13 30.94 53.12 71.00 87.21 90.10 Date of final Disbursement: December 31, 1990 Project Dates Original Actual Identification 12/80 Preparation Beginning 02/81 10/81 Preparation End 08/82 04/82 Appraisal Mission 09/82 05/82 Loan Negotiations 02/83 02/83 6 Project Dates (cont'd) Original Actual Board Approval 03/83 03/29/83 Loan Signature 10/24/83 10/24/83 Loan Effectiveness 01/23/84 08/24/84 Loan Closing 12/31/88 12/31/90 Project Completion 12/31/87 12/31/90 Staff Inputs (staff weeks) FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 Total Preappraisal 20.9 - - - - 20.9 Appraisal 10.2 0.4 - - - - 40.6 Negotiations 4.0 - - - - 4.0 Loan Process 3.8 12.7 - - - - 16.5 Supervision .6 14.7 14.1 14.3 17.4 9.2 9.6 8.3 7.1 - 95.3 Total 34.9 47.7 14.7 14.1 14.3 17.4 9.2 9.6 8.3 7.1 - 117.3 Mission Data Month/ No. of Days in Performance Year Persons Field Ratines Supervision I 10/83 1 10 2 Supervision II 02/84 2 8 2 Supervision III 10/84 2 8 2 Supervision IV 04/85 2 12 2 Supervision V 10/85 1 10 3 Mission Data (cont'd) 7 Month/ No. of Days in Performance Year Persons Field Ratings Supervision VI 05/86 2 15 3 Supervision VII 10/86 3 33 3 Supervision VIII 06/87 2 12 3 Supervision IX 12/87 5 12 2 Supervision X 03/88 2 10 2 Supervision XI 06/88 2 12 - Supervision XII 10/88 2 14 2 Supervision XIII 02/89 2 13 - Supervision XI 09/89 1 4 - Supervision XV 05/90 2 9 2 Supervision XVI 11/90 2 6 2 Supervision XVII 03/91 2 5 2 Other Project Data Borrower: Kingdom of Morocco Executing Agency: Road and Traffic Department, Ministry of Public Works Follow-up Projects Highway Sector Project, Loan 3168-MOR  9 Evaluation Summary Introduction 1. Morocco's land transport system is well developed. Since 1969, the Bank has assisted Morocco with seven transport projects: five highway projects and two port projects. A Highways Sector Project is being implemented and a FY 1995 Secondary, Tertiary and Rural Roads Project is being prepared (PAR, paras. 1.1 to 1.3). 2. The First and Second Highway Projects (1969-1980) financed extension and improvement of the road network, and maintenance equipment. The Third Project established a long-term maintenance and pavement strengthening program. Thus, as projects developed, maintenance and strengthening became a priority rather than new construction. Institution building and training were centered on the management of road maintenance and on improving transport planning and coordination. A Provincial Road Study, Phase I, in the Third Highway Project, focussed on agricultural production as the main justification for roads in rural areas (PAR, para. 1.4). 3. Physical execution of the projects was good and rates of return were generally above estimates. Physical and institutional improvement was significant at the Ministry of Public Works (MTPFPFC). However, the continuous dialogue with the Ministry of Transport (MT) on road transport sector reform and deregulation, despite that the need for reform was supported by many studies, had not yet borne fruit when Highways IV was launched (PAR, para. 1.5). Objectives 4. The project had for main objectives to (i) adapt the network to modern traffic demand, improve its safety and lower transport costs; (ii) maintain and rehabilitate the primary and secondary road networks; (iii) help alleviate rural poverty and reduce income disparities between regions by improving and expanding the provincial network; (iv) focus attention on the productivity of transport services; and (v) strengthen the management and planning capacity of MTPFPFC's Road Department (PAR, paras. 2.1 and 2.2). Implementation Experience 5. The project consisted mainly of (i) strengthening and improving 470 km of primary and secondary roads, and completing the Rabat-Casablanca Expressway (29 km); (ii) developing maintenance facilities and management; (iii) technical assistance for administrative and maintenance management; and (iv) studies to review the freight market, strengthen the road transport sector, and to develop a methodology on the measurement of the agricultural impact of provincial road improvement (PAR, para. 2.5). 6. The insertion of the expressway in a project centered on road maintenance and strengthening and on poverty alleviation resulted from the insistence of one of the agencies of the Borrower. Given the shortage of financial resources for maintenance, the priority of that 10 item was disputable, despite that it was a very sound investment. The Bank could have been stricter on conditionality regarding the financing of maintenance, given that it had accepted to finance the expressway, and given that the liquidity shortage which later hampered project execution had been identified before negotiations (PAR, paras. 2. 7 to 2.10). 7. All investments were concentrated under one Government agency, while another, which did not benefit from investment financing, was to monitor a study including recommendations for basic changes in well established road transport policies, that had broad social and political implications. Delays in submitting the necessary documentation relating to the study delayed loan effectiveness (PAR, para. to 2.11). 8. The physical components of the project were completed at 95 percent. Based on actual expenses, the Borrower's effort of road maintenance was sustained, but there is no record of physical results (PAR, paras. 2.12 to 2.16). 9. Road maintenance equipment was delivered, after a revision of the original list (PAR, para. 2.17). 10. Studies were implemented late and with considerable difficulties. Relations between consultants and client led to tensions. The client generally considered that the consultants did not satisfy their terms of reference while the consultants were of the opinion that the client's requests were well beyond TORs (PAR, paras. 2.18 and 2.19). I1. Technical assistance services to the MTPFPFC were useful and well appreciated (para. 2.20). Compliance with covenants 12. Covenants were generally complied with, but with delays. 13. The shortage of counterpart funds and the limitations of expenses required by the IMF limited the Borrower's capacity to comply with the covenant requiring the provision of funds to carry out the project. Reporting was not in accordance with the requirements of Supplemental Letter 3 (PAR, paras. 3.1 to 3.3). Bank Performance 14. Appraisal documentation lacked details on major items included in the project. The SAR did not fully comply with the directives set in OMS 3.04. The Annex to Letter 2 was not amended after the equipment list was changed. Reporting requirements were not sufficiently elaborated (PAR, paras. 4.1 to 4.5). 15. The Bank responded well to the country's liquidity crisis which became acute in 1986, by increasing the disbursement percentage and establishing a Special Account (PAR, para. 4.6). 11 16. Supervision of the economics of the project (economic appraisal of provincial roads selected during project execution and supervision of studies) was uneven. While the Bank adequately followed the Transport Studies, specially at the end of project implementation, when a highway sector project was under preparation, it gave inadequate attention to the Provincial Road Study Phase II, despite that major difficulties developed between client and consultants. This calls for improved management system and procedures regarding (i) supervision; and (ii) the insertion, treatment and follow-up of studies in projects (PAR, paras. 4.7 and 4.8 and Recommendations 1 and 2). Project Results and Sustainability 17. Traffic grew faster than expected and ERRs for the civil works items of the project are generally higher than appraisal projections. It was considered too early to measure the impact of provincial road improvements on agriculture, but the Audit considers that simple indicators could have been used for an early assessment. The tools for measuring the impact of the project on poverty alleviation are also not in place (PAR, paras. 5.1 and 5.2). 18. The objective of lending support to the priority given to maintenance and rehabilitation was reached. While not specifically an outcome of the project, the establishment of a Road Fund in 1988 built a sound framework for financing road maintenance. The record is that, while maintenance receives the necessary attention, there is a considerable backlog and a continued effort is necessary to keep up with the development of the road network (PAR, paras. 5.3 to 5.5). 19. The institutional objective of reinforcing the MTPFPFC was reached, but the project had little impact on MT. The elaboration of National Transport Economic Accounts would help inter-agency cooperation and sectoral planning (paras. 5.6 and 5.7, and Recommendation 1). 20. The objective to develop a methodology for impact measurement was reached only partially, since the methodology is not complete. The objective to increase the productivity of transport services may be reached, since the policy dialogue based on the studies in the project continues; the Government and the Bank are drafting a Letter of Sectoral Policy, opening the way to new projects (para. 5.8). 21. The objective of reducing income disparities between regions is a long term objective. It can be measured only with adequate methodology on the impact of road projects in the regions. The elaboration of such a methodology was the objective of the Rural Road Study Phase II. It has been partially reached and it is necessary to continue in that direction (PAR, para. 5.9 and Recommendation 2). 22. Given that the MTPFPFC functions as an efficient road agency, properly managed and administered and that more financial resources are assigned to road maintenance and strengthening, most of the project items are sustainable. There is no indication that the performance of MTPFPFC would deteriorate, nor that the institutional improvements produced by successive Bank projects would fade. However, the continuation of the effort to develop maintenance is necessary (PAR, para. 5.10). 12 23. The Audit upgrades all PCR ratings. The outcome of the project is rated satisfactory. Institutional impact is substantial as regard the MTPFPFC although negligible upon regard to the MT. The Project certainly added to the continued cooperation between Morocco and the Bank in the area of road maintenance. Sustainability, overall, is likely (PAR, para. 5.11). Recommendation 1: 24. On Supervision procedures and reporting: The Audit recommends that practical guidelines for evaluating the economic benefits of secondary roads be developed and that these be incorporated in appropriate progress reporting requirements (paras. 6.1 to 6.4). Recommendation 2: 25. On Studies: (a) That the Middle East and North Africa Regional Office follows up on the Provincial Road Study, Phase II, so that the results of Phase I and II are not wasted; and (b) that the issue of studies be examined in the Bank, with the objective (i) to elaborate guidelines on the selection of studies, their treatment in appraisal documents, and their monitoring during supervision; (ii) to review how the findings of studies could be disseminated and the experience gained be applied in other projects and countries which may benefit from them; (iii) to establish a computerized roster of studies directly accessible to staff; and (iv) to review the filing of studies (PAR, paras. 6.5 to 6.7). Recommendation 3 26. On Sector Work: To review with Morocco (and countries of equivalent development) their capacity to establish National Transport Accounts (PAR, paras. 6.7 to 6.9). 13 1. Introduction The Land Transport System 1.1 Morocco's land transport system is well developed. It has (i) some 60,000 km of roads (28,000 km paved), plus 11,000 km of rural tracks; and (ii) 1,900 km of railways (970 kn electrified, 240 km double track). Road density is around 8,5 km/100 km2, twice as high as in other North African countries such as Algeria and Egypt. Some 300 km of new paved roads are built annually. However, many paved roads are too narrow and their pavements need improvement. Traffic increases faster (from 4.0 percent to more than 6.0 percent annually from 1988 to 1992) than economic growth (4.0 percent) and than population growth (2.3 percent), reflecting increased mobility of the population. Road transport, basically private, but government regulated, carries 90 percent of intercity passenger traffic and 75 percent of freight traffic without phosphate. An expressway has been built between Casablanca and Rabat (79 km); it is being extended to Kenitra (40 km) and to Fez as part of the 2872 km Trans-Maghreb Expressway'. Apart from being the land carrier of phosphate exports (12.0 million tons), the railway, a statutory corporation, operates successfully fast passenger services in the increasingly congested corridor Marrakech-Casablanca-Rabat- Kenitra . 1.2 The Ministry of Public Works and Training (MTPFPFC) is in charge of transport infrastructure, and the Ministry of Transport (MT), of transport policy and regulation. Roads are classified as national, regional, provincial, financed from the government budget; and communal, financed from local budgets, with support from the government budget. Road works are contracted out or in a some cases constructed on force account (e.g. road maintenance in remote areas), under the supervision of government engineers. Transport investments have accounted for around 20 percent of total fixed capital formation in the public sector, but it is only recently (1988) that road and road maintenance were given priority over major investments in ports, railways and aviation. Bank Assistance to the Transport Sector 1.3 Since 1969 the Bank has assisted the transport sector with seven projects: five highway projects including one highway sector loan, two port projects, for a loan total of US$491 million equivalent. 1.4 The First and Second Highway Projects (1969-1975 and 1974-1980) financed extension and improvement of the paved network, and maintenance equipment. Institution building started with the establishment of a transport planning office, which formed the nucleus of the future Ministry of Transport, under the Second Project. The Third Highway Project (1980-1985) was a road strengthening and maintenance project, establishing a long- I1. The expressway or Auloroute de I'Uniti Maghrebine is 7,344 km in length from Nouakchott (Mauritania) to Tobruk (Lybia). Feasibility studies for 14 sections covering 2,872 km (405 km in Morocco from Casablanca to Settat and from Fez to Oujda) are considered as having priority. The Autoroute project results from an international agreement and has political significance. 2. Daily road traffic (vpd) between Rabat and Casablanca reaches 18,000 vehicles (1994). 14 term maintenance and pavement strengthening program, based on systematic application of technical and economic criteria. A Provincial Road Study, Phase I, in the Third Highway Project, focussed on agricultural production as the main justification for roads in rural areas. Institution building continued to improve (i) transportation planning and coordination; and (ii) management of road maintenance. The Fourth Highway Project (1983-1990) is the subject of this Audit. It was followed by a Highway Sector Project (1990), to finance highway construction and maintenance and support the development of a sound road transport policy (cost recovery, deregulation, etc). Negotiations are planned for a FY1995 (originally 1994) Secondary, Tertiary and Rural Roads Project, specially to improve communications between regions and access to rural areas. 1.5 Physical execution of the first three projects was good. There were cost overruns, but economic rates of return were generally above estimates. The management capacity of MTPFPFC was originally good, and staff quality (specially engineers) improved steadily. Through its projects, the Bank helped to build the administrative structure to rationalize road construction and maintenance and to introduce cost accounting. The local road construction industry gained valuable experience. The impact of technical assistance to MTPFPFC was positive. In the area of transport planning, coordination and sector policy, little was achieved. Originally, transport was under MTPFPFC (then Ministry of Public Works and Construction - MTPC), which dealt mainly with design and execution of civil works and was not equipped to deal with transport economics. MT was established as an independent agency in 1977. By the end of the Third Project, Government and the Bank had not yet agreed on road transport policies, the Bank advising deregulation and the Government being reluctant to modify a system in place since the 1930s. 15 2. Project Design and Implementation Project Design 2.1 The project was prepared during implementation of the Third Highway Project, appraised in May 1982; the loan was negotiated in February 1983. Objectives of the Project 2.2 Objectives were diverse, either physical or institutional. The project was predicated mainly on the 1981-1985 Plan objective to (i) adapt the network to modem traffic demand and improve its safety; (ii) give priority to maintenance and rehabilitation of the primary and secondary road networks; and (iii) improve and expand the provincial network to help alleviate rural poverty. Its specific objectives were to (i) lower transport costs and focus attention on the productivity of transport services; (ii) help reduce income disparities between different regions; and (iii) strengthen the management and planning capacity of MTPFPFC's Road and Traffic Department. 2.3 The Bank-financed project consisted of diverse and numerous components: a. Civil Works (80 percent of total project cost): (i) strengthening of 470 km of primary and secondary roads; (ii) reconstruction of 4 bridges; (iii) improvement of 300 km of provincial roads; and (iv) construction of 29 km of the Casablanca-Rabat Expressway (the expressway); b. Equipment (9 percent of total cost): (i) three maintenance workshops; and (ii) acquisition of road maintenance equipment; c. Technical Assistance (1 percent of total cost): for planning, management systems and management of road maintenance in MTPFPFC; and for transport economics in MT; d. Studies (1 percent of total cost): (i) Study of Freight Market; (ii) Provincial Road Study Phase 11 for the development of a methodology to measure the impact on agriculture of provincial road improvements; and (iii) Schima Directeur National des Transports Study, added to the project description in 1986'. Continued maintenance of the classified network was included in project description. The loan financed maintenance directly by its financing of equipment and workshops and indirectly by increasing the disbursement percentage against the project's capital expenditures. This was to avoid procurement problems with a large number of small maintenance contracts. A letter 3. The Study on the Railways Operational Information System added 1986 was not implemented since Ofice National des Chemins de Fer (ONCF) conducted a similar study on their own. 16 annexed to the Loan Agreement spelled out the annual physical volumes of maintenance to be done under the Project. 2.4 Total project cost was estimated at US$ 131.4 million of which US$72 million (53.5 percent) were to be financed by the World Bank. The executing agencies were MTPFPFC, mainly its Roads and Traffic Department (DRCR) for civil works, equipment, technical assistance and the Provincial Road Study; and MT for the Freight Market Study and some technical assistance. 2.5 The Board approved the project on March 19, 1983. The loan became effective on August 24, 1984, 17 months later. This long delay was due to delays in submitting the necessary documentation, specially that relating to the Freight Market Study by the Ministry of Transport (para. 2.11). Evaluation of Project Design Objectives 2.6 The design did not clearly make the necessary distinction between long term and short term objectives. Poverty alleviation and reduction of income disparities were long term objectives which could not be reached quickly through one project only. Their achievement should have been expected to take time. By contrast, in the area of priority to be given to maintenance, results could be obtained in a relatively short time. The distinction would have been necessary for a fair evaluation of the project results. Road Works 2.7 The design reflects a compromise between the different priorities of different Government agencies, mainly between construction and maintenance. The Audit finds that, originally (December 1980), the project was for maintenance and rehabilitation only; new investments were to be financed only if they had a very high economic return and probably with cofinancing4. This was in line with sectoral objectives, with the need for a large scale maintenance and pavement strengthening effort identified under the Third Highway Project, and with the shortage of budget resources. The preparation mission reported that MTPFPFC would not have accepted a project without the Rabat-Casablanca expressway. Other agencies (e.g. the Planning Ministry) did not consider that, given the circumstances, the expressway had priority over maintenance. The Bank accepted somewhat reluctantly to include the expressway in a project oriented towards poverty reduction and reduction of income disparities. The record does not indicate whether the Bank raised the issue at a higher level. 2.8 MTPFPFC started preselection of contractors for the expressway immediately after negotiations (February 1983) and awarded the contract quickly. Based on available information, The Audit considers that completing the expressway could be justified on two grounds: 4. See Bank Letter to Government, Dec 31, 1980 (Project Files, vol.1). 17 a. road maintenance and road construction are different industries calling for different equipment and different contractors, specially in Morocco. If funds for the expressway would have been cut, contractors working on the site would have stayed idle because of shortage of funds, with associated economic and social losses; they would not automatically have worked on maintenance contracts; and b. the full positive impact of the expressway on traffic, and associated revenue from tolls, could be obtained only if it were completed between the main cities of Rabat and Casablanca; besides, under Highway II, the Bank financed the detailed engineering of the expressway and part of its construction and was somewhat committed to its completion. Completing the expressway on the heavily travelled and dangerous Casablanca-Rabat section was in line with the Plan objective, on which the project was predicated, to modernize the road network and make it safer. However, it bore little relation to the specific project objectives: on such a short distance, it did not significantly reduce transport costs. It increased, rather than reduce, income disparities, since the region it served was already the richest of the country. Road Maintenance 2.9 In early 1984, before the loan was effective, the Bank found that the maintenance budget was insufficient and started to insist that it should be increased. Inadequate funding was partly the consequence of scarce financial resources been allocated to the expressway rather than to maintenance.' For the project to be in more line with its objectives, (i) a covenant in the loan agreement (LA) regarding the funding of maintenance would have been of order; and (ii) Bank financing of the expressway should have been made conditional on an adequate and predetermined provision of funds for maintenance for each of the project years. This would have encouraged MTPFPFC to give priority to maintenance and the Ministry of Finance (MF) to be stricter on budget allocations proposed by MTPFPFC. 2.10 The Audit concludes that (i) the design, while in line with the Plan objectives, was not fully in line with the specific project objectives; and (ii) conditionality regarding maintenance should have been stricter, specially since Bank's acceptance to finance the expressway gave an opportunity for a quid pro quo on the availability of counterpart funds for maintenance. Studies 2.11 Under Highways II (Loan 977-MOR, 1974), the Bank financed studies and technical assistance for transport, then under MTPC's control. Under the Third Highway Project (Ln I 830-MOR), the Bank financed equipment and studies for the newly established MT. When the Fourth Highway Project was prepared, Government reluctance to introduce changes in their road transport policy was already apparent. These changes were known to have broad political 5. The total cost of completion of the expressway was equal to 9 percent of the amounts spent on maintenance in 1984 and 1985. 18 and social implications besides economic. All physical investments were concentrated in one agency, the MTPFPFC, while another agency, the MT, did not benefit of investment financing, but was loaded with a Freight Market Study implying major changes in established policies and practice. For MT, loan effectiveness and project implementation were, as a consequence, less urgent than for MTPFPC. There were delays in loan effectiveness, because MT was late in submitting the necessary documentation relating to the Freight Market Study. Implementation Road works 2.12 Some 95 percent of the physical components financed by the Bank were finally completed. Early during project execution, the Government had to limit public expenditures. Most civil works were therefore delayed by the shortage of counterpart funds and were completed, on average, two years behind schedule. The program of provincial roads improvements and the Casablanca-Rabat expressway were entirely completed. Road strengthening fell about 4 percent short of its target of 470 km.6 13 bridges out of 14 were rebuilt. 2.13 Casablanca-Rabat Expressway The PCR doubts the wisdom of completing the expressway early rather than giving priority to maintenance and to road strengthening when, in 1985-1986, the liquidity crisis complicated project implementation. But contracts had been awarded and contractors had mobilized.' The contractors were willing to pre-finance construction and to be flexible on payment conditions. Some payments were late, but the loan adequately financed all contracts, which had been signed before the liquidity crisis became acute. Government and contractors canceled their respective claims and penalties; there was no interruption of works, no waste due to the equipment being left idle, no social unrest due to unemployment and the expressway could be opened (and collect tolls) on the whole distance from Rabat to Casablanca. The Audit considers that, at the implementation stage, the policy followed regarding the expressway and the decisions taken thereof were reasonable, given the circumstances. If the expressway had to be eliminated, that should have been at appraisal or at negotiations stage. Staff from MTPFPFC, an agency which strongly advocated the insertion of the expressway in the project indicated to the Audit Mission that part of public opinion still criticizes the investment in the expressway, because it benefits only a narrow segment of the population. Improvement of Provincial Roads 2.14 Originally, the 470 km to be improved were listed in an Annex to Supplemental Letter No. 2 agreed at negotiations. Some 82 km of roads were built outside the original list, a percentage of substitution of 17.5 percent, which is reasonable given the long delay in project start-up and execution: some of the roads listed in the original list were rehabilitated 6. 449 km (96 percent) of the program was finally completed, not 85 percent (394 km) as indicated in the PCR. 7. In the Bank, the EMENA Region itself was somewhat anxious to see the expressway completed. The March 1985 supervision mission pointed out that the delays in completing civil works financed by Government outside the project may delay the full opening of the expressway to traffic (Project Files, Vol. IV, Annex 13 at 3). 19 under local financing because their condition made their strengthening urgent, and they were replaced by sections which had deteriorated in between and called now for urgent rehabilitation. This was to be expected in this type of project. But there is no record of the criteria for selection of these sections. The Bank approved tenders and award of contracts routinely, strictly on engineering and procurement criteria, neither questioning the economic justification of the proposed works nor proposing to revise the Annex to Letter No. 2 so that legal documents would be in order. The Audit Mission visited a few sites of provincial roads improved under the project. Based on this sample, it appears that this item was adequately implemented. Road Maintenance 2.15 The SAR estimated annual maintenance costs at 170 million dirhams (dh) in constant 1983 dirhams, a low figure. Actual annual expenses were 324 million constant 1983 dh. on average from 1981 to 1987, i.e. 67 percent on average of total MTPFPFC civil works expenses.' They were below that average in 1984 (113 M dh., 56 percent) and in 1986 (128 M dh., 47 percent). In 1987, they were back at 65 percent (409 M. dh) of total civil works expenses. The record, and reports on subsequent projects indicate that the latter figure is still inadequate to cover all maintenance needs. But, given the delays between commitments and disbursements, no hasty major restructuring of the project eliminating or delaying the expressway (para. 2.13) would have impacted on the short term liquidity crisis affecting maintenance. 2.16 Progress reports describe adequately the financial administration of items directly financed by the Bank, but give no information on the execution of maintenance, in part financed indirectly from the Bank loan through the increase in disbursement percentages (para. 2.3). The annual physical volumes, which were agreed (Annex to Letter 2), are known ex ante, through the annual program submitted to the Bank (Section 3.03 (b) of Loan Agreement (LA)). They were not reported after execution and were not systematically monitored by the Bank. It is not therefore possible to assess the productivity of the maintenance effort. The May 1994 Audit Mission travelled on some 400 km of roads, which appeared adequately maintained. This, together with the information contained in supervision reports for the Fourth Highway Project and in the documentation for the Highway Sector and Secondary, Tertiary and Rural Roads Project, and with the usual good performance of DRCR, is a presumption that the maintenance program was implemented. But neither the relation between costs and volumes nor the productivity of maintenance can be determined. Equipment and Workshops 2.17 Road maintenance equipment was procured at the very end of the project. The PCR reports that no formal record was found for the justification or approval of the revised list of equipment purchases. In fact, the justification was delivered to the Bank in the form of a report in June 1987. The Bank agreed to it in a letter dated July 1, 1987,9 but the Annex to 8. See PCR, Table 2, p. 29. The median figure for 1961-1987 was higher at 40 percent Mdh. 9. Ln 2254-MOR Files, Vol. VI. 20 Letter No 2, which included the original list, was not updated accordingly. The three workshops included in the project were built (Mekn s, Casablanca, Marrakech). It was reported to the Audit Mission that implementation of the project resulted in improved equipment management and organization of road maintenance. Based on information available, the Audit considers that the organization is sound. Rates of availability of road maintenance equipment is claimed to have increased from 70 percent in 1989 to 73 percent in 1991 and 88 percent in 1993. Rates of utilization are also reported as having increased; no figures are available but the revenue from leases of equipment to the contractors performing maintenance increased from 50 million dh in 1988 to 98 million dh, which is an reasonably significant indicator. Cost accounting was established in maintenance workshops, and a system of maintenance audit was put in place; this was on MTPFPFC's initiative but well in line with Bank's approach on the matter. Studies 2.18 The Audit concurs with the PCR that the execution of studies fell short of expectations. However, the Provincial Roads Study Phase 11 produced useful material for subsequent impact studies. Both the Freight Market Study and the Schima National des Transports remained incomplete. Together, they nevertheless became bases of measures to be implemented to strengthen the transport sector, formulated in the Letter of Sectoral Policy, being discussed with the Government (October/November 1994) prior to the negotiations for the Secondary, Tertiary and Rural Roads Project (FY95). 2.19 The Audit finds that the implementation of studies was marred by tensions between Borrower and consultants on the substance and scope of their terms of reference, on execution, and on payment of fees. The record shows that MTPFPFC and MT had the same type of litigation with two different consultants. In both cases the budget for the study was well below what the TORs, as interpreted by the client, would have warranted. The client wanted a result, while the consultants claimed that they had produced the amount of work and deployed the means that had been contracted for. In principle, the issuance of variation orders in accordance with contract stipulations should have solved the problem. Based on information available, the Audit finds that two elements need to be taken in consideration. First, there is a element of intuitus personae in the relations between client and consultants, in Morocco as well as in other countries. As a result, the consultant wants to keep good relations with the client in view of possible future contracts and is flexible on accepting additional work. This makes contract execution less formal, but blurs relations, and, when difficulties develop, the final result is more at risk than if contractual documents had been strictly and objectively adhered to. Second, the administration of contracts for consultant services may require different talents and a different approach than the administration of contracts resulting in a easily identifiable product, such as works and goods. In Morocco, these talents, and the associated procedures and attitudes, may still need to be further developed in government agencies such as technical ministries. Technical Assistance 2.20 According to the record, technical assistance to the DRCR was useful and led to institutional improvement, specially in the organization of equipment repair facilities. There is 21 no information on technical assistance to the MT, originally to be financed by the Bank loan, finally financed directly by the MT, but still included in the project.  23 3. Compliance with Covenants Loan Documents 3.1 The PCR reports on compliance with LA covenants in Table 10, which does not refer to the status of understandings included in Supplemental Letters amplifying particular covenants. 3.2 Generally, covenants were complied with, but with delays. Some delays had no or little impact on project execution, such as the late production of reports. The following defaults had an impact (a) or were substantial (b and c): a. The Borrower was to provide the funds required to carry out the Project (LA 3.01). The shortage of funds and the limitations on expenses required by the IMF delayed project execution. Maintenance expenditures fell below the desirable, and intended amounts. However, since (i) no amount had been covenanted: and (ii) the cost of the annual maintenance program agreed upon in Annex 1 to Supplemental Letter No. I had not been estimated, it is difficult to estimate the magnitude of the default. b. According to Supplemental Letter No 3, the Borrower was to submit twice each year traffic counts and measurement of pavement roughness on roads strengthened or improved under the Project..... and information obtained from monitoring, in consultation with the Ministry of Agriculture, the agricultural development occurring after the improvement of provincial roads. The Borrower had been in default on these commitments. The matter of traffic counts and reports on pavement roughness was mentioned by a supervision mission in June 1987 as necessitating corrective action. There is no record that action was taken nor that the Bank raised the issue again. This impacted negatively on the monitoring of the economic impact of the project. Reporting 3.3 The Audit reviewed the progress reports. As indicated in para. 2.16, they were very good concerning the administration of expenses for road works financed by the Bank loan, in accordance with the Outline of Quarterly Financial Reports attached to Supplemental Letter No 2. They did not provide much information on the physical implementation of civil works, on maintenance (volume of works, equipment availability, etc.) on studies and economics. There is no information either on the actual cost of studies and the PCR Table 9 of Project Financing could not be completed on this point." 10. See Table 9 to PCR, Project Financing.  25 4. Bank Performance Appraisal and Negotiations 4.1 The Staff Appraisal Report (SAR) (para. 3.30) and the President Report (PR) (para. 60) stated that there would be an annual program, to be consistent with an action plan to be agreed with the Bank, thus impressing that the Bank was in full control of the Borrower's program for maintenance. In fact, the Loan Agreement only stipulated that the Borrower would submit the annual maintenance program to the Bank "for its review and comments" and that, after taking the Bank's comments in consideration, they would furnish it to the Bank for information. Neither the SAR nor the LA make reference to specific budget figures for maintenance, nor to an Action Plan such as the Plan covenanted in the Third Highway Project (Ln 1830-MOR, 1980). The LA and Supplemental Letter only referred to the project description, which included annual maintenance programs in physical terms (para. 2.3), not in financial terms. As a consequence, the relationship between the physical content of the maintenance program and its cost could not be established. Further, the Quarterly Financial Reports from the Borrower to the Bank include only Bank-financed items. They do not include information on allocations, commitments and expenditures related to the maintenance program and financed directly by the Borrower. 4.2 Para 4.23 of the SAR mentioned the current liquidity shortage in Morocco as a project risk. It considered that, in case of shortage of local funds, all project components could be reduced without major harm other than the postponement of the expected benefits. The Audit does not agree, specially as regard maintenance, since maintenance costs, and damages to vehicles, increase rapidly when maintenance is deferred. 4.3 The Audit concurs with the PCR that no documentation is available in the files to show the ex-ante estimates of the economic return for the pilot program of improvements to provincial roads. There is neither an annex detailing methodology and outlining the rate of return calculations, nor are they indicators that would have permitted to measure the impact of road improvements (see para. 5.1). Annex VIII to the SAR on Project Files is scant and does not permit to locate the necessary sources of information. This prohibits ex-post calculation. Besides, despite that civil works, a freight market study, a review of the trucking regulatory system, and the second phase of a Provincial Roads Study are important project items, the SAR has no Annex outlining any of these matters. The Audit considers that it did not permit an adequate monitoring of the project, specially by staff newly assigned to the project during supervision. Compliance with Operational Directives (ODs) and Operational Manual Statements (OMS) Staff Appraisal Report 4.4 According to OMS 3.04, issued in December 1977, and in force when the project was appraised, the SAR was to include an economic analysis including the distribution of benefits and impact on target groups. There is some tentative distribution of benefits between target groups; when the project was appraised, there was no clear methodology to measure such a 26 distribution. As reported in para. 4.3, the necessary Annexes and Supporting Tables are missing in the SAR. However, it includes a descriptive annex on Morocco's budgetary system, which is of lesser importance than the missing documentation. The Project File was not organized as stipulated in OMS 3.04, Annex B. Altogether, the Audit is of the opinion that the SAR did not fully comply with the directives set in the Operational Manual (OM). Loan Documents 4.5 The Annex to Supplemental Letter No. 2 was not amended after the equipment list was changed in July 1987. Para. 47 of OMS 3.18 refers to the necessary amendment to the loan agreement. Whether supplemental letters should also be amended is not indicated. The Audit considers that, since supplemental letters are amplifications (see OMS 3.18, para. 31 (a)) of the LA, they should be amended as well. Implementation and Supervision General 4.6 The Audit agrees with the PCR that the Bank and the Borrower took the necessary measures, during the 1985-1987 liquidity crisis, by implementing the Special Action Program (SAP), to accelerate disbursements, increase the disbursement percentage, amend the disbursement procedures and establish a Special Account. Flexibility was necessary and, in that respect, Bank performance was good. But the Audit concurs also with the PCR that standard supervision should have been tighter (see para. 2.14 above on selection of provincial roads to be improved). The absence of information (other than financial) on the execution of maintenance (see paras. 2.16 and 4.1) was a major flaw, resulting from inadequate design of the supervision and reporting system. It is fair to mention that the Department in charge of the project and the Bank were reorganized three times during project execution, which led to many changes of staff and of supervisors over a short period of time. Studies 4.7 The Audit concurs with the PCR that the Bank did not focus its attention on the execution of the Provincial Road Study Phase II (PCR, para 8.01): a. There is no record of Bank's review and follow-up on the study, nor of meetings with the Borrower. The Borrower, during the Audit Mission, confirmed Bank's apparent lack of interest for the study, resulting maybe from changes in staffing during project implementation. There was no follow-up in the subsequent Highway Sector Project (Ln 3168-MOR 1990), which included a new Rural Transport Study (at present in progress). However, the results of the study have been used for the appraisal of projects financed by other lending agencies. b. In contrast, the record indicates that the Bank gave its full attention, specially during the late years of the project, to the Freight Transport Study and to the Schima Directeur National des Transports. New staff had been assigned to the project following the 1987 Bank reorganization. Changes in transport policies were specially important for the development of a new project, to be 27 the Highway Sector Project. The record shows that these staff, not familiar with the Provincial Road Study Phase II, concentrated their attention on the Schema Directeur National des Transports. 4.8 The insufficient attention given to the Provincial Road Study Phase II reflects a qualitative and quantitative shortage of Bank economist services during a large part of the supervision period. It reveals not only a discontinuity in staffing, but also a lack of clear policies and guidelines regarding: (i) the insertion of studies in projects, at Borrower's cost; (ii) the appraisal of their justification and of their return to the borrower; (iii) their outcome; and (iv) the use to be made of their conclusions. A more active Bank's involvement may have avoided a serious deterioration of relations between the Borrower and consultants (reported in para. 2.19 above), of which the Bank was kept informed. The DRCR reported to the Audit Mission that, in their view, Bank supervision missions tended to side with consultants, despite that relations between consultants and Borrower were strictly contractual and left no room for Bank's intervention. While it is true that Bank missions should remain objective in the circumstances, the Audit considers that the Bank cannot and should not remain indifferent to worsening client-consultant relations which jeopardize project execution. Here, the record would rather be that, during a long period, the Bank maintained an excessively neutral stance, next to indifference, regarding the issue. The Borrower has also reported that short duration missions by Bank staff help solving specific problems during the execution of studies. The cost of such missions, however, is likely to be high.  29 5. Project Results and Sustainability Economic Rate of Return 5.1 The Audit found that data was missing to recompute an economic rate of return (ERR); the SAR itself was deficient in that respect (para. 4.3). Based on partial reevaluation by DRCR, of 74 percent of road length included in the project, the PCR indicates generally rates of return of road strengthening higher than appraisal estimates, with 59 road sections, out of 70, having a rate of return of 35 percent or more, the others being between 24 and 34 percent. The project was predicated on an annual traffic growth of 4 to 9 percent. Actual average traffic growth of 7.5 percent has been high, but distributed unevenly; for about one- half of the roads, there was no growth, one of the causes being the economic crisis. For these roads, the project may therefore have been somewhat premature. The ERR on the expressway would be 40 percent v 27 percent projected in the appraisal report. The Audit concurs generally with the PCR as regard the economic return of these components. Recent data and records from projects under execution or preparation confirm the rapid development of road traffic, which reflects the recovery of the Moroccan economy. DRCR reported to the Audit Mission that axle overloading was prevalent, reaching more than 100 percent; the cost of not enforcing axle-road limitations, which DRCR deplores, is that roads have to reinforced and pavements strengthened. The PCR gives DRCR-computed rates of return on 60 percent of bridge reconstruction works; the rate has been over 40 percent except for one bridge (30.8 percent). 5.2 The PCR (para. 6.16 and 6.17) states that the Borrower did not attempt a reevaluation for the provincial road improvements; the Borrower considered that such an exercise would not be meaningful at this time because full agriculture benefits would not have accrued by the time of project completion. The Audit considers that simple indicators, easily obtained from local authorities, could have been used for an immediate evaluation of the positive impact of road improvements. These could be the number of mopeds sold or registered, a good indication of rural mobility; the frequentation of health centers or the number of visits by doctors; the number of children going to school and their rate of absenteeism; and, lastly, the new plantations of olive and other trees, which the May 1994 Audit Mission could easily identify next to the provincial roads visited. These indicators should have been identified at appraisal stage (para. 2.14). Road Network Objectives 5.3 The objective to adapt the network to modern traffic demand and to improve its safety was reached as regard the expressway, whose traffic is higher than expected and where the rate of road accidents is 60 percent of the rate on the standard network. The objective to improve and rehabilitate the provincial network was also reached. Whether this has alleviated rural poverty has not been measured; the tools for such a measurement are not yet in place, and the reduction in poverty will take time. 5.4 The recalculation conducted on 74 percent of road length and 60 percent of bridge reconstruction works (para. 5.1) shows high returns on pavement restrengthening and bridge reconstruction, which indicate that the objective to reduce transport costs was reached. 30 5.5 The project (see SAR, para. 1.04) had as an aim to lend support to the priority given to maintenance and rehabilitation. The Moroccan Government now concentrates their road financing efforts on maintenance and rehabilitation. Budget figures, the establishment of a Road Fund, and the evolution of the condition of paved roads (41 percent in good condition in 1992 against 20 percent in 1983) " demonstrate that maintenance receives the necessary attention. In 1994, the road maintenance budget has more than doubled in current prices over the last six years, and increased by 63 percent in real terms. The Bank considers, however, that road deterioration is such that more action is needed toward elimination of a road maintenance backlog. The project, in terms of improved maintenance, and of the priority to be given to it, reached its objective; this does not mean, however, that the issue of inadequate level of maintenance is solved, mainly because maintenance still does not obtain all the desirable financing, given budget constraints. Institutional Objectives 5.6 The project had as an institutional objective to strengthen the institutions responsible for the analysis of transport investments (see SAR, para 1.04 and 3.02.11). This objective was also reached. The Audit Mission found that technical assistance to MTPFPFC was successful. MTPFPFC now conducts economic analysis of road works, in a simplified form, adapted to local conditions; a methodological framework for program planning, determination of priority selection and selection of projects has been issued.'2 The establishment of a Road Fund was not an institutional objective of the project, but resulted from the new priority given to maintenance. The Borrower reported to the Audit Mission that the institutional impact was "essential", that the Bank convinced them to train their staff, to test their models, to consider decentralization to the regions, to better program their work, to understand the importance of road user charges, etc. 5.7 Three qualifications are necessary regarding the attainment of institutional objectives. i. This attainment is not only the result of the IVth Highway Project. It results also from a continuing association between the Bank and MTPFPFC over different projects and their cooperation and exchanges of views in the execution of many studies; ii. Attainment resulted also from the continuing efforts of the Government to establish MTPFPFC on a strong basis, through training in Morocco and overseas, the establishment of an elite civil engineering school, the development of civil works laboratories, etc, all actions to which the Bank was or was not associated. The results of Morocco Highways IV show that an isolated project may lends itself poorly to institutional development; a succession of projects creates the conditions of such development, but what can be specifically attributed to one project or to another or to the Bank, to the project or to the efforts of Government is uncertain. I1. Staff Appraisal Report, Secondary, tertiary and Rural Roads Project, 1994, Table 2.4 12. Cadre mthodologique pour lWlaboration du plan quinquennal. DRCR, Division technique, 1993. 31 iii. The project design provided support for a strong and well-established agency, the MTPFPFC, rather than for an agency more recently established, the MT. There is still a need to associate more closely the engineering talents in MTPFPFC to transport policy as a whole, rather than limiting them to building and maintaining roads. The Audit mission noted MTPFPFC's frustration over the lack of interest, in other government agencies and in the public, for the issue of axle-overloading, which results in a fast and costly deterioration of pavements. There is a need for a broader overall view of what are the costs of the land transport system, that is construction, maintenance, road safety, costs to users, economic costs, road users charges (on which MTPFPFC conducted their own study), economic costs of transport, etc. Morocco needs National Transport Economic Accounts, that would consolidate information from MTPFPFC and from MT and other agencies (such as the Ministry of the Interior which endorses road police costs) in a workable set of documents for proper transport and policy planning. Studies 5.8 The studies had as objective to (i) develop a methodology for impact measurement; (Provincial Roads Study, Phase 11) and (ii) raise the productivity of transport services (Road Freight Study and Schema Directeur National des Transports). The methodology has not been tested yet and the objective has been reached only partially. The positive impact of the uncompleted studies on Freight Market and of the Schma Directeur des Transports has not been immediately felt. This has led the PCR to express reservation on the efficacy of studies to resolve policy differences. The policy dialogue is in progress, with a Letter of Sectoral Policy being discussed between the Government to the Bank. The Freight Study and the Schejma may finally pay off. 5.9 The reduction of income disparities between regions following the execution of the project has not been measured. Income disparities were not quantified in the SAR. The Provincial Roads Study Phase II would provide part of the necessary methodology of such a measurement, provided its results are put in use and the effort to develop them is continued. Sustainability 5.10 The PCR states that the project stood in a line of Bank operations that have addressed the problems of the road sector in a long term perspective and that the linkage of activities (road rehabilitation, institution building, reform of transport policy, etc) ensures that the initiatives of the Project will be carried forward and that their beneficial effects will be sustained (PCR, para 7.01). The Audit concurs with this view and considers sustainability as likely. Arguments are as follows: 32 a. As stated in para 39(b), maintenance receives the necessary attention. In 1988, actual expenses for maintenance were 59 percent of all spending for roads; in 1992, they were 80 percent,3 of which some 47 percent are financed from the Road Fund.4 The Road Fund was established in 1988, as a Government initiative, on which the Bank has remained neutral." There are indications that this effort is to be stepped up: records from on-going projects or projects being prepared (Secondary, Tertiary and Rural Roads), indicate that road maintenance is increasingly systematic, programmed and organized carefully with the contribution of provinces and municipalities. b. The Soci6t6 Nationale des Autoroutes du Maroc (ADM) generates the necessary resources for the maintenance of the Rabat-Casablanca expressway. It is financially autonomous and can use its resources for such maintenance. This makes that project item sustainable. The Rabat-Casablanca section is considered as a sunk cost; tolls cover operation, maintenance and some renewal (grosses rdparations). The expressway is being extended by stages, to the North from Rabat to Kenitra and Larache. On the Rabat-Larache section, it is expected to be cover depreciation as well as operation and maintenance, which seems to imply a sizeable increase in tolls over their present level. c. The institutional impact need to be measured over time, not on one single project. The Fourth Highway Project was one project in a long process, and added to what had been built before. Some of its impact does not materialize in easily identifiable specific products; still, it is significant that MTPFPFC, an efficient agency, is now entirely staffed at all levels with nationals, including women in professional (engineering/economics) positions. d. The effort to fight poverty and to reduce regional disparities, started under this project, is to be continued through the Secondary, Tertiary and Rural Roads Project. It is government policy to transfer additional resources to rural municipalities for maintenance of rural roads. Maintenance agreements are to be signed between MTPFPFC and municipalities, for the execution of maintenance of municipal roads under supervision of Government engineers. e. The results of the project in the matter of methodology for the measurement of impact of provincial road improvements, obtained through the Provincial Roads Study, Phase II, is likely to be sustainable if there is follow-up. 13. SAR, Secondary, Tertiary and Rural Roads Project, Feb 25, 1994, at Table 2.9. 14. Same, at Table 2.11. 15. The first mention of the establishment of the Fonds Routier is in the Aide-M6moire attached to a Supervision Mission Report dated December 14, 1988, together with the information that DRCR conducted on its own a study of road user charges. 33 Project Ratings 5.11 The PCR ratings were that (i) the project outcome could not be rated; (ii) sustainability was unlikely; and (iii) the institutional impact was negligible. Except for the MT studies, the Audit does not confirm that early evaluation. The Audit considers that the immediate outcome of the project is satisfactory. The long term impact of the project on poverty alleviation and income distribution, which are well relevant to the objectives, will be known later, provided a monitoring system is in place to measure them. The institutional impact can be rated as substantial. It was so as regard the MTPFPFC, where a long association with the Bank had a positive cumulative effect but negligible as regard the MT. The impact of the policy-oriented effort supported by studies monitored by MT was minimal; its long-term outcome and rests on Government political choices as regard road transport policies; that was, however, a small part of the project. Given recent developments in the matter of sectoral policies for the planning, construction and maintenance of roads, and given that the MTPFPFC agencies in charge of project items are competent, the project is, in that respect, likely to be sustainable.  35 6. Issues and Recommendations 6.1 The Audit has identified issues of general concern warranting further attention by the Bank. They are detailed below. Supervision of Economic Aspects of the Project and Ex-Post Economic Analysis 6.2 The Bank had not devised with the Borrower a reporting system that, short of permitting the precise measurement of agricultural benefits, would have identified progress made as a result of project implementation (social impact, increased mobility of farmers, new plantations, etc). The Audit is aware that reporting should be selective; DRCR complained to the Audit Mission that administration of Bank-financed projects is costly and demanding. The Audit finds that, in March 1991, three months after project completion, the Bank reached some understanding with the Borrower that the Borrower would propose to the Bank a simplified methodology for ex-post evaluation of the provincial road improvements. In fact, the matter was not pursued further and the issue became moot. The Audit considers that it was too late for the Bank to express concern on the matter at the very end of the project. Besides, the record is that Bank's concern at that stage was related more to the elaboration of the PCR than to the substance of the issue, that is whether or not the strengthening of provincial roads had an impact on agriculture. The matter should have been followed in the progress reports. 6.3 The lack of an adequate system and format of progress reports also had an impact on the follow-up of studies. Neither MTPFPFC nor MT had actually to report on the progress - or non progress - of studies in an agreed format, and the record does not indicate that a systematic program of review of studies, with deadlines, was elaborated. Information on the matter seems to have been collected somewhat haphazardly during supervision missions. The contrast is marked between the importance given to studies and economic methodology in the SAR and their treatment during project implementation. It is a matter of concern that the inadequate format of supervision reports is continuing under the Highway Sector Project (Ln 3168-MOR). The format, again, gives no indication on the physical implementation of project, but is limited to a tabulated presentation of commitments and disbursements of civil works contracts. When time will come for the PCR and audit of that project, problems of evaluation will arise. Recommendation 1 6.4 The Audit recommends that practical guidelines for evaluating the economic benefits of secondary roads be developed and that these be incorporated in appropriate progress reporting requirements. Studies 6.5 Difficulties have accumulated in the treatment of studies in the Fourth Highways Project, which call for an improved approach to the problem, with the objective of coherence and efficiency. Except in case of urgent needs, the selection of studies to be inserted in projects should be programmed more carefully. Whenever relevant, the SAR for each project should establish the relation between earlier studies and the project, or/and between earlier studies and the studies now being proposed. Given the cost of studies, SARs should be more 36 explicit as to the expected results, that is the return on the money borrowed to finance them. As indicated above (para. 4.7), it is a serious cause of concern that the Provincial Road Study Phase I and II financed under Highways III and IV seems to have no impact on the pursuit of lending for highways in Morocco. 6.6 For each sector and country, there is neither a Bank's compendium nor even a list of past studies, nor an outline of their content and conclusions. Once a project is completed, it is difficult to trace studies. One copy should in principle go to project files in Regional Information Service Centers, at divisional diligence, but that is sometimes neglected. In any case, project files are not easily accessible after the project has been completed and the loan closed. Individual copies retained by individual staff tend to get lost.'6 The methodology applied, and the experience gained in one study in one country is not used in another country of similar economic or social development. In the case under review, whether the findings of the Provincial Road Study Phase I and II could be applied, for example, to Tunisia or to Algeria would be worth exploring. The matter is further complicated by the property rights of borrowers on studies which they financed. A review of the matter is necessary, which is recommended below. Recommendation 2 6.7 The Audit recommends (i) that the Middle East and North Africa Regional Office (MENA) follows up on the Provincial Road Study Phase II, for the implementation of its results, so that the effort deployed under Phase I and II is not wasted; (ii) that the matter of studies be reviewed in the Bank, with the objective to elaborate guidelines on the selection of studies, their treatment in appraisal documents and their monitoring during supervision; (iii) that a computerized roster of studies, to their outline and of their findings should be established; and (iv) to examine how studies should be filed for easy access and reference." National Transport Accounts 6.8 Morocco has a well developed and formal economy, specially in transport, with an excellent monitoring of the Government budget. As early as 1988, DRCR has conducted studies on road user charges. Further work on National Transport Accounts, reflecting all revenue and expenses related to transport, would certainly help assessing road user charges and taxation on transport. For instance, present Bank-financed highway projects in Morocco include road safety items: the cost of road safety to government agencies (e.g. police) is a transport cost and need to enter in economic calculations." This information would be released to the public, Parliament, decision makers, etc. who may be misinformed on transport issues, as the malaise on the construction of the expressway (para. 2.13) seems to demonstrate. It would permit a better monitoring of the development of the sector, would help measuring its 16. Without any apparent reason, some of them finally land in the Bank's Libraries, which is good for their preservation, but may raise issues of confidentiality, since the libraries are open to the general public. 17. Microfilms or microfiches may also be used as a means to file studies, in a limited space, for future reference. 18. A model (Comptes Nationauxdes Transports, Institut National de la Statistique et des Etudes Economiques, Paris, annually) is available in France and could easily be made familiar to MTPFPFC and MT staff. 37 impact on the economy and on government budget, and would provide, as demonstrated by the experience in Europe, an improved basis for macroeconomic analysis. Recommendation 3 6.9 It is recommended to review with Morocco (and countries of equivalent development) the establishment of National Transport Accounts.  39 Annex COMMENTS FROM THE BORROWER Kingdom of Morocco Ministry of Public Works and Training Department of Programs and Studies FAX MESSAGE Subject: Fourth Highway Project (Loan 2254-MOR) Re: Your letter of December 29, 1994 From: The Minister of Public Works and Training To: Mr. Yves Albouy, Division Chief, OED I acknowledge receipt of your above-referenced letter and the accompanying Performance Audit Report on the above project. I now have pleasure in forwarding my department's comments on the text of the report. Very truly yours, Is/ Fassi Fehri Otmane Director of Planning and Studies 40 Annex Fourth Highway Project Performance Audit Report Comments 1. Corrections A few corrections need to be made to the "Background" chapter: Paragraph 1: - the rate of increase in traffic between 1988 and 1992 was over 6%; - the length of the expressway between Casablanca and Rabat is 79 km; the 62-km section is the portion transferred to Socidtg Nationale des Autoroutes du Maroc; - the Rabat-Kenitra section of the expressway is 40 km long, not 32 km. Paragraph 2: - Only the communal roads are financed out of the local budgets. The relevant part of this paragraph should read: "Roads are classified as national, regional, and provincial, financed from the government budget; and communal, financed from local budgets, with support from the government budget.' 2. It is noted in paragraph 35 (a) that the appraisal methodology for rural roads in the FY1995 Secondary, Tertiary and Rural Roads Project makes no reference to the Provincial Road Study Phase II. It should be noted that: * the FY 1995 project components do not correspond to those types of operation for which an appraisal would use the results of Phase II of the above-mentioned study; * the results of the Provincial Roads Study were used to appraise operations financed by other agencies. 3. Recommendation concerning the studies: Mention the efficiency of using short-term missions to solve specific problems.  - 1