Kingdom of Morocco - Secondary, Tertiary and Rural Roads Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6265-MOR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US$57.6 MILLION TO THE KINGDOM OF MOROCCO FOR A SECONDARY, TERTIARY AND RURAL ROADS -PROJECT MAY 18, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of April 1, 1995) US$1 =Dh 8.6 FISCAL YEAR January 1 - December 31 ACRONYMS AND ABBREVIATIONS CNER National Center for Road Study and Research CNPAC National Road Accidents Prevention Committee DPTP Provincial Directorates of MPW DRCR Directorate of Road and Road Traffic ERR Economic Rate of Return EVAL Simplified Road Evaluation Model GDP Gross Domestic Product ICB International Competitive Bidding IFEER Institute for Equipment and Road Maintenance Training LCB Local Competitive Bidding LPEE Public Laboratory for Experiments and Studies MARA Ministry of Agriculture and Agricultural Reform MOI Ministry of Interior MOT Ministry of Transport MPW Ministry of Public Works and Training NTMP National Transport Master Plan ONCF National Railway ONT National Transport Office O & M Operations and Maintenance PERL Public Enterprise Restructuring Loan RF Road Fund VAT Value Added Tax VOC Vehicle Operating Costs  FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO SECONDARY, TERTIARY AND RURAL ROADS PROJECT Borrower Kingdom of Morocco Beneficiary Not applicable Amount US$57.6 million Terms Twenty years, including a five-year grace period, at the Bank's standard variable interest rate. Poverty Not applicable Category Financing Local Foreign Total Plan (US$ million) EBRD 19.2 38.4 57.6 Government 63.8 7.2 71.0 Local Govermnents 0.4 0 0.4 OECF, Japan 18.3 44.6 62.9 Grant (to be defined) 0.1 2.1 2.2 Total 101.8 92.3 194.1 Economic ERR per subproject ranges from 12% to over 50%. ERR exceeds Rate of Re- 40% for the overall project. turn Staff 12761-Mor Appraisal Report Map IBRD No. 25834 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.  I  Memorandum of the President 1 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK AND RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR A SECONDARY, TERTIARY AND RURAL ROADS PROJECT. 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Kingdom of Morocco for US$57.6 million equivalent to help finance a Secondary, Tertiary and Rural Roads Project. The project is in conformity with the country assistance strategy discussed by the Board on November 23, 1993 and aims to address core needs of the rural poor by improving access to social services and to market; accelerate private sector development by reducing regulatory constraints in road transport and by increased resort to road works and supervision by contract; develop road management expertise in the new regional directorates; and improve road safety. The loan would be at the Bank's standard variable interest rate, with a maturity of 20 years, including a five-year grace period. 2. Background and Strategy. Over the past decade, Morocco has enjoyed a period of sustained macroeconomic adjustment and growth, while containing budget and current account deficits, and inflation to acceptable levels, as well as improving debt indicators. Structural reforms have brought market-based incentives and exposed the economy to domestic and external competition. The current development strategy is to consolidate these structural reforms, alleviate poverty and constraints to private sector development, improve public sector and environmental management and increase the economy's outward orientation. 3. In the early 1980's, road maintenance was under-funded, erratic, somewhat inefficient and limited in network coverage; road conditions worsened and the maintenance backlog increased. Furthermore, the planning of investments and the over-reliance on substandard narrow pavements (83% of the paved network) was generally not in line with economic priorities. The Roads and Road Traffic Directorate (DRCR) of the Ministry of Public Works (MPW) implemented organizational and staff training improvements, improved economic analyses and planning, set up a pavement management system and was successful in focussing the Government's attention on the road deterioration problem. In the late 80's, the Government sharply increased budgetary allocations for highway rehabilitation (about Dh 650 million; $76 million annually) and in December 1988 created a Road Fund for highway maintenance (Dh 450 million; $53 million annually). In 1995, additional tax revenues (Dh 460; $53 million annually) were earmarked to the Road Fund to finance a 10,000 km seven-year, rural road development program. Also, DRCR decided to contract out most road maintenance and developed procurement and financial commitment procedures in order to more efficiently execute road budgets. Furthermore, DRCR has developed a systematic approach combining pavement widening with the reduction of the maintenance backlog, relying on economic analyses to determine priority road sections.  2 Memorandum of the President 4. The current construction pace is fully consistent with meeting long term development objectives. However, the quality of the road network is poor, with scantily built unpaved rural roads and substandard narrow paved branch roads, most of them in mediocre condition. Therefore, budgetary resources should be devoted to bringing these roads to standards allowing for sustainable maintenance. Also, the current effort to optimize the allocation of public resources to roads at regional level should be pursued and intensified. 5. The evolving patterns of administrative and economic activities made the road classification system obsolete. A new classification system should be the foundation for the future, gradual transfer of ownership of rural roads to local governments. Local government ownership and responsibility for roads within its jurisdiction would permit optimal use of public expenditures at the local level for roads, and network management more responsive to rural transport demand. 6. A combination of difficult access and low productivity transport currently feed the spiral of poverty in remote areas. Bringing the rural roads to maintainable standards and remedying causes of traffic interruptions is at the core of the Government's strategy to support the needs of the rural poor. 7. The current structure for road transport tolerates low professional standards by allowing owners of regulated trucking licenses to lease them to the actual trucking operators. A public agency (ONT) has a monopoly on road freight forwarding, its heavily bureaucratic organization is minimally responsive to commercial needs while charging high mandatory fees, and hinders development of intermodal services. Furthermore public road transport rates are regulated at levels that do not allow normal renewal of the trucking fleet. 8. As shown in the figure below, road and street traffic in Morocco is becoming increasingly unsafe, with a record 3,605 people killed in 1994. Casualties are growing from year to year, and the growth rate itself rose steadily from 1984 to 1992. Interurban roads account for one fourth of the accidents but three fourths of the casualties. Over 1988-1992, the fatality rate (number of killed per million of population) has increased from 104 to 133; the global road fatality risk (number of killed per million vehicle) has increased from 4,180 to 4,750; and the interurban road fatality risk (number of killed per 100 million vehicle-km) has increased from 20.3 to 22.9. The trend over the period is even more obvious when comparing the fatality risk to the motorization level (ratio of vehicle fleet to population). The Moroccan interurban road fatality risk has steadily worsened over 1988-1992 from 6% to 29% above the regression line developed by Smeed for low-motorized countries. On the positive side, the trend is showing signs of reversal in 1993 and 1994, when the fatality risk decreased to 4,120, i.e. 22% above the same regression line. Furthermore, local awareness of road safety issues has also increased. As lessons from past projects show, this is the single most important element  Memorandum of the President 3 that could set the stage for a comprehensive road safety program to significantly reverse the current trend. Fatalities and Fatality Risk 05 ~~~~~~~~~3.800 4.5 2.00 32~000 .2 3.50 -c: aalt Rs Sme: l CutIes 4 --Smeed: 4 Lo -Moie 4 -Mooc:Ftlte 9.5Lssnsfrm rviusBak/D -nolemnt Fou hihapoetshv need thoroughMprepar: ataion with a fuedll soub-etoraelmod Lo-ooverizew, iMprovconioigai 10. Rational fromrevBank nkID Involvement. ThoBnkha playeday uniquect rolaei foserng sounetdd instituisonaldeeopment iLN roadMarintenanc Se,road fundingtan network mbrantagmnt.oIt isiportant thate theoanuoniuet be involvedp-fon winh the noextnhaenot thesed refrorms. Furteprmtore wthe Bankfdveopen stbscoavrategy inmorocco foussonitrnn private sysetoran deeopmeint,ocalsectorksuadpovertyon alseleviaton,il conervatpion tof wther rosesorcegsoand protecutiona oftevenvionmentsi rand pubicnsenact,orianc aundin mandgement.or  4 Memorandum of the President The proposed project is in'conformity with the Country Assistance Strategy discussed by the Board on November 23, 1993. 11. Project Objectives. The project objectives are to: (a) address core needs of the rural poor by improving access to social services and to market; (b) accelerate private sector development by reducing regulatory constraints in road transport and by increased resort to road works and supervision by contract; (c) develop road management expertise in the new regional directorates; and (d) improve road safety. 12. Project Description. The proposed project includes: (a) improving about 1,133 km of priority unpaved rural roads to all-weather gravel standard, constructing 96 km of paved rural roads, and finalizing the road reclassification (21 % of total project cost); (b) improving about 2,219 km of paved branch roads (formerly classified in the secondary and tertiary networks) by carrying out maintenance backlog resealings, structural overlays and/or widening works (66% of total project cost); (c) improving network management (technical support, planning and program- ming, improvement phasing and training) and renewal of essential road maintenance equipment (6% of total project cost); and (d) streamlining the road safety organization and supporting priority actions (7% of total project cost). 13. Project Implementation. The Borrower will be the Kingdom of Morocco. The implementing agencies will be DRCR and the Center for Prevention of Road Accidents (CNPAC) for their respective project components. DRCR will develop a computer application to integrate programming of works with procurement monitoring and financial recording (commitments and disbursements) in both Dirhams and US Dollars. This application will facilitate project accounting, progress reporting, tracking of historical changes and expected cost at completion, preparation of disbursement forecasts and monitoring of commitments, unallocated amounts of the Bank loan, and availability of cofinancing and counterpart funds. 14. The project will include a kick-off workshop before project effectiveness. The workshop will bring together project participants and finalize details of project implementation procedures (administrative and financial management and procurement). Before the third project year, the same participants will meet again for a mid-term adjustment workshop.  Memorandum of the President 5 15. Sustainability. Maintaining the flow of benefits over the economic life of project roads depends on adequate maintenance after completion of works. Thus, sustainability prospects will be enhanced by the institutional reforms in road maintenance, road funding and network management under the project. 16. Agreed Actions. To liberalize the trucking market and to promote greater trucking efficiency, the Government will: (a) permit unrestricted for-hire operations of trucks weighing eight tons gross or less; (b) abolish the mandatory use of ONT for road freight forwarding; (c) eliminate trucking tariff controls; and (d) introduce simplified procedures and professional qualification standards for access to the trucking industry, without any quantitative limits. These principles are spelled out in a Letter of Sector Strategy which has been signed. A covenant specifies that presentation to Parliament of the corresponding law will be done by December 31, 1998. 17. Furthermore, agreements and understandings have also been reached on the following: (a) the practice of carrying out annual reviews with the Bank of the road investment programs will be continued; (b) the Government will give high priority to funding maintenance of classified roads and the evaluation of corresponding needs on the basis of appropriate indicators; (c) CNPAC's role will be enlarged to specifically cover definition of a highway safety policy, together with the preparation of corresponding action plans, preparation of reforms in law and regulations and highway safety coordination; and (d) restructuring of the CNPAC will be accompanied by strengthening its annual budget with the earmarking to it of a large share of the no-contest (paid on the spot to the enforcement officer) road enforcement fines. 18. Environmental Impact. As roads works will be limited to improvement and maintenance of existing roads with no alignment change, no serious potentially adverse environmental impact is expected. The project has environmental benefits, e.g., environment-conscious institutional improvements, improved accessibility, reduced soil erosion, and improved vehicular and pedestrian safety. Special attention will be paid to providing adequate drainage and ensuring slope stability. In accordance with established guidelines, the project has been rated B. 19. Project Benefits. The main benefits will involve savings in road transport costs and improvement in access to remote rural areas, which will translate into lower  6 Memorandum of the President consumer prices, higher farm gate prices for agricultural produce and reduction in rural poverty. The provision of agricultural extension services will also be facilitated, with a secondary impact on agricultural production. 20. Project Risks. There are technical and financial risks. First, traffic counts and estimates can be inaccurate. These uncertainties are addressed by a sensitivity analysis of thle findings of the economic analysis with the hypotheses selected. Second, central and local government funding constraints may not only imperil execution of sub-projects, but may more generally weaken the sector environment in which the project operates and jeopardize achievement of its general objectives. The project will mitigate the risk of underfunding of maintenance activities with the setting up of agreed maintenance budget monitoring indicators, while the mechanism for cofinancing rural roads with local governments will shape a local environment favorable to the success of the rural roads component. 21. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Richard H. Frank President ad interim Attachments Washington, D.C. May 18, 1995  Schedule A Project Cost and Financing Plan Project Cost Local Foreign Total (US$ million) A. Rural Roads 18.9 16.6 35.5 B. Paved Branch Roads 57.4 51.4 108.8 C. Network Management 5.1 5.2 10.3 D. Road Safety 5.6 5.6 11.1 Total Base Cost 86.9 78.7 165.6 Physical Contingencies 8.9 8.1 17.0 Price Contingencies 6.0 5.5 11.5 Total Project Cost' 101.8 92.3 194.1 1/ Local costs (US$101.8 million equivalent) include US$48.2 million equivalent in taxes and duties, to be financed by Govern- ment. Financing Local Foreign Total Plan (US$ million) IBRD 19.2 38.4 57.6 Government 63.8 7.2 71.0 Local Governments 0.4 0 0.4 OECF, Japan 18.3 44.6 62.9 Grant (to be defined) 0.1 2.1 2.2 Total 101.8 92.3 194.1   Schedule B Page 1 of 2 Procurement Arrangements (US$ million) Procurement Method international Local Competitive Competitive ConsulUng Bidding Eldding Services Other KB.F. Total A. Hardware 1. Road Works Rural Roads - 37.000 - - - 37.000 (24.073) (24.073) Paved Branch Roads 113.031 7.787 - - - 120.817 (16.140) (16.140) Black Spots - 8.503 - - 8.503 (6.122) (6.122) 2. Goods For MPtv 7.178 - - - 7.178 (4.207) (4.207) For MOT 3.688 - - - 3.688 E. Software 1.MPW a. Framework Agreement - 4.045 0.106 - 4.151 (1.599) (0.086) (1.685) b. LclTrahhg - -- 0.531 0.531 c. Design & Qualty Cntrl Mostly Lab Tests - 1.530 2.794 - 4.324 (0.876) (0.876) Mostly Design - 5.882 - - 5.882 (2.930) (2.930) d. Studies, MPW - 0.633 - - 0.633 (0.486) (0.486) e. Other, MtW - - 1.240 - - 1.240 (0.952) (0.952) 2. CNPAC - - 0.144 - - 0.144 a. (0.119) (0.119) Total i - (20.347) (30.195) (6.963) (0.086) - (57.590) Note: Flgures hi parenthesis are the respective amounts financed by World Bank  Schedule B Page 2 of 2 Allocation and Disbursement of the Loan (US$ million) Loan Dlsbursement Amount % A Road Works 43.5 72% C. Goods V7 10P/oforeign D. Consu!tantServices &Trairing 5.0 100% Unallocated 5.4 Total 57.6 Loan amounts inanced by World Bank Estimated Dis- Fiscal Year FY96 FY97 FY98 FY99 FYOO bursements (US$ million) Annual 6.4 12.8 19.2 12.8 6.4 Cumulative 6.4 19.2 38.4 51.2 57.6  Schedule C Key Project Events and Responsibilities (a) Time taken to prepare 47 months (b) Prepared by DRCR, the Ministry of Transport and the Bank (c) First Preparation Mission March 1991 (d) Appraisal Mission Departure June 30, 1993 (e) Date of Negotiations April 1995 (f) Planned Effectiveness October 1995 (g) Relevant PCR's and PPAR Report no. Year Ln 642-Mor PPAR 1565 1969 Cr 167-Mor PPAR 1565 1969 Ln 955-Mor PPAR 4019 1973 Ln 1830-Mor PPAR 7015 1980   Schedule D (Pace 1 of 2) The Status of Bank Group Operations In Morocco Statement of Bank Loans and IDA Credis (As of March 31, 1995) US$ Million Amount Loan or Fiscal (ess cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed SeventV-six loans and five credits fuliV disbursed 4,043.03 45.16 Of which SALs, SECALs, and Program Loans /a 2377 1984 Klngdom of Morocco Industrial Trade Policy (SAP) 150.40 2590 1985 Kingdom of Morocco Agriculture Sector I 100.00 2604 1986 Kingdom of Morocco Industrlal Trade Policy Adjustment II 200.00 2664 1986 Kingdom of Morocco Education Sector I 150.00 3001 1989 Kingdom of Morocco SAL I 200.00 2820 1987 Klngdom of Morocco PERL I 239.56 2885 1988 Kingdom of Morocco Agriculture Sector II 225.00 3463 1992 Kingdom of Morocco SAL II 275.00 Sub-total 1539.96 Disbursing Loans 2798 1987 ONPT Telecommunications I 116.00 5.87 2806 1987 BNDE Industrial Export Finance I 68.67 2.71 2825 1987 Klngdom of Morocco National Water Supply 60.00 16.37 2826 1987 Kingdom of Morocco Greater Casablanca Sewerage 60.00 24.23 2910 1988 Kingdom of Morocco Power Distribution 90.00 50.43 2954 1988 Kingdom of Morocco Small & Medium Irrigation II 23.00 13.00 3026 1989 Kingdom of Morocco Rural Primary Education 83.00 27.91 3036 1989 Kingdom of Morocco AgricuRure Extension & Research 28.00 13.68 3048 1989 Kingdom of Morocco Public Administration Loan 23.00 10.71 3121/22 1990 CIH Housing Finance 80.50 2.40 3136 1990 Kingdom of Morocco Industrial Finance 170.00 8.14 3156 1990 Kingdom of Morocco Forestry II 49.00 26.15 3168 1990 Kingdom of Morocco Highway V 79.00 13.03 3171 1990 Kingdom of Morocco Healh Sector 104.00 59.22 3262 1991 Kingdom of Morocco Rural Electrification II 114.00 103.23 3283/84 1991 Kingdom of Morocco/ODEP Port Sector 132.00 58.30 3295 1991 Klngdom of Morocco Rural Basic Education Development 145.00 120.23 * 3365 1991 Kingdom of Morocco Financial Sector Development 235.00 42.30 3557 1993 Kingdom of Morocco Telecommunication Restructuring 100.00 89.29 3587 1993 Kingdom of Morocco Second Large Scale Irrigation 215.00 208.46 3618/21 1993 Klngdom of Morocco Land Development 118.00 83.69 3616/17 1993 Kingdom of Morocco Municipal Finance I 104.00 77.67 3647 1994 Kingdom of Morocco Environment Management 6.00 6.00 3662 1994 Kingdom of Morocco Natlonal Rural Finance 100.00 100.00 3664/5 1994 Kingdom of Morocco/ONEP Water Supply V 160.00 159.00 3688 1994 Kingdom of Morocco Irrigated Areas Agric. Services \b 25.00 25.00 3765 1994 Kingdom of Morocco ASIL II 121.00 121.00 TOTAL 6,652.20 45.16 1,468.02 Of which has been repaid (only amortization) 2,004.73 11.00 Total held by Bank and IDA 4,647.47 34.16 Amount sold 20.11 of which repaid 20.11 Total Undisbursed 1,468.02 * SAL, SECAL or Program Loan \a Approved after FY80 \b Not yet effective  Schedule D (Paae 2 0 2) Statement of IFC lrwntmenft In Morocco (As o Mareh 31. 100M) Original Gross Commitment Fscal (US$MIltlon) Year Obi Tvoe of Busins Loan EautY Teptwl 1963 Banque National. pour Ie Dev. Development Flnance 4.25 2.70 46.95 1978 Econ. (BNDE) 1984 1986 1980 Soclete Minlere du Bou-Gaffer Mnes 12.99 2.35 15.34 (SOMIFER) 1987/ Credit mmobilerwet Hotelier (CIH) Tourism 67.50 - 67.50 1990 1986/ Seat Fllature (SETAFIL) Textile Factory 3.47 1.67 5.14 1993 1989 Compagnle MariUme Maroco- Fer"Y Service 4.30 -- 4.30 Norveglenne (COMAJIT) 1991 CeramerAlque Indutre (CAI) Ceramics 3.75 1.69 5.44 1991 SOcte ENNASR de Peche Agroindusty 2.46 - 2.46 1992/ Ctments du Maroc Cement 28.65 - 28.65 1994 (ormerly CIMASFI) 1992 Banque Comnercale de Maroc Capital Markts 12.00 - 12.00 (BCM) 1992 Banque MarocaMne du Commerce Captal Markets 12.00 -- 12.00 Exterleur (BMCE) 1992 Crednt du Maroc (CDM) Capial Markets 8.00 - 8.00 1992 Wadabank Captal Markets 8.00 -- 8.00 1993 Intenational de Financemet et Fnancia Services - 3.85 3.85 et do Partlcipalon (INTERFINA) 1994 Societe Marocalne Capial Markets - 0.50 0.50 1995 S9parex-Wafa Dev. Financia Services - 4.00 4.00 1995 Socl6te Rnanclire Sipaex Rnancil Services - 0.10 0.10 Tota gros commnmenat 207.37 16.86 224.23 Less cancellations, terminations, repayment, sales and exchange adjustments 55.29 9.84 65.13 Total commitments held by IFC 152.08 7.02 159.10 of which undisbursed 0.00 5.49 5.49 IFC net. Does not Include paticpants from commerei banks  IBRD 25834 14- 12- 130 6'-- 2- -36' ~~~~~~~~~~~~~~~~~~~~~~~~~~TANG 70 A Mediterranean Sea MOROCCO AL HOCEIMA SECONDARY, TERTIARY AND RURAL ROADS PROJECT L C T.Alqv PAVED BRANCH ROADS TO BE IMPROVED MOTORWAY S. b .S - MAIN ROADS i N - SECONDARY ROADS NT -iJ-. OTHER ROADS KNTA C AAA ii3 RIVERSR. ELEVATIONS ABOVE 1.000 METERS MOHAMMEDIA-- E \ TH 0 SELECrED TOWNS 0 PROVINCE CAPITALS