Tunisia - Rural Roads Project

Doc of The World Bank FOR OmcAL USE ONLY RqpN No. P-6494-TON JIElORANDUlM AND EECOOAENDATIO OF THE PRESIDENT OF THE INTENATIONA llBANK FOR RECONSRUCTON ANID AV ENT T) THE EXECUTIVE DIRCTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US$51.5 MILLION TO THE REPUBLIC OF TuNISIA FOR A RURAL ROADS PROJECT JANUARY 3, 1995 MICROGRAPHICS Report No: P- 6494 TUN Type: MOP Thi docment has a estricted distibutlon and may be used by recipie only in the performance of their offical duties. Its contents may not otberwise be disclosed without World Bak autborization.  CURRENCY EQUIVALNm (As of December 1994) $1=D 1.01 FISCAL YEAR January 1 - December 31 AcRoNYMs AM ABBREVIATIONS DGPC Direction GMngrale des Ponts et Chaussees General Directorate of Bridges and Roads DREH Direction RNgionale de l'Equipement et de l'Habitat Regional Directorate of Biidges and Roads ERR Economic Rate of Retur GDP Gross Domestic Product IWG Interministerial Working Group MEH Ministry of Equipment and Housing RC Regional Council  FOR OMCIAL USE ONLY REPUBLIC OF TUNISIA RURAL ROADS PROJECT LOAN AND PROJECT SUMMARY Borrower Republic of Tunisia Beneficiary Not applicable Amount $51.5 million Terms Seventeen years, including a five-year grace period, at the Bank's standard variable interest rate. Poverty Not applicable Category Financing Local Foreign Total plan ($ million) IBRD 1.0 50.5 51.5 Govermnent 36.5 0.7 37.2 Total 37.5 51.2 88.7 Economic ERR per subproject ranges from 20% to over 100%. ERR is about Rate of Re- 40% for the overall project. turn Staff Appraisal Report Report No. 13792-Tun Map IBRD No. 26534 This document has a resticted distrbution and may be used by recipients only in the perfobmance of their official duties. Its contents may not otherwise be disclosed without World Bank authorizatol  Memorandum of the President I MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR A RURAL ROADS-PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the Republic of Tunisia for $51.5 million equivalent to help finance a Rural Roads Project. The project is in conformity with the Country Assistance Strategy discussed by the Board on May 11, 1993 and aims to strengthen Tunisia's institutions in charge of road maintenance and network management, to alleviate rural poverty and to improve access to rural areas. The loan would be at the Bank's standard variable interest rate, with a maturity of 17 years, including a five-year grace period. 2. Background and Strategy. Over the past five years, Tunisia - a medium size country with limited natural resourees - enjoyed fair growth with low inflation rates. From 1989 to 1993, annual GDP growth averaged five percent. Meanwhile, current account and budget deficits have been brought down to low levels. The ongoing development strategy intends to consolidate the steps already undertaken in the pace of privatization, decentralization and poverty alleviation. 3. Direction Generale des Ponts et Chaussees (DGPC - General Directorate of Bridges and Roads), the implementing institution, under the Ministry of Equipment and Housing (MEH), was created by decree dated July 22, 1988 to take on management of the road network. Its main responsibilities relate to conception and implementation of the national road policy from construction to maintenance. 4. Public sector restructuring. The legal ownership status of local rural roads is often not explicitly defined. No more than 2,500 kon of the about 10,000 kn of roads built under previous rural road development programs have been classified. Responsibilities for maintenance of the remaining roads have not been explicitly assigned. The Government decided in 1989 to allocate a budget (art 60-12 of the Finance Law) to the Ministry of Equipment for maintaining about 5,500 km of unclassified roads built to engineering standards. The remaining 2,000 km, as well as other local rural roads, are implicitly included in assets of the Regional Councils (RCs), which have however no maintenance budget for them. The Government has confirmed in a Sector Policy Letter that the public sector reforns wil aim at decentralizing rural roads management to RCs, without develop- ing new road management entities. 5. Budgetary reforms. The way funding is organized may not fully promote budgetary discipline, accountability and transparency. The current budget classification is disconnected from the new analytical accounting under pilot implementation. For force  2 Memorandum of the President account works, this makes it difficult to easily compare actual v/s planned expenditures or to assess how much was actually spent on a particular road and what particular maintenance tasks were actually carried out. Also the diversity of funding sources does not favor separ-ion of maintenance expenditures from investments. Special funds transferred to the RCs are often earmarked for consumables, thus diverting force account teams from maintenance to lesser priceity construction tasks. The Government has confirmed in the Sector Policy Letter that budgetwy reforms will aim at establishing a link between budgets and road classification, strengthening budgetary discipline, accountability and transparency, and improving the balance between mnaintenance and investment. 6. Private sector development. All road maintenance activities are currently carried out by force account, using a rather large equipment fleet spread among the 23 DREHs. There are documented cases where rigidities in the organization of force account works have led to few productive hours per work day. The quality of works is reduced because quality control functions are carried out by the staff in charge of their execution. The capacity of the equipment fleet is under-used not only because of its physical scattering, but also because equipment maintenance is inefficiently carried out and generates long periods of equipment unavailability. TMis situation is anachronistic, as the full potential of thc domestic contracting industry is currently untapped in the road subsector. The Government has cofirnned in the Sector Policy Letter that pnvate sector development will aim at targeting specific road maintenance tasks for execution by contract. 7. Rural road standards. The methodology used to economically justify mrual roads upgrading works looks at the benefits of a combination of both agricultural and road investments in a given zone of influence. As the agricultural potential of these zones is large, so are the benefits, and this has permitted the development of unnecessarily costly construction standards. Furthermore, the construction standards reflect the bias Tunisia has built over time against gravel roads. Gravel pavements are considered only as stopgap measures while the road is supposed to shift rapidly from a local feeder function to a connecting one. Thus gravel roads are overdesigned on purpose to facilitate a prompt later paving. It is clear that Tunisia, like numerous countries, has to develop under strict budgetary constraints. Hence, choices have to be made at different levels and stages to provide maximum benefits for the minimum life-cycle cost. The Government has confirmed in the Sector Policy Letter that reforms on rural road standards will aim at minimizing life-cycle costs by making optimum use of gravel road techniques. 8. Rationale for Bank Involvement. Besides the wealth of experience acquired in recent years on how to best improve road management that it would bring to the project, the Bank can be a powerful catalyst in the institutional reform process. The Bank would be able to promote the needed changes by exposing the rationale behind them and assisting in overcoming the political gridlock that so often characterizes decentralization of management responsibilities and other institutional reforms.  Memorandum of the Presideiw 3 9. Lessons from Previous Bank Involvement. In the past, there have been diffities with parallel agticultural schemes. The current project does not include a Bank- funded agricultural component, as in the First Rural Roads Project (Third Highway Project; Ln 1601-Tun), nor does it require that the Governent fimance agricultural investments in addition to those already planned, as in the Second Rural Roads Project (Fifth Highway Project; Ln 2108-Tun). Rather, it was designed to complement Government agricultural investnents that have either been initiated, completed or planned under the ona .ing Eighth Plan. The public sector investments assumed in the economic evaluation are thus those that are already written into the Governnent's public investnent program. The private sector investments assumed i the analysis represent the narket- based response concluded, based on past experience, to be generated by the combination of committed Government investments, sectoral incentive schemes and the project's road improvement works. 10. In addition, the Project Completion Report of the Fifth Highway Project found the projet only party sustinable because road maintenance was deficient and monitoring of agriculual investmes was weak. The proposed project addresses the mainctnance issue directly, is much simpler, and has improved monitoring mechanisms. 11. Objectivs In line with the Bank's Development saegy for the 1990's in Tunisia, the project objectives are public sector restmcturing, budgetary reforms, private sector development, the development of improved road standards, the reduction of disparities tween urban and rural areas, the reduction of rural to urban migration, and improving the delivery of social services to poorer population. These objectives will be realized through improving maintnance of nuWal roads, particularly unpaved ones; decentralizing road management responsibilities to local govermnents, without developing new entities; establishing a link between budgets and road classification; strengthning budgetary disciline, transparency and accountability; targeting specific road maintenance tasks for execution by contract to improve efficiency and to create new development opportuties for a dynamic private sector; and finally minimizing life-cycle costs by making optimum use of gravel road techniques. 12. Project Description. The proposed project includes: (a) the preparation and initial implementation of an institutional reform program (3 % of cost); (b) the periodic rehabilitation of approximately 300 km of gravel roads in a pilot program to be carried out by contract in ten Govemorates (9% of cost); and (c) the upgrading of about 715 km of priority rural roads to appropriate stan- dards (88% of cost).  4 Memorandum of the President 13. Project Implementation. The Borrower will be the Republic of Tunisia. The implementing agency will be DGPC. 14. An Inemnninisterial Working Group (IWG), set up by decision of MEH to handle institutional issues, will prepare an Institutional Action Plan detailing the specific actions and measures for the implementation of the Sector Policy Letter. 15. The project will include a kick-off workshop before project effectiveness. The workshop will bring together participants from DGPC and its Regional Directorates (DREHs), and finalize the baseline values for the inpact indicators and other details of project implementation procedures. Also, a mid-term review workshop will be held, the mandate of which will include the following reviews: (a) the implementation progress, the implementation schedule and the evolution of indicators; (b) the implementation progress under the Institutional Action Plan; (c) proposed revisions to the impact indicators; (d). the actual commitments and the schedule of prospective future commit- ments and disbursements; (e) the actal p ement agements and the schedule of prospective future procurement arrangements; and (f) the acual and planned implementtion of public agricultural investments in tX rural roe Is' zone of influence. 16. SustainabDity. The project will make the development of the roads network management much more sustainable by: (a) setting up an instional framework to classify rural roads, prioritize road works and road maintenance; (b) defining the optimal balance between constuction and maintenance; (c) targeting specific mmaienane works to be carried out by contract, and creating a suitable environment for the development of a dynamic private sector; (d) road budgets; (e) ensuring that roads are built and steadily maintained to the appropriate standard, instead of going through the current cycle of improvement- deterioration-improvement; and (t) ensuring that the limited financing available for rural roads covers the priority needs identified by the local community and maximies the number of beneficiaries.  Memorandum of the President s 17. Agreed Actions. The Government has sent: (a) a revised decision of the Minister of Equipment and Habitat setting up the Intenninisterial Working Group (IWG) on sector institutional reforms; (b) the signed Sector Policy Letter; and (c) a signed consulting services contract for technical assistance to the IWG. 18. Furthermore, asuances have been obtained from the Government on the following actions: (a) Instiionol Action Plan (i) the IWG shall prepare and submit the Institutional Action Plan to the Bank for its review and approval not later than March 31, 1996; (ii) promptly thereafter, the Govermnent shall approve the Institutional Action Plan as agreed with the Bank; and (iii) the Goverrnent shall carry out the Institutional Action Plan and take all actions necessary to ensure its effectiveness, as follows: a. not later th June 30, 1998, implement a significant portion of the Institutional Action Plan; and b. not later than December 31, 2001, implement the Institutional Action Plan in its entirety; (b) for each mral road proposed to be upgraded under the Project, the DGPC shall: (i) prepare and submit for the Bank's review and approval before the award of the contract for works, a standard assessment questionnaire identifying any potential adverse environmental effects to be produced by the proposed works; and (ii) follow mitigation guidelines satisfactory to the Bank and the Tuisian Agence Nationale pour la Protection de l'Environnement to screen and mitigate any such adverse environmental effects; (c) in the event a portion of land adjacent to the nural road is required to be expropriated to upgrade a road under the Project, each affected person shall be provided with compensation for said portion of land in accordance with gtudelines which conform to the Bank's policy thereon; (d) a mid-term review shall be carried out with the IWG and the DGPC not later than October 31, 1998. 19. Enviroumental Inpact. As road works will be limited to the improvement and maintenance of existing roads with no alignment change, no potentially serious adverse envionmenal impacts are expected. The project, in fact, has enviromunental benefits, e.g., environment-conscious institutional improvements, improved safety and accessibility, and reduced soil erosion. Special attention will be paid to providing adequate draiage and ensuring slope stability. A questionnaire aimed at identifying any potential adverse  6 Menmrandum of the President environmental effect will be completed for each individual road section before the corresponding road works are approved by the Bank (at the time the bidding documents for the annual packages of road upgrading works ar submitted to the Bank for approval). No specific issue has been identified so far and there will be no resettlement of people. The project includes a provision for expropriations, to be financed exclusively by the Government, because the upgrading of some roads may necessitate the expropriation of narrow strips of land (about two meters on each side of the road). The Legal Agreement spells out that such expropriation will be accompanied by approprate compensation measures. In accordance with established guidelines, the pro.ect is rated B. 20. Project Benefits. The main benefits will involve savings in road twansport costs and improved access to remote ural areas, which will translate into lower consumer prices, higher farm gate prices for agricultural produce and reduction in rural poverty and better access to social services such as schools and hospitals. The provision of agricultural extension services will also be facilitated, with a complementary impact on agricultural production. Implementation of the project's sector institutional reforms will clarify classification and ownership of local access roads as assets of local govermment. FinaUy, a shift toward road manteance works by contract should alleviate the financial impact of maintenance works on budgetary resources. 21. Project Risks. Risk's include both under-fuixlng of the parallel public agricultural investments that are essential for the benefits to materialize and inadequate sector institutional reforms. The project mitigates the first risk through a declared commitment from the Government guaranteeing a steady follow-up on agricultural infrastrucure investme and extension work in the project roads' zones of influence. Progress on the actual and planned implementation of public agricultural investments in the roads' zone of influence will be monitored durig the mid-term review. The second risk is mitigated through the Letter of Sector Strategy, the signature of which is a condition of Board presentation. 22. 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. Lewis T. Preston President Attachments Washington, D.C. Jamnary 3, 1995  Schedule A Project Cost and Financing Plan Project Cost Local Foreign Total A.Institutional Refonrs 0.6 1.8 2.4 B. Pilot Periodic Rebabilita- 2.5 3.9 6.4 tion C. Upgrading Rural Roads 27.3 37.8 65.1 Total Base Cost 30.4 43.5 73.9 Physical Contingencies 2.8 4.3 7.1 Price Contingencies 4.3 3.4 7.7 Total Project Coste 37.5 51.2 88.7 1/ Local costs ($37.5 million equivalent) include $17.7 million equivalent in taxes and duties, to be fnanced by Government. Fnncing Iocal Foreign Total plan ($ million) EBRD 1.0 50.5 51.5 Government 36.5 0.7 37.2 Total 37.5 51.2 88.7  Schedule B Procurement Arrangements ($ million) Procurement Methodo tntern&..anai LoOM Competitive Competitive Consulting uiddin Cidding Services N.F. Total A. lhrdware 1. Upgrading Rural Roads 74.407 - 1.116 75.523 a. (44.644) (44.4) 2. Rbt Priodic Retablbtion 7.55. 7z55 a. (4.53) (4.533) 3. Land - - 2.667 2.6857 a. B. Software 1. Sudibs . 0.295 0.295 a. (0.245) (0245) 2. Tralnh g 2.492 2.492 a. (2.08 (2.068) Total 74.407 7S55 2.787 3973 88.723 (44.640 (4.533) (2.313) - (51.491) Nob: Fbmes h parethesic are tht respetba amunbt fianced by Ubrid Sonk Allocations of Loan Proceeds ($ million) Loan Dsbursement Amount % 1. Road Worie 44.7 60 2. Consultants and Training 2.1 83 3. iabocated 4.7 Total 51.5 Loan anmunts financed by World Bank Estied Disbursements ($ million) FY FY95 FY96 FY97 FY98 FY99 FYO0 FY01 FY02 FY03 Annual 0.0 2.7 8.0 11.1 10.6 8.6 5.6 3.4 1.5 Cumulative 0.0 2.7 10.7 21.8 32.4 41.0 46.6 50.0 51.5  Schedule C Key Project Events and Responsibilities (a) Time taken to prepare 24 months (b) Prepared by DGPC and the Bank (c) First Preparation Mission November 1992 (d) Appraisal Mission Departue November 1994 (e) Date of Negotiations November 1994 (t) Planned Effectiveness May 1995 (g) Relevant PCRs and PPARs Repr no. Year Ln 0746-Tun PPAR 2772 1979 Ln 1188-Tun PCR 5647 1985 Ln 1601-Tun PPAR 7182 1988 Ln 1841-Tun PCR 8648 1990 Ln 2108-Tun PCR 12468 1993  SghedubtO (Page 1 of 2) The Status of Bank Group Onelatlons In Tunibla Stalement of Bank Loans and IDA CredNs (As of OtOober31.i994M US$ Million Amount Loan or Flseal Qess cancellations) Credit No. rear Bonor P Sank jIA Undisbumed Seventy-four loans and 10 credtns fully disburse 1.8S9.68 75.16 Of which SALs. SECALs, andt Program Loans \a 2781 1987 Repubic of Tunisia Industly &Trade Polcy 150.00 2.54 1987 Republic of Tunisk Agdlullure SectorAdlustment 150.00 2962 1988 Republic of Tunisia SAL I 150.00 3109 1990 Republic of Tunisi PERL 130.00 Sub-total 580.00 Disburseno Loans 2573 1985 Republic of Tunisia Iwlgation Management Improvement 17.00 2.36 2735 1987 Repubflc of Tunisia Energy Conservatln 4.00 0.84 2736 1987 Repubflc of Tunisia Fourth Urban Development 30.20 4.15 2870 1988 Republic of Tunisla Forestty Development 20.00 2.45 2896 1988 Repubgc of Tunisia Highways Maintenance & Rehabltatl 83.00 7.65 2911 1988 Republc of Tunisia SM III 28.00 1.50 3054 1989 Repubgc of Tunisia Education &Training 96.00 17.28 3064 1989 Republic of Tunisia Fifth Utban 58.00 4.93 * 3078 1989 Repubglc of Tunisia ASAL II 84.00 3.45 3217 1990 Republic of Tunisia Research &E 0enslon 17.00 11.01 3255 1991 Republic of Tunisia Employment &Training Fund 12.00 2.37 3307 1991 Repubic of Tunisia Population & Family Heath 26.00 16.78 3308 1991 Republc of Tunisia Hosplal Research Support 30.00 24.69 3418 1992 Republic of Tunisia Gas lntastnucture 60.00 20.33 * 3424 1992 Republic of Tunisia Economic & Financil Refoim 260.00 6.66 3456 1992 Republc of Tunisia HigherEducation 75.00 71.07 3507 1993 Repubglc of Tunisia Municipal Sector 75.00 51.72 3601 1993 Republc of Tunisia Second Forestry 69.00 68.03 3661 1994 Republc of Tunisia Aglculuse Investment Sector Loan 120.00 115.01 3671-80 1994 Commercial Banks Pivate Investment 120.00 111.04 3691 ft94 Republc of Tunisla Development of Mts. NW Region 27.50 27.50 3782-83 1995 Republi of Tunisia Water Supply& Sewerag \b 58.00 58.00 3786 1995 Repubic of Tunisi Seconday Edtucatbon \b 98.30 98.30 TOTAL 3.306.68 75.16 726.99 Of which has been repaid (only amowtIzation) 1056.38 22.49 Total held by Bank and IDA 2,250.30 52.67 Amount sold 34.82 A which repaid 34.82 Total Undisbursed 726.99 * SAL, SECAL or Prgmm Loan \a Approved after FY80 \b NOt yet effectie N:\MN1 DR\MOP\TUN.xls  S