Togo - Highway Maintenance Project

RESTRICTED FLE COPY Report No. P-63 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A HIGHWAY MAINTENANCE PROJECT September 13, 1968  ETTEF1!ATIOANAL DZVELOPi-NJT ASSOCIATION REPORT AND RECOM0Z4DATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS CN A DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A HIGHWAY MAINTENANCE PROJECT 1. I submit the following report and recommendation on a proposed development credit in an amount in various currencies equivalent to US$3.7 million to the Republic of Togo to assist in the financing of a highway maintenance project. PART I - HISTORICAL 2. The proposed credit would be the first lending operation of the Bank Group in Togo. The country became independent in 1960 and joined the Bank, IDA and IFC in 1962. On the basis of a USAID-financed study of Togo's highway maintenance requirements, the Government prepared a four- year highway maintenance program (1969-1972) and applied in September 1967 for IDA assistance in the financing of this program. The project was appraised in November 1967; subsequently, in January 1968, the Government submitted an additional request regarding preinvestment studies for high priority secondary roads. In March 1968, about 450 kilometers of roads for feasibility studies were identified. 3. Formal negotiations took place in WZashington between August 8 and August 19 with a delegation headed by H.E. Alex Mivedor, Minister of Public Works, Mines, Transport, Post and Telecommunications. 4. I do not expect to submit other projects in Togo for your con- sideration in the immediate future, but the preparation of agricultural projects is in hand and three of them (East Mono settlement scheme, development of the Klouto-Akposso area and Sio-Haho irrigation project) could, at various stages, develop into projects which I would recommend for financing. PART II - DESCRIPTION OF THE PROPOSED CREDIT 5. Borrower: Republic of Togo Amount: Various currencies equivalent to $3.7 million Purpose: To assist in financing: (a) a four-year (1969- 72) highway maintenance program, and (b) feasi- bility studies for about 450 kilometers of secondary roads, with subsequent detailed engineering for about 300 kilometers of high priority roads. Amortization: In 50 years including a 10-year period of grace, through semi-annual installments of  1/2 of 1' from January 15, 1979 throughi July 15, 1988 and of 1-1/2I from January 15, 1989 through July 15, 2018. Service charge: 3/4 of 1% per annum on the principal amount of the credit disbursed and outstanding. PART III - THE PROJECT 6. A detailed description of the project is given in the attached report entitled "Appraisal of a highway maintenance project - Togo" (T0-668a) dated September 10, 1968. 7. The Togolese highway network consists of only about 4,700 km of roads of all standards, which serve practically all the transport needs of the country. The present condition of the roads is generally poor and deteriorating as a result of an increasing maintenance backlog. Large sections of roads are closed to truck traffic after heavy rains. The Department of Public Works is hampered by the poor condition of its equip- ment and lack of adequate personnel and funds. Maintenance installations and shop equipment are insufficient, and maintenance personnel have limited skill and ability. The proposed four-year maintenance program (1969-72) aims at eliminating the existing backlog and ensuring that, in the future, national roads will be maintained to satisfactory service standards. 8. The project is in two parts. The first consists of this four- year maintenance program providing for the purchase of maintenance and shop equipment, the improvement of the efficiency of maintenance operations and the training of personnel at all levels. The maintenance program wvill be carried out by the Department of Public Works, with the assistance of international consultants acceptable to the Association. A contract between the Republic of Togo and the U.S. consulting firm Louis Berger, Inc. for maintenance advisory services was negotiated at the time of the credit negotiations, and the signing of the contract is expected in the near future; its effectiveness is subject to the effectiveness of the Credit Agreement. An amount of $2.7 million of the proposed IDA credit including $58O,,O for the consultants' contract, would be applied to the capital expenditures of the four-year program (1969-72), and would cover all the foreign ex- change costs as well as some $80,000 of local subsistence costs for the consultants. All procurement under the IDA credit would be made on the basis of international competitive bidding. 9. All the recurrent highway maintenance expenditures for the four- year program, totalling about $5.9 million, as well as most of the local currency component of the capital expenditures (about $450,000 equivalent) would be borne by the Togolese Government.  10. The execution of this maintenance program would result in a substantial reduction of vehicle operating costs, leading to an annual economic rate of return on the investment of about 15 percent. In addi- tion, project implementation would help avoid further road deterioration, and would reduce the amount of expenditures required in the future for road rehabilitation and reconstruction. 11. The second part of the project consists of feasibility studies for about 450 km of secondary roads, with subsequent detailed engineering and preparation of bidding documents for about 300 km of high priority roads selected by the Togolese Government in agreement with the Association. Contracts between the Republic of Togo and (a) the Canadian consulting firm Kez and Associates for the study of 270 km of roads, and (b) the German consulting firm Walter for the study of 180 km of roads were nego- tiated at the time of the credit negotiations, and the signing of these contracts is expected in the near future; their effectiveness is subject to the effectiveness of the Credit Agreement. The foreign exchange com- ponent of these two contracts, estimated at $1.0 million would be financed under the proposed IDA credit. PART IV - LEGAL INSTRUMThWTS AND AUTHORITY 12. The draft Credit Agreement between the Republic of Togo and the Association and the Report of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately. 13. The draft Credit Agreement conforms generally to the pattern of credit agreements for similar highway maintenance projects. PART V - THE ECONOMY 14. A report entitled "Present Economic Position and Prospects of Togo" (AF-65a) dated March 29, 1968, was circulated to the Executive Directors on June 17, 1968. 15. The overall rate of growth since 1960 averaged around 4 to 5 percent per year in real terms, and significantly higher in recent years, due mainly to the increase of both investment and exports. The high rates of investment reached in 1964-65 (20-25, of GDP), of which over half was financed from domestic sources, is the result of a few indus- trial and transport projects (port of Lom6). The rapid growth in exports followed the exploitation of rich phosphate deposits, beginning in 1961. On the other hand, overall agricultural production has shown no appre- ciable improvement in recent years except that exports of coffee and cocoa (partly cocoa smuggled from Ghana) increased moderately compared  -h - to the pre-independence years. Capital inflows have more than covered the balance of payments current account deficit and foreign exchange reserves have increased. 16. The report concluded that most of Togo's external borrowing should be on soft terms, commercial borrowing playing only a complement- ary role, and that, to maintain the inflow of external capital without creating financial difficulties, the Government needs to improve the process of project identification and preparation, and restrain the rate of increase of public current expenditures. 17. Improving project preparation and implementation, especially in agriculture, is essential if both investment and exports are to be maintained or increased, as foreseen in the 1966-70 development plan. The plan has started slowly, notably in agriculture, though performance in this sector has apparently improved in recent months' thanks partly to a reinforcement in foreign technical assistance. Also, thanks to external financing provided mostly by the European Development Fund, the year 1968 has seen a marked increase in the volume of new infra- structural work started, mainly in road construction, a sector to which the plan allocates over 20% of total investment. 18. As regards budgetary policy, the Government achieved an 85S% increase of revenue between 1960 and 1966 to match a fast and necessary increase in current expenditure of the same order following independence. This was done while maintaining low overall rates of taxation, a policy consistent with the prevailing low wages and low producer prices. Continued public savings at the recent level of CFAF 1.5 billion implies a much lower rate of increase of current expenditure than during the 1960-67 period. The budget for 1968 appears as a step in that direction. PART VI - COMPLIANCE WITH ARTICLES OF AGREEMNT 19. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VII - RECOMMENDATION 20. I recommend that the Executive Directors adopt the following Resolution: Resolution No. Approval of a Development Credit to the Republic of Togo in an amount equivalent to US$3.7 million.  Resolved: that the Association shall grant a development credit to the Republic of Togo in an amount in various currencies equivalent to three million seven hundred thousand dollars ($3.700,000) to mature on and prior to July 15, 2018, to bear a service charge at the rate of three-fourths of one percent (3/4 of 1A) per annum, and to be upon such other terms and conditions as shall be substantially in accord- ance liith the terms and conditions set forth in the form of Development Credit Agreement (Highway Maintenance Project) betwJeen the Republic of Togo and the Association, which has been presented to this meeting. Robert S. McNamara President Attachment iTashington D.C. September 13, 1968