Ghana - Highway Engineering Credit Project

RESTRICTED FILE COPY Report No. P-72 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 The report may not be published nor may it be quoted as representing their views.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 CREDIT TO THE REPUBLIC OF GHANA FOR A HIGHWAY ENGINEERING PROJECT June 10, 1969  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR A HIGHWAY ENGINEERING PROJECT 1. I submit the following report and recommendation on a proposed credit in an amount in various currencies equivalent to US$1.5 minlion to the Republic of Ghana for a highway engineering project. PART I - HISTORICAL 2. A Bank mission to Ghana in 1966 identified the need for the reconstruction or realignment of two roads between Accra and Kumasi and Takoradi and Kumasi, serving the three largest cities of Ghana. Following a UNDP financed feasibility study for which the Bank acted as executing agency, a Bank mission visited Ghana in November 1968 and appraised the proposed project for preparing the detailed engineering plans for the roads. Negotiations were held in Washington on June 3-5, 1969. The Ghanaian delegation was led by His Excellency E. M. Debrah, Ambassador of Ghana to the United States and included among others, Mr. S. F. Kwacu, Deputy Engineer-in-Chief, Public Works Department and Mr. M. Q. Cleland, Senior Assistant Secretary, Ministry of Finance. 3. The proposed credit would be the fourth Bank Group financing in Ghana. The Bank made its first loan in 1962 to the Volta River Authority, and its first credit in 1968 for the Electricity Corporation of Ghana. On June 3, 1969, the Executive Directors approved a loan of US$6 million for the installation of additional generating capacity by the Volta River Authority. The following is a summary of Bank loans and IDA credits to Ghana as of May 31, 1969: Loan or Amount (US$ million) Credit No. Year Borrower Purpose Bank IDA Undisbursed 310 GH 1962 VRA Power 47.0 .1 118 GH 1968 Republic of Power dis- 10.0 6.4 Ghana tribution Total (less cancellations) 47.0 10.0 of which has been repaid to Bank and others 2.1 Amount sold: .1 of which has been repaid .1 _ Total now held by Bank and IDA 44.9 10.0 Total undisbursed .1 6.4 6.5  4. Negotiations have been substantially completed in respect of credits for a fisheries project and a water supply project. PART II - DESCRIPTION OF THE PROPOSED CREDIT 5. BORROWER: The Republic of Ghana AMIOUNT: US$1.5 million equivalent in various currencies PURPOSE: To finance the foreign exchange cost of the detailed engineering of twio main roads. AMORTIZATION: In 10 years, including a 2-year period of grace, through 16 semi- annual installments beginning December 15, 1971 and ending June 15, 1979. SERVICE CHARGE: 3/4 of 1 per cent per annum PART III - THE PROJECT 6. An appraisal report entitled "Proposal for a Highway Engineering Credit" (PTR-1la) is attached. 7. The project consists of detailed engineering and preparation of bid documents by consultantsfor new alignments of two main roads:(a) Accra-Kumasi - 128 miles; and (b) Takoradi-Kumasi (part) - 107 miles. The total cost is estimated at US$2.2 million equivalent,of which the foreign exchange component to be financed under the proposed credit is about US$1.5 million. The area served by the project roads contains over 60 per cent of the population, including the three largest urban areas of Accra/Tema, Kumasi and Takoradi/Sekondi and has the greatest potential for future economic growth. The construction of the two roads would cost around US$45-50 million and could form the basis of a future construction project. The economic rate of return on the proposed new roads is presently estimated at 22 per cent. 8. The Public Works Department of the Ministry of Works will be responsible for the project. The Government has selected two consultants acceptable to the Association to carry out the project. Draft contracts are being reviewed by the Association and will be signed between the parties before the proposed credit becomes effective.  - 3 - 9. Ghana has a fairly well-developed road network of over 20,000 miles, of which about 6,000 miles constitute the trunk road system. The Government has been concerned about a large backlog of road rehabilitation and maintenance. The equipment and organization available for this purpose are inadequate. These problems are being studied as part of a USAID financed transport sector study which commenced in January 1969 and is expected to be completed in 18 months. During negotiations, the Government agreed to keep the Association informed of the progress of the study and consult the Association regarding its proposals for implementing the recommendations arising out of the study. The Govern- ment proposes to take some interim measures to improve highway adminis- tration and to tackle the backlog of maintenance; these include the upgrading of the salary scales of professional engineers to aid recruitment, and making a substantial increase in the yearly budgetary allocation for maintenance work. The Government has also recently approached the Bank Group to consider financing a project for rehabilitation of some priority roads, which they propose to prepare with the help of consultants. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 10. The draft Development Credit Agreement between the Republic of Ghana and the Association, the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement and the text of a Resolution approving the proposed credit are being distributed to the Executive Directors separately. The draft Development Credit Agreement follows the pattern of other agreements for highway engineering projects. PART V - THE ECONO0MY 11. A report on "The Current Economic Position and Prospects of Ghana" (AW-6a) was circulated to the Executive Directors on May 7, 1969. 12. The salient features of Ghana's economy were discussed in the "Report and Recommendation of the President to the Executive Directors on a Proposed Loan to The Volta River Authority with the Guarantee of the Republic of Ghana" (P-703) dated May 22, 1969. Its main conclusion was that even to attain.a modest growth of GDP of the order of 4 per cent per annum, Ghana will require a substantial inflow of resources to finance an increase in investment, particularly in agriculture, power, and road transport. With heavy maturities of past borrowings to be met and with large amounts of fresh money to be raised, it is important that Ghana borrow a substantial part of its requirements for external capital on concessional terms.  PART VI - COMPLIANCE WITH ARTICLTS OF AGREEMENT 13. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association. PART VII - RECCMMENDATION 14. I recommend that the Executive Directors approve the proposed Development Credit. Robert S. McNamara President Attachment Washington, D.C. June 10, 1969