Mali - Highway Maintenance Project

RESTRICTED ItE (LA 0)5)t Report No. P-820 This report was prepared for use within the Bank and its afRliated 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 The report may not be published nor may it be quoted as representing their views. INTERNATONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF MALI FOR A HIGHWAY PROJECT May 20, 1970  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERN1.ENT OF MALI FOR A HIGHWRAY PROJECT 1. I submit the following Report and Recommendation on a-proposed credit in a amount in various currencies equivalent to US$ 7.7 million to the Government of M4ali, to assist in financing a highway project. PART I - HISTORICAL 2. The proposed project emerged from a road transport survey carried out in 1967-68 under UNDP financing with the Bank as Executing Agency. 3. Negotiations of the proposed credit were completed on May 1, 1970 with a delegation of the Government, led by Mr. Konate, President Direc- tor General of the Mali Development Bank. 4. The Association has mado one credit to Mali. Its status as of May 11, 1970 is summarized below: Credit Amount (US$ Million) Number Year Borrower Purpose IDA Undisbursed 95 MLI 1966 Republic of Mali Railways 9.1 3.6 5. Mali's performance under the railway credit (95 MULI) has not been fully satisfactory; project execution has lagged, because of delays in preparation of suitable bidding documents, unsatisfactory cost estimates and analysis of bids by consultants, as well as delays in procurement. The financial position of the railway has remained precarious mainly because traffic has not grown as rapidly as was expected. However, the Government and the Regie du Chemin de Fer du Mali have recently taken a number of corrective steps. The works are now progressing satisfac- torily and the financial situation has improved as a result of increases in passenger fares and freight rates. The project is expected to be completed by the end of 1971. 6. No further proposals for IDA credits are expected to be presented to the Executive Directors in the present fiscal year. Projects for rice growing and for telecommunications are being prepared. PART II - DESCRIPTION OF THE PROPOSED CREDIT 7. Borrower: Republic of Mali. Amount: US$ 7.7 million equivalent. Purpose: A Four-Year Highway Maintenance and Feeder Road Betterment Program, together with a feasibility study and detailed engineering for the recon- - struction and strengthening of two trunk roads.  -2 - Amortization: In 50 years including a 10-year period of grace through semi-annual installments of 1/2 of 1% from December 1, 1980 through June 1, 1990 and 1 1/2% from December 1, 1990 through June 1, 2020. Service: 3/4 of 1% per annum. Estimated economic return: 15 - 20% on the maintenance and betterment program. PART III - THE PROJECT 8. A report entitled "Republic of-Mlali - Appraisal of Highway Main- tenance Project" (PTR-52) is attached. 9. Transport plays a vital role in landlocked Mali. Road transport accounts for more than 40% of total freight carried and almost 75% of total passenger traffic. The whole road-network comprises about 13,000 kilometers of roads and tracks, 2,500 km. or 20% of which provide all- weather service. Except for recently paved roads, the condition of the network is poor. There is a serious lack of secondary and tertiary roads, and many of the existing ones are inadequately maintained, which is hindering agricultural production in existing farming areas and the opening up of new areas. 10. The proposed project consists of: 1) A four-year highway maintenance and feeder road betterment program including: a) the training of maintenance staff; b) the reorganization of the Equipment Department of the Directorate; c) the renovation and expansion of maintenance workshops; d) the overhaul and repair of existing salvageable highway maintenance equipment; e) the purchase of highway maintenance equipment and spare parts; and f) the betterment of about 1,450 km. of agricultural feeder roads. 2) Consultantst services for a feasibility study and detailed engineering for the reconstruction and strengthening of about 400 km. of trunk roads. 11. Total capital expenditures for the project amount to US$ 9.3 million, of which US$ 7.7 million, representing the foreign exchange costs of the project, would be financed out of the proposed credit. 12. The Government of Mali will, in addition to financing the balance of the capital costs, increase its highway maintenance expenditures from  -3- US$ 1.7 million equivalent in 1971 to US$ 2.5 million in 1974 by allo- cating the revenues of the Road Fund to the financing of highway main- tenance expenditures. 13. The project will be implemented by the National Directorate of Public Works with the assistance of two teams of experts, one provided by the International Labor Office (ILO) and the other by consultants. 14. Contracts over US$10 000 for the procurement of equi ment andd ma- terial will be awarded on tAe basis of international competitive binddig. Some spare parts and equipment for overhaul and repair will alreadr have been ordered to enable the Directorate to carry out a minimum level of maintenance pending the arrival of the new equipment to be financed under the project. Retroactive financing of these purchases amounting to a maximum of US$ 400,000 would therefore be provided. 15. The economic benefits of the maintenance and the betterment pro- gram will result from road userst savings. The economic rate of return over the estimated average 8-year economic life of investments would be about 20%, with benefits gradually accruing during the implementa- tion of the program and reaching their full level in the fourth year. On more conservative estimates of traffic growth, the return would be 15%. PART IV - LEGAL INSTRUNENTS AND AUTHORITY 16. The draft Development Credit Agreement between the Republic of Mali and the Association, the recommendation of the Committee provided for in Article V, section I (d) of the Articles of Agreement of the Association, and the draft Resolution approving the proposed Credit are being distributed to the Executive Directors separately. 17. The draft Development Credit Agreement follows the general pattern for projects of this kind, including a covenant designed to ensure the availability of local funds for highway maintenance when and as needed (Section 4.06 (c)). PART V - TIHE ECONOMY 18. A report on "The Economic Development in M4ali" is being circulated separately. 19. Following independence, Mali's economic development was severely hampered by neglect of the agricultural sector, restrictions on private trade, strict price controls at all levels, and the creation of a considerable number of unsuccessful state enterprises. While little progress was achieved, large external debts were-contracted, which resulted in serious balance of payments problems. In November 1968; the Military seized control and embarked on a more pragmatic course. The new Government improved incentives for agricultural production, par- ticularly by raising farm prices, liberalized restrictions on private trade, thus permitting private traders to play a greater rolb, effected some improvements in state enterprises and took steps to reschedule  -4 - the external debt. There are signs that pressure on the balance of payments are somewhat diminishing. The Government is now further re- orienting public investments to the more directly productive sectors of the economy. Over the medium term it should be possible to achieve a rate of growth of 3-4 per cent and a somewhat more rapid increase in exports. Given Mali's low level of per capita income, heavy external debt, and modest growth prospects over the-medium term, foreign aid will have to be made on concessional terms. PART VI - COMPLIANCE WITH ARTICLES OF AGREmEENT 20. I am satisfied that the proposed credit would comply with the Articles of Agreement of IDA. PART VII - RBCOMMENDATION 21. -I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President by J. Burke Knapp Attachment Washington, D.C. N4ay 20, 1970