Jordan - Highway Project

RESTRICTED Report No. P-955 This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE HASHEMITE KINGDOM OF JORDAN FOR A HIGHWAY PROJECT June 2, 1971  INTERNATIOMAL DEVELOfl4ENT ASSOCIATION REPORT ANFD RECCOMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS OlN A PRC?OBSI CREDIT TC TIE aASH'EJITE Kr5GDGQ OF JORDAN FOR A HIGOtAY PROJECT 1. I submit the following report and recomendation on a proposed credit in an amount in various currencies equivalent to US $6 million to the Hashe- mite Kingdom of Jordan for a highway project. PART I - HISTORICAL 2. The proposed credit would be the first Bank Group operation in Jordan since the Arab-Israeli war of June 1967. Projects ,hich had then been under consideration, especially the extraction of potash from the Dead Sea, have since been held in abeyance by the Government in view of the situation which has prevailed in tihe aftermath of the war. The proposed highway project was identified by a Bank/IDA mission in early 1969 as one of those projects which cculd both help Jordan's present needs and be eventually integrated into the country's long-tern dev-ellopment. other high priority projects irn the fields of education, powrer and water supply are currently under consideration for financing by the Association in ccming years; joint financing with the Kuwait Fund for Arab Economic Development is contemplated for the powier project. Efforts are required by the Government to identify and prepare projects which would at the same tine be economically justified and help to solve Jordan's unemployment problem. In this connection, the Bank Group has lent its assis- tance to strengthen the machinery for planning, determination of priorities and project preparation. Meanwhile, the Government has resorted to work prograrms intended to alleviate unemploynent among the large refugee population, but these programs are chiefly of a relief nature. 3. The proposed highway project was appraised in April/Nlay 1970. Qring to the civil disturbances which took place in th3e summer of 1973, negotiati:mn were deferred nmtil it was ascertained that the project could Le carried out under reasonably satisfactory conditions. Megotiations w-ere he-d in Wiashing- ton on Narcb 1-5, 1971. The Government was represented by Lr. Odeh, Secretary General of the Jordan Development Board and head of the delegation, M4r. Bino, Undersecretary of Public Works, and Mr. sweiss of the Jordan Development Board. Presentation of the proposed credit to the Executive Directors has been post- poned until the response to international bidding procedures and the cost of the construction portion of the project had been tested through tendering. This process was satisfactorily completed in early N'Xay.  4. The proposed credit, the fifth IDA operation in Jordan, would be the first one in the field of transportation. The following is a summary statement of IDA credits to Jordan as of April 30, 1971. Credit Amount (US $ million) Number Year Borrower Purpose IDA Undisbursed 18 1961 Kingdom of Jordan Water Supply I 1.5 43 1963 Kingdom of Jordan Water Supply II 2.5 44 1963 KLingdom of Jordan Agricultural Credit I 3.0 - 103 1967 Kingdom of Jordan Agricultural Credit II 3.0 0.9 Total now outstanding 10 0 Total undisbursed 0.9 5. Progress of the second agricultural credit project has been severely affected by the June 1967 war. At that time, 30 percent of the Agricultural Credit Corporation's (ACC) portfolio was frozen in the occupied territories, and lending to, as well as collections from, West Bank farmers had to be discontinued. The hostilities in the Jordan Valley which followed the war and disturbances in the East Bank have also affected ACC's operations. Its overall lending has been substantially smaller than projected in pre- war conditions, and IDA disbursements slower than initially envisaged. Except for 1969, a year in which internal security, favorable weather conditions and improved management action enhanced ACC's collection rate, the difficultied which originated with the war have been compounded by droughts which reduced the repayment capacity of farmers. The financial situation of ACC has thus become almost critical. The reasons are at present largely out of the Government's and ACC's control, but remedial measures will be actively pursued as internal stability is restored. 6. IFC has not made any investments in Jordan and has no operations under consideration at present. PART II - DESCRIPTION OF THE PROPOSED CREDIT 7. Borrower: Hashemite Kingdom of Jordan Amount: US $6 million equivalent in various currencies Purpose: To finance the foreign exchange component of the construction of a highway from Amman to Zarqa, and related consultants services, the purchase of road maintenance equipment and consultants services to assist in a study of future land use and related transport patterns of the Amman area. Amortization: In 50 years including a 10-year period of grace, through semi-annual installments of 1/2 of 1 percea-h from September 15, 1981 through iMarch 15, 1991 and of 1-1/2 percent from Septe;mber 15, 1991 thrcugh March 15, 2021.  - 3 - Service Charge: 3/4 of 1 percent per annum Estimated Economic Return on the Project 17 percent PART III - THE PROJECT 8. A report entitled "Appraisal of a First Highway Project - Jordan" (PTR - 64a, dated May 21, 1971) is attached (No. 1). 9. The transport needs of Jordan are served by a comprehensive net- work of national and feeder roads and also, to a limited extent, by a railroad. Air transport is only significant for international passenger traffic. Road transport is by far the dominant mode of transport for both goods and passengers; most imports and exports are transported by road through either Beirut (in Lebanon) or the port of Aqaba, Jordan's only direct access to the sea. 10. The main part of the proposed project is the construction of a new road about 18 km long between Amman and Zarqa. The proposed highway is a key section of the road network of the country; it links two major cities of the East Bank, where most economic activity and industries are centered, and forms part of the main routes from Amman to Jordan's northern and eastern neighbours. Important phosphate deposits are exploited about midway between these cities and would be served by the proposed road, as would be Jordan's only refinery, in Zarqa, and a cement plant near Amman. The existing road, which is inadequate to handle present traffic, does not lend itself to improvements on the scale required, and an entirely new highway has become necessary; its construction and supervision by consultants would be financed under the proposed credit. The distribution within Amman of traffic from the Amman-Zarqa road caibe handled in the short term by an existing city street. Even with improved traffic management, however, this street is estimated to reach serious congestion towards the end of this decade and additional capacity should then be available. The most appropriate long-term solution for traffic distribution, which should be implemented by that time, would be determined after a study of the city's future land use and related transport patterns has been made, combined with a more detailed investigation of the project road access corridor. As the effective utilisation of the project road's capacity and the full realization of its benefits in the future depend largely on providing solutions to this problem, such a study, which will be carried out by consultants, has been included in the project and will be financed under the credit. 11. The project includes funds to meet the road mainten&nce department' s most urgent requirements for equipment. These requirements will be verified by USAID-sponsored consultants who will shortly complete a review of the organization and operations of the road maintenance department of the Ministry of Public Works. In addition the Credit Agreement obligates the Borrower to implement the findings of this study on organisational and operational improvements, as agreed upon between the Borrower and the Association.  12. As mentioned in paragraph 3 above, bidding for the construction contract has already been completed, and the cost estimates for the project road are based on the lowest of the contractors' bids received. The total cost of the project is estimated at $8.7 million, of which $6.2 million is for road construction, $0.5 million for purchase of road maintenance equipment and $1.0 million for consultants' services; a contingency allowance of $1.0 million has been included to allow for possible increases in physical quantities and price escalation during the implementation of the project. The proposed credit would finance the foreign exchange component of the project which is estimated at $6.0 million. 13. The project will be executed by the linistry of Public WJorks with the assistance of qualified consultants. The construction contract was bid on the basis of unit prices after international competition, in accordance with the Association's "Guidelines on Procurement". Bids were received from eight contractors from six different countries and the Jordanian authorities propose to award the contract to the lowest bidder, a British/Jordanian joint venture. The Borrower is awaiting the Association's action on the proposed credit before awarding the contract. Procurement of maintenance equipment will also be subject to international competition. 14. On the basis of the costs quoted above and of the estimated saving.g in vehicle operating costs and time, the proposed highway investment is expected to yield a 17 percent rate of return to the economy. Military traffic on the road has not been included in the calculation of the economric return. P.LT IV - LEGAL INSTRUMIENTS AP3D AUT-HORITY 15. The draft Development Credit Agreement between the Hashemite Kingdom of Jordan ald the Association, the Recommendation of the Committee provrided for in Article V, Section 1 (d) of the Articles of Agreement of the Association and the text of a Resolution approving the credit are being distributed separately to the Executive Directors. The draft Development Credit Agreement follows the usual pattern of agreements for similar road projects. PART V - THE ECONOITY 16. An updating memorandum on the current Economic Position and Prospects of Jordan (EIIA-37a, dated May 21, 1971), including a basic data sheet is attached (No. 2). The conclusi6n af this memorandut is that Jordan is not creditworthy for borrowing on conventional terms, and continues to depend on forei6n grants and assistance on soft terms.  PART VI - CWL|LIAI'.E WITH ARTICLES OF KGREMENT 17. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VII - REC2DENDATICN 18. I recommend that the Executive Directors approve the proposed Development Credit. Attachmlents Robert S. McNamera President June 2, 1971