Upper Volta - Cotton Road Project

RESTRICTED Roport No. PTR-118 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 It may not be published, quoted or cited without Bank Group authorization.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 BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF A COTTON ROAD PROJECT UPPER VOLTA May 19, 1972 FILE COPY Transportation Projects Department  Currency Equivalents Currency Unit - CFA franc (CFAF) US$1.00 - CpAF 255.79 CFAF 1 US$0.00&4 CFAY 1,000 - US$3e91 Fiscal Year: JaruatT I t1 December 31 Weights and Nea5ures: Metric Metric: British/US Equivalent 1 meter (a) ' 3.28 feet (ft) 1 kilometer (km) - 0.62 miles (mi) 1 square kilometer (km?) - 0.386 square miles (sq di) 1 hectare (ha) - 2.47 acres (ac) 1 liter (1) - 0.22 British gallons (imp gal) - 0.26 US gallons (gal) 1 kilogram (kg) a 2.2 pounds (lbs) 1 metric ton (a ton) 2,204 pounds (lbs) Abbreviations and Acronyms BC80M - Bureau Central d'Etudes pour les Equipements d'Outre-Mer CFDT - Compagnie Frangaise pour le D#veloppernt des Fibres Textiles DPW - Directorate of Public Wbrks PAC - Ponds d'Aide et de Cooperation FED - European Development Fund RAN - R6gie du Cheuin de Fer Abidjan-Niger USAID - United States Agency for International Development  UPPER VOLTA APPRAISAL OF A COTTON ROAD PROJECT TABLE OF CONTENT Page No. SUMMARY AND CONCLUSIONS . ............... i 1. INTRODUCTION .................... *.. ..... ...........* .... 1 2, THE TRANSPORT SECTOR ... ............ .............. 1 A. Economic Setting ... ................................. 1 B. The Transport System ...... ....................... 2 C. Transport Policy and Coordination .................... 2 3. THE HIGHWAY SECTOR ................. .. . .. . . . .. ..... ...... 4 A. Highway Network ............ ... .................. 4 B. Traffic Growth and Characteristics ............. 4 C. Administration ....... ...................... ......... 4 D. Maintenance ........... . . 5 E. Financing..*.. 5 F. Planning ...................... ... . . ................... 6 G. Engineering and Construction ..... .................. 7 4. THE PROJECT ........................................ 7 A. Description ................ ................. 7 - Construction of Cotton Roads ...................... 7 - Preinvestment Studies ............... * ............. 8 B. Execution ........ ..................................... 8 C. Cost Estimates and Financiag ..... ................... 10 D. Disbursements . . .. . . .1.1.................. 11 5. ECONOMIC EVALUATION ....1........... * ...................... 11 A. General ................... . ......................... 11 B. Economic Justification .......... . . ........ 11 C. Sensitivity Analysis .......................................... 12 6. AGREEMENTS REACHED AND RECOMMENDATION .............. .. 13 (continued) This report was prepared by Messrs. W. H. Cooke (Engineer) and H. 0. Schulte (Economist), and by Miss J. Murphy (Editor).  TABLE OF CONTENT (Continued) TABLES: 1. Highway Network - 1971 2. Vehicle Fleet 1966-1970 3. Imports of Gasoline and Diesel Oil 4. Annual Expenditures on highways 5. Design Standards for Project Roads 6. Estimated Schedule of Disbursements 7. Projections of Cotton Production in West Volta Cotton Project Area CEART: Organization: Ministry of Public Works, Transport and Urban Affairs MAP: Upper Volta - Road Network  UPPER VOLTA APPRAISAL OF A COTTON ROAD PROJECT SUMMARY AND CONCLUSIONS i. Economic development of the Republic of Upper Volta is hampered by a number of serious constraints: a landlocked position in the heart of western Africa, far from overseas markets and suppliers; a high incidence of debilitating diseases; a general proverty of natural resources; erratic rainfall and poor soils in large parts of the country. The economy is over- whelmingly agricultural, primarily at a subsistence level, with cotton and groundnuts being the only major cash crops. The Government's development strategy is centered on the promotion of livestock and agriculture and a particular effort is being made to increase cotton production. ii. The Association is assisting the Government in its efforts by a credit (225-UV) of US$6.2 million made in 1970 to finance a cotton develop- ment project in the West Volta area. Under that project, cotton production is being increased through an expansion of land under cultivation and an increase in yields per hectare by improving extension services, production methods, and transport conditions. The proposed project will support the West Volta cotton development scheme by upgrading, to an engineered gravel standard, two roads which will play a particularly important role in moving the cotton production. The Solenzo-Koundougou road (70 km) will serve the cotton production of the Solenzo region which accounts for over 20% of total production of the West Volta area. The Hounde-Bereba road (27 km) will serve to haul to the railway the production of a ginnery to be constructed under Credit 225-UV at Hounde. The present project also includes preinvest- ment studies for about 400 km of roads. iii. The total cost of the project is estimated at US$3.5 million. The Association will finance US$2.8 million; that is, 100% of the total costs net of taxes and duties. US$2.0 million of the credit will finance foreign costs and the remaining US$800,000 will be applied toward local costs. iv. Substantial development benefits are expected to accrue to the cotton development scheme, of which the proposed road construction is an integral part. Benefits attributable to the road construction specifically consist of savings in vehicle operating costs. On this basis, the internal economic rates of return for the proposed investment will be about 17% for the Solenzo-Koundougou road and about 13% for the Hounde-Bereba road. The proposed investments remain economically justified even when the analyses are tested with more conservative assumptions. v. The project provides a suitable basis for an IDA credit of US$2.8 million to the Government of the Republic of Upper Volta.   UPPER VOLTA APPRAISAL OF A COTTON ROAD PROJECT 1. INTRODUCTION 1.01 The project, which will be the Bank Group's first transport project in Upper Volta, was identified in 1970 during the appraisal 1/ of the West Volta Cotton Project (Credit 225-UV). At that time, it became apparent that the increased production of cotton envisaged under the project would require, among other things, improvement of transport facilities within the cotton producing area. The West Volta Cotton Project therefore included (a) a five- year program of road maintenance and betterment works on about 820 km of the 2,500 km of earth tracks serving the area, and (b) detailed engineering for the upgrading to engineered gravel standard of two of the most important tracks (Solenzo-Koundougou and Hounde-Bereba) totalling about 100 km, which would carry cotton tonnages between 20,000-30,000 tons per year. The road unit for the five-year maintenance and betterment program, headed by an expatriate engineer and comprising regravelling and maintenance equipment, began operations early in 1972. The economic and engineering studies for the two roads selected for upgrading were carried out by the French consultants, Bureau Central d'Etudes pour les Equipements d'Outre-Mer (BCEOM), and were completed in January 1972. 1.02 Execution of the West Volta Cotton Project is satisfactory. Although in 1971, for the second year in a row, Upper Volta suffered a drought, project area production increased by 30% over the pre-project year of 1970, while elsewhere in the country cotton production remained static. 1.03 The present project consists of construction of the Solenzo-Koundougou and Hounde-Bereba roads, as well as feasibility and engineering studies for im- provement of an additional 400 km of roads. The total cost of the project is estimated at US$3.5 million. The Association will finance US$2.8 million, that is, 100% of total costs net of taxes and duties. About 70% of the proposed credit, or US$2 million, will finance foreign exchange expenditures, and the remaining US$800,000 will be applied toward local costs. 1.04 This report is based on the studies mentioned above and on the find- ings of an appraisal mission, consisting of Messrs. W. H. Cooke (engineer) and H. 0. Schulte (economist), which visited Upper Volta in December 1971. The report was edited by Miss J. Murphy. 2. THE TRANSPORT SECTOR A. Economic Setting 2.01 The economy of Upper Volta, a landlocked country in western Africa, is overwhelmingly rural in character. About 90% of the population is engaged 1/ Report No. PA-58a.  - 2 - in farming and livestock raising, mostly at a subsistence level. Livestock is the most important export product, and cotton and groundnuts are the major cash crops. The population is unevenly distributed, with approximately one- half living in the central region, while considerable areas in the south and southeast are virtually empty. Many fertile river valleys throughout the country are deserted because of the incidence of river blindness. The country's topography is generally flat, making communications easy except during the short rainy season when wide areas are flooded. 2.02 Economic development has been very slow and is hampered by a number of serious constraints: a geographic position far from overseas markets and suppliers, a general poverty of natural resources, poor soils and erratic rainfall in large parts of the country, and a high incidence of debilitating diseases. The Government's development strategy is centered on the promotion of livestock and agriculture, and a particular effort is being made to in- crease cotton production, notably under the West Volta cotton development scheme. These efforts will need to be supported by appropriate transport investments. B. The Transport System 2.03 Transport within the country is primarily by road. The road net- work, which comprises about 17,000 km of roads and tracks, adequately covers the economically important and populated regions. The network is, however, of extremely low standard, consistiiag largely of unengineered earth tracks, and only a few of the primary roads provide reliable all-weather service (see Chapter 3). 2.04 The most important international transport connection is the rail- way which links the capital, Ouagadougou, with the seaport of Abidjan in the Ivory Coast, a total distance of 1,145 km. The railway, the Regie du Chemin de Fer Abidjan-Niger (RAN), is a semi-autonomous agency jointly owned and operated by the Governments of Uppe:- Volta and the Ivory Coast. The RAN carried some 2.5 million passengers and 756,000 tons of goods in 1970, with Upper Volta traffic accounting for over 50% of total passenger-km and ton-km. Transit traffic to and from Mali represents about 20% of total ton-km. Purely internal traffic utilizing the 518 1m of track within Upper Volta is low, not exceeding 25,000 tons in 1970. 2.05 Both Ouagadougou, the cap:ltal, and Bobo Dioulasso, the country's economic center, have international airports. There are regular flight connections between Ouagadougou and Europe as well as other West African capitals. Internal air transport is negligible. A small domestic airline was created by the Government and private interests in 1967 but it has not yet been able to operate profitably due to the lack of demand. C. Transport Policy and Coordination 2.06 Responsibility for all mat:ters of transport policy rests with the Ministry of Public Works, Transport and Urban Affairs (see Chart). The  -3- Ministry is directly responsible for the road sector, including road con- struction and maintenance as well as regulation of the road transport in- dustry; it also has supervisory authority over air and railway transport agencies. 2.07 The role of the various transport modes is fairly well defined, with roads being the predominant mode for internal traffic and the railway's main role being to carry the country's import-export traffic. Road-rail competition in the corridor served by both modes is free from Government in- tervention, both with regard to internal and international traffic. There is, however, a certain degree of subsidization of agricultural exports which are shipped by the RAN at or somewhat below marginal costs. Railway tariffs for all other goods generally cover or exceed full costs. While road trans- port is generally more competitive than the railway for purely internal traffic, its share of traffic to and from Abidjan is estimated at less than 15X of total tonnages shipped. 2.08 The Government's policy vim-a-vis the road transport industry is liberal: access to the industry is easy, and there are no regulations witn regard to transport rates, the size of companies or the kind of transport services offered. Road user charges are high compared to Government outlays for highways. Government receipts from taxes and duties on gasoline and diesel oil are estimated to have been about US$3.0 million in 1971. Tn addi- tion, there are taxes and import duties on vehicles and spare parts as well as various license fees on which, however, no precise information could be obtained. Government spending for highway maintenance was only US$1.5 million in 1971 (para. 3.10) and its contribution to construction projects has been negligible. 2.09 In its transport investment policy, the Government is now giving priority to the improvement of international road links with Mali, Ghana and Togo. The roads between Bobo Dioulasso and the Mali border and between Ouagadougou and the Ghana border have recently been paved with financing from the European Development Fund (FED), and work on the Ouagadougou-Togo border road is underway, also with FED financing. While improvement of the links with Mali, which carries considerable transit traffic between Mali and the railway, appears justified on economic grounds alone, the Government's decision to upgrade the road links with Ghana and Togo has been mainly based on a desire to create alternative outlets to the sea in order to reduce the country's dependence on the railway connection to Abidjan. The RAN, however. is operating fairly efficiently and, except for short periods of peak demand, has sufficient capacity to handle present and foreseeable external transport requirements. Substantial investment programs are underway and planned in the Ivory Coast which will further improve its services. Also, the railway is clearly the most economic route to the sea for the western and central areas of the country which are the most populated and active regions. 2.10 In order to direct future investment planning, the Governmetit ob- tained financing from France's Ponda d'Aide et de Cooperation (FAC) for a  - 4 - road survey by the consultants BCIEOM which will identify road investment priorities and outline a ten-year investment program. The preinveotment studies to be carried out under thie project (para., 4.04) will be based on the consultants' findings. 3. THE HIGHWAY SECTOR A. Highway Network 3.01 The road network (Table 1) consists of about 8,900 km of roads classified as either primary, secondary or tertiary, and about 8,000 km of rural tracks. The road density, .*mounting to about 4 km per 1,000 inhabi- tants is similar to that of neigbcoring Mali. The network of primary roads (4,450 km) radiates from the capital, Ouagadougou, and the main commercial center, Bobo Dioulasso, and largely satisfies the current needs of the country. About 385 km of the prirary roads are paved, with the remainder being gravel surfaced. These road!s are considered to be all-weather, al- though the unpaved sections are generally closed to heavy traffic for short periods after heavy rains. 3.02 Only the primary network is maintained, and the remaining roads have deteriorated over the past decade to little more than trails. The secondary and tertiary roads are passable to heavy trucks and four-wheel drive vehicles, but only during the dry season; the rural tracks are used largely by bicycles, porters and pack animals. B. Traffic Growth and Characteristics 3.03 Traffic data are based on surveys taken by consultants in 1961 and 1971, with financing from FAC. The surveys, which were limited to the primary network, indicate that traffic volumes on these roads grew at a rate of 8% per annum over the period. This rate appears high in view of the slow economic growth that has taken place, but it is corroborated by 9% growth rates in the vehicle fleet (Table 2) and in fuel imports (Table 3). Traffic volumes remain generally low, however, rarely exceeding 50 vehicles per day. Trucks account for about 30% of total traffic volumes. The Ministry of Public Works, Transport and Urban Affairs intends to introduce regular traffic counts on the basis of the 1971 survey and with personnel train- ed by consultants. C. Administration (see Chart) 3.04 Within the Ministry of Public Works, Transport and Urban Affairs, the Directorate of Public Works (DPW) has responsibility for the planning, design, and maintenance of roads and bridges. The Directorate is divided into two divisions, one for planniag and design of new works and the other for road maintenance. The maintenance division is also responsible for the central mechanical workshop, for stores, and for a technical training school in Ouagadougou.  -5- 3.05 The DPW depends heavily on foreign assistance from FAC for its staffing; at present only four (including the Director) of its 33 qualified engineers are Upper Voltan nationals. There seems to be no shortage of funds, mainly provided by FAC, for training Upper Voltan staff on scholarships abroad, but only a few high school graduates are ready to take on technical studies and most of those who have qualified prefer to work abroad or go into private business. Though FAC is apparently willing to continue its technical assist- ance to the DPW for the time being, a serious effort will have to be made by the Government to improve the staffing situation. Attraction of Upper Voltan staff will depend on improvement of conditions of service, but the possibi- lities for corrective action are limited, not only because of the scarcity of funds but also because changes in status of DPW personnel naturally affect other ministries. During negotiations, the Government and the Association discussed the measures that might be taken to improve the situation, such as introducing changes in high school curricula or linking overseas scholarships to a minimum period of civil service. The Government indicated that it had the matter under constant review, stressing, however, that the problem was equally, if not more acute in the health and education sectors and that any measures it might take would naturally have to deal with the problem on a multisectoral basis. D. Maintenance 3.06 The DPW is responsible for maintenance of the 4,450 km of primary roads. The road maintenance division of the DPW has four regional subdivisions, each of which has one or two grading units and a regravelling unit. FAC is pro- viding substantial technical assistance for maintenance: since 1967 it has been providing personnel to assist the maintenance division and more recently it has undertaken to provide US$4.7 million worth of maintenance equipment, most of which has arrived in the country. With FAC assistance, the division under- took a regravelling program in 1969-1971, but due to a shortage of local funds (para. 3.10), a considerable backlog of work remains. At the present rate of progress, not all the primary roads can be regravelled even once in ten years. And, while the division was able to grade the more heavily trafficked roads from one to five times last year, some primary roads were not graded at all. 3.07 Maintenance of the remaining road network is negligible, since it is left to the local authorities who have neither equipment nor personnel to undertake this work. If they have funds available, the local communities call upon the DPW organization to undertake emergency repairs. Due to the lack of maintenance, this network has deteriorated badly, and many roads serv- ing important agricultural regions are closed to traffic during the rainy sea- son. FAC has agreed to finance a study of road maintenance requirements on these roads, based on terms of reference prepared by the Bank Group, and to assist the Government in formulating an overall road maintenance policy (para. 3.11). E. Financing 3.08 The Government has relied on foreign assistance for the financing of capital investments in the highway sector. Road construction and equipment  purchases have been financed by FAC, FED and United States Agency for Inter- national Development (USAID), mainly in the form of grants. 3.09 The Government finances the maintenance of its primary road net- work through allocations from a Road Fund established in 1968. According to the law establishing the Road Fund, about 60% of all Government income from taxes, duties and other levies on gasoline and diesel oil are to be allocated to the Fund and used exclusively for the rehabilitation and main- tenance of the road network. Road Fund revenues have increased from US$1.16 million in 1968 to US$1.78 million in 1971. The Minister of Finance, however, in line with his general policy of fiscal austerity, has released only a portion of these funds to the DPW for maintenance operations, using the re- mainder for other budgetary purposes. 3.10 Actual allocations to the DPW (Table 4) for maintenance of the primary network ranged between US$1.4-1.5 million over the 1969-1971 period, which was insufficient to keep the primary network adequately maintained. As mentioned above, the DPW has been hampered in executing its regravelling program and some of the equipment financed by FAC has remained idle for lack of funds. For 1972, the DPW has requlested about US$1.67 million (US$375/km) which would just cover operating exp3nses, and not equipment renewal; but indications are that the Ministry of Finance will grant no more than about US$1.46 million (US$328/km). With t1iis amount, the Directorate will be unable to make full use of the equipment on hand, and FAC is considering postponing procurement of the last batch of equLpment, scheduled to arrive in 1972. The DPW will be faced with an additional financial problem when replacement of the FAC equipment will become necessary in a few years, since renewal of the fleet implies an additional allocation of US$600,000-700,000 annually. The Ministry of Public Works intends to ask FAC to finance the renewal of road maintenance equipment, but it is not certain whether FAC will be willing to do so. 3.11 Under the road maintenance study, FAC will look into the financing question and make recommendations as to the appropriate level of road main- tenance expenditures required, takingr into account Upper Volta's financial constraints. During negotiations for the proposed credit, the Government agreed that upon receipt of this studly, which is expected to be available late in 1972, it will discuss the consultants' recommendations with the Association and agree upon a level of expenditure which will assure adequate maintenance of all economically important roads. F. Planning 3.12 The Directorate of Planning in the Ministry of Planning, Industry and Mines, is responsible for formulating and evaluating development projects, for carrying out sector studies and research, and for reviewing the projects from a financial viewpoint. The various technical ministries are responsible for implementing individual projects and for giving technical advice to the  -7- Director of Planning. Within the DPW, the planning and new works division is responsible for project identification, preparation and execution. Due to shortage of staff, the Directorate relies on consultants' studies financed by the United Nations Development Programme, FED, IDA or USAID, for the prepara- tion of its highway development projects. G. Engineering and Construction 3.13 The planning and new works division of the DPW is also responsible for engineering and supervision of road development projects. Due to staff constraints, all major engineering work is done by consultants, and the divi- sion only briefs the consultants, reviews their designs and exercises tech- nical and financial control over the project. Although supervision of con- tracts is usually carried out by consultants, the DPW is at present super- vising one major contract with its own staff. The Building Research Laboratory (see Chart) under the direction of an expert provided by FAC, is fully equipped to carry out materials testing for both road and building works. It has carried out extensive pavement design work for the DPW, con- sultants, and the private sector. The capacity of the laboratory staff in soils testing and pavement design is not fully utilized at present. The DPW does not have any established design standards, but the roads and bridges re- cently constructed by FED were designed for 13 (metric) ton axle loads, with 6 m wide pavement and 9 m wide formation, which are the standards normally applied in French-speaking West Africa. While axle loads are legally re- stricted to 10-tons, the Government has neither equipment nor personnel to enforce the regulation. This does not appear to be a problem at present because of the low traffic volumes. 3.14 There are a few Upper Volta firms capable of carrying out small building contracts (small bridges, culverts and supply of materials). Major contracts have been carried out by foreign firms registered in West Africa which operate throughout the region and are reasonably mobile. 4. THE PROJECT A. Description 4.01 The project comprises the following: (a) the construction of two cotton roads totalling 97 km; and (b) feasiblity studies for about 400 km of primary roads, to be followed by detailed engineering of those sections found to have the highest priority. Construction of Cotton Roads 4.02 The two gravel roads to be constructed under the project will replace earth tracks serving the West Volta cotton producing area, and  -8- are important elements in the overall scheme to promote cotton production in the region. The Solenzo-Koundougou road (70 km) will connect the marketing center of Solenzo with the paved road which leads to Bobo Dioulasso, where the cotton is ginned prior to export via the railway. The Hounde-Bereba road (27 km) will provide a reliable link between Hounde, where a new ginnery is to be built, and the railway. 4.03 Engineering for the two roads, financed by Credit 225-UV, has been completed. The design standards (Table 5) are satisfactory and consistent with expected traffic levels of 30-40 vehicles a day. Both roads will be given a gravel (laterite) surface, 20-30 cm thick and 7 m wide; two bridges to be built on the Solenzo-Koundougou section will be of single lane width. The topography of the region is flat; in some low-lying areas this will necessitate raising the road surfaca above flood level. Ample materials suitable for building embankments and surfacing are available along the route. Preinvestment Studies 4.04 The preliminary findings of the study of road investment needs carried out by BCEOM have indicated that, by about 1975, some sections of primary roads radiating from Ouagadougou and Bobo Dioulasso are likely to warrant upgrading. The project inc'Ludes the financing of (a) feasibility studies for about 400 km of road to be agreed between the Government and the Association after review of the consultants' final report, and (b) detailed engineering of those road sections identified under the feasibility studies as having proper justification. During negotiations, the Government con- firmed that it will furnish the Association with all relevant information for the selection of roads to be studied as soon as such information is available. B. Execution 4.05 The DPW will be responsible for the execution of the project, in- cluding the supervision of construct:ion. After completing ongoing works, DPW staff with adequate qualification and experience will be made available to supervise the construction under the project. The Government agreed during negotiations that if the Associationi deems it necessary, the DPW will be strengthened by the employment of consultants. Funds have been provided under the project for this purpose Ehould consulting services be required. The preinvestment studies will be cearried out by consultants, selected in agreement with the Association. 4.06 Procurement will be in accordance with established Bank/IDA guide- lines on international competitive bidding. Contractors have been invited to prequalify, and a number of international contractors and their subsidiaries established in western Africa are expected to submit bids. The Government has expressed preference for a single contract for administrative convenience,  -9- and the Association concurs, in view of its already small size. It is estimated that bids will be called in late 1972 and that the contract will be awarded in early 1973. Construction of the Solenzo-Koundougou road is expected to begin in Fall 1973, to be followed by the Hounde-Bereba road in early 1974. The project is expected to provide employment for several hundred men over the two-year construction period. The Government agreed during negotiations that upon completion of construction, the DPW will be given responsibility for the Solenzo-Koundougou and Hounde-Bereba roads, and sufficient resources will be made available to assure that they are maintained regularly. 4.07 Discussions were held during negotiations about the possibility of amending the specifications of the project roads in order to encourage the use of labor-intensive methods of execution and thereby provide employment op- portunities to the rural population which is unemployed for part of the year. The discussions also covered the feasibility of labor-intensive maintenanice methods. The Government delegation welcomed the Association's interest in this problem. It pointed out, however, that the road construction would only pro- vide a temporary source of employment; that mobilizing unskilled labor for this type of work would be difficult; and that the longer construction period re- quired for labor-intensive works would increase administration and supervision costs and postpone the benefits to be derived from the investments. It was agreed therefore that no attempt would be made to amend the specifications of the project roads, although the idea would be kept in mind for other operations, particularly for the maintenance of secondary roads.  - 10 - (. Cost Estimates and Financing 4.08 The estimated cost of the project is shown below: ----CFAF mil:lion ---- ---US$000------- % Local Foreign Total Local Foreign Total Foreign (a) Construction Solenzo-Koundougou 210 210 420 820 820 1,640 Hounde-Bereba 85 85 170 330 330 660 295 295 590 1,150 1,150 2,300 50% (b) Consultant Services Supervision 6 24 30 23 92 115 Preinvestment Studies 26 102 128 100 400 500 t-2_ 126 15_8 T123 -49-2 615 80% (c) Contingencies Price escalation: - 15% of (a) 44 44 88 172 173 345 - 10% of (b) 3 13 16 12 49 61 Physical overruns: - 5% of (a) and (b) 16 21 37 62 83 145 63 78 14- 24_6 3 05 -5Yl Total 390 499 889/1 1,519 1,947 3,466/1 56% ROUNDED TOTAL 1,500 2,000 3,500 /1 Of which 20% is taxes and duties. 4.09 The cost estimates are based on current contract prices for FED and FAC-financed road projects in Upper Volta. Contingency allowances for price escalation reflect recently experiLenced increases of about 8% per annum on civil works, and slightly less than this amount on consultants' services. Physical overruns are expected to be low due to the simple character of the construction works. 4.10 The foreign exchange component: on the civil works is estimated at 50%; about half of the local costs represents taxes and duties. The costs of consultants' services are based on average monthly rates for construction supervision and on unit prices for preirtvestment studies. The foreign com- ponent for these services amounts to about 80% of the total cost. There are no taxes on this item. 4.11 The total cost of the project is estimated at US$3.5 million. The IDA credit will finance total project costs net of taxes and duties, estimated at US$2.8 million. During negotiations, the Government agreed that the necessary  - 11 - budgetary allocations will be made to meet the remaining local costs of the project, amounting to about US$0.7 million equivalent in taxes and duties. D. Disbursements 4.12 Disbursements will be made from the credit account on the following basis: (a) 75% of total expenditures for construction, which represents 100% of the cost net of taxes and duties; and (b) 100% of the total cost of consultants' services. The estimated schedule of disbursements is shown in Table 6. 5. ECONOMIC EVALUATION A. General 5.01 Under the West Volta Cotton Project, being assisted by an IDA credit (225-UV) of US$6.2 million, production of Upper Volta's major cash crop, cot- ton, is to be increased through an expansion of land under cultivation and an increase in yields per hectare by improving extension services, production methods and transport conditions. At the time of the appraisal of the cotton project, it was estimated that total cotton production in the project area would reach over 66,000 tons by 1975/76 and increase to 83,000 tons by 1980/81, as compared to a production of 18,600 tons in 1969/70. Production in the proj- ect area suffered a serious initial setback due to abnormally low rainfalls in 1970 and 1971, and total production so far has fallen short of appraisal estimates by nearly 50%. Still, production results in the project area fared substantially better than in the rest of the country, and the CFDT (Compagnie Francaise pour le Developpement des Fibres Textiles), the agency responsible for execution of the cotton project, is confident that, assuming normal rain- fall conditions, the original targets will be met, though with a delay of about three years. B. Economic Justification 5.02 Construction of the two project roads will reduce substantially the transport costs of cotton and other traffic. The Solenzo-Koundougou link serves the cotton production of the entire Solenzo region, which accounts for over 20% of total production of the cotton project area. The Hounde-Bereba road will serve to haul the production (cotton lint and cotton seed) of the ginnery to be constructed at Hounde to the railway at Bereba. 5.03 Traffic on the two project roads has been estimated on the basis of present cotton production projections, on data provided by the Government concerning the transport of other agricultural products and consumer goods,  - 12 - and on the ratio between goods and passenger movements observed on comparable roads in the country. Based on these estimates, goods traffic on the Solenzo- Koundougou road in 1975 will total about 14,000 tons, of which about 10,000 tons will be seed cotton and cotton production inputs such as fertilizers and tools. Total goods traffic is eKpected to grow to about 23,000 tons by 1980. Traffic on the Hounde-Bereba road will consist mainly of the output of the ginnery at Hounde which will be shipped to the railway at Bereba and thence by rail to Abidjan in the Ivory Coast. Originally, construction of the ginnery, for which financing is provided under Credit 225- WV, was planned for 1972 when it was estimated that the existing ginning capacity at Bobo Dioulasso (maximum 39,000 tons) woull become insufficient. With the revised production targets, it is now planneil that the ginnery will be operational by 1975 and be operating at full capacity (25,000 tons) by 1978. In addition, there will be some local traffic on the road, as well as some seed cotton going to the factory. 5.04 The proposed road construci:ion supports the cotton development scheme to which substantial developmental benefits are expected to accrue. These have already been considered in the economic evaluation of the West Volta Cotton Project. Benefits which can be said to derive specifically from the proposed road construction 2onsist mainly of savings in vehicle operating costs, estimated at about 40%, due to the improved condition of the roads and to the use of heavier <md more economical vehicles this will allow. In addition, there will be d:istance savings of 7 km on the Solenzo- Koundougou road. Most of these benelfits will accrue to the CFDT and thus to the cotton development scheme since the CFDT transports cotton with its own trucking fleet. Based on an analysis of costs and benefits over a period of 15 years, the expected economic life of the project, the internal economic rates of return for the proposed investment will be about 17% for the Solenzo-Koundougou road and about 137 for the Hounde-Bereba road. C. Sensitivity Analysis 5.05 The future evolution of cotton production clearly is the most un- certain variable in the economic analysis of the project roads. In the sensi- tivity analysis of the Solenzo-Koundougou road, therefore, two, more conserva- tive assumptions concerning future cotton production in the project area were introduced: (a) a five-year instead of a three-year delay in reaching the original production targets; and, alternatively, (b) a maximum production of only 50,000 tons which would be reachted by 1980 (Table 7). Using these alter- native assumptions for the traffic fcrecasts, the economic returns on the Solenzo-Koundougou road drop to either 15% or 13% respectively. Since a further test shows that a 10% increase in corstruction costs would reduce the rate of return by only about one percentage point, the investment for the Solenzo- Koundougou road can be considered as sound. 5.06 With regard to the Hounde-Eereba road, the timing of construction and operation of the ginnery at Hounde is the most crucial element determining its economic viability. In the Association's judgment, at the very worst, cotton production from the project area and the area to the southeast will certainly require operation of the ginnery by 1977 and full use of the gin-  - 13 - nery's capacity by 1978. In such a case, the return remains acceptable at 10%, indicating that construction of the Hounde-Bereba road is also a sound investment. 6. AGREEMENTS REACHED AND RECOMMENDATION 6.01 The following are the major project matters which were discussed and agreed between the Government and the Association during credit negotiations: (a) the submission to the Association, as soon as available, of BCEOM's final report on road investment needs as well as other relevant data in order to agree upon the selection of roads for study under the project (para. 4.04); (b) the supervision of construction by the DPW provided that staff with adequate qualification and experience are made available for this purpose and, if deemed necessary by the Association, the strengthening of the DPW through the employment of consultants (para. 4.05); (c) the selection of consultants mutually acceptable to the Government and the Association for preinvestment studies (para. 4.05); (d) the arrangements to assure adequate maintenance of the project roads (para. 4.06); and (e) the provision of adequate funds to cover the local costs of the project not financed by the IDA credit (para. 4.11). 6.02 The project provides a suitable basis for an IDA credit of US$2.8 million equivalent to the Government of the Republic of Upper Volta. May 19, 1972   Table 1 UflU VOLTA . ROAD PROJUCT HIlgLM! Netwrork - 1971 Total StIRFAC3 TTf A. Classified Roads Paved Gravel frackE Primazr Roads (l1-19) 4,9450 385 4,065 Secondary Roads(D 1-18)) 14,450 - - 4,45o Tertiary Roads (R 1-39) J 8,900 385 4,O65 4,h45o B. Unclassified Tracks (approximate) 8,000 -- - 8,000 16,900 385 4,065 12.,45o 1/ Excluding urban roads Source: Directorate of Public Works, November 1971 May 19, 1972  Tjble 2 UPPER VOLTA COTTON ElOAD PROJECT Vehicle Fleet 1966-1970 Average Annual Growth Rate 1966 1967 1968 1969 1970 1966-:11(i) Private Cars 4,565 4,832 5,217 5,824 6,428 8.9% Buses 87 106 117 144 150 1h.6% Pickups and light trucks 4,710 5,001 5,461 6,136 6,755 9.4% Heavy trucks and truck trailers 373 392 446 480 535 9.4% Other 82 95 130 179 192 24.0% Total 9,817 10,426 11,371 12,763 14,060 9.4% ,ource: Ministry of Public Works, Trmnsport and Urban Affairs, November 1971. May 19, 1972  Table 3 UPPER VOLTA COTTQN RQO9 PWJT Imports of Gasoline and Diesel Oil (in tons) Average Annual Growth Rate 1967 1968 1969 1970 1967-1970 Gasoline 13,834 13,767 14,862 17,023 7.2% Diesel Oil 6,143 5,591 7,775 8,854 13.0% Total 19,977 19,358 22,637 25,877 9.0% Source: C ustoms Services, November 1971 May 19, 1972  Table 4 UPPE VOLTA COtTON ROAD PROJECT ual ditures on Highways ( CFAFr millirn) Capital Expenditure for Salaries of Current Maintenance Fiscal Headquar3,rs Expenditures 2/ Equipment and Year Staff- frc Naintenanceo- Constrictiou./ 1966 110.50 192.91 154.49 1967 89.30 215.23 235.61 1968 63.55 330.00 621.74 1969 74.97 370.00 1,150.71 1970 80.10 380.00 1,375.;6 1971 82.01 390.00 2,683.43 1/ Includes entire staff of Ministry of Public Worlk, Transport and Urban Affairs. 7/ Includes minor betterment works. 1/ Financed by grants and loans from FAC, FEDD, and USAID. Source: Directorate of Public Works l, November 1971 May 19, 1972  Table 5 UPPER VOLTA COTTON ROAD PROJECT Design St-andards for Project Roads Design Speed 80 km/h Formation Width Cohesive soils 7.60 m Non-cohesive soils 7.80 m Gravel Laterite)Surface Width 7.0 m Camber 4% Thickness 20 cm (minimum) Radius of Curves Horizontal 300 n (minimum) Vertical 2,000 m - sag 3,000 m - crest Batter of Slopes Cohesive Soils Non-Cohesive Soils In filling 3:2 2:1 In cutting 1:1 2:1 Eridges Width between parapets 4.50 m Width of carriageway 3.50 m Design Loading 13 tons (metric) axle loads Source: BCEOM, November 1971 May 19, 1972  Table 6 UPPER VOLTA COTTON ROAE PROJECT Estimated Schedule of Disbursements IBRD/IDA Fiscal Year Cumulative Disbursement and Quarter at End of Quarter (US$ '000) 1972/73 September 30, 1972 0 December 31, 1972 0 March 31, 1973 5