Somalia - Second Highway Project

RESTRICTED RWport No. PTR-81a This ept for- icl ue ony by Xh Dan Gro md specfcy authoized oinzatIon or peson. ft my not be pubihed quoted or cited without Bank Group authoration. The Dank Group does not uxept rponibty for the accurc or oompletes o th report. INTERNATIONAL BANK FOR RECONSTRUCIION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF A SECOND HIGHWAY PROJECT SOMALIA January 5, 1972 Transportation Projects Department  Currency Equivalents (December 28, 1971) Currency Unit. - Smalia Sbilling us$0.15 - So.Sh. 1 US$1.00 - So.Sh. 6.58 US$151,975 - So.Sh. 1 million Fiscal Year January 1 - December 31 System of Weights and Measures: Metric Metric British/US 1 meter - 3.28 feet (ft) 1 kilometer (km) 3 0.62 miles (xi) 1 square kilometer (km2) - 0.39 square miles (sq mi) 1 hectare (ha) - 2.47 acres (ac) 1 kilogram (kg) n 2.20 pounds (lb) 1 metric ton (m ton) = 2,2o4 pounds (lb) Abbreviations and Acronyms ADB - African Development Bank CED - Civil Engineering Department FED - Fonds Europeen de Developpement MPW - Ministry of Public Works UNDP - United Nations Development Programe ADT - Average Daily Traffic IER - Internal Economic Return  APPRAISAL OF A SECOND HIGIWAY PROJECT SOMALIA CONTENTS Page No. SUMMARY AND CONCLUSIONS ........... ............ i-ii I. INTRODUCTIONT .................. 1 II. BACKGROUND. 2 A. General. 2 B. The Transport Sector. 3 C. Transport Planning and Coordination. 4 III. TIIE IIICH!WAY SECTOR .. 4 A. The Network. 4 B. Administration. 5 C. Financing and Planning. 6 D. Engineering. 7 E. Construction .7 F. Maintenance. 7 IV. TUIE PROJECT. 8 A. General. 8 B. Construction of the Hargeisa-Berbera Road. 9 C. Feasibility Study and Detailed Engineering of the Hargeisa-Borama Road. 9 D. Technical Assistance for Transportation Planning. 10 E. Cost Estimates and Financing ....... ............. 10 F. Execution ....................................... 12 C. Disbursements . .................................. 13 V. ECONOMIC EVALUATION ........... ....................... 13 A. General ........... 13 B. Benefits from the Project ....... ................ 14 C. Feasibility Study of the llargeisa-Borama Road ... 15 D. Technical Assistance for Transportation Planning. 15 VI. AGREEMENTS REACIIED AND RECOMMENDATION ..... ........... 15 This report was prepared by Messrs. R. Paraud and B. Kennedy (Engineers), and N. Kanaan (Economist) on the basis of an appraisal mission in December 1970, and was edited by Mrs. P. Valad.  CONTENTS (Continued) TABLES 1. Exports, 1965-70 2. Air Freight and Passenger Transport, 1965-69 3. Cargo Handled in Main Ports, 1966-69 4. Highway Freight and Passenger Transport, 1965-69 5. Fuel Consumption, 1966-69 6. Road User Revenues, 1966-69 7. Highway Expenditures, 1965-70 8. Highway Construction Program Proposed by Grimble in 1966 9. Proposed Design Standards for the Hargeisa-Berbera Road 10. Revenue from Livestock Exported Using the llargeisa-Berbera Road, 1965-69 11. Unit Vehicle Operating Costs per 100 km 12. Sensitivity Analysis of Internal Economic Return ANNEX Estimated Schedule of Disbursements CHART Organization Chart of the Ministry of Public Works and of the Civil Engineering Department MAP Highway System  APPRAISAL OF A SECOND HIGHWAY PROJECT SOMALIA SUMMARY AND CONCLUSIONS i. Somalia comprises two former colonial territories, British Somali- land (the northern region) and Italian Somaliland (the southern region). Because the land is desert and dry with no easily exploitable resources, the country is one of the poorest in Africa. Most of the population is nomadic, relying on extensive livestock production for its livelihood. ii. The transport system is at a very early stage of development, and many areas are inaccessible to motor vehicles for much of the year. The pre- sent highway network consists of about 900 km of paved roads, 1,000 km of gravel roads, and 14,100 km of earth roads. The main task is to raise the standard of this system to provide adequate communication in the areas of economic development. iii. Somalia received aid for its road development from the Association, Fonds Europeen de Developpement (FED), and United Nations Development Programme (UNDP) under the First Highway Project (Credits 74-SO and 123-SO). The Association provided US$8.5 million for construction of the Afgoi-Baidoa Road. FED provided US$2.95 million for engineering, construction, and construction supervision of the road and US$2.2 million for building a new office for the Civil Engineering Department of the Ministry of Public Works and purchasing highway maintenance and workshop equipment. The UNDP provided US$3.02 million for a substantial technical assistance program to set up and staff the Highway Department as uell as to finance a transport survey, feasibility studies, and detailed engineering of two main roads. The Bank is the Executing Agency for the UNDP. iv. Physical progress on the First Highway Project is generally satis- factory,but some problems have arisen in execution. The most important, in- adequate highway maintenance funds, has been discussed with the Government. To resolve this problem, the Government supplemented highway maintenance in 1970 by starting a "Roads Crash Program" for rehabilitation and maintenance. In addition, the Government has increased maintenance allocations slightly despite severe budgetary constraints. During the Somali fiscal year 1972, So.Sh. 6.4 million will be allocated to highway maintenance and the allocation will be increased in future years. v. The proposed project is based on technical and economic studies carried out under the First Hig,hway Project by consultants from Canada and the Federal Republic of Germany. The project includes: (a) construction and supervision of a 158 km road linking Hargeisa, the main city in the northern region, with Berbera, a port on the Gulf of Aden; (b) a feasibility study and subsequent detailed engineering of the Hargeisa-Borama Road (140 km), with a spur (20 km) to Tug Wajale on the Ethiopian border; and (c) technical assistance for transportation planning. Because of financial difficulties, the Government is unable to contribute to the cost of the project, US$10.6  - ii - million including contingencies. The project will be financed by an IDA credit of US$9.6 million (including local expenditures of about US$2.6 million equivalent) and a loan from the African Development Bank of US$1 million. vi. Detailed engineering for construction of the Hargeisa-Berbera Road was completed under the First Highway Project. Bids were received at the end of October 1971 after international competition. A construction contract will not be awarded until the credit has been signed, but retroactive financing of about US$20,000 equivalent is recommended to cover the cost of consultants engaged from April 1, 1971 for pre-contract assistance to the Government. vii. The best estimate of the Internal Economic Return for the road project is 19%, with costs based on the actual lowest bid received; this in- dicates that the project is economically well justified. Benefits to the economy are derived from road user savings and from decreased weight loss and death of livestock during transport on the project road. viii. Project execution will be the responsibility of the Civil Engineer- ing Department of the Ministry of Public Works. Consultants will be employed to supervise construction and carry out the feasibility study, detailed engineering, and technical assistance. ix. The project is suitable for an IDA credit of US$9.6 million to the Government of Somalia on the usual terms.  APPRAISAL OF A SECOND HIGHWAY PROJECT SOMALIA I. INTRODUCTION 1.01 The Governnent of Somalia has asked the Association to help finance a project consisting of: (i) construction and supervision of the Hargeisa- Berbera Road (about 158 km); (ii) a feasibility study of the Hargeisa-Borama Road (about 140 km), including a spur (about 20 km) to Tug Wajale, and sub- sequent detailed engineering; and (iii) technical assistance for transporta- tion planning. The total project cost, US$10.6 million, will be financed by an IDA credit of US$9.6 million and a loan from the African Development Bank (ADB) of US$1 million. 1.02 The feasibility study of the Hargeisa-Berbera Road was financed under the First Highway Project by the United Nations Development Programme (UNDP) and was carried out by the consulting firm Grimble and Associates (Canada). The detailed engineering, financed under the First Highway Project by the UNDP with the ADB providing the Government's contribution, was carried out by the consulting firm Dorsch Consult (Federal Republic of Germany). 1.03 This would be the Second Highway Project in Somalia. The First Highway Project was financed by two IDA credits, a loan from the Fonds Europeen de Developpement (FED), and a grant from the UNDP. The original IDA credit (74-SO, March 1965) was for US$6.2 million and the supplementary credit (123-SO, June 1968), to cover increased construction costs, was for US$2.3 million. The First Highway Project included: (i) construction of the Afgoi-Baidoa Road (about 216 km); (ii) purchase of highway maintenance, shop, and office equipment, and construction of an office building for the Civil Engineer- ing Department (CED) of the Ministry of Public Works (MPW); and (iii) technical assistance for: organizing, staffing, and operating the Highway Department; consultants' services for planning transport investments and undertaking feasibility studies of two roads; and training abroad. 1.04 Progress on the First Highway Project is generally satisfactory, but a number of problems have arisen, including: (i) frequent diversion of highway maintenance equipment to unrelated works; and (ii) continuous shortage of highway maintenance funds.  - 2 - The Association discussed these problems with the Government during credit negotiations. The Government agreed to use road maintenance equipment pri- marily for that purpose and to allocate So.Sh. 6.7 million in 1973, So.Sh. 7 million in 1974, and So.Sh 7.4 million in 1975 for highway maintenance, in line with recommendations of the consulting firm Renardet-Sauti (Italy) (para 3.07). One of the conditions of credit effectiveness is enactment by the Government of legislation to assure allocation of So.Sh. 6.4 uiillion to highway maintenance for the Somali fiscal year 1972. 1.05 The appraisal of the present project is based on economic and technical studies prepared by the consulting firms Grimble and Dorsch Consult and on the findings of an appraisal mission to Somalia in December 1970 of Messrs. R. Paraud (Engineer) and N. Kanaan (Economist). Mr. G. Mahoney (Engineer) assisted the mission and Mr. B. Kennedy (Engineer) helped to prepare the report. Editing was by Mrs. P. Valad. II. BACKGROUND A. General 2 2.01 Somalia, a country of about 640,000 km , is divided into two regions: the northern region (formerly British Somaliland) and the southern region (formerly Italian Somaliland). About 10% of the area is arable, 50% is suitable for grazing, and the rest is desert wasteland. 2.02 No complete census has ever been carried out. The population is estimated to be between 2.5 and 3 million, with perhaps 75% nomads. This sparse population is unevenly distributed, with the highest concentrations in the southern region around the capital, Mogadishu (with a population of 172,000), and in the basins of the Giuba and Scebeli Rivers. In the northern region, the main population concentrations are around Berbera-llargeisa-Tug Wajale and Berbera-Burao. The rural population is estimated to be growing at 2% p.a. and the urban population at 3% p.a. Per capita Gross National Product is estimated at US$60 equivalent. 2.03 Animal husbandry is the main occupation of the rural population, and livestock accounts for over half the total exports. Bananas, the only other major export product, account for about 30% of total exports during the past several years. Details of exports are given in Table 1. 2.04 Substantial transport demands exist only in the limited areas of economic development, mainly around the ports and the few important population centers. Because the distances between important centers are long, major extensions to connect the highway network around these centers are very difficult to justify economically. However, with financial assistance from the People's Republic of China, the Government is planning to construct a 1,045 km road between Belet Uen and Burao, linking the northern and central regions.  -3- B. The Transport Sector (a) General 2.05 Somalia's transport system is in the early stages of development. Animal transport still plays an important role in the movement of goods and people. Many areas are not accessible by motor vehicles for much of the year, and the country has no railroads. The air transport system is rudi- mentary, and there are only two (recently-completed) deepwater ports at Berbera and Kisimaio. The density of cargo and passenger flows in all modes is light. (b) Animal Transport 2.06 No data exist on freight carried by animals, but this transport method is still important. Camels, the main carriers in the plains area, are capable of carrying 100 kg loads for average distances of 30 km a day. Donkeys, used in the more rugged areas, can only carry small loads for relatively short distances. (c) Road Transport and Highways 2.07 Vehicle imports and entry into the trucking industry are not restricted and, with the recent rapid increase in the number of trucks, stiff competition exists. Trucking rates are not regulated, and competi- tion results in low prices to users. Legislation acceptable to the Association for controlling vehicle weights and dimensions was enacted in November 1971 (para. 3.13). 2.08 Details of the highway sector are given in Chapter III. (d) Air Transport 2.09 Somalia is beginning to develop its air transport system to con- nect scattere(I urban areas with Mogadishu, the country's only jet airport. Somali Airlines, operating three DC-3's and two Viscounts, has expanded its national movements. Domestic freight transport reached 321,000 kg and domestic passenger movements 18,000 in 1969. The average annual growth rate between 1965 and 1969 for freight was 34% and for passengers 19%. Table 2 shows movements by air transport. 2.10 International airlines have scheduled flights connecting Mogadishu with Europe, Asia, and North and East Africa. Between 1965 and 1969. inter- national freight traffic (166,000 kg in 1969) grew at an average annual rate of about 34% and passenger traffic (1l,000 people in 1969) at about 26% (Table 2). (e) Ports 2.11 Four ports handle practically all of Somalia's ocean transport: Berbera in the north on the Gulf of Aden, Mogadishu and Merca in the center, and Kisimaio in the south. Cargo handled in the main ports is shown in Table 3. In 1969, the total handled was 573,000 tons, and the average annual growth rate between  - 4 - 1966 and 1969 was about 8%. Ports capable of berthing ocean-going vessels are Berbera, which exports mostly animals, and Kisimalo, which exports bananas. Lighterage ports are Mogadishu, which imports most of the country's general cargo, and Merca, which exports bananas. 2.12 An IDA Credit (S5-SO, March 1969) of US$550,000 was made to finance consulting services for (i) preparation of detailed engineering for a new port of Mogadishu, and (ii) accounting and management assistance to the Somali Ports Authority. The proposed port construction project at Mogadishu was appraised by a Bank Group Mission in December 1971; the mission is currently preparing its report. C. Transport Planning and Coordination 2.13 Three Ministries are concerned with the transport sector: the Ministry of Public Works (MPW), through its Department of Civil Engineering (CED), is responsible for planning and constructing transport infrastructure and for highway maintenance; the Ministry of Communications and Transport, for vehicle registration and control; and the Ministry of Interior, for traffic control. No Government agency exists to oversee the functioning of the whole sector. While there is no need for an agency for inter-modal coordination, sectoral planning will eventually become more important as transport demand increases. 2.14 The 1971-73 Development Plan (published in July 1971) allocated to the Transport and Communications Sector about So.Sh. 353 million (US$54 million equivalent) or 35% of total planned investment expenditures in various sectors of So.Sh. 1,000 million (US$152 million equivalent). This allocation was apportioned as follows: Highways - So.Sh. 195 million (US$30 million equivalent) or 55%, Harbors and Airports - So.Sh. 98 million (US$15 million equivalent) or 28%, and Communications - So.Sh. 60 million (US$9 million equivalent) or 17%. The Transport and Communication Sector Plan generally followed the transport infrastructure Investment recommendations made by the consulting firm Grimble in its 1966 Transport Survey under the First Highway Project. However, it included expenditures of So.Sh. 95 mil- lion (US$14.4 million equivalent) for part of the 1,045 kni long Belet Uen- Burao Road, which was not among Grimble's recommendations (para. 2.04). To assist in planning transportation investments, the Government asked the Association to provide technical assistance for transport planning in the Second Highway Project. III. THE HIGIHWAY SECTOR A. The Network 3.01 The length of the highway network, about 16,000 km, has not sig- nificantly increased since 1965. Classified by surface, it includes about 900 km of bituminous surfaced roads, 1,000 km of gravel roads, and 14,100 km of earth roads. By function, the network consists of 4,700 km of primary roads, 2,500 km secondary, and 8,800 km feeders. Under the First Highway  -5- Project, an inventory of the primary road network was completed by the consulting firm Renardet-Sauti and the staff of the CED; an inventory of the remaining road network is proceeding. 3.02 About 15,300 vehicles were registered in 1970, of which about two-thirds were cars. The existing fleet may, however, be much less, because registrat:on is required only when the vehicle is imported and no record is kept when a vehicle goes out of service. Average annual fleet growth over the past 10 years has probably been about 6%. Road freight traffic and passenger transport, shown in Table 4, grew at an annual average rate of about 5% between 1965 and 1969. Gasoline and diesel fuel consumption, detailed in Table 5, increased by about 9% during the_same period. The difference between the two growth rates may be partially explained by increased fuel consumption in non-transport activities, but the data are poor and proper assessment of the divergence is not possible. Traffic volumes are very light, except in the vicinity of the main towns. B. Administration 3.03 The CED is mainly responsible for constructing and maintaining roads, but also is responsible for constructing ports and airports. Ports and airports are maintained by other Government organizations. The CED is composed of five division (Planning and Design, Construction, Maintenance, Materials, and Road Equipment) and eight regional road sections (Chart). 3.04 The consulting firm Renardet-Sauti was engaged in 1965 to carry out a 5-year program financed by the UNDP to assist in organizing, staffing, and operating the highway administration and to train Somali staff. The consultant's team included engineers, an economist, an architect, and experts in organization, law, budget, and finance. Despite the Government's chronic shortage of highway maintenance funds, considerable progress has been made on this program. However, further assistance in maintenance is needed, particularly for training in the use of the equipment provided under the First Highway Project. The consultant's contract has, therefore, been ex- tended by the UNDP for 3 years (until mid-1973). Some technical assistance probably will continue to be needed by the highway administration for several years; this matter will be kept under review and following a mid-term appraisal of the current UNDP project (due in March 1972), the need for further technical assistance will be assessed and the specific requirements, including finance, will be determined. 3.05 In 1968, Renardet-Sauti recommended a reorganization and expansion of CED's activities by increasing the central office staff from 10 to 39 and the field office staff from 121 to 181, and by adding 65 new positions in the Equipinent Division. However, as the result of a general reorganization of the Somali civil service, in August 1970 the Secretary of Public Works submitted new staffing proposals for the entire MPW (including the CED) to the Council of Secretaries for approval. The Council approved the proposals in December 1971. The proposals provided for 373 posts (excluding laborers) in the CED and allowed for a possible future expansion by increasing the staff recommendations of Renardet-Sauti by 88 posts. These 88 posts were to be filled mainly by skilled labor previously employed on a temporary basis.  -6- Of the 373 posts established, about 257 or 70% were filled by the end of December 1971 and the remaining posts will be filled as suitable Somali personnel beconie available over the coming years. 3.06 Under the First Hlighway Project, the UNDP financed a technical training program abroad for about 16 Somali engineers and technicians. This program has been successful, and 13 trainees have already been appointed to positions in the CED. With the balance from the original allocation, 10f more Somalis will be trained abroad. In addition, Renardet-Sauti has provided on-the-job-training for surveyors, mechanics, operators, and drivers, and this training is continuing under their extended contract (para. 3.04). C. Financing and Planning 3.07 Revenues from road users increased by 39% p.a. between 1964 and 1969, as shown in Table 6. These revenues came from import duties on vehicles, spare parts, gasoline, and diesel oil, and from vehicle registration fees. They were not earmarked for highway purposes, but went into general government revenues. Revenues from road users more than covered actual expenditures on administering and maintaining the highway system, shown in Table 7, and in future would be sufficient for expenditures even at the levels recommended by Renardet-Sauti as necessary for adequate maintenance. The Government's poor financial position and its attempt to balance the budget did not allow sufficient funds to be allocated for maintenance before 1970. During that year, the Government began to augment highway maintenance operations by introducing a "Roads Crash Program". The Mlinistry of Rural Development and Self Help Schemes provided about So.Sh. 700,000 to the NMIJ for this purpose, and the World Food Program providced food for the workers (para. 3.17). Maintenance allocations will increase between 1972 and 1975 because the Government has agreed to allocate and spend on highway maintenance sums in liniC with the recommendations of Renardet-Sauti (para. 1.04). Although the fiLnancial situation has improved, Somalia still can finance only a very smiall part of its total highway investment needs and for this reas;on thle proposed project will be financed 90%, by the Association and 10%o bv the ADB. 3.n8 Mlost construction work is financed by foreign loans or grants- only the construction of earth roads onl a very modest scale (about US$22,000 equtivalent p.a.) has been financed from the ordinary budget. Table 7 shows expenditures in 1965-70 for administration, nmaintenance, and construction. It is Lnot possible to establish trends or to be accurate in forecasting because expen(oitures have beenl and will continue to be dominated by tLhe availability of external loans or grants. 3.09 The Planning Commission of the Ministry of Planning is responsible for planning, but its staff is limited and data are scarce. For the transport sector, the Commission basically follows the transport infrastructure investment recotmiendations of the 1966 Transport Survey by Grimible. Ihe investments proposed in the aurvey were generally included in the 1971-73 Development Plan (para. 2.14). Grimble recommended construction of the six roads shown in Table 3, which include the high priority Ilargeisa-Berbera Road as well as the Ilargeisa-Borama Road for which a feasibility study and detailed engineering will be carried out under the Second Highway Project.  -7- 3.10 Collection of data for highway planning, started under the guidance of Renardet-Sauti (para. 3.04), has suffered from lack of staff and funds. Although it is recognized that the establishment of a satisfactory data col- lection system can only be a gradual process in Somalia, an assurance was received from the Government during credit negotiations that it will take appropriate measures to improve collection with the help of the consultants. D. Engineering 3.11 Because the CED's Planning and Design Division is still being organized and staffed, it can carry out design work only on a very limited scale. Designs are normally prepared by consultants engaged for each highway. 3.12 Geometric design standards have been established for primary roads. These are similar to the proposed standards for the Hargeisa-Berbera Road, shown in Table 9, and are acceptable. In due course, standards will have to be established for lower categories of roads. 3.13 Overloading of vehicles is not yet a major problem, but it may become one as the highway network is improved and truck capacities are increased. Under the First Highway Project, the Government agreed to enact and enforce legislation for adequate vehicle weight and dimension limitations. Late in 1968, the MPW prepared a draft law, which was acceptable to the Association; the Government enacted the law in November 1971. The Ministry of Interior will be responsible for enforcement. E. Construction 3.14 Major highway construction is carried out under unit price con- tracts awarded after international competitive bidding. Apart from a few small contractors capable of constructing minor drainage structures or providing transport, the local construction industry is practically nonexis- tent. All major works are carried out by foreign contractors (including one Italian contractor established in Mogadishu). Construction is usually super- vised by foreign consultants. Earth roads are constructed by departmental forces on a very modest scale (para. 3.08). Minor upgrading of existing roads is carried out by maintenance forces. F. Maintenance 3.15 Inadequate highway maintenance is a major problem. Late in 1965, Renardet-Sauti proposed a "Road Maintenance Program" for 1966-70, which provided for routine and deferred maintenance of asphalt and earth roads, reorganization of the district maintenance offices, and purchase of main- tenance and workshops equipment. Because of a shortage of funds as well as delays in arrival of the FED-finance equipment and in approval of CED's re- organization, the program was only partially carried out and the backlog of deferred maintenance has increased. Despite these problems, between 1965 and 1969 substantial progress was made, with the assistance of the consultants, in building up a maintenance organization.  - 8 - 3.16 Under the First tlighway Project, the Government introduced into its budget a new sub-head, "Road Maintenance Fund," to which enough funds were to be allocated for proper maintenance of the road network, as de- termined on the basis of the consultant's recommendations and approved by the Association. The Fund was established and although allocations have been less than recommended by the consulting firm Renardet-Sauti, they have been increased slightly from year to year (So.Sh. 2.2 million in 1965 to So.Sh. 3.6 million in 1969, Table 7). Hlowever, these amounts are still about 40% below the minimum maintenance needs established bv the consultants. During credit negotiations, agreement was reached with the Government on suitable arrangements for allocating adequate funds for highway maintenance in accordance with amounts recommended by the consultants for thie period January 1, 1972 to December 31, 1975. Enactment of legislation to assure allocation of So.Sh. 6.4 million to highway maintenance for the Somali fiscal year 1972 is a condition of credit effectiveness. 3.17 A "Roads Crash Program" for rehabilitation and maintenance was started in mid-1970 with funds provided to the MPW by the Ministry of Rural Development and Self-llelp Schemes (para. 3.07). The MP1l supervises the work carried out under the Program and also provides vehicles and fuel. About 500 volunteers are employed and receive food rations for themselves and their families from the tWorld Food Program. By December 1971, about 860 km of roads in the northern region had been rehabilitated or mainta[ned. Tthe Program has been successful and plans are underway to expand operations and increase the labor force to about 1,000 volunteers. 3.18 In 1967, 1968, and 1969, with financing provided by FED under the First Highway Project, maintenance and workshop equipment worth about US$1.4 million was purchased and distributed to the districts. Three main workshops have been constructed at l{argeisa, Mogadishu, and Kisimaio and operator training schools have been established. Highway maintenance equipment is frequently diverted to such projects as village improvements and public buildings. Although some of these projects may be economically and socially important, the diversion of equipment for works other than highway main- tenance must be limited to urgent development projects. During credit negotiations, the Government agreed to use highway maintenance equipment primarily for that purpose. IHowever, if any diversion should be necessary, the Government has agreed to inform the Association of the reason for the diversion, the amount of equipment involved, and the estimated duration. IV. THE PROJECT A. General 4.01 The proposed project consists of: (i) construction of a two-lane road between Ilargeisa and Berbera (about 158 km); (ii) construction supervision by consultants, including engineering services before contract award;  - 9 - (iii) a feasibility study of the Ilargeisa-Borama Road (about 140 km), including a spur (about 20 km) to Tug Wajale, and subsequent detailed engineering if technically and economically feasible; and (iv) technical assistance to the Ministry of Public Works for transportation planning. 4.02 The Hargeisa-Berbera Road has been selected by the Government in agreement with the Association as having high priority within the primary highway system (para. 3.09). Construction of this road will constitute about 26% of the proposed investment in highways under the 1971-73 Develop- ment Plan. B. Construction of the Hargeisa-Berbera Road 4.03 This is the major transport route in the northern region. It con- nects Hargeisa, the main city of the northern region, with the port of Berbera on the Gulf of Aden (para. 2.11). Access is now provided by a desert track; its surface is rough, alignment and drainage are poor, and dust is a miajor hazard to driving. 4.04 The new road will generally follow the existing track between Berbera and Dubato, but between Dubato and Ilargeisa a new 52 km alignment will be established. The proposed road will be 20 km shorter than the existing track. For 30 km from Hargeisa and for 30 km from Berbera, the terrain is fairly flat. The 100 km in between is rolling country, with a few stretches of rocky terrain. Suitable road building materials are available all along the road. Ilowever, boreholes and arrangements for impounding rain- water will be needed to provide water for construction and camp use. 4.05 The feasibility study and detailed engineering of the Hargeisa- Berbera Road were financed under the First Highway Project by the UNDP and by the UNDP/ADB, respectively, and carried out by consultants. The feasi- bility study was undertaken by Grimble and detailed engineering by Dorsch Consult. Bidding documents were issued to prequalified contractors in August 1971 and bids were received at the end of October 1971. Design standards, which are satisfactory, are shown in Table 9. Although initial traffic on the road will be relatively light (an Average Daily Traffic (ADT) of about 100 vehicles), a double bituminous surface treatment is proposed because the: (i) area crossed by the road is hot and dry and, compared to a paved road, a gravel surface would entail high maintenance expenditures; (ii) bituminous surface would minimize maintenance efforts and limit budget demands during the first years after construction; and (iii) dust from the gravel surface would make driving hazardous, particularly during periods of heavier traffic. Because rain is infrequent, creeks will be crossed by paved fords to save on construction costs. C. Feasihility Study and Detailed Engineering of the Hargeisa-Borama Road 4.06 The road between Hargeisa and Borama, including the spur to Tug Wajale on the Ethiopian border, was among the priority projects identified  - 10 - by the consulting firm Crimble in the 1966 Transport Survey (Table 8). Under the proposed project, a feasibility study of the road will be made and detailed engineering will be subsequently carried out if the road proves to be technically and economically sound. D. Technical Assistance for Transportation Planninia 4.07 A Transport Survey of existing facilities and proposed transport projects was undertaken in 1966 by the consulting firm Grimble, which assigned priorities based on economic considerations. During credit negotiations, the Government asked for review and undating of the Survey in the light of actual and planned transport sector activity since the Survey had been published. The Association and the ADB agreed to include US$60,000 in the project to cover the services of two transport experts working with the MPW for about 1 year to review and update the Survey and to assist the Government in formulating a transport plan. E. Cost Estimates and Financing 4.08 The cost of the project, including contingency allowances, is US$10.6 million, net of import duties and other taxes. A summary of project costs follows: Foreign So.Sh. (million) US$ (million) Exchange Item Local Foreign Total Local _oreign Total Component I. Construction of the Hargeisa- Berbera Road 15.20 36.00 51.20 2.35 5.45 7.80 70 II. Supervision of I 0.35 3.35 3.70 0.05 0.50 0.55 90 III. Feasibility Study and Detailed Engineering 0.45 3.85 4.30 0.05 0.60 0.65 90 IV. Technical Assist- ance in Transpor- tation Planning 0.05 0.35 0.40 0.01 0.05 0.06 90 V. Contingency Allowances: a) on I-18%(10% 1.55 3.65 5.20 0.23 0.55 0.78 70 Physical and 8% Price) 1.30 3.00 4.30 0.20 0.43 0.63 70 b) on II, III, and IV-10% Physical 0.10 0.80 0.90 0.01 0.12 0.13 90 Sub-total V 2.95 7.45 10.40 0.44 1.10 1.54 Total Project Costs 19.00 51.00 70.00 2.90 7.70 10.60 70  - 11 - 4.09 Because of the uncertainties involved in construction in Somalia and the Government's inability to participate in the project, bids for the construction work were sought before Board Presentation following Bank/IDA Guidelines to confirm the economic feasibility of the project and the adequacy of the financing plan. The lowest bid received, So.Sh. 51.16 million, was So.Sh. 500,000 higher than the appraisal estimate of So.Sh. 50.70 million, and is acceptable. 4.10 Contingency allowances totalling 18% are included for the con- struction element of the project. For possible quantity increases, 10% is allowed and for price escalation 8%. The latter represents an average increase of 5% p.a. for a 3 year period. The rates for local and foreign cost increases are assumed to be the same. 4.11 The cost of consulting services for construction supervision is based on financial proposals received and includes US$20,000 equivalent of retroactive financing for engineering services to assist the Government in prequalifying contractors, issuing bid documents, and evaluating bids. The cost of consulting services to prepare the feasibility study of the Hlargeisa-Borama Road and, if economically justified, the detailed engineer- ing are estimated on the basis of similar works carried out under the First IHighway Project. The cost of consulting services for technical assistance in transport planning is based on the cost of providing two transport experts for a 1 year period. 4.12 The foreign exchange component is estimated at 70% for the construction works and 90% for the consulting services. The Association, ADB, and Government have agreed that the Association will finance about 90% of all project costs and the ADB about 10%. 4.13 The project will be financed by an IDA credit of US$9.6 million (including local expenditures of US$2.6 million equivalent) and an ADB loan of US$1 million in accordance with the following financial plan: Item IDA ADB Total (US$ million) I. Construction 7.05 0.75 7.80 II. Supervision of I 0.50 0.05 0.55 III. Feasibilitv Studv and Detailedt EnFtAneering 0.60 0.05 0.65 IV. Technical Assistance 0.05 0.01 0.06 V. Contingencv Allowances 1.40 0.14 1.54 Total 9.60 1.00 0n.60  - 12 - 4.14 Details of the financial arrangements were agreed with thc ADB during credit negotiations and were confirmed on the basis of bid prices received (para. 4.09). Two conditions of credit effectiveness are: (i) satisfactory conclusion of a Joint Financing Agreement between the Associa- tion, ADB, and Government and fulfillment of all conditions precedent to the effectiveness of the Agreement or right to make withdrawals tlhercunder, and (ii) fulfillment of all conditions precedent to the first dishursement as provided for in the ADB Loan Agreement. During credit negotiations, the Association, ADB, and Government agreed that the Association will represent the ADB in all matters related to project execution; this agreement was confirmed in a Letter of Understanding between the Association and the ADB. F. Execution 4.15 Execution of the project will be the responsibilty of the CEI) of the MMW. International competitive bidding procedures were followed for the construction works, as agreed with the Government. A construction contract will not be awqarded until after the credit has been signe(d. Con- struction will be carried out under a single contract. Work is expected to start by the end of the first calendar quarter of 1972 and to be completed by the end of the third calendar quarter of 1974. 4.16 Construction supervision will be carried out by the consulting firm Dorsch Consult, which undertook the feasibility study and detailed engineering; Dorsch Consult will be engaged under terms and conditions satisfactory to the Association. Since assistance of consultants was also needed to prequa- lify contractors and analyze bids for construction work, retroactive financing of about $20,000 equivalent is proposed to cover the foreign cost of this assistance from April 1, 1971. 4.17 Under the First Highway Project, a Project Revolving Fund established in the National Bank of Somalia was successfully operated for contract payments. Establishment of a similar Fund for the Second flighway Project was discussed and agreed during credit negotiations, and is a condition of credit effectiveness. 4.18 The Bank's economic mission to Somalia in I4ay/June 1970 concluded that unemployment exists in Somalia, but data on the extent, location, and structure were not available. Unemployment is mostly in the southern part of the country where 75% of the population lives, and is concentrated in the urban areas of Mogadishu and Kisimaio. The Governnent has recently initiated "crash programs," organized on para-military lines, mainly to create employment and increase production. However, it is much too early to judge the effects of these programs. In spite of unemployment in the Mfogadishu area, the contractor constructing the IDA-financed Afgoi-Baidoa Road immediately to the west has found it difficult to hire suitable and dependable labor. 4.19 The use of labor-intensive construction methods for the project road was considered and found unsuitable. The northern region (i.e., the project area) has some unemployment, but with the "Roads Crash Program" already going on, it would not be possible to mobilize and retain a labor  - 13 - force of the size required for labor-intensive construction of the project road as well. The use of unemployed urban labor from the soutlhern region on the project works would pose a very difficult and socially undesirable problem of transporting people some 1,500 km over poor roads (or over even greater distances by sea). While labor-intensive methods are thus not contemplated, a substantial amount of labor would still be employed on the project (mainly on drainage, earthworks, and some surfacing works). 4.20 Except for a few farms, the proposed road will cross public land. No difficulties or delays under existing laws are foreseen in acquiring the small amount still held by private owners. G. Disbursements 4.21 ])isbursements from the Credit Account would be on the basis of 90% of the cost of construction and consulting services. Based on this and on the schedule of project execution outlined in para. 4.15, an Estimated Schedule of Disbursements was prepared as shown in Annex B. All amounts requested for disbursement will be certified as being net of import duties and other taxes. Surplus funds remaining in the Credit Account on completion of the project will be cancelled. V. ECONOMIC EVALUATION A. General 5.01 The liargeisa-Berbera Road project was identified by the 1966 Transport Survey as one of the most important road links in the country (para. 3.09); the economic case for construction was made in a subsequent feasibility study (para. 4.05). 2 5.02 The influence area of the road, about 50,000 km , extends from Berbera, on the coast, to Borama and Tug Wajale, on the Ethiopian border. Thlis area can be divided into two parts: the direct and the indirect influence area. The road passes through the direct area, from Hargeisa to Berbera, and serves the indirect area, west of liargeisa. According to preliminary estimates, about 230,000 ha of potentially usable land is available in the entire influence area for both grazing and agriculture, but only about 5% is now cultivated. The best agricultural and grazing lands are in the indirect influence area around Tug Wajale and Borama, and around Hargeisa, where the project road starts. The rest of the direct influence area has little potential. 5.03 The most important economic activity in the influence area is raising livestock, Somalia's main export. Of total animal exports for 1968, valued at So.Sh. 125 million, 66% moved on the project road; Table 10 gives details of revenue from using the road. Other important economic activities  - 14 - are the growing of sorghum, wheat, fruit, and vegetables, which are consumed in the region's urban areas (primarily 1Iargeisa and Berbera). Water short- age handicaps agriculture throughout the northern region. 5.04 Agricultural products and animals are purchased in gathering centers, such as Borama and Tug Wajale, and brought to liargeisi. Most agricultural products are consumed in Hargeisa and the rest are shipped to Berbera on the project road. Animals are held at llargeisa until an unschedule(d tramp ship calls at Berbera, and then are rushed to Berbera. Goats and sheep (most animals exported) travel by truck from Hargeisa to Berbera (178 km), a trip averaging 6 hours. Even under good conditions animals can lose weight in travel, but under the present poor road conditions they suffer severely from dehydration and loss of weight; in many cases, they suffer brokeni limbs or die. Cattle are driven on foot to Berbera because only light trucks can use the present track and the trucks are not suited to cattle transport. The journey takes 4 to 5 days through an area with little water and inferior pasture, and weight loss is tremendous. B. Benefits from the Project 5.05 ADT on the present Hargeisa-Berbera track is estimated at 100 vehicles (20% landrovers and the rest light trucks). This average varies a great deal, and as many as 200-300 trucks per day have been observed when a cattle ship calls at Berbera. Average annual traffic growth is estimated at 5% for the 10 years after the new road is opened and 4% during the following 10 years. No diverted traffic is expected. 5.06 Quantifiable benefits attributed to the project are derived from two sources: road user savings as well as decreased weight loss and death of livestock during transport. 5.07 Road user savings, about two-thirds of the project's quantifiable benefits, stem from the difference in operating costs on the present track and on the proposed paved road, as well as from reduced distance. An aver- age decrease of about 50% in unit operating costs will result from con- struction, as shown in Table 11. In adddition, travel distance will be shortened by 20 km. 5.08 About one-third of the quantifiable benefits from the project are derived from avoiding loss of weight and death of livestock during transport on the project road. The consultants estimate that road irprovements and the resulting increase in efficiency of animal transport will lead to a savings of 3% of the value of the animals. The new road will provide a safer ride and will cut truck travel time by more than half. Large trucks will be able to use the new road to move cattle in 2-1/2 hours instead of 4-5 days as at present. 5.09 Other non-quantifiable benefits that are important to the economy can be attributed to the project. For example, Saudi Arabia, the main im- porter of Somali animals, recently notified the Somalis that if animals continue to arrive in such poor condition they will turn to other sources  - 15 - of supply. The loss of even a portion of this market could deal a sharp blow to the Somali economy; reconstruction and paving of the project road should greatly improve Somalia's ability to satisfy this market. 5.10 For the project road, the estimated net benefits discounted over a 20-year economic life of the road give an Internal Economic Return (IER) of 19%. A sensitivity analysis, shown in Table 12, indicates that reasonable variations of the two major inputs (traffic growth and benefits resulting from decreased animal transport cost) have a limited impact on the value of the IER. There is, therefore little risk that the IER will fall below 15%. C. Feasibility Study of the Hargeisa-Borama Road 5.11 The proposed study area, which includes the indirect influence zone of the present project, has potential for cattle raising and agricultural development, and is linked physically and economically to the present road project. It is a logical extension of the Hargeisa-Berbera project because it serves the most fertile areas in the northern region and completes the route from the coast to the Ethiopian border. In addition, it could become the most efficient import and export route of a 50,000 km2 area in Ogaden province, Ethiopia, where a number of agricultural and animal raising programs are being planned. D. Technical Assistance for Transportation Planning 5.12 The technical assistance to the Government for reviewing and up- dating the 1966 Transport Survey should help it to formulate a realistic transport development plan in line with projected demand. The plan should take into consideration development carried out or planned by the Government since 1966, as well as plans for development in other sectors. VI. AGREEMENTS REACIED AND RECOMNENDATION 6.01 During credit negotiations, the Government agreed that it will take appropriate measures to: improve collection of highway planning data; enact and enforce legislation for adequate vehicle weight and dimension limitations; and allocate adequate funds for highway maintenance. 6.02 The conditions of effectiveness of the proposed credit are the: (i) enactment of legislation to assure allocation of So.Sh. 6.4 million to highway maintenance for the Somali fiscal year 1972; (ii) establishment of a Project Revolving Fund for contract payments;  - 16 - (iii) conclusion of a Joint Financing Agreement between the Association, ADB, and Government and fulfillment of conditions precedent to effectiveness of the Agreement or right to make withdrawals thereunder; and (iv) fulfillment of all conditions precedent to the first disbursement as provided for in the ADB Loan Agreement. 6.03 Subject to the foregoing, the project provides a suitable basis for an IDA credit of US$9.6 million to the Government of Somalia on the usual terms.  Table 1 APPRAISAL OF A SECOND HIGHWAY PROJECT SOMALIA Exprts, _965- 70 (So .Sh . million ) Commodities Animals and Bananas Animal Products Others Total Year Amount o To Amount , or Total Amount % of Total Amount % 1965 63 33 98 51 31 16 192 100 1966 79 37 108 50 27 13 214 100 1967 68 34 109 55 22 11 199 100 1968 60 28 139 67 11 5 212 100 1969 56 2) 152 66 2) 10 232 100 1970 62 28 141 63 21 9 224 100 Source: Somali National Bank Bulletin, January 1972 January 5, 1972  Tabler 2 APPRAISAL OF A SECOND HIGHWAY PROJECT SCMALIA A;r Freight and Passenger Transport, 1965-69 Air Transport Frei.ght Passnengers (thousand kg) (thou-;and) Year Domestic International Total Domestic Interrat;ional ToLal 196', 101 52 153 9 13 1966 139 71 2lO 11 16 1967 190 98 288 13 6 19 1968 276 142 418 15 7 2? 1969 321 166 487 18 10 28 Annual Average Growth Rate (%) 1965-69 33.5 33.5 33.5 19.0 25 21.2 Source: Statistical Section, Somali Airlines, December 1970 January 5, 1972  Table 3 APPRAISAL OF A SECOND HIGHWAY PROJECT SOMAIZA Cargo Handled in Main Ports, 1966-69 (thoiusand m tons) Year Loaded Unloaded Total Cargo Moved 1966 242 209 451 1967 258 210 468 1968 283 220 503 1969 312 261 573 Average Annual Growth Rate % 1966-69 8.8 7.5 8.3 Source: Ministry of Planning, December 1970 January 5, 1972  Table I APPRAISAL OF A SECOND HIGHTWAY PROJECT SOMALTA Highway Freight and Passenger Transport, 1965-69 (W. lli.-ons ) Highway Transport Freight Pas,ners Year Tons Ton/km N umnber Pa:1ss/krfl 1965 5.5 345.8 8.7 56h[) 1966 5.8 362.3 9.1 591.4 1967 6.0 378.7 9.6 618.3 1968 6.3 395.2 10.0 6h5.i 1969 6.6 1411.6 10.4 672.0 Average Annuqal Growth Rate ( %) 1965-69 ly. 7 4.5 4.0/ 4 .5 Source: Civil Engineering Department, Ministry of Public Works, December 1970 Januu 5? 1972  Table 5 APPRAISAL OF A SECOND HIGHWAY PROJECT SOMALIA Fuel Consumption, 1966-69 (million tons) Yer!i. Gasoline Diesel .,6.o 21.9 196',7 i4.3 23.6 ]C P)C 1L.'( 27. 5 l90( 20.7 31. ' Annul 1 Averare Growth Ra te (CO 1966-69 9.0 9.5 ,ource: .tat,istical Depirtznent, Ministry of Planning, December 1970 January 5, 1972  APPRAISAL OF A SECOND HIGHWAY PROJECT SOMALIA Road User Revenues, 1966-69 (So.Sh. million) Source of Revenue Import Dity- Taxes - Gasoline, Vehicle Rertistral,ion Year Vehicles (and Spare Parts Diesel, and Iabricantsl/ and Li er Tot,i]-l 1966 1.8 I4.0 1.7 7. 1967 3.9 5.0 i3 1(?.7 1968 5. ').2 1?. 19690 io.5 7.5 2.1 ?0.1 Ave rage Annual Increase (.X) 1966-69 80.0 23.2 7.3 39. 1 Estimated by Mission. Source: Ministry of Finance, December 1970 January 5, 1972  Table 7 APPRAISAL OF A SECOIMrD HIGHWAY PROJECT SOMALTA TT{ihwa xoenditur?s 1965-70 (So.Sh. million) ______~~ ~ __ __ oenditure________s__ Thar Aclnl-i ni tratJion Maintenance Constructi al Eqlipment y7 - 0iirrent hirchases l olt t of T of