Malawi - Second Highway Project

FILE COPY Report No. 575-MAI Appraisal of the Second Highway Project Malawi November 15, 1974 Regional Projects Department Eastern Africa Regional Office Not for Public Use Documnent of the tntemational Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization.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.  CURRENCY UIVALENTS ' Currency Unit = Malawi Kuacha (MK) US$ 1 = IMK 0.83 MK I = US$ 1.20 MK 1,000 = US$ 1,200 HK 1,000,000 = US$ 1,200,000 1J The exchange rate of the Halawi Kavacha is determined daily by the Malawi Central Bank to equal a weighted average of the value of the Pound Sterling and the US dollar. The above rates reflect the situation at the time of appraisal in March 1974. WEIGHTS AND MEASURES 1 foot (ft) = 0.305 meters (m) 1 square foot (sq ft) = 0.093 square meters (m2) 1 mile (mi) = 1.609 kilometers (km) 1 square mile (sq mi) = 2.590 square kilometers (k2) 1 acre = 0.405 hectares (ha) 1 ton (t) = 0.907 metric tons (m ton) GLOSSARY OF ABBSEVIA.TIO EIU - Economist Intelligence Unit GDP - Gross domestic product MTC - Ministry of Transport and Communications MWS - Ministry of Works and Supplies ODA - Overseas Development Administration SWXP - Scott Wilson Kirkpatrick and Partners USAID - United States Agency for International Development vpd - vehicles per day GOVERNMENT OF MAIAWI FISCAL YEAR April 1 - March 31  MALAWI APPRAISAI. OF THE SECOND HIGHWAY PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ......................... i 1. INTRODUCTION .......................... 1 2. THE TRANSPORT SECTOR .......................... 1 A. Economic Setting ...............1., .......... 1 B. The Transport System ...... ................. 9 C. Transport Policy and Coordination .... ...... 4 3. HIGHWAYS ...................... 5 A. Administration ............................. 5 B. Characteristics and Growth of Road Traffic.. 6 C. Planning and Financing . .................... 7 D. Engineering .................. 7 E. Construction ...............I....,., 7 F. Maintenance .................I............ 8 4. THE PROJECT ........................8...... A. Description ............................... 8 - Road Improvement ...... ........... 9 - District Roads Pilot Program . ............ 9 B. Execution .... I............... 10 C. Cost Estimates .................. 11 D. Financing and Disbursements ...... 5. ECONOMIC EVALUATION ........... I ...... 12 6. AGREEMENTS REACHED AND RECOMMENDATION ,. 14 This report was prepared by Messrs. K.G. Clare (ecoon1aist), P. Ludwig (engineer), and Miss J. Murphy (editor).  TABLE OF CONTENTS (continued) TABLES: 1. Highway Network 2. .Vehicle Fleet 3. Current and Planned Road Projects 4. Annual Highway Expendit:ures 5. Road Design Standards Adopted by the MWS 6. Design Standards for the Lilongwe-Kasungu Road 7. Estimated Schedule of Disbursements 8. Projected Average Daily Traffic on Project Road 9. Vehicle Operating Costs, by Type of Road 10. Lilongwe-Kasungu Road: Economic Costs and Benefits CHART: Organization of the Ministry of Works and Supplies (8983) MAP: Malawi - Transportatiorn. Network (IBRD 11135)  MALAWI APPRAISAL OF THE SECOND HIGHWAY PROJECT SUMMARY AND CONCLUSIONS i. The present road network in Malawi provides a widely scattered rural population with vital access to markets, educational and health facili- ties and other Government services. Most of the road system, however, consists of earth roads which in many cases are impassable during the rainy season. Both road improvements and better maintenance are essential to enhance the reliability of road transport and lower transport costs for agri- cultural produce. ii. The Lilongwe-Kasungu road (about 70 miles) is an important link in the national highway system, connecting the new national capital with the administrative headquarters and marketing center of the Kasungu District to the north. It traverses one of the principal agricultural areas of the country where several major agricultural development schemes are underway, assisted in part by the Association. There is no practical alternative means of transport in the area served by this road; its poor condition at present, however, results in high transport costs which are an impediment to economic growth. The purpose of the proposed project is to reduce trans- port costs by improving the road to a two-lane paved standard. The necessary feasibility and engineering studies were financed by the United Nations Development Programme with the Bank as executing agency. iii. The project comprises (a) improvement of the Lilongwe-Kasungu road including a bypass around an industrial area and reconstruction of the Lingadzi Bridge in Lilongwe, and (b) a pilot program for improving the main- tenance of district roads, including provision of equipment and technical assistance to a selected district and planning for extending the program. The total cost of the project is estimated at US$12.50 million, with a foreign exchange component of US$7.50 million (60%). The IDA credit of US$10.00 million will cover all of the foreign costs and US$2.50 million of the local costs, or 80% of the total. iv. The Roads Department of the Ministry of Works and Supplies will be responsible for the execution of the project; consultants will provide assistance to the Department for supervision of construction. Award of con- struction contracts will be based on international competitive bidding in accordance with Bank/IDA guidelines. Two years will be required for construc- tion. The small amount of maintenance equipment (US$36,000) will be procured locally under normal Government procedures. v. Improvement of the Lilongwe-Kasungu road will result in significant savings in vehicle operating costs and road maintenance costs. The project is well justified, yielding an overall economic return of 14%. vi. The project is suitable for an IDA credit of US$10.00 million to the Government of Malawi.   MALAWI APPRAISAL OF A SECOND HIGHWAY PROJECT 1. INTRODUCTION 1.01 The proposed highway improvement project has evolved from economic feasibility and engineering studies financed by the United Nations Develop- ment Programme, with the Bank as executing agency. In 1972-73, the British consultants, Scott Wilson Kirkpatrick and Partners (SWKP) in association with the Economist Intelligence Unit (EIU) carried out feasibility studies for two roads radiating from Lilongwe: one to the Zambia border via Mchinji and the second to Mzimba via Kasungu. Following the feasibility studies, the Government accepted an offer from the United States Agency for International Development (USAID) to finance both engineering and construction of the Lilongwe-Zambia border road and American consultants were subsequently engaged to complete its engineering. With regard to the Mzimba road, the feasibility studies indicated that improvement of the Lilongwe-Kasungu section would be economically justified, and SWKP completed detailed engineering of this section in early 1974. The Government has asked the Association to help finance its construction as well as, at the recommendation of the Association, a pilot program for the maintenance of district roads for which no suitable organization exists; together these make up the proposed project. 1.02 The Bank Group has been Lavolved in the transport sector of Malawi since 1966 when Credit S2-MAI was made to help finance detailed engineering of the Zomba-Lilongwe road (180 miles). This was followed in 1968 by Credit 112-MAI of US$11.5 million for the reconstruction and bituminous paving of that road, completed satisfactorily in 1972. In addition, agricultural projects in the lower Shire Valley and the Lilongwe area have included con- struction of about 1,300 miles of crop extraction roads, while t'ne Karonga Rural Development Project includes port improvements at Chilumba and Chipoka on Lake Malawi as well as procurement of a self-propelled barge for the lake service. 1.03 This report is based on the above-mentioned studies and on the findings of an appraisal mission to Malawi in March 1974, comprising Messrs. K.G. Clare (economist) and P. Ludwig (engineer). The report was edited by Miss J. Murphy. 2. THE TRANSPORT SECTOR A. Economic Setting 2.01 Malawi is a landlocked country in central southeastern Africa on the western shore of Lake Malawi. The country is divided into three admin- istrative regions and, though relatively small in land area (37,000 sq mi), is quite elongated, presenting problems for economic and political integration.  - 2 - The terrain consists largely of a plateau about 4,500 feet high, with mountains in the north rising to 3,000 feet and the Shire Valley in the extreme south, only about 300 feet above sea level. 2.02 The population, increasing at an annual rate of 2.5%, totals about 4.3 million, most of whom live in rural areas. The average population density is 127 per sq mi, but exceeds 260 per sq mi in the most productive agricultural areas of the Southern and Central Regions. The Southern Region is the most economically active part of the country and Blantyre is the principal commercial center. To stimulate development of th1e Central and Northern Regions, Lilongwe is being developed as a new national capital and many government departments have already been relocated there from the old capital of Zomba. 2.03 The major economic activity is agriculture and, because or 1imita- tions in other resources, Malawi'3 exports are almost entirely agricultural (95%). The principal export prodicts are tea, tobacco, groundnuts and cotton. Gross domestic product (3KDP), at constant market prices, increased over the period 1964-73 by an average of 8" per year. Per capita GDP is estimated at US$104 and Malawi is thus classified as one of the "least developed" countries of the world. B. The Transport System 2.04 The domestic transport ;ystem comprises about 6,750 miles of road, about 440 miles of railway, shippLng on Lake Malawi and regular air services to nine airports and airfields. hie main transport facilities are fairly well developed in the southern ia.Lf of the courntry where economic activity is greatest, but many rural areas, and particularly most of the northern half of the country, do not have reliable all-weather connections with administra- tive and market centers. For internal trade, road transport predominates while most export and import traf'ic is carried by the railway, which connects with Indian Ocean ports ria rail lines through neighboring Mozambique. Highways 2.05 Some 774 miles (11%) of tne approximately 6,750 miles of roads are paved and an additional 315 miles (5%) are engineered gravel standard; the rest are earthn roads. Road densil:y, amounting to 180 miles per 1,000 sq mi or 1.4 miles per 1,000 inhabitants, is about average compared to other coun- tries at a similar stage of development; the extremely poor quiality of most of the network results, however, in high transport costs. Thiough data are scarce, the Association estimates that road transport accounted for some 270 million ton-miles in 1972 or almost two-thirds of total freight traffic in the country. Details concernirg highways and thl-eir administration are given in Chapter 3.  -3- Railways 2.06 The main railway line extends from Salima in the Central Region, through Blantyre, to the extreme southern border (276 mi) where it connects with the Mozambique line to the port of Beira. A recently completed branch line (63 mi) offers an alternative route to the sea, extending eastward from Nkaya and connecting with the Mozambique line to the port of Nacala on the Indian Ocean. An extension westward from Salima to Lilongwe is planned, financing for which has recently been obtained from the Canadian Government which is also helping to finance rehabilitation of the older, main line. 2.07 In 1972, the railway carried about 1.1 million tons of freight and about 990,000 passengers. Despite the loss of some traffic due to increasing road competition, rail traffic, in terms of ton-miles, has grown at an average of more than 12% annually since 1964, largely because of increasing import- export traffic. In 1972, the railway accounted for about 136.1 million ton-miles or almost one-third of total freight transport, with imports and exports accounting for one-half to two-thirds of the total and over 70% of rail revenue. Lake Transport 2.08 Freight and passenger transport on Lake Malawi is provided by Lake Service Limited, a subsidiary of Malawi Railways. Although traffic volumes have been relatively light, amounting to only an estimated 28,000 tons of freight and some 105,700 passengers in 1972, lake transport provides an important alternative means of transport for the remote northern areas of the country. At present about three-quarters of the traffic is northbound, originating at Chipoka which is served by the railway, but this pattern will change as the impact of ongoing development projects in the north is felt, notably the Karonga Rural Development Project being financed by IDA Credit 282-MAI. In addition, lake transport will increase sharply if a proposed pulp mill at Chinteche in the Northern Region is developed in connection with the Viphya timber exploitation scheme for which an IDA credit of US$2 million has recently been made to determine the infrastructure needs. Air Transport 2.09 Air Malawi, a Government-owned airline, provides domestic service to nine airports within the country as well as to several neighboring countries. Only the airport at Chileka, near Blantyre, can handle long-range jet aircraft; it serves as the country's international airport and is also the most important domestically because of its proximity to commercial and governmental centers. Some 224,200 passengers and 2,200 tons of freight were handled there in 1972. Following a recent feasibility study, the Government has decided to develop a second international airport at Lilongwe for which it is seeking financing.  - 4 - C. Transport Policy and Coordination 2.10 Malawi's present transport policy has three broad aims: (i) to improve the administrative, social and economic integration of the country by linking all three regions withi reliable all-weather connections; (ii) to encourage agricultural development by improving access to rural areas; and (iii) to assure efficient and reLiable access to tlhe sea for the transport of exports and imports. To theste ends, the Government is undertaking an extensive transport development program: numerous road studies are in progress and, as stated above, investments are planned or underway in rail, lake and air transport. The Government's "Statement of Development Policies 1971-1980" fixes prospective investment in transport at about US$132 nillion equivalent or about 30% of total public investment projected for the period. 2.11 Coordination of transport planning is the responsibility of the Economic Planning Division of the Office of the President and Cabinet after review of proposals put forward '.y the several ministries concerned; most importantly, the Ministry of Works and Supplies (MWS) for roads and the Ministry of Transport and Communications (MTC) for all other modes. In practice, such coordination has been lacking, however, because of limited staff within the Economic Planning Division, and development of each mode has proceeded almost independently of the others. While modal development has so far tended to be complementary rather than competitive, several investments about to be undertaken strongly suggest the need for an adequate analysis of the trade-offs between competing modes; i.e., extension of tile railway to Lilongwe and the construction of a lake coastal road. Suchi analy- sis nay be possible for future planning as the Economic Planning Division has recently employed a transport economist with experience in tilis field. Also, a U.K.-financed consulta.t is undertaking a one-ycar transport planning study for the Division aimed al assessing the development priorities in tile sector for the period 1975-1985. 2.12 The Government exercises considerable control over the transport sector through ownership of major carriers; i.e., Air Malawi and .Ialawi Railways, including the latter's two subsidiaries: Lake Service Limited which handles nearly all transport on Lake Malawi and Road Motor Services Limited, a large trucking company. The Government-owned entities are under the jurisdiction of the MTC which is also responsible fcr regulating private carriers, mainly those in road transport. These regulations are not severe as entry into the road transport industry is relatively unrestricted; while permits from the I'UTC are required for either hauling one's own goods or providing for-hire service, applizants need only demonstrate financial responsibility and nominal demand. In practice, permits are issued freely and there are numerous small privite truckers. 2.13 Transport rates for all modes are fixed by the MTC. While no major distortions appear to exist at present, there are indlications that distortions may appear as competio-iori among modes incre:ases and the situation slhould be watched. For example, Whe railway hlas been reluctant to raise its  -5- rates in the face of increasing road competition and certain commodities, notably agricultural products, do not appear to be paying their full cost. 3. HIGHWAYS A. Administration (see Chart) 3.01 The 6,750 mile road network (Table 1) is classified as follows: 1,920 miles of main road connecting principal cities, 1,500 miles of secon- dary roads linking main roads and smaller centers, 3,130 miles of district roads serving as farm-to-market or feeder routes, and 200 miles of roads with various other designations serving particular towns or estates. In addition, there are several thousand miles of unclassified earth tracks for which no organization bears responsibility. 3.02 The Roads Department of the MWS has responsibility for planning, construction and maintenance of all classified roads except those designated as district roads whose maintenance is the responsibility of the District Councils. Divisional offices in each of the three regions are directly responsible for field operations while planning and overall supervision are handled by the headquarters staff, located at Lilongwe. Equipment is rented from the tIWS's Plant and Vehicle Hire Organization which has workshops in each of the regions, including a central workshop in Blantyre for major re- pairs. The Ministry's Design Department has responsibility for the engineer- ing of roads and bridges as well as the design of water supply installations. 3.03 M5any of the senior staff in the MWS, including most engineers, are expatriate civil servants provided through an aid program of the British Overseas Development Administration under 2 to 2-1/2 year contracts. Of the 55 engineering posts, 37 are filled, only six of them by Malawian engineers. The Roads Department has only seven engineers at headquarters, all of them expatriates. Notwithstanding the vacancies and discontinuity of service caused by the short contract periods, the performance of the MWS has been good and its functional organization appears sound. The Government has an active program for selecting, educating and training nationals for senior technical positions, but it has so far yielded few qualified personnel, largely because of the high cost and long periods of time required for professional training which has had to be undertaken abroad. Training for senior positions in the administration is being provided under bilateral aid, mainly ODA, and fellowships under the UNDP grant which financed preparation of this project. Moreover, the Malawi Polytechnic is developing its capability in this area, and the need to send engineers abroad for training will gradually diminish. Considerable progress has been made in training lower echelon personnel such as road supervisors, foremen, equipment operators and me- chanics. 3.04 Road use is regulated by the W.C under laws which cover such matters as limits on vehicle weights and dimensions, vehicle and driving  _ ~5 _ licenses, vehicle inspection, speed limits and weight control. Vehicle dimensions and weight regulations are generally adequate, but enforcement, which is the responsibility of the national police, has been lax, probably because the potential for abuse is presently minimal as the vast majority of trucks are of very small capacity (para. 3.05). While there have been no serious consequences so far, there is a trend to somewhat larger vehicles, and during negotiations assurances were obtained from the Government that vehicle weight and size regulations consistent with the structural and geo- metric design of roads will be adequately enforced. B. Characteristics and Growth of Road Traffic 3.05 The composition and growth of the vehicle fleet is shown in Table 2. In 1973, there were an estimated 10,850 automobiles, 8,650 goods vehicles and 280 buses, with the vehicle fleet as a whole having grown at an average of 6.3% annually since 1967. Most goods vehicles are small trucks and vans of less than 3-ton capacity, and only 3% of the privately-owned fleet is more than 10-ton capacity. Nearly one-third of the commercial vehicle fleet is operated by United Transport, a private company, and by Road Motor Services Limited, a subsidiary of Malawi Railways. There are, however, many small operators, about 60% of whom have only one truck. 3.06 Road users contribute to Government revenue through taxes and duties on fuel, lubricants, vehicles and spare parts and through licenses and registration fees. The duty on gasoline amounts to US$0.25/IMg and on diesel fuel to US$0.11/IMg while duties on vehicles range from 17.5% to 45% depending on the vehicle size and country of origin. On all imports, a surtax of 12% of the value plus duty is also charged. No specific data are available on total revenues collected from road users but the rates charged are similar to those of other developing countries and, as elsewhere, road users appear to be making a substantial contribution to Government revenues. However, the data available do not permit a comparison with actual expenditures on roads. 3.07 Consultants have conducted traffic counts on roads proposed for major improvements, but traffic counts have not been made on a systematic basis and consequently little is known about road traffic trends in the coun- try. However, while the growth rate of road traffic in recent years is not known directly, data on fuel imports over the past decade indicate that traf- fic is growing at about 7-9% annually. The Government has indicated its intention to initiate a program of periodic traffic counts on selective roads and thus the outlook is that better traffic data will be forthcoming in the near future. During negotiations, the Association received assurances that such traffic data will be collected regularly so that properly planned road development can take place.  7- C. Planning and Financing 3.08 Each year the MWS submits proposals for highway improvements to the Office of the President and Cabinet, whose Development Division is responsible for preparing a rolling three-year development program after analysis by the Office's Economic Planning Division whose capacity in this regard, as mentioned above, has recently been strengthened. A summary of present and current road projects is presented in Table 3. 3.09 Highway expenditures (Table 4) are financed from the general budget or, for new construction, from the development account which is largely made up of grants and credits from bilateral and multilateral aid programs. Expenditures on construction have averaged about US$6.4 million equivalent annually over the past four years. Recurrent highway expenditures have grown considerably in recent years (from about US$990,000 in 1967 to some US$2.6 million in 1974), but remain far short of actual needs (para. 3.14). D. Engineering 3.10 Some preliminary investigations and road and bridge designs are carried out by the MWS's well-staffed Design Department, consisting of some 66 engineers, technicians and surveyors, and a well-equipped laboratory for materials and soils testing. For major road projects, however, engineering studies are done by consultants. The design standards adopted by the MWS (Table 5) are appropriate for the country's topographic and traffic conditions. E. Construction 3.11 In recent years, the Roads Department has undertaken several road construction projects (about US$2.5 million equivalent annually) using its own equipment and staff and employing direct labor. Its performance in this has proved quite satisfactory. For major road projects, or whenever its own resources are fully committed, the Department employs contractors following suitable prequalification and tendering procedures and contracts are generally let on a unit-price basis. 3.12 Although some small domestic contractors exist in the country, their capacity is limited and major works can only be undertaken by foreign con- tractors who have in the past shown considerable interest in working in Malawi (para. 4.09). Construction supervision is carried out by the Roads Department or by consulting engineers acting as its representative. Payment procedures are prompt and the experience of the MWS in dealing with contrac- tors has been satisfactory.  - 8 - F. Maintenance 3.13 The Regional Divisions of the MWS are responsible for maintaining the classified road system with t:he exception of district roads. Unfortu- nately, the District Councils, wlkich have responsibility for the latter, have been unable to maintain them because of inadequate staff, funds and mainten- ance capacity, and district roads; have largely been neglected thereby hinder- ing agricultural development. A pilot program for district roads will be carried out under the project to determine how they might best be developed and maintained (paras. 4.07-4.08). 3.14 The Roads Department's maintenance operations are largely mechanized, though manual labor is used when feasible. Because of problems with avail- ability of equipment, the MWS in 1971 created the Plant and Vehicle Hire Organization which is responsible for procuring and maintaining all Government- owned equipment and vehicles; it rents equipment to the Roads Department at rates based on the cost of purchasing and maintaining the equipment. As a result of this centralized management, availability and utilization of equip- ment have improved substantially. Despite this, however, and the existence of a reasonably well-trained cadre of maintenance personnel in each of the regions, the level of maintenance operations is not adequate, largely because the funds allocated for this function have been insufficient. Annual main- tenance expenditures in 1973 amounted to only US$680 equivalent per mile for paved roads, US$770/mi for gravel roads and US$300/mi for earth roads, whereas the consultants SWKP/EIU have estimated that approximately US$1,400, US$1,770 and US$400 per mile respectively are required annually to keep these roads in good condition. During negotiations, these matters were discussed, and the Government agreed that sufficient funds will be allocated to assure proper maintanance of the road network aid so prevent unnecessarily early reconstruc- tion. 4. THE PROJECT A. Description 4.01 The project consists of the following: (a) improvement to two-lane bituminous paved standard of the Lilongwe-Kasungu road (about 73 mi) including a bypass around the Lilongwe industrial area and reconstruction of the Lingadzi bridge; and (b) a pilot program to impro-ve the development and maintenance of district roads.  -9- Road Improvement 4.02 The Lilongwe-Kasungu road (now 73.2 miles) is part of Ml, the main trunk road of the country which runs south-north through most of the principal centers -- from the Mozambique border through Blantyre, Zomba, Lilongwe, Mzimba and Rumphi to Chitipa on the Zambia border in the north. The adjacent section south from Lilongwe to Zomba was recently improved under Credit 112-MAI. The Lilongwe-Kasungu section crosses flat to rolling terrain and the alignment of the existing earth and gravel road is, for the most part, satisfactory. Drainage is poor, however, and the gravel road surface is rough under present traffic conditions. Under the project, the road will be reconstructed to two-lane bituminous paved standard. The few alignment corrections will shorten the road to 70.7 miles. 4.03 The proposed design standards for this improvement (Table 6) are consistent with established standards in Malawi, and are appropriate for forecast traffic. They are based on a design speed of 60 mph and a maximum gradient of 5%. The pavement structure will be composed of natural gravel subbase and cement stabilized base course with a double bituminous surface treatment on a 22-foot width and with a five foot shoulder on each side. If the quality of the base gravel when placed on the road proves to be adequate, cement-stabilization will be omitted. During negotiations assurances were obtained from the Government that thie Associa.-ion will be consulted before a decision is made on the treatment to be given to the base course. 4.04 In order to alleviate traffic congestion and facilitate the orderly development of the industrial complex, a bypass of about 2 miles is included in the project near the intersection of Ml and the trunk road running east to Salima (M5). It will be built to the same standards as the main project road. 4.05 Another minor improvement included in the project is the recon- struction of the Lingadzi bridge, a small bridge on the Ml in the northern outskirts of Lilongwe. The existing 150 foot, single-lane structure repre- sents a serious bottleneck for traffic, which is in excess of 1,000 vpd. The bridge will be reconstructed to two-lane standards. 4.06 Supervision of construction will be carried out by the engineering consultants, SIWKP, who undertook the feasibility study and prepared the detailed engineering. During negotiations, the Government confirmed that the consultants will be employed under terms and conditions satisfactory to the Association. District Roads Pilot Program 4.07 As mentioned previously, development and maintenance of district roads generally has been neglected because the District Councils have neither the skills, organization nor the resources to do the job. As a result, agricultural development is impeded and output is sometimes left to rot  - 10 - because it cannot be transported to centers needing it. The Government wishes to undertake a pilot program in one of the country's 23 districts to determine the proper manner of providing for these roads and has selected the Kasungu District, with its 250 miles of district roads, for this purpose as it is an important agricultural area in which development has particularly been impeded by the poor condition of its feeder road network. 4.08 The Kasungu District's road maintanance capacity will be strengthened under the project by the provision of essential basic road maintenance equip- ment (one towed grader, one tractor, two trailers, one 3-ton truck and hand tools) and construction of a small workshop/office and several road camps for maintenance crews. The necessary road maintenance personnel such as equip- ment operators, mechanics and foremen will be recruited and trained under the project, and a qualified engineer will be employed specifically to pro- gram and supervise operations. In connection with these efforts, the MWS will carry out a study to deternine (i) the most suitable methods of road maintenance in terms of combinations of labor and equipment, (ii) the neces- sary operational and training flinds, and (iii) the feasibility of extending this program to other districts. B. Execution 4.09 The Roads Department Ln the MWS will be responsible for the execu- tion of the project and will be assisted by consultants for construction supervision. Construction of the Lilongwe-Kasungu road, including the bypass and bridge, will be executed under one, unit-price contract awarded after international competitive bidding in accordance with Bank/IDA guidelines. Procurement arrangements were confirmed during negotiations. Because of uncertainties in estimating bid prices due to the lack of contractural road construction experience in Malawi in recent years, and the difficulty the Government would have in financing cost overruns, tenders were sought before Board presentation. The Government received bids in October of this year from six prequalified contractors. The final award is expected to be made in December 1974. Construction will begin in March 1975 and is expected to be completed by the end of 1976. 4.10 The pilot program for the development and maintenance of district roads will be controlled by the MWS, working in close cooperation with the District Council of Kasungu. The equipment, which is estimated to cost only about US$36,000 equivalent and consists of single, separate items, will be procured throughi local suppliers in accordance with normal Government pro- cedures which are satisfactory; the few buildings estimated at US$50,000 equivalent will be constructed by local contractors after competitive bidding. Preliminary results of the program, which will start in mid-1975 with pro- curement of equipment and selection of candidates for training, etc., should be available late in 1976; the NWS will then make recommendations on the possibility of extending it to other districts. Financing for implementing  - 11 - these recommendations could be included in a future project. During negoti- ations, the Government agreed that it will discuss its proposals for extending the district roads maintenance program throughout the country with the Association prior to implementing them. C. Cost Estimates 4.11 Total project costs are estimated at US$12.50 million with a foreign exchange component of US$7.50 million or 60%. Detailed costs are as follows: --MK million ------ ------US$ million-- Local Foreign Total Local Foreign Total IDA A. Construction 3.14 4.52 7.66 3.77 5.42 9.19 7,41(80%) B. Supervision of construction 0.04 0.23 0.27 0.05 0.28 0.33 0.28(85%) C. District Roads Pilot Program 0.07 0.13 0.20 0.08 0.16 0.24 0.20(83%) Subtotal 3.25 4.88 8.13 3.90 5.86 9.76 D. Contingencies 1. Physical: 10% on items A, B & C 0.33 0.48 0.81 0.39 0.58 0.97 2. Price: 16.5% on items A-D1 0.59 0.88 1.47 0.71 1.06 1.77 Subtotal 0.92 1.36 2.28 1.10 1.64 2.74 2.11 Total Project Costs 4.17 6.24 10.41 5.00 7.50 12.50/1O.00(80%) /1 Taxes and duties represent 5.6% of total project costs. 4.12 The cost of construction has been estimated by the consultants on the basis of final design quantities and a detailed survey of unit prices for construction in Malawi. Estimated costs average US$130,000 per mile. Bids received in October 1974 (para. 4.09) suggest that the contract price will be well within the cost estimate. The estimates for supervision costs are based on the consultants' proposal which is reasonable. For the District Roads Pilot Program, the cost estimates are based on a comprehensive evalu- ation by the MWS of the requirements for the program in terms of equipment, buildings and personnel, and prices from local suppliers.  - 12 - 4.13 A 10% physical contingency has been provided for construction, con- struction supervision and the pilot program to allow for possible quantity variations and extensions. A price contingency of 16.5% has been provided to cover possible price increases during the project period; taking into consi- deration price trends both in the international market and within Malawi, price escalation rates have been estimated at 18%, 15% and 12% for the years 1974, 1975 and 1976 respectively. 4.14 In a det4iled analysis, the consultants estimate the foreign exchange component on construction at 59%. This component includes deprecia- tion of equipment, imported materials, fuel and spare parts, the foreign expense of expatriate personnel, overhead costs and profits. The local component comprises mainly labor, housing, taxes and duties. The foreign exchange elements of other project items have been estimated by the Associ- ation at about 85% for consultant's services and 67% for the pilot program. D. Financing and Disbursements 4.15 The IDA credit of US$10.)0 million will cover 80% of total project costs; that is, all of the foreign costs (US$7.50 million) and about 50% of local costs (US$2.50 million). The Government will finance all remaining costs (US$2.50 million) including about US$700,000 in taxes and duties. 4.16 Disbursement from the Credit will finance 80% of expenditures for civil works, 100% of foreign expendlitures for consultant's services and 100% of foreign and 50% of local expendLtures for the district roads pilot program. All disbursements will be fully documented. A schedule of estimated dis- bursements is given in Table 7. Ally funds remaining in the Credit account upon completion of the project wil:L be cancelled. 5. ECONOMIC EVALUATION 5.01 As part of the important Ml running the length of the country, the Lilongwe-Kasungu road is a vital link in the national transport system. Lilongwe is not only the new natioral capital but, served by paved roads from the south and east and soon, when the Mchinji road is built, from Lusaka in Zambia, it is also the main transshipment point for goods to and from the northern half of the country. By the late 1970's Lilongwe will also have a direct rail connection to the sea. The project road connects the new capital with Kasungu, the administrative headquarters and marketing center for the Kasungu District, and is also part of the main link to Mzuzu, the administra- tive center of the Northern Region. 5.02 The area served by the road (covering approximately 3,000 sq mi) has a population of about one-half million, most of whom are small farmers. Maize, groundnuts and tobacco are the most important crops. Two important  - 13 - schemes to increase agricultural production in the area are underway: the Lilongwe Agricultural Development Project wlhich has been supported by the Association since 1968 (Credits 113 and 244-MAI), and a program for flue-curing tobacco which has become an important processing industry near Kasungu. Also, the Kasungu Game Reserve, west of the city, is an important tourist attraction. 5.03 The Government plans further large-scale agricultural production and assistance to smallholders in the area which should result in sizeable increase in both output and marketable surplus. Such surplus is shipped to Lilongwe which has a rapidly growing population; according to Government estimates, the city's population will increase from its 1973 level of about 75,000 to some 175,000 by 1980, and so is a growing major center of consump- tion as well as transshipment onwards. 5.04 In 1972, traffic on the project road ranged from about 250 vpd near Lilongwe to about 150 vpd on its central and northern sections. On the basis of past traffic growth, averaging 9% annually in recent years, and ongoing and planned development schemes in the region, the consultants SWKP/EIU have estimated that traffic will continue to grow by at least 9% per annum until 1986, leveling off thereafter to about 8% annually (Table 8). 5.05 The basis for the economic analysis is an assessment of the benefits for expected traffic and costs with and without the proposed improvement over a 20-year period, the estimated economic life of the project. For the purpose of the analysis, the investment cost has been taken as the cost, net of taxes, of improving the main road, the bypass in Lilongwe and the Lingadzi bridge, including the cost of supervision and taking into account the possible provision of a stabilized base and quantity contingencies. The principal quantifiable benefits will be savings in vehicle operating costs (Table 9) and savings in road maintenance costs. While improvement of road maintenance in the Kasungu District will undoubtedly aid agricultural develop- ment in the region and thereby indirectly affect traffic on the project road, neither the costs nor the benefits of the District Roads Pilot Program have been taken into account in the analysis. There will of course be other benefits which cannot be quantified such as improved access to social and administrative facilities in Lilongwe. 5.06 The streams of costs and benefits, summarized in Table 10, indicate that the proposed investment for the construction of the Lilongwe-Kasungu road is economically sound, yielding an overall economic return of 14%, a first year return of 13% and a benefit-cost ratio, at a discount rate of 10%, of 1.50:1. Economic returns on the three individual sections of the road in- dicated in Table 8 are as follows: Lilongwe to Intersection S-32, 21%; each of the other two sections, 10%. 5.07 If traffic is assumed to grow at only 7% throughout the economic life of the project, the economic return on the proposed investment (with a stabilized base) would remain satisfactory at about 13%, while a 10%  - 14 - decrease in savings in vehicle operating costs would reduce the return to about 13%. Even in the unlikely event that both traffic growth and vehicle operating cost savings were to fall to these levels, the economic return remains satisfactory at 12%. 5.08 No data on benefits is available for the construction of the bypass of the industrial area in Lilongwe or the reconstruction of the Lingadzi bridge. Hlowever, the bypass is indispensable to allow planned development of the in- dustrial area to continue, and the new bridge will prevent accidents and considerable time delays which occur at present. 6. AGREEMENTS REACHED AND RECOMMENDATION t5.2I During credit negotiat:I.ons, agreemeuit was reachecl on the following po21i. t';; (a) Vehicle weight and size regulations consistent with the structural and geometric design of roads will be adequately enforced (para. 3.04). (b) Data on traffic flows and vehicles will be collected as necessary for sound transport planning (para. 3.07). (c) Sufficient funds will be allocated annually for highway maintenance to assure proper maintenance of the classified highinay network (para. 3.14). (d) The Association will be consulted prior to reaching a decision on the provision of a stabilized base vs. natural gravel base for the Lilongwe-Kasungu road (para. 4.03). (e) Suitably qualified consultants will be engaged for supervision of construction under terms and conditions satisfactory to the Association (para. 4.06). (f) Procurement under the project will be in accordance with Bank/IDA guidelines (para. 4.09). (g) Proposals for reorganizLng the development and maintenance of roads designated as district roads will be discussed with the Association prior to implementation (para. 4.10). (h) The Government will finance all project costs not covered by the proposed IDA credit (para. 4.15). 6.02 The project is suitable for an IDA credit of US$10.00 million equiva;lent to the Government of Malawi. NJovember 15, 1974  TABLE 1 MALAWI SECOND HIGHWAY PROJECT Highwa Network tmiles J A. By ;urface Type 1969 - 1973 1969 1970 1971 1972 1973 Bitumen 370 438 553 607 774 Gravel 571 515 5,010 464 315 Earth 5,747 5,748 5,493 5,539 5 a TOTAL 6,688 6,701 6,546 6,610 6,756 B. By Administrative Classifioation - 1973 Main Secondary District Other All Roads Roads Roads Road1 / Roads Bitumen 696 41 5 32 774 Gravel 134 148 1 32 315 Earth 1,089 1308 3,130 143 5,667 TOTAL 1,919 1,497 3,136 204 6,756 1/ Classified as oither branch, estate, tounship-0 prima isor undeoignated roads. Source: Ministry of Works and Supplies, March 1974. November 1974  MAIAWI SECOND HIGHWAY PROJECT Vehicle Fleetl/ Growth Rate 1967 i968 1969 1970 1971 1972 19732/ 1967-1973 Passenger cars 8,4Ii 8,893 9,857 9,771 10,205 10,408 10,850 Goods Vehicles3/ 5,93Lt 6,240 6,696 7,747 7,635 8,121 8,650 B3uses 127 149 161 176 183 24~5 280 1 L.05 Motorcycles 1,34h 1,458 16507 1,658 2,73