Ghana - Second Highway Project

Report No. 903a-GH FILE COPY Appraisal of a Second Highway Project Ghana December 2, 1975 Western Africa Projects Department Highways Division Not for Public Use Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Cxrrency Unit - Cedi (0) 01.00 = 100 pesewas USM.o00 = 01l15 01.00 = US$0.87 01 million = US$870,000. Fiscal Year: July 1 - June 30 System of Wei&hts and easures: British/US (Metric system being introduced since September 1, 1975) BritisU YMetric 1 foot (ft) = 0.305 meter (m) I mile (mi) = 1.61 kilometers (km) 2 1 square mile (sq mi) = 2.59 square kilometers (km ) 1 ton (long ton) = 1.016 metric tons (m tons) Abbreviations and Acronymas AESC - Architectural and Engineering Services Corporation BHC - Bank for Housing and Construction BRRI - Building and Road Research Institute CAG - Civil Engineering and Building Contractors' Association of Ghana EIU - Economist Intelligence Unit Ltd. (UK) GHA - Ohana Highway Authority KfW - Kreditanstalt fur Wiederaufbau (Germany) MTC - Ministry of Transport and Communications MWH - Ministry of Works and Housing ODM - Overseas Development Ministry (UK) Plan Guidelines - Gaidelines for the Five-Year Development Plan (1975-80) RJA - Roy Jorgensen Associates of Canada Ltd. -SCC - State Construction Corporation SWKP - Scott, Wilson, Kirkpatrick & Partners (UK) vpd - vebicles per day  GHANA APPRAISAL OF A SECOND HIGHWAY PROJECT Table of Contents Page No. SUMMARY ........................ .......................... i - v 1. INTRODUCTION ............................... 1 2. THE TRANSPORT SECTOR .................... 2 A. Economic Setting ............................... 2 B. The Transport System ........................... 3 C. Transport Planning and Coordination .... ........ 5 3. ROADS ...............................7 A. The Network and Its Traffic .................... 7 B. The Road Transport Industry .................... 7 C. Administration ................................. 8 D. Planning ........................................ 9 E. Financing ...................................... 10 F. Engineering and Construction ................... 11 G. Maintenance .................................... 12 4. BANK FOR HOUSING AND CONSTRUCTION ................... 13 5. THE PROJECT ......................................... 15 A. Description .................................... 15 - Road Maintenance Program .................... 16 - Reconstruction of Achimota-Nsawam Road ...... 19 - Strengthening of the Domestic Construction Industry .......... * ....................... 20 - Studies ..................................... 22 - Technical Assistance ........................ 23 B. Cost Estimates .............. .. ................. 23 C. Execution ....... ........... .................... 25 D. Financing and Disbursements ....... .. ........... 26 This report has been prepared by Messrs. H. Kaden (Engineer), P. Parker (Economist), and B. Hansen (DFC Consultant) following an appraisal mission in January/February 1975.  Table of Contents (Continued) Page No. 6. ECONOMIC EVALUATION ............................... 28 A. General ...................................... 28 B. Maintenance Program ...... .................... 29 C. Strengthening of the Domestic Construction Industry .................................... 30 D. Reconstruction of the Achimota-Nsawam Road ... 31 7. AGREEMENTS REACHED AND RECOMMENDATION .............. 32 TABLES 1. Capital Investments in the Transport Sector, 1969-73 2. Composition of the Road Network 3. Composition of the Road Vehicle Fleet and New Registrations, 1965-74 4. MWH Actual and Budgeted Expenditures on Roads, 1970-76 5. Estimated Revenues from Road Users, 1967-72 6. Road Design Standards 7. Annual Expenditures by PWD on Road Contracts, 1969-74 8. Equipment to be procured with Bank/IDA Funds 9. Project Cost Estimates 10. Estimated Schedule of Disbursements 11. Representative Economic Vehicle Operating Costs 12. Annual Deliveries of Motor Fuel for Domestic Consumption 13. Annual Incremental Economic Benefits and Costs of Maintaining Roads in Good Condition 14. Estimated Vehicle Speed and Vehicle Composition Used in Evaluation of Maintenance Program 15. First Phase of Maintenance Program - Economic Costs and Benefits 16. Reconstruction of Achimota-Nsawam Road - Economic Costs and Benefits 17. Incremental Costs and Benefits of Reconstructing Achimota-Nsawam Road on Parallel Rather than Existing Alignment ANNEXES 1. Bank for Housing and Construction 2. Partial List of Studies Undertaken and Planned in the Transport Sector 3. The Construction Industry in Ghana 4. Outline Terms of Reference for Technical Assistance and Studies CHART Organization Chart of GHA (9826 R) MAP Ghana - Second Highway Project (IBRD 3691 R2)  GHANA APPRAISAL OF A SECOND HIGHWAY PROJECT SUMMARY i. The transport system in Ghana is dominated by an extensive 20,000 ml road network which carries about three-quarters of all domestic freight traffic. Road transport is supplemented by an 800 mi rail system which essentially serves the "Golden Triangle" area (connecting the cities of Accra and Kumasi and the port of Takoradi), and which specializes in the movement of timber, cocoa, and minerals for export. Domestic air transport of passen- gers and freight, and water transport along the coast or on Lake Volta, are not yet significant. ii. In the years following independence, major investments were made in transport infrastructure (mainly primary roads), and the extent of the system is now generally adequate to serve anticipated demand. More recently, invest- ments in the sector over 1969-73 totalled about 0 84 million (about US$62 million), equivalent to almost 20% of total Government capital expenditures in that period; about 80% of these investments were for highway development. Now, however, some infrastructure and equipment have been allowed to deter- iorate, and a major effort in backlog maintenance and rehabilitation is warranted. Government policy in the current Plan period 1975-80 is therefore appropriately directed to preservation and improvement of existing infrastruc- ture, and especially to development of the rural road network. It is planned to implement programs which would lead to optimum utilization of all available facilities in the various modes, and particularly to ensure that the country's economic growth is not hampered by lack of an efficient transport system. iii. Since several agencies are involved in the organization and plan- ning of transport investments, the Government is focussing its efforts first on improving the capacity of individual agencies before undertaking compre- hensive coordination programs. However, one of the principal issues needing urgent attention is coordination in the Kumasi-Takoradi corridor which now carries some 80% of total railway freight traffic, and where road transport has been capturing an increasing share of export traffic in cocoa and timber, resulting, among other things, in the need for intensified road maintenance and early comprehensive rehabilitation of certain road sections. Government has in the past deliberately avoided construction of a primary through-road in order to give the railway a competitive advantage; currently, however, major investments are being contemplated in both modes, and in recognition of this potential duplication, the Government is planning execution of a study on road/rail competition in the corridor. iv. An important development in highway administration has been the creation by Governmental Decree of December 1974 of the Ghana Highway Authority (GHA) to take over road responsibilities from the Public Works Department (PWD) of the Ministry of Works and Housing. GHA has been given responsibility for practically all aspects of the planning, design, construction,  - ii - maintenance, and administration of all public roads (including connecting ferry services), and has also taken over the administration of feeder roads. Unlike PWD, GHA will not be responsible for a variety of other activities not related to roads, such as buildings maintenance. This new organizational structure is the key element in bringing about a badly needed improvement in highway administration, and the proposed project will provide much of the initial financial and technical assistance required to help GHA function effectively. v. Construction and maintenance of transport infrastructure is executed almost exclusively by the local construction industry which comprises one of the largest sectors of the economy. Construction investments over 1965-72 averaged about 0 143 million (US$125 million) annually, representing over 60% of gross domestic fixed investment. There has been significant expansion in domestic private enterprise in recent years, but the demand for new build- ings and civil works has greatly exceeded the capacity of the Ghanaian con- struction industry to supply them, and Government efforts in other sectors of the economy have been impeded. In response to this problem, the Govern- ment in 1972 established the Bank for Housing and Construction (BHC) essen- tially to encourage and facilitate the participation of domestic and foreign capital in schemes in the housing and construction sectors. BHC is authorized to provide financing in the form of term-loans with or without security, issue guarantees, make equity investments, and borrow funds locally and abroad; it is also authorized to accept deposits, and provides its clients with working capital finance. vi. A review of BHC's performance to date indicates that it has been well managed and staffed with qualified personnel. Although it is a govern- ment agency, it has been operating with minimal apparent government influence, and with representation of the private sector in policy-making. BFC's short- term financial position is good due to increased deposits, and provisions for a sound long-term resource position are underway through a recent bond issue; however, BHC has no foreign currency funds at its disposal. Overall prospects for BHC's capital structure, its profitability, liquidity position, and debt service ability, are expected to remain satisfactory over at least the next few years. vii. The Government has designated BHC to act as the intermediary for providing assistance to the domestic construction industry. Funds from the proposed Loan will be provided to BHC for on-lending to selected domestic road contractors and quarry operators. This channelling of funds through BHC for equipment purchases and provision of technical assistance is expected to help strengthen the institution at this stage, and ultimately, its long-term efforts in stimulating the domestic construction enterprise. viii. Bank Group involvement in the transport sector has to date been only for highway development. An engineering Credit (S7-GH, US$1.5 million, 1969) helped finance detailed engineering for new highways from Ktmasi to Accra and to Takoradi. The design work was satisfactorily completed in 1971,  - iii - but the Government in concurrence with the Association, decided to defer construction in favor of rehabilitating and maintaining existing roads. In support of this policy, a First Highway Project (Credit 438-GH, US$13 million, November 1973) was prepared which consisted of rehabilitation and improvement of about 345 mi of trunk roads and studies for similar work on another 750 mi; procurement and installation of equipment for traffic control and pavement surveys; and preparation of a comprehensive program to improve road mainte- nance. Project execution has been satisfactory. However, the scope of rehabilitation will have to be reduced, primarily because heavier traffic loads than anticipated demand more comprehensive works than envisaged, and also because inflationary cost increases are higher than estimated. The revised cost of this project item will still exceed the original estimates, but the Government is prepared to provide the additional funds. Preinvest- ment studies for further rehabilitation works have been carried out by con- sultants Scott, Wilson, Kirkpatrick & Partners (SWKP, UK). Procurement procedures for the equipment purchases are underway. A comprehensive eight- year program of road maintenance is being prepared by GHA, with technical assistance provided by consultants financed by the Canadian International Development Agency (CIDA). ix. The proposed Second Highway Project consists of: (i) a four-year road maintenance program, including equipment procurement, technical assis- tance, and training of GHA staff at all levels; (ii) reconstruction of the Achimota-Nsawam road (16 mi); (iii) financial and technical assistance to BHC for equipment procurement and for development of private domestic road con- tractors and quarry owners; and (iv) studies on road-building materials; the optimum level of feeder road investment in the country; and the appropriate labor/equipment mix for selected road maintenance activities. x. The total capital cost of the project is estimated at US$31.7 mil- lion equivalent net of taxes, of which about US$28.7 million (90%) in foreign costs; taxes and duties are estimated at US$4.1 million equivalent. It is proposed that the foreign capital costs will be met primarily by a Loan of US$18 million and a Credit of US$10 million; the remaining foreign costs of about US$700,000 equivalent for technical assistance services to GHA and BHC will be financed by CIDA, the Overseas Development Ministry (ODM, UK), and the United Nations Development Programme (UNDP). The Government will finance the local component of capital costs of the project, and the entire recurrent cost of road maintenance. xi. GHA will have overall responsibility for execution of the proposed project, including coordination with BHC. BHC will be directly responsible for that part of the project to be implemented with Loan funds on-lent to domestic road contractors and quarry owners. GHA is planning to retain con- sultants Roy Jorgensen Associates Ltd. (RJA, Canada) for the road maintenance program, and SWKP for construction supervision; both these consultants are already engaged in similar works for GHA with counterpart participation, and the Bank/IDA is agreeable to this arrangement.  - iv- xii. Bidding documents for reconstruction of the Achimota-Nsawam road are being prepared by SWKP on the basis of completed detailed engineering. The construction contract will be awarded on the basis of international competitive bidding in accordance with Bank Group guidelines. Work is scheduled to commence in mid-1976, and to take about two years to complete. xiii. GHA will procure maintenance and workshop equipment (including spare parts) on the basis of international competitive bidding in accordance with Bank Group guidelines, with due regard to the requirements of standard- ization. The first bids are expected to be received by March 1976. The following items would be exempted from international competitive bidding: (i) spare parts for equipment already in GHA's possession may be procured on the basis of quotations obtained from agents in Ghana of foreign suppliers, up to an aggregate amount of US$300,000 equivalent; and (ii) special equip- ment items estimated to cost less than US$20,000 equivalent each, for GHA's training center and workshops, may be procured on the basis of offers for similar equipment from at least two suppliers, up to an aggregate amount of US$500,000 equivalent. All suppliers will be required to provide an adequate after-sales service in the Accra area. xiv. It is proposed that the Government on-lend US$7.5 million of the Loan funds to BHC at an interest rate of 10% p.a.; the Government will assume the foreign exchange risk under the proposed lending. BHC will in turn lend these funds to the domestic construction industry, generally at an interest rate of about 15% p.a.; contractors' equipment will be financed on a hire- purchase basis, in accordance with the relevant Decree issued by the Govern- ment. BHC will roll over these funds in order to further promote development of the domestic construction industry. The initial repayment schedule for funds passed on by the Government to BHC would be 25 years, including five years of grace. About US$300,000 of the funds earmarked for road contractors will be used for purchase of spare parts for existing equipment. The US$1.0 million allocated for existing quarries will most probably benefit about five operators. xv. For procurement of equipment and spares under the BHC part of the project, sub-borrowers will be required, to the extent practicable, to obtain quotations from at least three suppliers for equipment purchases, and from the relevant local suppliers for spare parts; all quotations will have to be checked and approved by BHC. xvi. Loan/Credit proceeds will be disbursed on the following basis: (i) 100% of the c.i.f. costs of equipment, spare parts, and tools; (ii) 65% of total expenditures for the reconstruction work, representing the estimated foreign exchange cost of this item; and (iii) 100% of foreign expenditures for consulting services and technical assistance. xvii. The primary purpose of the proposed project is to protect past investments in the highway system by assuring adequate maintenance of the  - v - entire network; also, to prevent the recent uneconomic increases in the use of scarce foreign exchange resources to pay for the high cost of operating vehicles on poorly maintained roads. xviii. The economic return from investments in road maintenance and reha- bilitation has been conservatively quantified on the basis of vehicle operat- ing costs only. The first four-year phase of the planned eight-year mainte- nance program is estimated to yield a return of about 54%, and reconstruction of the Achimota-Nsawam road a return of about 14%. Additional institution- building benefits are an important project objective, but they have not been quantified. These benefits include strengthening GHA, promoting the develop- ment of BHC, and assisting the development of the domestic construction in- dustry. Benefits from deferring road construction, stimulating additional production, time savings, and accident reduction, are also not included in the calculations. xix. The proposed project is suitable for lending to the Government of Ghana in the form of a Loan of US$18 million and a Credit of US$10 million. An appropriate Loan term would be 25 years, including 5 years of grace; the Credit would be on standard IDA terms.   GHANA APPRAISAL OF A SECOND HIGHWAY PROJECT 1. INTRODUCTION 1.01 In support of its development policy during the current Plan period 1975-80, the Government of Ghana has requested Bank/IDA assistance in financ- ing a project which focusses on maintenance and rehabilitation of the country's road network. It is planned to realize this objective by strengthening the newly created Ghana Highway Authority (GHA), as well as those sectors of the domestic construction industry which would participate in execution of the road maintenance works. For the latter, financial and technical assistance would be made available to contractors through the Bank for Housing and Construction (BHC), a domestic development bank (paras. 4.01-4.04 and Annex 1). 1.02 The proposed project would be the third Bank Group operation in the transport sector. An engineering Credit (S7-GH, US$1.5 million, 1969) helped finance detailed engineering for new highways from Kumasi, the second largest city in the country, to the capital at Accra and to the port of Takoradi. The design work was completed satisfactorily in 1971, but Government in con- currence with the Association, decided to defer construction in favor of rehabilitating and maintaining existing roads. In support of this policy, a First Highway Project (Credit 438-GH, US$13 million, November 1973) was prepared consisting mainly of: (i) rehabilitation of about 345 mi of trunk roads; (ii) preinvestment studies for rehabilitation of another 750 mi of trunk roads; and (iii) preparation of a road maintenance program. 1.03 Project execution has been generally satisfactory. The first contract for rehabilitation work on Anyinam-Kumasi (81 mi) was awarded to the State Construction Corporation (SCC, Ghana) in October 1974, and bids for Yamoransa-Takoradi (57 mi) were received in November 1975. However, traffic loads on some road sections have been increasing faster than anticipated at project appraisal, warranting more comprehensive rehabilitation work than originally planned. The Government has requested the Association to reduce the scope of the project, limiting the rehabilitation item to the two road sections above-mentioned. Even so, the revised cost of this project compo- nent will exceed the original estimate, but the Government is prepared to provide the additional funds. 1.04 Preinvestment studies under the project for further rehabilitation works were carried out by consultants Scott, Wilson, Kirkpatrick & Partners (SWKP, UK); also, because of the poor response in bidding for the rehabilita- tion projects, SWKP made a brief study of the domestic construction industry. A comprehensive eight-year program of road maintenance has been prepared by CIDA-financed consultants Roy Jorgensen Associates Ltd. (RJA, Canada) and Delcanda International (Canada).  - 2 - 1.05 The proposed Second Highway Project has been prepared on the basis of all the studies abovementioned. It consists of: (a) a four-year road maintenance program, including equipment procurement, technical assistance, and training of GHA staff at all levels; (b) reconstruction of the Achimota- Nsawam road (16 mi); (c) financial and technical assistance to BHC for equip- ment procurement for development of domestic road contractors and quarry owners; and (d) studies on (i) road-building materials; (ii) the optimum level of feeder road investment in the country; and (iii) the appropriate labor/equip- ment mix for selected road maintenance activities. 1.06 The total capital cost of the project is estimated at US$31.7 million equivalent net of taxes, including foreign costs of about US$28.7 million (90%); taxes and duties are estimated at US$4.1 million equivalent. The foreign capital costs will be met primarily by a Loan of US$18 million and a Credit of US$10 million; the remaining costs of about US$700,000 for technical assistance services to GHA and BHC will be financed by CIDA, the Overseas Development Ministry (ODM, UK), and the United Nations Development Programme (UNDP). The Government will finance the local component of capital costs of the project, and the entire recurrent cost of road maintenance. 1.07 This report is based on the studies by SWKP and the CIDA consultants (para. 1.04), and on the findings of an appraisal mission consisting of Messrs. H. Kaden (Engineer), P. Parker (Economist), and B. Hansen (DFC Con- sultant) which visited Ghana in January/February 1975. 2. THE TRANSPORT SECTOR A. Economic Setting 2.01 Per capita GDP ($300 in 1972) failed to grow in real terms during the preceding fifteen years, as population (estimated at 9.1 million in 1972) grew faster than income. The Ghanaian economy depends primarily on export of a few traditional commodities including cocoa, gold, and timber. Slow economic growth was due to: (i) a general neglect of agriculture, leading to a decline in cocoa production and an increase in agricultural imports; (ii) the low domestic value added and import dependence of the industries established in the early 1960's; and (iii) the resulting balance of payments and external debt problems. The situation has been aggravated by Government provision of extensive social services, and the operation of a large number of uneco- nomic enterprises. 2.02 The economy has recently been experiencing additional difficulties, including a deteriorating balance of payments position, an inflation rate of 18% in 1974, and difficulty in applying the import licensing system to all sectors. This latter system had the undesirable effect of limiting the importation of spare parts and materials for existing equipment, so that the utilization of prior foreign exchange earnings was effectively reduced;  - 3 - recognizing this problem, the Government has recently given increased prior- ity to the importation of required spare parts supplies. In spite of all the above difficulties, however, GDP grew in real terms at an estimated 6.5% in 1974, and the Bank Group expects growth to average 5.5% p.a. over 1974-79, depending in part on the Government's ability to correct the abovementioned structural deficiencies, and to gain sufficient access to foreign assistance. B. The Transport System 2.03 The transport system is dominated by an extensive 20,000 mi road network which carries about three-quarters of all domestic freight traffic. Road transport is supplemented by an 800 mi railway network. Domestic air transport of passengers and freight, and water transport along the coast or on Lake Volta, are not yet significant. The infrastructure for transport was expanded substantially in the years following independence, and is now generally adequate in extent to serve anticipated demand. In the period 1969-73, investments in the sector totalled about 0 84 million (US$62 million), almost all governmental, equivalent to about 18% of the Government's total capital expenditures during those years (Table 1). Of these investments, about 80% were for roads, and much of the remainder for air transport; expen- ditures for ports and railways were negligible. However, some infrastructure and equipment have been allowed to deteriorate, and a major effort in backlog maintenance and rehabilitation is now warranted. Highways 2.04 Details of the highway system and its administration, as well as the characteristics of the road transport industry, are discussed in Chapter 3. Railways 2.05 Railways are run by the semi-autonomous Ghana Railway and Ports Corporation, which is responsible to the Ministry of Transport and Communica- tions (MTC). The 800 mi system essentially serves the "Golden Triangle", with additional branch lines connecting mostly mines and the port of Tema. The longest possible haul is about 190 mi, and the average length of about 120 mi for freight is therefore uneconomically short for non-bulk traffic. 2.06 Railway freight traffic is specialized, with timber, cocoa, manganese ore, and bauxite accounting for almost 90% of cargo handled. Four-fifths of all traffic moves on the western line, primarily from Kumasi to the port of Takoradi for export. Road transport has provided increasing service and price competition to railways in the recent past, resulting in a 25% decline in total rail freight carried during the last five years to about 1.2 million tons in 1974. It is expected that rail freight transport will in future concentrate on bauxite, significant but lower volumes of cocoa and timber, and certain non-exports of high bulk and low value.  - 4 - 2.07 There was no adjustment in rail tariffs between 1958 and 1971 in spite of the doubling of the general price level, with the result that many services, particularly passenger services, were priced below marginal cost. However, tariffs have been selectively increased in stages since 1972 follow- ing recommendations by consultants Henderson, Hughes, and Busby (UK), and are now more in line with cost and marketing considerations given present levels of efficiency. 2.08 The railways' financial situation has been deteriorating since FY 1966, reaching a deficit of about US$16 million equivalent in FY 1974. This was mainly attributed to (i) the continuing diversion of traffic (cocoa, timber, passengers) to roads; and (ii) rising operating costs due to higher wages, a larger number of employees (now about 16,000), and increased costs of petroleum and other imports. The railways' budget is cross-subsidized partly from port operations within the joint Railway and Ports Corporation, and further subsidized from the Government budget. Detailed investment and operations recommendations have been prepared by Transmark, a consultant agency of British Railways financed by ODM, and are currently under review by the Ghana Railways. Ports 2.09 The two major ports, Tema and Takoradi, are generally adequate to handle foreseeable traffic which currently averages about 5 million tons of export/import cargo annually. Both ports are well connected by road and rail to their hinterlands. Tema is a modern port which handles most of the country's imports, while Takoradi services mostly bulk exports, including bauxite, manganese, and timber. There is currently some problem of opera- tional congestion at both ports, and the Government plans to relieve this by purchasing new cargo-handling equipment and streamlining customs procedures. In addition, some dredging may be warranted of the Tema port entrance, and possibly also of the channels alongside the petroleum, alumina, and clinker berths. Inland Waterways 2.10 Creation of the 25 mi long Volta Lake by construction of the Akosombo Dam (financed partly by Loan 310-GH, US$47.0 million, 1962) has severed several road links, and isolated some communities in a narrow region along the Togo border (see Map). The Government is currently investigating expan- sion of longitudinal service on the Lake due to an expected increase in trade with Upper Volta, although previous studies have failed to identify suffi- cient demand to warrant investment. The 40 mi road link from the dam at Akosombo to the port of Tema has gradients of up to 13%, and is difficult for trucks to negotiate. The Government is investigating several alternatives for Improvement, including a canal, rail link, or road improvement. Signifi- cant traffic volumes will need to be identified, however, to justify a large investment.  -5- Air Transport 2.11 The Department of Civil Aviation of MTC is responsible for the operation and maintenance of airports; maintenance of runways is currently delegated to GHA. The international airport at Accra, plus the domestic service airports at Takoradi, Kumasi, and Tamale, constitute an adequate infrastructure. Government-owned Ghana Airways provides scheduled domestic services, as well as some international service. The latter are however unprofitable at present, and the Government is taking the positive step of investigating the consolidation of international services with Air Afrique. C. Transport Planning and Coordination 2.12 Several Government agencies are involved in organizing and planning transport. The Ministry of Economic Planning (MEP) is responsible for over- all investment planning. MTC is nominally in charge of transport policy and regulations, and also controls the Railways and Ports Administration, the Department of Civil Aviation, and the several state-owned corporations which supply transport services. GHA which reports to the Ministry of Works and Housing (MWH), is responsible for all public roads, and is taking over the administration of feeder roads; this latter task was formerly shared between the Ministry of Labor and Social Welfare and the Ministry of Local Government (MLG). MLG also supervises the Omnibus Services Authority which is responsible for local bus transport. The Volta River Authority reports directly to the Office of the Head of State. 2.13 The Government is placing increased emphasis on economic planning, as reflected in the recent separation of MEP from the Ministry of Finance, and the establishment of the National Economic Planning Council (NEPC) in early 1974 to supervise preparation of the 1975-80 Five-Year Development Plan. NEPC's Plan Guidelines (issued in January 1975) specify commendable objectives in transport planning and coordination, including meeting transport needs at the lowest total cost, and consolidating and modernizing existing facilities; however, no methodology is specified for determining investment priorities among the many proposed transport projects, or among the different economic sectors. NEPC relies on individual ministries and agencies to determine their own intra-sectoral priorities. Long-range planning in practice thus appears to remain closely related to the annual budget review process. 2.14 MTC is technically responsible for coordinating transport invest- ments. A Transport Planning Unit (TPU) was established within the Ministry following the recommendations of a 1969 Transport Sector Study by consultants Robert Nathan and Associates (US), and a transport economist provided by CIDA prepared a number of recommendations on planning and specific sector issues. He has recently been succeeded by a Ghanaian transport economist who provides MTC with sufficient internal planning capability. 2.15 The Government has received assistance from several international agencies over a number of years to help improve transport planning. These  - 6 - have included, inter alia, UK assistance to Ghana Railways, the USAID-financed study of the transport sector followed by CIDA-financed technical assistance to MTC, and ODA and Bank/IDA assistance for highway planning. The major issues still affecting the transport sector are: (i) the problem of assuring adequate maintenance of past investments, in view of the shortage of foreign exchange for importing spare parts and equipment; (ii) the determination of the appropriate future role and level of investment for Ghana Railways; and (iii) the deficit operations of the several Government-owned transport cor- porations. This latter problem extends beyond the transport sector, and is in part a question of underlying Government policy. 2.16 The major focus of the proposed project is on adequately maintain- ing the road network to safeguard past investments, including the necessary planning for future maintenance activities and capital investments. The project therefore includes technical assistance to GHA's Planning Division (paras. 3.11 and 5.37). 2.17 With regard to Ghana Railways, the major transport artery requiring road/rail coordination is the Kumasi-Takoradi corridor which carries some 80% of railway traffic; road transport has been capturing an increasing share of the cocoa and timber traffic moving south to Takoradi for export, resulting, among other things, in the need for intensified road maintenance, and early comprehensive rehabilitation of certain road sections. Government has in the past followed a deliberate "road gap" policy, avoiding construction of a primary through-road in order to give the railway a competitive advantage. Major investments in both roads and railways are however being contemplated for this corridor, and in recognition of this potential duplication, GHA's Planning Division and MTC's Planning Unit will initiate the collection of traffic data and other selected information to prepare the basis for sub- sequent execution of a study on road/rail competition in the Kumasi-Takoradi corridor. This study will provide necessary basic data and methodology to permit the Government to undertake a complete review of road/rail coordination in due course. 2.18 There are also other problems and studies within the transport sector which will require consideration by the Government. 1/ In order to discuss these issues, and to review the progress made and experience gained in moving toward their solution, the Government has agreed that its transport experts will meet from time to time with Bank staff. These planning contacts will also provide basic guidance in identifying future projects suitable for external financing. 1/ These concern inland waterways (para. 2.10), the road transport industry (paras. 3.04-3.06), and road user charges (para. 3.17). Annex 2 gives a partial list of studies recently undertaken or planned in the transport sector, with particular reference to highways.  -7 - 3. ROADS A. The Network and Its Traffic 3.01 The public road network totals about 20,000 mi. Roads administered by the former PWD consist of about 3,000 mi of paved and about 4,500 mi of laterite- or gravel-surfaced roads; the remainder of the network comprises feeder roads of varying standards (Table 2). GHA is in the process of carrying out a functional classification of the entire public road network, which is now its administrative responsibility. The density of the existing network is generally adequate for the immediate future, but since most of the roads were constructed 10-20 years ago, many have standards which are inadequate for present traffic demands. There is an obvious need for some rehabilitation as well as for intensified maintenance in order to reduce the current high costs of vehicle operation. 3.02 As of 1974, about 95,000 vehicles were registered in the country (Table 3). The heaviest traffic volumes occur near the Accra urban area, where up to about 7,300 vehicles per day (vpd) have been recorded; the routes from Accra to Kumasi and to Takoradi carry through-traffic of between 1,000 to 2,500 vpd. Only some other trunk roads carry more than 750 vpd, and in the northern two-thirds of the country, traffic levels rarely go above 350 vpd. The average traffic growth rate is currently about 5% p.a. Recent counts suggest, however, that the rate is much higher for heavy vehicles. 3.03 In 1974, the Government enacted legislation establishing a single axle-load limit of 10 tons and maximum vehicle weight of 32 tons, and specifying other appropriate vehicle limitations. GHA is in the process of procuring weighbridges to assist in enforcement of the above regulations. B. The Road Transport Industry 3.04 The industry is characterized by two large Government enterprises-- the State Transport Corporation (STC) and the Omnibus Services Authority (OSA) --operating in competition with a well-developed private sector. STC provides long-distance freight and passenger services, car hire, and other transport services. It operates a fleet of about 200 buses, 130 trucks, and 70 hire- service cars. STC's rates are set by the Government, and now average about US$0.093 per ton-mile for non-contract domestic haulage ($0.153 for inter- national haulage) and about US$0.021 per passenger-mile for bus services, levels which appear low. For a number of years STC has incurred deficits, amounting to about US$0.9 million equivalent in 1971, the latest year for which statistics are available. STC will find it difficult to break even, given Government policies regarding tariffs, employment, and other issues. 3.05 OSA provides intra-city bus service, and has expanded into suburban/ rural areas. OSA operates a fleet of almost 300 buses. Fares are set by Government, and currently average about US$0.019 per passenger mile, which  - 8 - appears low. Following its 1972 reorganization, OSA managed by FY74 to reduce its substantial annual operating deficits to about US$1.0 million equivalent. A program to strengthen management and increase vehicle utiliza- tion is being partly supported by German technical assistance. 3.06 The private goods and passenger transport industry is made up of several medium-sized companies, and a large number of individual owner- operators. Growth of the private sector suffered a temporary setback in 1971 following the Alien Compliance Act, which forced the departure of a number of alien owner-drivers from the country. At present, the main prob- lem facing the industry is the shortage of foreign exchange to purchase spare parts and new trucks. There is evidence of competition between private firms and STC. For example, rates charged by private truckers are generally lower than STC rates, except in the few corridors where STC does not operate. There are at present no tariff, entry, or route regulations affecting the industry. Unregulated tariffs are as much as 80% higher on roads in poor condition, and it is difficult to attract truckers into certain areas where access is difficult, or where demand is low. The above is circumstantial evidence that vehicle operating cost savings from road improvements will tend to be passed on to the shipper in the form of lower tariffs or improved service (para. 6.15). C. Administration 3.07 Until the establishment of GHA in December 1974, public roads were administered by several agencies. The Ministry of Works and Housing was responsible, through PWD, 1/ for about 6,800 miles of main roads (Table 2). The Ministry of Local Government had charge of most of the other roads, with their administration carried out by City, Municipal, Regional, and Local Councils. Feeder roads were improved also by the Ministry of Youth and Rural Development; the Cocoa Marketing Board developed other rural roads to suit its particular needs; and the Volta River Authority built and maintained its resettlement roads. 3.08 Since 1969, PWD underwent several organizational changes as the Government attempted to make the administration of public roads more effi- cient. Results were however less than satisfactory; for example, the former PWD regional engineers were administratively placed under the Regional Chief Executive who received budget allocations directly from the Ministry of Finance, making central control by PND practically impossible. By contrast, GHA will have control over all funds for road development, although some authority will be delegated to local government agencies. 1/ PWD's remaining responsibilities since the creation of GRA consist mainly of construction and maintenance of Government buildings, and some special services.  - 9- Ghana Highway Authority 3.09 GHA was created by Governmental Decree effective December 1, 1974, with responsibility for practically all aspects of the planning, design, construction, maintenance, and administration of all public roads (including feeder roads and connecting ferry services), but without the burden of other activities not related to roads, such as buildings maintenance (see Organiza- tion Chart). This organizational structure is essential to achieving badly needed improvement in highway administration. The proposed project will provide much of the technical and financial assistance required to help GHA function effectively, especially support for the feeder road administration which represents a substantial extension of the tasks formerly undertaken by PWD. 3.10 The Chief Executive of GHA is well qualified for the post, having been previously Managing Director of SCC, and Engineer-in-Chief of PWD. Most of the other key positions indicated on the Organizational Chart have also been filled. GHA staff presently totals about 10,000, primarily recruited from PWD. D. Planning 3.11 Highway planning as previously carried out by PWD was not very satisfactory. Some assistance was provided by consultants SWKP/EIU who in 1971 prepared a road rehabilitation program with ODM financing. Later, when PWD's Planning Division (formerly the Highway Planning Unit) was strengthened under the First Highway Project, these consultants formed the nucleus of a planning staff. Government agreements under that project assured that the Division would become fully functional, and would effective- ly plan future highway development. GHA is now actively recruiting additional local staff for its Planning Division, and at the Government's request, ODM has agreed to provide the services of a highway planner/transport economist for two years (para. 5.37). 3.12 The Planning Division has already prepared the basic framework for highway planning, including a road classification system and the related network analysis, traffic counts, and economic evaluation of sections total- ling about 200 miles done in cooperation with SWKP under the ongoing First Highway Project (Annex 2). SWKP has also helped the Division prepare special studies including a manual of vehicle operating costs, and a survey of the domestic contracting and quarry industries; the results of these studies have provided much of the information required in preparing the proposed project. 3.13 The Building and Road Research Institute (BRRI) at Kumasi has occasionally assisted in road planning by preparing some studies. GHA intends to continue this practice, and to engage BRRI's services for further studies, two of which are included in the proposed project (paras. 5.32-5.34).  - 10 - E. Financing 3.14 Funds for capital and recurrent expenditures for roads are provided primarily from the Central Government annual budget. The size of the alloca- tions has been generally acceptable, but the availability of cash (in parti- cular foreign exchange) and the control of expenditures (especially for road maintenance) have not been satisfactory. Over the period 1970-75, alloca- tions to PWD for roads and ferries averaged about