Somalia - First and Second Highway Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2391 PROJECT PERFORMANCE AUDIT REPORT SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) March 1, 1979 Operations Evaluation Department 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. - i - FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) Table of Contents Page No. PREFACE iii PROJECT PERFORMANCE AUDIT BASIC DATA SHEETS iv GRAPHS OF ESTIMATED AND ACTUAL CUMULATIVE DISBURSEMENTS vii HIGHLIGHTS ix PROJECT PERFORMANCE AUDIT MEMORANDUM 1 I. Background 1 II. Objectives and Description of the First and Second Highway Projects 2 III. Project Results 3 IV. Main Issues 6 V. Conclusions 10 Annexes A. Actual Cost of First Highway Project 12 B. Road Agency Headquarters Personnel Roster 13 C. Road Agency Workshop Personnel Roster (Mogadishu) 14 ATTACHMENT A: PROJECT COMPLETION REPORT, FIRST HIGHWAY PROJECT 15 I. Introduction 15 II. Project Preparation and Appraisal 16 III. Project Implementation and Cost 21 IV. Institutional Development 31 V. Economic Re-Evaluation 32 VI. Conclusion 35 Tables A.1 Design Standards for the Afgoi-Baidoa Road 36 A.2 Actual and Appraisal Estimates of Disbursements (Cumulative) 37 A.3 Road Maintenance Allocation by Government 38 A.4 Actual and Expected Project Implementation 39 A.5 Comparisons of Vehicle Operating Costs 40 A.6 Recalculation of Economic Return: Afgoi-Baidoa Road 41 A.7 Ex-post and Appraisal Estimates of Economic Rates of Return 42 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. - 11 - Page No. ATTACHMENT B: PROJECT COMPLETION REPORT, SECOND HIGHWAY PROJECT 43 I. Introduction 43 II. Project Preparation and Appraisal 44 III. Project Implementation and Cost 47 IV. Economic Re-Evaluation 52 V. Conclusion 55 Tables B.1 Design Standards for the Hargeisa-Berbera Road 56 B.2 Actual and Appraisal Estimates of Disbursements (Cumulative) 57 B.3 Road Maintenance Allocation by Government 58 B.4 Actual and Expected Project Implementation 59 B.5 Comparisons of Vehicle Operating Costs 60 B.6 Recalculation of Economic Return: Hargeisa-Berbera Road 61 B.7 Ex-post and Appraisal Estimates of Economic Rates of Return 62 Map - iii - PROJECT PERFORMANCE AUDIT REPORT SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) Preface This report presents a performance audit of the Somalia First Highway Project, for which Credits 74-SO and 123-SO for US$8.5 million are expected to be fully disbursed in FY79 and of the Second Highway Project, for which Credit 295-SO for US$9.6 million was fully disbursed in March 1978. The memorandum is based on the attached Project Completion Reports (PCRs) pre- pared by the Bank's Eastern Africa Regional Office, discussions with Bank staff, and a review of the project files and transcript of the Executive Di- rectors' meetings which considered the projects. Some comments made by OED on an earlier draft of the PCRs have been reflected in the present version. OED staff visited Somalia in May 1978 to review the results of the projects. The assistance provided by the Government is gratefully acknow- ledged. Views expressed by Somali authorities have been taken into account in preparing the audit memorandum. The draft PPAR was sent to the authori- ties, but no comments were received. The audit memorandum agrees in part with the PCRs, but expresses a more critical view on certain aspects of the First Project. - iv - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) KEY PROJECT DATA Appraisal Actual or Item Expectation Re-estimate Total Project Cost Appraisal (US$ Million) 14.2 - Reappraisal (US$ Million) 17.0 22.15 /1 Overrun Actual Cost vs. Appraisal (%)- 56 Overrun Actual Cost vs. Reappraisal (%)- 30 Credit Amount (US$ Million) - 8.50 Original - 6.20 Supplementary - 2.30 Disbucsed - 8.24 Undisbursed as of 12/31/78 - .26 Repaid a .33 Borroi4er's Obligation )- 9.60 /2 Completion Date for Physical Components 1/71 /3 3/31/71 ProportLon of Physical Components Finished by Completion Date (%) - 86 ProportLon of Time Overrun for Physical Components(%) - 7 /4 Economi,: Rate of Return AppraLsal (%) 7-8 Reappraisal (%) 10 13/5 OTHER PROJECT DATA Item Original Plan Revision Actual First Mention in Files - - 9/27/63 Negotiations 11/64 - 11/23/64 Board Approval - Original 12/64 - 12/22/64 - Supplementary 6/68 - 6/25/68 Credit Agreement Dates - Original 3/65 - 3/29/65 - Supplementary 6/68 - 6/26/68 Effectiveness Dates - Original 6/29/65 - 9/16/66 - Supplementary 12/31/68 - 2/25/69 Closing Dates - Original 6/30/69 12/31/70 - - Supplementary 12/31/71 Numerous until 6/30/79 NYFD /6 Borrower Government of Somalia Executing Agency Ministry of Public Works Fiscal Year of Borrower 1/1 - 12/31 Follow-on Project Second Highway Project Credit Number 295-SO Amount (US$ Million) 9.6 Credit Agreement 3/30/72 /1 Including the arbitration award of DM 11,648,333.04 (US$4.48 million equivalent) to the contractor of the Afgoi-Baidoa Road, which has not yet been settled. To this, daily interest charges on the award from Decem- ber 15, 1975 have to be added. The final project cost will be differ- ent than US$22.15 million, depending on the settlement of the award. Excluding the cost of final engineering of the Hargeisa-Berbera Road (US$450,000). /2 Including exchange adjustment of US$1.69 million. 7T Signifies end of 36-month contractual period for construction of the Afgoi- Baidoa Road. No Completion Date for the entire project was specified. 4 Calculated on basis of contractual period. 5 Taking account of the arbitration award. /6 Not yet fully disbursed. - V - MISSION DATA Month/ No. of No. of Date of Item Year Weeks Persons Manweeks Report Identification 7-08/63 4 3 12 9/27/63 Appraisal I 1-02/64 4 2 8 3/06/64 II 9-10/64 1 2 2 12/10/64 Reappraisal 3-04/68 4 2 8 6/13/68 Total 13 9 30 Supervision I 7/65 1 1 1 7/20/65 II 11/65 2 1 2 12/08/65 III 11-12/66 2 1 2 11/26/66 + 1/18/67 IV 11/67 2 1 2 1/18/68 V 10/68 2 2 4 11/29/68 VI 2-03/69 1 1 1 3/17/69 VII 7/69 1 2 2 7/23/69 VIII 11/69 1 1 1 12/22/69 IX 4/70 1 1 1 4/27/70 x 6/70 1 1 1 7/01/70 XI 12/70 1 1 1 1/19/71 XII 4/71 1 2 2 5/20/71 XIII 11-12/71 1 1 1 1/12/72 XIV /1 3/72 1 1 1 5/01/72 xV 3/73 2 1 2 4/04/73 XVI 9/73 1 1 1 11/29/73 XVII /1 7/74 1 1 1 9/04/74 xVIII 1/77 1 1 1 3/01/77 XIX 10-11/77 2 2 4 12/15/77 COUNTRY EXCHANGE RATES Name of Currency (abbreviation) Somali Shilling (So.Sh.) Year: Appraisal Year Average US$1 = So.Sh. 7.14 1969-1971 US$1 = So.Sh. 7.14 1972 US$1 = So.Sh. 6.58 1973-1974 US$1 = So.Sh. 6.17 1975-1977 US$1 = So.Sh. 6.30 /1 Special Mission to review progress of training - vi - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET ScALIA SECOND hIGHwAY PROJECT (CREDIT 295-SO) KEY PROJECT DATA Appraisal Actual or Item Expectation Re-estimate Total Project Cost (US$ million) 10.60 10.69 Overrun (%) - 1 Credit Amount (US$ million) 9.60 9.60 Disbursed ) aso- 9.60 Borrower's Obligation )as of 12/31/78 - 9.74 Ll Project Completion Date 12/31/74 5/75 /2 Proportion of Physical Components Finished by Completion Date (Z) / - 82 Proportion of Time Overrun (Z) 2 - 20 Economic Rate of Return (%) 19 36 OTHER PROJECT DATA Item Original Plan Revision Actual First Mention in Files - - 12/05/67 Negotiations 4/71 6/71 7/6-10/71 Board Approval 6/71 - 1/18/72 Credit Agreement 3/72 - 3/30/72 Effectiveness Date 6/27/72 - 5/11/72 Closing Date 12/31/75 12/31/76 3/01/78 12/31/77 6/30/78 Borrower Government of Somalia Executing Agency Ministry of Public Works Fiscal Year of Borrower 1/1 - 12/31 Follow-on Project: Third Highway Project Credit Number 669-SO Amount (US$ million) 7.0 Credit Agreement 6/01/77 MISSION DATA Month/ No. of No. of Date of Item Year Weeks Persons Manweeks Report Identification /3 3-04/68 1 2 2 4/10/68 Appraisal 12/70 3 2 6 1/05/72 Supervision I 3/73 2 1 2 4/16/73 II 9/73 2 1 2 10/24/73 III 6/74 2 1 2 7/22/74 IV 10/74 3 1 3 11/13/74 V 5-06/75 1 2 2 7/15/75 VI 10-11/75 2 1 2 11/18/75 VII 1/77 1 1 1 3/01/77 VIII 10-11/77 1 2 2 12/15/77 COUNTRY EXCHANGE RATES Name of Currency (abbreviation) Somali Shilling (So.Sh.) Year: Appraisal Year Average US$1 - So.Sh. 6.58 1973-1974 US$1 = So.Sh. 6.17 1975-1977 US$1 - So.Sh. 6.30 /1 Including exchange adjustment of US$140,000 /2 Relates to construction of the 1argeisa-Berbera Road. Technical assistance was completed in August 1976. /3 Undertaken during reappraisal of the First Highway Project. - vii - GRAPH A PROJECT PERFORMANCE AUDIT REPORT SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) Estimated and Actual Cumulative Disbursements US$ Million 9 8 7 6 ESTIMATED Of 5 ACTUAL 3/ 2 0 1968 1969 1970 1971 1972 Fiscal Year Estimated Actual Cumulative Disbursements Cumulative Disbursements FY US$ thousand FY US$ thousand 1968 1,500 1968 1,130 1969 4,500 1969 2,330 1970 8,000 1970 5,110 1971 8,500 1971 8,000 1972 8,240 Notes: Actual disbursements reflect US$2 3 million increase in credit amount (1968) from US$6.2 million to US$8.5 million and are inclusive through September 30, 1978. The only schedule of estimated cumulative disbursements available shows the combined amount for the two credits. Source: IDA Files October 1978 World Bank - 19516 - viii - GRAPH B PROJECT PERFORMANCE AUDIT REPORT SOMALIA SECOND HIGHWAY PROJECT (CREDIT 295-SO) Estimated and Actual Cumulative Disbursements US$ Million 10 9 -d ESTIMATED 4 7 6 4CUA 5 0 1972 1973 1974 1975 1976 1977 1978 Fiscal Year Estimated Actual Cumulative Disbursements Cumulative Disbursements FY US tousand FY US$ thousand 1972 1,800 1973 1,700 1973 4,900 1974 3,400 1974 8,600 1975 8,000 1975 9.600 1976 8,800 1977 9,300 1978 9,600 Source- IDA Files October 1978 World Bank - 19515 - ix - PROJECT PERFORMANCE AUDIT REPORT SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) Highlights The First and Second Highway Projects in Somalia, for which IDA provided Credits 74-SO, 123-SO, and 295-So totalling US$18.1 million, were to assist in improving the transport network, in planning and coordinating transport investments, and in building up an efficient road organization. These objectives were largely realized through the construction and con- struction supervision of about 374 km of roads, acquisition of road main- tenance/workshop equipment, provision of fully equipped offices for the road agency, and extension of technical assistance to strengthen the road agency and carry out preinvestment studies. The First Project, which required two appraisals, was implemented satisfactorily albeit over nine years rather than the originally estimated four years. This was due to two major reasons: (a) IDA lending before final engineering was sufficiently well advanced, which was then made a condition of credit effectiveness; and (b) delays in reorganization of the road agency and in delivery of maintenance equipment. The cost of the proj- ect can only be expressed tentatively at this time because the Government has not yet settled an arbitration award made in September 1975 for one of the project roads. Taking the award, together with higher costs of engineer- ing, supervision, and technical assistance into account, the project cost is estimated to be 30% higher than at reappraisal (and 56% higher than at appraisal). The re-estimated economic rate of return for the civil works is 13% compared with 10% estimated at reappraisal (and 7%-8% at appraisal) because higher benefits offset higher construction costs. The Second Project was implemented with no major difficulties over four-and-a-quarter years versus the planned two-and-three-quarter years, up- dating of the transport survey being the main cause of delay. The actual project cost is in line with the appraisal estimate. The re-estimated econ- omic rate of return of 36%, nearly double the appraisal estimate of 19%, re- sulted because higher benefits more than offset higher construction costs. The following points may be of particular interest: - delay in start-up of the First Project due to lending before final engineering was sufficiently well advanced (paras. 23-26 and PCR, Attachment A, paras. 2.06-2.08 and 3.01); - inadequate site and materials investigations for one project road (para. 27 and PCR, Attachment A, paras. 3.03-3.05); - x - - delay on the part of the Government in establishing and staffing authorized posts in the road agency, despite noteworthy progress between 1964 and 1971 (paras. 30-33 and PCR, Attachment A, paras. 4.01 and 4.06); - factors which frustrated training efforts (para. 34); - detrimental effects of the diversion of maintenance equipment and measures taken to stop diversion (paras. 35 and 36); - difficulties of computing benefits to agricultural development in the influence area of one project road (paras. 37-39 and PCR, Attachment A, para. 5.06); and - complementarity of one project road to a subsequent regional agricultural development project (para. 40 and PCR, Attachment A, para. 5.06). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) I. Background General 1. Somalia is situated at the Horn of Africa on the northeastern corner of the continent. Its population is estimated at 3.5 million, of which about 65% are nomads and semi-nomads, 20%-25% are farmers, and the balance are urban dwellers. Major population centers are in the south around Mogadishu, the capital, commercial center, and major port, and in the north around Hargeisa, the main city of the region, and Berbera, the port on the Gulf of Aden. The people live in a harsh, arid environment, constantly threatened by drought due to low, irregular rainfall. Neverthe- less, they depend heavily on agriculture for their livelihood, animal hus- bandry being the main occupation and principal foreign exchange earner. Development of Transport Infrastructure 2. Transport infrastructure has developed to only a limited extent because of the sparse population between major centers, the arid environment, and the low level of non-subsistence production. It is most highly developed in the economically active southern and northern regions, and currently com- prises about 17,700 km of roads (8% paved), four main ports, three airports, and seven airstrips. 3. Roads provide the principal means of transport. Between 1964 and 1978, the total length increased nearly 50% (from 12,000 km to 17,700 km). Paved roads more than doubled (from 600 km to 1,400 km), while gravel and earth roads together grew about 50% (from 11,000 km to 16,300 km). Although roads have facilitated national unity and public administration, the long distances to be covered and light traffic volumes to be served have made construction difficult to justify on economic terms. Bank Group Lending for Transport 4. Since 1964, the Bank Group has provided US$49.7 million for trans- port projects. Of the total, US$24.6 million has assisted development of the port of Mogadishu from lighterage to alongside facilities and US$25.1 million has supported development of the road network and related institu- tions. The First Highway Project (Credit 74-SO of March 1965 for US$6.2 million and Credit 123-SO of June 1968 for US$2.3 million) and the Second Highway Project (Credit 295-SO of March 1972 for US$9.6 million) have been completed and are the subject of this report. - 2 - II. Objectives and Description of the First and Second Highway Projects Objectives 5. The First and Second Highway Projects were to assist in improving the transport network as well as in planning and coordinating transport in- vestments. The former also was to build up an efficient road organization, eventually staffed by trained Somalis. Description 6. On the basis of two appraisals in 1964, the cost of the First Project was determined at US$14.2 million. IDA, FED, UNDP, and the Govern- ment were to be cofinanciers (PCR, Attachment A, para. 2.04). Project com- ponents and estimated costs are summarized below (with details in PCR, Attachment A, para. 2.09): Component Cost US$ Million Afgoi-Baidoa Road (216 km) Construction 8.00 Final engineering and con- struction supervision .60 Subtotal 8.60 Maintenance/workshop equipment and office building 2.75 Technical assistance program 2.85 Total 14.20 7. The road construction cost had been estimated at appraisal on the basis of preliminary engineering and an economic feasibility study by con- sultants. Bids submitted for the construction contract based on final engineering indicated that the cost would be US$2.8 million more than the appraisal estimate. In the event, IDA reappraised the project in March/ April 1968, and it was agreed, in June 1968, that IDA and the Government would finance the cost difference. The new financing plan was: - 3 - Item Total IDA FED UNDP Government ------------------US$ Milio Afgoi-Baidoa Road Construction 10.80 8.50 1.80 - 0.50 Engineering and supervision 0.60 - 0.60 - - Maintenance/workshop equipment and office building 2.75 - 2.75 - Technical assistance 2.85 - - 2.15 .70 Total 17.00 8.50 5.15 2.15 1.20 Percentage Share 100% 50% 30% 13% 7% 8. The estimated cost of the Second Project as appraised was US$10.6 million. The main project component, construction (including supervision) of the Hargeisa-Berbera Road (158 km), was estimated to cost US$9.82 mil- lion based on final engineering confirmed by bids received before presenta- tion of the project to the Executive Directors. Engineering studies and technical assistance totalling US$780,000 also were covered in the project. The African Development Bank was to be the cofinancier with IDA, the former providing US$1 million and the latter, US$9.6 million. (PCR, Attachment B, paras. 2.03-2.14 and 3.09). III. Project Results Implementation 9. The First Project was implemented as reappraised (PCR, Attachment A, paras. 3.01-3.26), after the addition of final engineering of the Hargeisa- Berbera Road (identified as having high priority by the project transport survey). Despite implementation problems arising from final engineering of the Afgoi-Baidoa Road (paras. 23-29 and PCR, Attachment A, paras. 2.06-2.07 and 3.03-3.05), construction eventually was completed by the lowest bidder. The paved road has opened up the influence area to agricultural development, facilitated administration, and strengthened social and economic cohesion. As the seven-year service life of the pavement ended in March 1978, strength- ening now is due. Some claims for the construction work, arbitrated in favor of the contractor, have not yet been settled. 10. Also under the First Project, consultants in executive positions reorganized the road agency, revised operations, and trained some Somalis on-the-job (training abroad also was carried out). Currently, the road agency lacks sufficient trained staff, and this makes effective operations difficult (paras. 30-34). The consultants, in addition, prepared two road maintenance programs (1966-70 and 1971-74). The results of the programs were modest, primarily because of insufficient maintenance allocations in 1966-71 due to budgetary constraints. From 1972-74, allocations rose, ex- ceeding consultants' specifications by 43% in 1973 and 12% in 1974 but falling to 94% of the specification in 1975.1/ Other reasons for the modest results were the scarcity of equipment from 1969-73 due to diver- sion to other purposes (paras. 35 and 36) and the four-year gap between the two stages of delivery. As a consequence, the planned maintenance of agricultural feeder roads was adversely affected (para. 41). Much of the maintenance equipment acquired through the project now is near the end of its useful life and replacement will soon be required. 11. The Second Project was implemented satisfactorily (PCR, Attach- ment B, paras. 3.01-3.08), including construction of the Hargeisa-Borama Road by the lowest bidder. The paved road has facilitated trucking of livestock from Hargeisa to Berbera for export. All contractor's claims have been settled. Time 12. Both projects were implemented over longer periods than originally scheduled. The original appraisal of the First Project estimated a four-year implementation period. However, implementation actually took nine years (1965-74) (PCR, Attachment A, Table A.4), mainly due to the extension of technical assistance to accommodate delays in reorganization of the road agency and in delivery of the second stage of equipment. 13. All components of the Second Project were finished after the Project Completion Date (December 31, 1974) (PCR, Attachment B, Table B.4). The longest delay, until August 1976, was in completion of updating of the transport survey. Costs 14. In the PCR (para. 3.29), the actual cost of the First Project is given as US$18.12 million, excluding the arbitration award and including the final engineering of the Hargeisa-Berbera Road. To make the calculation of actual cost relevant to the originally planned components, the arbitration award would have to be included (PCR, para. 3.30) and the final engineering excluded. The amount of DM 11,648,333.04 (US$4.48 million equivalent?V) 1/ Allocations rose to So. Sh. 7.96 million in 1976 and 1977, or slightly above the 1974 level (So. Sh. 7.86 million). They were expected to reach So. Sh. 10.25 million in 1978, which was considered to be sufficient for current maintenance requirements. 2/ US$1 = DM 2.6. -5- has been awarded. Taking this into account, the actual project cost would work out to US$22.15 million (Annex A). This would be 30% higher than the US$17 million cost estimate at reappraisal (and 56% higher than the US$14.2 million appraisal estimate). The overrun related to the reappraised project would be due to the arbitration award together with higher costs of engi- neering, supervision, and technical assistance. However, since the Govern- ment has not yet settled the arbitration award and daily interest charges on the award from December 15, 1975 also have to be added, the final project cost and the percentages of cost overruns will be different from the amounts shown. 15. The Second Highway Project was completed at a cost of US$10.69 million, or very much in line with the appraisal estimate of US$10.60 million. This was primarily because the lower cost of technical assistance offset the higher cost of construction supervision. Disbursements 16. Disbursements for the First Project (Graph A and PCR, Attachment A, para. 3.34 and Table A.2) began in 1968, as scheduled. About 97% of the credit was withdrawn by 1972, a year later than the projection for full dis- bursement. Since 1972, about US$263,000 has remained in the credit account. The Closing Date has been extended to June 1979 to allow use of the undis- bursed balance toward settlement of the arbitration award. 17. For the Second Project, disbursements began in 1973, a year behind schedule, and were completed in 1978, three years late. The Closing Date was extended two and a half years so that claims and retention money could be paid to the contractor. The credit has been fully drawn down (Graph B and PCR, Attachment B, para. 3.11 and Table B.2). Economic Re-Evaluation 18. When the First Project was reappraised in 1968, the economic justification for construction of the Afgoi-Baidoa Road was reassessed in light of the design changes during final engineering, higher construction cost estimate, and updated traffic as well as vehicle operating cost (voc) data. On this basis, the rate of return was estimated at 10% (compared with 7%-8% estimated at appraisal in 1964). 19. The rate of return was re-estimated in the PCR at 13% based on the actual construction cost (including the arbitration award), updated traffic as well as voc data, and current routine and periodic maintenance costs with and without the project. The higher re-estimated return mate- rialized because increases in traffic and hence voc savings (particularly for medium and heavy vehicles) more than offset increases in construction costs. 20. The audit notes that benefits from agricultural development in the influence area of the road were not taken into consideration in cal- culating the rate of return at reappraisal or appraisal (although they - 6 - were prominently mentioned) or in the PCR (paras. 37-39). Intangible social and administrative benefits are also derived from the road. 21. In the case of the Second Project, a 19% economic rate of return was estimated at appraisal on the basis of voc savings as well as increases in revenue due to decreases in weight loss and death of livestock during transport to the port of Berbera for export. The PCR re-estimated the rate of return at 36%, or nearly double the appraisal estimate, on the basis of actual construction costs and updated benefit data, including savings in road maintenance. IV. Main Issues 22. The particular issues which arose in connection with the project are: (a) the implementation problems for the First Project arising from inadequate engineering of the Afgoi-Baidoa Road; (b) the staffing and training difficulties; (c) the diversion of maintenance equipment to other purposes; (d) the unquantified agricultural benefits of the Afgoi-Baidoa; and (e) the slow improvement of maintenance of agricultural feeder roads. Implementation Problems for the First Project Arising from Inadequate Engineering of the Afgoi-Baidoa Road 23. IDA provided the credit for the First Project before completion of final engineering for the Afgoi-Baidoa Road, tying credit effectiveness to the condition that final engineering should have reached an advanced stage. This amounted to a built-in delay for project implementation because resolution of several problems associated with the engineering held up effectiveness until September 1966, or 15 months beyond the June 1965 date specified in the Credit Agreement. 24. Two major difficulties delayed the start of final engineering. One was the administrative procedures of FED (which financed the engineer- ing work) that held up signature of the contract with consultants until October 1965, seven months after credit signature. The other was the in- experience of the consultants in the type of work required under the project. 25. Once the engineering was initiated, the consultants' first esti- mate of the road construction cost was US$14 million, 75% above the appraisal estimate. In order to contain the cost within a reasonable level, the design was reviewed several times between June 1966 and January 1968 (when the con- struction contract was awarded) (PCR, Attachment A, paras. 2.06 and 2.07). This led to the adoption of stage construction (seven-year service life of pavement), pavement design more in line with rainfall conditions in Somalia, and a less expensive type of surfacing as well as to the reduction or elimination of certain soil stabilization work. The construction cost estimate on this basis was US$8.4 million, 5% over the appraisal estimate. 26. Bids submitted for the construction contract based on final engi- neering were much higher than expected. Closure of the Suez Canal and uncertainty of bidders due to the June 5-10, 1967 war in the Middle East - 7 - was considered likely to have had an adverse impact on the activity.l/ Rebidding was considered but rejected because of the time required (six months) and lack of assurance that lower prices would be obtained. In- stead, some non-essential items were excluded from the design. Neverthe- less, the construction cost was to be US$10.8 million, 35% more than the appraisal estimate, for a 36-month construction period. The US$2.8 million required above the original financing was provided through supplementary financing after project reappraisal (para. 7). 27. It seems that the site and materials investigations during the design review gave inadequate attention to existing soil and geological conditions. Further changes in design of the pavement and grade line during construction in 1969 and 1970 thus became necessary, (PCR, Attachment A, paras. 3.03-3.05),.but they did not affect the overall cost of road construction.2/ 28. The audit notes that for some time it has not been normal IDA procedure to make a credit before final engineering (and leave its effect- iveness contingent upon such final engineering). In this case, FED also waived its usual policy of requiring final engineering before presenting a request for financial assistance to the EEC Commission. Further, IDA usually establishes the credit effectiveness date on the basis of the time needed to achieve the conditions specified. It appears that an advanced stage of final engineering would have been difficult to reach within 90 days, as had been expected. A better alternative would have been an engineering credit. 29. IDA's current policy is to require substantial completion of final engineering before presentation of a project to the Executive Directors. This is to ensure, as much as possible, that the scope, content, and estimated cost of the project is known and to minimize the time elapsed between Board presentation and the start of project execution. Such an approach would have avoided the need for reappraisal. It also would have allowed more time and attention for site and materials investigations. Finally, it most likely would have involved only very minor design changes during construction to accommodate unforeseen conditions. Staffing and Training Difficulties 30. In connection with the First Project, the authorized number of posts for the road agency was expanded to 373 in 1971. At the time of appraisal in 1964, there had been 2 Somali engineers and 10 technical staff in the agency (the entire Public Works Department had 10 higher technical staff and 50-60 clerks). By the end of 1971, about 261 of the newly 1/ According to the Appraisal Report for the supplementary credit. 2/ It is noted that further site and materials investigations by the super- visory consultants at the start of construction of the Hargeisa-Berbera Road included in the Second Project led to a sizeable reduction in the contract cost (see PCR, Attachment B, para. 3.01). - 8 - authorized posts had been filled. While this was considerably short of the authorized number of posts, the increase in staff between 1964 and 1971 is noteworthy. 31. Statistics on the current staffing position of the road agency are not available. However, according to Government authorities, many positions remain vacant. Data available for the headquarters organization and main workshop in Mogadishu indicated that about 40% of the key posts of graduate engineers and non-graduate technicians in the former (Annex B) and 9% of the posts of mechanics in the latter (Annex C) were vacant.1/ These vacancies were due to staff transfers to other agencies, departures to nearby countries offering higher salaries, and the continuing shortage of trainable candidates. Unless measures are taken to fill all the 373 authorized posts of the road agency, this will inevitably affect adversely road operations, especially maintenance. 32. Government officials told the audit mission that the vacancies in graduate engineers were hoped to be filled through recruitment of new graduates from Somali University and in mechanics through employment of temporary staff who could be paid at higher rates than those allowed by civil service regulations. However, there would be some difficulty in locating non-graduate technicians to support graduate engineers. The officials also mentioned that there is a growing awareness of the need to find better ways to attract and retain staff, such as enhanced salaries and/or benefits as well as improved training (including basic education). 33. It is noted that the appraisal of the First Project had stated that the shortage of trained Somali technical staff and limited availability of people with a minimum basic education for further training would be serious problems to be overcome in staffing the road agency. The appraisal of the Second Project in 1972, while the First Project was still being im- plemented, commented that the remaining vacant posts would be filled "as suitable Somali personnel become available over the coming years." The situation was kept under review and, because of the continuing shortage of trained personnel, the consultants' services provided in connection with the First Project were eHtended until 1974. From 1974-78, training of Somali personnel was carried out on the Belet Uen-Galcaio-Burao Road, financed by the People's Republic of China, and in training classes run by the road agency. 34. The ongoing Third Project supported by IDA provides for a manpower study as well as planning and implementation of staff training, on-the-job training of professional staff, and on-the-job and classroom training of existing and new mechanics, operators, drivers, and spare parts inventory control staff. In formulating and executing these tasks, the following factors, which tended to frustrate training efforts associated with the First Project, should be borne in mind: the low level of staff skills; the poor participation and attendance in classes due to low salaries as well as 1/ About 35% of the clerical posts also were vacant in both. - 9 - lackof sufficient training equipment and materials; the expectation that staff carry out regular duties while in training; and the removal of staff from training when needed for other work. Also the need for a Training Unit in the road agency for continuous efforts in training after comple- tion of Bank-financed projects in Somalia should be considered. Diversion of Maintenance Equipment to Other Purposes 35. During the First Project, maintenance equipment was diverted by order of the Army, to village improvement projects, public buildings, and military work and maintenance foremen to a special construction program. As a result, project-related maintenance activities were seriously jeo- pardized. IDA supervision missions, however, were unable to convince the Government of this and had no legal grounds to support their argument. The use of maintenance resources had not been specified, among other provi- sions related to maintenance of the road network, in the lending documents. Specification would have provided the basis for IDA to take strong actions, including, if necessary, the cessation of credit disbursements, to convince the Government. 36. Because of this experience, IDA specified in a Supplemental Letter to the Credit Agreement for the Second Project that maintenance equipment be used "primarily" for the purpose intended. While diversion did not cease entirely, it was reduced to the extent that maintenance activities were not seriously jeopardized. It is noted that the Government agreed, in connection with the ongoing Third Project, to use road maintenance equipment and staff "exclusively" for the purposes intended (PCR, Attachment B, para. 3.15). The audit mission was informed by Government officials that the Head of State has prohibited the diversion of maintenance resources. Unquantified Agricultural Benefits of the Afgoi-Baidoa Road 37. The economic evaluations of the Afgoi-Baidoa Road at appraisal and at reappraisal emphasized, in descriptive terms, the agricultural development potential of the influence area after completion of the all-weather facility. However, benefits arising from such development were not quantified for the economic rate of return calculation. This raises the question of whether agricultural benefits that were unquantified but emphasized were implicitly intended to supplement quantified benefits from voc savings alone which resulted in a low economic rate of return at appraisal (7%-8%) and a marginal return at reappraisal (10%). The PCR did not consider agricultural benefits when re-estimating the rate of return (para. 39). 38. The all-weather facility is known to have stimulated considerable spontaneous migration to the area. Both sides of the road now are inhabited by small-scale, private agriculturalists who have cleared and cultivated the land. However, no Land Use Survey of the country has been carried out and the agricultural data base is extremely weak. For these reasons, it has not been possible for the audit to determine whether the re-estimated rate of return of 13% on the basis of transport cost savings fully reflects the benefits from agricultural development. - 10 - 39. Supervision missions did not include agricultural personnel to monitor agricultural development. The December 1970 supervision mission suggested that the next mission include an agricultural specialist and recommended that an assessment be made of existing and potential agricul- tural development in the influence area of the project road as well as a comparison of the findings with assumptions at appraisal. Although this recommendation was not followed up, a visit was made by the Regional Mis- sion in Eastern Africa in November/December 1972 to identify Somali agri- cultural projects that might be suitable for external finance. Based on a review of the situation in the vicinity of Baidoa and Bur Hacaba, a town located about midway along the project road, this mission recommended an integrated agricultural development project. This seems to indicate that the developmental effects of the road were considerable. A more detailed review of the developmental impact of a road project both at the time of appraisal and PCR missions is desirable, although it is understood that in the case of the PCR for this project it was not possible because of an insuf- ficient data base. 40. The Bay Region Agricultural Development Project, centered on Baidoa and encompassing Bur Hacaba, is included in IDA's FY79 Lending Program. The US$35 million project is intended to support increased crop and livestock production in the 4 million ha Bay Region, which constitutes Somalia's main rainfed farming area. The Afgoi-Baidoa Road will contribute significantly to this complementary project, which could not be formulated earlier because of the low lending available from external donors in the early 1970s and, more recently, the military situation in the nearby Ogaden. Slow Improvement of Maintenance of Agricultural Feeder Roads 41. Through the First Project, improved maintenance of agricultural feeder roads linking Baidoa to Dinsour, Audinle, Uegit, and Hoddur was to be given priority in the Government's road maintenance program. According to PCR Attachment A (para. 3.39), the work was carried out slowly due to the shortage of maintenance funds and scarcity of equipment, most being completed in 1976-77. 42. The July 1978 appraisal of the proposed Bay Region Agricultural Development Project (para. 40) found that there was a need for upgrading the Baidoa-Dinsour Road to facilitate the movement of people and livestock as well as the delivery of services. Upgrading of the road is proposed to be included in the US$9 million road component of the project. It is essential that once the road is improved, sufficient maintenance resources be provided regularlyand continuously to protect the asset. V. Conclusions 43. The objectives of the First and Second Highway Projects were largely achieved. Two paved roads totalling 374 km were constructed. The Afgoi-Baidoa Road has facilitated agricultural development, administration, and social and economic cohesion. An agriculture project recently - 11 - appraised by IDA, will complement the investment. The Hargeisa-Berbera Road has allowed trucking of livestock, the major export commodity, from market to port. Purchases of maintenance/workshop equipment and construc- tion of an office building have provided essential infrastructure. Finally, technical assistance has contributed to satisfactory completion of construc- tion, preparation of future projects, reorganization of the road agency, and initiation of effective road operations. 44. A major difficulty for the First Project was IDA lending before final engineering and tying credit effectiveness to the advanced stage of such engineering. Implementation problems responsible for a 15-month delay in reaching that status confirm the need for realistic effectiveness condi- tions not likely to delay project start-up. In the case of this project, an engineering credit might have been a better alternative to lending before final engineering. It is noted that final engineering was completed before presentation of the Second and Third Projects to the Executive Directors (and confirmed by bids for the Second Project). Other significant diffi- culties for the First Project were shortages of funds in 1966-71 as well as diversion and scarcity of equipment which limited planned road maintenance programs. Currently, the Government is demonstrating its commitment to main- tenance by augmenting funds and restricting equipment and staff to the intended work. 45. Much of the momentum gained during the First Project for building up an efficient road agency, staffed by trained Somali staff, was lost after the consultants left in 1974. Current shortages in trained staff are detri- mentally affecting road operations. Further attention to manpower availa- bility and training, to be provided in the ongoing Third Project, are intended to improve the situation. - 12 - ANNEX A PROJECT PERFORMANCE AUDIT MEMORANDUM SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) Actual Cost of First Highway Project Actual Actual Project-Related Project Item Expenditure Cost Included in Project at Reappraisal --------US$ million----- Afgoi-Baidoa Road Construction 10.47 10.47 Arbitration Award 4.48 /1 4.48 /1 Engineering and supervision 0.94 0.94 Subtotal 15.89 15.89 Maintenance/workshop equipment and office building 2.20 2.20 Technical assistance 4.06 4.06 Added to Project after Reappraisal Final engineering of Hargeisa- Berbera Road _.4 n.a. 12 Total 22.60 22.15 /3 /1 The arbitration award was in the amount of DM 11,648,333.04 (US$4.48 million equivalent). To this, daily interest charges on the award from December 15, 1975 have to be added. /2 Not applicable. /3 The actual project cost will be different from this amount once the arbitration award is settled and daily interest charges from December 15, 1975 are added. - 13 - ANNEX B PROJECT PERFORMANCE AUDIT MEMORANDUM SOMALIA FIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-50) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) Road Agency Headquarters Personnel Roster In Service, Approved In Service, Post 1964 Establishment 1978 Graduate Engineer Director 1 1 Executive Engineer 0 1 Chiefs of Section Civil Engineer 3 3 Materials Engineer 0 1 Mechanical Engineer 0 1 Assistant Engineer 0 1 Subtotal 4 8 5 Non-Graduate Technician Superintendents 3 6 Surveyors 0 1 Senior Administrative Officer 0 1 Accountant 0 1 Technical Assistants 0 8 Subtotal 3 17 10 Clerical Draftsmen 0 2 Clerks 3 6 Subtotal 3 8 5 Messengers and Watchmen 0 6 6 Total 10 39 26 - 14 - ANNEX C PROJECT PERFORMANCE AUDIT MEMORANDUM SOMALIA TIRST HIGHWAY PROJECT (CREDITS 74-SO AND 123-SO) AND SECOND HIGHWAY PROJECT (CREDIT 295-SO) Road Agency Workshop Personnel Roster (Mogadishu) Approved In Service, Post Establishment 1978 Supervisor 6 6 Mechanics 46 42 Clerks 6 4 Messengers and Watchmen 7 7 Total 65 59 - 15 - ATTACHMENT A SOMALIA PROJECT COMPLETION REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) I. INTRODUCTION 1.01 In 1963, a Bank Group reconnaisance mission visited Somalia to study the general economic situation in the country and to identify possible projects for Bank/IDA financing. Among highway projects, the mission found construction of the Afgoi-Baidoa road to be most promising and of high economic priority. The road was included in the country's Five-Year Plan (1963-67); a preliminary engineering and an economic feasibility study of the road had alread been completed by an Italian firm, Italconsult, engaged by Government. Subsequently, in January/February 1964 a Bank Group mission visited the country to appraise the project. A post-appraisal mission, accompanied by a representative of the European Development Fund (FED) of the European Economic Community (EEC) and a representative of the UNDP (UNSF then) who were interested in participating in the project, followed in September/October 1964 to refine cost estimates and conclude discussions with the Government. The project was presented to the Board on December 22, 1964; a Development Credit Agreement for US$6.2 million, and an Administration Agreement between Government, EEC and the Association were signed on March 29, 1965, and an agreement (called Plan of Operation) between the Government, UNDP and the Bank (acting as executing agency) was signed on October 4, 1965. Later, as a result of the high bids received for road construction and FED's inability to provide any additional funds, a supplementary credit of US$2.3 million was approved in June 1968; of the additional US$2.8 million required, Somali Government provided US$0.5 million equivalent. 1.02 The project, cofinanced by Government, FED, UNDP and IDA, comprised road construction, maintenance equipment and offices, and technical assistance to the Highway Department of the Ministry of Public Works (MPW). 1.03 This report is based on: (i) Consolidated final report by Co-Director (Project Co-ordinator) of the Civil Engineering Department (CED); (ii) Final report on the Highway Development Program by the Consultants, Renardet-Sauti; (iii) Findings of IDA supervision missions undertaken during and after project execution; (iv) Highway Division files; 16 - (v) Available progress reports; and (vi) Traffic data compiled by the CED. II. PROJECT PREPARATION AND APPRAISAL A. Project Evolution 2.01 Of the various highway projects presented to the Bank by the Govern- ment, the reconnaissance mission which visited Somalia in July-August 1963 found construction of the Afgoi-Baidoa road to be most promising and of high economic priority. The mission identified two other roads, namely, Hargeisa- Berbera road and Burao-Berbera road, in the northern part of Somalia, of apparent high priority for feasibility studies. A preliminary engineering and economic feasibility study of the Afgoi-Baidoa road had already been completed (para. 1.01). The mission also identified the need for financial and technical assistance to Government in establishing an efficient highway organization, including technical training of Somali personnel, and for carrying out a transportation investment study in the country. B. Project Preparation 2.02 A Bank Group appraisal mission visited Somalia in January-February 1964 and confirmed the previous mission's findings, although noting that the quantifiable benefits from the project road were rather low. Since the total cost of the project was much greater than IDA funds that could be allocated to Somalia, the Association, at Government's request, sought to interest FED and UNDP in joint financing of the project. While UNDP agreed to help finance the technical assistance component of the project, discussions with FED concluded that before committing any funds for road construction, it was necessary to determine cost estimates more accurately in view of the higher costs obtain- ing on similar works,on the FED-financed road between Afgoi and Scialambot. A joint FED/UNDP/IDA mission, assisted by Italconsult, visited Somalia in SeDtember/ October 1964 to check the cost estimates, and found the possibility of a small reduction in the construction costs. The cost was, however, allowed to remain the same as the original proposal due to the inclusion in the project of a 20 km low standard all-weather feeder road to link Uanle Uen (an important town and nomadic center) to the main road. The alignment of the road was later, in January 1966, altered at Government's request and with the Association's agreement, to pass through Uanle Uen because of the growing agricultural importance of the region and socio-economic benefits deriving from an alignment through the town. - 17 - 2.03 Negotiations between the Government, IDA and FED were held in Brussels in November 1964 and agreement reached regarding financing of the project; FED waived its usual policy of having consulting engineers prepare final engineering designs and cost estimates before presenting the appi-cation for financial assistance to the EEC commission for approval; to get final engineering for the road underway, FED offered to finance this item out of its technical assistance program. A Memorandum of Understanding between the Government, FED and the Association was signed on November 23, 1964. 2.04 The financing plan for the project agreed between IDA, FED, UNDP and Government was as follows: Item Total IDA FED 1/ UNDP 1/ Government -----------US$ million equivalent----------- A. Road Construction 1) Afgoi-Baidoa and feeder 8.00 6.20 1.80 - 2) Engineering and super- vision 0.60 - 0.60 2/ - B. Maintenance Equipment and offices 2.75 - 2.75 - C. Technical Assistance 2.85 - - 2.15 0.70 Total: 14.20 6.20 5.15 2.15 0.70 (100%) (44%) (36%) (15%) (5%) 1/ Grant aid. 2/ Of which, US$0.3 million were allocated out of its technical assistance program. 2.05 Although the project was approved in December 1964, the signing of the credit agreement was deferred until FED and UNDP had formally approved their participation in the project. UNDP approved its contribution to the project in January 1965; a Plan of Operation between the Government, UNDP and the Bank (acting as executing agency) was signed in October 1965. The Credit Agreement was signed after FED approved its participation in the project in March 1965. A condition of credit effectiveness was that the final engineer- ing component of the project should have advanced to a stage of completion satisfactory to the Association. Major convenants of the Credit Agreement dealt with procurement procedures, enactment and enforcement of legislation to control vehicle weights, dimensions, axle and wheel loads, maintenance of the road network, improvement of data collection etc. (para. 3.35). - 18 - 2.06 A German consulting firm, Kocks, was selected by FED, with the approval of the Government and Association's concurrence, to undertake design and preparation of bidding documents for the road; the contract between the Government and the firm was signed on October 13, 1965. The Consultants' initial estimates of road construction cost were around US$14 million. As a result of review carried out by the Government, FED and the Association of their preliminary project preparation work in June 1966, the consultants were asked to consider: (i) the use of stage construction assuming initially the service life of the pavement as 7 years after completion, against 20 years considered at appraisal; (ii) redesigning the pavement for CBR values of the subgrade at equilibrium moisture content rather than with soaked values; (iii) substituting double surface treatment for premix bituminous carpet; (iv) reducing the amount of soil stabilization work generally, and eliminating it in the road shoulders; and (v) estimating unit prices on competitive basis. The consultants' new estimates of cost (US$9.8 million) based on the above considerations were still considered high by the Government and the Associa- tion; it was thought that international bidding would result in more competi- tive prices and lower total cost. On further review, the consultants estimated that the cost of road construction, including a contingency item of 2 percent would be US$8.4 million, compared to the appraisal estimate of US$8.0 million including an allowance of 18% for contingencies. 2.07 Bids for construction from the list of eighteen prequalified firms agreed between the Government, FED and the Association, were invited in March 1967. A delay of some 14 months in inviting bids occurred due firstly, to the delay in preparation of design and bidding documents and secondly, to the delay caused in drawing up an agreed list of prequalified contractors for the work. Tenderers were asked to submit bids for a 26-month period of construction and to quote a percentage adjustment in the event that an exten- sion in construction time from 26 to 36 months would be allowed. Four bids were received; the lowest bid was submitted by a consortium of three firms: Strabag-Bau-Ag (FRG), Stirling-Astaldi (UK) and Impresit-Recchi (Italy); their price including allowances for alternative proposals for bridges over two rivers as well as a 2.5 percent reduction for a 36-month construction period, was US$10.1 million. A reduction in the design standards of the road was considered in an effort to reduce costs but was found impractical for technical reasons. However, some reduction in the construction cost was found possible by omitting certain non-essential items (camel watering holes, camel paths, grassing of side slopes and dismantling and rebuilding the Scebeli river bridge). The Government decided, with the Association's concurrence, to defer these items until a clearer picture of overall cost emerged. By excluding the items mentioned above, the construction cost came to US$9.7 million. After adding roughly 12 percent for contingencies, the overall financing required was estimated at US$10.8 million, that is US$2.8 million in excess of the funds provided. - 19 - 2.08 Of the additional US$2.8 million equivalent required for construct- ing the Afgoi-Baidoa road, the Somali Government agreed to provide an amount of only US$0.5 million equivalent; FED expressed its inability to provide any additional funds in excess of its contribution to the project. A supple- mentary cedit of US$2.3 million to finance the remainder was approved and the Credit Agreement (supplementary) signed in June 1968. C. THE PROJECT Description 109 The objectives of the project were to assist the Government in (a) improving its transportation network; (b) building an efficient Highway Organization with sole responsibility for highway operations, to be staffed ultimately by trained Somali personnel; and (c) planning and coordination of transport investment. It consisted of: A. Road Construction i) construction of a two-lane road 216 km long from Afgoi to Baidoa; ii) preparation of final design and bidding documents, and construction supervision; B. Maintenance Equipment and Offices i) road maintenance and workshop equipment; ii) provision of fully equipped offices for the Highway Depart- ment including soils and materials testing laboratory; C. Technical Assistance Program i) the Organization, staffing and operation of the Highway Department by a consulting engineering firm for a period of 4 to 5 years, with special emphasis on highway maintenance; ii) a reconnaissance study to coordinate short-term transportation investment in Somalia; iii) feasibility studies of two high priority roads, Hargeisa- Berbera, 170 km, and Berbera-Burao, 135 km, in the northern part of Somalia; iv) technical training program abroad for about 14-16 Somalis selected for future service in the Highway Department; v) detailed engineering of the Hargeisa-Berbera road.1/ 1/ Included later, in August 1969, at Government's request. - 20 - A. Road Construction i) Construction of the Afgoi-Baidoa Road 2.10 The project road forms part of a main artery connecting Baidoa with Mogadishu, the capital city and principal port of Somalia. A paved and all-weather road existed over the first 30 km section from Mogadishu to Afgoi and beyond that to Baidoa, access was provided by a low standard road which became a channel, collecting flood water from the countryside; during and after rainy seasons, the road was impassable to vehicles for a total of about 2 months in the year. 2.11 The new road follows the same general alignment of the original one but is 9 km shorter. Apart from a slightly rolling section near Baidoa, the road traverses mostly flat terrain. The design standards for the road are shown in Table 1. ii) Final Engineering and Construction Supervision 2.12 Funds were included to meet the costs of survey, design, preparation of bidding documents for the Afgoi-Baidoa Road and supervision of road con- struction by consulting engineers. B. Maintenance Equipment and Offices i) Road Maintenance and Workshop Equipment 2.13 To establish a suitable highway maintenance organization, the project provided purchase of road maintenance equipment, for building and equipping central and field workshops, and for setting up an initial stock of materials and spare parts required. ii) Offices for the Highway Department 2.14 Provision was made for building and equipping new offices for the Highway Department and its staff, comprising about 10-12 professional or higher technical staff with about 50 draftsmen, clerks and secretaries. C. Technical Assistance Program i) The Organization, Staffing and Operation of the Highway Department 2.15 Due to the lack of proper highway organization, it was necessary to engage a firm of consulting engineers with 6-8 senior foreign and the same number of junior foreign personnel for a period of 4 to 5 years to manage and be responsible for highway operations until such time as Somali personnel were trained in sufficient numbers to take over. A project co-ordinator was provided to assist the Government in project implementation. - 21 - ii) Reconnaisance Study 2.16 A reconnaisance study of short-term transportation investment needs in the country was included in the project to assist the Government in revising its 5-year development plan. iii) Feasibility Studies of Two High Friority Roads 2.17 Feasibility studies of two high priority roads, Hargeisa-Berbera road and Burao-Berbera road, in the northern part of Somalia were undertaken to assist the Government in its road programming. iv) Technical Training Program Abroad 2.18 With a view to enabling Government to fill vacancies for about 6-8 senior (graduate) technical staff and for about the same number of junior technical personnel, a technical training program abroad was instituted to train selected Somali personnel for future service in the Highway Department. III. PROJECT IMPLEMENTATION AND COST A. Construction of the Afgoi-Baidoa Road Final Engineering 3.01 The FED-financed final engineering of the project road was under- taken by consulting firm, Kocks (FRG) who commenced work in August 1965 on the basis of a letter of intent; the contract between the Government and the firm was signed in October 1965. After initial delays, caused principally by the inexperience of Kocks in this type of work, the design, plans and bid docu- ments for the road were completed in January 1967. A number of changes in the design of the pavement and the grade line were made during construction (paras 3.03-3.05). Contract Award 3.02 The Contract was awarded to the lowest bidder, the joint venture comprising Strabag Bau-Ag (FRG), Stirling-Astaldi (UK), and Impresit-Recchi (Italy), in January 1968 for an amount of So.Sh. 69,008,791 (US$9.66 million equivalent), omitting some non-essential items in an effort to reduce costs (para. 2.07); the construction period stipulated was 36 months. A delay of several months in the award of the contract was occasioned by the need to arrange additional financing. - 22 - Design Changes 3.03 In August 1968, the Consultants pointed out that from observations of the condition of certain roads constructed in the area in the past 2-3 years the pavement design for the project road was inadequate in sections aggregating to about 113 km, where it passes through 'black cotton soil'. The consultants recommended design changes based on two main factors: (i) Low CBR - soil tests indicated bearing capacities for subgrade soils lower than assumed in the original design; (ii) Improper Shoulder Design - cracking of earth shoulders at or near the pavement edge and possible pavement failures due to ingress of water into the subgrade in wet weather. 3.04 The Association retained the services of a specialist from the UK Road Research Laboratory (RRL) to assist in the evaluation of the Consultants' proposals, and later asked RRL to extend the services of two experts to include an investigation of the soils and materials in the field. As a result of a series of discussions with all agencies involved and based on final recommendations of the Consultants and RRL's report, two major changes in pavement design were approved: the first, approved in April 1969, involved strengthening the pavement and improving shoulder design in areas of black cotton soil on the first 68 km section; the second, approved in December 1969, involved similar design changes in stretches of black cotton soil between km 68 and 216. Besides these changes, the road grade line was raised in places to provide adequate freeboard above the high water level observed during rains. 3.05 In March 1970, Kocks submitted a proposal to further modify the pavement design for the westerly 93 km (Km 123 to end of project road at Km 216). The proposal consisted of constructing the sub-base and base with natural gravel and using 5 cm premix bituminous wearing course, in lieu of crushed stone and double surface treatment included in the original design. The reasons for the proposed change were: (i) better than expected natural gravel was located in the area for the construction of sub-base and base; and (ii) tests indicated that a satisfactory bond could not be obtained between asphalt and the available crushed stone. The change was approved by the Association and FED in April 1970. Approval was also later given to construct shoulders on this 93 km section with natural gravel, in lieu of soil as in the original design. Contractor Performance 3.06 The contractor sublet embankment construction to Murri Brothers (Somalia) involving about 24% of the total contract amount and the embankment work began in July 1968 after the arrival of first lot of construction equip- ment at site. The work proceeded slowly; there were some initial problems with the sub-contractor's organization and in the early stages of construction a substantial amount of completed embankment was rejected for insufficient compaction and had to be improved. - 23 - 3.07 Another main cause of the initial delay was the generally poor organization of the work and the inefficient use of equipment by the prime contractor. In October 1969, Joint Venture replaced their principal site engineer with a man who showed a positive attitude toward improving procedures and use of equipment. However, between December 1969 and April 1970, a severe water shortage slowed construction. The contractor submitted a new construc- tion schedule effective April 1, 1970 showing all work to be completed by the end of March 1971, about 2-1/2 months later than the 36-month contract period. Progress from April 1970 conformed closely to the new schedule and the quality of work was good. 3.08 The road construction was substantially completed on March 31, 1971 when a completion certificate was issued; this marked the start of the con- tractor's maintenance period of one year. Surface irregularities which developed on the double bituminous treated surfacing were corrected by the contractor during the maintenance period and the repairs were generally satisfactory. Shrinkage cracks appeared in the pavement in the black cotton soil areas (Km 67 to Km 77 and Km 202 to Km 223) but there was no evidence of structural failure in the pavement. 3.09 The Final Certificate for the road was due on March 31, 1972, on the expiration of the one-year maintenance period, but was not issued by the Gov- ernment who stated that the Contractor had not completed certain outstanding works. The Government's decision was based on the failure of the contractor to remove and re-erect at a new location, the old Scebelli river bridge. Whilst this work was not included in the list of outstanding work issued with the Completion Certificate in March 1971, the Government stated that they had a commitment in writing from the Contractor to carry out the work. Performance of Consultant 3.10 Consultants, Kocks, who were assigned the preparation of design and bidding documents for the project road were subsequently retained for construction supervision. Their performance initially was judged to be below standard. The number of Kocks field staff was inadequate and resulted in poor work progress and quality. An additional expatriate engineer (making a total of 5) and 4 qualified Somali inspectors later added to their staff in September 1969 provided satisfactory supervision. Procurement Problems Fuel and Lubricants 3.11 The Somali Government had entered into an agreement with the Govern- ment of the USSR whereby only Russian fuel and lubricants were imported into Somalia. However, in terms of the Administration Agreement between the Government, EEC and the Association no withdrawal of proceeds of the FED grant and IDA credit could be made for expenditures in the territory of any country (other than Switzerland) which was not a member of the IBRD. At the Association's request, the Government allowed the Contractor for the Afgoi-Baidoa road to purchase his supplies from such sources. - 24 - Haulage sub-contract 3.12 The construction contract awarded to the Joint Venture included a provision for the import of vehicles required for construction operations. The Government later refused to issue import permits for needed vehicles and asked the contractor to use locally available transport as a substitute. As a result, Joint Venture entered into a haulage sub-contract amounting to about 10% of the total contract amount with a local sub-contractor in November 1968. The Government agreed that sub-contract haulage rates would be the basis for payments to the contractor and also agreed to idemnify Joint Venture against any losses arising out of the sub-contract. Project opera- tions proceeded smoothly until early 1971 when the sub-contractor filed a claim against Joint Venture because the final volume of materials hauled and average haul distances were different from those estimated when the subcontract was signed. The claim went to court of arbitration in Somalia and an award of about US$0.35 million equivalent was granted to the sub-contractor. Claims 3.13 A number of contractor's claims arose out of work in late 1970 and early 1971 some of which were settled through conciliation meetings between the Government and the Contractor. However, the parties concerned could not reach an agreement on certain major issues, and the contractor finally referred four claims amounting to So.Sh. 14.88 million (US$2.40 million equivalent) to arbitration in accordance with the contract. Arbitration proceedings commenced in 1974 in Stockholm pursuant to the Rules of Concilia- tion and Arbitration of the International Chamber of Commerce. The Government submitted a counterclaim for damages in an amount of So.Sh. 16.87 million plus price escalation of 60% for non-compliance with the provisions of the Contract and with variation orders and other instructions given by the Engineer and for works carried out without due diligence. 3.14 In September 1975, the arbitrators made their award under which Somalia was to pay the Joint Venture DM 533,880 with interest at 6% from July 18, 1971, So.Sh. 13,779,200 with interest at 6% from various dates in 1971 and DM 919,268 for the Joint Venture's arbitration costs. The amount of DM 533,880 was found payable for maintaining the value in DM of payments to be made under the contract which were stated in Somali shillings. Of the Somali Shilling portion of the award, (a) So.Sh. 10,960,038 was awarded under a provision of the contract under which unit prices in the contract were to be increased in accordance with a contract price escalation formula; (b) Sh.Sh. 2,612,162 was awarded for breach of a contract provision which permitted the Joint Venture to import equipment it needed, and increased costs incurred in using local hauling contractor after the Somali Government refused to permit the Joint Venture to import trucks; and (c) So.Sh. 207,000 was awarded on grounds that the Government had withheld this amount of the con- tract price as liquidated damages for late completion. The total award including the Joint Venture's arbitration costs and interest charges amounted to DM 11,648,333.04 (US$4.48 million equivalent) 1/; daily interest charges on the award from December 15, 1975 in an amount of DM 1,356.20 were also to be added to the award. The arbitrators further found that the Government's counterclaim could not be upheld. 1/ US$1.00 = DM 2.60. - 25 - 3.15 The Somali Government refused to pay the amounts awarded on the grounds that the works were not properly done and that the arbitration award was inequitable. With a view to trying to resolve the matter, a series of mettings were held between Government and the Contractor, the last such meet- ing, convened by FED, was held at Brussels in October 1977; representatives of the Association attended the meeting as observers. No final setdlement of the dispute has been reached yet. B. Maintenance Equipment and Offices Road Maintenance and Workshop Equipment 3.16 The program for acquiring road maintenance and workshop equipment was carried out in two phases. Since FED provided all the needed funds, procurement was subject to FED procedures, and bids were invited from interested suppliers from member countries of the EEC. 3.17 The tender documents for the first phase equipment, estimated at US$1.5 million, were prepared in May 1966 by Renardet-Sauti, consultants employed under the technical assistance part of the project (para. 3.20). FED was dissatisfied with the specifications which placed certain EEC sup- pliers of road maintenance equipment at a competitive disadvantage and called for a review of the specifications by independent consultants. This resulted in a delay of about one year. The call for bids was further delayed in 1967, while the discussions on providing the additional financing for the Afgoi- Baidoa road took place. Bids were eventually called in February 1968 and tenders received in May. Orders were placed in November 1968 and the equipment delivered in the last quarter of 1969, some 2 years behind schedule. The first phase procurement program included also the supply and on-site assembly of three prefabricated metal frame workshops. In the absence of suitable bids, these were constructed locally, one each at Mogadishu, Hargeisa and Chisimaio. 3.18 A list of equipment, estimated at US$0.55 million, for procurement under the second phase was approved by FED and the Association in 1970, but in view of the contractor's claims (para. 3.13), FED decided to defer the purchases until final cost of the Afgoi-Baidoa road was known. Later, at Government's request, FED gave permission to proceed with the procurement. The equipment was finally delivered in late 1973. Offices for the Highway Department 3.19 Construction of the new offices for the Highway Department, which was tinanced by FED, was undertaken by a firm of Somali Contractors; construc- tion commenced in February 1967 and was satisfactorily completed in October 1968. The office and laboratory equipment ordered in member countries of the EEC was delivered in 1969. - 26 - C. Technical Assistance Program Organizing, Staffing and Operation of the Highway Department 3.20 Under the Technical Assistance Program financed by UNDP, Consul- tants, Renardet-Sauti (Italy) were appointed in August 1965 to assist in the establishment of an efficient highway organization in the MPW. Sauti's original contract terminated in August 1970. But, because of extensive delays in procuring road maintenance equipment (para. 3.17) and in reorganizing and staffing of the Highway Department (para. 3.21), their contract was first extended for three years and again for one year to August 1974; the program was heavily oriented towards road maintenance operations and equipment usage and repair. 3.21 Sauti prepared an organization and staffing plan for the Civil Engineering (Highway) Department (CED) which after approval by the MPW and the Association's concurrence was submitted for Government's approval in August 1968. After extensive delay and long persuasion by the Association, the plan was formally approved by the Council of Secretaries in September 1971. The new organization provided for an establishment of 373 professional, higher technical, junior technical, clerical and subordinate staff in the CED; about 70% of the posts were filled by December 1971. 3.22 The Consultants gave advice and assistance to the Government through the Project Co-ordinator retained under the program. Thev Rave assistance in the administration, management, planning, coordination and supervision of highway investment program, design and field suDervision of road construction and maintenance; they provided training to Somali personnel to fill technical and administrative positions and on-the-job training to junior technical staff and road maintenance personnel. 3.23 The Consultants' performance was satisfactory. However, progress in the implementation of their recommendations remained generally unsatis- factory because of the Government's failure to approve the recommended reorga- nization of the CED till 1971. The training of mechanics, equipment operators and road maintenance personnel was hindered by the low level of skills of Somali staff assigned and a shortage of equipment and tools till late 1969, and also due to the diversion of trainees to Government self-help projects. Reconnaissance Study 3.24 As part of the project a transport survey of facilities in the country, and of proposed transport projects was undertaken in 1965/66 by Grimble and Associates (Canada). The survey identified among other projects the construction of an all-weather road between Hargeisa and Berbera as having high priority which formed the basis for the Second Highway Project, financed jointly by the African Development Bank and the Association; detailed engineer- ing of the road was carried out by Consulting firm, Ingenieurburo Dorsch Ag (FRG) under the project. - 27 - Feasibility Studies of Roads 3.25 Feasibility studies of the Hargeisa-Berbera and Burao-Berbera roads were satisfactorily completed by Grimble and Associates simultaneously with the transportation survey mentioned in para. 3.24 above. Technical Training Program Abroad 3.26 Some 18 Somali staff of the CED received training under UNDP-financed Development Program; eight engineers and ten technicians were trained overseas in various fields. In mid 1972, the Government restricted training abroad to senior staff in specialized categories and consequently a part of the balance of overseas training funds were used for the training in Somalia of workshop superintendents and mechanics, soil technicians and surveyors. The remaining funds were used at Government request and with UNDP approval and Association's concurrence to train asphalt plant operators and procure additional labora- tory equipment for the training of laboratory technicians. The training program was completed satisfactorily. D. Project Costs 3.27 At the time of appraisal in 1964, total project costs were estimated at US$14.2 million, of which US$8.0 million was for road construction. Cost estimates for road construction were based on preliminary engineering studies carried out by Italconsult (Italy), and included an allowance of 18% for unforeseen contingencies. However, on the basis of the detailed engineering subsequently carried out by Kocks, road construction costs were estimated at US$8.4 million including a contingency item of 2% (para. 2.06). At appraisal of the supplementary credit for road construction in 1968, the costs were based on a priced contract; these amounted to US$10.8 million, including contingency allowances of 10% for quantity variation and 2% for price variation which were considered adequate. With the additional US$2.8 million for road construction, the total project costs were estimated at US$17.0 million. 3.28 The costs of consulting services for preparing final design and bidding documents, and construction supervision of the road were estimated at US$0.6 million and those for technical assistance program at US$2.85 million; the cost of providing offices for the Highway Department was estimated at approximately US$0.25 million. The approximate costs for the purchase of road maintenance equipment, for building and equipping field workshops, and for setting up an initial stock of materials and spare parts were estimated by Government and Bank staff at US$2.5 million. 3.29 The actual total cost of the project was US$18.12 million, compared to appraisal estimates of US$17 million; actual and appraisal estimates of cost are compared below: - 28 - Actual costs as a Proportion of Actual Appraisal Appraisal Esti- Costs Estimates 1/ mates of Cost % ----- (US$ million)---- A. Road Construction i) Afgoi-Baidoa road 10.47 2/ 10.80 97 ii) Final engineering 0.37 0.30 123 iii) Construction Supervision 0.57 0.30 190 Sub-total A 11.41 11.40 100 B. Maintenance Equipment and Office i) Maintenance Equipment and materials 1.95 2.50 78 ii) Offices for the Highway Department 0.25 0.25 100 Sub-total B 2.20 2.75 80 C. Technical Assistance Program i) Highway Management Consultants 3.65 2.25 162 ii) Investment coordination study ) ) 0.26 0.35 74 iii) Feasibility study of two roads) iv) Technical Training Abroad 0.15 0.25 60 v) Detailed Engineering of Hargeisa-Berbera Road 0.45 - Sub-Total C 4.51 2.85 158 Project Total 18.12 17.00 106 I/ Combined 1964 and 1968 appraisal estimates. 2/ Excluding arbitration award of US$4.48 million equivalent on road construction contract. - 29 - 3.30 The actual cost of road construction was US$10.47 million, excluding the arbitration award of US$4.48 million equivalent (para. 3.14), against the appraisal estimate of US$10.8 million, including contingencies. There has been an increase of US$0.77 million over the appraisal base cost estimate of US$9.7 million, resulting mainly from design changes during execution (paras. 3.03-3.05). If the arbitration award is taken into consideration, the actual costs for road construction would have exceeded the appraisal estimate includ- ing contingencies by US$4.15 million (40%). Final engineering and construc- tion supervision costs were US$0.94 million compared to appraisal estimate of US$0.6 million; the US$0.34 million (57%) increase in costs was principally due to the increase in the construction time from 26 months to 36 months (para. 2.07) and the need for additional staff for achieving a satisfactory level of supervision (para. 3.10). 3.31 Actual costs of maintenance equipment and offices was US$2.2 million compared to appraisal estimate of US$2.75 million; the US$0.55 million (20%) decrease resulted from deferment of expenditure on read maintenance and work- shop equipment subsequently not found necessary by the consultants and the Government. Of US$0.55 million, FED reallocated US$0.28 million to road construction and US$0.27 million to construction supervision because of overruns. 3.32 Actual costs of technical assistance program was US$4.51 million compared to appraisal estimate of US$2.85 million; the US$1.66 million increase (58%) resulted principally due to the extension of management consultant's contract (para 3.20) and the inclusion of detailed engineering of Hargeisa- Berbera road; of the additional US$1.66 million required, UNDP provided US$1.13 million and Somali Government US$0.53 million equivalent. 3.33 The final financing plan for the project was as follows: Item Total IDA FED 1/ UNDP 1/ Government -----------US$ million equivalent----------- A. Road Construction i) Afgoi-Baidoa road 11.08 8.50 2.08 - 0.50 ii) Engineering and supervision 0.94 - 0.94- - - B. Maintenance Equipment and Offices 2.20 - 2.20 - - C. Technical Assistance 4.51 - - 3.28 1.23 Total 18.73 8.50 5.22 3.28 1.73 1/ Grant aid. 2/ Of which, US$0.37 million allocated out of its assistance program. - 30 - E. Disbursements 3.34 Disbursements ranged from 52 to 94% of the appraisal estimates (Table 2) during 1967/68 - 1970/71. Although the construction of the Afgoi- Baidoa road was substantially completed in March 1971, disputes over con- tractor's claims (paras. 3.3-3.15) resulted in the Association's extending the closing date of the credit a number of times. The credit is not yet fully disbursed; the closing date has been extended to December 31, 1978 to allow an unwithdrawn balance (US$263,162.71) to be utilized towards any settlement of the arbitration award. F. Covenants of the Credit Agreement 3.35 The Credit Agreement for the project included covenants requiring that the Government: (i) employ contractors satisfactory to the Association for road construction; (ii) employ or cause to be employed engineering consultants acceptable to, and to an extent and upon terms and conditions satisfactory to, the Association; (iii) use design standards for the roads as determined from time to time by agreement with the Association; (iv) furnish to the Association, promptly upon their preparation, the plans, specifications and work schedules for the project; (v) make available, promptly as needed, all funds and other resources required for the carrying out of the project; (vi) enact and enforce adequate legislation to ensure that the weights, dimensions, axle and wheel loads of vehicles using its roads shall be kept within limits substantially in accordance with standards satisfactory to the Association; (vii) take appropriate steps to cause its roads to be adequately maintained at all times in accordance with sound highway- engineering standards and provide adequate funds for the purpose. 3.36 The Government satisfactorily complied with covenants (i), (ii), (iii), (iv) and (v). An account of its compliance with other covenants is given below. 3.37 Covenant (vi), Enactment and Enforcement of Legislation: Late in 1968, the Government prepared draft legislation for the control of vehicle - 31 - weights and dimensions which was acceptable to the Association; the Govern- ment enacted the law in November 1971; the Ministry of Interior is responsible for its enforcement. Overloading has not been a problem in Somalia. 3.38 Covenant (vii), Road Maintenance: The Government gave an undertaking in a side letter to introduce a special sub-head in its annual budget entitled "Road Maintenance Fund", effective from the commencement of fiscal year 1966, and to appropriate annually under this sub-head an amount determined after consultation between the Government, the Association and the consultants employed under the UNDP-financed Technical Assistance Program. For 1965, the Government undertook to allocate So.Sh. 2.4 million for road maintenance. While Government established the Road Maintenance Fund, the funds allocated by it fell short of the maintenance needs, due principally to budgetary constraints. The allocation, however, increased from year to year (So.Sh. 2.62 million in 1966 to So. Sh. 4.0 million in 1971 (Table 3)). Under the Second Highway Project, agreement was reached with Government on arrangements for allocating adequate funds for highway maintenance in accordance with the maintenance needs established by the advisory consultants for the years 1972 to 1975; the allocations made were in excess of the amounts specified and found adequate. 3.39 In a Memorandum of Understanding between the Government, FED and the Association, the Government gave an undertaking that in the execution of its road maintenance program it would give priority to the improvement of feeder roads radiating from Baidoa in the direction of Dinsour, Audinle, Uegit and Hoddur. The improvement work on these roads proceeded slowly due principally to a shortage of funds and the long delay in receipt of road maintenance equipment (para. 3.17); most work on these roads was completed during 1976-77. IV. INSTITUTIONAL DEVELOPMENT 4.01 At the time of appraisal in 1964, the Highway Section of the MPW existed in name only; there was virtually no highway organization at head- quarters and little field organization existed; the Highway Section had only 2 Somali engineers and 10 technical staff. Based on the recommendations made by the management consultants, Renardet-Sauti, the CED's activities were reorganized and expanded, and a large number of new positions were added both in the headquarter office and the field organizations;about 70% of the established posts were filled by the end of December 1971. The CED now comprises 6 Divisions (Planning and Design, Construction, Maintenance, Materials, Equipment, and Administration) and 16 regional road maintenance sections. A number of senior and subordinate posts in the CED are, however, currently vacant, caused in part by transfer of personnel to other Government a.gencies; a number of staff have gone to the neighboring oil-rich countries. 4.02 Under the technical assistance program included in the project, some 18 Somali engineers and technicians received training in various countries; a large number of professional staff and road maintenance personnel were provided on-the-job training during 1965-74 in various areas of highway - 32 - operations, particularly surveying, planning, drafting, soil testing and road maintenance. Of the 18 persons trained abroad, 8 are still in the MPW, and most of the others are employed in other Government agencies. An inventory of about 7,000 km of primary and secondary road network was completed by the management consultants and the staff of the CED; geometric design standards were established for primary roads, and legislation was enacted to control vehicle weights and dimensions on roads. 4.03 With financing provided by FED, new offices with facilities for designing, drawing and laboratory testing were provided for the CED; work- shops were set up at Mogadishu, Hargeisa and Chisimaio. which cater to the needs of the 16 regional road maintenance sections. 4.04 Government introduced into its budget a new sub-head, "Road Main- tenance Fund", to which funds are allocated for road maintenance each year. Funds provided for road maintenance have been increasing, and the 1977 allocation of So.Sh. 7.96 million is more than double the 1970 figure (Table 3). 4.05 The Transport and Communications sector Plan of the 1971-1973 Development Program generally followed the investment recommendations made by Grimble in its 1966 Transport survey (para. 3.24); in preparing the 1974-78 Development Program, the 1966 Transport Survey served as a general guide. 4.06 With the departure of the management consultants in 1974, the full burden of the operations rested on the CED staff, which had by then fallen short of its authorized strength due in part to transfer of personnel to other Government agencies (para. 4.01). The technical assistance included in the Third Highway Project (Credit 699-SO) will further aid in increasing CED operations, including further training of CED staff. V. ECONOMIC RE-EVALUATION A. Appraisal Expectations 5.01 The economic justification presented in the basic Appraisal Report dealt only with the civil works which, with the associated consultant services for final engineering and supervision, amounted to about 60% of the esti- mated project cost. This part of the Project Completion Report likewise deals only with the road construction element of the project. Quantitative benefits considered at appraisal comprised reductions in vehicle operating costs and road maintenance costs. Traffic was assumed to grow 6% per year during the first 10 years after completion of construction declining to 4 or 5% per year during the following 10 years. The economic return calculated for the civil works was 7 to 8%. - 33 - 5.02 The need for a supplementary credit occasioned a review in 1968 of the tarlier economic evaluation. The cost of road construction, estimated at US$11.4 m (para. 3.29) was about 30% higher than had been estimated in 1964. Traffic was assumed to gro; -t 5% per year during the 20 year period following completion of construction. Taking into account the revised cost of the civil works and the reductions in vchicle operating costs, the economic return was calculated at 10%, that is, slightly higher than had been derived in the basic appraisal due to the additional benefits resulting from the increased traffic. 5.03 In addition to the quantifiable benefits of the project road, the 1964 appraisal identified other qualitative benefits deriving from the stimulus to agricultural production in the zone of influence of the road. Moverover, it was found that the then existing road was impassable to vehicles for a total of 2 months during and just after seasonal rains and that the paved road would permit year round traffic. Finally, the appraisal noted other intangible social and administrative benefits from the project road. The 1968 report also considered among non-measurable benefits the value of the all-weather road in facilitating current and planned governmental activities in the area, especially for rural development works. B. Developments Since Appraisal 5.04 As noted earlier, construction of the Afgoi-Baidoa road was com- pleted in March 1971 at a cost of US$11.41 million. Traffic which had been found to be only 50 ADT in 1964 reached a level of 236 ADT in 1977. These traffic data imply an average annual growth rate between 1964 and 1977 of 12 to 13% per year which is substantially higher than the 5 to 6% rates estimated at appraisal. Assuming traffic reached a level of about 75 by 1967, as suggested in the 1968 appraisal, a 6% growth rate for the sub- sequent 10 years would bring the traffic to a projected level of 127 ADT by 1977. A comparison of this 1977 traffic estimated at appraisal and the actual traffic in 1977 is as follows: Average Daily Traffic, 1977 Appraisal Projections Actual No. % No. % Small vehicles (cars, etc.) 13 10 35 15 Medium vehicles (trunks, buses) 63 50 114 48 Heavy Trucks (trucks, truck/trailers) 51 40 87 37 Total 127 100 236 100 While the actual traffic level is nearly twice that projected, the percentage breakdown by vehicle types is not too dissimilar. - 34 - 5.05 Somalia in 1974-75 was seriously affected by drought which extended over most regions of the country including the area of influence of the Afgoi- Baidoa road. Production and marketing of local crops and livestock ir 'is area declined substantially during that period; however, transport levels were not reduced accordingly because of the need to shift food stuffs and other essentials from areas of surplus to areas of deficit. Also, some 185,000 tons of relief supplies, provided by various countries, were distributed from the ports to widely scattered locations in Somalia and the improved Afgoi-Baidoa road served as a vital transport artery for conveying some of these goods during the emergency period. 5.06 Considerable development has occurred in the area of influence of the Afgoi-Baidoa road since completion of construction, notwithstanding the adverse effects of the drought. Statistical data, however, are lacking on the extent of this development. The western half of the influence area com- prises the Bay Region which is an important area for dryland farming in Somalia and the potential for increasing its agricultural output is good. A Bay Region Agricultural Development Project, included in the Bank Group Lending Program for FY 1979, is a key element in the Government's agricultural strategy and combines features of a rural development and regional development project. The Afgoi-Baidoa road will play an important role in the implementa- tion of this project and in further development of the region. C. Recalculation of the Economic Return 5.07 The economic return calculated in this re-evaluation is based on an assessment of costs and benefits with and without the road construction over the estimated economic life of the improved road. The capital cost includes the actual cost of construction, detailed engineering and supervi- sion totalling about So.Sh. 81.5 m. In addition, the capital cost includes an amount to cover anticipated strengthening of the pavement to extend its life from about 7 years, for which it was designed and built, to 20 years. This pavement strengthening in 1978, is estimated to cost about So.Sh. 28 m at current prices or So.Sh. 17.7 m in prices at time of road construction. 5.08 In the re-evaluation, as in the appraisal, the economic return is calculated on the basis of savings in vehicle operating costs and road maintenance costs, as the quantifiable benefits of the project road. Traffic is based on the vehicle counts taken in 1977, an assumption that it has grown at a rate of 12% per year since the road was opened in 1971 and an estimate that traffic for the remaining life of the road will increase at 8% per year. Vehicle operating costs per km (Table 5) were taken as those estimated by consultants for comparable conditions in Somalia in 1974, deflated to the period of road construction. Current routine and periodic road maintenance costs, with and without the project road, were estimated and appropriately deflated for purposes of the analysis. On the foregoing basis the economic return was calculated (Table 6) at 15%, or about twice that derived in the 1964 appraisal and 50% higher than in the 1968 review (Table 7). - 35 - 5.09 The foregoing analysis does not take into account the possible additional cost of the project represented by claims of the contractor which have not yet been settled. If the DM 11,648,333.04 (So.Sh. 28.2 m equivalent) amount recognized in the arbitration award of September 1975 is considered an additional cost, the economic return falls to 13%, still higher than originally estimated. Since the amount, if any, which the Government will ultimately recognize and pay to the contractor remains uncertain, the economic return may be said to be within the 13 to 15% range. VI. CONCLUSION A. Performance of the Borrower 6.01 The performance of the borrower's executing agency, the MPW, was generally good. It exercised adequate control over the contractor, Joint Venture, as well as the supervisory consultant, Kocks, and took appropriate action to resolve problems as they arose. However, the Government failed to reach a settlement with the contractor over his final claims and to issue final certificate for the road on the expiration of the maintenance period which led the dispute to arbitration; the award made by the International Chamber of Commerce in September 1975 has not yet been settled (para. 3.15). 6.02 Government took several years to approve the reorganization and staffing plans of the CED prepared by the management consultants, Renardet- Sauti; the extensive delay caused in strengthening the organization affected adversely the training of Somali personnel (paras. 3.21 and 3.23). B. Performance of the Association 6.03 In retrospect, the Association's definition of the project objec- tives and credit covenants were appropriate. However, final engineering of the project road took much longer than expected; despite lowering the service life of the pavement to 7 years, against 20 years considered at appraisal, the consultants estimated that the cost of the road, including a contingency item of 2%, would be US$8.4 million, an increase of USSO.4 million over the appraisal estimate including an allowance of 18% for contingencies (para. 2.06). This supports the requirement for detailed engineering to be substan- tially complete before commitment of funds by the Bank Group. 6.04 Supervision missions visited Somalia at yearly intervals during 1965-68 and six-monthly intervals during 1969-71; the missions became less frequent after the road was completed. The project was adequately supervised; the supervision missions reviewed from time to time the contractor's claims arising out of the road construction contract and attended as observers conciliation meetings between the Government and the contractor. The advice given by the Association during various phases of project implementation, and followed by the MPW, resulted in fulfillment of the project objectives. - 36 - SOMALIA TABLE A.1 PROJECT COMPLETION REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) Design Standards for the Afgoi-Baidoa Road 1. Design Speed 70 kph (minimum) 2. Width of Carriageway 6.0 m 3. Width of Shoulders 1.5 m 4. Transverse Gradient: a. Carriageway 2% b. Shoulders 4% 5. Maximum Longitudinal Gradient 5% 6. Minimum Radius of Curves a. Flat terrain 500 m b. Mountainous terrain 150 m 7. Design wheel load 4,000 kg 8. Bridge Design Continuous truck train with 10-ton axle loads. Source: Appraisal Report Dec. 10, 1964 September 1978 - 37 - TABLE A.2 SOMALIA PROJECT COMPLETION REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) Actual and Appraisal Estimates of Disbursements (Cumulative) IBRD Appraisal Actual Disbursements as Fiscal Year Actual Estimate a percentage of Appraisal Estimates -------US$ million------------------- 1967/68 1.13 1.50 75 1968/69 2.33 4.50 52 1969/70 5.11 8.00 65 1970/71 8.00 8.50 94 1971/72 8.24 - - 1972/73 8.24 - 1973/74 8.24 - - 1974/75 8.24 - - 1975/76 8.24 - - 1976/77 8.24 - - Source: Appraisal Report, June 13, 1968; Highway Division files September 1978 - 38 - TABLE A.3 SOMALIA PROJECT COMPLETION REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) Road Maintenance Allocation by Government Year Maintenance Allocation (So.Sh. million) 1966 2.62 1967 3.07 1968 3.51 1969 3.19 1970 3.65 1971 4.00 1972 6.40 1973 9.58 1974 7.86 1975 6.84 1976 7.96 1977 7.96 Source: Civil Engineering Department September 1978 SOMALIA PROJECT COMPLETION REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) Actual and Expected Project Implementation Contractor/ Consultant and Bid Receipt Contract Award Beginning of Work Completion of Work Project Component Nationality Actual Expected Actual Expected Actual Expected Actual Expected A. Road Construction 1. Afgoi-Baidoa Road Joint Venture July 1967 May 1966 Jan 1968 June 1966 Mar 1968 July 1966 Mar 1971 Jan 1971 (FRG; UK; Italy) 2. Final Engineering Kocks (FRG) - - Oct 1965 Feb 1965 Aug 1965 Mar 1965 Jan 1967 Jan 1966 3. Construction Supervision Kocks (FRG) - - Jan 1969 Jun 1966 Jan 1969 Jul 1966 Mar 1971 Jan 1971 B. Maintenance Equipment and Offices 1. Maintenance Equipment and 1/ 2/ Materials NA May 1968 NA Nov 1968 NA 1969- NA 1971 NA 2. Offices for Highway Section Somal Contract (Somali) Nov 1966 NA Jan 1967 NA Feb 1967 NA Oct 1968 NA C. Technical Assistance Program 1. Highway Management Consultants Renardet-Sauti. - - Aug 1965 NA Aug 1965 NA Aug 1974 NA (Italy) 2. Investment Coordination Study Grimble & Asso- - - NA NA Sept 1965 NA Mar 1967 NA ciates (Canada) 3. Feasibility Studies of new Roads - - NA NA Sept 1965 NA Dec 1966 NA 4. Technical Training Abroad - - - - - Nov 1966 NA Dec 1971 NA 5. Detailed Engineering of Ingenieurburo - - May 1969 - Aug 1969 Aug 1969 NA Aug 1970 Hargeisa-Berbera road Dorsch Ag(FRG) 1/ Delivery of First Phase equipment in last quarter of 1969. 2/ Delivery of Second Phase equipment in 1973. September 1978 - 40 - TABLE A.5 SOMALIA PROJECT COMPLETION REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) Comparisons of Vehicle Operating Costs (So.Sh. per vehicle km) Vehicle Type Earth Road Bituminous Road and Cost Items New Information Appraisal.1/ New Information Appraisal 1/ Small Vehicle Fuel .0782 .0642 Lubricants .0021 .0013 Tires .0699 .0203 Maintenance .1930 .0858 Depreciation .1930 .1140 Wages, Insurance .1461 .0973 Overheads .0270 .0153 Total .7093 .3982 Medium Vehicle Fuel .1635 .1016 Lubricants .0046 .0023 Tires .1775 .0403 Maintenance .5421 .2065 Depreciation .3487 .1660 Wages, Insurance .1528 .0873 Overheads .0556 .0242 Total 1.4448 .6282 Heavy Vehicle Fuel .1187 .0821 Lubricants .0046 .0023 Tires .1775 .0403 Maintenance .5622 .2410 Depreciation .5427 .2587 Wages, Insurance .1613 .0922 Overheads .0627 .0282 Total 1.6297 .7448 1 Not available. Note: Net of taxes and duties. Source: Consultants Report, 1974. September 1978 - 41 - TABLE A.6 SOMALIA PROJECT COMPLEtON REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) Recalculation of Economic Return: Afgoi-Baidoa Road (Somalia shillings'000,000) Construction Road Savings and pavement Maintenance in vehicle Net Year Strengthening cost Cost savings Operating costs Benefits 1968 20.4 20.4 1969 24.4 24.4 1970 28.5 28.5 1971 8.2 -.2 7.5 .9 1972 -.2 10.9 10.7 1973 5.0 11.7 16.7 1974 -.2 12.5 12.3 1975 -.2 13.4 13.2 1976 -.2 14.3 14.1 1977 5.0 15.3 20.3 1978 17.7 -.2 16.2 -1.7 1979 -.2 17.2 17.0 1980 7.6 18.2 25.8 1981 -.2 19.3 19.1 1982 -.2 20.5 20.3 1983 .4 21.7 22.1 1984 -.2 23.0 22.8 1985 10.2 24.4 34.6 1986 -.2 25.9 25.7 1987 10.2 27.4 37.6 1988 7.6 29.0 36.6 1989 .4 30.8 31.2 1990 7.6 32.7 40.3 Economic Return 15% NOTE: If the arbitration award is taken into account, the Eccnomic Return falls to 13%. Source: Mission estimates September 1978 - 42 - TAALE A.7 SOMALIA PROJECT COMPLETION REPORT FIRST HIGHWAY PROJECT Credit 74-SO and 123-SO (Supplementary) Ex-post and Appraisal Estimates of Economic Rates of Return Rate of Return Expost Appraisal Road Estimate Estimate Afgoi-Baidoa 13 - 15 7-8 1/ 1/ At time of 1968 review, 10%. Source: Appraisal Report. September 1978 - 4- ATTACHMENT B SOMALIA PROJECT COMPLETION REPORT SECOND HIGHWAY PROJECT Credit 295-SO I. INTRODUCTION 1.01 The Second Highway Project was a continuation of the effort initiated with the first Highway Project to assist the Government of Somalia in providing an adequate road network in the areas of potential economic development. The first project was financed by two IDA credits, a loan from the European Develop- ment Fund, and a grant from the UNDP. The original IDA credit was for US$6.2 million and the supplementary credit, to cover increased construction costs, was for US$2.3 million. 1/ 1.02 A 1966 transport survey, carried out as part of the First Highway project, recommended among other projects, the construction of a road bet- ween Hargeisa and Berbera in northern Somalia. The feasibility study of the road was completed in 1966, simultaneously with the Survey; detailed engineering also forming part of the same Project, was completed in 1970. On July 4, 1970, the Government made a formal request to the Association to finance the construction of the 158 km Hargeisa-Barbera Road on the basis that the road would greatly facilitate the movement of livestock, Somalia's main export, from Hargeisa,the largest city in the northern region,to the port of Berbera on the Gulf of Aden. The project was appraised in December 1970 with the participation of the African Development Bank (AfDB) and was presented to the Board on January 18, 1972; a Development Credit Agreement for US$9.6 million, and a Joint Financing Agreement between the Government, AfDB and the Association were signed on March 30, 1972. Of the total project cost of US$10.6 million, AfDB provided a loan of 1 million Units of Account . 2/ 1.03 The project, jointly financed by the AfDB and IDA, comprised road construction, consulting services for feasibility study and detailed engineering and technical assistance in transport planning. 1.04 This report is based on: a) Highway Division files; b) available progress reports; 1/ A Project Completion Report for the First Highway Project has been prepared. 2/ US$1.08 million equivalent. - 44 - c) findings of IDA supervision missions undertaken during and after project completion; d) data provided by the Civil Engineering Department (CED) of the Ministry of Public Works (MPW); e) final report on construction supervision (1977) by Dorsch Consult. II. PROJECT PREPARATION AND APPRAISAL A. Project Evolution 2.01 As part of a UNDP-financed Technical Assistance Program included in the first Highway Project, a survey of the transport facilities in the country and of the proposed transport projects was undertaken in 1965/66 by the Consultants Grimble and Associates (Canada). The survey identified, among other projects, the road between Hargeisa and Berbera as having high priority for development; based on the Consultants' recommendations it was included in the country's 1971-73 Development Plan. Subsequently a fea- sibility study of the road, also financed under the First Highway Project by the UNDP, was carried out by Grimble. 2.02 The Government requested IDA assistance in financing the final engineering and subsequent construction of the road, and a Bank Group mission, which visited Somalia in March/April 1968 to appraise a supplementary credit for the construction of the Afgoi-Baidoa Road, reviewed the proposal. The mission confirmed the findings of the feasibility study and recommended proceeding with the detailed engineering. At Government's request, this study was included in the UNDP-financed Technical Assistance Program under the First Highway Project, with AfDB providing the Government's contribution, and was prepared by the consulting firm Dorsch Consult (Federal Republic of Germany). B. Project Preparation 2.03 An IDA mission,which also included a representative of AfDB, visited Somalia in December 1970 and appraised the following project which was esti- mated to cost about US$9.5 million: a. construction of the 158 km all weather surfaced road from Hargeisa to Berbera; and b. consultnat services for (i) construction supervision and (ii) feasibility study and subsequent detailed engineering of the Hargeisa-Borama Road (140 km) with a link to Tug Wajale on the Ethiopian border (20 km). - 45 - The tentative financing plan provided for an IDA credit of US$8.6 million and an AfDB loan of US$0.9 million. 2.04 The appraisal team considered the consultants' estimates for road construction of So.Sh. 44.1 million (about US$6.2 million equivalent, excluding contingencies) to be too low. In view of the uncertainties involved in contracting in Somalia and in order to avoid the cost increases and delays encountered in the construction of the Afgoi-Baidoa road where it was neces- sary to obtain a supplementary IDA credit after bidding, the Association decided to obtain actual bids prior to board presentation to confirm the economic feasibility of the project and the adequacy of the financing plan. 2.05 To avoid delay in the processing of the project, the Association decided with AfDB and Government's agreement, to hold negotiations before receipt of bids. Negotiations with Government and AfDB were held in July 1971, and agreement reached regarding the financing of the project, subject to the proviso that the precise amounts of the IDA credit and AfDB loan would be determined only after the results of the bidding were known. During negotia- tions, the Government requested and the Association agreed, to include in the project funds for technical assistance in transport planning to review and update the 1966 Transport Survey, (para. 2.01). 2.06 Under terms of reference and conditions of contract satisfactory to the Association, the Government retained Dorsch Consult for assistance in prequalification of contractors and evaluation of bids. Cost for these services was included in the project and financed retroactively at Government's request. Twelve contractors were prequalified and invited to submit bids for construction of the project road. But only five tenders were received by the bid closing date of October 30, 1971. The lowest bid received was So.Sh. 51.16 million (US$7.8 million equivalent) compared to the appraisal estimate of So.Sh. 50.70 million (US$7.7 million equivalent). 2.07 During preparation of the tender documents, consideration was given to dividing the construction work into small contracts which might be suitable for bidding by local contractors. This idea was abandoned as there were no local contractors in Somalia who could handle even a small road construction contract on their own; whatever local contracting capabi- lity did exist could best be utilized in sub-contracting for construction of minor drainage structures or providing transport. The use of labor- intensive construction methods for the project was also considered and found unsuitable due to the general scarcity of labor in the project area. 2.08 Following negotiations and receipt of bids for road construction, the Association reviewed and updated the project costs, taking into account subsequent changes in the international exchange rate. As a result, total project costs increased by US$1.1 million of which US$0.3 million was attributable to project costs and US$0.8 million to exchange rate changes. The project was presented to the Board on January 18, 1972, after obtaining AfDB and Government's agreement to a revised financing plan providing for - 46 - an IDA credit of US$9.6 million and an AfDB loan of US$1.0 million 1/ covering total project costs. Because of financial difficulties, the Govern- ment was unable to contribute to the financing of the project. Before Board presentation, the Association also obtained confirmation from Government on the following: a) approval of the reorganization of the CED, as recommended by the Consultants financed by UNDP under the First Highway Project; and b) enactment of legislation on vehicle weights and dimensions, as required under the First Highway Project. 2.09 A Development Credit Agreement for US$9.6 million, and a Joint Financing Agreement between the Government, AfDB and the Association were signed on March 30, 1972. A condition of credit effectiveness was the enactment of legislation to assure the allocation for highway maintenance of So.Sh. 6.4 million for the fiscal year 1972. This condition was met and the credit became effective in May, 1972. Major covenants of the Joint Financing agreement dealt with procurement procedures, prompt issuance of import licenses, visas, work permits and other necessary documents, enforcement of traffic regulations, adequate maintenance of the road network,etc. (para. 3.13). C. The Project Description 2.10 The objectives of the project were to assist the Government in (a) improving its transportation network; and (b) planning transportation investments. It consisted of: A. Road Construction i) Construction of the Hargeisa-Berbera Road 2.11 The project road connects Hargeisa, the second largest city in Somalia and the administrative center of the northern region, with the port of Berbera on the Gulf of Aden. Previously, access was provided by a desert track having poor alignment and drainage. The new road follows the same general alignment of the old track between Hargeisa and Dubato, but between Dubato and Berbera it follows a completely new alignment, and is 20 km shorter. The road traverses mostly rolling terrain intercepted by short rocky stretches, except for some short distances near Hargeisa and Berbera 1/ Actual amount allocatedbyAfDB was 1 million Units of Account (US$1.08 million equivalent). - 47 - where the terrain is fairly flat. The design standards for the road which are considered adequate are shown in Table 1. A 6.5 km double bituminous surface-treated pavement was provided to carry the estimated traffic volumes over the 20-year economic life of the road. ii) Assistance in Prequalification of Contractors, Evaluation of Bids and the Award of Contract, and Construction Supervision 2.12 Before the credit was approved,the Government, with the Association's agreement, retained Dorsch Consult, who had carried out the detailed engineering of the project road, for assistance in prequalificationofcontractors, evaluation of bids and the award of contract. The Government later also employed this firm for supervision of construction. B. Other Project Components i) Feasibility Study and Subsequent Detailed Engineering of the Hargeisa-Borama Road with a link to Tug Wajale 2.13 Funds were included for carrying out the feasibility study and subsequent detailed engineering of the road between Hargeisa and Borama, including a link to Tug Wajale on the Ethiopian border, which was among the priority projects identified by Grimble and Associates in their 1966 Transport Survey. ii) Technical Assistance in Transport Planning 2.14 Technical assistance was included in the project to assist the Government in formulating a transport plan by reviewing and updating the 1966 Transport Survey. III. PROJECT IMPLEMENTATION AND COST A. Construction of the Hargeisa-Berbera Road Contract Award 3.01 The contract for road construction was awarded to the lowest bidder; Contracting and Training Company (CAT) of Lebanon in February 1972 for an amount of So.Sh. 51.16 million (US$7.8 million equivalent). Work started on May 13, 1972,with completion scheduled by November 8, 1974, allowing a contract period of 130 weeks. With a view to exploring the possibility of using locally available granular material in base course construction, the Government reserved its right to substitute alternative pavement specifica- tions and to notify the contractor accordingly within 3 months of contract starting date. At the commencement of the works, the supervisory consul- tants carried out additional site and materials investigations and verified - 48 - the availability of cheaper materials for base course; as a result the estimated contract cost was reduced to So.Sh. 47.95 million (US$7.3 million equivalent) as compared to the initial contract cost of So.Sh. 51.16 million (US$7.8 million equivalent). Contractor Performance 3.02 The performance of CAT was generally satisfactory; the progress on works was, however, delayed because of disputes between them and the haulage sub-contractors regarding transport rates (para. 3.05): the disputes dragged on for some months with continued deterioration in progress. The Contractor's limited rock crushing capacity also contributed to some delay. Progress improved generally after Government's action in solving the dispute between the contractor, truckers and labor, and the importation of a high capacity crusher by the contractor. 3.03 Because of delays in issuing revised specifications for the base course (para. 3.01) to CAT, and disputes between them and haulage sub-cont- ractors (para. 3.05), the Government approved an extension of the contract period by a total of 27 weeks. The road construction was substantially completed on May 8, 1975,six months behind schedule; this marked the start of the contractor's maintenance period of one year; the maintenance certificate was signed on June 4, 1976. The quality of road construction and contractor maintenance of the road was satisfactory. Relations between contractor, supervisory consultants and Government officials were good throughout. Performance of Consultant 3.04 Dorsch Consult, who carried out the detailed engineering of the project road, were retained by Government, with the Association's concurrence, for construction supervision. The quality of their services was good; their staff made significant contribution to the successful completion of the road contract with their efficient supervision and prompt handling of cont- ractor's claims and other site problems. Implementation Problems Haulage sub-contracts 3.05 A Government Decree issued in November 1972 fixed certain minimum daily rates for the hire of trucks which represented an increase of about 65% on the rates agreed between CAT and the haulage sub-contractors at the commencement of the works. Following a study by the MPW of the possible increased haulage costs on the contract, Government issued an order which exempted the Hargeisa-Berbera road contract from the Decree. Nevertheless, the sub-contractors claimed an increase in transport rates which led to disputes between them and the contractor resulting in delay in completion of construction,(para. 3.02). - 49 - Withdrawal of Work Permits 3.06 In September 1973, the Somali Ministry of Labor withdrew work permits for 8 of the contractor's expatriate staff, and requested that they be replaced by Somali staff. These permits were later restored at the Association's request. Claims 3.07 The contractor submitted a number of claims to Government for cost increases on haulage rates, fuel, cement and bitumen. These were settled with the assistance of the supervisory consultants. B. Other Project Components Feasibility Study and Subsequent Detailed Engineering of the Hargeisa-Borama Road with a link to Tug WaJale Technical Assistance in Transportation Planning 3.08 The Consultants, Renardet-Sauti (Italy) were selected by the Govern- ment, with the Association's concurrence, to provide the services comprising feasibility and detailed engineering studies of the Hargeisa-Borama road and assistance in transport planning. The feasibility study was completed in July 1975 and the detailed engineering in March 1976. But since personnel employed by the consultants to prepare the studies was not of a sufficiently high calibre, the quality of the detailed engineering was unsatisfactory. For example, the Bank Group mission visiting Somalia to appraise a proposed Third Highway Project discovered large deposits of gravel in the project area which could be used as sub-base material instead of the more expensive crushed stone proposed by the consultants. After discussion and with the Association's con- currence, the Government retained Dorsch Consult to review the detailed engineering and bidding documents prepared by Sauti and to assist in pre- qualification of contractors, tender procedures and bid evaluation. The transportation survey of Somalia, produced by Sauti as part of the assist- ance in transport planning, was considered generally satisfactory. C. Project Costs 3.09 At appraisal, total project costs were estimated at US$10.6 million of which US$9.82 million was for road construction and related supervision, including contingencies. The cost estimate for road construction was based on the lowest bid received, and included contingency allowances totalling 18%, (10% for possible quantity increases and 8% for price escalation). The cost of consulting services for preparing the feasibility study and subsequent - 50 - detailed engineering of the Hargeisa-Borama road was estimated on the basis of similar works carried out under the First Highway Project and updated; the cost of technical assistance in transport planning was based on the cost of providing two transport experts for a one-year period. 3.10 The actual total cost of the project was US$10.69 million, compared to the appraisal estimate of US$10.6 million; actual and appraisal estimates of cost are compared below: Actual Costs as a Proportion of Actual Appraisal Appraisal Estimates Costs Estimates of Cost -------------------US $million----------- I. Road Construction 9.37 9.21 102 II. Supervision of I 0.72 0.61 118 III. Feasibility Study and) Detailed Engineering ) ) 0.60 0.78 77 IV. Technical Assistance ) in Transport Planning) Total 10.69 10.60 Actual cost of road construction was US$0.16 million higher than the appraisal estimate; there has been an increase of US$1.57 million (20%) over the appraisal base cost estimate of US$7.8 million resulting mainly from depreciation of the US dollar and subsequent increases in costs of equipment and materials such as fuel, bitumen, cement since appraisal. The US$0.11 million (18%) increase in construction supervision cost was principally due to longer construction time than originally envisaged (para. 3.03). Actual cost of remaining components of the project was within the appraisal estimates. D. Disbursements 3.11 The actual disbursements were slower than appraisal estimates (Table 2). Although road construction was substantially completed in May 1975, Government delayed submission of applications for reimbursement of amount aggregating So.Sh. 3.75 million (90% IDA share) paid to the contractor towards settlement of its final claims and retention money. To allow for completion of disburse- ments the Association extended the closing date of the credit three times, from the original 12/31/75 to 12/31/76, again to 12/31/77 and finally to June 30, 1978. The credit was fully disbursed on March 1, 1978. - 51 - E. Covenants of Joint Financing Agreement 3.12 The Joint Financing Agreement for the project included covenants requiring the Government to: (i) employ consultants acceptable to and upon terms and conditions satisfactory to the Association; (ii) employ contractors acceptable to and upon terms and conditions satisfactory to the Association; (iii) maintain a special fund (called the Project Revolving Fund) to be used exclusively to make payments for the cost of goods required to carry out the project; (iv) maintain records adequate to record the progress of the project; (v) make arrangements satisfactory to the Association to ensure that foreign currency due to contractors employed in carrying out the project be duly remitted by such contractors to their respective countries; (vi) issue promptly import licenses, visas, work permits and other necessary documents and take any other action required to facilitate the import by the contractors and the consultants, materials and personnel required for the project; (vii) establish and maintain facilities adequate to collect and record information concerning road traffic, road construction and maintenance costs; (viii) ensure that the dimensions and axle loads of the vehicles using its highways do not exceed limits consistent with the design standards of such highways; and (ix) cause its highway system to be adequately maintained in accordance with sound engineering practices, and provide promptly the funds, equipment facilities, staff, services and other resources required for the purpose. 3.13 There was general compliance with covenants (i) through (viii) except for the withdrawal of work permits of the contractors's expatriate staff which were later restored (para. 3.06). An account of Government compliance with covenant (ix) concerning road maintenance is given below. Road Maintenance 3.14 The Government gave an undertaking in a side letter to allocate and expend for highway maintenance funds amounting to not less than - 52 - So.Sh. 6.7 million, 7.0 million and 7.4 million for the year 1973, 1974 and 1975 respectively. However, allocations made were in excess of the amounts specified (Table 3). 3.15 In another side letter, the Government undertook to ensure that equipment intended for highway maintenance would be used primarily for the intended purpose. Even though there were instances when road maintenance personnel and equipment were diverted to unrelated works, these were not significant enough to jeopardize the carrying out of highway maintenance activities. The Credit Agreement for the Third Highway Project also includes a covenant requiring Government to use highway maintenance staff and equipment exclusively for this purpose. IV. ECONOMIC RE-EVALUATION A. Appraisal Expectations 4.01 The economic evaluation in the appraisal report was concerned with the civil works which, together with the associated consultant services for final engineering and supervision, amounted to about 88% of the estimated project cost. This part of the Project Completion Report similarly deals with the road construction element of the project. Two types of quantita- tive benefits considered at appraisal were savings in vehicle operating costs and the value of avoided loss of weight and death of livestock during trans- port on the project road. Traffic was assumed to grow at 5% per year during the first 10 years following road construction and 4% per year in the subsequent 10 years of road life. The economic rate of return calculated for the civil works was 19%. 4.02 In addition to the estimated project benefits taken into account in this calculation, the appraisal found that the road improvement would result in live animals being brought to market in better condition thereby generating sales that would not otherwise occur; the Somalis had found it increasingly difficult to hold their market position in Saudi Arabia, their principal market, because of the condition of animals on arrival. B. Developments Since Appraisal 4.03 Construction of the Hargeisa-Berbera Road was completed in May 1975 at a cost of So.Sh. 69.35 million or US$10.54 million equivalent (including cost of detailed engineering and supervision of construction). Traffic has developed much more rapidly than had been expected, as reflected in the following: - 53 - Average Daily Traffic, 1977 Appraisal Projections Actual No. % No. % Small Vehicles (cars, etc.) 27 20 152 31 Medium Vehicles (trucks, buses) ) 267 55 ) 107 80 Heavy Truck (trucks, truck trailers) ) 65 14 Total: 134 100 484 100 At appraisal (1971) ADT was estimated at 100 although at times traffic was said to rise as high as 300. Based on the level of 100 ADT in 1971 and the 5% per year growth rate given in the appraisal report, the ADT in 1977 would be 134. Since the actual traffic in 1977 based on proper sample counts reached 484 ADT, the growth rate was apparently much higher than the 5% per year rate underlying the appraisal forecast. Reasons for the relatively rapid growth in traffic are indicated below. 4.04 The severe drought that affected Somalia in 1974-75, which could not be foreseen at appraisal, had short term and long term effects on the area of influence of the Hargeisa-Berbera Road. In the short term, it caused an increase in numbers of livestock brought to market as producers found it difficult to feed them; also considerable relief supplies were transported from Berbera to Hargeisa for further distribution in the Northwest. In the long term, the reduced size of cattle herds caused by the drought can only gradually be restored to previous levels. Therefore, the forecast of traffic on the project road over its remaining life should be based on a growth rate more moderate than has been experienced in recent years. 4.05 The area of influence of the Hargeisa-Berbera road has been favorably affected by the initiation in recent years of two major projects. One of these is the IDA-financed Northwest Regional Agricultural Project, approved in Appril 1976, which is assisting in the development of the 160,000 ha of potentially arable land in the region. The other is the Northern Rangelands Project which is aiding in the management of grazing areas so vital to livestock production of Somalia. The Hargeisa-Berbera road has facilitated the implementation of these projects and will serve a useful role over the long term in transporting products stimulated by these complementary investments. - 54 - C. Recalculation of Economic Rate of Return 4.06 The economic rate of return calculated in this re-evaluation is based on an assessment of costs and benefits with and without the road construction over 20 years, the estimated economic life of the improved road. The So.Sh. 69.35 million capital cost covers the actual cost of construction, detailed engineering and supervision of construction. 4.07 In recalculating the economic rate of return, estimates of savings in vehicle operating costs were derived from vehicle operating costs per km (Table 5) in 1974 and best estimates of relevant traffic over the life of the road. Traffic is based on the vehicle counts taken in 1977, an assumption that it has grown at 8% per year since the road was opened in 1975-and an estimate that non-livestock traffic for the remaining life of the road will increase at 7% per year to 1984 and 6% per year thereafter. Livestock traffic is excluded from consideration in estimating savings in vehicle operating costs because separate benefits are calculated for this element of traffic as indicated below. 4.08 The new road made possible the shift from costly walking or trekking of livestock to truck transport from Hargeisa to Berbera, and estimates were developed of the increased revenue from livestock exports attributable to the road improvement. Data on livestock movements indicate that some 810,000 sheep and goats and 63,000 cattle were transported on the road in 1975. At 30 kg per small animal and 235 kg per large animal, their total weight was about 39 million kg. By trucking these livestock some 12% of their weight or 4.7 million kg was saved as compared with walking them. The 3% weight saving shown in the appraisal report is low in view of recent research done on this subject. Taking the weighted average value of the livestock at So.Sh. 4 per kg, the value of the 4.7 million kg of weight saved is So.Sh. 18.8 million. After deducting transport and administrative costs the net value of the benefit is So.Sh. 13.6 million in 1975. In view of the long term problem of rebuilding cattle herds, these savings are assumed to grow at a modest 4% per year over the life of the road. 4.09 Current routine and periodic road maintenance costs, with and without the project road, were estimated and appropriately deflated to 1974 for purposes of the analysis. The economic rate of return was calculated based on actual capital costs, new estimates of savings in vehicle operating costs, value of increased revenue from livestock exports attributable to the new road and savings in road maintenance cost (Table 6). The results show an economic rate of return of 36% which is substantially higher than that derived in the appraisal (Table 7). - 55 - V. CONCLUSION A. Performance of the Borrower 5.01 The performance of the borrower's executing agency, the CED of the MPW, was generally satisfactory. It took appropriate action to resolve problems as they arose. The efficient supervision and prompt handling of con- tractor claims by the supervisory consultants and cooperative attitude of the contractor played a major role in the successful completion of the road contract. The areas in which the Borrower performed less satisfactorily were: (i) the withdrawal of work permits of the contractor's expatriate staff (para. 3.06); and (ii) diversion of road maintenance personnel and equipment to unrelated works (para. 3.16). B. Performance of the Association 5.02 In retrospect, the appraisal process concentrated on the right issues and the Association's definition of the credit covenants were appropriate; the decision to obtain actual bid prices for road construction before Board presentation resulted in a better designed project. The project was adequately supervised; the advice given by the Association during project implementation, and followed by the Government, resulted in fulfillment of the project objectives. - 56 - TABLE B.1 SOMALIA PROJECT COMPLETION REPORT SECOND HIGHWAY PROJECT Credit 295-SO Design Standards for the Hargeisa-Berbera Road Design Speed (km) 80 Width of Roadway (m) 9.00 Width of Surfacing (m) 6.50 Width of Shoulders 1.25 each Minimum Radius of Curvature (m) 400 Maximum Grade 7% Depth of Ditches (m) 0.5 Type of Surface Double bituminous surface treatment Main Drainage Structures Irish crossing (paved fords) Axle Load lo metric tons Source: Joint Financing Agreement June 1978 - 57 - TABLE B.2 SOMALIA PROJECT COMPLETION REPORT SECOND HIGHWAY PROJECT Credit 295-SO Actual and Appraisal Estimates of Disbursements (Cumulative) Actual Disbursements as IBRD Appraisal a percentage of Appraisal Fiscal Year Actual Estimate Estimates (Quarters) ------------------US$ million----------------- 1972: 3 1.00 4 1.80 ~ 1973: 1 1.0 2.40 42 2 1.1 3.20 34 3 1.4 4.00 35 4 1.7 4.90 35 1974: 1 2.1 5.90 36 2 2.5 6.90 36 3 2.8 7.70 36 4 3.4 8.60 40 1975: 1 4.0 9.60 42 2 5.2 - - 3 7.1 - 4 8.0 - 1976: 1 8.6 - 2 8.8 - - 3 8.8 - - 4 8.8 - - 1977: 1 8.8 - 2 8.9 - - 3 8.9 - - 4 9.3 - - 1978: 1 9.3 - - 2 9.5 - - 3 9.6 - - Source: Appraisal Report, January 5, 1972; Controller'n nenArtment Information June 1978 - 58 - TABLE B.3 SOMALIA PROJECT COMPLETION REPORT SECOND HIGhWa.i -0rOjELT Credit 295-SO Road Maintenance Allocation by Government Somali Fiscal Year Maintenance Allocation (So.Sh. million) 1972 6.40 1973 9.58 1974 7.86 1975 6.84 1976 7.96 1977 7.96 Source: Civil Engineering Department June 1978 SOMALIA PROJECT COMPLETION REPORT SECOND HIGHWAY PROJECT Credit 295-SO Actual and Expected Project Implementation Contractor/ Consultant and Bid Receipt Contract Award Beginning of Work Completion of Work Project Component Nationality Actual Expected Actual Expected Actual Expected Actual Expected I. Construction of the Contracting and Oct 1971 May 1971 Feb 1972 NA May 1972 May 1972 May 1975 Nov 1974 Hargeisa-Berbera Road Trading Company (Lebanon) II. Supervision of I Dorsch Consult - - Apr 1972 NA May 1972 May 1972 May 1975 Nov 1974 III. Feasibility Study and Renardet-Sauti Detailed Engineering (Italy) - - NA NA Apr 1974 <Jan 1974 Mar 1976 Mar 1975 IV. Technical Assistance in Transport Planning - - NA NA Apr 1974 Jan 1974 Aug 1976 Mar 1975 Source: 14iahway Division Files June 1978 - 60 - TABLE B.5 SOMALIA PROJECT COMPLETION REPORT Second Highway Project - Credit 295 Comparisons of Vehicle Operating Costs (So.Sh. per vehicle km) Vehicle Type Earth Road Paved Road and Cost Items New Information Appraisal New Information Appraisal Small Vehicle Fuel .1016 .0834 Lubricants .0027 .0017 Tires .0908 .0264 Maintenance .2506 .1114 Depreciation .2506 .1481 Wages, Insurance .1897 .1264 Overheads .0350 .0199 Total .9210 .6100 .5173 .2500 Medium Vehicle Fuel .2123 .1319 Lubricants .0060 .0030 Tires .2305 .0524 Maintenance .7040 .2682 Depreciation .4529 .2156 Wages, Insurance .1985 .1134 Overheads .0722 .0314 Total 1.8764 1.0000-2.1400 .8159 0.4800-1.0100 Heavy Vehicle Fuel .1541 .1066 Lubricants .0060 .0030 Tires .2305 .0524 Maintenance .7302 .3130 Depreciation .7048 .3360 Wages, Insurance .2095 .1197 Overheads .0814 .0372 Total 2.1165 2.8600 .9679 1.4700 Note: Net of taxes and duties. Source: Appraisal Report, Third Highway Project and Consultants' Feasibility Study, 1974. June 1978 - 61 - TABLE B.6 SOMALIA PROJECT COMPLETION REPORT Second Highway Project - Credit 295-SO Recalculation of Economic Return: Hargeisa-Berbera Road (Somalia Shillings'000,000) Vehicle Road Capital Operating Livestock Maintenance Net Year Cost Cost Savings Benefit Cost Savings Benefits 1972 13.2 -13.2 1973 22.9 -22.9 1974 22.9 -22.9 1975 10.4 12.7 13.6 -.2 15.7 1976 13.6 14.1 -.2 27.5 1977 14.5 14.7 3.2 32.4 1978 15.4 15.3 -.2 30.5 1979 16.3 15.9 -.2 32.0 1980 17.3 16.5 -.2 33.6 1981 18.3 17.2 -2.4 33.1 1982 19.4 17.9 -.2 37.1 1983 20.5 18.6 -.2 38.9 1984 21.8 19.3 4.9 46.0 1985 23.1 20.1 -.2 43.0 1986 24.4 20.9 -.2 45.1 1987 25.9 21.7 -.7 46.9 1988 27.5 22.6 -.2 49.9 1989 29.1 23.5 6.6 59.2 1990 30.8 24.4 -.2 55.0 1991 32.7 25.4 6.6 64.7 1992 34.6 26.4 4.9 65.9 1993 36.7 27.4 -.7 63.4 1994 38.9 28.5 4.9 72.3 Economic Rate of Return 36% Source: Mission estimates. June 1978 TABLE B.7 - 62 - SOMALIA PROJECT COMPLETION REPORT Second Highway Project - Credit 295 Ex-post and Appraisal Estimates of Economic Rates of Return Rate of Return Expost Appraisal Road Estimate Estimate Hargeisa-Berbera 36 19 Source: Appraisal Report, January 5, 1972 June 1978 쟈