Haiti - Seventh Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4220-HA REPORT AND nECOM?4ENDATION TO THE PRESIDENT OF THE I1iTERN'ATIONAL DEVELOPMEN ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMET CREDIT OF SDR 16.6 MILLION (US$20.0 MILLION EQUIVALENT) TO THE REPUBLIC OF HAITI FOR A SEVEN1TH TRANSPORT PPOJECT DECEMBER 31, 1986 This document has a restricted distribution and may be used by recipients only in the performance of their offichl duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency Unit= Gourde (G) US$1 = G 5.0 G 1.0 = US$0.20 G 1 million = US$200,000 Weights and Measures: Metric: British/US Equivalent I meter Cm) = 3.28 feet (ft) 1 kilometer (km)2 = 0.62 mile (mi) 1 square kilometer (ki ) = 0.386 square mile (sq mi) 1 metric ton im ton) = 2,205 pounds (lb) 1 cubic meter (m ) = 1.3 cubic yards (cu yd) Fiscal Year October 1 to September 30 Abbreviations and Acronyms AAN - Autorite Aeronautique Nationale (National Airport Authority) APN - Autorite Portuaire Nationale (National Port Authority) CCCE - Caisse Centrale de CoopEration Economique (France) CIBA - Canadian International Development Agency CGCED - Caribbean Group for Cooperation in Economic Development DTY - Direction des Transports (Directorate of Transport) ICE - International Competitive Bidding IDA - International Development Association IDR - Inter-American Development Bank ILO - International Labor Organization KfW - Kreditanstalt fur Wiederaufbau (Federal Republic of Germany) LCB - Local competitive bidding MP - Ministare de l'Economie et des Finances (Ministry of Economy and Finance) HMPTC - Ministare des Travaux Publics, des Transports et des Communications (Ministry of Public Works, Transport and Communications) OPEC - Organization of Petroleum Exporting Countries PCR - Project Completion Report PCU - Project Coordinating Unit PPAR - Project Performance Audit Report SAT - Service Autonome des Transports (Autonomous Transport Service) SCR - Service de Construction Routiare (Road Construction Service) SEKANAH - Service Maritime et de Navigation d'Haiti (Maritime and Navigational Service of Haiti) SEP - Service d'Etude et Planification (Planning and Studies Services) SEPRRN - Service d'Entretien Permanent du Reseau Routier National (National Permanent Road Maintenance Service) SRS - Section des Routes Secondaires (Secondary Roads Service) UNDP - United Nations Development Program USAID - United States Agency for International Development  FOR OFFICIL USE ONLY HAM TRANSPORT VII PROJECT CREDIT AND PROJBCr SUMhR Borrower: The Republic of Haiti Credit SDR 16.6 million (US$20.0 million) u mE: Terms: Standard. IDA. Relending The proceeds of the credit for the cabotage port engineering Terns: studies and design of the project (US$0.28 million equivalent) would be relent by the Government to APN under terms and conditions satisfactory to the Association with a repayment term of 7 years, including 2 years of grace, at 5% interest per annum-. Project The objectives of the proposed project are the improvement and Objectilves: development of roads and coastal shipping, in support of agriculture and industry started under previous projects, and continued strengthening of sectoral institutions. Project The proposed project consists of: (a) implementation of Phase II of Description: the bridge and culvert rehabilitation program started under the ongoing Sixth Highway Project; (b) construction of two major bridges at Fer-a-Cheval and Guayamouc; (c) completion of road rehabilitation on the Gonaives-Cap Haitien road; (d) technical assistance to SEPRRN, including improved labor-based road construction; (e) provision to SEMANAH of technical assistance, training, and boat inspection facilities; and (f) provision to APN of funds for engineering studies and detailed engineering for remedial works at the Port of Jeremie. Project The Directorate of Transport (DDT) of the Ministry of Public Works, EmreCUtJLi Transport and Communications; the National Port Authority (APN) of AgenciJLes: the Ministry of Economy and Finance; and the Maritime and Navigational Service of Haiti (SEMANAH) would be responsible for Project Execution through a Project Coordinating Unit. Beneficiaries: The rural population would be the principal beneficiary from improved road access and coastal shipping services. The entire economy would benefit through savings in vehicle operating costs, improved coastal shipping operations and marketing of agricultural produce. Risks: The principal risk is that the Government will not allocate sufficient counterpart investment funds to the project or sufficient complementary recurrent expenditures. The establishment of a Project Account and assurances by the Government that sufficient allocations would be provided SEPRRN and SEMANAH in its annual budgets will reduce this risk. I 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.  project The total cost of the project, net of taxes and duties, is Costs: estimated at US$24.0 million equivalent with a foreign exchange component of US$18.7 million equivalent. The proposed credit of SDR 16.6 million (US$20.0 million) equivalent would finance the full foreign exchange cost of the project and 25% of local costs. The details are presented below: Estimated Costs / Prodect Components: IDA Local Foreign Total Financing US$ Million % Amount A. Roads and Bridges (DDT) Civil Works, Roads and Bridges 4.00 11.65 15.65 80 12.52 Equipment, Road Maintenance 0.07 1.36 1.43 100 1.43 Engineering and Supervision 0.13 0.74 0.87 100 0.87 Technical Assistance 0.07 1.26 1.33 100 1.33 Subtotal 4.27 15.01 19.28 (84) 16.15 B. Maritime Service Facilities (SEMANAR) Civil Works, Boat Inspection 0.32 1.16 1.48 80 1.18 Engineering and Supervision 0.04 0.18 0.22 100 0.22 Technical Assistance 0.19 0.35 0.54 100 0.54 Subtotal 0.55 1.69 2.24 (86) 1.94 C. Port Improvement (APN) Engineering Studies and Design 0.03 0.22 0.25 100 0.25 (Jeremie) Total Baseline Cost 4.85 16.92 21.77 (84) 18.34 Physical Contingencies 0.30 1.11 1.41 1.04 Price Contingencies 0.18 .64 .82 0.62 TOTAL PROJECT COST: 5.33 18.67 24.00 (83) 20.00 Financing Resources Proposed IDA Credit 1.33 18.67 20.00 Government Contribution 4.00 - 4.00 Total Financing 5.33 18.67 24.00 Estimated Credit Disbursements: IDA FY 1987 b 1988 1989 1990 1991 Annual 2.4 6.1 6.1 3.3 2.1 Cumulative 2.4 8.5 14.6 17.9 20.0 a/ Based on January 1987 prices. b/ Includes retroactive financing.  - iii - Economic Bate The economic rate of return of the major civil works project of Beturn: components is 37%; individual returns for the various components range between 14% and 43%. Staff Appraseal teport: Report No. 5943b-RA, dated December 23, 1986. MAP: IBRD 19402  MMMq NAL nDET imASSOCIION REPORT AMn _ ION OF THE PRESIDENT OF IDA TO THR EXECUTIVm DIRECTORS ON A PROPOSED DEVEJO CREDIT OF S5R 16.6 MnIXON (US$20.0 nILLON EQIJIVAZNT) TO THE REPUBLIC OF EUITI FOR A SEVENTH TRANSPORT PROJECT 1. .I submit the following reporr and recommendation on a proposed development credit of SDR 16.6 million (US$20.0 million equivalent) on standard IDA terms to the Republic of Haiti, to help finance a Seventh Transport Project. PART I - THE ECONOMY 2. This assessment of the Haitian economy is based largely on three documents already distributed to the Executive Directors and on the work of the September/October 1986 appraisal mission for a proposed Economic Recovery Credit. Haiti: Policy Proposals for Growth (5601-HA) was distributed on June 18, 1985, and Haiti: Public Expenditure Review (6113-HA) on October 5, 1986. The Joint Government/IDA/DIF Policy Framework Paper for an DIMF Structural Adjustment Facility arrangement was discussed by the Committee of the Whole on November 18, 1986. All three were also made available to the members of the Caribbean Group for Cooperation in Economic Development. Annex I presents economic data. 3. Haiti is a small, densely populated, predominantly rural, and open economy. Its 5.4 million people occupy 28,000 square kilometers, the western end of the island of Hispaniola, and are among the poorest in the world, with a per capita income of US$350 (1985, Atlas basis). Their absolute poverty is unmatched in the Western HRmisphere: the infant mortality rate is about 120 per 1,000 live births and about 65Z of adult Haitians are illiterate. Half the labor force is unemployed or underemployed. 4. Three quarters of the population live in the rural areas, and ultimately depend on agriculture, the output of which has increased little since the early 1970s. Physical production per capita has fallen steadily as relentless population pressure has forced peasants to cultivate ever more marginal hillside land. Strenuous family planning efforts, largely by non-governmental organizations, have yet to show results. A shortage of cultivable land, coupled with insecurity of tenure and the demand for wood and-diarcoal for energy, has generated a vicious circle of deforestation and soil erosion. Declining rural incomes have led to substantial rural-urban and international migration. The total population is .growing at 1.8% per annum, net of emigratiotn of 0.5%, while the urban population i6sexpanding by 4%. 5. Past public policies exacerbated the decline of agriculture. Expansion of coffee, the major cash crop, was discouraged by an export tax. Producer prices for foodgrains were increased to well above world prices by import restrictions. This fostered the cultivation of maize on the hillsides instead of coffee and worsened soil erosion. Public agricultural investment and credit programs were occasionally targeted more to social relief than to stimulating either growth in productivity, output and employment or effective  - 2 - soil conservation. On the plains, where agricultural potential is much greater than on the hillsides, irrigation systems lack operating and maintenance finance, and are silting up from the erosion on the hills; much State and private land is unexploited; and peasants practice highly risk-averse production patterns. 6. In recent decades, output and employment have shifted toward urban activity, as a result of both the scarcity of cultivable land and the establishment in the 1970s of a labor-intensive, export assembly industry. Agriculture now accounts for only one third of GDP compared with one half in the early 1950s. Gross national savings are very low, averaging only about 5% of GDP since FY80. This leaves the economy reliant on concessional aid to attain investment consistent with sustained growth. The economy has become much more open; by 1980, the total value of exports and imports of goods and services had risen to about 50% of GDP. 7. Despite the expansion of manufacturing for export, the export base remains narrow, leaving Haiti vulnerable to exogenous shocks. The assembly industry produces a very limited range of products-electronics, clothing, and sporting goods-yet accounts for over 50% of all exports; external factors, such as the 1980-83 world recession and the shakeout in the North American computer industry, have contributed to the recent slowdown in this subsector. Coffee, which accounts for about 25% of exports, is particularly vulnerable to world price fluctuations and to hurricanes. Tourism has virtually ceased as a result of publicity concerning AIDS and the only bauxite mine closed in 1982, when deposits were exhausted. 8. In the second half of the 1970s, economic growth, averaging 4.5% per annum; allowed for some improvement in real per capita income. A basic physical infrastructure was established and education and health received attention, virtually for the first time since the 1930s. Prudent financial poi6cies were pursued and foreign development assistance was substantial. The economy was virtually on a dollar standard, with the Gourde remaining at a fixed parity of five%-to the U.S. dollar, and priees"were relatively stable. 9. These conditions helped engender private sector confidence and promoted the continued rapid expansion of the export assembly industry, largely based on Haitian entrepreneurial talent. Although it has enjoyed tax holidays and other investment incentives, this subsector's primary advantage has been the freely determined structure of wages in Haiti. Until recently it was the fastest growing assembly industry in the Caribbean Basin; over 50,000 jobs were created by 1980. In contrast, the private industrial sector producing for the domestic market, which grew quickly in the early 1970s behind high walls of protection, rapidly saturated this market and has stagnated for almost ten years. 10. From FY80-85 the public sector expanded its influence in the economy through higher rates of taxation, even higher levels of public expenditure-the control and allocation of which was seriously deficient- and an increase in the number of public enterprises. Waste and inefficiency became endemic. Extrabudgetary expenditures rose disturbingly, as did the level of corruption. New and inefficient public industrial enterprises were formed, resulting in real resource losses equivalent to almost 4% of GDP each  - 3 - year. Too much spending went to salaries and non-development purposes, not enough to non-salary operating costs; too little went for development, and the returns on public investment were very low or even negative. Transfers from the Treasury to the investment budget were partly diverted to meet salary payments in ministries without development functions, reducing the availability of counterpart funds for aid-financed projects. Per capita public spending on health declined by 45% from FY80-86. 11. The overall public sector deficit before grants averaged over 10% a year (6.5% after grants). Public savings dropped to less than 1% of GDP on average and recourse to nonconcessional financing, mostly Central Bank credit, increased to more than 3% of GDP on average. This in turn exerted heavy pressure on the balance of payments; official net reserves declined at an annual rate of US$22 million and had fallen to minus US$93 million by the end of FY85. Gross reserves had declined to less than three weeks' import cover ge. Payments arrears accumulated and a parallel foreign exchange market de,eloped, with the Gourde selling at a discount which at times exceeded 20%. 1Z. Confidence was eroded and the economy declined by an average of 0.6X per year from FY8i-86. Real per capita incomes in FY86 were 15% below those in FY80. There was increasing immiseration in the rural areas and emigration--the the boat people--increased. Starting in April 1984, there was intermittent civil unrest. The assembly industry stagnated since 1983. DonGrs expressed concern over inappropriate public investments, the lack of overall public investment priorities, and poor policies in agriculture and industry. Foreign aid declined from 7 to 5% of GDP from FY83-85 and several donors allocated their aid away from the public sector toward no-governmental organizations. 13. The Government's increased revenue demands on the domestic economy in the 1980s were met through rent-seeking pricing policies by public industrial enterprises that enjoyed trade monopolies. Together with the intensification of import restrictions and of private production and importing monopolies, this inflated prices for basic consumer goods to well above world levels. The annual increase in the consumer price averaged 8% in FY80-86, double that of Haiti's main trading partners. An outright ban on the importation of specific consumption items was first introduced in 1981 and then replaced by an administered system of import licensing after 1982. Both trade restrictions and pricing policies created price distortions with neighboring countries, and encouraged contraband in imported consumption goods. 14. The economic stagnation led to increasing political discontent. By late 1985, civil unrest was widespread and the economy was deteriorating rapidly; by early 1986, the situation was unsustainable and in February President Duvalier suddenly departed Haiti, ending the 29-year Duvalier reign. A transitional Government came to power, pledged to introduce democracy and promote economic recovery. It has announced a political calendar leading to elections in November 1987, with the inauguration of a new elected administration in February 1988. 15. The Government also announced--and immediately started to implement--a wide-ranging financial stabilization and economic recovery  - 4 - program. An attempt is being made to end the present system of privilege and monopoly and to achieve a growth rate of at least 4.5% a year through improved exports and agriculture performance. This target is to be promoted both directly by the removal of impediments to efficient resource allocation, and indirectly by the impetus to high capital inflows that these policies should-generate. Central to the Government's strategy is the need to rebuild the confidence of Haitian workers, farmers and investors, on the one hand, and foreign investors and aid donors, on the other. .;..- .. 16. Both expenditure and taxes have been cut and a balanced budget is being maintained, except for concessional financing. Education and health expending have been increased. Taxes on basic consumption items have been reduced, helping to lower prices. Income taxes have been reformed and collection is being improved. The public investment program has been pruned and now concentrates on completing priority ongoing projedts. The public sector's debt to the domestic banking system is being reduced. Two uneconomic public industrial enterprises have been closed and two more are being restructured. 17. Quantitative restrictions on imports are being progressively eliminated, specific tariffs replaced by ad valorem ones, and the general level of protection is being reduced, with a view to both lowering prices and stimulating competitive efficiency, including at public enterprises. The export tax on coffee has been halved and will be eliminated, other agricultural export taxes have been abrogated, and measures will be taken over time to reduce foodgrains import restrictions. Agricultural credit is to be reorganized. 18. The stabilization measures have already begun to work. Both the public sector deficit and the current account deficit of the balance of payments have been reduced drastically. The discount on the Gourde on the parallel foreign exchange market has dropped to about 5-7% and the consumer price index has fallen by over 4% since February 1986. Economic growth has not yet resumed, but the signs are promising, particularly with a new textile agreement with the United States that should permit a major expansion of the assembly industry and with increased donor commitments of aid. 19. The present Government's program will not, of course, resolve Haiti's many severe development problems, notably its undeveloped human resources, its poor agricultural performance, and its declining natural environment. This will take much more time than the short life of this Government, as it well recognizes. The present program should provide a solid basis on which future Governments can build.  PART II - BRN GROUP OPERATIONS 20. Since beginning operations in Haiti in 1956, the Bank Group pas extended one loan and 22 credits totalling US$259.0 million equivalent_/ and IFC has made one investment (US$1.5 million). As of September,30, 1986, the total of credits outstanding was US$ 271.4 million 4quivalent,J of which US$62.1 million equivalent was undisbursed. Annex II summarizes Bank Group operations in Haiti as of September 30, 1986. The Bank Group has financed projects in transportation (6), power (4), education (4), water supply (1), rural development (2), agricultural rehabilitation (1), industrial credit (1), and urban development (1). A pilot project in forestry is also underway. IFC's investment is for an integrated poultry project. 21. Overall, project implementation and disbursement performance are satisfactory. However, a lack of counterpart funds has in the past delayed IDA disbursements. The establishment of revolving funds in recent projects has improved this. IDA is in addition carefully monitoring Haiti's absorptive capacity for external assistance, with particular attention to projects' local cost counterpart financing requirements. 22. Many public and private aid agencies are active in Haiti. Among the mnost important are the Inter-American Development Bank (IDB), the United States Agency for International Development (USAID), the French Caisse Centrale de Cooperation Economique (CCCE), the German Kreditanstalt fur Wiederaufbau (KfW), the Government of Japan, the Canadian International Development Agency (CIDA), the United Nations Development Programme (UNDP) and the technical assistance agencies of the Federal Republic of Germany and of France. The Caribbean Group for Cooperation in Economic Development (CGCED), chaired by the World Bank, provides a framework for coordination among donors. Its Haiti Subgroup met in November 1986 and major donors announced substantial increases in their intended levels of financial support. 23. IDB maintains a diverse program in Haiti, both regionally and sectorally. Projects are being implemented or planned in the transportation, agriculture, energy, health, education, industry, urban drainage, and water supply sectors. The United States' project program is implemented largely in collaboration with private volunteer groups and concentrates on agriculture and rural development, the conservation and restoration of natural resources, rural roads, health care and the strengthening of public and private development institutions. Balance of payments support is provided through the grant of foodstuffs to the Government, and, recently, through a cash grant from the Economic Support Fund. France has financed road construction and airport resurfacing; it currently sponsors two integrated rural development projects, a major telecommunications project, educational planning, research, a multitude of training programs, maritime lighting, navigational aids for civil aviation and a water supply rehabilitation project for Port-au-Prince. France also is financing components of IDA's 1/ Difference due to SDR exchange rate.  -6- Third Power, Fourth Power, andrpilot Forestry Development projects; its water supply project is a precursor to likely joint financing with IDA of a future project. Together with Germany, France has provided substantial technical assistance for the First and the Second IDA Rural Development Projects. 24. Germany is providing technical and financial assistance for urban, rural, sanitation, and power sector development. Japan's aid is concentrated mainly in the health sector. CIDA supports institutional development through training and technical assistance projects with the Ministries of Education and Agriculture and the National Institute of Administration. UNDP provides extensive technical assistance in many sectors. IDA Strategy 25. Over the past 18 months IDA has prepared an economic memorandum, an agricultural sector study and a public expenditure review for Haiti. These documents identify the major obstacles to economic recovery and the specific actions needed to achieve and sustain financial stabilization, reduce resource losses, increase agricultural and industrial production and exports, save foreign exchange, meet the infrastructure and training needs of agriculture and industry, increase the efficiency of public institutions and, for the longer term, improve basic education. These reports were submitted to the transitional Government which took over in February 1986. Its financial stabilization and economic recovery program, described in Part I, is based on reforms which follow closely the reports' principal recommendations. 26. Consequently, IDA's program, in close collaboration with other donors through the CGCED, aims at supporting the Government's program of economic recovery with both investment project credits and policy-based operations. In this strategy, the proposed Seventh Transport project is particularly pertinent since it will improve the infrastructure linking producers to domestic and foreign markets and thus support agriculture and industry; will help to reduce the cost of domestic transport, saving foreign exchange; and will contribute to the improvement of transport institutions (para. 59). 27. The Haitian authorities have agreed with the IMF and IDA on a Policy Framework Paper to underpin an IMF Structural Adjustment Facility Arrangement. A proposed Economic Recovery Credit, recently appraised by IDA, would support the implementation of policy reforms, including public expenditure and investment, public enterprises and credit institutions, export taxes, and import restrictions and tariffs. This operation would be complemented by a small Technical Assistance Credit to assist the authorities to implement and monitor reforms and to prepare further action. An Industrial Restructuring Credit, soon to be appraised, would provide financial and technical assistance to industries which need to restructure or invest to operate under the new set of incentives that the trade regime reforms will establish. 28. Further policy-based operations are envisaged as long as an appropriate policy framework remains in place. Further investment credits  - 7- under preparation include projects in electric power and water supply. A population, health and nutrition sector report is currently under preparation. 29. IDA's share in Haiti's external debt disbursed and outstanding is estimated at 38% as of September 30, 1986. This is high only because grants constitute a very large share of the external assistance Haiti has received. IDA's share of external public debt service was about 5% in FY86. PART III - THE TRANSPORT SECTOR The Transport System - Priorities and the Government's Plan 30. The Transport System: Haiti's transport infrastructure consists of 2,846 km of motorable roads; 40 km of a privately owned railroad; two international ports, ten cabotage ports and about 40 mooring points; two international airports and five domestic airfields. Port-au-Prince, the capital and commercial center, where the major international airport and main seaport are located, is the focus of the transport system. The main national highways, as well as a few departmental roads, are well designed and, with some exceptions, are generally in good condition. The remainder of the road network has poor geometric standards and lacks adequate drainage structures. Most of the bridges and culverts are in a very poor state of repair because of aging and poor maintenance, which has resulted in serious difficulties in access and high transportation costs. The general conditions of the coastal shipping (cabotage) ports is satisfactory, with the exception of Jeremie Port (paras. 48 and 65). 31. Road transport, the predominant mode, accounts for more than 79% of total domestic transport. Coastal shipping handles about 18Z, air transport about 1%, and various beasts of burden and head loading the remaining 2%. External trade transport is handled mostly by sea (about 98% by volume), with the balance being by air and by road (the latter to the neighboring Dominican Republic). International passenger transport is by air. Some 403 sailboats and 50 motorboats, with a total carrying capacity per trip of over 12,000 tons and over 5,000 passengers, are engaged in the coastal shipping trade. 32. Air transport accounts for over 90% of the international passenger traffic and 1% of the freight traffic. Air traffic has been increasing rapidly since 1975, as a result of the expansion of Haiti's assembly industries and increased travel from the United States and the Dominican Republic. Port-au-Prince International Airport was repaved in 1985, in part financed by Caisse Centrale de Cooperation Economique (CCCE). CCCE is also financing a navigational aids system for civil aviation. The five provincial airports have modest facilities and are used mostly for charter flights. The Government has plans for building of a new, larger airport at Cap Haitien, mainly to promote tourism and development in that area. The economic justification for this investment remains to be proved (para. 3A).  -8- 33. Sector Priorities and the Government's Plan: The principal role of the transport sector for the next decade would be to support the expansion of agriculture and industry, the main productive areas of the economy, by providing transport infrastructure for local producers for their access to domestic and export markets. The sector's objectives are, therefore: (a) the improvement and rehabilitation of roads, bridges and ports; (b) strengthening the planning, operation and maintenance of transport facilities; and (c) continued development of the sector institutions through programs of staff training and technical assistance. 34. The previous administration had prepared a preliminary transport sector investment program for FY87-FY91, costing about US$294 million equivalent. It included a wide selection of transport infrastructure, without a set of identified priorities, and was clearly beyond the country's capacity to implement during that period. Indeed, about 60% of the proposed investments appeared to be premature. A less ambitious, more economical and financially feasible list of investments was prepared and discussed with the Directorate of Transport (DDT) on the occasion of the IDA October 1985 public expenditure review mission (para. 25). It was subsequently discussed with the present Government in April 1986. The proposed investments in the scaled-down list would essentially support the expansion of agriculture, and would favor rural road improvement and maintenance of existing facilities. They would cost about US$125 million, which should be within the country's financial and implementation capacity. Since donor agencies finance the bulk of the transport sector investments, their interests and those of the Government would have to be reconciled in order to ensure that the investments meet with the sector priorities and are within the Government's financial capability. During negotiations, the Government agreed to restrict the transport sector investments during FY87-FY91 to the agreed list of investments and to seek the Association's approval, before modifying such lI-st of investments. Further, yearly reviews with the Association --coordinated with USAID, which has a similar requirement-of future investments and capital and recurrent cost budgetary allocations are contemplated to ensure that sufficient funds are available for the investments or that the list is modified. During negotiations, the Government agreed that, if it decided to undertake any improvements to the Cap Haitien airport, such improvements would be limited to those that can be financed exclusively with one-third of air passenger departure tax proceeds. Institutional Framexork 35. The institutional framework for transport sector management is adequate. The Ministry of Public Works, Transport and Communications (MTPTG), through DDT, is'responsible for ovarall sector management. KTPTC also has jurisdiction over the National Airport Authority (AAN) and the Maritime and Navigational Service of Haiti (SEMANAH). The Ministry of Economy and Finance (MEF) has jurisdiction over the National Port Authority (APN) and, in addition, influences the overall transport investments through its annual budgetary allocations. The Commisariat for National Promotion and Public Service defines the national development strategy, and reviews and coordinates the investment program. Ideally, APN should be under MTPTC, but,  - 9 - I under MEF, it is legally and financially autonomous and more commercially oriented, and it maintains good coordination of subsectoral activities with MTPTC. 36. DDT has responsibility for the road subsector, through its various services, and for overall sector planning and policy formulation. SEMANAH is charged with the regulation and administration of the maritime services, including efficiency and safety of shipping operations. APN is responsible for administration, maintenance, development and operation of ports, as is AAN for airports. DDT needs an organizational review, job reclassification, and restructuring of duties and responsibilities, particularly of its sector planning functions (para 38). SEPRRN, the road maintenance service of DDT, continues to make progress towards strengthening its capacity (para 42). APN has also shown considerable improvement, while SEMANAH remains inadequate for the duties assigned to it, because of the lack of Government budget support and of experienced personnel (para. 51). The proposed project would provide technical assistance, staff training and management support to continue strengthening these sector institutions and to consolidate the gains so far achieved (para. 57). The Road Subsector 37. The Road Network: The national road network of 2,846 km consists of 565 km of asphalt and concrete pavement; 1,893 km of gravel surfaced roads; and 388 km of earth roads which are occasionally used by trucks and four-wheel drive vehicles. The main national highways, comprising the Route du Nord to Cap Haitien via the departmental capitals of St. Marc and Gonaives, and the Route du Sud to Les Cayes via Grand Goave, are generally in good condition. However, the Gonaives to Cap Haitien section of Route du Nord requires rehabilitation, and spot improvements are needed at other sections of the national highways. The Sixth Highway Project is partly addressing the former. The departmental roads connect the major cities along the national highways to the outlying departmental capitals and to the border posts to the Dominican Republic, and provide access to the population centers in the Central Plateau and the Artibonite Valley, the Northwestern Region and the Grande Anse, in the Southwest. The design standards of the departmental roads*ax'e poor; drainage structures are inadequate or nonexistent. DDT's road maintenance service (SEPRRN) is currently maintaining about 85% of the national and departmental roads. The secondary roads and the tertiary earth roads forming the balance of the road network are of low design standards and practically without drainage structures. Most river crossings--about 255 bridges, 3,017 culverts and 105 paved fords-are in poor condition. A significant part of the roads, bridges and drainage structures, built in the 1940s, have deteriorated so that normal maintenance must be preceded by rehabilitation. Ongoing and planned programs by USAID and IDB for continued assistance in secondary and feeder road reconstruction and rehabilitation, together with the bridge and culvert program nnder the proposed project, should help to alleviate the problem.  - 10 - 38. Highway AdminLstration and Planning: DDT is responsible for road planning, engineering, construction and maintenance. The expansion of the road network has created the need to strengthen DDT's management. The low salary structure and outdated structural organization should be reviewed to introduce job reclassification and reformulation of duties, responsibilities and appropriate compensation. The proposed project would finance such a review (para. 63). DDT's planning and studies service (SEP) lacks experienced staff in transport planning. The project would provide for 18 man-months of consulting services to strengthen transport planning and for the overseas training of two DDT staff (para. 63). 39. Engineering studies and detailed design and construction supervision are carried out mostly by foreign consultants under DDT's supervision. Recently, some experienced Haitian consulting firms have entered this field and have participated successfully in the design and construction supervision of roads, bridges and drainage structures, including the IDA-financed bridge and culvert rehabilitation programs. 40. Road Construction and Maintenance: The Road Construction Service (SCR) under DDT is building roads and minor bridges by force account. With financing from both USAID and IDB, SCR has built some 485 km of secondary roads since 1978, using labor-based/ equipment-supported methods. The rate of production is low, the quality of construction is uneven and the costs are bigh, av.eraging about US$40,000 per km. A technical assistance program to improve planning, engineering, management, productivity, and other aspects of labor-intensive methods of road construction and maintenance has recently been prepared with ILO assistance. The proposed project would provide for technical assistance to DDT for improving its labor-intensive road construction and maintenance operations (para. 63). 41. Most major civil works and road contracts are executed by foreign firms. Construction costs are relatively high because of the limited scope and lack of continuity of work for these firms. The Governmeut, has therefore, been promoting local contractors for some of these works -dith encouraging results. Small scale construction capability is well developed. One major local contractor, in joint venture with a US firm, is reconstructing a major paved road and rehabilitating several bridges and culverts. Other smaller local contractors work as subcontractors. 42. With the assistance of USAID and IDA, SEPRRN, the road maintenance agency, has substantially improved its road and bridge maintenance capability. It systematically expanded the network under maintenance from about 2,000 km in 1981 to about 2,600 km in 1985. Recently, SEPRRN is emphasizing labor-intensive maintenance through a Community Action Maintenance Program (CAMP), under which road sections are maintained under contract by neighboring communities, supervised by SEPRRN foremen. SEPPRN provides the communities with hand tools, materials and US$1,000 equivalent per km per year. The program, which has so far achieved good results, would be expanded under the proposed project. This assistance should enable SEPRRN to fulfill its obligations on the maintainable network, provided it receives adequate operating funds from the Government (para. 63). SEPRRN does not yet have sufficient financial monitoring and disaggregation of costs to permit  - 11 - the identificdtion of possible inefficiencies in operation. The proposed project would support the establishment of a cost accounting and control systems (para 63). SPRRN also intends to use local contractors for road maintenance and will take this into consideration in its formulating of the FY87 maintenance program. 43. Expenditures and Revenues: DDT's annual expenditures are financed from the Government's general operating budget. The operating expenditures for SEPRRN, excluding salaries and wages, were financed by USAID until FY84, when they reverted to the Haitian Government. Annual transport expenditaures from FY84 to FY86 averaged US$37.5 million, of which US$18.5 million was for capital investments and US$19.0 million for recurrent costs. Government contributions averaged US$28.0 million per year. Projected total expenditures for FY87-FY9I, based upon the investment list referred to in paragraph 34, and including recurrent costs, would average US$44.1 million per year, with the Government contribution of US$25.7 million per year, of which US$20.2 million per year would be for recurrent costs. The Government should be capable of financing these amounts. In the past, the Government has not allocated sufficient funds to the road subsector in a timely fashion, especially to road maintenance. During negotiations, the Government agreed to allocate in its annual budget and disburse to SEPRRN, on a timely basis, sufficient funds in support of an agreed road maintenance program (para 63). 44. Revenues from road-user charges increased from US$10.8 million in 1978 to US$25.6 million in 1984, averaging some US$16.1 million per year, which should be sufficient to cover road maintenance needs (about US$8.0 million per year) and about 50% of the remaining local expenditures on roads. An issue under the Sixth Highway Project was the need to equalize taxes on gasoline and diesel fuels. The Government has, since 1982, adjusted motor fuel taxes progressively upward to eliminate the difference with both fuels retailing at US$2.25 per gallon. However, in January 1986, following civil disturbances, the retail price of diesel fuel was reduced by about 11% to US$2.00 per gallon. The current prices for both fuels continue to be well above the international prices and include sufficient margin for tax revenues in support of costs of the road network. 45. Road Traffic and Axle-Load Control: Available traffic data show that about 75% of all traffic originates from Port-au-Prince and that the paved roads carry some 80% of the traffic, with volumes up to 1,000 vehicles per day on some sections. Excluding Government and army vehicles, some 46,000 motor vehicles are in circulation, half of which are diesel-powered. 46. Haiti's transport industry is subject to regulations governing vehicle licensing, registration and inspection, tariffs for passenger service, vehicle dimensions and axle-load limits. Current regulations liLiting single axle loads to 18 tons and a maximum weight to 40 tons are adequate. Under the Sixth Highway Project, the Government purchased a new stationary weigh bridge and 20 mobile scales and vehicles, and repaired an existing weigh bridge on Route du Sud. The Government's road traffic and axle-load control program is satisfactory, except that delays occurred in installation of the new weigh bridge on the Northern road, (because of shortage of funds). The Government agreed, at negotiations, to take and main ain all the necessary steps to enforce its vehicle dimension and  - 12 - axle load limits and to exchange views on progress and future actions with IDA by June 30 of each year, during the project implementation period. As a part of this effort, the Government agreed, during negotiations, to not later than March 31, 1987: (a) provide DDT with an amount of US$240,000; and (b) appoint a fulltime qualified chief for DOT's vehicle weight control service. The Port and Maritime Subsectors 47. Port Infrastructure: Port-au-Prince, the principal international port, has modern facilities and is operated and managed adequately. Cap Haitien, the international port in the north, was built under Credit 1121-HA, and is well equipped. In 1984, the two international ports handled about 982,000 tons; 767 vessels, comprising 41 cruise ships, 410 specialized container or Roll-on/Roll-off (Ro-Ro) vessels and 316 breakbulk general cargo or bulk vessels called at the two ports. The international ports have sufficient capacity for the next 10 to 15 years. 48. Because most population centers are situated along the coast, cabotage ports and mooring points are important, sea transport being the only convenient mode of transport available. Following recommendations of a National Transport Study (NTS-1977), 10 cabotage ports have been constructed and rehabilitated under IDA Credits 807-HA and 1121-HA. The cabotage ports, some of which were completed recently, handled about 65,000 tons of cargo and some 134,000 passengers in 1984. The dredged slip along the wharf of the caborage port of Jeremie has silted in, reducing the utilization of the port. The proposed project would finance detailed investigation and engineering of the improvement works (para 65). 49. Port Management: APN is responsible for the management and operation of the two international ports and the ten rehabilitated cabotage ports. APN's port management and operations have improved steadily with technical assistance under IDA projects. APN has generated operating surpluses for the last decade, except for FY 81, although there have been occasional cash-flow problems due to either slow collection by APN or arbitrary taxation of its income by the Government. Growing expenses and declining traffic eroded APN's profits until FY 84, when container tariffs were raised. Operating ratios have been satisfactory for the last four years and APN has, consequently, provided much of the IDA project (Credit 1121-HA) counterpart financing without Government assistance. APN continues to subsidize the other ports with profits from Port-au-Prince. 50. Port Tariffs and Charges: Coastal port tariffs were initially established to recover some 80% of demonstrable financial benefits to users. Many cabotage vessels are, however, avoiding the new facilities and continuing to use either the beach or the nearest free facility. The proposed project would provide for a study of cabotage port tariffs, as part of the technical assistance to SEMANAH (para. 64), based upon agreed terms of reference. The study would allow for trial periods for experimentation with various approaches to insure shippers' use of the ports with maximum return to APN. Current charges and dues at Port-au-Prince fall within the middle range for the Caribbean ports. However, following the shippers' complaints and MEF's fears for the port's relative attraction for transshipment, APN has completed a study of international port tariffs, which is being reviewed by the Association. At negotiations, the Government agreed (a) to put into  - 13 - effect the new international port tariffs by October 1, 1987; and (b) submit the study results of the tariffs for cabotage ports for IDA's review by July 1, 1987 and implement them by October 1, 1987, in both cases taking into account IDA's comments. 51. Maritime Services: Established in 1982, SEMANAR's principal functions include the registration, inspection and licensing of all coastal vessels and the professional development of their crews. SEMANAR did not start effectively until January 1984 and has neither been adequately staffed nor received necessary funds from the Government. During negotiations, the Government agreed to an adequate budgetary allocation for SEMANAH's operational requirements. The proposed project would provide for SEMANAH technical assistance and funds for training and boat inspection facilities (para 64). Main Sector Issues: 52. In previous years, the Government has worked closely with external donors to successfully resolve the following sector issues: (a) adjusting the retail price of diesel and gasoline fuels (para 44); (b) giving coastal shipping its due economic role (para. 48);(c) reorganizing and strengthening the transport sector institutions; (d) revising axle-load limit legislation and initiating enforcement (para. 46); and (e) introducing more appropriate road-user taxation,including a progressive congestion tax in Port-au-Prince (para. 44). Outstanding issues include: (a) the level and structure of both international and cabotage port charges and dues; and (b) the allocation of adequate local funds for the operation and maintenance of transport facilities. The proposed project would address these two issues (paras. 50 and 63). Experieace with Bank Group Lending in the Sector 53. Since 1956, the Bank Group has made one loan and extended five development credits for Haiti transportation in a total amount of US$73 million equivalent. Four projects were for highways, one was for a combined highways and ports, and one was exclusively for ports. The first Bank Loan (141-HA for US$2.6 million, in 1956) was for a Road Maintenance and Rehabilitation Project which covered about 1,000 km of roads; it was completed under an Interim Highway Credit (32-HA for US$350,000 in 1962). Political and managerial problems delayed the implementation of the project. The second and third projects (Credits 478-HA and 556-HA, 1974 and 1975, for US$10 million and US$20 million, respectively) were to reconstruct the Route du Nord (250 km), including emergency reconstruction of the Estere, Sonde and Limb bridges. These projects provided all-weather access between Port-au-Prince and the principal northern city and port, Cap Haitien, and linked the Artibonite Valley to the main food-consuming centers. They also financed and initiated implementation of axle-load controls. The Project Completion Report (PCR), dated May 1980, reestimated higher returns (25% and 41% compared to 20% and 35%, respectively, at appraisal) for the projects, mostly because of higher-than-anticipated growth rates for traffic and savings in vehicle operating costs which more than offset construction cost overruns. The Project Performance Audit Report (PPAR) drew attention to a  - 14 - divergence of opinion between the Government and IDA on design standards for road construction--the Government advocating a higher pavement standard and IDA, in view of limited funds, preferring a phased construction. History has proved neither side completely correct. The pavement deteriorated slightly faster than IDA predicted, but not so rapidly as to have, then, warranted the additional cost of a higher class pavement. 54. The Transport Project (Credit 807-HA, US$15 million, 1978) provided for the upgrading and paving of 54 km of roads in the Northern Plains, a feeder road to the Jeremie Port, the construction of the Hypolite and Trois Rivieres Bridges and new terminals for shallow draft vessels at Poirt-au-Prince, Port-de-Paix and Jeremie. The PCR concluded that the project had fully achieved its objectives and had been implemented within costs, but had suffered some delays. The economic reevaluation confirmed the viability of the road component. The port component was also judged satisfactory, although, subsequently, early in 1982, it was realized that the dredged slip at Jeremie was subject to rapid siltation and that remedial works would be required (para. 65). 55. The Port Project (Credit 1121-HA), US$11 million, 1981), cofinanced by the Kreditanstalt fur Wiederaufbau (KfW), provided for construction of a berth for cruise ships, a wharf for break-bulk and Ro-Ro general cargo vessels, and a wharf for cabotage vessels at Cap Haitien. In addition, cabotage ports were rehabilitated or constructed at Gonaives, Anse-Balets, Baraderes, Corail, Anse d'Hainault, Port-a-Piment and Les Cayes, including the cost overruns of the port of Jeremie. The PCR concluded that, in the face of subsequent economic developments in Haiti, the investments in the Cap Haitien Port were premature and that the viability of the project's cabotage ports would depend upon a proper pricing policy for their use and institutional improvements in SEMANAH. The latter would be addressed under the proposed project (paras. 50 and 64). 56. The ongoing Sixth Highway Project (Credit 1220-HA, US$14 million, 1982) was made for the rehabilitation of some 100 km of the Route du Nord from Gonaives to Cap Haitien, the rehabilitation of some 57 bridges and culverts, the improvement of road maintenance, and the financing of engineering studies of additional bridges and culverts. Due to cost overruns, caused by delays related to the political unrests in late 1985 and early 1986, and increase in counterpart fund requirements, the project scope had to be reduced to 65 km equivalent on the Route du Nord, and to 26 bridges and culverts. After an increase in IDA's financing share, the project is currently proceeding satisfactorily, and is expected to be completed by December 1987, some 30 months beyond the appraisal estimate. The main implementation problems have been a lack of timely availability of local funds for civil works and the adverse effect of the unrests in 1985 and 1986. The Aank Group Leading Strategy in the Sector 57. The Bank Group's support of Haiti's transport sector development has to be coordinated with relevant objectives and aid policies of- other major aid givers active in the country, including in particular IDB, USAID, KfW and CCCE. Taking into consideration the transport sector's priority needs, as described before (paras. 33 and 34), and other aid agencies' plans,  - 15 - IDA objectives and development strategy in this sector include: (a) assistance for further improving the sectoral institutions, with particu3ar focus on DDT, SEMANAR and APN; (b) continued road and bridge rehabilitation to ensure access to major agricultural and industrial development areas; (c) continued focus on improvement of road maintenance, with increased use of suitable labor-intensive methods; and (d) as a longer term objective, rehabilitation and improvement of selected links in the primary road network. The proposed project would address the objectives set under (a), (b) and (c) and would lay the basis for (d). IDB has plans for financing of the construction and rehabilitation of the Pont Sonde-Mirebalais Road and secondary roads in the Artibonite Valley. The USAID's involvement is likely to be limited to the construction and maintenance of secondary roads by labor-intensive methods and to selective technical assistance to SEPRRN; KfW has been concentrating upon the improvement of some port facilities, while CCCE is considering the construction of three bridges in the Grande Anse and is furnishing navigational aids for the international airports at Port-au-Prince and Cap Haitien. PART rv - THE PROJECT Background 58. The project was identified in December 1984 and prepared by the beneficiar1 agencies with the aid of consultants. After the appraisal in July 1985, the scope of the project has been reduced to take into account the Government's capabilities to provide counterpart funds and emerging needs for alternative IrA financing in Haiti. Negotiations were held in Washington, D. C. during December 1-4, 1986. The Haiti delegation was headed by Colonel Jacques Jrachim, Minister of Public Works, Transport and Communications, and included representatives from DDT, APN and the Ministry of Economy and Finance, and the designated chairman of the Project Coordinating Unit. The main features of the proposed credit and project are outlined in the Credit and Project Summary and Annex III. Project Objectives and Rationale 59. In the past, the Bank Group helped the Government to develop and improve highway and port infrastructure, and to build the sectoral institutions, introducing appropriate sector policies in the areas of transport pricing, user charges and vehicle axle-load control (para. 52). The results have been positive. There is continuing need for further development in the sector, particularly in support of the expansion of agriculture and industry, by providing transport infrastructure to link producers to domestic and export markets. Haiti's short and medium term needs in transport are: the completion of infrastructure facilities prepa'red or started under previous projects, filling the gaps and rectifying the deficiencies in planning and executia4 as well as further strengthening and consolidating the improvements achieved in the development of the sectoral institutions. 60. The proposed project would help the Government to attain the foregoing objectives by improving road sections and rehabilitating bridges and drainage structures essential for the transport of agricultural produce;  - 16 - expanding the road maintenance program by labor-intensive methods; improving the maritime regulatory services and facilities, providing tools, implements, equipment and spare parts for the operation and maintenance of road infrastructure; and further strengthening institutions through appropriate training and technical assistance. The proposed project would also aim at setting of realistic parameters for the Government's FY87-91 transport sector investment program (para. 34). Project Description 61. The proposed project would consist of: (a) rehabilitation of bridges and drainage structures in continuation of the ongoing program under the Sixth Highway Project, Credit 1220-HA; (b) construction of two major bridges at Fer-a-Cheval and Guayamouc; (c) completion of road rehabilitation work on the Gonaives-Cap Haitien road started under the Sixth Highway Project (Credit 1220-HA); (d) continued strengthening of highway administration and road and bridge maintenance through training and technical assistance, including improved labor-intensive methods; and provision of tools, equipment and spare parts for road maintenance; Ce) an inspection facility for cabotage vessels and training and technical assistance for SEMANAH; and (f) funds for technical studies, and design and detailed engineering for the remedial works at the cabotage port of Jeremie. The details are presented below. 62. Roads and Bridges: To provide dependable access to rural population centers and agricultural areas, and in continuation of the Sixth Highway Project (Credit 1220-HA), the proposed project would provide for the construction of 38 bridges and drainage structures located on departmental and secondary roads, currently being improved. In addition, the Fer-a-Cheval Bridge, located on the Mirebal3is Road, collapsed in May 1983 and is beyond repair. The suspension bridge at Guayamouc is closed to traffic because of severe corrosion of the structural members. These bridges were originally included in the rehabilitation program of the Sixth Highway Project. However, following studies of alternatives, the Government decided in favor of new construction because of the relatively high cost of repairs and rehabilitation. The Route du Nord, of which the Gonaives-Cap Haitien is the northern section, is Haiti's most important transport artery. As a result of the reduction of project size by amendment of Credit 1220-HA (para. 56), an equivalent of 35 km of the road was deleted. The proposed project would provide for the strengthening and rehabilitation of about 20 km and spot repairs and surface dressing on another 15 km of the deleted sections. 63. Strengthening of Highway Administration and Road Maintenance: Technical assistance, about 120 man-months of consultants' services, would be provided to SEPRRN for institutional strengthening and staff training under its expanding maintenance program. Tools and implements would be provided for labor-intensive road maintenance through the Community Action Maintenance Program (para. 42). A technical assistance program for DDT, about 12 man-months of expatriate and local consultant services, would improve labor-intensive road construction and maintenance techniques including construction planning and organization, cost accounting, procurement procedures, and selection and utilization of appropriate support  - 17 - equipment. During negotiations, agreement was reached on the scope of a technical assistance program to improve labor-based methods, with two pilot road construction sites in two regions of the country. The Government also agreed to submit for the Association's approval by June 30, 1987, and thereafter by June 30 every year during the project implementation period, the details of such a program (including the technical assistance required and the sites selected) and to carry out such program, taking into consideration the Association's comments. The project would also assist in the restructuring of DDT's organization and job reclassification, and would strengthen the Planning and Studies Service (SEP) through training and technical assistance of about 18 man-months in traasport planning. SEPRRN's maintenance program for FY87-91 is aimed at a total coverage of the paved and gravel roads. At negotiations, the Government agreed to allocate to SEPRRN a minimum equivalent of US$8.8 million in FY88, US$9.7 million in FY89, US$10.6 million in FY90, US$11.8 million in FY91 and US$12.9 million in FY92, and to have the consultants start work on DDT's organization by June 30, 1987. 64. MaLritime Services: SEMANAH's responsibilities include periodic inspection, certification and registration of boats and vessels, training of officers and crew of the vessels, providing adequate navigational aids and radio communications facilities to transmit meteorological and search and rescue information for both cabotage and international traffic, and developing a program for the modernization of the national fleet (para. 51). The project would provide SEMANAR with an inspection slipway and yard for small boats; a maritime training center for captains and seamen; and an institutional development program for staff training and technical assistance, about 36 man-months of expatriate services, to strengthen SEMANAR's administration, management and operation of its facilities and performance of its assigned services. To enable SEMANAH to meet its assigncd responsibilities, at negotiations, the Government agreed to allocate a minimum equivalent of US$0.8 million in FY88, US$0.9 million in FY89, US$1.0 million in FY90 and US$1.2 million in FY91, and to commence the program for strengthening SEMANAH's technical administration by June 30, 1987. 65. Port Improvement: APN is responsible for the planning, construction, management and operation of Haiti's two international ports and the cabotage ports, including cargo handling and the operation and maintenance of all port facilities (para. 49). The project would provide APN with funds for the technical study, design and detailed engineering for the remedial works at the cabotage port of Jeremie (para 54). Project Costs and Financing 66. The total project cost, net of taxes and duties, is estimated at US$24.0 million equivalent, with a foreign exchange component of US$18.7 million equivalent (78%) and local costs of US$5.3 million equivalent, the details of which are shown in the Credit and Project Summary section at the front of this report. The proposed IDA credit of SDR 16.6 million (US$20.0 million equivalent) would finance the full foreign exchange costs and 25% of local costs. The Government would finance the balance of US$4.0 million equivalent. To permit the early start of the bridge rehabilitation program, the Government has, with IDA's agreement, awarded contracts to the lowest  - 18 - evaluated bidders, already selected following ICB procedures under Credit 1220-HA. US$1.0 million equivalent in retroactive financing was agreed with Government, at negotiations, for bridge rehabilitation works scheduled to start in late 1986. Further, retroactive financing of US$0.2 million for engineering services for the detailed design and preparation of bid documents for the slipway and yard and the maritime training center was also agreed. 67. The project cost estimates are based upon January 1987 prices. The costs of bridge rehabilitation works are based upon the contract amounts agreed with the lowest responsive bidders. The cost estimates for road rehabilitation works are based upon contract rates adjusted for changed conditions by the supervising consultants. The cost estimates for the new bridges, the boat inspection slipway and the maritime training center are based upon bills of quantities and updated unit prices currently in use for similar works in Haiti. Those for tools, implements, training equipment, and spare parts are based upon recently concluded contracts by DDT, SEMANAH and APN for similar items or upon recen.t quotations received from local and international suppliers. For consultants services, the estimates are based upon the type and duration of services required. Physical contingencies range from 5% for civil works for which detailed engineering has been completed, to 15% for items for which only preliminary estimates are available. Price increases for both local and foreign cost components have been assumed to be at 3% for FY87 and 1% for FY88-90 in accordance with the current Bank Group guidelines concerning expected price increases. Project Implementation 68. Responsibility for project execution would be divided among: (a) DDT, for roads and bridges; (b) SEMANAH for the maritime regulatory service facilities; and (c) APN for the Jeremie port engineering design and studies. As a condition to disbursement of the proceeds of the credit for the Jeremie port studies, the Government and APN would enter into a Subsidiary Loan Agreement, acceptable to IDA, under which an amount not to exceed US$0.28 million equivalent would be relent by the Government to APN with a repayment term of 7 years, including 2 years of grace, at 5% interest per annum. A Project Coordinating Unit (PCU) would be established with powers and responsibilities to ensure proper coordination and monitoring of implementation, as well as for maintenance of project progress reports. The PCU, composed of the Directors of DDT, APN and SEMANAR, and a senior representative of the Ministry of Economy and Finance, would work under the Director of DDT. The Government would also designate a fulltime Project Implementation Officer (an experienced engineer) who would be responsible for the day-to-day supervision of project implementation under guidance of the PCU Chairman. The establishment of the PCU and the appointment of the Project Implementation Officer would be conditions of effectiveness. DDT, SEMANAH and APN would be assisted by consultants, as necessary, in implementing the project. Procurement and Disbursement 69. Following Bank Group Guidelines, tenders for the bridge rehabilitation program, totaling about US$8.7 million, including contingencies, were received in September 1984 and evaluated. The Government  - 19 - and the lowest evaluated bidders have agreed upon price adjustments. Road rehabilitation works, civil works for the two bridges, and SEMANAH's training center and boat inspection facility, totaling US$9.5 million equivalent, including contingencies,- would be procured after prequalification of firms, in accordance with Bank Group Guidelines for ICB procurement. Civil works contracts with estimated costs below US$100,000, and up to an aggregated amount of US$0.7 million equivalent will be advertised locally and awarded in accordance with Government procedures. The Government's competitive bidding procedures are satisfactory, and foreign contractors are allowed to participate. 70. Procurement of road maintenance equipment and tools, hand implements and spare parts, totalling about US$1.4 million in cost, including contingencies, would be through ICB in accordance with the Bank Group Guidelines. Eligible domestic manufacturers would receive a preference of 15% of the c.i.f. price of imported goods, or the import duty, whichever is lower. LCB would be considered for contracts under US$50,000 equivalent, and up to an aggregated amount of US$200,000 equivalent. Bidding procedures, tender documents, guarantee and contract forms and proposed contract awards for contracts in excess of US$100,000 equivalent would all be subject to IDA's prior approval. Consultants would be retained following the Bank Group's Guidelines for the Use of Consultants, subject to IDA's prior review and approval. Detailed terms of reference for the major services would be subject to IDA's approval. The proposed procurement procedures are summarized below: Procurement Procedures Project Element ICB LCB Other Total a -