Papua New Guinea - Transport Improvement Project

Donment of The World Bank FOR OFFICIAL USE ONLY Report No. P-4352-PNG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO us$45.5 MILLION TO THE INDEPENDENT STATE OF PAPUA NEW GUINEA FOR A TRANSPORT IMPROVEMENT PROJECT June 16, 1986 This document has a restricted distribution and may be used tj recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT Currency Unit - Papua New Guinea Kina (K) Average 1985 December 1985 US$1.00 = K 1.00 US$1.00 = K 1.00 K 1.00 = US$1.00 K 1.00 = US$ 1.00 ABBREVIATIONS ADAB - Australian Development Assistance Bureau ADB - Asian Development Bank BCL - Bougainville Copper, Ltd. DCAT - Department of Civil Aviation and Tourism DT - Department of Transport DW - Department of Works ERR - Economic Rate of Return ICB - International Competitive Bidding LCB - Local Competitive Bidding NDS - National Development Strategy NPO - National Planning Office PNG - Papua New Guinea PMU - Program Management Unit PTB - Plant and Transport Branch PWMO - Provincial Works Manager Office RMU - Road Maintenance Unit RWMO - Regional Works Manager Office TIPS - Transport Investment Program Study TOPS - Transport Operation Policy Study FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY PAPUA NEW GUINEA TRANSPORT IMPROVEMENT PROJECT Loan and Project Summary Borrower: Independent State of Papua New Guinea Amount: US$45.5 million Terms: Repayable in 20 years, including five years of grace, at the standard variable rate. Project Description: The objectives of the project are to (a) improve land trans- port through reconstruction, upgrading and maintenance of national roads; (b) enhance improvement of air transport through equipment replacement, improved safety standards and periodic maintenance; (c) improve efficiency of road mainten- ance through provision of road maintenance equipment and materials; and (d) strengthen institution building and improve the domestic construction industry through provision of technical advisory services and training of local staff. The project includes: (a) reconstruction and upgrading of about 80 km of national roads; (b) rehabilitation and replacement of about 50 bridges totaling about 1,100 linear meters; (c) regravelling of about 500 km of national gravel roads; (d) provision of road maintenance equipment and materials; (e) replacement of navigational, meteorological and communication equipment at 14 national airports, reseal- ing/regravelling of runways, taxiways and aprons at 16 airports, rehabilitation and improvement of drainage works and fire stations at four airports; (f) technical assistance to the Department of Works (DW), Department of Transport (DT) and Department of Civil Aviation and Tourism (DCAT) to imple- ment the proposed project and prepare economic and engineer- ing studies for future projects and to the domestic construc- tion industry; and (g) on-the-job, local and overseas training of DW, DT and DCAT staff. The project will reduce vehicle operating costs, improve safety at airports and strengthen DW, DT and DCAT. The main project risks are possible delays in implementing the civil works component because of problems with acquisition of right-of-way and delays in meeting policy and institutional objectives because of slow recruitment of necessary expatriate staff. To reduce these risks, the Government has agreed to make available the right-of-way prior to the bid invitation. The project coordinator was appointed prior to negotiations to ensure the timely appointments of technical assistance staff and counterparts to be trained. 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. Estimated Cost: Local Total ------US* miLffion-- -- A. Civil Works Construction and upgrading of about 80 km of national roads 4.6 8.7 13.3 Rehabilitation and replacement of about 50 bridges 2.1 4.9 1.0 Regravelling of about 500 km of national roads 2.0 3.0 5.0 Resealing/regravelling of run- ways, taxiways and aprons 0.8 2.0 2.8 B. Equipment and Materials Road maintenance equipment - 3.1 3.1 Road maintenance materials 2.2 2.2 Airport navigation, meteorological and communication equipment /a - 3.1 3.1 C. Technical Assistance and Training 1.5 7.3 8.8 D. Right-of-Way 0.4 - 0.4 Project Base Cost /b 11.4 34.3 45.7 E. Contingencies Physical contingencies 1.4 4.2 5.6 Price contingencies 3.3 10.1 13.4 Total Project Cost 16.1 48.6 64.7 of which taxes and duties) Th") T37) Financing Plan: Local Forei Total IBRD 45.5 45.5 ADAB - 3.1 3.1 Government 16.1 - 16.1 Total 16.1 48.6 64.7 Estimated Disbursements: Bank FY 1987 1988 1989 1990 1991 1992 --- mMiTioon)------- Annual 2.7 7.8 13.4 12.4 7.0 2.2 Cumulative 2.7 10.5 23.9 36.3 43.3 45.5 Rate of Return: 34% for quantifiable benefits Staff Appraisal Report:No. 6107-PNG dated June 3, 1986 Ma:IBRD 19553 /a fo be financed by ADAB. 7E As of January 1986. REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INDEPENDENT STATE OF PAPUA NEW GUINEA FOR A TRANSPORT IMPROVEMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to the Independent State of Papua New Guinea (PNG) for the equivalent of US$45.5 million, to help finance a Transport Improvement Project. The loan will have a term of 20 years, including 5 years of grace, at the standard variable rate. PART I -- THE ECONOMY 1/ 2. The most recent economic report, "Papua New Guinea: Country Economic Memorandum" (Report No. 5967-PNG), was distributed to the Executive Directors in June 1986. This section draws upon the findings of that report. Details of recent economic data can be found in Annex I. Structure and Performance of the Economy 3. Papua New Guinea is a land of numerous widely scattered islands, rugged and sometimes impenetrable mountains, and rich valleys and coastal plains. It is favored with abundant rainfall, considerable mineral resources, and forestry and fishery resources of good commercial potential. The capital city, Port Moresby, with a population of about 134,000, is an enclave with no road links to other parts of the country and is the largest urban settlement in what remains an overwhelmingly rural society. Per capita GNP in 1984 was estimated at US$760. Despite this relatively high figure, Papua New Guinea remains an exceedingly poor country where the majority of the multitribal society lives at a level of, or scarcely above, subsistence. The figures for monetary incomes are biased upwards by the inclusion of the incomes of expatriates and thus give a misleading indication of the income level of the nationals. The population in 1984 is officially estimated at 3.3 million, spread among 19 provinces (with populations ranging from 26,000 to 310,000), each with its own assembly and separate administrative apparatus. 4. The modern sector of the economy is dominated by the enclave sector, particularly copper mining and associated investments, and by the public sector. In the late 1970s copper, mined by Bougainville Copper, Ltd. (BCL), accounted for about 15% of GDP; by 1982 this had fallen to 7.8% as prices declined sharply and as the more productive veins were being exhausted. 1/ This section is substantially unchanged from that in the President's Report for Yonki Hydroelectric Project to be considered by the Board of Executive Directors on June 19, 1986. - 2 - However, new investments in 1982, together with some improvements in copper and gold prices, stabilized BCL's contribution to GDP in 1983. With declining ore grades and prices, average performance was considerably lower in 1984-85 (about 5%). Construction of the new Ok Tedi mine generated about 12% of CDP in 1983 (largely through capital investments representing roughly 45% of PNG's total investments), thus more than compensating for the decline in BCL. Since gold production came onstream in June 1984, Ok Tedi's contribution to value- added in the mining sector has grown to a point where, together with new copper production, it should reach about 12.5% of GDP in 1987. Nonmining industry accounts for about 9% of GDP (low for a country of PNG'3 per capita income), while government services, heavily dominated by expatriates in the upper ranks, account for about one quarter of the total. Strikingly, the primary sector, which employs about 85% of the labor force, contributes only about 35% of GDP, a large portion of which is in the subsistence sector. 5. PNG's growth record has been quite mixed; for the decade of the 1970s as a whole, real per capita growth was negative at -0.2% p.a. despite the strong growth in copper exports. The latter half of the decade was even worse in per capita income terms (-0.5Z p.a.), despite some good years, particularly 1978-79. The terms of trade effects on GDP during the 1970s were roughly neutral. Between 1980-82, real GDP stagnated, implying a real decline in per capita income of about 2.4%. The situation stabilized in 1982 as domestic adjustment policies became effective and improved significantly in the second half of 1983 as export prices recovered. As a result, CDP growth in 1983 reached 1%, lower than the 2.3% population growth but still an improvement over the earlier years. In these years the deterioration in the terms of trade did bite as the Government cut back services and capital investments and restricted the growth in the money supply to protect the O.lance of payments and the value of the kina. With the unfavorable terms of trade effect, gross domestic income has fallen 20% since 1979. On the other hand, the upturn in the economy gathered momentum in 1984. Real growth reached 2.2% and is estimated to have reached 6% in 1985, largely because of the start-up of the Ok Tedi mine. GDP growth is expected to be around 2% in 1986. 6. PNG's growth performance in recent years has been particularly vulnerable to swings in iaternational commodity prices. After 1980 the price of copper dropped to its lowest level in 30 years, leading to a fall of K 42 million in budgetary resources derived from BCL between 1981 and 1982 and a further decline of K 19 million in 1983. Although revenue contributions of BCL recovered somewhat in 1984, they were still substantially below their 1982 level. The prices of agricultural export commodities have fallen by half since the late 1970s, although the situation improved in 1983 and 1984. Lower export receipts depressed economic activity and reduced imports through 1982. In 1983 and 1984, however, average export receipts jumped by over 20%, while average imports rose by 7%. After taking account of the budget support grant of about US$255 million a year from Australia, the current account deficit in 1983 was US$367 million, or about 16% of GDP. The US$330 million external current account deficit in 1984, roughly equal to 13% of GDP, was an improvement over 1983. The current account deficit is estimated to have declined slightly in 1985 to about US$300 million (12.6% of GDP). With a high level of official and private capital flows, the deficits were covered without - 3 - undue strain on reserves but led to a substantial increase in the counLry's debt service burden. 7. In order to reduce the impact of export price fluctuations on the economy and on the producers of export crops, the Government has taken a number of measures. The Mineral Resources Stabilization Fund was designed to smooth the impact of fluctuating copper prices on the budget, and stabiliza- tion funds for coffee, cocoa and copra were designed to reduce the oscilla- tions in prices received by the producers. While these funds for agricultural products have had the effect of dampening price-induced supply responses, they have contributed to the stability of the economy. For the most part they have shielded producers from income declines and, with the exception of the copra fund, their total resources are still relatively healthy as a result of substantial levies accumulated in the late 1970s, when export prices were at historical highs. 8. Between 1972 and 1976, following the establishment of the Minimum Wage Board, real minimum wages had more than doubled, giving PNG the highest wage costs of the developing countries in the region. The urban minimum wage is currently equal to nearly US$50 per week. Since independence from Australia in 1975, two three-year wage agreements limited the rise of both public and private sector wages to that of the consumer price index, subject to an annual maximum of 11.75%, thus ending the sharp upward spiral of real wages that occurred during the 1972-76 period. The wage situation was accompanied by a "hard kina" policy causing the kina to appreciate vis-a-vis PNG's major trading partners, which had the effect of dampening wage demands and keeping down prices of imports (40% of GDP by value). This tended to offset somewhat imported inflation, so that the increase in domestic price levels has averaged about 7.5% between 1977 and end-1982 as compared with the international inflation index of 8.7%. 9. Increasingly concerned about the negative impact of high real wages on the economy, the Government sought to impose a three-year freeze on urban wages starting in 1983. The Minimum Wage Board rejected this stringent approach proposed by the Government, deciding in favor of full indexation of the first five percentage point change in the CPI, but with no further indexation. This resulted in an approximate 2.8% and 2.5% erosion in real wages in 1983 and 1984, respectively. The Government also took direct action to improve the management of the balance of payments through the exchange rate policy. There was a devaluation of 5.5% in March 1983, and the kina, which appreciated in real terms by 12% during 1976-82, was allowed to depreciate thereafter (16% real effective depreciation between 1982-84). 10. The Government has also responded to its straitened revenue position by raising taxes in 1982 and 1983, lowering government expenditure by 10% in the latter year, and laying off some 2,000 employees, about 4% of the total public service. Preliminary estimates indicate that the central government deficit in 1984 was about K 25 million (1.1% of GDP), the lowest deficit in years. As was the case in 1983, little of this was financed by borrowing from the Central Bank. Borrowings from foreign commercial banks are estimated at about US$20 million in 1984, as compared with US$60 million in 1983. The 1985 revised budget estimates show a deficit of K 77 million. However, according - 4 - to a recently reached understanding between the Governments of Papua New Guinea and Australia, the Australian grant to PNG for 1986-1990 will be reduced by 3% p.a. in real terms. This is likely to require further curtailment of government expenditure in order to contain the budgetary deficits within manageable limits over the medium term. Development Strategy and Planning 11. Since the country's independence in 1975, a concerted effort was made to define a set of economic and social priorities according to which government resources were to be allocated. However, as noted above, more weight had been given to developing a decision-making process for the budgeting of government resources than to the preparation and implementation of a comprehensive development plan. While a National Development Strategy (NDS) was defined and strategic objectives identified as the basis for resource allocation, these had not represented a basis for a growth-oriented development strategy as such. 12. The NDS placed a high priority on improving the quality of life for the rural population, focusing on rural development in the less developed areas of the country. While this focus remains, it is now to be set within the context of a growth-oriented strategy. This objective recognizes not only the agricultural potential of the country, but also the fact that for quite a few generations the agricultural sector will be the main source of employment. 13. For several years, PNG has had a four-year plan known as the National Public Expenditure Plan. This plan focuses on capital expenditures for the first year of the (rolling) plan, concentrating on the recurrent costs of capital projects and the ability of the budget to support them. (This feature is rare in developing country planning and is expected to be retained under the new planning system, which is still being worked out.) Currently the Government is in the process of revising its planning procedures, partially in response to Bank recommendations, in order to take a somewhat more comprehensive long-term view and to en ompass a broader review of both capital and recurrent budget requirements.- 14. The Government's current approach to carrying out its intentions is to develop a Medium-Term Development Plan (MTDP). This will: (a) review the current economic situation and forecast how it could be expected to develop over the next five years (1987-91) based on an appropriate financing strategy; (b) involve the preparation of medium-term public investment program and its national allocation among varioi sectors and agencies; and (c) contain a set of policies and strategies that will make it possible to carry out the public investment program. 2/ Ref. "Public Sector Management in Papua New Guinea: An Administrative Overview," June 27, 1983 -- Report go. 4396-PNG. -5- Development Issues 15. The major factors that will affect the Government's ability to pro- mote economic development are the decentralization of government activities, the ability to achieve self-reliance in both staffing and financial resources, and the willingness to take new initiatives in policy formulation and invest- ment in the agricultural sector. 16. Decentralization, which gives the provinces greater control over spending, reduces the National Government's ability to carry through its set priorities, while inadequate staffing limits the capabilities of the provinces to develop their own plans. Decentralization in PNG was a necessary response to local pressures. Provincial governments are gradually assuming regulatory and financial control in some areas and will share power with the national Government in others. They are financed through national government grants and refunds of certain revenues and, to a very limited extent, their own taxation measures. Unconditional grants, which allow provinces to spend according to their own priorities, are by far the most important source of finance; but, whereas in the 1984 budget they comprised over 70% of the total receipts of the provinces, they amounted to less than 25% of total national government revenues. One of the most serious problems facing provincial governments is the shortage of trained and experienced staff, and the most urgent priority of the provinces is to develop the capability for budgeting, planning, and project identification and preparation. 17. Self-reliance in PNG involves both availability of skilled manpower and financial resources. On the staffing side, the Government has made sub- stantial progress in replacing expatriates with nationals, especially consid- ering that the University of Papua New Guinea produced its first graduates as recently as 1972. However, the country still relies heavily on expatriates for many necessary services. This situation has created a relatively high- cost government. The establishment of provincial governments is adding to the pressures on existing human and financial resources, and the policy of localizing positions held by expatriates adds to the demand for trained Papua New Guineans. 18. The Government's efforts to attain financial self-reliance are reflected in the steady growth of the share of domestic revenue in total budgetary receipts. Domesti revenue accounted for only about 36% of government receipts in FY68,- 60% of the total in FY76 (immediately after independence), and 70% in 1985. Over the past 7 years the Bougainville copper mine has been a major source of domestic revenue, averaging 18% of the total and reaching a peak of 27% in FY76, but falling to about 3% in 1984. While mineral revenue is likely to have been modestly restored in 1985, revenue from these sources may not regain its former share of overall revenues. 3/ PNG's fiscal year was July 1-June 30 until January 1, 1978 when it was changed to coincide with the calendar year. -6- 19. While economic management has been largely sound, the country's growth performance has been disappointing. Of particular concern is a lack of growth in the agricultural sector, which will have to absorb the bulk of the additions to the labor force in the foreseeable future. Despite a great potential for agricultural development, even with the current world price situation, the sector's output remains low, and prospects for the coming decade are not bright unless steps are taken to bolster growth. The major constraints have been inadequate extension services for smal1holders, lack of smallholder credit, customary land tenure practices and shortage of managerial expertise. External Debt 20. During the period 1986-1988, PNG is likely to require an average net capital inflow of about US$330 million p.a. The minerals sector is expected to finance considerably more than half of the inflow through direct foreign investment and borrowing: Ok Tedi-related borrowings were US$210 million in 1984. With respect to official borrowings, the public debt service ratio, estimated at 13% in 1984, is expected to grow slowly and by 1990 would be at around 16%. The overall debt service ratio is projected to increase from about 30% in 1986 to 42% in 1988, but decline thereafter to 32% in 1990. Total external public debt outstanding as of December 31, 1984 amounted to US$1,209 million, of which US$279 million (23%) was owed to the Bank Group. Debt service payments to the Bank Group are only about 7% of public debt service payments. Bank Group loans as a share of total external debt - outstanding and disbursed are projected to rise from 5.2% in 1986 to.9.8% in 1990, and Bank Group debt service as a percentage of total debt service is projected to rise from 4% in 1986 to 7.8% in 1990. PART II -- BANK GROUP OPERATIONS 4/ 21. As of March 31, 1986, Bank Group assistance to Papua New Guinea consisted of 16 loans and 13 development credits totaling US$364.4 million. The first operation was a telecommunications loan of US$7.0 million approved in 1968; more recently a Nucleus Estate and Smallholder Project (US$27.6 mil- lion) was approved on July 23, 1985, and a Third Agricultural Credit Project (US$18.8 million) on September 19, 1985. A Yonki Hydroelectric (Power III) Project (US$28.5 million) is scheduled for Board presentation on June 19, 1986. In general, project implementation has been satisfactory. The first rural development project in the Southern Highlands experienced some difficul- ties with recruitment of essential expatriate staff as the rapid turnover of expatriates and the transitional problems of recruiting and training their replacements led to delays. Physical implementation is now approximately on schedule. As of March 31, 1986, 11 credits and 8 loans were fully disbursed, 4/ This section is substantially unchanged from that in the President's Report for Yonki Hydroelectric Project to be considered by the Board of Executive Directors on June 19, 1986. -7- and the loans and credits to Papua New Guinea held by the Bank and IDA amounted to US$336.3 million. Annex II contains a summary statement of Bank loans and IDA credits. 22. In recent years Bank Group lending has emphasized agriculture, with strong support in education and transport and some lending for energy. The Bank's strategy for future lending is based on three objectives: (a) support for more growth-oriented policies and institutions; (b) development of oppor- tunities for permanent, cash-economy employment based on the substantial agri- cultural resources of the country; and (c) promotion of human resource development. A land evaluation and demarcation project, a second nucleus estate project, and a second primary education project are under preparation. 23. Disbursement performance on Bank Group projects has been extremely varied. Shortly before and just after independence, disbursement rates were unusually high, reflecting the relatively small and simple preindependence projects and the fact that they were miaged by an experienced expatriate civil service. The disbursement rate - for FY85 was 28.3%, compared to an average of 30.4% for FY81-85. Disbursement rates for selected comparators for FY81-85 were as follows: Colombia, 27.0%; Philippines, 22.2%; Morocco, 16.2%; and Benin, 26.2%. It does not seem possible to determine a trend since low disbursement years are followed by a high disbursement year, then another low disbursement year. PNG's disbursement figures reflect periodic disbursements of substantial amounts against individual large projects rather than steady disbursements for all projects. PART III -- THE TRANSPORT SECTOR The Transport System 24. Most transport takes place in the relatively few richer areas, converging on the main ports of Lae and Port Moresby on the mainland, and on the plantation and mineral-rich islands. In other areas transport flows are so low that they can hardly justify the provision of even minimum standard infrastructure; when provided, the infrastructure remains underutilized for a long time and proves to be costly. However, this is unavoidable if the scattered populations are not to be cut off. 25. Each transport mode is best suited for certain services but they generally complement each other. Transport volumes remain low, excluding copper and timber exports, which move through specialized ports. Coastal shipping carries some 350,000 tons of freight and 26,000 passengers annually. Annual air travel involves about 1.2 million passengers but only 22 tons of freight. There are no data on traffic volumes and distances by small boats and trucks, but they would not be as important as other traffic 5/ The disbursement rate is derived by dividing the actual disbursement during the fiscal year by the net cumulative undisbursed balance. - 8 - flows. Other modes of transport lost freight business to road transport as new roads were opened, while passengers continued to prefer air travel. During the 1980s fuel import volumes have remained relatively stable and reflect a stable traffic volume, except for some increase enabled by better roads or more efficient vehicles and vehicle use. Sector Issues and Strategy 26. With the assistance of consultants financed under the ongoing Road Improvement Project (Loan 2265-PNG), the Government carried out a Transport Operations Policy Study (TOPS), to identify the sector issues, and a Transport Investment Study (TIPS) to prepare a sector investment strategy to assist in the preparation of a Five-year National Investment Program. The TIPS was completed in late 1984. The TOPS report was completed in mid-1985. From these two reports, the Government prepared its own Transport Development Strategy which identified the following major issues: (a) Transport Policy. The lack of a clear transport policy has hampered the development of the sector, and, as such, the Government has found itself with a far more pervasive role than it feels should be required to ensure adequate levels of service. In addition, there is considerable disparity in the treatment of the different modes, with regulations varying greatly, resulting in inefficiencies and higher consumer costs. (b) Cost Recovery. In the past, subsidies have been allocated to various modes either directly or indirectly, and on unequal terms. Air transport, with about 30% cost recovery, has benefitted the most, while road transport revenues covered about 70% of total expenditures by the Central Government, of which roughly one half were for maintenance. Port charges, on the other hand, more than fully cover total costs of the Harbors Board. (c) Investment Criteria. Low production levels, low population densities and high construction costs will continue to make it difficult to justify large, high-standard infrastructure projects in PNG, based on traditional economic criteria. (d) Localization of Transport Posts. Many senior- and middle-management posts in government agencies are held by expatriates employed under short-term contracts (two to three years), resulting in a lack of staff continuity. The Government, concerned about this issue, is attempting to develop a policy of localizing staff. However, to date its approach has been uncoordinated, yielding poor results. 27. The Government has recently reached a consensus on a strategy to address the above four issues that involves deregulating the transport industry, stimulating competition and reducing its own involvement in the provision of transport services, as proposed by the consultants under TOPS. The implementation of the new strategy is expected to focus on the following: (a) Investment Criteria. Capital will be allocated to earn the maximum rate of return and should be targeted at supporting regional development programs and encouraging private investment. Additional efforts will be made -9- at properly managing and maintaining the infrastructure, as well as ensuring that appropriate safety standards are met. (b) Government Involvement in Transport Services. The Government will seek to reduce its direct involvement in providing transport services by encouraging competition and private investment through deregulation of entry and prices. The major impact of this policy direction will be on aviation and coastal shipping. (c) Cost Recovery. More emphasis will be placed on ensuring that users and beneficiaries of transport services meet all the costs incurred on their behalf, including operating and maintenance costs. Air transport will have the largest gap to fill. Therefore, the Government intends that all subsidies be made explicit, be quantified and be subject to periodic review to ensure that their purpose is still valid. 28. The Bank has encouraged and supports this strategy. The expansion of the transporL network will be supported whco-._ feasible, and emphasis will be placed on the maximization of the efficiency of the transport system through policy changes favoring increased competition and private sector participation in the provision of transport services. Although the issue of staff localization will require long-term efforts beginning with the basic education system, the Bank is supporting the Government's effort through technical assistance and training, both formal and on-the-job, to increase local participation gradually. The major changes proposed in the new regulatory policy are expected to be implemented over a period of several years in order to reduce the shock of an abrupt change. Government Investment Program on Transport Infrastructure 29. The National Development Plan (1986-90) aims to sustain and improve that portion of the road network that carries a significant volume of traffic and to expand the road network in areas with good development potential. For the civil aviation subsector the plan includes improvement of important national airports. For the road subsector, the established program amounts to about K128 million over the 1986-90 period, for which over 90% of the external financing has been identified. The sources of funding include: ADB, 47%; IBRD, 30%; EEC, 11%; and Kuwait Fund, 4%. About 8% of the required funding remains to be identified. In the civil aviation subsector, the plan includes improvement of important national airports through replacement of equipment and resealing/regravelling of runways, taxiways and aprons. The airport program totals about K 13.5 million, of which about K 5.5 million is included in the proposed project. In addition, the Plan aims to strengthen sector institutions and develop policies to enhance transport efficiency. During negotiations, an understanding was reached that the annual consultation between the Government and the Bank on the draft investment plan for roads and airports for the subsequent year will be done in the context of the annual consultation on the total public expenditure program for PNG. - 10 - Air Transport Subsector 30. Air transport infrastructure comprises some 450 aerodromes: 160 are small private airstrips; 20 at main towns have runways longer than 1,400 m, are generally 30 m wide and can handle small jets; 3 are customs airports; and 3, at Port Moresby, Wewak and Kieta, are international airports although only the Jackson airport at Port Moresby can handle international long- and medium-haul aircraft. The airport equipment is rudimentary and in many cases is more than 20 years old. For safety reasons, this equipment urgently needs to be replaced. 31. The commercial aircraft fleet consists of about 200 aircraft, mostly small, suited to the small airfields and low traffic flows. In 1983 they carried some 800,000 passengers in domestic flights: 600,000 in scheduled flights on main routes and 200,000 by charter. Four airlines offer scheduled services, and 20 carriers operate in the charter market. Air Niugini, the national airline, has 60Z of the market. While tonnage carried has decreased steadily to about half its 1975 levels, especially where alternative roads were improved, passenger traffic has increased slightly. Air Niugini has scheduled services to the 20 main airports but overall densities are low. 32. Despite Air Niugini's strong presence on high density trunk routes and on larger aircraft, and the requirement that other airlines be licensed for scheduled routes, the system is competitive. Fares are regulated on scheduled routes, but despite high load factors on some routes even private airlines are not always abie to cover their costs due to the low tariffs resulting from regulation. Air Niugini experiences heavy losses, partly because it uses larger aircraft which are expensive to operate. Considering the flying conditions, high labor cost, seasonal variations in demand and low traffic flows, air fares are relatively low. International Air Niugini flights carry fewer than 15,000 passengers per year. These flights became profitable when Air Niugini acquired a wide-bodied aircraft to operate them. 33. The TIPS identified a number of aerodromes where equipment was critically deficient and posed a major safety risk as well as those aerodromes where runways, taxiways and aprons required urgent resealing and/or regravel- ling to maintain flight operations. Highway Subsector Road Network 34. PNG has a road network of about 19,740 km of which about 1,280 km are sealed and the remaining 18,460 km are gravel/earth roads. About 4,870 km of the network are national roads under the responsibility of the National Government. In fact the road system consists of a number of separate regional subnetworks which are located primarily in and near main coastal towns and in the Central Highlands. The absence of an integrated road network results from the low population density, the mountainous terrain, difficult soil and harsh climatic conditions which lead to high construction costs. - 11 - 35. Road conditions vary from one region or province to another, but many, particularly provincial roads, are generally in poor condition due to inadequate maintenance and overloaded vehicles. In addition, weak or missing bridges and lack of access roads diminish the usefulness of the existing network. Many existing bridges are below standard load capacity, made of temporary materials, without permanent abutments or piers, and often overflow during regular flooding. Some of the bridges are either in imminent danger of collapse, have extremely low load restrictions (up to 1.0 ton) or require abnormally high maintenance expenditures. To correct this situation, the Government in 1983 started a bridge rehabilitation and replacement program with assistance provided under the ongoing Roads Improvement Project (Loan 2265). These efforts will be expandzd under the proposed project. 36. There are an estimated 49,600 vehicles in PNG, of which 35% are cars and station wagons; 39%, light commercial vehicles; 14%, trucks; 6%, buses; 3%, motorcycles; and 3%, tractors. Road traffic volumes are generally low, seasonal and short distance. Travel demand peaks just after the annual coffee, copra and cocoa sales. With the exception of the Highlands Highway, which carries an average traffic volume of about 600 vehicles per day, most long distance traffic is by air for passengers and by sea for freight. Approximately 40% of the traffic on the Highlands Highway is comprised of heavy trucks and buses. Planning and Administration 37. Responsibility for policy, planning, construction and maintenance of the road network is divided between the National Government and the provincial governments. The departments responsible at the national level for transport organization, policy and infrastructure are the Department of Transport (DT), the Department of Works (DW) and the Department of Civil Aviation and Tourism (DCAT). Planning for the transport sector is the joint responsibility of the DT, DCAT, and the National Planning Office (NPO), which compiles annual investment programs for each sector, which become part of the National Public Expenditure Plan (NPEP). The DT and DCAT carry out reconnaissance studies of existing facilities, identify shortcomings and assess improvements required to meet transport demand. In addition, DT and DCAT may incorporate into their submissions to the NPO justifiable projects identified by other agencies of the National Government and may evaluate projects put forward by provincial governments that seek financial assistance. 38. The DT and DW administer the national roads and the provinces and municipalities handle the provincial and local roads, respectively. The DT handles all policy and planning matters through its Policy and Planning Division. The DW is the Government's executive agency and handles the major externally financed projects. The country is divided into two regions, Southern and Northern. Each region has a Regional Work Manager Office (RWMO) responsible for coordinating and monitoring execution of capital and maintenance works financed by the National Government and for providing technical assistance to the provinces. Each of the 19 provinces has a Provincial Work Manager Office (PWNO) responsible for executing minor capital works and maintaining all national government fixed assets, including the national road network, airports, water supply and buildings. - 12 - Staffing and Training 39. Most senior and middle management posts in DW, DT and DCAT are held by expatriates engaged on short-term contracts (two to three years). Qualified PNC nationals are in extremely short supply in most government agencies. About 75% of DWs professional staff are expatriates; many positions remain vacant both in the field and at headquarters. At present, only 190 engineering and supervisory positions are filled compared to 253 approved positions. The Government is aware that it will take many years to train local staff for all professional positions and has initiated reforms at the national and provincial levels in order to rationalize the public sector. In 1984 a Program Management Unit (PMU) was created to analyze management performance in key government agencies and provinces, and to make recommenda- tions on how to rationalize and strengthen management performance. The Bank is supporting and participating in this activity through provision of advisory staff. The PMU's recommendations are expected in the second half of 1986. 40. The Staff Development and Training Section of DW offers courses at two training centers (Boroko and Madang) to accelerate staffing with qualified nationals. Training facilities are adequate but training has been hampered by a shortage of national instructors, trainees and, to a lesser extent, teaching aids. Training efforts have centered on fellowship programs and on courses for semiprofessionals, technicians, foremen and clerical staff. Design and Construction 41. The DW is responsible for detailed engineering of all civil works, including roads and airports. Most large projects are designed by consultant firms, most of which are subsidiaries of Australian and New Zealand firms; only small projects are designed by DW and its PMWOs. Recently, road and bridge design standards were revised and updated to reflect various types of terrain and traffic volumes. During negotiations it was agreed with the Government that design standards would be continuously reviewed and the most economical standards used. 42. Since domestic construction capacity remains limited, most major construction works on national roads, especially for externally financed projects, have been carried out by foreign contractors. Some construction works on national roads have also been carried out by force account (day labor) or by its variant, Project Managed Force Account, which involves the use of subcontractors, labor and plant hired under a construction management team of consultants engaged by DW. Provincial governments often employ DW on an agency basis, either to execute or call contracts for the construction of small projects on provincial and village roads. Roadworks on village roads are carried out largely by manual labor but sometimes with equipment, usually supplied by DW, which also provides technical assistance to the local government councils. 43. In line with the Government's plan of promoting the domestic road construction industry, the Second HighlAnds Road Improvement Project (Credit 677-PNG, the Third Highway Project (Loan 1856/Credit 1D30-PNC) and the Road Improvement Project (Loan 2265-PNG) included assistance to domestic road - 13 - construction contractors. However, the relative shortage of suitable small road construction or maintenance contracts hampered the success of these efforts. The Government has reaffirmed its commitment to continue the previous efforts and implement corrective measures to develop the domestic construction industry. During appraisal of the proposed project, DW agreed on an action program that would immediately assist the industry by providing technical assistance in professional skills to medium-size domestic contractors in order to enable them to bid competitively for projects in the DW program. It was agreed that the technical assistance services needed for the implementation of the above action program would be partly financed under the ongoing Road Improvement Project (Loan 2265-PNG) and would continue under the proposed project. Maintenance 44. Maintenance of national roads and bridges is the responsibility of DW and is performed through the 19 PWMOs. The technical standards are satisfactory but the level of maintenance has been inadequate and routine maintenance is particularly poor, mainly due to: (a) the lack, until very recently, of a separate road maintenance branch within DW with staff employed solely on road maintenance; (b) the lack of planning, programming and monitoring of road maintenance operations; (c) the distribution of maintenance allocations among PWMOs without consideration of road conditions, traffic volume, and climatic and geological conditions; (d) diversion of maintenance funds to road improvements; (e) the high cost of plant and vehicles handled by the Plant and Transport Branch (PTB) of DW; and (g) the lack of routine maintenance equipment. In the past, budgetary allocations provided by the National Government for maintenance of the national road network were adequate and the Government is expected to continue to provide sufficient funds during project implementation and thereafter. During negotiations an understanding was reached with the Government that the annual consultation between the Government and the Bank on the road maintenance program would be done in the context of the annual consultation on the total public expenditure program for PNG. 45. Road maintenance in PNG was reviewed in depth under the Road Main- tenance Study financed under the Third Highway Project (Loan 1856/Credit 1030- PVC). Under the study, completed in June 1985, consultants made recommenda- tions for improvement of the existing organization at all levels, including road maintenance management and financial procedures, and identified road maintenance requirements in terms of equipment, materials and manpower for various road maintenance operations. They also prepared guidelines for road maintenance planning, programming, costing and monitoring as well as for execution of all major road maintenance operations. In line with the consultants' proposals, a Road Maintenance Unit (RMU), headed by the Principal Road Maintenance Engineer appointed in March 1985, was created. Appointments to key posts in RMU as well as to regional and provincial engineering and technicians posts are still under way. In accordance with staffing require- ments and training needs identified by the consultants for the implementation of the guidelines, about 460 supervisory and clerical staff would be trained at the two existing training centers. The program for 1986 was reviewed and discussed with the Government and found satisfactory but the selection - 14 - criteria should be firmed up. During negotiations it was agreed that the Government will (a) by December 31, 1986, establish criteria for selection of staff to be trained; and (b) furnish to the Bank for comments by September 30 each year, commencing September 30, 1987, a staff training program for the following year. 46. The RMU, with the study team's help, updated the inventory of roads and bridges and collected other relevant data so that, for the first time, the 1986 road maintenance budget levels will be based on real needs as opposed to historical demand levels. Based on these updated road and bridge inventories, DW prepared five-year resealing, regravelling and bridging programs. The Asian Development Bank (ADB) has agreed to finance a resealing/sealing program, and, in order to economize on maintenance expenditures by avoiding frequent regravelling, DW would seal heavily trafficked short road sections near and within urban areas starting in 1986. Regravelling and bridging 5- year programs include about 2,700 km of national gravel roads to be regravelled and 86 bridges and 21 river crossings to be rehabilitated and replaced. 47. The Plant and Transport Branch (PTB) is responsible for procurement, servicing, repairs and maintenance of equipment used by government departments including the police, health, hospitals and provincial governments. The PTB hires out plant and vehicles to the user departments on the basis of individual hourly, daily or monthly hire rates. Operators and fuel are usually provided by the user. The hire rates appear to be substantially above hire rates in the private sector, however. Therefore DW hires plant and vehicles from the private sector rather than use its own. As a result, the plant and vehicles allocated to road maintenance and construction are currently underutilized. This problem is being addressed in the ADB-financed Study of DW Heavy Plant and Equipment. The objectives of the study are: (a) to determine minimum plant requirements and appropriate hire rates; (b) to identify possible courses of action to improve existing plant procurement, disposal policies, maintenance and procedures; and (c) to identify possible courses of action to implement practical management information systems including staffing and training. The study will be completed by the end of 1986 and, based on consultants recommendations, the Government should prepare an action program to improve present poor performance at PTB. During negotiations, it was agreed that the Government will furnish to the Bank the action program for review and comments by June 30, 1987. Although the DW has a great many plants and vehicles, there is a shortage of specific equipment, particularly for routine road maintenance, such as pavement breakers, bitumen hand sprayers, premix spotmixers, vibrators, hand operated rollers and grass cutters. Bank Investment in the Subsector 48. The Bank Group has assisted the highway subsector through four high- way projects totaling US$88.5 million. The first three projects have been completed successfully. The project perf Vmance audit report for the First Highway Project (Credit 204/Loan 693-PNG)- found that the Bank Group's refusal to provide supplementary financing for the 90% project cost overrun was unnecessarily harsh and that international competitive bidding (ICB) under - 15 - the conditions prevailing in PNG during 1970 may have contributed to the cost escalation. The Second Highlands Road Improvement Project (Cr. 677-PNG in 1977), completed in 1983, also suffered from an underestimation of costs by 75%, and the project was subsequently reduced. The Third Highway Project (Credit 1030 Loan 1856-PNG in 1980) was completed in June 1985 after about 12 months' delay due to civil unrest and increases in the amount of earthworks required because of unstable slopes. 49. The experience gained under these projects raises several points of special interest: (a) land acquisition remains a long and troublesome process and is likely to continue affecting project implementation in the future; (b) the recruitment and training of PNC nationals for professional posts is difficult due to the insufficient number of qualified candidates for the engineering school. This is likely to be a long-term problem; and (c) the need to have detailed design work, rather than preliminary engineering, completed before bidding is important to avoid problems at the implementation stage. The ongoing Road Improvement Project (Loan 2265-PNG) provides for rehabilita- tion and upgrading of 277 km of provincial roads; rehabilitation and replace- ment of 25 bridges; improvement of 54 km of the Highlands and Enga Highways; and consultant services and technical assistance. Project implementation is proceeding satisfactorily. PART IV -- THE PROJECT Project Origin 50. The project was initiated in 1983 under the on-going Road Improvement Project (para. 49). Upon completion of the Transport Investment Program Study in 1984 financed under that project, the Government prepared its Transport Sector Plan in the context of the National Medium-Term Development Plan (1986-1990). To implement the sector plan, the Government approached several financing agencies, including the World Bank, for assistance in financing the highest priority projects in the road and civil aviation subsectors. The proposed project was prepared by DW, DT and DCAT, and appraisal was completed in November 1985. Negotiations were held in Washington from May 26 to 30, 1986. The Government delegation was led by Mr. Robert Kaul, First Assistant Secretary, Department of Finance. The Staff Appraisal Report (No. 6107-PNG, dated June 3, 1986) is being circulated separately. Supplementary Project Data are contained in Annex III. 6/ Report No. 1635, dated June 16, 1977. - 16 - Objectives and Rationale for Bank Involvement 51. The global objectives of the project are to: (a) improve land transport through reconstruction, upgrading and maintenance of national roads, and reduce vehicle operating costs; (b) enhance air transport through equip- ment replacement, improvement of safety standards and resealing and regravelling of runways, taxiways and aprons; (c) improve efficiency of road maintenance through provision of road maintenance equipment and materials; and (d) strengthen the institution building and improvement of the domestic construction industry through provision of technical advisory services and training of local staff. The proposed project would assist the Government to implement its sector plan and a new transport policy which has evolved with Bank's assistance and which emphasizes application of new investment criteria, a greater role by the private sector and higher cost recovery. In addition, Bank involvement in the proposed project is designed to further institutional strengthening in the various subsectors. Project Description 52. The project would be implemented over a period of 5 years and would consist of: (a) reconstruction and upgrading of three national road sections totalling about 80 km; (b) rehabilitation and replacement of about 50 bridges and water cross- ings totalling about 1,100 linear meters; (c) regravelling of about 500 km of national gravel roads and provision of road maintenance equipment and materials; (d) replacement of navigational, metereological and communication equipment at 14 national airports; resealing and regravelling of runways, taxiways and aprons at 16 airports; and rehabilitation and improvement of drainage works and of fire stations at four airports; (e) consultant services for economic and engineering studies and construction supervision; and (f) technical assistance to aid DW, DT, and DCAT in (i) implementing a new transport policy; (ii) establishing a gravel pit inventory; (iii) researching the possible use of coronous materials for road maintenance; (iv) developing the domestic construction industry; and (v) training of local staff and institution building. Reconstruction and Upgrading of National Roads 53. The project roads are located on the mainland and New Britain Island, connecting major provincial centers of the Western Highlands and Southern Highlands Provinces, and serving major development areas in Milne Bay and West New Britain Provinces. Main developments in palm oil, cocoa and timber production are under way and are expected to generate significant - 17 - traffic increases, particularly in heavy commercial vehicles, during the next five years. In general, the existing gravel roads have adequate horizontal and vertical alignments but inadequate drainage. The pavement has deteriorated and has been deformed to the extent that it cannot be restored through regular maintenance. Under the proposed project, the existing drainage system would be improved and the existing gravel pavement would be upgraded to bitumen standard. Detailed engineering for one road section is being finalized by DW, preliminary engineering for the remaining two road sections has been completed by consultants, and necessary details on pavement and drainage improvements will be also prepared by consultants. Bridge Rehabilitation and Replacement Program 54. The project would include about 50 highest-priority bridges and water crossings out of a total of 109 bridges and wet crossings included in the 5-year program for a total of about 1,100 linear meters. In addition, river training works would be included when and where required. Bridges scheduled to be constructed in 1987 were identified by DW and evaluated by DT. Detailed engineering for these bridges is expected to be prepared by consultants and DW during 1986 and will be financed under the ongoing project (Loan 2265-PNG). Road Maintenance Program 55. Of 2,700 km of national roads included in the 5-year regravelling program, about 500 km of highest priority gravel roads would be regravelled during the first 3 years (1987-1989). The project also includes procurement of the most essential road maintenance equipment and materials (Bailey bridges, culvert pipes, gabions, guard rail, etc.) needed for routine and emergency maintenance operations. Improvement of Airports 56. Replacement of Airport Equipment. The existing navigational, telecommunications and meteorological equipment was purchased and installed for the most part 20 years ago and has reached the end of its economic and technical life. In addition, it is no longer produced and spare parts are not available. Therefore the consultants under TIPS proposed, and the Government agreed, to a five-year equipment replacement program for 14 airports starting in 1986. The proposed project would include replacement of this equipment. During negotiations it was agreed that this project component would be financed by the Australian Development Assistance Bureau (ADAB). 57. Resealing/Regravelling of Runways, Taxiways and Aprons. A detailed inventory of the national airports carried out by DCAT and DW indicates that the surface of some runways, taxiways and aprons are substantially worn to the extent that routine maintenance cannot restore them. In addition, drainage is poor at some airports and requires immediate attention. To correct this situation DCAT and DW prepared a four-year resealing/regravelling program (1986-1990) including drainage and fire station improvements. The proposed project would assist the Government in implementing its program and would ensure safety of flight operations. During negotiations agreement was reached - 18 - with the Government on the first-year program, including works to be financed retroactively (para. 62). Consultant Services 58. The proposed project would provide a total of 686 man-months of consultant services. Consultant services for detailed engineering of the roads and bridges would total 150 man-months; another 310 man-months of services would be provided for construction supervision of roads, bridges and airports. Also, the project would provide 226 man-months of consultant services to prepare feasibility studies and detailed engineering needed for preparation of future projects. Technical Assistance and Training 59. Technical assistance totaling 308 man-months will be provided under the project to strengthen DT, DW and DCAT. Technical assistance totaling 112 man-months would be provided to DT to assist in setting up a more effective administration in implementing and monitoring the new transport policy. The project would also provide 92 man-months to DW for preparation of a gravel pit inventory and research on possible uses of coronous materials for road maintenance; and 56 man-months to DCAT to support its policy planning function and provide short term technical experts. Technical assistance would also provide on-the-job training to local staff and would prepare them to take over the expatriate positions upon completion of their contracts. In addition, the project would provide for training equipment and overseas train- ing of local middle management staff. 60. In accordance with the action program to assist the construction industry (para. 43), the project would provide for: (a) continuation of the technical assistance to medium size domestic contractors; (b) technical assistance and training of small domestic contractors; and (c) technical assistance to DW to improve their contracting procedures. It has been agreed that a single consulting firm would provide these technical assistance services in the form of two civil engineers, one mechanical superintendent and one supervisor, for a total of 48 man-months. The terms of reference for all above technical assistance services have been agreed with DW. Estimated Project Costs and Financing 61. The total project cost, including right-of-way acquisition, is estimated at US$64.7 million. This includes: (a) the estimated base cost as of January 1986; (b) physical contingencies of 20% for the bridge rehabilitation and replacement program, 15% for upgrading of national roads and 10% for all remaining project items; (c) price contingencies of 7.2% for 1986, 6.8% for 1987, 6.8% for 1988, 7.0% for 1989, 7.1% for 1990 and 4% thereafter for local and foreign exchange components. Overall physical and price contingencies combined represent 30% of the total project cost. The foreign exchange cost is estimated at US$48.6 million, or about 75% of the total project cost; the remaining US$16.1 million represent local costs, of which US$6.6 million, or about 10% of total project costs are local taxes and duties. - 19 - 62. The proposed Bank loan of US$45.5 million would finance the pro- ject's foreign exchange, including US$2.0 million for retroactive financing for expenditures for airport equipment, resealing and regravelling of runways, taxiways and aprons, and feasibility studies incurred after January 1, 1986. The loan would finance 70% of the total estimated prnject cost or 78% of the total project cost excluding taxes and duties. Acquisition and installation of airport equipment estimated at US$3.1 million would be financed by an ADAB grant. The Government would finance the remaining US*16.0 million equivalent through budgetary allocations to DW, DT and DCAT. Project Implementation 63. The project would be implemented by three government agencies: DW, DT and DCAT. DW would be responsible for the detailed engineering of project roads and bridges, improvement of national roads, rehabilitation and replacement of bridges, road maintenance, resealing/regravelling of runways, taxiways and aprons, and technical assistance to DW; DT would be responsible for feasibility studies and preliminary engineering for future projects and technical assistance to DT; and DCAT would be responsible for procuring and installing the airport equipment and for technical ae3istance to DCAT. Since the project would be implemented by three agencies, there is an obvious need for coordination. A project coordinator has been appointed from DW to ensure necessary cooperation, monitor the progress of implementation, procurement, project costs and expenditures and prepare progress reports for regular sub- mission to the implementing agencies and to the Bank. 64. Following the Government's National Development Plan, the project would be implemented over a five-year period starting in 1986 and should be completed by June 30, 1991. Project implementation would start immediately after loan effectiveness because detailed engineering is not required for regravelling of national roads and resealing/regravelling of runways, taxiways and aprons, and detailed engineering for upgrading of one project road (Mai- Bavusi) is about to be completed. Also, procurement of road maintenance equipment and materials can start immediately. During appraisal the imple- menting agencies prepared a detailed action program. In summary, the action program calls for preparatory works including bidding for the first year's civil works and starting work on the national airports by the end of 1986. Procurement of the most urgent airport equipment, resealing/regravelling of runways, taxiways and aprons and preparation of feasibility studies for future projects would start in 1986. Road construction would start in early 1987 and would be completed by October 1990. Regravelling of national roads would start in late 1986 and would be completed by the end of 1988, and road main- tenance equipment and materials would be procured and delivered by the end of 1988. The remaining civil works and equipment procurement and delivery would be completed by mid-1990. Institutional strengthening and training would start in late 1986 and will continue throughout the project implementation. During negotiations assurances were obtained that the Government would adhere to the agreed action program and implementation schedule. 65. Improvement of national roads would be carried out by international contractors, and the remaining works would be carried out by local contractors and PMFA. Consultants would supervise the larger civil works projects; the - 20 - PWMOs would supervise only the small projects. During negotiations a list of roads and bridges included in the first year work program was agreed and assurances were obtained that the Government will: (a) furnish to the Bank for comments by September 30 each year a list of roads, bridges and runways to be included in the next year's work program; and (b) include in the program only roads and bridges with an ERR of 12% or higher. 66. In order to assist the domestic construction industry, the Govern- ment agreed during appraisal that road maintenance work would be provided to selected qualified domestic contractors. DW would thus select a few small domestic contractors in a province or in neighboring provinces and invite them to bid among themselves for road maintenance contracts valued at less than K 300,000; only these selected contractors would be allowed to participate in bidding during 1987 and 1988. This temporary arrangement should provide the small domestic contractors with sufficient work to facilitate their training under technical assistance services, after which they should be able to operate independently. This would not only develop the construction industry but would, in the long term, also provide more opportunities for labor employment. During negotiations, it was agreed that work totaling at least US$3.5 million would be first offered to qualified small contractors selected for training during 1987 and 1988. Procurement and Right-of-Way Acquisition 67. Civil Works. International Competitive Bidding (ICB) would be used to procure improvements to the three national roads estimated at US$16.0 mil- lion equivalent in accordance with the Bank's "Guidelines for Procurement under IBRD Loans and IDA Credits" dated May 1985. Procurement of the remain- ing civil works through ICB would not be appropriate because the contracts involved will be relatively small (up to US$300,000) and scattered all over the country and will be phased over a period of 4 years. Therefore, these works, including rehabilitation and replacement of bridges, regravelling of national roads and resealing/regravelling of runways, taxiways and aprons totaling US$19.5 million will be awarded to prequalified contractors on the basis of local competitive bidding under procedures satisfactory to the Bank. The remaining bridging and regravelling work estimated at US$4.3 mil- lion equivalent would be carried out by Project Managed Force Account. All procurement documents for civil works over US$0.5 million equivalent would be subject to the Bank's prior review which will cover about 72% of the proposed loan. 68. Equipment and Materials. Road maintenance equipment and materials, and laboratory equirment estimated at US$7.3 million equivalent would be pro- cured on the basis of ICB in accordance with the Bank's "Guidelines for Pro- curement under IBRD Loans and IDA Credits." Contracts for equipment and materials estimated to cost more than US$0.5 million equivalent each would be subject to the Bank's prior review. Procurement of small off-the-shelf items costing less than US$10,000 equivalent would be done by shopping in accordance with the Bank Guidelines. The total amount of such purchases should not exceed US$400,000 equivalent. - 21 - 69. Consultant Services and Technical Assistance. Consultant services for detailed engineering, construction supervision, studies and technical assistance estimated at US$12.5 million equivalent would be obtained in accor- dance with the relevant Bank Guidelines. The table below summarizes the key procurement information. PROCUREMENT SUMMARY /a (US$ million) Procurement Method Total Project elements ICB LCB Other N/A cost Civil Works - Improvement of national roads 16.0 2.8 18.8 (10.2) (1.8) (12.0) - Bridge rehabilitation and 7.4 2.5 9.9 replacement program (4.7) (1.6) (6.3) - Regravelling of national roads 5.3 1.8 7.1 (3.4) (1.2) (4.6) - Resealing/regravelling of run- 4.0 4.0 ways, taxiways and aprons (2.6) (2.6) Subtotal 16.0 19.5 4.3 39.8 (10.2) (12.5) (2.8) (25.5) Equipment and Materials Road maintenance and laboratory 4.2 0.2 4.4 equipment (4.2) (0.2) (4.4) Road maintenaace materials 3.1 3.1 (3.1) (3.1) Subtotal 7.3 0.2 7.5 (7.3) (0.2) (7.5) Services Consultant services, technical 12.5 12.5 assistance and training (12.5) (12.5) Right-of-Way Acquisition 0.5 0.5 Total 23.3 19.5 17.0 0.5 60.3 (17.5) (12.5) (15.5) (-) (45.5) /a Excluding airport equipment to be financed by ADAB. Notes: 1. Amounts shown for each project component include contingencies. 2. Figures in parentheses are the respective amounts financed by the Bank loan. - 22 - 70. Right-of-Way. The Government acquires right-of-way as far in advance as possible, through the Department of Land and Provincial Governments by negotiations. There have been cases in the previous projects where delay in acquiring right-of-way has caused disruption of scheduling. However, the proposed right-of-way acquisition for the project would be minimal and limited only to drainage improvements of the national roads and replacement of existing bridges and would be minimal. Therefore this is not now considered a major problem and during appraisal it was agreed that right-of-way acquisition would be completed during the detailed engineering stage. During negotiations, assurances were nbtained that the Government will take timely action to make available the right-of-way on each project road section and bridge prior to bid invitation or about six months before contract award. Disbursement 71. Disbursements would be made on the following bases: (a) 64% of the total expenditures for civil works including: (i) improvement of national roads; (ii) rehabilitation and replacement of bridges; regravelling of national roads; and resealing/regravelling of runways, taxiways and aprons; drainage and fire stations; (b) 100% of the c.i.f. cost of all equipment and materials procured directly from abroad and 65% of the actual cost of imported equipment and materials procured locally; and (c) 100% of total expenditures on consultant services, technical assistance and training. 72. Disbursements for expenditures on road construction carried out by contract would be fully documented. Disbursements for civil works contracts under US$100,000 equivalent, small equipment items procured by shoppirg, and works executed by force account will be made on the basis of withdrawal applications supported by statements of expenditures on work performed and duly certified by DW. Reimbursement applications for these works and for small equipment items procured by shopping would be submitted when the aggregate amount reaches US$100,000 or equivalent, or every 3 months, whichever comes first. DW will maintain and make available to the Bank's representatives, when required, all relevant documentation in support of the statements of expenditures. Payments will be subject to internal audit by DW and by the Government Auditor-General's Office. Auditing and its Lending 73. The DW's, DT's and DCAT's accounting procedures are broadly satis- factory and subject to a continuous external review by the Government's Com- mission on Audit (COA). During negotiations it was agreed that the Government will furnish to the Bank, within six months after the end of each year, a certified copy of the audit report of the project expenditures. - 23 - Environmental Aspects 74. The project is not expected to cause any environmental or ecological problems. No major changes in the alignment of project roads will be made and therefore the requirements for additional land and disturbance to property would be minimal. The improvement works include such features as bridge and drainage improvements. Raising embankments would improve not only environ- mental conditions along the roads but also road safety. Benefits and Economic Return 75. The project will have a wide ranging impact on the transport system of Papua New Guinea, with various components affecting all of the provinces either in the road or air transport subsectors. The economic case for the physical components of the project rests on a reduction in vehicle operating costs, a decrease in repair and rehabilitation costs of the road network, a.d a reduction in freight damage, travel time and other economic and social costs associated with the existing condition and use of the road network. The critical factor justifying the airport improvements is operations safety. 76. The direct benefits of the Program will accrue in the first instance to the traders and transport operators in the form of reduced operating costs. Although officially tariffs are controlled, in practice they are com- petitive. The Government is now moving towards full deregulation of the transport sector, which will ensure that reduced transport operating costs are passed on to producers and/or consumers through greater competition. Furthermore, better road conditions will reduce importation of vehicles and spare parts by lessening the wear and tear on existing vehicles, thus reducing the demand for foreign exchange. For certain areas, the improved and expanded network of all-weather roads will stimulate agricultural production in the long run and will improve the integration in the market economy. The benefi- ciaries of airport improvements will ultimately be the transport users, as competition among the airlines is expected to have a beneficial impact on fares. 77. The overall economic rate of return is estimated at 34% for those components included in the economic evaluation, which amounts to about 57% of the project costs. Rates of return for various components are as follow: (a) restructured aad upgraded roads, 13-28%; regravelling program, 74% for the first year; and bridge programs, 40-43%. The airport improvement program was justified on safety grounds, therefore no ERR was calculated. Benefits have not been quantified for the purchase of road maintenance equipment, materials, laboratory equipment, consultant services and technical assistance and training, although they are expected to improve operations in the DT, DW and DCAT. The bridge replacement and rehabilitation program as well as the road regravelling program yield rates of return which are not especially sensitive to reductions in benefits or increases in costs. For the reconstruction and upgrading of national roads, sensitivity tests carried out indicate that a 15% increase in costs or 15% decrease in benefits still yield acceptable results in all cases except for one, the Kaupena-Ialibu section. It was agreed at negotiations that this component would be included in the project only if the economic rate of return calculated after bid receipt is at least 11%. - 24 - The Project Risks 78. Two major types of risk affect the project. The first is the possibility of delays in implementation, which were also experienced under previous projects because of difficulties over right-of-way acquisition caused by customary land ownership. The second risk is that the project policy and institutional objectives may not be met because necessary expatriate staff may not be recruited according to schedule or because the Government may not assign sufficient numbers of national officers to work with foreign experts. To reduce these risks, the Government agreed to take timely action for acquisition of the right-of-way needed for civil works, to make available right-of-way prior to bid invitation or about six months before contract award. The project coordinator was appointed prior to negotiations to ensure the timely appointments of technical assistance staff and counterparts to be trained. PART V - RECOMMENDATION 79. I am satisfied that the proposed loan will comply with the Articles of Agreement of the Bank. 80. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments June 16, 1986 Washington, D. C. - 25- ANNEX I T A . e sPage 1 of 6 1 (NDST MCENT UUTrNAT) 116d 1970& nTINATrL A5uA 6 PACIIC .AT. AMRICA £ CAR *AmA Cunuaan sq. No T=TAL 461.7 61.7 461.7 AGRICULTMUAL 3.7 4.4 4. . M PE Cl (088) .. .. 760.0 1011.1 1873.9 RIefi pMIreT NK Con&T (KILO~UANB or OLL EquivåLEN~ 37.0 114.0 240.0 566.8 993.6 ~0FLam0 ame "n.mnÅTMI POMULarlom. (HOUZANDB) 1932.0 2418.0 33Q. /h URAN POPLATIO N OF OTA 2.7 9.8 13.8 35.9 67.7 PIUMLAION aoJECTION P~UL.TION in nu 2000 <aL) 4.6 STATIONAM POPLATION (NELL) 9.0 POULATNC 0ONU 1.9 PO1MLATION DESITT Pm mq. mH. 4.2 5.2 6.9 386.9 48.0 PE 0 Q. SM. AMR. LAND 520.8 553.9 631.7 1591.2 91.1 POrULATION AGE %TRUCTURE () 0-14 tuE 40.4 42.0 42.6 38.2 31.5 15-64 TU1 56.6 34.9 33.9 37.7 57.1 63 AND A50~E 2.8 3.0 3.6 3.5 4.2 POPULATION G~ utn ATE (9) TMTAL 1.8 2.2 2.3 /h 2.3 2.4 UR5AN 13.3 15.2 7.3 4.1 3.6 CRUDE a1mN Ram (ER T~DDS) 44.0 41.5 35.0 30.1 30.9 CUD£ D RATE (pta T~U0) 23.2 18.1 14.0 9.4 8.0 Ga0l RIODUCTICK RATS 3.0 3.0 2.4 1.9 2.0 FAmILl PLAN~UIIG ACCEP:Cas. A&MMAL (TOUS) . .. UnEu (< 07 NAR9=E daE> .. .. 5.0 56.5 45.3 iNDEE (w v PROD. Kl CAPITA (169-71-100) 100.0 100.0 9.0 124.4 109.6 KR CAYITA sUPPLi OF CALOKES (X or mQUv~EMES) 71.0 78.0 84.0 115.7 113.2 Paa~EZS (GRANS PEm DAT) 33.0 42.0 43.0 60.3 69.4 OF URIC AMINAL AND FLUE 17.0 20.0 20.0 le 14.1 34.2 CWILD (AGES 1-4) DEATm SATE 26.1 19.9 12.0 7.2 4.8 LIFE E9~ECT. AT KMRER (IEARS) 40.6 46.4 53.5 60.6 64.8 1UWANT 10T. rATE (PU TEO$) 165.0 133.0 97.0 64.9 59.7 ACESS TO SAFI VATER (M>OP) TOTAL .. 13.8 16.0 d 46.0 65.3 URSAM .. 48.5 53.0 57.6 76.5 53AL .. 10.0 i0.077 37.1 44.2 ACEss TO EUX=TA DISPOSAL (< OF PoLATCM) TOTAL .. 6.8 14.0 id 50.1 56.3 URBAN .. 42.0 96.0 7T 52.9 73.4 0U*AL .. 3.0 .0W 44.7 25.5 POPULATION PER hTSICIA 19320.0 11630.0 13390.0 /a 7751.7 1909.7 POP. PER %MUISIG PERSON .. 1800.0 960 7é 2464.8 806.2 POP. PER HOSPITAL ED TOTAL 140.0 /f 150.0 250.0 /e 1312.1 362.0 U1AN .. ~ 50.0 100e. 651.4 422.0 RUMAL .. 260.0 270.0 2596.9 2716.7 ADMISSIONS PER 1MPITAL ED .. .. .. 41.1 27.5 1001180 AtaCE S12E OF bOUSEDLD TOTAL 3.1 .. RCRAL .. .. . .. å~E1ACE no. OF PESONS/R00H TOTAL 0.7 .. URBAN . .. .. ECRAL .. .. • .. PECNTAGz OF DWELLIlGS WITE EC. TOTAL CREAN .. .. • .. RURAL .. .- •... - 26- ANNEX I TAhL_I lA Page 2 of 6 PAPUA mmE GUINEA - SOCIAL INDICATORS DATA SNEET PAPUA nyE GUINEA ReERENcE GROUPS (VEICKTED AVIRAES> la KST <HOS? ECENT ESTINATE) /b 7 ECENT NIDDLE [NCOE MIDDLE INC0M ~960b 1974b- EcsiTITE ASIA & PACIFEC LAT. AHlERICA å CAR ODUCET~O ADJUSTED EKROLUIENT LATIOS FRIKARV: TOTAL 32.0 52.0 65.0 100.7 106.7 NLE 59.0 63.0 73.0 104.4 108.5 FENALE 7.0 39.0 58.0 97.2 104.6 SECONDART: TOTAL 1.0 8.0 13.0 47.8 44.2 MALE 2.0 11.0 17.0 50.6 42.7 FpALE 1.0 4.0 8.0 44.8 44.9 VOCATIOKAL (x OF SECONDART) 16.0 19.4 16.2 18.4 13.3 PUPIL-TEACEER RATIO PIMA 35.0 30.0 32.0 30.4 29.9 SECONDARY 18.0 .. 22.0 22.2 16.7 PASSENGER CARSITHOUSAND POP 2.0 7.2 6.1 /a 10.1 46.0 RADIO RECEIVERS/TNUSAND rop .. .. 67.1 172.9 328.3 TV RECEIVERS/TROBSAND POP .. .. .. 58.5 112.4 NEUSPAPER ("DAILY GENERAL INTEST") CIRCULATION PER TROUSAND POPULATION .. .. 9.3 65.3 81.1 CINEA ARnlUAL ATIENDANCE/CAPITA .. .. .. 3.4 2.4 TOTAL LAMO FORCE (THOUS) 1058.0 1257.0 1550.0 FINALE (PERCT) 41.4 41.3 40.9 33.6 23.6 ACRICUL=TRE (PERCENT) 89.0 86.0 82.1 /d 52.2 31.4 InDUSTT (PEENT) 4.3 5.8 7.7 17.9 24.3 PARTICIPATION LATE (PERCENT) TOTAL 54.8 52.0 48.6 38.9 33.5 MALE 61.2 58.5 55.3 50.8 51.3 FENALE 47.7 44.9 41.0 26.8 15.9 ECONOIC DEPENDENCT RATIO 0.8 0.9 1.0 1.1 1.3 m~E DISTREBUTM PEC OP PRIVATE 1NC~I RECIVD BT IGHEST 52 o ROUSEHOLDS .. aIGEST 20 OP HOUSEHOLDS .. .. .. 48.0 LONEST 202 Of HOUSE~OLDS .. .. .. 6.4 LOWEST 40z oF BOUSEHOLDS .. .. .. 15.5 Pa=T T GE P ESTINATED ABSOLUTE POERT INCOME LEVEL (oSS PER CAPITA) UKBAN .. .. 400.0 .. 288.3 RURAL .. .. 275.0 151.9 185.3 ESTINATID RELATIVE POVERT 10ME LEVEL (US$ PER CAPITA) UKBAN .. .. .. 177.9 519.8 RURAL .. .. .. 164.7 359.7 ESTINATED POP. BELOV ABSOLUTE POEITT INCOM LEVEL (I) URBAN .. .. 10.0k 23.5 vAL .. .. 75.0 37.8 NOT AVAILASLE . OT APPLICABLZ NO T E S .a The group avørages for each indicator are populatiomain~ghted arithmtic means. Coverage of countries og the lndteators depende on avalability of data and i. æot uniform. li Utlaes othertsa noted. "Data for 1960" refer to any year bøtveen 1959 and 1961; "Data for 1970" harmen 1969 and 1971: and data for "Nost Racent etimata" beteen 1981 and 1983. Le 1977; /4 1980; A 1978; f 1964; L& 1979. /h 1984 JUNE. 1985 ANNEX 1 - 27- Page 3 of 6 DEFINITIONS OF SOCIAL INDICATORS Notea: Althoughthet data sedrAwu from sourcesagnerally judged the moat authoritatine and reliable. a ,hould alw te noted that thc md unt be mnternattnnall comparable becamue of the lack of standardiand definitions and concepts used by different countnes in collectng the data The data etc. nonethrets. ueful in describe oaders of magnitude. indicate trends., and characterize certain major differences between countries. The relfence groups aen (1) the me country group of the subject country and (2) a country group with bomewhat higher awrage income than the country group of the subjeet country (caept for "High lcome Oil Exporters" group where "Middle Income North Africa and Middle Eas" a chosen because of tironger scio-cultuiral snities). In the reference group data the averages ase population weighted arithmetic means for each indicator and shown only when majorny of he countries in a group las data for that Indicator. Sinee the coverage of countries among the indicators depends on the availability ofrdata and is not uniform. caution must beaerend in rdating averagn o one indicator to another.c These averages are only useful in compang the vilue of one indacator at a te among the country and refeincm groups. AREA (thousand sq.km.) Crude k Rat (per rhusond)-Number o live births in the ye Tal--Total surface area comprising land area and inland waters; per thousand of mid-year population; 1960, 1970. and 1983 data. 1960. 1970 and 1983 data. Crude Deat Rate (per thossandI-Nlumber or deaths in the year Agriurm-a-Estimate of agricultural area used temporarily or pe thousand of mi-year population: 1960. 1970. and 1983 data. permanently for crops. pastures, market and kitchen gardens or to Gross Reprodurton Rate-Average number ofdaughters a woman lie fallow, 1960. 1970 and 1982 data. will bear in her normal reproductive period if she experiences present agespecific fertility rates: usually five-year averages ending GNP PER CAPITA (USSY-GNP per capita estimates at current in 1960.1970. and 1983. market prices, calculated by same conversion method as World i fAmihi-Acceps Atten (than)-Annual num- Bank Ailas (1981-83 basis); 1983 data. ber ofacceptors of birth-control devices under auspices of national ENERGY CONSUMPTION PER CAPITA-Annual apparent fmily planning program. consumption of commercial primary energy (coal and lignite, Famly PlmAig-Uers (percent ofmred won)-The percen- petroleum. natural gas and hydro-. nuclear and geothermal elec- tage of married women ofchild-bearing age who are practicing or tricity) in kilograms of oil equivalent per capita; 1960. 1970, and whose husbands a practicing any form ofcontraception. Women 1982 data. of child-beating age are generally women aged 15-49. although for some countries contraceptive usage is measured for other age POPULATION AND VITAL STATISTICS groups- Teea l'peries, Mid- Year (rhmsedr)-As of July 1; 1960. 1970. FOOD AND NUTRITION and 1983 data. Index ref FoodProthardem Per Cap0a (196OL-7 - 100)1ndex of per Urban Apueio. (perces of tef-Ratio of arban to total capita annual production of all food commodities. Production population: different definitions of urban areas may affect compar- excludes animal feed and seed for agriculture. Food commodities ability of data among countrics; 1960. 1970. and 1983 data. include primary commodities (e.g. sugarcane instead of sugar) fPlN&ddn pvo*etias which are edible and contain nutrients (e.g. coffee and tea are Pprdation in year 2000-The projection of population for 2000. excluded); they comprise cereals, root crops. pulses, oil seeds. made for each economy separately. Starting with information on vegetablm fruits, nuts, sugarcane and sugar beets, livestock, and total population by age and sex, fertility rates, mortality rates, and livestock products. Aggregate production of each country is based international migration in the base year 1980. these parameters on national average producer price weights; 1961-65, 1970. and were projected at five-year intervals on the basis of generalized 1982 data. assumptions until the population became stationary. Per Capita Sipply rcabries (Pret ofremirets)-Comput- Stationary popularios-Is one in which age- and sex-specific mor- ed from calorie equivalent ornet food supplies available in country tality rates have not changed over a long period, while age-specific per capita per day. Available supplies comprise domestic produc- fertility rates have simultaneously remained at replacement level tion. imports less exports. and changes in stock. Net supplies (net reproduction rate - 1). In such a population. the birth rate is exclude animal feed, seeds for use in agriture, quantities used in constant and equal to the death rate, the age structure is also food processing, and losses in distribution. Requirements were constant, and the growth rate is zero. The stationary population estimated by FAG based on physiological needs for normal activity size was estimated on the basis of the projected characteristics of and health considering environmental temperature body weights, the population in the year 2000. and the rate of decline of fertility age and sex distribution ofpopulation. and allowing 10 percent for rate to replacement level. waste at household level 1%6. 1970 and 1982 data. PlapuAion Momentua-Is the tendency for population growth to Per Capita Supply of Pren (rns per day)-Protein content of continue beyond the time that replacement-level fertility has been per capita net supply offood per day. Net supply offood is defined achieved. that is, even after the nct reproduction rate has reached as above. Requirements for all countries established by USDA unity. The momentum of a population in the year i is measured as provide for minimum allowances of 60 grams of total proten per a ratio of the ultimate stationary population to the population in day and 20 grams of animal and pulse protin, of which 10 grams the ycar t, given the assumption that fertility remains at eplace- should be animal protein. These standards.are lower than those of ment level from year i onward. 1985 data. 75 grams of total protein and 23 grams of animal protein as an pq'ak*n /k&IV average for the world. proposed by FAO in the Third World Food Per sq.km.-Mid-year population per square kilometer (100 hec- Supply; 11. 1970 and 1982 data. tares) of total area; 1960, 1970. and 1983 data. Per Cap& Prwein Supy Fmm Aninea and fhe-Protan supply Per sq.k. agricultural MaRd-Computed as above for agricultural offood derived from animals and pulses in grams per day; 196145. land only. 1960, 1970. and 1982 data. 1970 and 1977 data- Apulaiism Age Sracrure (perer)--Children (0-14 years), work- CAW(ages 1-4) DeAt Rate (perdkasond)-Number ofdeaths of ing age (15-64 years), and retired (65 years and over) as percentage children aged 1-4 years per thousand children in the same age of mid-year population; 1960. 1970, and 1983 data. group in a given year. For most developing countries data derived pal Gre Rar (perc -ta --Annuale tabs; 1960. 1970 and 1983 data. total mid-year population for 1950-60, 1960-70. and 1970-83. Papietse Growt Rare percur)--am-Annual growth rates Le Erpectany at B&rt (yews)-Number of yea a newborn of urban population for 195-60.1960-70. and 1970493 data. infant would live if pmeaing patterns of mortality for all people ANNEX I -28- Page 4 of 6 at the time of of its birth were to stay the same throughout its life; Pupl-reacher Ratio - primary, andserandar--Total students en- 1960. 1970 and 1993 data. rolled in primary and secondary leves divided by numhr% -f Infoar Mortary Rate (per thosand)-Number of infants who die teachers in the corresponding levels. before reaching one year of age per thousand live births in a given year; 1960. 1970 and 1983 data. CONSUMPTION Access re Sqf Iater (perceas of popdakt -eral, uian, and Passenger Car (per tMaus popeladou)-Passenger cars com- rural-Number of people (total, urban, and rural) with reasonable pri motor cars seating ls than eight persons; excludes ambul- access to sale water supply (includes treated surface waters or ancei, hearwes and militaiy vehicles. untreated but uncontaminated water such as that from protected Radlo Receuers (per thousand popohanji-All types of receivers boreholes, springs and sanitary wells) as percentaes of their respec- for radio broadcasts to general public per thousand o population; tive populations. In an urban area a public fountain or standpost excludes un-licensed receivers in countries and in years when located not more than 200 meters from a house may be considered registration of radio sets was in efect; data for recent years may as being within reasonable access of that house. In rural areas reasonable access would imply that the housewife or members of the houselhold do not have to spend a disproportionate part of the day TV Receivers (rhmni4ouaba)-TV receivers for broadcast in fetching the family's water needs. to general public per thousand population; excludes unlicensed TV receivers in countries and in years when registration of TV sets was Access to Ecrere Disposat (percent of populso)-rtoral, urban, in elct. and rwa---Number of people (total. urban, and rural) served by excreta disposal as percentages of their respective populations. Neww,q C&cakdon (per thousidpopatim)-Shows the aver- Excreta disposal may include the collection and disposal. with or age circulation of "daily general interest newspaper defined as a without treatment, of human excreta and waste-water by water- periodical publication devoted primarily to recording general news. borne systems or the use of pit privies and similar installations. It is considered to be "daily" if it appears at least four times a week. Apur per PhysWacs-Iopulation divided by number of prac- Cluem Annua Anendine per Cpia per Yea-Based on the tising physicians qualified from a medical school at university cl. number of tickets sold during the year. including admissions to fbpulaston per Nursing Persm*-Pbpulation divided by number of drive-in cinemas and mobile units. practicing male and female graduate nurses, assistant nurses, LABOR FORCE practical nurses and nursing auxiliaries. ItspeleShom per Hspist Bed-oal, uwhan, ad rual-Population TtlLbrPre(huadjEooial ciepros n Papiloda per HakelBMthi rbna respective uberiof cluding armed forces and unemployed but excluding housewives, (total, urban, and rural) divided by theirstudents. etc. covering population of all ages. Definitions in hospital beds available in public and private. general and speciali98d hospitals and rehabilitation centers. Hospitals are establishments permanently staffed by at least one physician. Establishments prov- FemaLe (pacmt-Female labor force a percentage of total labor iding principally custodial care are not included. Rural hospitals. force. however include health and medical centers not permanently staffed Agriulure (perceni-Labor force in fanning, forestry, hunting by a physician (but by a medical assistant nurse, midwife, etc.) and fishing as percentage of total labor fore; 160. 1970 and 1980 which offer in-patient accommodation and provide a limited range data. of medical facilities. Industy (percent)-Labor force in mining. construction, manu- Admissions per Hospital Bed--Total number of admissions to or facturing and electricity, waT and gas as percentage of total labor discharges from hospitals divided by the number of beds. force; 1960. 1970 and 1980 data. PWaipadio Rote (percenr --totl -ale andfomake-Pwticipation HOUSING or activity rates ar computed as total, male, and female labor force Average Si of Household (person per Amsehold)-rorta, urban, as percentages of totaL male and female population of all ag androrn--A household consists of a group of individuals who share respectively; 1960, 1970. and 1983 data. These are based on ILOs living quarters and their main meals. A boarder or lodger may or participation rates reflectingage-seszructurecofthe population. and may not be included in the household for statistical purposes. long time trend. A few estimates are from national sources. Average Naber of Persons per Roon-sotal, urban, and rua- Economic Deney Ratio-Ratio of population under 15, and Average number of persons per room in all urban, and rural 65 and over, to the working age population (those aged 15-64). occupied conventional dwellings. respectively. Dwellings exclude non-permanent structures and unoccupied p:. INCOME DISTRIBUTION Percentage of Diveangs witA Electriefty-total, urban, and rura- Percentage of Tot Diposabl &cnm (both in cask and kind)- Conventional dwellings with electricity in living quarters as percen- Accring to percentie groups of households ranked by total house- tage of total, urban. and rural dwellings respectively. hold income. EDUCATION POVERTY TARGET GROUPS Ad4usted EnrwBment Rarios The following estimates are very approximate measues of poverty Prnmary school - total. male and female--Gross total, male and leve.s, and should be interpreted with considerable caution. femal enrollment of all ages at the primary level as percentages of EstimaedAbsolme Porty Incme Level (= per ca arban respective primary school-age populations. While many countries ad rura-Absolute poverty income level is that income level consider primary school age to be 6-11 years, others do not The below which a minimal nutritionally adequate diet plus essential differences in country practices in the ages and duation of school non-food requirements is not affordable. are reflected in the ratios given. For sme countries with universal Estunated Reltve Pbveriy Incone Leve (1UZ per capitarban education, gross enrollment may exceed 100 percent since some and ruraf-Rural relative poverty income level is one-third of pupils are below or above the country's standard primary-school average per capita personal income of the country. Urban level is age. derived from the rural level with adjustment for higher cost of Secondary school - total, male and femae-Computed as above; living in urban areas. secondary education requires at least four years of approved pri- Estumod Polo. Beow Absolute Poverty Income Level (pe- mary instuction provides general, vocational, or teacher training ceat)-urba and rural- Prcest of population (urban and rural instructions for pupils usually of 12 to 17 years of age; correspond- who are -absolute poor com courses asi generally excluded. Vocationd Enrotne (percent of seconday)-Vocational institu- Comparative Analysis and Data Division tions include technical industrial, or other programs which operate Economic Analysis and Projections Department independently or as departments of secondary institutionc. June 1985 4NNEK T - 29.. Page 5 of 6 PAPUA NEW GUINEA COUNTRY DATA /a GROSS DOMESTIC PRODUCT IN 1984 ANNUAL RATE OF GROWTH (Z constant K) US$ mln 1970-76 1975-84 1983-R4 CNP at market prices 2,309.4 100.0 2.Q/b 1.9/h 1.0 Gross domestic investment 581.3 25.2 5.6 3.0 -20.8 Gross national savings 307.7 13.3 Current account balance -330.0 -14.3 Export of goods, NFS 1,017.0 44.0 18.1 2.2 3.0 Import of goods, NFS 1,290.7 55.9 2.7 1.9 1.7 OUTPUT, FMPLOYMENT AND PRODU1CTIVITY IN 1980 Value added Labor force Value added per worker USS mln /c Z M1n 2 USSIc 7 Agriculture 811 35.1 1.00 87.7 R11 2.7 Industry 647 28.0 0.03 2.6 21,567 71.6 Services 852 36.9 0.11 9.7 7,745 2%.7 Total/Average 2,310 100.0 1.14 100.0 123 100.0 GOVERNMENT FINANCE Central government X aln X of GDP 1984 1979 1984 Current domestic receipts 48.0 17.1 22.5 Current expenditure 647.0 27.6 2q.R Current surplus -159.0 -17.1 -7.3 Capital expenditure 95.0 5.9 4.4 MONEY, CREDIT AND PRICES 1980 1981 19R2 1989 1984 -------- --------------- (K m1n) ----------- Money supply 553 555 568 650 750 Bank credit to public sector 8 4T 71 5 -5 Rank credit to private sector 280 372 455 413 Sl ------------- Percentage of index numbers------------- Money as 2 of GDP 31.9 31.5 12.5 12.5 34.6 Consumer price index (1977-100) 129.5 135.6 143.0 154.1 165.8 Annual percentage changes in: Consumer price index 12.1 8.0 5.5 7.8 7.5 Bank credit to public sector 0.5 2.5 4.0 0.3 -0.1 Bank credit to private sector 11.7 12.7 8.9 20.3 14.0 /a As of January 1, 1978, PNG changed its fiscal Year from July I-June 30 to Januarv I-December 3. All data have been adjusted to a calendar term basis. /A Growth rates are calaculated in line at end points. /c At factor cost (current prices). Most recent data not available. not applicable not available April 1986 ANNEX I Page 6 of 6 - 30 - PAPUA NEW CUINEA COUNTRY DATA BALANCE OF PAYMENTS (US$ mn) 1982 1983 19864 MERCHANDISE EXPORTS (AVERAGE 1980-84) (US mln) Exports of goods, NFS 863.6 926.0 1,017.0 Coffee 126.7 14.5 Imports of goods, NFS 1,395.3 1,360.0 1,290.7 Cocoa 58.6 6.7 Resource gap (Deficit - -1) -531.7 -434.9 -273.7 Copra & copra products 62.1 7.1 Timber and timber products 71.1 8.1 Factor services (net) -93.4 -96.3 -263.4 Copper concentrates 181.4 20.7 Transfers (net) 138.2 160.7 168.0 Gold 232.4 26.6 Balance on current account -486.9 -370.5 -330.1 All other commoditien 142.4 16.1 Private capital (net) 378.3 312.q 247.5 Total 874.7 100.0 Public MLT loane (net) 101.7 152.3 16.8 Errors and omissions /a -32.6 14.4 115.4 EXTERNAL DEBT, DECEMBER 31, 1984 US$ aln Increase in reserves -40.7 109.1 28.0 Public debt including guaranteed 1.209 Import of fuel and related 198.1 200.7 175.1 Nonguaranteed private debt 890 materials Total outstanding and disbursed 2,099 EXCHANGE RATE NET DEBT SERVICE RATI FOR 1984 /b 2 1980 1981 1982 1983 1984 1985 Public debt, including guaranteed 13.0 Nonguaranteed private debt 23.1 USSI - K 0.67 0.67 0.74 0.83 0.89 1.00 Total outstanding and disbursed 36.1 K - US$ 1.49 1.49 1.36 1.20 1.12 1.00 IBRD LENDING (March 31. 1986) USs aln IBRD IDA Outstanding and disbursed 127.3 112.0 Undisbursed 95.9 1.1 Outstanding including undisbursed 223.2 113.1 /a Includes capital n.e.i. 71 Interest and amortization payments as a percent of exports of goods and services. April 1986 ANNEX II - 31 - THE STATUS OF BANK GROUP OPERATIONS IN PNG A. Statement of Bank Loans and IDA Credits /a (as of March 31, 1986) Amount (US$ million Loan or (less cancellations) credit Undis- number Year Borrower Purpose Bank IDA bursed Eight loans and eleven credits fully disbursed 87.5 91.4 - 0841-PNG 1978 PNG Rural Development - 20.0 0.58 1934-PNG 1981 PNG Primary Education 6.0 - 2.99 2125-PNG 1982 PNG Enga Provincial Development 6.0 - 3.48 1279-PNG 1983 PNG Petroleum Technical Assist. - 3.0/b 0.50/c 2265-PNG 1983 PNG Road Improvement 31.0 - 25.70 2276-PNG 1983 PNG Agric. Support Serv. 14.1 - 12.79 2395-PNG 1984 PNG Secondary Education 49.3 - 41.77 2475-PNG 1985 PNG West Sepik Provincial 9.7 - 9.21 2608-PNG 1986 PNG Nucleus Estate & Smallholder 27.6 - -/d 2624-PNG 1986 PNG Third Agricultural Credit 18.8 - -7d Total 250.0 114.4 97.02 Of which has been repaid 18.7 1.3 - Total now outstanding 231.3 113.1 - Amount sold 8.1 0.0 0.0 Of which has been repaid 8.1 Total Loans Now Held by Bank and IDA 223.2 113.1 Total Undisbursed 95.9 1.08 97.02 B. Statement of IFC Investments None la The status of the projects listed in Part A is described in a separate report on all Bank/IDA financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. b Credit amount is SDR 2.7 million (equivalent of US$3.0 million at time of commitment). /c Amount expressed here is US$ equivalent of undisbursed SDR amount in terms of US$ commitment. Id As of March 31, 1986, loan was not yet effective. - 32 - ANNE3 III Page 1 PAPUA NEW GUINEA TRANSPORT IMPROVEMENT PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare the project : 16 months (b) Agencies which prepared the project : DT, DW, DCAT with assistance from consultants (c) Date of the first Bank mission to consider the project : February 1985 (d) Departure of Appraisal Mission : October 1985 (e) Negotiations completed : May 1986 (f) Planned date if effectiveness : October 1986 Section II: Special Bank Implementation Action None Section III: Special Conditions The Government would: (i) consult annually with the Bank on its investment program for roads and airports for the subsequent year (para. 29); (ii) consult annually with the Bank on the road maintenance program (para. 44); (iii) by December 31, 1986, establish criteria for selection of staff to be trained (para. 45); (iv) furnish to the Bank by September 30 each year the staff training program for the following year (para. 45); (v) furnish an action program for PTB for review and comments to the Bank by June 30, 1987 (para. 47); (vi) furnish to the Bank for comments by September 30 each year a list of roads and bridges to be included in the next year's program, comprising only roads and bridges with an ERR of at least 12Z (para. 65); - 33 - ANNEX III Page 2 (vii) offer work totaling at least US$5.0 million to selected quali- fied small contractors (para. 66); (viii) take timely action to acquire right-of-way for each road section and bridge prior to bid invitation (para. 70); and (ix) review bid prices for the Kaupena-lalibu section with the Bank; final acceptance of this component is subject to 112 rate of return after receipt of bid prices (para. 77). PAPUA NEW GUINEA wAs r TRANSPORT IMPROVEMENT SELCp/KX EAsT sEPIK< -3- tape Wewak M A NUS r-- mA D A N G ---- WE Ew Modang - JAW HAGHLANDS O%k4 '--4Cu~'f. - - 1~li U .UI ..... WO l SOUTHERNV . HIGHLANDS ---r --~ EASTERN * HIGHLANDSj MOROBE! Kikori nu \Ase0 WESTERN Bereina p/ *ý opondetto '.K-Kd D%r GUL F PORT MORESBY NATIONAL HIGHWAYS I HIRITANO HIGHWAY ENGA HIGHWAY CENTRA I MAGI HIGHWAY ® HIGHLANDS HIGHWAY 0 40 80 120 160 Kupmano @ NORTHERN (ORO) HIGHWAY ® RAMU HIGHWAY KILOMETERS 1 NATIONAL HIGHWAY 0 COASTAL HIGHWAY MIL ES 40 60 80 100 SOUTHERN HIGHLANDS HIGHWAY @ NEW BRITAIN HIGHWAY 147° IBRD 19553 150. 153' AJECT +^v in TABOR ISLANDS LIHIR GROUP NEW IRELAND AAII~TAt4GA ISLANDS NEW /RELAND Normatanoo SRoboulISANDS RabaulBOUGAINVILLE T NE W 8 RITA/N \ I L Biollo T la s mc Hoskins *~suvusi l Kimbe IU (I * NEW BRITAIN PROPOSED PROJECT E i A s r Highwaiys Sections *NEW BRITAIN ~pOt I PREVIOUS PROJECTS I Rood Construction and Improvement * FIRST PROJECT LOAN 693 CREDIT 204 PNG fSECOND PROJECT CREDIT 677 PNG I *1 THIRD PROJECT LOAN 1856 CREDIT 1030 PNG LRoad Improvement Project Loan 1265 PNG -~ - -. -~ - - - ~Projects by Other Agencies 2RrHERN Future Major Roads (National) A National Roads I KiMna0Major Provincial Roads / MILNE BAY Rivers / Mountainous Areas (2,000 - 3,000 Moters) *Ba Province Boundories - - International Boundaries II / PHILIPPINES rho. MMP hal0 bawfou br TANGAPIPUA N W INEA for swl C or the we m a#.ieThe r4w 9M, I N D 0 N E S I A FENI I19ANDS -0 01111 _V b .1 -IIV.OUG.A INVILLE , ur,y Buvusltf A NE BRITAIIN :50 NEaR/AN irot PREVIOUPAR PROECT l