Niger - Transport Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY a h6. / C - 7,!? /C;-(g ivrz Report No. P-4219-NIR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 13 MILLION AND A PROPOSED AFRICAN FACILITY CREDIT OF SDR 13 MILLION TO THE REPUBLIC OF NIGER FOR A TRANSPORT SECTOR PROJECT May 7, 1986 This document has a restricted distribution and may be used by recipients only in the performance of their officizl duties. Its contents may not otherwise be disclosed without World Bank authorizat'on.  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1.00 = CFAF 360 WEIGHTS AND MEASURES Unless otherwise stated, all weights and measures in this report are in International System (SI) units. 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.62 miles 1 kilogramme (kg) = 2.205 pounds 1 ton (t) = 2,205 pounds FISCAL YEAR October 1 - September 30 ABBREVIATIONS AND ACRONYMS AfDF - African Development Fund ABEDA - Arab Bank for Economic Development in Africa BCEAO - Banque Centrale des Etats de l'Afrique de l'Ouest BGR - Bureau de Gestion Routiare (Road Management Unit) CCCE - Caisse Centrale de Cooperation Econamique CFA - Communaute Financiere Africaine (African Financial Community) CILSS - Comite Inter-Etat de Lutte contre la Secheresse au Sahel CIDA - Canadian International Development Agency DTT - Direction des Transports Terrestres (Department of Land Transport) DMTP - Direction du Materiel des Travaux Publics (Department of Equipment) DTP - Direction des Travaux Publics (Department of Public Works) EDF - European Development Fund IDB - Islamic Development Bank MITPH - Ministare des Travaux Publics et de 1'Habitat (Ministry of Public Works and Housing) OPEC - Organization of Petroleum Exporting Countries SAF - Special African Facility SAL - Structural Adjustment Lending SJF - Special Joint Financing SNT - Syndicat National des Transporteurs SNTN - Societe Nationale des Transports Nigeriens (Nigerien National Transport Company) UNSO - United Nations Sudano-Sahelian Organization USAID - United States Agency for International Development v.p.d. - vehicles per day  FOR OMCIAL USE ONLY NIGER TRANSPORT SECTOR PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Niger. Beneficiary: Ministry of Public Works and Housing. IDA Credit Amount: SDR 13 million (US$15 million equivalent). Special African Facility Amount: SDR 13 million (US$15 million equivalent). Terms: Standard IDA terms. Project Description: The main objective of the project is to assist the Government in implementing its transport sector stra- tegy which was developed as part of its Structural Adjustment Program. This strategy aims at the fol- lowing objectives: (a) redirecting public expendi- tures to highest priority activities; (b) increasing user cost recovery; and (c) consolidating the insti- tution building initiated under previous IDA proj- ects. To achieve these objectives, the project will sup- port: (a) Policy actions by the Government including: (i) adoption of a detailed four-year expend- iture program for the sector, including both investment and recurrent costs; (ii) adoption of economic selection criteria for new subprojects to be implemented through this program; (iii) annual implementation reviews and adop- tion of agreed annual work programs; (iv) annual revision of equipment rental rates; and (v) implementation of an agreed action plan to improve cost recovery; (b) Financing of priority civil works on the highway network consisting of: 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.  - ii - (i) annual resurfacing and strengthening pro- grams on paved roads; (ii) annual regravelling programs on unpaved roads; (iii) rural and secondary road construction; (iv) construction of major high priority roads and bridges; (v) routine maintenance of the whole network; and (vi) consultant services for the preparation of pre-investment studies, detailed engi- neering, and supervision of items (i), (iii), and (iv) above; (c) Procurement of road maintenance equipment, work- shop equipment and workshop rehabilitation; and (d) Institutional development, including technical assistance, support for operating costs, and studies. Rate of Return: With the exception of ongoing activities, no construc- tion or rehabilitation projects would be included -in the program unless they can be shown to have rates of return exceeding those calculated for periodic mainte- nance, which range from 14% to 130%. Secondary and rural road construction would be limited to roads with rates of return not less than 10%. Project Benefits: Policy changes to be implemented under the project would improve revenue performance and resource allo- cation; in particular, they would bring allocations for road maintenance into line with future needs. The institution building component would enhance the capacity of the Ministry of Public Works in road man- agement, equipment management, and staff development. The project's economic benefits are principally de- rived from a reduction in vehicle operating costs on the present road network. Additional, non-quantified benefits would be derived from the project's contri- bution to road safety and reduction in travel time. Timely replacement of the Gaya Bridge over the Niger river would assure the country's continued access to its principal external supply route from the coast. Secondary and rural road improvements would encourage additional agricultural activity by providing trans- port links between food producing and consuming  - iii - areas. A pilot program in labor-based construction would also strengthen community self-help capacity. Project Risks: The msin risk is that the Government may not be able to provide sufficient local funds for routine road maintenance or for counterpart funding for foreign- financed investments. Specific cost recovery meas- ures to minimize this risk have bean included in the project as well as in the Structural Adjustment Pro- gram. Other risks include inadequate revenues from equipment rental, and failure to implement the pro- posed action plan to raise road user charge revenues. Particular attention, however, would be paid to these aspects during project supervision. Planned Investments and Recurrent Expenditures (1985/86 - 1988/89) Million US$ Local Foreign Total Construction: Primary Roads 12.7 38.1 50.8 Secondary Roads 3.6 10.8 14.4 Rural Roads 2.9 8.9 11.8 Rehabilitation and Periodic Maintenance 16.2 48.7 64.9 Equipment and Workshops 0.8 7.1 7.9 Consulting Services 1.8 3.5 5.3 Investment Sub-Total 38.0 117.1 155.1 Routine Maintenance 7.3 13.8 21.1 Program Sub-Total 45.3 130.9 176.2 Price Contingencies 9.4 27.3 36.7 Total Program Expenditures 54.7 158.2 212.9 - O  - iv - Sumuary Financing Plan US$ million Government 27.6 IDA/SAF Transport Sector 30.0 Special Joint Financing (Japan) 20.0 IDA Feeder Roads 1.7 IDA Fourth Highway 3.0 Confirmed Financing EDF 39.4 AfDF 16.8 IDB, Saudi Fund, ABEDA, OPEC Fund 24.2 CIDA 19.6 CCCE 7.8 UNSO/Norway/Italy 11.4 UNDP 0.5 Financing to be identified: 10.9 212.9 Estimated Disbursements (US$ million equivalent) FY1987 FY1988 FY1989 FY1990 FY1991 FY1992 FY1993 IDA Credit Annual 0 0 0 0.5 8.0 5.0 1.5 Cumulative 0 0 0 0.5 8.5 13.5 15.0 SAP Credit Annual 3.0 10.0 2.0 - - - - Cumulative 3.0 13.0 15.0 - - - Staff Appraisal Report No.: 5980-NIR Map: IBRD 19198 - Transport Sector Project  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT AND A PROPOSED AFRICAN FACILITY CREDIT TO THE REPUBLIC OF NIGER FOR A TRANSPORT SECTOR PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Niger in an amount of SDR 13 million (US$15 million equivalent) on standard IDA terms to help finance a Trans- port Sector Project. It is proposed to supplement this credit with a cred- It of SDR 13 million (US$15 million equivalent) from the Special Facility for Sub-Saharan Africa (the Special African Facility), established by Reso- lution No. IDA 85-1 of May 21, 1985. The purpose of both credits is to help finance a Transport Sector Project. PART I - THE ECONOMY I/ 2. This section is based on findings of the missions in 1984-85 that prepared the first Structural Adjustment Credit to Niger (Report No. P-4185- NIR). Annex I contains country data. Structural Characteristics of the Economy 3. With an ares of 1.27 million km2 , Niger is about 2.5 times the size of France. It is a landlocked country, and its closest access to the sea is 600 km from the southern border. The population is estimated at about six million and growing at 3Z a year, which is above the average for Sub-Saharan Africa. Nearly 90% of the population is concentrated In a thin band along the southern border, in the 12% of the land that is considered arable. Rainfall is limited and often irregular, while soil fertility is low and declining, due to intensive use. Niger is one of the poorest countries of the world, with a per capita GNP of US$190 in 1984. The life expectancy at birth of 45 years is low, even by African standards. High infant and child mortality rates account for 60% of all deaths in the country. In 1984, the adult literacy rate was only 14% (8% for women), and the primary school enrollment ratio not more than 25%, one of the lowest in Africa. 4. The Nigerien economy has traditionally been dominated by subsist- ence agriculture, with millet and sorghum taking up 80% of the cultivated area. Livestock also provides an important source of income and export 1/ Parts I and II are substantially the same as those in the President's Report for the Health Project (Report No. P-4216-NIR) which was approved by the Executive Directors on March 20, 1986.  - 2 - receipts. Except for the Sahelian drought periods, the country has always been self-sufficient in food production, despite its very limited agricul- tural resource base. The discovery of large uranium deposits in the late 1960s triggered the development of an important mining sector in Niger. Under highly favorable conditions in the world market for uranium during the late 1970s, the mining sector expanded rapidly; uranium became the country's principal foreign exchange earner and a major source of govern- ment revenues. As a result, Niger went through a period of rapid growth and modernization, and the public sector took a dominant position in the modern economy. The uranium boom ended in the early 1980s, when prices dropped and Niger's production decreased. Consequently, the share of the mining sector and the modern sector in the economy both declined signifi- cantly. 5. Niger has traditionally maintained an open economy, exporting and importing about 25Z of its GDP. Strong trade links exist with Europe (mainly France) and neighboring African countries (particularly Nigeria). This openness has been facilitated by the West African Monetary Union, of which Niger is a member. The Union's central bank (BCEAO) issues a common currency for its member states, the CFA franc. Its full convertibility into French Francs, at a fixed rate of CFAF 100 = 2FF, is guaranteed by the French Government. In return, the monetary union imposes discipline over the monetary and balance of payments policies of its member countries. Past Economic Developments 6. During the first half of the seventies, Niger exhibited all the features of a resource-poor Sahelian country. Economic performance was dependent on a limited number of crops and livestock, which were severely constrained by poor soils and unfavorable climatic conditions. This was dramatically illustrated in 1972 when devastating droughts caused a sharp decrease in crop production and in the livestock herd. During the second half of the seventies, Niger's economic performance improved significantly, and real GDP grew at an average 7% per year. The growth of the rural sec- tor accelerated, due to the favorable weather conditions and a successful herd rehabilitation program. The uranium sector went through a boom, boosting the share of the mining sector in GDP from 6% in 1975 to 13% in 1980. 7. This favorable economic performance ended abruptly in the early eighties as a result of two factors. First, real export prices of uranium fell by more than 50% between 1979 and 1982. Uranium export earnings stopped growing and uranium revenues dropped from 25Z of government reve- nues in 1980 to 14% in 1983. Second, agricultural production was hampered by unfavorable climatic conditions, forcing Niger to increase food imports. As a result of these developments, real GDP stagnated in 1981 - 1982 and declined by almost 3% in 1983. This slowdown in economic activity was ac- companied by the emergence of sizeable fiscal and external deficits. Bud- getary revenue, which had peaked at 13% of GDP in 1981, fell to 10% of GDP in 1983, reflecting the heavy dependence of revenues on the modern sector and on international trade. Public expenditures, on the other hand,  - 3 - continued to grow. Consequently, the budget deficit averaged 9% of GDP over the 1980/81-1982/83 period. At the same time, the external current account deficit (including official grants) averaged IOZ of GDP. Export revenues of uranium as well as livestock products stagnated and, when ex- pressed in US dollar terms, decreased substantially. 8. When the uranium boom came to an end, a number of serious defi- ciencies in the structure of the economy became evident. First, during the uranium boom, the Government used the public expenditure program as the primary instrument for allocating financial resources in the economy and for generating economic growth. Public investment focused on infra- structure and building projects, while agricultural investment encountered serious problems. Recurrent expenditures favored personnel and transfer payments over operation and maintenance, to the detriment of existing infrastructure and basic public services. These imbalances were exacerbat- ed in the early eighties by rapidly increasing interest payments on public debt, a decline in tax revenues, and inadequate cost recovery for public services. Second, although uranium revenues started to decline in 1981, the Government continued to implement its ambitious development plan by relying increasingly on external borrowings. To finance growing budget and external deficits, the country accumulated a heavy foreign debt, which rose to US$915 million at the end of 1984, or 65% of GDP. A substantial share of this amount was committed on commercial terms. Without debt relief, the debt service ratio would have risen to 45% in J984. Third, during the late seventies, public enterprises proliferated into uneconomic activities and acquired privileges that discouraged private sector development. Many of them incurred substantial operating losses and became a drain on the gov- ernment budget and the financial sector. This negative performance was caused by government regulatory policies in the areas of pricing, marketing and employment, by excessive government interference in day-to-day manage- ment, and by lack of qualified personnel and inadequate accounting practices. Finally, the rural development strategy which the Government pursued over the last ten years to achieve food self-sufficiency was imple- mented through expensive large-scale projects, using unproven technology and heavy institutional infrastructure. The Government intervened actively in input, product and financial markets, to overcome perceived weaknesses in private sector activities. This distorted market incentives for ag- ricultural production and caused substantial budgetary outlays. 9. The Government began addressing some of these problems in the 1982/83 budget year, by taking austerity measures such as a freeze in wages ard salaries, cutbacks in expenditures for material, supplies and invest- ments, and tighter control over foreign borrowings. A stabilization pro- gram was initiated and supported by three IhF Standby arrangements, the last of which was approved in November 1985. Debt rescheduling agreements were reached with the Paris Club in November 1983, 1984 and 1983, and with the London Club in early 1984. The objectives of the stabilization program are to: (i) improve the tax effort; (ii) limit the growth of current ex- penditures; (iii) reduce and restructure investment expenditures; (iv) reduce the Government's domestic arrears; (v) improve the financial performance and limit the size of the parastatal sector; (vi) liberalize  - 4 - marketing and trading policies; and (vii) restrain foreign borrowing. Implementation of this program has been satisfactory, despite the impact of the recent drought on public expenditures and the balance of payments. By 1985, the current account deficit had been reduced to 3.6% of GDP and the budget deficit to 4.9Z of GDP. The reduction in the budget deficit re- flects mainly a substantial cutback in investments; efforts to limit and restructure current expenditures or to increase revenues were less success- ful. The reduction in the current account deficit was to a great extent the result of a sharp decrease in imports, brought about by demand manage- ment policies. 10. Real GDP, however, continued to fall in 1984 for the third conse- cutive year. The sharp decline of 16% was due primarily to a serious drought, which resulted in a 30-40X decline in food crop production and in a 40% loss in the livestock herd. Other factors with a negative impact on GDP were the closure of the Nigerian border for almost a year and the reduced level of public expenditures. GDP growth resumed in 1985, estimat- ed at 7.1%, due mainly to a strong recovery of the rural sector following abundant rainfall. It is expected that the recovery of the economy from the drought will continue. Niger's Development Prospects 11. In the present circumstances, Niger faces a double challenge. First, the country has to overcome the financial imbalances and structural weaknesses that are the legacy of the uranium boom. Second, it has to de- velop its economy on a narrow resource base, as regards both physical and human resources. The recent decline in real GDP clearly indicates the need to complement continued austerity with policy measures that allow the coun- try to restore a minimum acceptable level of growth. The focus, thus, should be on improving the efficiency with which existing resources are utilized, while efforts continue to expand the productive base of the economy. This will necessitate further development of the agricultural sector and of Niger's human resources, in combination with an active pro- gram to slow down population growth. 12. Structural Adjustment Program. To improve economic growth pros- pects while keeping budgetary and external imbalances at sustainable lev- els, the Government of Niger has complemented its ongoing stabilization efforts with an adjustment program aimed at overcoming the structural prob- lems in the economy. The adjustment program focuses on increasing the ef- ficiency of existing investments, improving policies for more efficient future investments, and reorienting policies for strengthening the coun- try's human and physical resources. The first phase of this program focus- es on policy improvements in three areas where problems are most acute and where policy change would have the greatest beneficial impact on the bud- getary and balance of payments position: (i) public resource management, (ii) parastatal reform, and (iii) agricultural policy. IDA is supporting the program through a structural adjustment credit, approved in February, 1986.  13. Under the adjustment program, a more efficient use of budgetary resources will be pursued to better utilize existing investments, expand essential services and strengthen the basis for future economic develop- ment. A th-ree-year budget program has been adopted for the period 1985/86- 1987/88 reflecting: (i) restructured recurrent expenditures with increased allocations for operation and maintenance, a freeze in personnel expendi- tures in real terms and reduced transfers to consumers; (ii) restructured investment expenditures, with more emphasis on directly productive invest- ments, human resource development, and rehabilitation of existing infra- structure; (iii) expanded domestic resource mobilization through cost re- covery efforts; and (iv) improved external debt management. This budget program will be reviewed and rolled over annually. 14. The Government's parastatal reform program, which is designed to increase the efficiency of public enterprises as well as to encourage pri- vate investment, covers three areas: (i) revisions in incentive policies; (ii) improvements in the legal and institutional framework for the para- statal sector; and (iii) rehabilitation, privatization and liquidation pro- grams for individual enterprises. In this context, price and trade con- trols have been considerably relaxed, legislation clarifying the relation- ship between the state and individual enterprises has been adopted, and rehabilitation of the most important enterprises has been initiated. Privatization or liquidation efforts are underway for other public enter- prises. 15. The Government has reformulated its rural development strategy and supporting policies to improve the efficiency of its interventions in this sector and to limit their budgetary impact. First, the sectoral in- vestment program is being reoriented, emphasizing quick-yielding, small- scale productivity projects, farmers' participation, and rehabilitation of existing infrastructure. Second, the operations of the cereals marketing and storage agency have been limited to the management of a reduced securi- ty stock; its price stabilization role has been eliminated. Third, sub- sidies on agricultural inputs are being curtailed in order to expand their availability and limit the budgetary impact. Fourth, a reform program of the agricultural credit system, which had practically collapsed under se- vere financial strains, has been initiated. Finally, the agricultural re- search program is being reoriented towards more applied research at the farm level and more farm systems research, in order to strengthen the basis for longer-term agricultural growth. 16. Expansion of Resource Base. The structural reform measures are expected to reduce the policy impediments to higher and more productive utilization of the country's existing resource base. However, this re- source base is small and the extent of supply responses to the improved policy framework is uncertain because of Niger's low level of development. A necessary corollary to the policy reforms, therefore, is a concerted ef- fort to reduce the country's severe resource constraints and expand the productive base of the economy. This relates primarily to a further devel- opment of the agricultural, industrial and energy sectors, and to an accel- erated development of Niger's human resources.  - 6 - 17. The longer-term prospects for agricultural development in Niger are uncertain, given the low and diminishing fertility of the soil and the unstable climatic conditions in the Sahel region. Food self-sufficiency in the eighties and beyond can only be achieved through a gradual improvement in yields on land that is already under cultivation. Better use of modern agricultural inputs, the development of small-scale irrigation schemes, and applied research on rainfed agriculture will be important for the future development of Niger's rural sector. In industry, development is handi- capped by the limited size of the domestic market, the landlocked position of the country, and the lack of local raw material resources. Never- theless, private initiative should be encouraged by improved promotion and incentive policies. Finally, the development potential in energy and mining should be better assessed by geological surveys and exploration activities. An important coal deposit was identified in 1983, but high transportation costs cast serious doubts on the economic viability of its development. Similarly, small oil reserves have recently been discovered, but their exploitation appears to be uneconomical at this stage. 18. Developing human resources is crucial for future economic growth in Niger, although investments in this area have a very long gestation pe- riod. Primary education will have to be expanded as a first priority. Further expansion of post-primary education-including professional and vocational training-should be based on a careful assessment of expected resource availability and estimated future needs for trained manpower. Health programs should focus on improving basic health services in the ru- ral areas and on preventive rather than curative health care. Finsaly, the current rate of population growth of 3Z a year puts unbearable pressure on the country's scarce resources, and on budgetary allocations for public services. Therefore, Niger's development program has to be accompanied, as a matter of great urgency, by an active policy of reducing population growth. 19. To further these development objectives, a major effort will be required, both on the part of Niger and its aid donors. The Nigerien Gov- ernment needs to continue its careful review of investment strategies and to make adequate courterpart financing available for project implementa- tion. External financial assistance would have to increase in volume and be provided on highly concessionary terms, preferably in the form of grants, in light of the country's external debt situation. Aid coordination needs to be strengthened to ensure that assistance projects are in line with the Government's adjustment and development strategies. In addition, Niger requires increased non-project assistance to support policy reform, and donors should consider recurrent cost financing. In view of the government budget constraints, which are expected to persist, donors should continue to finance local costs. Finally, in order to keep Niger's debt service burden manageable in the future, donors should be prepared to consider sup- plementary measures of debt alleviation.  PART II - BANK GROUP OPERATIONS IN NIGER 20. Twenty-eight IDA credits have been approved for Niger as of March 31, 1986, for a total amount of US$331.5 million equivalent. There has been one IFC investment, in the amount of US$2.2 million. Ten IDA credits, amounting to US$100.9 million, were for the rural sector (drought relief, rural development, forestry, irrigation and livestock). Seven credits have been for transport; these are discussed in para. 43 below. Eight other credits covered telecommunications, education, power and indus- trial development, and economic and financial management assistance to the Government. During the current fiscal year, the Executive Directors have approved Development and Special Africaa Facility Credits of US$20 million and US$40 million respectively in support of the Government's Structural Adjustment Program and a US$27.8 million equivalent Development Credit in support of a Health Project. Annex II contains a summary statement of Bank Group Operations in Niger as of March 31, 1986. 21. While the Government's macroeconomic performance in recent years has been quite satisfactory, experience with project preparation and imple- mentation has been mixed. The Second Maradi and Dosso Rural Development Projects (Credit Nos. 1026-NIR and 967-NIR) have encountered major diffi- culties due to inadequate institutional arrangements, managerial problems, a lack of proven technical packages for rainfed farming, high investment and operating costs of irrigation, and poor credit recovery. These proj- ects, as well as the First Livestock Project (Credit No. 885-NIR), have also been affected by cumbersome administrative procedures and the recent severe drought. To assist the Government in alleviating the effects of the drought, the Association amended several ongoing agricultural projects to finance seeds and destocking of herds. Highway and feeder road construc- tion projects have been and are being implemented on schedule. Social infrastructure projects, on the other hand, have suffered some delays, largely because of the inexperience of implementing institutions. In the early 1980s, project implementation was also adversely affected by the shortage of counterpart funds which resulted from the Government's finan- cial difficulties. Under the Special Action Program, the financing plan of several projects was revised to reduce required government contributions, which had originally been set during the uranium boom period, in line with the more limited resources available in the mid-1980s. Also, revolving funds were introduced to help accelerate disbursements. Reflecting the difficulties faced in the early 1980s, the disbursement ratio dropped from 59Z in FY80 to 16% in FY83. The ratio increased to 26Z In FY84 following the introduction of the Special Action Program. The disbursement ratio of 23Z in FY85 is slightly below the ratio for Senegal (26%) and Mali (28%), but significantly higher than that for Burkina (13%), all Sahelian coun- tries at a similar level of development. 22. IDA's lending program in recent fiscal years has consisted of an average of two projects per year amounting to about US$20 million. The program has been small largely because of difficulties in project prepara- tion. The strong policy dialogue that has developed over the last -ears between IDA and the Government, in combination with Niger's eligibility  - 8 - under the Special African Facility, have led to a substantial increase in lending. This increased lending level is expected to be maintained in the coming years, provided that the Government remains successful in formulat- ing and implementing a program of comprehensive policy reform. 23. Future IDA operations will continue to support the Government's adjustment process. They will also assist the Government in addressing longer term development constraints, particularly those related to agri- culture and human resource development. Lending instruments have been di- versified to include structural adjustment and sectoral operations. De- pending on the success of the Government's efforts to implement the first phase of the structural adjustment program, additional structural adjust- ment credits will be proposed in the future to extend the reforms to other areas of the economy. In addition, sector-based lending operations would assist the Government in implementing its sectoral strategies, in particu- lar through: (i) revised sectoral investment programs which emphasize re- habilitation and cost-effectiveness; (ii) restructured recurrent expendi- ture budgets which focus on efficient operations and maintenance; and (iii) additional cost recovery measures. Project lending operations will aim to assist the Government both in increasing the efficiency of resource use and in expanding the country's productive base. 24. Recent and future IDA operations reflect this approach. The Ir- rigation Rehabilitation Project, approved in FY85, focuses on the rehab- ilitation of existing infrastructure and on increased cost recovery in ir- rigated areas. A similar sectoral approach is being taken in the recently approved health project and in the proposed transport project. It will also be proposed in an upcoming energy project. An education project, which is expected to be submitted for consideration by the Executive Direc- tors in the next fiscal year, will focus on improving the efficiency and effectiveness of the primary education system. A planned public enterprise rehabilitation project will provide technical assistance and training for the implementation of the ongoing parastatal reforms and will finance the rehabilitation of key public enterprises. Priority will continue to be given to agriculture, the key sector for future growth of the country. Due to the absence of appropriate technologies for rainfed cultivation, it is difficult to determine at the present time how agricultural production could be strengthened in the long term. The Government is, therefore, for- mulating a new agricultural research strategy in connection with its struc- tural adjustment program. As a first step, IDA will assist in the imple- mentation of this strategy through an agricultural research project. Sec- ond, a number of new production approaches will be tried through a small rural operations project that will test various agricultural input packages under different climatic and soil conditions.  - 9 - PART III - THE SECTOR General 25. Adequate transportation is critical to Niger's current economy as well as to its future development. Niger is a landlocked country whose closest access to the sea is 600 km from its southern border. There are vast stretches of nearly empty land between major population centers, par- ticularly in the north. High transportation costs, among other things, constrain the competitiveness of Niger's products on the world market and limit its capacity to develop its resources. They also add to the costs of delivering goods and services to far-flung urban centers and to a sparse and scattered rural population. 26. Niger's transport infrastructure consists of about 18,500 km of roads and tracks, five domestic airports, and the Niger River which is used only for small amounts of local traffic. Roads are the most important mode of transport and have absorbed a significant share of public investment since the country's independence. Roads account for 99Z of planned govern- ment expenditur' s in the transport sector during the next three years. Government's planned investments in air transport are limited to improving navigation and safety. The country has no railway or ports. Plans to de- velop river transport have been indefinitely postponed. 27. Through an extensive program of transport sector investments which has been supported by the Bank through a series of credits, the Gov- erment has substantially fulfilled its initial objectives of creating a road network that links the country's main centers of production and con- sumption, and setting up a road management and maintenance system. As part of its financial stabilization program in recent years (see para. 9), the Government revised its sectoral objectives to: (i) complete ongoing op- erations; (ii) conserve existing infrastructure; and (iii) integrate isolated areas into the economy. Under the Government's structural adjust- ment program, these objectives remain substantially the same, but with an even greater emphasis on the preservation of the existing network. 28. Basic policies are formulated and decisions on transport invest- ment are made in principle by the Ministry of Planning, which also coordi- nates external financing. These policies and decisions are subject to the approval of the National Council for Development. Until recently, all planning for transport development took place within the Ministry of Public Works, Transport and Urban Development, which controlled the Department of Public Works, the Department of Land Transport, and the Department of Civil Aviation. In 1983, however, the Department of Land Transport (DTT) was transferred to the Ministry of Commerce, which became the Ministry of Com- merce and Transport. Although legally responsible for transport sector planning, DTT has been chronically short of staff and resources and has barely been able to fulfill its routine responsibilities. Under the Fourth Highway Project, IDA has supported the development of capacity for the planning, management and maintenance of the road network within the Department of Public Works (DTP) of the Ministry of Public Works and Housing (TPHI).  - 10 - Road Network 29. Niger's classified road network, defined in 1968/69, consists of 6,758 km of national roads. There are, in addition, some 12,000 km of un- classified roads and tracks. Since 1969, the main road network has been continuously expanded and-upgraded. In 1984, the road network for which DTP is responsible stood at 9,637 km. Operation and maintenance of the 697 km Tahoua-Arlit road have been contracted out to a subsidiary of the uranium mining consortium. Presently, DTP directly maintains a "priority network" of about 7,000 km, including 2,609 km of paved roads, 3,760 km of gravel roads, and approximately 600 km of improved rural roads. 30. The network is concentrated in the south where the majority of the population and most of the economic activity are found. The nearly uninhabited areas of the north are only sparsely served (Map IBRD 19198). Niger's terrain is mostly flat or undulating and apart from the River Niger, normally presents no major physical barrier to land transport. Rainfall, though scarce, can be intensive, and rapid runoff leads to occa- sional flash flooding which may cause serious damage to structures. The generally sandy soils provide a good foundation for road construction, but in some areas base course material is scarce or must be moved over long distances in order to build or resurface roads. Loose, blowing sand has recently become a problem in the north, adding considerably to the costs of routine road maintenance. Traffic 31. Traffic counts have been carried out on the road network in three campaigns since independence. Between 1964/65 and 1976/77, traffic growth averaged about 8% per year. Based on recent traffic counts, it appears that traffic has grown more rapidly in recent years. Preliminary results indicate an average growth rate of 22% per year on paved roads and 20Z on unpaved roads from 1976/77 to 1984/85. Even so, traffic levels are still modest; the most heavily trafficked roads have less than 1,000 vehicles per day. Light vehicle traffic has, in general, grown faster than heavy vehi- cle traffic. 32. From 1970 to 1976, the vehicle fleet exhibited a steady growth rate of about 10% per year. This rate rose to around 14% in 1977-1980 but has since declined to less than its 1976 level. Fuel consumption statis- tics also show a distinct declining trend since 1980, corresponding to the general decline in economic activity during this period. A further expla- nation of this trend lies in the ready availability of cheaper fuel from northern Nigeria, the consumption of which is not included in official sta- tistics. Transport Industry 33. Niger has an active and diversified trucking industry which has benefited slubstantially from past improvements in the road network. Of the roughly 1,000 trucks engaged in public freight transport, about half are  - 11 - owned and operated by the Nigerien National Transport Company (SNTN), a commercially viable organization with mixed public/private ownership. The rest are owned by some 350 small private truckers, most of whom own only one or two vehicles. Smaller truckers are grouped in the National Union of Transporters (SNT). Public passenger transport within and between urban areas is largely provided by private operators of taxis, vans and mini- buses. Rural areas are served, where roads exist, by "bush taxi" and trucks. Pedestrian and animal transport are also significant. 34. SNTN handles much of the long-distance freight traffic, including all of the uranium-related imports and exports. It also operates urban and intercity bus lines. SNTN's performance was reviewed in 1984 by IDA consultants and it was found to be well managed, efficient and financially sound. SNTN is fully autonomous and obtains most of its work through con- tracts in competition with the active private sector. As part of the Gov- ernment effort to reduce its direct involvement in economic activity, under the structural adjustment program, the Government is committed to reduce its equity share in SNTN. 35. The Government does not enforce tariffs for road transport, ex- cept for the transport of petroleum products. However, it does provide official rates which serve as a ceiling on actual charges. Some types of long-distance freight originating at the railhead in Parakou (Benin) are subject to tariffs imposed by the bi-national organization that operates the Cotonou-Parakou railway. For domestic freight, tariffs are usually ne- gotiated on a case by case basis. The prevailing competition among truck- ers means that most of the savings in vehicle operating costs due to road maintenance will be passed on to consumers. This is also true for passen- ger transport. Public Expenditures and Subsector Financing 36. Public investment in the roads subsector peaked in 1979-80. cor- responding to the major paving program undertaken when uranium revenues swelled the National Investment Fund. Periodic maintenance of paved and gravel roads is included in the investment budget rather than in the re- current expenditure budget, and is largely financed from external assist- ance. In recent years, due to declining revenues, the Government has not allocated sufficient operating funds for routine maintenance and regravel- ling carried out by force account brigades. Meanwhile, financial require- ments for road maintenance have grown in response to expansion of the net- work under maintenance and increasing equipment and operating costs. 37. The expenditure program agreed under the structural adjustment program, in addition to the road investment program, includes government expenditures on routine road maintenance amounting to CFAF 5.5 billion over the 1985/86-1987/88 period. This amount is less than the needs foreseen under the ongoing Fourth Highway Project (Credit 1394-NIR) and will not be sufficient to maintain the present network in good condition. However, the agreed road maintenance budget represents a major increase (192 in each year) over the funds allocated in 1984/85 to road maintenance, and is an  - 12 - appropriate allocation of resources given current financial constraints. This project would provide budgetary support to allow the full routine maintenance program to be carried out. Maintenance budget allocation re- quirements under Credit 1394-NIR will be modified to conform to those agreed under the structural adjustment program. Organization and Planning 38. The Ministry of Public Works and Housing (MTPH) is responsible for managing Niger's road network. It carries out this responsibility through several well-functioning departments, including Public Works (DTP), Equipment (rMTP) and the National Laboratory. Planning, economic evalu- ation, design, costing, Frocurement, construction supervision and mainte- nance are the responsibility of DTP. For major improvement projects, DTP employs consultants for planning, economic evaluation and design studies, and for construction supervision. The monitoring and control of the con- sultants by DTP is satisfactory. Minor improvement projects are prepared by the DTP studies section, and supervised by the district engineer con- cerned. 39. Responsibility for data collection and analysis leading to the formulation of annual plans and work programs for periodic road maintenance rests with the Road Management Unit (BGR) in the Department of Public Works. Planning for rural road improvements is done within the Feeder Roads Division, which operates three construction brigades established under the IDA-financed Feeder Roads Project (Credit 886-NIR). Secondary roads improved under the United Nations Sudano-Sahelian Organization (UNSO) project in the past have been selected by Government according to social and political priorities. Under the proposed project, however, economic criteria will be introduced in the process of selection of secondary roads for rehabilitation. 40. Periodic maintenrace of paved roads is executed by expatriate and local contractors, with consultant supervision. Periodic and routine main- tenance of gravel roads is executed by four force account crews which cover the whole country. Recurrent maintenance is planned and executed by the public works districts and subdivisions. Quality of works is good but the quantity accomplished annually is less than adequate, primArily because of decreased budget allocations to these items in recent years. 41. DMTP is a semi-autonomous agency, within the Public Works Minis- try, responsible for the establishment, management and repair of the equip- ment fleet of the Ministry. Road maintenance activities have first priori- ty in the use of DMTP's equipment, but available equipment can also be rented to other agencies, local authorities, or even private contractors. In recent years, the Government has not increased the rental rates as needed to cover the rising costs of equipment, and this deficiency has not been made up by the subsidy component of the department's budget. The fleet and workshops have therefore deteriorated and some of the equipment is now in need of rehabilitation and replacement. Equipment rental rates will be increased in connection with the proposed project.  - 13 - User Charges and Cost Recovery 42. Road user charges in Niger presently cover more than the esti- mated annual cost of routine maintenance needs, but only a portion of peri- odic maintenance needs, which are expected to increase considerably in the next few years. Annual revenues f-om road user charges are currently esti- mated at about CFAF 4.3 billion, 75 of which is generated by fuel taxes. In contrast, annual maintenance expenditure requirements are expected to be about CFAF 7.6 billion in 1985 prices for the present network. An Action Plan will be prepared to increase revenues from road users to a level com- mensurate with annual maintenance needs (para. 52). IDA Involvement in the Sector 43. IDA has financed seven projects in the transportation sector in Niger: four highway projects, one road maintenance project, one feeder road project, and one project for airport improvement. Five of these projects were satisfactorily completed and the two ongoing projects are on schedule. Project Performance Audit Reports have been completed for the Highway Main- tenance Project and Second Highway Project (OED Report No. 1796 of Novem- ber 22, 1977) and for the airport project (OED Report No. 2689 of June 29, 1979). A Project Completion Report is available for the Third Highway Project (Report No. 5166 of June 28, 1984). In addition, IDA's successful experience with institution building for the transport sector in Niger was prominently featured in Institutional Development in Africa: A Review of World Bank Experience (OED Report No. 5085, dated May 17, 1984). PART IV - ROAD PROGRAM AND PROJECT Rationale for IDA/SAF Involvement 44. The structural adjustment program described above (para. 12) in- cludes sectoral strategies and targets for restructuring the Government's expenditure program and improving resource mobilization. The strategy and expenditure targets for the transport sector reflect substantially revised sectoral priorities. First, recurrent expenditures for road maintenance are being increased significantly to preserve the utility of existing in- vestments. Second, the share of the transport sector in the total invest- ment program has been reduced relative to previous years. No new con- struction is inc1.uded after ongoing projects are completed, except for eco- nomically viable, low-standard rural roads associated with agricultural projects and paving of the Niamey-Say road. The agreed targets for the structural adjustment expenditure program cover the implementation period of 1985/86-1987/88. The program covered by the proposed project extends this period by one year, through 1988/89. Project disbursements will cover the 1986/87 through 1988/89 annual programs. A program to expand cost re- covery in the transport sector is also included under the proposed project.  - 14 - 45. Project preparation began in January 1985 and appraisal took place in May 1985. However, the investment program for the transport sec- tor could not be finally determined until appraisal and subsequent nego- tiation of the Structural Adjustment Credit in September and December 1985 had established overall investment levels for the public sector and subsec- tors. The transport sector expenditure program envisaged under this proj- ect is in line with agreements under the Structural Adjustment Credit (para. 62). Negotiations for this project were held in Washington in March 1986. The Nigerien delegation was led by H.E. Mr. Moumouni Yacouba, Minis- ter of Public Works and Housing. The Staff Appraisal Report (No. 5980-NIR) is being distributed separately to the Executive Directors. A supplement- ary Project Data Sheet is given in Annex III. Objectives 46. The structural adjustment framework for sector investment plan- ning, combined with DTP's good record in Implementing previous IDA proj- ects, provides a sound basis for the proposed Transport Sector Project. The objective of this project is to assist the Government in implementing its sector strategy, which aims at: (a) redire_ting public expenditures for roads to highest prior- ity needs, mainly in routine and periodic road maintenance; (b) increasing road user cost recovery to a level commensurate with increased road maintenance needs; and (c) consolidating the institution building initiated under pre- vious IDA projects. Policy Component 47. The policy component of the project deepens and extends the bud- getary policy measures agreed between the Government and IDA in the context of the structural adjustment program. Under this project, the transport sector expenditure program is set out in detail for the first two years (1985/86 and 1986/87) and in an indicative fashion for the following two years (1987/88 and 1988/89). Subproject selection for the later years would be made according to criteria agreed under the project. Implementa- tion experience, annual work programs, and forward planning on a three-year rolling basis would be monitored through annual reviews with IDA. The structural adjustment program also includea a Government commitment to in- crease its contribution to recurrent road maintenance expenditures by 19Z per year over the period 1985/86 to 1987/88, considerably faster than any other item in the recurrent budget. While t .ls step is appropriate in light of Niger's financial constraints, it alone will not provide suffi- cient funds to meet routine maintenance needs for the whole network. This project extends the Government's commitment regarding increasing recurrent funds for road maintenance to 1988/89. and provides funds to fill the gap between government allocations and network needs on a declining share basis over the project period. Furthermore, under the structural adjustment  - 15 - program, the Government has made a commitment to improve its performance in cost recovery. Under this project, the Government would implement an Action Plan with the general objective of meeting all estimated maintenance expenditures through user charges by 1990, as discussed in para. 52 below. The Government would also make annual revisions of its equipment rental rates to recover full costs from users and to eliminate the present budget subsidy. 48. The Government has adopted a sectoral strategy statement under the structural adjustment program which spells out the priority to be ac- corded to maintenance and rehabilitation of the existing road network, fol- lowed by construction of economically justified secondary and rural roads. Under the structural adjustment program, the broad outlines of a public ex- penditure program were also agreed for the three budget years 1985/86 to 1987/88. In connection with this project, the Government has confirmed the composition of the transport sector expenditure program for the years 1985/86 to 1988/89, the detailed program for 1986/87, and the criteria to be used in selecting subprojects for each annual program during the project implementation period. 49. About six months before the beginning of each budget year during the project implementation period, the Government would review with IDA its implementation experience for the preceding year, progress on the cost re- covery action plan, policy changes implemented during the past year and policy choices to be made during the coming year, and would agree with IDA on the detailed expenditure and work program and cost recoverv targets for the following year, as well as on a three-year forward plan for investments and recurrent expenditures. The Government would submit to IDA by March 31 of each year the expenditure program, physical work program, and proposed cost recovery target for the following fiscal year, and the three-year for- ward plan. However, as the results of the Transport Study, which will pro- vide the required background information, will not be available until early 1987, the Government would not submit a cost recovery target for 1987/88 untl- June 30, 1987. Prior agreement with the Association on each annual work and expenditure program and on the cost recovery target for that year, and on the three-year forward plan, would be a condition for continuing disbursement for civil works for road construction and maintenance under the IDA and SAF credits. 50. A ceiling of CFAF 12 billion over four years would be set within the sector investment program for secondary and rural road improvements, including Phase III of the UNSO program. Selected subprojects would have a rate of return of not less than 10%. 51. The Government has allocated CFAF 1.53 billion for the recurrent costs of routine road maintenance in 1985/86 and has agreed, as noted, to increase this amount by 19% per year during the structural adjustment peri- od (para. 47). Thus, Government allocations will be CFAF 1.80 billion in 1986/6? and CFAF 2.16 billion in 1987/88. Under the proposed project, the Government would continue increasing this allocation at this rate through 1988/89, to CFAF 2.57 billion. In order to put the DMTP on a sound  - 16 - financial footing, the Government would also adopt a revised schedule of equipment rental rates for fiscal year 1986/87 as a condition of credit effectiveness and would adjust equipment rental rates annually thereafter. The rates would cover operating costs, maintenance and repair costs, and depreciation on the basis of replacement value. 52. During the project period, the Government will carry out a Trans- port Study financed under the Economic and Financial Management Improvement Project (Credit 1493-NIR). This study will be executed by consultants in close collaboration with an interministerial team of Nigerien economists, representing the Ministries of Comerce and Transport, Public Works and Housing, Plan, and Finance. The study will examine longer-term policies and perspectives for growth in the transport sector, with particular empha- sis on road transport, within the framework of structural adjustment and the agreed sector strategy. In particular, it will examine the relative merits of alternative proposals put forward by the Government as means to meeting its cost recovery targets. The Government would review with the Association the recommendations arising from the Transport Study and con- sult with the Association on follow-up actions required to implement them. The Government would also agree with the Association by June 30, 1987, on an Action Plan to increase budgetary revenues from road user charges to cover 100% of routine and annualized periodic road maintenance needs by 1990. This target means that revenues should be raised from an estimated CPAP 4.3 billion per year in 1984/85 to CFAF 11 billion per year in 1989/90, an increase of about 160% in nominal terms over the five-year period. The Government has already adopted fiscal measures that should result in a 35% to 40Z increase in road user revenues for 1985/86, and has agreed to further measures which should generate an additional 25% increase in 1986/87. Achievement of the cost recovery target depends partly upon changes in relative fuel prices between Niger and neighboring countries. Annual targets will be reviewed and, if necessary, revised in the context of the annual sector policy liscussions. 53. The Road Management Unit (BGR) is responsible for collection of data on road roughness and traffic, calibration and installation of the Highway Desigc and Maintenance Model, preparation of annual work programs for periodic maintenance using this model, collection of data on vehicle operating costs, road user charges and the road transport industry, and execution of a study of axle load characteristics. Under this project, the Government would consult with IDA on policy measures to control axle loads, based on the results of the BGR study. Physical Program 54. The program of works to be executed during the project period includes the routine and periodic maintenance of paved and gravel roads, bridge repair and replacement, rehabilitation and improvement of secondary and feeder roads, and ongoing construction projects. Within the planned expenditure program, approximately 36% would go to road maintenance, 8% to bridge works, 15% to rural roads, and 30% to ongoing projects. The remain- ing 11Z would be spent for equipment renewal, workshop rehabilitation, and  - 17 - institutional strengthening, as well as possible improvement of the Niamey-Say road. 55. Routine maintenance would be carried out for the whole of the 6,969 km priority network. The project would finance incremental expendi- tures required to bring government allocations up to needed levels. Proj- ect funds would be used to pay for imported fuel and spare parts. Re- gravelling would be carried out by four established force account crews. Additional regravelling would be carried out by contract, depending on the relative economic justification for this activity on specilfic road sections compared with other possible uses for sector funds. The regravelling pres- ently provided for in the program does not allow for the whole gravel road network to be covered at the desirable frequeT-:y of once every five years, but the planned investment would assure an adequate level of service con- sistent with overall funding constraints. Ls list of paved sections total- ling 923 km requiring strengthening and resurfacing has been evaluated by the BGR. The detailed priority of each section has been established, based on an analysis using a simplified version of the Bank's Highway Design and Maintenance (HDM) Model. Detailed design and the preparation of contract documents would be done by consultants. 56. The Gaya Bridge over the Niger river into Benin is in poor struc- tural condition and needs to be replaced. This bridge is a vital link In the acces3 route to the sea which carries the bulk of Niger's trade. In addition, some of the bridges on the Niamey-Tillaberi road have been un- dermined by floods during the recent rainy season and need major reha- bilitation. This will be undertaken during 1985/86 and 1986/87 using funds remaining in the credit for the Fourth Highway Project. Provision has been made under the project to support additional bridge rehabilitation as the need may arise. 57. Programs of secondary and rural road improvements are currently underway in Nige:. The rural road program is financed by IDA. Under this project, the Government would construct up to 883 km of rural roads and 301 km of secondary roads, selected according to the rural roads evaluation methodology. The Goverment has also decided to undertake a program of technical and financial support to communities for labor-intensive rural road construction to construct short access roads connecting to roads being improved by Public Works brigades. A pilot program is being set up in Maradi Department. Support for this pilot program is being provided by UNDP. 58. Projects involving new road construction have been severely lim- ited, as in general rhe economic returns are less than for maintenance. Eowever, if the Government proposes a subproject with higher economic re- turns tban some of the maintenance items, it could be included in the pro- gram. One such example, paving of the Niamey-Say road, has been provision- ally included in the program. The economic rate of return of this subproj- ect would be updated and compared with other investment possibilities in the program before a firm decision is taken to go ahead. Ongoing projects include the construction of the Zinder-Agadez road with reduced design  - 18 - standards from Tanout to Agadez, the widening of Takieta-Zinder, and thp rehabilitation of Djadjiri-Diffa. External financing from grants and con- cessional loans has already been committed for these projects, 59. Equipment and Workshops. The condition of the whole equipment fleet and the workshops has been examined under the Fourth Highway Project. The component included in the project would finance fleet renewal and work- shop rehabilitation. Institutional Strengthening 60. Through a series of IDA-financed projects, the Ministry of Public Works and Housing and in particular the Department of Public Works have developed a high degree of technical capacity to plan and carry out road programs. DTP's central and regional services and the rural roads division now function reasonably well without expatriate assistance. Under the Fourth Highway Project, a Road Management Unit (BGR) was set up to plan and program road maintenance and to carry out special studies. A Public Works Staff Training Center was constructed, local staff and management have been selected, and a comprehensive curriculum has been prepared in consultation with Public Works field staff. Recently, the Equipment Division became a separate Department and started an ambitious decentralization program. Institutional capacity in the Department of Public Works has developed to the point where there is no longer a need for long-term expatriate assis- tance. However, it is to be expected that DTP will continue to use consul- tants for specialized tasks. Other branches of MTPH, such as the Adminis- trative and Financial Department (DAF) or thae Equipment Department (DMTP), due to recent organizational changes, require long-term technical assis- tance to promote more effective operations. 61. To support further institutional development, the project makes provision for specialized consultant services to be drawn on by the Govern- ment to meet remaining specific needs. Specific areas where such assist- ance is required include: (i) construction supervision for periodic main- tenance works executed by contract; (ii) detailed design and bid documents for more complicated periodic maintenance works, including strengthening. where needed, of paved roads; (iii) training in accounting and personnel management for staff of the Administrative and Financial Department of MTPH; (iv) specialized assistance to the BGR, including calibration and inscallation of the HDM Model on appropriate equipment; (v) development of MTPH data processing capabilities, including possible equipment purchase and staff training; (vi) management support to the Equipment Department to increase the efficiency and effectiveness of its services; (vii) special- ized technical services and training of trainers for the Public Works Staff Training Center; and (viii) assistance to the Land Transport Department in the Ministry of Commerce and Transport to improve the efficiency of road relared revenue collection. These services would be provided under terms of reference to be agreed with IDA.  - 19 - Program Costs and Financing 62. Total expenditures for each year of the program have been deter- mined taking into account both macroeconomic considerations and sectoral priority needs. The total resources available for public investment and decisions on sectoral allocation limit the road sector investment program in the structural adjustment years to CFAF 8.9, 13.9, and 19.6 billion for 1985/86, 1986/87, and 1987/88, respectively. The agreed expenditure program for 1985/86 includes an additional CFAF 3 billion in expenditures for work already completed, which will be charged to the 1984/85 budget year. The transport investment program for 1988/89 is estimated at CFAF 22.2 billion. Total expenditures, including both investment (CFAF 67.5 billion) and recurrent costs (CFAF 9.2 billion), will amount to CFAF 76.7 billion over the four-year period (US$212.9 million equivalent). 63. The amounts needed for recurrent expenditures associated with the routine maintenance of paved and gravel roads have been determined to be about CFAF 2.24 billion in 1985/86, CPAF 2.37 billion in 1986/87, CFAF 2.55 billion in 1987/88, and CFAF 2.73 billion in 1988/89. In support of the Government's efforts, IDA/SAF would finance the difference between the re- current maintenance needs and the amount which the Government is able to allocate (pars. 51), starting in the second program year. IDA/SAF would finance a decliniug share of the recurrent road maintenance budget, from 25Z in 1986/87 to 6% in 1988/89. In the following year, the Government should once again be able to assume full responsibility for the recurrent costs of road maintenance. 64. The financing plan for the project is given in the Credit and Project Slummary at the beginning of this report. The proposed IDA credit of US$15 million equivalent, together with the proposed credit of US$15 million equivalent from the Special African Facility, would finance 14Z of total program costs. Niger is eligible for the Special African Facility, which already contributed US$40 million equivalent to the Structural Ad- justment Program. SAP financing is also recommended for the proposed proj- ect, which entails major sectoral policy reforms and includes components which are quick-disbursing. The SAP-financed components which are quick disbursing include the periodic maintenance of paved and gravel roads by contract, force account regravelling, construction of rural roads, equip- ment purchase, workshop rehabilitation and equipment, and associated studies, supervision and technical assistance. The Government of Japan has indicated that it intends to contribute US$20 million equivalent to the project under the Special Joint Financing (SJF) arrangement. It is expect- ed that the terms of the cofinancing from Japan would be equivalent to those of IDA and that it would consist of a US$4 million equivalent grant and a US$16 million equivalent loan from the Overseas Economic Cooperation Fund. 65. Niger can finance only a very small part of the net-of-tax cost of the program, except for routine maintenance where Niger would finance 88% of the cost. In all, Niger would finance US$27.6 million or about 13%  - 20 - of total program costs, compared with a local cost component estimated to be 25Z. 66. Part of the first and second year expenditure programs will be financed under ongoing IDA projects: the 1985/86 rural road program (US$1.7 million) under the Feeder Roads project, and the bridge rehabilita- tion component (US$3 million) under the Fourth Highway Project. Other do- nors presently contributing to the road sector are: (i) CIDA for Djajiri- Diffa; (il) EDP for Takieta-Zinder and Zinder-Agadez; (iii) AfDF, Islamic Development Fund, Saudi Fund, ABEDA and OPEC Fund for Zinder-Agadez; and (iv) Italy, Norway and United Nations Sudano-Sahelian Office (UNSO) for secondary road construction. All of these donors are elpected to continue their programmed contributions into the project period. 67. EDF has recently allocated 20Z of its sixth program grant for Niger (estimated at about US$23.7 million) to road maintenance. In addi- tion, EDF regional funds may be made available to finance the periodic maintenance and widening of the Takieta-Nigeria road. AfDF is expected to contribute about US$10 million to periodic maintenance. CCCE will finance the Gaya Bridge. UNDP is financing the pilot phase of the labor-based ru- ral track improvement program. 68. Taking into account the available financing described in paras. 64-67 above, there remains a financing gap of about US$11 million equivalent in the last year of the program. The Government proposes to convene a donor meeting later this year to discuss sector policies and pro- grams, and will raise the issue of the additional financing required for the project, if it is still outstanding. Given the importance of the sec- tor and the priority of the investments included in the program. there should be no difficulty in obtaining supplementary donor financing. Procurement and Disbursement 69. For items procured under the IDA and SAF credits, the procurement methods are summarized in the table on the following page. Amounts in parentheses indicate IDA/SAP participation. 70. Procurement of IDA-financed components would be in accordance with the Bank's Guidelines for Procurement and Guidelines for the Use of Consultants. Procurement of SAF-financed components would be in accordance with the SAF procurement guidelines. No difficulties have been experIenced with procurement by 1TPH under the ongoing Feeler Road and Fourth Highway Projects. A review of local competitive bidding (LCB) procedures in Niger was completed in October 1985. The local competitive bidding procedures as applied by MITPH are generally acceptable. 71. All civil works financed by IDA/SAP would be executed by con- tract, except for force account operations for routine maintenance and re- gravelling. These force account operations, which were established with IDA assistance, have worked reasonably well. For ICB, contractors would be prequalified. For LCB, the prequalification would be based upon NMPH' s  - 21 - permanent register of contractors, with a provision for post qualification. Procurement decisions involving contract amounts of maore than US$300,000 equivalent would be subject to prior review by IDA, covering 87% of project expenditures. IDA/SAP financing of part of the routine maintenance costs on a decreasing scale would be limited to the procurement of supplies, in- cluding fuel, lubricants and parts for equipment and vehicles. Procurement under IDA/SAP Credits (US $ million) Items Financed by IDA/SAF Credits ICB LCB Other Total Periodic maintenance of 11.4 _ 31.5 42.9 paved roads (6.1) - (0.0) (6.1) Periodic maintenance of - 4.1 4.7 8.8 gravel roads - (2.3) (2.3) (4.6) Bridge rehabilitation - 7.8 - 7.8 - (2.7) - (2.7) Rural road construction - -- 12.1 12.1 - - (5.9) (5.9) Equipment and workshops 9.6 - - 9.6 (5.5) - - (5.5) Consulting services - 6.4 6.4 - - (3.3) (3.3) Routine maintenance - 25.5 25.5 __ - (1.9) (1.9) Total 21.0 11.9 80.2 113.1 (11.6) D& I3-4 (30401 72. The IDA/SAP funds would be disbursed as follows: 95% of eligible expenditures for road construction and maintenance (US$14 million); 95% of workshop rehabilitation and equipment renewal expenditures (US$5.4 mil- lion); 100% of institutional strengthening expenditures (US$2.6 million); and 100% of expenditures for fuel, lubricants, and supplies for routine maintenance, up to a limit of US$1.6 million in 1986/87. US$1.0 million In 1987188, and US$0.5 million in 1988/89. An additional US$4.9 million re- mains unallocated. SAF funds would be disbursed first, SJF next, and IDA last. Goods and services required in the early project years would be pro- cured under SAF procurement guidelines to ensure fast disbursement of the SAP credit. Consequently, the IDA disbursement would be slower than usual. The combination of the SAP, SJF and IDA credits make up the standard dis- bursement profile.  - 22 - 73. Two revolving funds are proposed for this project: one for the IDA credit and one for the SAF credit. Each would be of US$1,000,000 equivalent. The funtds would be reimbursed from the respective credits upon submission of withdrawal applications by the Government. In addition, a local account for the Government's contribution to expenditures for items under the investment budget would be established as a condition of credit effectiveness. The amount of the initial deposit in this account would be CFAF 40 million, or about 5% of the IDA/SAF contribution, and it would be replenished by the Government at the same time as the IDA/SAF revolving fund replenishments. Accounts and Audit 74. The Local Advance account, revolving funds, and project accounts within MTPH would be audited annually by independent auditors acceptable to IDA and such audits would be submitted to IDA within nine months of the end of each fiscal year. The Government is taking action to complete the firqt annual audit of the Fourth Highway Project, due in April 1986. The report is expected by September 1986. Project Benefits and Risks 75. Policy changes to be implemented under the project would improve revenue performance and resource allocation and bring allocations for road maintenance into line with future needs. The institution building compo- nent would enhance the capacity of the Ministry of Public Works and Housing in road management, equipment management, and staff development. The proj- ect's economic benefits are principally derived from a reduction in vehicle operating costs on the existing road network. Ongoing road construction and rehabilitation projects under the program have rates of return ranging from 5% to 18%. No new construction or rehabilitation projects would be accepted into the program unless they can be shown to have rates of return exceeding those calculated for periodic maintenance, which range from 14% to 130%. Secondary and rural road construction would be limited to roads with rates of return not less than 10%. 76. Additional, non-quantified benefits would be derived from the project's contribution to road safety and reduction in travel times. Time- ly replacement of the Gaya Bridge over the Niger river will assure the country's continued access to its principal external supply route to the sea. Secondary and rural road improvements would encourage additional ag- ricultural activity by providing transport links between food producing and consuming areas. The pilot program in labor-based construction would also contribute to the growth of community self-help capacity. 77. The main risk is that the Government may not be able to provide sufficient funds when needed for routine road maintenance or for counter- part funding for the planned investments. Specific measures to minimize this risk have been included in the project as well as in the structural adjustment program. Other risks include inadequate revenues from equipment rental, failure to implement the propcsed action plan to raise user charge  - 23 - revenues, and failure to secure complementary investments for rural roads. Particular attention would be paid to these aspect:s during project supervi- sion. PART V - RECOMMENDATIONS 78. I am satisfied that the proposed IDA credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. 79. I am satisfied that the proposed African Facility Credit would comply with the provisions of Resolution No. IDA 85-1 of May 21, 1985, and recommend that the Executive Directors approve the proposed African Facili- ty Credit. A.W. Clausen President Attachments May 7, 1986 Washington, D.C.  -24 - ANNE=X I- 24- ~~~~~~Page 1 of 6 1 A _-L C b D 33y 1!bLW W C1s AtChI 196O& 197. T . 1mt or SAM" AFRICA S. OF SMAIA AA(TNain e. ) nWMN. 1267.0 1267.0 1267.0 AMILIILTUEAL 122.0 130.0 133.2 Mr "a e@ IK (US) .. .. 240.0 233.8 1063.3 mm! qmmwtm mK carrm (KILOGRIA OF OIL N )VALN) 3.0 16.0 32.0 6L3 531.5 USUA?I3 A TAL imu POPOATU0,IUD-13AR (7103SA1) 3234.0 4146.0 6042.0 OM POPMATIIUIC (0F TDTAL) 5.3 3.4 13.3 20.1 32.0 FOIULAIOUSUTIOUUaWcro IIOUOL&1II I T1UR 2000 oaLL) 10.5 31103? UDOLATION (MILL) 40.0 IOFU3ATIOU UmIEMIW1 2.0 POPULATIO NWIT PR SQ. in. 2.6 3.3 4.3 33.2 65.1 M SQ. . 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