Zambia - Third Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9187 PROJECT COMPLETION REPORT ZAMBIA THIRD HIGHWAY PROJECT (LOAN 1566-ZA/CREDIT 798-ZA) DECEMBER 14, 1990 Infrastructure Operations Division Southern Africa Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mav not otherwise be disclosed without World Bank authorization.  CURRENCY EXCHANGE DATA Name of Currency (Abbreviation) Kwacha (ZK) Year: Approved Year Average US$ 1 = ZK 0.80 Intervening Years Average US$ 1 - ZK 1.47 Completion Year Average US$ 1 - ZK 8.22 LIST OF ABBREVIATIONS FY - Fiscal Year MSB - Mechanical Services Branch MSD - Mechanical Services Department MWS - Ministry of Works and Supply RD - Roads Department FISCAL YEAR OF BORROWER January - December  FOR OFFCIAL USE ONL THE WORLD BANK Washington. D.C. 20433 U.S.A. Office of oirec -C~atIl Operatmns Evalgatin December 14, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Zambia Third Highway Project (Loan 1566-ZA/Credit 798-ZA) Attached, for information, is a copy of a report entitled "Project Completion Report on Zambia Third Highway Project (Loan 1566- ZA/Credit 789-ZA)" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment 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.  FOR OMCIAL USE ON) ZAMBIA THIRD HIGHWAY PROJECT (LOAN 1566-ZAICREDIT 798-ZA) PROJECT COMPLETION REPORT TABLE OF CONTENTS PREFACE .. .. .. .. .. .............. .......................... i BASIC DATA SHEET . . . . . . . . . . . . . . . . . . . . . . . . Lit EVALUATION SU?MARY . . . . . . . . . . . , I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 1 II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL . . . . . 2 Origin of the Project and Project Preparation . . . . . 2 Appraisal of the Project . . . . . . . . . . . . . . . . 2 Credit Negotiations and Subsequent Processing . . . . . 3 III. PROJECT IMPLEMENTATION AND COST . . . . . . . . . . . . . . 4 Physical Implementation of the Main Component . . . . . 4 Implementation of Miscellaneous Components . . . . . . . 5 Project Costs . . . . . . . . ... ..... .. . . . . . . . 6 Disbursements . . . . . . . . . . . . . . . . . . . . 6 Loan/Credit Covenants . ... * . 6 Performance of Borrower and Bank/Association . . . . . . 9 IV. INSTITUTIONAL DEVELOPEtT . ............... 10 V. ECONOMIC RE-EVALUATION . . . . . . . . . . . . . . . . . . 10 VI. CONCLUSION ............. .... 10 ANNEX A: Table l: Related Bank Loans ....... ...... . .... 12 Table 2: Project Timetable . . . . . . . . . . . . . . . . 13 Table 3: Loan/Credit Disbursements . . . . . . . . . . . . 14 Table 4: Project Implementation . . . . . . . . . . . . . . 15 Table 5: Project Cost Comparisons, Appraisal and Reappraisal Estimates and Actual Costs ............ 16 Table 6: Project Financing ....... .. . .. .. . . 17 Table 7: Direct Benefits . . . . . . . . . . . . . . . . . 18 Table 8s Economit Rate of Return .. . . ....9. 19 Table 9: Status'snd Impact of Studies Financed Under Project 20 Table 10 Zambia Road Maintenance Expenditure Targets and Budgeted Amousnts . . 21 ANNEX B: Borrower's Submission Concerning Completion of the Third Highway Project . . . . . . . . . . . . a . . . . . . . . 22 This document has a restricted distribution and may be used by recipients only in the poreormance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ZAMBIA THIRD HIGHWAY PROJECT (LOAN 1566-ZA/CREDIT 798-ZA) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Third Highway Project in Zambia, for which Loan 1566-ZA in the amount of US$11.25 million and Credit 798-ZA in the amount of US$11.25 million were approved on May 11, 1978. The loan and credit were closed on June 30, 1986, three years behind schedule. The credit was fully disbursed. A total of US$2.9 million of the loan was cancelled. The PCR was prepared by the Infrastructure Operations Division, Southern Africa Department, of the Africa Regional Office and is based, inter alia, on the Staff Appraisal Report, Reappraisal Report, Loan/Credit Agreements, supervision reports, correspondence between the Bank and the Borrower, and internal Bank memoranda. This PCR was read by the Operations Evaluation Department (OED). The draft was sent to the Borrower on September 24, 1990, for comments by November 12, 1990, but none were received.  - lii - ZAMBIA THIRD HIGHWAY PROJECT (LOAN 1566-ZAICREDIT 798-ZA) PROJECT COMPLETION REPORT BASIC DATA SHEET Appraisal Item Estimate Actual Total Project Cost (US$ million) 26.70 23.09 Overrun/Underrun (US$ million) (3.61) Ln./Cr. Amount (US$ million)2/ -22.50 Disbursed 19.593 Cancelled 2.907 Repaid 0 Outstanding 19.593 Date Physical Components Completed12131182 Not Completed Proportion completed by original completion date (X) Under 10 Economic Rate of Return (Z) 44 Negative CUMULATIME ESTIMATED AND ACTUAL DISBURSEMENTS FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 (i) Appraisal 1.0 19.0 21.0 22.5 (ii) Actual 0.0 0.0 0.0 0.6 0.8 0.9 7.1 10.1 19.2 19.6 (iii)As 2 of (M) 0.0 0.0 0.0 2.0 4.0 4.0 32.0 45.0 85.0 87.0 OTHER PROJECT DATA Item Appraisal Estimate Actual First Mention in Files 1/72 Negotiations 1/78 Board Approval . 5/11/78 Loan/Credit Agreement.Date 6127/78 Effective Date 9/28/78 11/26/79 Closing Date 6/30/83 6/30/86 Borrower Government of Zambia Executing Agency Ministry of Works and Supply Fiscal Year of Borrower January-December Follow-up Project None 1 The Loan and Credit each accounted for US$11.25 ',411ion at appraisal.  Mission Data Perform. Stage of Month/ No. of Days in Specialization Rating Types of Prolect CYcle Year Persons Field Represented Status Problems Throush Agwralsaj Identification 1/72 1 3 High. Engnr. - Identification 8/74 2 8 Econ.; Trans. Sp. - Preparation 2/78 1 7 Economist - Preparation 9/76 1 14 High. Engnr. - Appraisal Through Board Asproval Apprtesal 8/77 8 20 High. Engnr.; - Econ.; Oper. Asst. Post-Appraisal 6/77 2 10 Hg. Eng.; Econ. - Board Approval Through Effectiveness Review 11/78 1 9 High. Engnr. 1 Re-Appraisal 7/79 2 16 Econ.; High. Eng. - - Supervision 4 Full Supervision 3/89 2 11 High. Engnr. 2 1 * 12/80 1 5 9 2 U * 5 9/81 1 6 2 m * 5 11/82 1 6 3 M,F * " 4/83 2 17 Hg. En/Equip. Sp 3 M,F a r 8/83 1 11 High. Engnr. 3 M,F * * 3/84 1 12 2 F,M 6/84 1 7 * 2 F,M * " 10/84 1 7 * 2 F,M * 8 3/86 1 12 2 M,T * 5 6/86 1 7 ' 2 * * 2/88 1 14 2 * 5 2/87 1 7 u 2 Note: A number of other missions (8) of very limited scope were conducted to review certain aspects of tho project. Oenerally these were of brief duration representing perhaps 14 days in the field.  -v - ZAMBIA THIRD HIGHWAY PROJECT (LOAN 1566-ZAlCREDIT 798-ZA) PROJECT COMPLETION REPORT EVALUATION SUMMARY Obiective 1. The principal objectives of the Third Highway Project were to improve the maintenance of the rapidly deteriorating road network and to plan for future extension of the network. Specifically, the project aimed at improvement of both the primary and secondary roads, implementation of a pilot ru.ral road mainter.ance program, preparation of a feasibility study and, where justified, detailed engineering of selected roads, provision of technical assistance to the Roads Department and to other organizational entities and rehabilitation of 50 km of high-priority paved roads. Implementation Experience 2. Failure of the Government to meet certain conditions of effectiveness in the loan and credit agreements (approved May 11, 1978) led to delay in effectiveness and to the reappraisal of the project in July 1979 to reconsider these conditions and other factors. The Loan/Credit became effective on November 26, 1979. Implementation was extremely slow, the principal cause being the shortage of budgetary allocations for road maintenance and the excessive time taken to prepare equipment specifications and to order equipment. Throughout the period of project implementation, the recruitment of a large number of technical assistance staff fell far short of the schedule for filling key staff positions. Two studies financed under the project were completed satisfactorily although they were delayed in starting. The pilot rural road maintenance component was dropped before initiation as it was considered by Government to be a low priority item. The rehabilitation of 50 km of high priority paved roads was long delayed and never implemented. After extensive delays, a substantial amount of road maintenance equipment was purchased and large quantities of spare parts for rehabilitating existing equipment were procured and used in equipment rehabilitation; unfortunately, the utilization of the new and rehabilitated equipment in road maintenance was poor. The actual cost of the project was US$23.09 million, less than the US$26.70 million appraisal estimate but the project was not fully implemented. Disbursements were slow because of slow project implementation; not until FY87 was more than half of the US$23 million total amount actually disbursed, and final disbursements did not occur until FY88, after which the remaining US$2.9 million balance of the loan was cancelled.  - vi - Results 3. The most positive result of the project was the augmentation of new and rehabilitated road maintenance equipment in the Roads Department inventory. Since, however, the resealing and regr&velling units were frequently idle during the project implementation period, little was accomplished in terms of road maintenance works. The principal objective of the project therefore has not been realized. A secondary objective of the project to plan for future extension of the road network was also not realized; a road feasibility study concluded that the proposed road would not be justified but the Government nevertheless undertook the design and construction of the road. The project component designed to strengthen the Mechanical Services Branch, a key institution affecting the roads sector, had little impact as the study recommendations were largely ignored. Sustainabilitv 4. Road maintenance equipment has an estimated economic life of about 10 years and most of the new equipment purchased under the project was delivered between 1986 and 1987. The new equipment and some rehabilitated equipment will therefore be available for use for a number of years well into the 1990s, provided they are maintained in good condition. Potential net benefits from the project over the period to about 1996/97 will depend on Government's future road maintenance budgets which finance fuel and other necessities of the road maintenance units. The outlook for realizing such benefits, however, is not promising. Findinas and Lessons Learned 5. For several years, prior to project appraisal, Bank staff sought, in cooperation with the Roads Department, to design a project with heavy emphasis on strengthening of road maintenance, thus clearly aiming at the most urgent need in the highway subsector. In retrospect, the project should have been delayed until senior Government officials were convinced that this was the best highway project design. The Bank was right in its assessment of the priority need for a project focussed on road maintenance but it was wrong in its assessment that Government shared this conviction of sector priorities. Throughout the period from Bank approval to the closing of the project, the central issue was the need for adequate budgetary allocations for road maintenance. The Bank demonstrated about the right degree of flexibility in coping with the frequent shortfalls in local funds. While 6overnment defended its low allocations for road maintenance on the basis of the deteriorating general financial condition of the country, the relatively generous allocations for new road construction clearly indicates a different set of priorities. The foregoing review indicates that much more dialogue is needed between lenders and Government concerning: (1) a strong commitment to maintaining the existing assets in roads by giving a much higher priority to highway maintenance and avoiding new construction until the backlog of maintenance has been eliminated and (2) the importance of road feasibility studies as a basis for planning extension. of the road network.  ZAMBIA THIRD HIGHWAY PROJECT LOAN 1566-ZAICREDIT 798-ZA) PROJE%JT COMPLETION REPORT I. INTRODUCTION 1.01 The Third Highway Project, aimed largely at improving the capacity for road maintenance works, was identified in 1972 and appraised in mid-1977. Financing was negotiated in January 1978 and approved by the Board in May 1978. A US$11.25 million Bank loan and US$11.25 million IDA credit were made available for the project which was estimated at appraisal to cost US$26.7 million. The Loan/Credit did not become effective until November 1979 and implementation was slow. The final closing date was June 30, 1986, three years later than the original closing date of June 30, 1983; the final disbursements were made in August 1987 after which a portion of the loan was cancelled. While the project resulted in a significantly augmented road maintenance capability, the amount of road maintenance performed was minimal because of insufficient Government budgets for those works and deteriorating macroeconomic eniironment. 1.02 Transport sector development in Zambia is aimed at t-- primary objectives, the first being to facilitate the movement of mineral products, particularly copper, from the mining/processing areas to external markets. Accordingly, substantial investments have been made by Government in rail transport facilities along the central corridor from Livingstone in the south via Lusaka to Kitwe and Ndola in the north. Government has also made major investments in external transport considered vital to the trade of this landlocked country. Since copper mining and export of minerals dominate the Zambian economy both internal and external transport services will continue to receive priority attention in the country's general development. 1.03 The second major objective in the transport sector is to facilitate agricultural production and rural development mainly in the central corridor but increasingly extending beyond that area. Recognizing that the mining industry will experience a continuing general decline in the years ahead, the Government is taking steps to develop the agricultural sector gradually to become, eventually, the engine of growth in the Zambian economy. The country's economic outlook thus depends in large part on agricultural expansion and rural development which in turn depends to some extent on the improvement of transport. 1.04 Major transport improvements are very costly, and large development programs in the sector tend to cause insufficient funding of maintenance activities. In fact during the 1980s, budget allocations for road maintenance in Zambia frequently fell far short of needs while construction of costly new roads of doubtful economic viability went forward. As a result of this shortfall in maintenance funding, the general  -2- condition of the road network has deteriorated sharply with far reaching economic consequences in terms of high costs of transport and relatively slow speed of transport. 1.05 The dominant policy concern of the Zambian Government in the transport field is to assure that copper, so -4ital to the economy, moves expeditiously to external markets. C vernment seeks to maintain control of external transport in various ways based on its ownership interest and influence over Zambia Railways, the Tanzanian-Zambian Railway (TAZARA), an oil pipeline linking a petroleum refinery in NdoLa to the port of Dar es Salaam, and one large international trucking company. Private domestic road haulage, particularly over short distances, is generally allowed with limited regulation. 1.06 Recognizing in the late 1970s that the road network had deteriorated badly as a result of neglect of adequate maintenance, the Government sought, through the Third Highway Project, to overcome this adverse trend. The project seemed to reflect a new intent on the part of Government to reverse a policy of severely restricting the resources available for road mairntenance; subsequent events, however, showed that the Government is not yet fully committed to adequate road maintenance. 1.07 The information required for this report was obtained largely from the Staff Appraisal Report, supervision reports, consultants and Government progress reports and other materials in the Bank's files. The principal det..ciency concerning the data required to prepare this Project Completion Report (PCRa was the lack of a PCR prepared by Government. Annual statistics on the kilometers of roads actually maintained, by category of maintenance, were not available; such data would have provided a better basis for assessing performance of the Roads Department. II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL Oritin of the Prolect and Project Preparation 2.01 In 1972, about four years after the Second Highway Project had bee- approved (see Table 1), the Third Highway Project was identified. Ov,r a period of five years, the details of the project were defined and the preparation completed (see Table 2). Project preparation was accomplished by the Government largely through its Mechanical Services Branch. Appraisal of the Prolect 2.02 A partial appraisal of the project was carried out in March 1977, but the appraisal mission was unable to gain access to the Mechanical Services Branch (MSB) and consequently a second appraisal months later was required; the appraisal was thus completed in June 1977.  -3- 2.03 The objectives of the project were to improve the maintenance of the rapidly deteriorating road network and to plan for future extension of the network. The components of the project, as appraised in 1977, were as follows: a) a program to improve maintenance of the primary and secondary road network; b) a pilot rural road maintenance program; c) a feasibility study and, if justified, detailed engineering of the Mansa-Kawambwa-Nchelenge road (240km) or alternative roads agreed between the Government and the Bank Group (see Map); and d) technical assistance to the Roads Department, Mechanical Services Branch and the Ministry of Local Government and Housing for operations and training. Failure of the Government to meet certain conditions of effectiveness in the loan and credit agreements led to delay in effectiveness and reappraisal to reconsider these conditions and other factors. The number of regravelling units to be equipped was reduced from 4 to 2, the number of heavy maintenance units was reduced from 9 to 2 and the periodic maintenance was reduced to cover about 375 km instead of the 750 km in the original project design. An additional component of the project added at reappraisal in 1979 was the following: e) rehabilitation of 50 km of high-priority paved roads. 2.04 The total project costs were estimated during the appraisal mission at US$ 26.70 million, excluding taxes and duties but including physical and price contingencies (see Table 5). The foreign exchange component was estimated at US$ 22.5 million or 842 of total cost. Credit Negotiations and Subsequent Processing 2.05 Negotiations were held in January 1978 in Washingtoni. No significant disagreements arose in these meetings. The loan and credit were signed on June 27, 1978. More than 18 months passed from Board approval until the Loan/Credit became effective, on November 26, 1979, because compliance with two covenants was long delayed. A covenant in the Development Credit Agreement that certain staff be appointed by a specific date was the initial cause of delay. An equally serious problem was the covenant requiring the Government to budget specified amounts for road maintenance. The project was reappraised in July 1979, easing the staffing requirements and lowering the required budget levels; in November 1979, the 1980 budget allocation and assurances regarding future budgets were such that the Bank Group deemed compliance sufficient for the Bank to declare the Loan/Credit effective. These assurances were not subsequently borne out, however, as the actual allocations in most years were much lower than stipulated in the covenant.  -4- 111. PROJECT IMPLEMENTATION AND COST 3.01 A feature of the project design that caused a major delay in project implementation was the requirement that Government fill four senior staff positions and appoint 29 technical assistance specialists by September 28, 1978. Since the Government would not employ a firm to recruit technical assistance staff, it proceeded with the time-consuming task of recruiting individuals. Undoubtedl>, the planned staff additions would have been very useful had the project been implemented as designed but it was unreasonable to expect the Government to recruit so many individuals within the time allowed (4 months). In retrospect, the covenant was not well-designed. It should have required the borrower to employ a suitable firm to recruit the large number of personnel sought. Otherwise, the number of consultants planned for the project should have been substantially reduced. 3.02 Poor organization of the main Governmental entities carrying out the project did not bode well for expeditious implementation. Cooperation between MSB (transferred in May 1979 from Defense to Ministry of Works and Supply as the Mechanical Services Department (MSD)) and the Roads Department, the agency for which most of the repair work was undertaken, was unsatisfactory. 3.03 In April 1982, the Bank suggested to the borrower that the project be reappraised with a view to redesigning the project. The Borrower, recognizing its limited financial resources, agreed in July 1982 that the prcject should be reappraised. Delays were experienced, however, in securing consultants to undertake the necessary preparation. In the meantime, under the 1983 budget, the Government allocated recurrent funds for road maintenance that were in line with the requirements of the Loan/Credit Agreement, and therefore the project implementation proceeded without reappraisal at that time. Ph-sical Implementation of the Main Component 3.04 Implementation was extremely slow as indicated by the actual rate of disbursements. At the end of FY82, when all the Loan/Credit funds were scheduled to have been disbursed, the actual level disbursed was only 2Z of the total amount of the Loan/Credit. The principal cause of this delay was the shortage of budgetary allocations for road maintenance and the excessive time taken to prepare equipment specifications and order equipment (see Table 11). 3.05 After long delays, a substantial amount of road maintenance equipment was purchased (US$11.4 million); also large quantities of spare parts for rehabilitating existing equipment were procured (US$2.9 million) and used in equipment rehabilitation (US$5.6 million). Unfortunately, the utilization of the new and rehabilitated equipment in road maintenance was poor and consequently the primary objectives of the project were not realized. While statistics are lacking, indications are that only a small fraction of the 2,000 km of paved roads targeted in the project were resealed; likewise only a small proportion of the 375 km of gravel roads  - 5 - targeted in the reappraisal were subject to periodic maintenance while routine maintenance of all roads was far below the appropriate level. The fact is that during the period of project implementation the backlog of road maintenance increased rather than declined. 3.06 In July 1979, when the project was reappraised, the new component was added to the project, that is, the rehabilitation of 50 km of high priority paved roads. By March 1985, no work had been undertaken but Government then requested that the Bank approve an increase to US$4.0 million for the allocation of Loan/Credit funds for this component. Following Bank concurrence, certain works were tendered and the Ministry of Works and Supply recommended award of contract to the lowest bidder; the Bank had no objection but agreement on the award within the Government was delayed so long that it became impossible to finance the works under the project. Consequently, no expenditures were made for the project component. Implementation of Miscellaneous Components 3.07 Throughout the period of project implementation, the recruitment of a large number of technical assistance staff fell far short of the schedule for filling key staff positions. Government sought individuals, rather than employ a firm for recruitment as repeatedly recommended by Bank staff. Since some of the technical assistance staff were required to implement equipment procurement under the project, equipment procurement was also delayed. The latter problem did not, however, inhibit the operations of road maintenance units significantly because Government budgets did not provide sufficient funds for operating these units with the existing equipment. 3.08 Two studies financed under the project were completed satisfactorily although they were delayed in starting (see Table 9). The recommendations of the MSD organization study, unfortunately, were never implemented even though the report was accepted by the Government. The feasibility study of the Mansa-Nchelenge road found the proposed improvement not economically justified; yet the Government shortly thereafter funded detailed engineering of the road and subsequently arranged for construction with bilateral financing; most of the road has been built. 3.09 In 1983, at Government's request and with Bank concurrence, the pilot rural road maintenance component was dropped as it was considered by Government to be a low priority item. No work had been initiated on this component. 3.10 The consulting firm (Norway) involved in the road feasibility study and the consultants (UK), which undertook the MSD organization study, both performed satisfactorily as did, in general, the various individuals participating in the technical assistance.  -6- Proiect Costs 3.11 The actual cost of the project was US$23.09 million, some 132 less than the US$26.70 million appraisal estimate and 21Z less than the US$27.90 million reappraisal estimate (see Table 5). As indicated elsewhere in the report, however, the actual costs do not represent a full implementation of the project as either appraised or reappraised. Disbursements 3.12 The slow pace of the project implementation indicated above resulted in a slow rate of disbursements (see Table 3). At the end of FY82, when all the Loan/Credit funds were scheduled to have been disbursed, the actual level disbursed was only 2% of the total amount of the LoanlCredit. Not until FY87 was more than half of the total amount disbursed and final disbursements did not occur until FY88 (about 132 was cancelled). The US$22.5 million made availaBle by the World Bank Group for the project was divided equally between the Bank and IDA, and priority for disbursement was given to the IDA credit (see Table 6). All of the credit was disbur_ed as was all except about US$2.9 million of the Bank loan, the latter amount being cancelled. Loan/Credit Covenants 3.13 Compliance with loan/credit covenants was not fully satisfactory. The following summary indicates the status of covenants:  -7- Reference To Credit Agreement Loan/Credit Covenant Compliance and Status Section 3.01 (b) The Borrower shall (i) by December 31, The consultants (PA 1980 prepare a plan of action, International) submitted satisfactory to the Association, for report on study of MSD to the improvement of the efficiency of Government in August 1981. the Mechanical Services Department There has been only limited (MSD) and (ii) carry out such plan follow up. The Government within nine months from the date of is still considering whether its preparation. MSD should be put on a commercial basis. Section 3.01 (b) For carrying out of the training component included in the project, the Borrower shall prepare programs satisfactory to the Association.. Progress has been made. In 1982, 441, in 1983, 483 and in 1985, 415 technicians were trained. Section 3.02 (b) The Borrower shall by September 30, The position of chief 1978, employ in the Roads Department materials officer is still (RD) additional staff with experience vacant and there are still to fill existing vacancies of: several vacancies for executive engineers (i) three senior executive engineers; (including senior) in RD. and (ii) one chief materials officer. Section 3.03 (a) The Borrower shall employ suitably Compli d with. qualified consultants, satisfactory to the Association, for assistance In reorganizing MSB and preparation of bidding documents and evaluation of bids for road maintenance and workshop equipment, etc. Section 3.03 (b) The Borrower shall by April 30, 1981 Twelve t4 15 TA experts were employ the following experts whose in position for 4-6 years, qualifications, experience and terms to a certain extent and conditions of employment shall be underemployed because of low satisfactory to the Association: activity level in RD and MSD. (i) in the RD three road maintenance engineers, one transport economist and two training exports. (ii) in the MSD ten mechanical engineers and ten mechanical supervisors (or such other number as shall be agreed by the Association); and two training experts; and (Iii) in the PLCD, one rural road maintenance engineer.  -8- Referenct to Credit Agreement Loan/Credit Covenant Compliance and Status Section 3.06 (b) The Borrower shall maintain records Some progress has been made. and procedures adequate to record and monitor the progress of the project, to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the project. Section 3.06 Cc) The Borrower shall prepare and furnish Progress reports have to the Association quarterly progress generally not been prepared reports on the carrying out of the in a timely mannor. project. Section 4.02 The Borrower sholl collect and record Limited progress has been in accordance with appropriate made in collecting statistical methods and procedures information of traffic such technical, economic and financial volumes and total information as shall be reasonably expenditures in highway required for proper planning of subsector. maintenance, improvement and extensions of its road system. Section 4.04 The Borrower shall cause the Primary The amounts allocated to RD and Secondary Road Network, and its for road maintenance have maintenance equipment and related not been adequate. workshop facilities to be adequately maintained and repaired, and provide promptly funds required for the purpose. Section 4.05 The-Borrower shall take all such Spot checks are made on some actions as shall be necessary to major roads using existing ensure that the dimensions, axle loads weighbrldges. and weight limits of vehicles using country's roads shall not exceed legal limits. Section 4.06 The borrower shall carry out the No action has been taken training of the road maintenance staff because the pilot rural road of the Rural Councils in the training maintenance program was school of the RD. deleted. Section 4.07 The Borrower shall by September 30, Program furnished In January 1978 prepare a program satisfactory to 1979 was found to be the Association for the career inadequate. Revised program development of local taff in the RD has never been submitted, and carry out such l. am thereafter, but the quarterly reports contained a section on staff developmont and RD's efforts to hire local graduate engineers (with little success so far).  -9- Performance of Borrower and Bank/Association 3.14 Borrower Performance. As noted, the Government of Zambia was not fully committed to the project; it did not share the Bank's conviction that better road maintenance warranted greater local funding than in previous years. While Government defended its low allocation for road maintenance on the basis of the deteriorating general financial condition of the country, the relatively generous allocations for new road construction clearly indicated a different set of Government priorities. The borrower even financed new roa" construction where either no feasibility study had been done or such a study was undertaken and the results proved negative. 3.15 The latter point is illustrated by the Mansa-Nchelenge road, the study of which was financed under the project. Despite a negative finding of the consultants, the road was built. Among a series of efforts to prevent that construction, the Bank staff in 1985 trged that an updated feasibility study be done before deciding to undertake the construction but Government disagreed. 3.16 Performance of the borrower was less than satisfactory concerning several other undertakings: (1) insufficient recruitment of technical assistance staff based on individual recruitment rather than engaging a firm; (2) largely ignored the recommendations of the MSD organization study; (3) hindered procurement in some cases by denying the use of letters of credit; (4) failed to submit some progress reports and delayed the submission of many of the reports; and (5) failed to prepare and submit a project completion report (see Annex B). 3.17 Bank Performance. For several years prior to appraisal, Bank staff sought, in cooperation with the Roads Department, to design a project with heavy emphasis on the strengthening of road maintenance, thus clearly aiming at the most urgent need in the highway subsector. In retrospect, the project should have been delayed until senior Government officials were convinced that this was the best highway project design. The Bank was right in its assessment of the priority need for a project focussed on road maintenance but it was wrong in its assessment that Government shared this conviction of sector priorities. 3.18 Throughout the period from Bank approval to the closing of the project, the central issue was the need for adequate budgetary allocations for road maintenance. The Bank demonstrated about the right degree of flexibility in coping with the frequent shortfall in local funds. At reappraisal, it lowered the local funds requirement and relaxed staffing requirements in the interest of enabling the Government to meet conditions of effectiveness. It pressed for greater funds allocations before -extending the closing date. Bank performance in supervision generally was satisfactory.  - 10 - IV. INSTITUTIONAL DEVELOPMENT 4.01 The component of the project designed to strengthen MSD, one of the key institutions affecting the road sector, had little impact. While the study undertaken was of good quality, the consultants recommendations were largely ignored. Also, the large element of technical assistance in the project, though not fully implemented, strengthened the MSD and Roads Department staff considerably during the assignments of these specialists but the impact in terms of human resource development was minimal. 4.02 One of the objectives of the project was to plan for future extension of the road network. Toward this end, a project component provided for a feasibility study of a possible 240 km road extension; the consultants found the proposed development unjustified. The Government nevertheless undertook the design and construction of the road. Thus, the project did not have a positive influence on road network planning. V. ECONOMIC RE-EVALUATION 5.01 The 44% economic rate of return estimated at appraisal took into consideration projected project benefits in terms of savings in vehicle operating costs expected to be realized with improved maintenance of roads. To date, the extent of road maintenance works accomplished has been far less than anticipated (see Table 7); therefore, economic benefits have been minimal and the economic rate of return, assuming continued poor performance on road maintenance, is probably negative (see Table 8). Specific data required to measure these benefits are not available. If the Government in the future adequately maintains and utilizes the small amount of remaining equipment procured under the project, the otherwise adverse economic returns would, of course, be mitigated. VI. CONCLUSION 6.01 The project was well conceived in that it focussed on the strengthening of road maintenance, the priority need in the highway subsector, and aimed at overcoming the major Roads Department weaknesses of equipment and staff. Unfortunately, there was no shared conceptual foundation for the project between the Government and the Bank as to the priority for highway maintenance. It became apparent that Government at all levels was not sufficiently committed to road maintenance vis-a-vis new construction. 6.02 The most positive result of the project was the augmentation of new and rehabilitated road maintenance equipment in the Roads Department inventory. Since, however, the resealing and regravelling units were frequently idle during the project implementation period, little was accomplished in terms of road maintenance works. The principal objective of the project, therefore, has not been realized. The new and  * ~~- 11 - rehabilitated equipment could nevertheless serve Zambia's road maintenance well for several years, assuming the Government were to provide funds for the correlated resource requirements of fuel, lubricants, bitumen, manpower and other necessities to carry out road maintenance works. Unfortunately, there are no indications that the Government is so inclined. The most recent Roads Department budget reflects continued low funding for this purpose. 6.03 One aspect of the project design that caused problems was that the local cost component of project costs did not include all of the local costs essential to carry out the project. In particular, the costs of operating the road maintenance units (for which the project provided equipment) were not included as project costs. Instead, the funding of these costs was provided for in a covenant specifying minimum amounts of funds to be provided in the Government's annual budgets for road maintenance. The Staff Appraisal Report provided a detailed account of the recur-:ent costs involved in operating the road maintenance units and these costs formed the basis of the covenant. These specified budgetary amounts were not met in the early years following project approval and consequently a reappraisal was done and the requirements lowered significantly. Even following this easing of the requirements, the covenant was seldom met and this deficiency was the primary reason for the extremely long delays in project implementation. Clearly, the covenant did not accomplish its purpose; a better alternative might have been to include the essential recurrent expenses for the project as project costs with Government commitment to finance them. 6.04 The principal accomplishment of the project was to provide substantial equipment and spare parts for roads maintenance, a much-needed capability, but unfortunately the lack of correlated resource requirements have prevented much impact in terms of actual road maintenance works. 6.05 Road maintenance equipment has an estimated economic life of about 10 years and most of the new equipment purchased under the project was delivered between 1986 and 1987. The new equipment and some rehabilitated equipment will therefore be available for use for a number of years well into the 1990s, provided they are maintained in good condition. Potential net benefits from the project over the period to about 1996/97 will depend on Government's future road maintenance budgets which finance fuel and other necessities of the road maintenance units. The outlook for realizing such benefits, however, is not promising. 6.06 The foregoing review indicates that much more dialogue is needed between lenders and the Government concerning: (1) a strong commitment to maintaining the existing assets in roads by giving a much higher priority to highway maintenance and avoiding new road construction until the backlog of maintenance has been eliminated; and (2) the importance of road feasibility studies as a basis for planning extensions of the road network.  - 12 - ABoDSL Pate 1 of ID ZAMIA TuIRD HIGRWAY PROJECT (LOAN 1566-ZAICREDIT 798-2A) Tabl- 1s RELATED BANK LOANS Loan Year of Title Purpose Approval Status Comments Loan 469-Z Engineering, 1966 Completed Completed US$17.5 million reconstruction in 1969 on schedule First Highway and paving below cost Project of sections of estimate. the Great Eat Road (25 miles). and Great North Road (122 miles) Loan 563-ZU Reconstruction to 1968 Completed Completed US$10.7 million two-lane paved on schedule Second Highway standard of one with minor Project section (235 cost over- miles) of the run. No Creat North project in Road and the sector procuremnt of has followed 3 veigbbridgs the Third on that road. Highway Project. No Credits  - 13 - Annex A Pat* 2 of 10 Table 2: PROJECT TIMETABLE Date Date Date Item Planned Revised Actual Identification 1/72 Preparation 6/74, 5/76, 10/76 Appraisal Mission 1/ 3/77, 6/77 Re-appraisal 7179 Loan/Credit Negotiations 1/78 Board approval 05/11/78 Loan/Credit Signature 2/ 06/27/78 Loan/Credit Effectiveneas 09/28/78 09/30179 11/26/79 Loan/Credit Closing 06/30/83 06/30/83 06/30/84 06/30/86 06/30/85 Loan/Credit Completion 3/ 12/31/82 12/ /83 06/ /84 Not completed 06/ /86 1/ Two appraisal missions were undertaken. 21/ In addition, an amendment was signed on 10/2/80. 8/ An amount of US$2,907,242.52 of the Loan was cancelled on 8/6/87. Comwntst A major issue prior to effectiveness and throughout lmplmentation wa the adequacy of Government budgots for road maintenance.  - 14 - Annex A Pan. 3of 10 Table 3: LOANICREDIT DISBURSEHENSS Disbursements (US$'000) Appraisal Actual as % of Bank Fiscal Year Estimate Actual total Loan/Credit 1979 1,000 1980 19,000 1981 21,000 1982 22,500 582 2 1983 0 780 4 1984 0 940 6 1985 0 7,083 31 1986 0 10,097 45 1987 0 19,210 85 1988 0 19,593* 87 Date of Final Disbursement 816/87 *US$2,907,242.52 wss cancelled on 8/6/87.  - 15 - Annex A Pate 4 of .10 Table 4: PROJECT IUPLEMENTATION Indicators Approihal Reappraisal Actual (or Estimtat Estimate PCR Estimate) Indicator 1 Kilom.t,rs of 2,000 km 2,000 km N/A bitumen surfaced roads subject to periodic maintenance Indicator 2 Kilometers of 750 km 376 km N/A gravel roads subject to resealing/regraveling Indicator 9 Amount of road US311.88 US811.99 US119,86 maintenance equipment million million purchased (including spare (including (Including parts) contin- contin- gencies) gencies) Indicator 4 Kilometers of (not S0 km 0 km (Misprocuro_ent arose and TEumen *'urfaced roads Included at Government was unable to resolve rehabilitated this stage) the probl-m quickly enough to permit lmploemntation). Indicator 5 Number of regravelling and heavy maintenance units established: A) Regraveling 4 2 4 to 7 B) Hoevy 9 2 1 to 8 (In ddition to project- financd equipment, Japanese- financed equipmnt was also used to equip these units. The unite were froquontly Idle). Indicator 6 A. Amount of USSS.8 US8S.48 USt2.10 million technical cssIstance, million million consultant services purchased S. Amount of workshop USU1.71 WS21.68 USY0.40 milion oquipment, tools, training million million aids purchased Indicator 7 Kilo-ete r of Roads In an Roads In an 6 (Component was cancelled before (Pilot) Rural Road Or" ore being Initiated) Maintenance Program done covorlng covering two Rural two Rural Councils Councils  X,jA.: Proje Cot l Cgmeries. Age..i..l ead Reasorsal Estimates ad Actual Cost Amoraisal Estimte 11 RsaPraisl Cost Ertito 21 Actual Cost 3/ Item Listi Foeg TOtal Local Foreign Total Local Forei2n Tot&l A. good Uaintsenanc Esmimat (1) Presewt -of UN Equipamt 1.11 12.36 18.41 1.14 11.61 12.75 9.72 10.88 11.46 III eab1_. of Esitnlg Equipumt 0.22 6.61 *.U1 6.16 6.61 6.77 0.66 6.67 6.67 SI ) Spero Par. for Existing Equip. 9.16 0.n7 1.12 6.12 0.96 1.10 0.86 2.63 2.09 S. Workuhe EdI_mmat Tools & Tralsin Aids (il) WVrehopl Eqsipeet AToolo 6.16 1.42 1.57 0.14 1.02 I.so 6.10 0.20 6.3a I ) Treisleg Aids 6.61 6.18 6.14 6.61 6.18 *.14 6.61 6.89 6.19 C. - (I) IISIRe.rg tieon Study pratloe t f lild heumeet. 0.68 6.28 0.29 0.89 0.844'0.97 0.62 0.17 0.19 (it) Reoe FPtslbllty Study 0.24 0.84 1.11 9.12 9.87 *.99 0.17 0.8? 0.54 S. pilot Rturl Road alnte Program 0.78 0.65 1.88 6.69 0.62 1.31 6.06 6.00 0.06 E. Rhabilitatlton of Pved Rod - - - 1.6C 0.91 2.47 0.C6 . 0.06 F. Teochical Assista 1." 5.85 6.68 1.44 6.04 0.48 1.06 1.10 2.10 Total Project Cot 4.20 22.S0 26.70 5.40 22.60 27.90 2.88 20.21 23.09 1/ Cost estimte to Staff Appraisal Rport 4/17/78 with coatinwgnce spread to individual item. 2/ Cost estimate In Issues Paper 6/9/79 with contingencioo spread to Individual ltems. 8/ Sased on sti_ate of 2/67. At that tim US$ 8.9 millon wa uncomaitted. On 6/6/67, about USS 2.9 million of the US$11.26 *milion loan was cameelled. The USY 1.0 m Ilion additional funds com_itted beteen 2/67 and 8/9) were used for Road mintenance equipmnt procuremnt, largely new eqipmet. Accordingly, the 2/67 cost "timte has been ajusted by ading US2 1.0 to the foreign and total cost of the procuremnt of nw e"quipment. Ii  - 17 - hm ^ 2 & 6 of lu Table 68 Prolect Fineuina Planned Loan/Credit Source Aereement Revised 11 Final Comments ------------------------