Uganda Transport Sector Memorandum - Sustainable Development and Maintenance Priorities for the 1990s (Vol. 1 of 2) : Volume 1

Document of The World Bank FOR OFFICIAL USE ONLY .. CONFIDENTIAL .. DECLASSIFIED Report No. 9364-UG f AR O9 2020 WBG ARCHIVES FIL£ CO."Y l UGANDA TRANSPORT SECTOR MEMORANDUM SUSTAINABLE DEVELOPMENT AND MAINTENANCE PRIORITIES FOR THE 1990s Volume I February 8, 1991 • Infrastructure Operations Division Eastern Africa Department Africa Region 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.  CUR.:.~NCY EQUIVALENT Currency Unit Oganda.n Shilling 05$ 1.00 0Sh. 540(official) (Dec. 1990 rates) OSh 800(paz:-allel) (N.B. Appr-opriate histoz:-ical ra:es are used in sections of this repo~) FISCAL YEA.It Government: : July l to June 30 URC: Janua=Y l to December 31 WEIGHTS AND MEASURES Metz:-ic System A3BREVIATIONS AND ACRONYMS ADB adt - - African Development Bank aver-age daily traffic A2 CAA - - Action Program (for Rural Feeder Roads) Civil Aviacion Authority CIF DA - - Cost, insuz:-ance, freight District Ad::inistration DSM Dar es Salaam £ARC FY - - East African RailYays Corporation fiscal Year GDP RA - - Gross Domestic Product BighYay Authoz:-ity IDA IR.it - - Incernacional Development Association Internal Rate of Return KCC km, km.s - - Ka.:i:pala City Council kilometer, kilometers D Kenya RailYays LA lb - - Local Authorities pound llC MOLG - - Landlocked Country Ministry of Local Gover::lment MPED MOTC - - Minist=Y of Planning and Economic Development Ministry of Transport and Coa:mun.icatioxus MOW MT - - Ministry of Works metric ton Mv Moto rvessel NCTA NRDP - - Northern Corridor Tr&n.Sit Agreement National Recovery and Development Plan NRM PER - - Nacional Resistance Movement Public Expenditure Revie~ POL P.S. - - Petroleuc., Oil and Lubricants Permanent Secreta=Y PTA PTC - - Preferential Trade Area Peoples Transport Corporation RC RCTO - - Resistance Council or Coa:mittee Road Customs Transit Document SP - Strategy Paper (on Rural feeder Roads Rehabilitation and Maintenance) SSA TA - - South of Sahara Africa Technical Assistance TRC UAC - - Tanzania Railways Corporation Uganda Airlines Corporation UNDP URC - - United Nations Development Fund Uganda Railways Corporation UTC Uganda Transport Corporation veh-kms • vehicle-kilometers vpd • ZBR . vehicles per day Zaire, Burundi and R~anda  FOR OFFICIAL USE ONLY CONFIDENTIAL UGANDA TRANSPORT SECTOR MEMORANDUM Sustainable Development & Maintenance Priorities for the 1990s Volume I FTED .. 09 2020 TABLE OF CONTENTS \\ UAR H 'E MINISTERIAL LETTER & RECOMMENDED SCHEDULE OF ACTIONS EXECUTIVE SUMMARY AND RECOMMENDATIONS i-xiii I. THE PRESENT TRANSPORT SECTOR •• • • • • • • • 1 A. Geographic and Economic Background 1 B. The Transport System in Uganda 2 C. The Macro-Economi c Framework 12 D. Transport Sector Policies and Practices • 18 II. MAJOR POLICY ISSUES AND RECOMMENDATIONS • • 26 A. Future Strategy for Uganda Railways • • • • 26 B. . Balancing Highway Reconstruction and Maintenance 43 C. Institutions for Road Construction and Maintenance 46 D. Targeted Feeder Road Programs •• 54 E. Priorities for Air Transport 61 F. Urban Transport Issues • • • • • • • • • • 66 G. Development of the Road Transport Industry 69 III. AREAS FOR POTENTIAL PUBLIC INVESTMENT. 72 A. Fundamental Needs and Objectives • • ••• 72 B. Program for URC • • . • • • • • • • • • • • • • • 73 C. Program for the Roads Sect or •••• 77 D. Program for Air Transport Development ••. 84 E. Public Investment for the Transport Sector 1990-2000 85 F. Private Investment in the Transport Sector 89 IV. DONOR POLICIES FOR THE 1990'S. • • •••• 92 A. Financial Support for Capital and Recurrent Expenditure • • • . • . • • • •••• 92 B. Technical Ass istance and Support for Training • • • • • 94 This Memorandum was prepared by a transport sector team led by Mr. Simon Thomas (Transport Economist, Consultant) and· comprising Messrs. Douglas Adkins (Economist, Consultant), John Manning, Highway Engineer, Consultant), Mohindra Bery {Railways Engineer, Consultant), Jean-Pierre Daguenet {Air Transport Consultant), and William Thornhill (Urban Transport Consultant). Contributions on highways were also received from Mr. Satdev Kathuria, on railways from Mr. Sujeer Nayak, on feeder roads from Mr. John Riverson (feeder roads specialist, consultant), on financial aspects from Mrs. Maria Kiwanuka (Financial Analyst, Consultant) and on training ,. organization from Mr. Fred Fisher (Organi zation and Management Consultant ). Ms. Hayley Goris, Sr. Economist, AF2IN, was the Task Manager for the Memorandum. The team visited Uganda from September 23 to October 12, 1990. Th is document has a restricted distribution and may be used by recipients only in the performance of thei r official duties. Its contents may not otherwise be disclosed without World Bank authorization.  UGANDA TRANSPORT SECTOR MEMORANDUM Sustainable Development & Maintenance Priorities for the 1990s List of Tables in the Text • • No. Title Yeer Peg• 1.1 Freight Flows 1989 2 1.2 Inter-Urben Passenger Flows .1989 3 1.3 Road Network 1990 a 1.4 Priv1·t • Vehicle Fleet 1989 4 1.6 URC Track Network 6 1.6 URC Traffic 1989 6 1. 7 Kampala Urban Transport Mode Distribution 1990 7 1.8 Entebbe Scheduled Airline ServicH 1970/1990 7 1.9 International Rail Traffic 1989/1990 10 1,U, Potential Future Freight Traffic Demand 1996/2000 17 l.ll Road Expenditure and Road User Revenues 1988/89 20 1.12 Road User Revenue end Roed User Charges 1990/91 21 1.13 URC Financial Results 1980-1989 22 1.14 URC Accounts 1988/1989 22 1.16 Plenned Treneport Development Expenditure 1990/91-1993/94 24 1.16 MOW: Road Maintenance Funding 1987/88-1990/91 26 2.1 URC Revenues and Working Expenses 1989 29 2.2 URC Revenue• and Working Expenses Central Line 1989 29 2.3 Fin1nciel Impact of Port Bell: 1989 Traffic 30 2.4 Net Economic Benefits: KasHe L.ine Reh1bi I it1tion 32 2.6 Domestic Demand and Supply : Locomotives l Wagon 1996 34 2.6 Wagon Ferry: Rail Coat Compariaiona 37 2.7 Coat of POL Movement: Mw1nz1 Route 38 2.8 Trade and Transit Security Levels 1989/1996 39 3.1 Marine Vessel Options 1995/2000 76 3.2 Investment Options for New Vessels 1996/2000 76 3.3 Financially Unconstrained Road Programs 1991/92-1999/00 79 3.4 Uganda Road Inventory: Highways and Feeder Roads 1990/1995/2000 79 3.6 Required Road Maintenance Performance 1990/91-1993/94 80 3.6 Financially Constrained Road Program Expenditures 1991/92-1999/00 81 3.7 Road Conditions : Financially Constrained Programs 1996/2000 82 3.8 Required Road Maintenance Funding Funding 1990/91-1999/00 83 3.9 Costa of Full Urban Road Rehabilitation & Maintenance 83 3.10 Public Investment Requirements 1990-1996/1996-2000 86 3.11 Non-Urban Road Expenditure & Road Use Charge Revenue 1991/92-1999/00 88 3.12 Revised Road User Charge Revenue 1991/92-1999/00 89 3.13 Investment Requirements in Road Transport 1991-1996/1996-2000 91 4. 1 Resources Required in Road Sector 1991-1996/1996-2000 92 4.2 Donor Funding Support for Road Maintenance 1991-1996/1996-2000 93 The World Bank 1818 H Street, N .W. (202) 477- 1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS February 8, 1991 The Honorable Dr. J.S. Mayanja Nkangi Minister of Planning and Economic Development Uganda House Kampala, Uganda Dear Mr. Minister: I have the pleasure of sending you ten copies of a draft "Transport Sector Memorandum" which has been prepared on the basis of the October 1990 World Bank sector mission led by Mr. Simon Thomas. I am sending it directly to you--with copies to the Minister of Transport and Communications, the Minister of Works, Minister of Local Government, the Minister of Finance and a number of transport agencies-because it covers, within a macro-economic framework of constrained resources, strategic planning and development decisions throughout the entire transport sector, which provides very important support to the directly productive sectors. We are hoping to come to Uganda in early April to discuss the main recommendations of the Memorandum and to agree on the outline of a broad action strategy for the Transport Sector to be implemented during the next five years, including an investment program which the World Bank would be prepared to consider funding. We feel that this is a very opportune time to re-assess the transport sector and Government policies directed toward it. When the NRM Government assumed power, it was clear that the transport sector generally- road, rail and air--had suffered massive deterioration from the previous fifteen years of economic and civil turmoil and Government neglect. The NRM Government has given great emphasis to the restoration of the main links in the transport network and most of the obvious first-priority projects have either been completed or are being implemented. The investments made during the first phase had very obvious priority but, during the second phase when the needs of the transport sector are still very large, much closer attention will need to be given to ensuring that the priorities established within the transport sector fully support overall Government objectives and have a directly positive impact on people's lives and livelyhoods. During this phase, we see great opportunities for the Government to take stock of the infrastructure and the transport industries and take action to streamline and modernize them. In this process, it is inevitable that the value of some aspects of the existing transport structure, inherited from a period of different economic and social circumstances, will be brought into question since the goal is to provide essential transport services to the largest number of Ugandans. This letter invites your attention to the main conclusions and actions recommended in the Memorandum. Some elements of the analysis are conunon to all aspects of the transport sector, while others are specific to individual sub-sectors. a) Investment Priorities and Planning. The economic reforms being pursued by Government should provide the framework for sustained growth in the economy, an improvement in the external position and an increase in government revenue. Resources available will, however, remain very constrained and policies and RCA 248423 · WUI 84146 The Honorable - 2 - February 8, 1991 projects in the transport sector will have to be. developed within this context. A very clear appreciation is needed of the opportunities lost by investing in one sector/project rather than in another. With the limited investment funds likely to be available, for at least the medium term, the choices are stark. To give some examples, The cost of rehabilitating the Kasese Line ($160million) equals 13,000 kms of rural road rehabilitation; Re-equipping UAC, as proposed ($160m), equals paving 1,500 kms of gravel road; Rehabilitating 1 km of feeder road equals basic access improvements on 6 kms of rural feeder roads; Paving I km of gravel road equals the annual routine maintenance on 30 kms of paved road; and One year lease of a B707 equals resealing about 100 kms of paved road. The Government must decide which of the alternative uses of the available funds is likely to have a greater impact on its overall economic and social development objectives. Such understanding can only be gained through a substantial increase in the government's transport planning capability and a coordinated approach to the sector, involving your ministry, the Ministry ofTransport's Planning Department and planning units in the line ministries. b) Maximum Role for the Private Sector. The overwhelming experience of both developed and developing countries indicates that the private sector provides cheaper and more efficient road transport services than state or parastatal companies. There is similar experience for the provision of other transport and distribution services, and for construction/maintenance of the transport infrastructure. In Uganda, the - private sector should be used. to the maximum extent, especially in view of the extremely serious institutional deficiencies within the civil service and the public sector generally. Major reforms are being made to the public sector but its capability will remain limited and should be concentrated on those core activities, most or them outside transport, which Government must necessarily perform. Public ownership of Uganda Railways Corporation (URC) and Uganda Airlines Corporation (UAC) will probably remain for the time being, but it is essential that they operate on commercial principles and they should eventually be considered for privatisation. Direct state ownership in other areas of the transport sector, public passenger transport for example, should be minimized. Commercial vehicles, imported by Government, should be distributed through the market rather than allocated through official committee. Failing their divestiture, remaining parastatals operating in the transport sector must operate commercially and receive no general subsidies. In the exceptional cases where Government requires certain unprofitable services to continue for social reasons, specific and transparent subsidies should be provided on a timely basis. The Honorable - 3 - February 8, 1991 The role of the Government should be confined to establishing the policy framework for the transport sector, setting investment priorities, raising the revenue for the construction and maintenance of the road infrastructure and supervising private contractors undertaking its implementation. Government should encourage private sector partcipation and provide the necessary positive environment for the development of local contractors and transport enterprises. c) Strategy for a Commercial Uganda Railways Corporation. URC could be a very profitable transport enterprise if it operated on commercial principles. When the Port Bell ferry terminal is completed, conventional rail services will become marginal and most URC income will be generated by the marine service and the leasing of wagons and locomotives to neighboring railways. URC management and the Government should recognize the potential of these activities and provide all resources and support necessary. Decisions must be taken in the near future regarding the expansion of the marine service. A full examination of the marine options is necessary as additional wagon ferries may not be the optimum solution for Uganda's transport and transit needs: a combination of ferries and oil barges may be preferable. Unfortunately, URC is being distracted by ideas of reviving the domestic rail network. Many lines were probably never profitable and, with the expansion of the paved road network and the increased efficiency of commercial vehicles, it is almost certain that rehabilitation cannot be economically justified in the light of the very limited traffic and competing demands for investment resources. The Kasese Line has been a high government priority but we feel that its very high cost, construction of the Mityana - Fort Portal road and the higher priorities elsewhere in the transport sector, especially in rural feeder roads, must result in its re-assessment, preferably as part of an overall strategy to improve transport to Western Uganda. As mentioned above, the presently proposed cost of rehabilitating the Kasese Line, which will have an impact on a small part of the country equals the cost of rehabilitating 13,000 kms of feeder road which can improve transport and employment prospects for many districts throughout Uganda. d) Balanced Program of Road Rehabilitation and Maintenance. The road network was largely destroyed in the 1970s and early 1980s by an almost total absence of maintenance. The government has invested heavily in rehabilitating the main road network but has not provided the funds to maintain the rehabilitated network. Unless urgent action is taken, Uganda will face another maintenance crisis in the early 1990s and much of the investment made in the last few years will be lost. The Government has to recognize that providing the maintenance funds and organization to match the growing network of improved roads must be the highest priority in its allocation of funds to the transport sector. The rehabilitation needs of the road network are still immense. While many of the paved highways are now in good to fair condition, a large network of unpaved highways and almost all the feeder road network are still unrehabilitated. Road improvement will continue to dominate public investment in the transport sector. The Government should develop a balanced road program with investment complemented by a comparable growth in road maintenance funding . Without this approach, investment in some roads will be offset by deterioration elsewhere on the The Honorable - 4 - February 8, 1991 network. Without regular maintenance, the benefits of gravel road rehabilitation are lost in less than five years, often much sooner if traffic is heavy. The Government will need to mobilize additional funding, both from domestic and aid sources, for this maintenance effort and must enhance its capability to plan , organize and implement the program. A Highway Authority might help to overcome the present institutional weaknesses in the ministries responsible for roads and the concept, together with the alternative of strengthening the Ministry of Works, should be studied in detail, as soon as possible. Changing the institutional framework will have little effect, however, unless there is firm government commitment to effective road maintenance. Moreover, extensive transitional assistance will be necessary to overcome the immediate constraints to implementing a program of the scale required. Whatever institutional approach is finally adopted, Government should recognize that private contractors rather than force account operations must undertake the actual construction and maintenance. The public sector should encourage the development of the contracting industry and oversee its operations. e) Strategy for Air Transport Development. In view of the very serious deficiencies in the rural transport sector and its crucial broad-based role in Uganda's future development, the scale of resources proposed for civil aviation and air transport are reasons for serious concern. The importance of air transport to a landlocked country is well accepted but large investments to rehabilitate the Entebbe passenger terminal and to re-equip and expand UAC are not commensurate to the scale of the likely benefits. A much more cost effective response would be to remove the factors which restrict the number of overseas carriers willing to serve Uganda . The immediate priority must be the rationalization of responsibilities in the civil aviation sector through the creation of a Civil Aviation Authority. The Authority should then determine the relatively small investments required to bring Entebbe Airport to acceptable international technical and security standards. At the same time, UAC should give priority to improving the efficiency and quality of its ground handling operations. Once these improvements are achieved Entebbe will become much more attractive to overseas airlines and several additional international services can be expected. Investment in passenger facilities, beyond those necessary to provide security and basic sanitary facilities, is a very low priority, unlikely to generate significant benefits to the economy. The Government, while recognizing its previous very poor performance, is determined to re-establish a Ugandan air transport capability through UAC . It is absolutely essential that expansion of UAC's operations be closely linked. to its operational and managerial capability. The company's ground handling and freight operations must take priority over any attempt to re-enter long distance passenger operations. Any attempt by UAC to rapidly expand its passenger operations risks the re-occurrence of major financial losses. Government and UAC must agree on the commercial freedoms that the company requires and a phased timetable of expansion, tied to managerial , operational and financial performance indicators. The Honorable - 5 - February 8, 1991 In summary, with the objective of improving transport services for the majority of Ugandans, the first priorities should be; (i) improving road maintenance at all levels; (ii) improving rural roads to a passable standard with rehabilitation coming secondarily as resources become available; and (iii) limiting investments in air and rail transpo. r t and in civil aviation to those that are essential and immediately profitable. The donors should be prepared to respect these priorities, including the funding on a declining basis of local costs, and in the case of road maintenance of recurrent costs, rather than letting their own commercial interests prevail in 'their support programs. We are looking forward to the discussion about these issues with you and your staff in late March or early April. Sincerely Yours, Jonathan C. Brown Chief Infrastructure Division Eastern Africa Department  UGANDA TRANSPORT SECTOR MEMORANDUM SUSTAINABLE DEV.ELOPMENT & MAINTENANCE PRIORITIES FOR THE 1990s EXECUTIVE SUMMARY Introduction 1. Uganda is the most populous landlocked country in Africa, with approximately 17 million inhabitants and a population growth rate of around 3.2 percent p.a. Over 85 percent of the population live in the rural areas and agriculture generates two-thirds of GDP and almost all exports. National food production is adequate but acute regional shortages have occurred when internal distribution has been disrupted by civil disturbance. The monetary economy declined sharply during the 15 years of severe economic and political instability, 1971-1986; most important industries were virtually destroyed, tourism was ruined, foreign exchange earnings became totally dependent on coffee, and the institutional capacity of government and parastatal organizations collapsed. 2. Since 1987 the NRM Government has pursued a wide ranging package of financial stabilization and restructuring policies designed to reduce inflation to a manageable level and improve the balance of payments as preconditions for recovery and economic growth. The policies have included devaluation, liberalization of trade, promotion of export diversification and the ending of most price controls. The results have been impressive with economic growth averaging over 6 percent p.a. The economy is still, however, sensitive to external factors as demonstrated by the impact of the collapse of coffee prices and the recent oil price rise. The Government will need to intensify and extend its existing policies if it is to achieve its targets of financial stability, economic growth of 5 percent p.a. and a substantially improved external position. Major reforms are still necessary to increase government revenue an.d provide better incentives for both traditional and n.o n-traditional exports. 3. Even if the economic reforms are successful, there will be a continuing need for large inflows of concessional financing. Policies and projects will still have to be developed within a framework of seri.ous financial and foreign exchange restrictions. Rehabilitati.on efforts also face considerable institutional constraints, especially when implementation is undertaken by government itself. Public sector management is weak, trained manpower scarce and motivation in the public sector is largely absent . Major reforms are required to re-establish institutional effectiveness. The recent Public Expenditure Review (PER) very clearly detailed the issues facing the Government. The PER concluded that present public expenditure programs were largely ineffective with the Government trying to do too much with too little and recommended that it should concentrate on the essential core activities and try to do less better.  - ii - The Transport Planning Challenge 4. The overall size and coverage of the transport infrastructure is adequate but its condition is generally very poor, reflecting the almost total lack of maintenance during the period 1971 - 1986. The years of economic and civil turmoil significantly reduced transport capacity; acute shortages of . road transport capacity were experienced during the early 1980's, traffic carried on Uganda Railways fell from 1.64 million tons in 1971 to 0.26 million tons in 1984 and Uganda's connections to the international air transport network were reduced by over 70 percent. This period also exposed Uganda's vulnerability from depending on Kenya for access to the sea. 5. Since 1986, rehabilitation/reconstruction of the transport sector has been given high priority and much has been achieved : The rehabilitation/reconstruction of the Northern Corridor is substantially complete and many other important trunk roads have been rehabilitated. Uganda Rai.lways Corporation (URC) has been reestablished as a functioning institution with adequate motive power and rolling stock. Uganda has reduced its transit dependency by developing the lake/rail route through to DAR es Salaam. The critical transport shortages have been alleviated in areas unaffected by civil disturbance. 6. The transport sector is still, however, a major constraint to Uganda's economic and social development. The most obvious deficiencies have been overcome and much greater care will now be needed to select the right policies and projects. Unfortunately responsibility for transport planning is fragmented among several ministries and the trade-offs between different projects are not always fully appreciated, for example: The Kasese Line ($160m) • 13,000 Ian of feeder road rehabi.lit.ation i nes ($160m) • Pav.i ng 1,500 Ian of road Re-equipping Uganda Airl . i ntenance of 30 kms Paving 1 Ian of road ($0, llm) • rout.ine ma. 1 Ian of feed.er road rehabilitation ($12,000) • 6 1ans of a.ccess improvement Leasing a B707 f reigbter for one year ( $1. 5) • resealing 100 'km of paved road 7, The challenge for transport planning is to confront the present transport inadequacies, recognize the changed environment since 1971 and take the opportunity to determine the policies and priorities which will produce the transport system best adapted to meet the demands and  - iii - opportunities of the next ten to twenty years. Such planning will inevitably call into question the need to rehabilitate the entire pre-1971 infrastructure; the costs would be prohibitive and, moreover, it appears neither necessary nor desirable. 8. Critical decisions must now be made so that both the domestic and external transport systems are developed to support the Government's economic, social and strategic objectives. Priority must be given to: a balanced and sustainable road improvement program a long term commercial strategy for URC a cost effective policy for air transport development improved international transport security through the development of effective alternative transit routes. In addition the roles of the private and public sectors must be defined in relation to the provision and maintenance of the infrastructure as well as the provision of actual transport services. A Sustainable Road Improvement Program 9. Road transport dominates Uganda's domestic freight and passenger sectors; domestic rail traffic is marginal in comparison. Low cost, efficient road transport will support efforts to stimulate and diversify agricultural production but requires a road network which gives access into the rural areas and provides reasonable operating conditions on higher density routes. Since 1986, priority has been given to the rehabilitation of the main road network under the responsibility of the Ministry of Works. More recently the importance of the feeder road network has received greater recognition and the Ministry of Local Government is finalizing its feeder road strategy. 10. Inadequate maintenance was the main contributory factor to road deterioration, during the period 1971-86; unfortunately this neglect is being repeated. Unless decisive action is taken Uganda will be faced with another maintenance crisis in the early 1990's and the value of the investments made over the past five years will have been lost. There is a major imbalance in the funding of road improvement and maintenance. Even with increased funding in 1990/91 less than one third of the rehabilitated network will receive any maintenance. Too few resources are allocated to maintenance and those that are allocated are not utilized effectively. There is no clear maintenance strategy, funds are erratically disbursed, total staff costs are high, labor productivity is low and the maintenance funds are often used for reconstruction/rehabilitation. 11, Road maintenance is the key issue. Unless roads are adequately maintained the impact of any road improvement program will be marginal: improvement of some roads will be balanced by the deterioration of others.  - iv - Any program for road improvement must be integrated with the capacity and funding for road maintenance. The Transport Sector Memorandum (TSM) develops an outline for a balanced road program consisting of: full rehabilitation of the main highway network; strengthening of paved roads when required; paving of gravel roads when economically justified; full rehabilitation of important feeder roads; access improvements on other feeder roads through the installation of additional culverts; full maintenance of rehabilitated roads; and spot maintenance of other roads. Other than full maintenance funding for all rehabilitated roads, the only significant innovation is the culverting program which is designed to remove the major obstacles to motorized access on the very extensive network of lightly trafficked feeder roads. On such roads, motorized access rather than low operating costs is of paramount importance for agricultural and social development. 12. The capital cost of the program is estimated at just under US $400 million over the period to 2000, approximately US $100 million for the feeder roads and the remainder for the main road · network. If total annual development expenditure remains at approximately US$ 250 million, the road sector's share would be 16 percent which is in line with experience elsewhere in SSA. The impact of the program on overall road conditions would be very dramatic, with a significant expansion in the paved road network and basic improvements to most of the feeder road network: Uganda Road Network: Impact of Road Program on Condition Inventory (kms) 1990 1995 2000 Paved Highways Rehab. and maintenance 50 2,633 3,886 Rehab. no maintenance 1,355 Unrehab. 571 3 Total 1,976 2,636 3,886 Gravel Highwa:is Rehab. and maintenance 962 4,647 3,902 Rehab. no maintenance 961 Unrehab. 3,889 505 Total 5,812 5,152 3,902 Feeder Roads Rehab. and maintenance 29 3,121 5,521 Rehab. no maintenance 542 Culverted Unrehab. 19,763 13,313 2,000 Total 20,334 20,334 20,334  - V - 13. The program is based on the assumption that road maintenance capability will be rapidly expanded to a level and efficiency that has not been attained for, at least, two decades. Road maintenance funding will have to rise, over the period, from the equivalent of about US$ 3 million to just over US $33 million, a total of US of US $232 million for the ten years, approximately 6.5 percent of the total ministerial recurrent expenditure resource envelope. The funding of the road program, both capital and maintenance, must be a high priority for the Government and the donor community. 14. Even with finance available, it is very doubtful whether the proposed program could be implemented under the existing administrative arrangements; neither the Ministry of Works (MOW) nor the Ministry of Local Government (MOLG) has the necessary institutional capacity. The Government is undertaking civil service reform but its impact may not be sufficiently felt within the necessary timeframe. The problems are generally recognized and alternatives are already being considered and/or tried. It is clear that, irrespective of the arrangements made for planning and supervision, maximum use must be made of the private sector for the implementation of the road program. 15. Most major rehabilitation/reconstruct.ion projects are already contracted out but this must be extended to include both smaller projects and road maintenance. The domestic contracting industry is still relatively small and thus, in the short to medium term, there may be a role for parastatal arrangements similar to the present consortium approach adopted by the MOLG. It is essential, however, that the responsibilities be clearly and fully specified and tight financial and qual ity control exercised. 16. A Highway Authority (HA) has been proposed as perhaps the best means to plan, organize and control the road program. The HA, as parastatal, would be freed from many civil service employment rigidities and would allow competent staff to be recruited and retained while making it easier to dismiss the incompetent and unmotivated. There are, however, strong arguments in favor of strengthening the existing institutional structure through both the general civil service reform program and more specific assistance. To clarify the issues a detailed study of an HA or alternative organisational structure for Uganda is urgently needed. It is clear, however, that some interim measures are required as it could be several years before an HA was fully operational. The TSM proposes a program of intensive, collabora.tive technical assistance working in both regional and central ministry Headquarters. Strategy for Uganda Railways Corporation 17. A critical review and as s essment of URC's role in Uganda's transport system is now essential. There has recently been a marked resurgence in URC performance and Government has deci.ded that rail is the preferred transport mode for long distance bulk freight movements; consequently parastatals and the oil companies have been instructed to \  - vi - shift long distance traffic from road to rail. If the parastatals were operating on purely conunercial principles such instructions would not be necessary if indeed railways have the cost advantage. Government argues, however, that financial inducements to individual parastatal employees may override rational traffic allocation between competing transport modes. URC management is well advanced in developing relatively efficient transport services but has still to turn URC into an efficient commercial transport enterprise able to compete in the liberalized trade and distribution system foreseen in the government's macro-economic policy framework. 18. URC has the potential to play a key role in Uganda's external transport system but may face significant reductions in bulk traffic and will have to compete for the rapidly growing container market. URC may not be able to solve its present financial problems by increasing revenue but will have to reduce costs and concentrate on its most profitable activities. Unfortunately, without a significant change in direction, URC's competitive advantage will be dissipated by efforts to revive domestic rail services. The marine service, connecting Uganda to the rail systems of both Kenya and Tanzania, is URC's major asset. Detailed cost accounting is not yet possible but it is apparent that, once Port Bell is operational, URC will consist of a very profitable wagon ferry service and a domestic rail service which may not cover its direct costs and will certainly make no significant contribution to overheads or depreciation. The need to cross-subsidize domestic services may result in the marine service receiving insufficient resources and being unable to compete fully with road transport for external traffic. 19. The marine service is crucial for both URC and Uganda providing both low cost transport and transit security. It is vital that its importance be fully recognized and that it receives all the resources and management attention necessary. The effective capacity of the three existing ferries can be increased substantially through higher ferry utilization; this will require more crews and more flexible operation arrangements with Kenya and Tanzania. It is, however, probable that additional marine capacity will be needed by 2000 and detailed analysis is necessary to ensure that the optimum fleet configuration is selected. The present wagon ferries are cost effective because their actual capital value is negligible. Capital costs are, however, central for any additional vessels and simply increasing the number of wagon ferries may not be the ideal solution. A plausible case can be made for bulk oil barges which would also reduce tanker wagon turnaround times. The capital investment required to expand the marine service depends on the configuration of the fleet, the level of vessel utilization and the level of transit security that is required. Preliminary analysis suggests that capital investment needs could range between US $37-78 million over the ten years to 2000. 20. In comparison with the marine service, domestic rail services can have little priority and the justification for their continuation is doubtful. There is very little freight traffic except on the Malaba- Kampala section, passenger services make large losses, much of the track requires rehabilitation and a considerable section of the Norther line to  - vii - Pakwach has not been operated for many years. The rehabilitation of the Kampala to Kasese line, to serve the Hima Cement factory, has been a government priority for several years and funding for phase one had appeared committed. The scale of the project (present plans estimate US$ 160 million but even low cost scenarios would suggest US$ 75 million), uncertainties regarding funding, the low rate of economic return and the government's decision to construct a new high standard paved road broadly parallel to the rail line now cast considerable doubt on its economic justification, A re-assessment of the project indicates that, even if the capital costs are reduced very substantially, the investment is economically viable under only very restrictive conditions and that a road based solution is very probably preferable. Overall the Kasese line is a high risk, low return investment for which, in present circumstances, no compelling case can be made. Before any further investment is made, in either the new road or the rail line, a detailed overall assessment should be made to determine the best means of serving the transport needs of Western Uganda and adjoining areas in Rwanda and Zaire. 21. URC has invested heavily in locomotives, rolling stock and maintenance facilities. It is highly probable that, if operational efficiency rises to acceptable levels, URC will have considerable excess capacity for almost all traffics, except containers . No general expansion in the locomotive or wagon fleets can be justified, although some investment will be needed if rail captures a significant share of the container market . URC management should negotiate leasing arrangements for its excess locomotives/wagons with its neighboring railways; without such arrangements much of URC's past investment may become largely redundant. 22, Overall, URC can become a profitable, commercial enterprise concentrating on its marine and stock leasing activities. Conventional domestic rail operations cannot be justified on economic or commercial criteria and most lines could be closed without having any impact on the economy. The Malaba - Kampala section is in relatively good condition and should be retained for the additional transport security that it provides. The costs of maintaining the section should, however, be reduced to the minimum. If, for social or other reasons, the Government insists on continuing URC's domestic services, then the difference between costs and revenues should be met by Government in order that URC's commercial activities and competitive position are not affected. A Cost-Effective Air Transport Strategy for Uganda 23. Air transport offers Uganda international access without dependence on transit via neighboring countries. The Government attaches high priority to increasing participation in the international air transport system. Unfortunately, as Uganda and many other developing countries have discovered, airlines can be major consumers of foreign exchange while generating few benefits. The Government's objective must be to improve Uganda's access to reliable air transport at the least economic cost .  - viii - 24. The institutional framework for the planning, control and supervision of civil aviation must be improved. At present, responsibilities are shared between the Ministries of Works (airports and airstrips), Transport and Communications (air transport), and the Environment (meteorology). The TSM fully supports the recent proposal to consolidate all the functions into an independent Civil Aviation Authority (CAA) which would be funded from airline and passenger fees. The CAA would take direct responsibility for air navigation, international air transport rights, aircraft and pilot registration and Entebbe International Airport and the major domestic airports. The CAA would also supervise other airport/airstrips but they could be operated by others, including the private sector for tourist related facilities. 25. A second major priority should be limited investment to remove the technical constraints at Entebbe which deter foreign airlines unwilling to provide services. Investment in limited runway rehabilitation, fencing, passenger security, navigation aides, telecommunications and secure electricity supplies would cost approximately US $10 million. The Entebbe passenger terminal is very dilapidated and proposals have been made for its renovation. Full renovation will be costly and, except for the improvement of the very basic sanitary and security facilities, cannot not be considered high priority in the light of Uganda's overall transport deficiencies. 26. An efficient institutional structure and the removal of technical limitations at Entebbe should encourage more international air services. Government is unlikely to accept total dependence upon foreign airlines and some national participation in air transport may be inevitable . The Government recognizes the previous dismal performance of Uganda Airlines and has taken steps to re - organize UAC and strengthen its management, The present activities of UAC are very limited; ground handling Fokker F27, and some joint services with Kenya Airways and Air Tanzania. Plans have been made to re-equip UAC with a B707 freighter, a B737 and a B757 thus giving Uganda both regional and inter-continental capability. Even if services are operated jointly with other airlines the rapid increase in capacity will overburden management and probably result in further operational problems and very large financial losses. It is essential that a step-by-step approach be taken to the re-establishment of UAC's capacity: (1) Strengthen management, resolve the debt issue, streamline staffing and develop ground handling into a sound financial base. (2) Develop cost-effective services for the B707 freighter. The external benefits to the horticultural sector may offset possible UAC operations losses. (3) Some regional passenger capacity may be desirable for national security but UAC should not consider long distance passenger services until its other activities are operating efficiently. There is no prospect of financially viable independent services  - ix - and initially UAC should agree to block seat purchasing with established operators. Once this is operating satisfactorily, joint services could be considered. 27. Government must accept that the organization of effective and financially viable passenger services will take time. The expansion of UAC's activities should be linked to an agreed set of financial, management and performance indicators. Unfortunately UAC may move prematurely into the passenger market and then seek subsidy or protection: Government should resist UAC requests to modify its open skies policy. If UAC is to become a successful commercial institution, Government must allow commercial freedoms including access to foreign exchange, UAC control of routing, staffing and pricing policies, and possibly freedom to open capital ownership to outside investors. Improving Uganda's Transit Security and Efficiency 28. The opening of the Tanzania route has significantly improved Uganda's transit security, The efficiency and capacity of the route depends on the Tanzania Railway Corporation (TRC) which remains a very weak institution although major assistance programs are underway or planned. To raise the level of Uganda's transit security, serious consideration must be given to the further development of the Tanzanian route. Present TRC plans, developed for the Railways Restructuring Project, include capacity for transit traffic very considerably below the transit security requirements mentioned in Uganda. TRC cannot be expected, however, to finance the capacity to move 50 or 60 percent of Uganda's trade if that capacity is only used during periods of emergency. The Government must decide the level of emergency capacity that it requires and the means by which it will be generated and financed. Trackage rights, allowing complete URC trains to operate through to Dar es Salaam, could provide additional movement capacity through utilizing URC's excess locomotives and wagons but some additional investment in TRC's infrastructure would also be necessary. The Tanzania route will probably continue to have higher direct and indirect costs than the rail route through Kenya and the Government must also decide how, in non-emergency periods, customers can be attracted to use the route. This will become especially important if the role of the public sector in Uganda's external trade is reduced by trade liberalization. 29. Consideration should also be given to reducing Uganda's dependence on TRC, The concept of a new transit rail link from Musoma to Tanga port has recently been resurrected but the costs, both financial and environmental, would be prohibitive. A very significant short term improvement to transit security could be achieved, however, by modifying the decking on the existing wagon ferries to allow them to carry commercial vehicles. Road transport is always able to provide a quicker response to emergencies than rail and the ability to move trucks across the lake to Mwanza would give Uganda much greater transit flexibility. If additional ferries are purchased, the costs/benefits of incorporating a second deck,  - X - specifically for trucks, should be investigated and the wagon decks should certainly have the capability to carry trucks. 30, Despite improvements to the cost and efficiency of the Tanzania route, Kenya will continue as Uganda's natural access to the sea. Every effort must be made through both bilateral and multi-lateral channels to improve the present road and rail routes. Unfortunately present attitudes within Kenya would seem to preclude the early relaxation of the transit and security arrangements imposed on road transport, Emphasis should thus be given to improving the level of cooperation between the railways especially in joint marketing to penetrate the container market. The use of through rail container services, operating under more relaxed transit regulations than road transport, offers very considerable commercial potential for both railways. The Role of the Private Sector 31, The private sector provides most domestic transport: the great majority of freight transport, almost all urban public transport and a significant proportion of inter-urban bus capacity on high density routes. Private truckers also move about 60 percent of Uganda's foreign trade although much of the capacity is owned by Kenyan and international companies. Forwarding and clearing is largely undertaken by the private sector and attempts by the parastatal company, Transocean, to impose a quasi-monopoly/regulatory role have apparently been dropped. Overall the private sector has succeeded in overcoming the very severe transport shortages that occurred in the early 1980's. As long as the Government maintains the infrastructure and does not attempt detailed control/direction/price regulation there is no reason why the private sector should not continue to provide the level of transport service required. It is essential, however, that the sector has access to foreign exchange for vehicles, spare parts, types etc; bus and truck imports will require US $400 million in the period to the year 2000. 32. Domestic construction contractors have traditionally played little part in the construction and maintenance of Uganda's transport infrastructure. It has thus been large foreign contractors, Sbpervised by foreign engineering consultants, that have undertaken most of the large construction/rehabilitation projects. If the proposed road program is to be implemented, it is clear that very considerable reliance should be placed on the private sector, both domestic and foreign, rather than force account operations by Government. Private contractors appear able to recruit, retain and motivate the skilled staff who are in such short supply within the public sector, 33. Developing the domestic contracting industry to undertake the program will not be simple. The sector is relatively small, has little experience in road construction and maintenance and is often reluctant to work for the Government because payments are often delayed. A wide range of private contractors will be needed for the road program; lar ge contractors able to undertake construction and the periodic regravelling/resealing on the main highway network, smaller contractors to  - xi - install culverts and individuals or small labor groups to carry out routine road maintenance. A fundamental change in orientation away from the traditional, ministry force account approach will be necessary if the program is to succeed. A major training effort will be necessary and mechanisms developed to support the provision of equipment for the smaller contractors. More important, however, is the establishment of a conductive financial environment under which contractors are regularly paid for the work performed. Without the guaranteed payment, contractors will continue to avoid government contracts and confine their activities to the private sector and possibly parastatal customers. The Role of the Public Sector 34. The direct public sector participation in the provision of domestic transport services is limited. Two inter-urban bus companies and various parastatal companies and agricultural marketing companies run trucking fleets. The Government does not attempt to regulate prices in the freight sector and there is little enforcement of vehicle loading or use regulations. The state plays, however, a pervasive indirect role through the import of vehicles and their allocation to state owned or associated institutions, including cooperatives. Private transporters have had to obtain funds from the Bank of Uganda. Government plays a much more active part in external transport through its ownership of URC and UAC and its direction of public sector and petroleum traffic by mode and route. 35. Even in countries where transport planning expertise is not a constraint, direct state involvement in the transport sector has usually been extremely inefficient: the private sector almost always provides more efficient transport services at lower cost. In Uganda every attempt. should be made to maximize the contribution of the private sector and reduce the direct role of the state to the minimum possible, concentrating resources on those activities which cannot be performed by the private sector. 36. Direct government participation in the transport sector might have been essential during the early 1980's but now appears increasingly unnecessary. State ownership of UAC and URC may remain, for strategic reasons, but the companies should be expected to operate on full commercial principles and specific compensation should be paid for any 'social service' or 'strategic' obligations. The need for state ownership of bus companies is very questionable and their sale back to the private sector would be appropriate. Government imports of commercial vehicles through barter or aid arrangements may continue but the vehicles should not be allocated by government but through the market. 37. The planning, supervision and funding of the transport infrastructure must remain the primary task of the state even though the actual implementation can be contracted to the private sector. While there may be general agreement on the importance of roads to Uganda's development there is still perhaps not full recognition of the financial n~eds of the sector and the consequences of underfunding. Road users contribute a significant proportion of total government revenue, roughly equivalent to  - xii - total road expenditure, but additional specific road user charges, especially on heavy commercial vehicles, may be necessary to fund the proposed road program. The use of earmarked funds from license fees and fuel taxes may be the encourage private sector participation in road construction and maintenance activities. 38. Establishing investment priorities and a broad policy framework is essential for transport development in Uganda and should be the primary task of the transport ministries. Normal planning and regulation of the transport sector in Uganda is severely hampered by the lack of reliable data and an acute shortage of trained and experienced personnel. Unless these shortcomings are remedied, Government cannot be provided with a sound basis for decision-making. Public Sector Transport Investment Requirements 39. A very broad analysis of the transport sector, 1991 - 2000, suggests the need for US $527 - $627 million of public investment, largely concentrated in the roads sector: Investment Requirements 1991 - 2000 (US $ million) Roads Main highway network 298 Feeder roads 99 Urban roads 40 Total 437 Railways 33 (with Kasese line rehabilitated) (108) Marine Service 37 (if utilization not increased) (51) Civil Aviation 20 Air Transport Total 527 (627) 40. Overall public investment in the transport sector could fall somewhere in the range of 20 - 25 percent of total development expenditure, ver similar to transport's share during the period .FY1989 - FY1990. If commercial policies are pursued operating surpluses should be sufficient to fund a considerable proportion of the investments in the railways, marine service.sand civil aviation. In addition to investment in the road sector there will be a. major financial requirement for road maintenance, estimated at US$ 232 million over the period. Existing levels of road user charges should generate revenue equal to the costs of road maintenance and slightly less than 70 percent of the inves~ment requirement in the road sector.  - xiii - Implementation of the changes in road user charges, proposed in the recent study, would generate sufficient revenue to cover all road costs. 41. Continued donor support will, however, be essential for the road program and donors must be prepared to finance both maintenance and local costs to safeguard the value of investments in the sector. In view of the major increase in road maintenance required, donors should adjust their lending programs and conditions to remove the biases in favor of capital expenditures. If Uganda has to continue providing counterpart local funding for the road investment program, there will be major problems in locally financing road maintenance. Donor funding of a proportion of road maintenance expenditure, possibly 50 percent of the foreign cost component, would make a very significant contribution to the successful implementation of the overall road program. Improved donor coordination will also be essential if the road ministries are not to be overwhelmed by the program, especially with regard to the maintenance of plant and equipment. In addition to the financial assistance to the road program very substantial technical support will be necessary to provide the expertise required to plan and supervise a program of the proposed magnitude.  - 1 - I. THE PRESENT TRANSPORT SECTOR A. Geographic and Economic Background 1.1 Uganda is the most populous landlocked country in Africa, bordered by Sudan to the north, Kenya to the east, Tanzania and Rwanda to the south and Zaire to the west. The country has a total area of 236,000 km2, about one seventh being swamp or lake. Lake Victoria is shared with Kenya and Tanzania and provides a key link in Uganda's external transport system. The country lies mainly at or above 1 200 meters and, except for mountains in the extreme east and west, is hilly. Adequate and evenly distributed rainfall, averaging 1270 mm annually, allows the central and eastern parts of the country to produce several crops per year. Overall food production is sufficient but there are some deficit areas and major nutrition problems can occur when food movements are interrupted. The population, estimated at 17 million, lives primarily in the rural areas. The Kampala urban agglomeration has a population of ove.r one million but the second city, Jinja, has only 200,000. Estimates of the overall urban population vary between 10 - 14 percent of the total population and most retain strong links with the rural areas, creating considerable passenger traffic demand. Population growth is thought to be around 3.2 percent p.a. 1.2 The monetary economy declined sharply during the economic and political instability of 1971 - 1986 and most important industries including sugar, tea and manufacturing virtually collapsed. Economic growth has averaged over 6 percent p.a. since 1986 but GDP per capita remains around US$ 280 and the non-monetary sector still accounts for over 40 percent of GDP. Agriculture dominates economic activity, generating almost two-thirds of GDP and almost all exports. The turmoil reduced total exports and resulted in almost complete dependence on coffee: Exports 1989: 176 300 tons of coffee and less than 7,000 tons of cotton, tea and tobacco combined Exports 1973: 253,000 tons of coffee and more than 160,000 tons of cotton products, tea and tobacco The acute vulnerability of Uganda was demonstrated by the fall in coffee prices following the collapse of the International Coffee Organization in July 1989. Political, health and security problems also ruined tourism which, in 1971, was the largest single foreign exchange earner after coffee and cotton. 1.3 Uganda once possessed one of the best developed economic and social infrastructures in Sub Sahara Africa but much of it was destroyed by 1986. Uganda has to face, therefore, the task of almost completely rehabilitating its physical and institutional infrastructure. Foreign aid and investment can restore the physical infrastructure but rebuilding the institutional capability raises many more difficult problems of human resource development and effective utilization.  - 2 - B. The Transport System in Uganda Overall Transport Flows 1.4 Data on transport demand in Uganda are improving but they are still limited, especially for road transport. An overall estimate of present Ugandan freight flows would suggest about 3 million tons of domestic traffic and one million tons of international traffic, with a 3:1 imbalance of imports to exports. In addition to being a landlocked country (LLC) Uganda. also plays an important transit role for other countries in the region; about 400,000 tons of Zaire/Burundi/Rwanda {ZBR) transit traffic pass along the Northern Corridor through Uganda. Rail transport plays a major role in Uganda's external trade but has an insignificant share in the domestic and transit markets, Table 1.1 below. Table 1.1: Uganda Freight Flows . 1989 {million tons) Domestic International Total Trade Import Export Transit Total Traffic Road 3.00 0.55 0.06 0.40 1.01 4.01 Rail/ferry 0.02 0.21 0.20 * 0.41 0.42 Air * 0.01 * * 0.01 0.01 Total 3.02 0.76 0.25 0.40 1.42 4.44 {* insignificant) Source: Mission estimates 1.5 Domestic road freight flows have been estimated from broad consumption and production data and, though crosschecked with road flow data, should be treated with caution. The estimate probably seriously underestimates very short haul traffic. Domestic rail traffic has fallen dramatically since 1973, from over 250,000 tons to only 16,000 tons, less than one percent of the market. The movement of freight by bicycle plays a much greater role in the economy, performing the essential collection and distribution functions in the rural areas. 1. 6 Estimates of passenger flows are based on even less information. Some indication of passenger movements can be generated from traffic counts but these must be converted to passenger estimates with assumptions on vehicle occupancy, trip length etc. Table 1.2 shows the estimates of passenger trips, excluding short distance trips.  - 3 - Table. 1.2: Uganda Inter-Urban Passenger Flows : 1989 Road transport 20 - 24 million Rail Transport 0.43 II Air : International o. 10 II Domestic 0.02 " Source: URC, PSAIR and Mission estimates 1. 7 In the early/mid 1980's traffic flows were not a reasonable reflection of underlying traffic demand, given the very severe capacity constraints. The acute shortage of road transport has eased and, where civil stability and reasonable infrastructure exist, excess capacity is more often reported. Some suppressed demand, affecting 10 - 15 percent of the population, probably persists in the districts still experiencing security problems. The Road Infrastructure 1.8 In 1971 Uganda's road infrastructure was, at the very least, adequate for the country's needs. The lack of almost any maintenance accompanied, on the main corridor, by the diversion of rail freight to overloaded trucks effectively destroyed much of the road network by the mid-1980's. The size of the network, almost 29,000 kms, is broadly in line with regional norms, taking into account both population density and GNP. The major shortcoming of the network is its very poor condition. Government has given high priority to the rehabilitation of the main paved road network but much of the unpaved network and almost the entire feeder road system remains to be improved, Table 1.3. Table 1.3: Uganda Road Network . 1990 (kms) Main Road Network Urban Roads Feeder Total Paved Gravel Total Paved Gravel Roads Network Rehabilitated 1 405 1 923 3 328 40 571 3 939 Other 571 3 889 4 460 400 260 19 763 24 883 Total 1 976 5 812 7 788 440 260 20 334 28 822 Source : MOW and MOTC Database 1.9 Much of the feeder road network was originally 'improved' with shaped cross-sections, drainage and often gravel surfacing but most roads have now deteriorated to the state of cleared tracks. 1.10 Unfortunately the lack of road maintenance has continued and is even starting to threaten some of the rehabilitated network. Routine maintenance expenditure on the main road network averaged US$ 300/km during the period 1987/88 - 1989/90, less than 20 percent of the need.  - 4 - Only about 1,000 km of the rehabilitated road network presently receives any maintenance. 1.11 Traffic flows on the main road network are relatively high () 1000 vehicles per day) in the immediate vicinities of Kampala and Jinja. Along the main Northern Corridor, connecting Uganda to Kenya and Rwanda, flows of 500 - 1000 vehicles are normal. Elsewhere on the main road network, flows of 100 - 300 vehicles per day are recorded. Traffic on the feeder road network is very light, reflecting their function and the operating conditions . The Road Transport Sector 1.12 The size of the vehicle fleet is not known precisely and estimates have to be made from new registrations and assumed wastage rates. It is clear that the total fleet is still well below the level of the earl y 1970's and that its composition has significantly changed, Table 1.4. The 1989 vehicle fleet esti.mates are broadly consistent with the consumption of fuel in Uganda. Table 1.4: Oga.o da Private Vehicle Fleet Car Pick-up Mini-Bus Bus Truck Mcycle Other Total 1971 23 771 4 988 665 903 6 795 6 161 l 227 44 510 1981 10 656 3 689 675 620 3 607 4 217 2 174 25 638 1989 · 13 130 7 571 2 441 569 3 819 4 240 3 676 35 446 Growth p.a. 1981-1989 3.5% 10.3% 16.9% -1.3% 0 0 6.9% 4.5% Source: MOTC Database 1.13 The total private vehicle fleet has grown at a reasonably consistent rate of 4.5 percent per annum since 1981 but the growth has been concentrated in light commercial sector while truck and large bus fleets have remained static or have fallen marginally. In addition, the Government has according to the Road User Charge Study an operational vehicle fleet of 3,000 - 3,500 vehicles. 1.14 The Road User Charges Study estimated total annual vehicle kilometers in 1989 to be around 1 100 million Vehicle Type Million Veh-kms Car 397 Pick-up 301 Mini-bus 149 Bus 35 Truck 213 Total 1 095  - 5 - Railways 1.15 The Uganda Railways Corporation was established by Presidential Decree when the East African Railway Corporation was dissolved in 1977. URC's 1 232 km network can be divided into four distinct links, Table 1.5. Table 1. 5: Uganda Railways Corporation Network Track Section Km Rails Line Ca:eacity lb/yd 1973 1984 (trains/day) Malaba - Kampala 251 80 14-18 6-9 Kampala - Kasese 333 50 7 3 Tororo-Loop-Jinja 146 50 14 2 Tororo - Pakwach 502 50/40/32 8 4 Source: URC 1.16 The Malaba - Kampala section is the main line linking Kampala with Kenya and has always been the most heavily trafficked section. The Kasese extension was constructed for a relatively short life span, using secondhand material, to serve the Kilembe copper mine. The loop line has been effectively redundant for many years and the Northern line was constructed as a very light development railway to serve the cotton producing region. 1.17 The rail system deteriorated dramatically during the 1970's; track capacity was halved and traffic fell from 1.64 million tons in 1971 to 0.26 million tons in 1984. In terms of the present infrastructure only the Malaba - Kampala section can be considered in relatively good condition. The Kasese link requires major rehabilitation/reconstruction and substanti.al rehabilitation may be needed on the Northern Line. Train services over most of the network are very limited, Table 1 . 6, even on the main line, where traffic is concentrated on the Kampala - Jinja section. Table 1.6: Uganda Railways Corporation Traffic :1989 Track Section Freight. Passengers ('000 mt) ('000) Malaba - Kampala 389 170 Kampala - Kasese 20 217 Tororo-Loop-Jinja * 22 Tororo - Pakwach 6 * Total 415 409 * insignificant Source: URC  - 6 - 1.18 URC operates its servic es with a fleet of 12 shunting and 55 mainline/branch locomotives (a total of 51 locomotives were running during 1989), 1517 wagons and 89 coaches. There has been considerable investment in wagon capacity to supplement the inadequate and aged stock inherited from EARC and over 60 percent of the wagon fleet is l ess than 10 years old. Except for a fleet of 9 Class 82 Alsthom, the mainline f l eet is light and freight trains are small. On the important Kampa l a - Ji n ja l i nk the 2 . 0 percent ruling gradient limits trains to 380 tons unles s d oub le-hea d e d. 1.19 In addition to its rail services URC operates t h ree wagon ferries, each having the capacity to carry 44 wagon uni ts, and two other vessels on Lake Victoria. The wagon ferries, introduced into service during the mid 1980's, now perform a key role for URC and t he Ugandan economy, providing access to both the Kenyan and Tanzanian rail systems and thence access to the sea. The ferries presently operate from Jinja but a new terminal is being constructed at Port Bell together with a rail spur to link the terminal with the main URC network. Once this terminal is operational rail movements on the high cost Kampala - Jinja section will be greatly reduced. Urban Transport 1.20 Uganda is predominantly rural, only about 12 percent of the population live in urban areas. While detailed information only exists for Kampala, it is clear that the quality of the urban transport infrastructure is very poor, 40 kilometers of road, approx.imatel y 10 percent of Kampala's network, has been rehabilitated since 1983 and funding has been agreed for a further 30 kilometers . Little action has yet been taken in t he other urban areas and urban road maintenance is still almost non-existent. Increasing traffic flows and an overly complex road system could result in traffic congestion becoming a major problem in the near future. 1.21 Urban travel is mainly by f ,o ot or bic ycle. In Kampala only 40% of trips involve motorized transport and motorized mobility is low: 0.4 vehicle trips/capita/day compared with 1,8 in Nairobi. Priv ately owned mini-buses provide almost all urban public transport as the ope r a t ors of large buses (both private and parastatal) find int er-urban routes more profitable. Fare levels are much h igher than in o t her develop ing countries, Ush 200 for an average trip of 5 kilometers, and appear well in excess of costs. There are also a significant number of buses providing transport for companies and institutions. The estimated modal distribution and traffic composition in Kampala is shown in Table 1 . 7.  - 7 - Table 1.7: Kampala Urban Transport Mode Distribution: 1990 Transport Mode Percent Person Trips Percent Road Traffic Motorcycle 1 3 Car 6 41 Pick-up 4 28 Total light vehicle 11 71 Minibus 29 22 Truck, bus and other 7 Bicycles 10 Walking -2.Q Total 100 100 Source : Mission estimates 1.22 During the acute transport crisis of the early 1980's URC started a very basic commuter service in Kampala, using cattle wagons. Despite very much lower fares, USh 100, patronage has fallen in t.he face of the rapidly growing minibus service. The number of fare-paying rail commuters has fallen to only 750/day in 1989, approximately 0.15 percent of the urban public transport trips. URC personnel also use the service for access to the central locomotive workshop at Nalukulongo. Civil Aviation 1.23 For a landlocked country air transport provides the only independent means of international access. Uganda's participation in the international air transport system has fallen considerably in the last twenty years (Table 1. 8), and has now the least involvement in air transport (measured by number of seats and points served) of any LLC in Africa. Table 1.8: Entebbe Scheduled Airline Service Points Served Flights Carriers 1970 44 113 19 1990 10 25 6 Change -77% -78% -68% Source: PSAIR 1 . 24 Responsibility for the civil aviation sector is split between three Ministries. The Ministry of Transport and Communicat ions is responsible for the provision of air traffic and navigation services and related activities in the Entebbe Fl i ght Information Region. The Min istry  - 8 - of Works is responsible for operating the main infrastructure and fire services at Entebbe International Airport and 11 domestic a.irfields. The Ministry of Environment provides the required meteorological services. The Ministry of Tourism and Wildlife manages several airstrips located within the national parks. 1. 25 Ente.b be Inte.rnational Airport has a multiple runway and taxiway system. The main runway requires some rehabilitation at the landing area and while the main navigation aids are generally working, their full reliability is not secured; they are "on test". Fencing and security require improvement. New firefighting vehicles have been supplied and are being commissioned. The passenger terminal is far larger than existing or anticipated traffic requires but is in a very dilapidated state with almost all normal passenger facilities either absent or unusable. 1.26 Domestic. Airport Facilities : the mission inspected three domestic airports under the responsibility of the Ministry of Works and an airstrip administered by the Ministry of Wildlife and Tourism. In general the runways are in relatively good condition but navigation aids and telecommunications either do not exist or do not work, buildings are in a bad condition and the facilities are not fenced. Air Transport 1.27 Uganda is, currently, almost totally dependent on foreign airlines for international air passenger transport. The activities of Uganda Airlines Corporation have been severely curtailed by the loss of its B707 at Rome and its general operating and financial problems. UAC now flies one F27 on a limited servi.ce to Nairobi and on domestic flights to Arua and Kasese. UAC's other aircraft, a B707' and F27, are to be sold. UAC also block purchases seats on a Kenya Airways flight to London a.nd operates joint flights with Air Tanzania to the Middle East and to Burundi. The Government is committed to the revitalization of UAC as a commercial operation and studies of its future development have been undertaken, new management recruited and management assistance contracted. UAC cargo services are likely to resume in the near future with a leased B707 freighter. 1.28 There are two small private air companies operating within Uganda. They use small aircraft and concentrate their activities on domestic and regional charter flights. They have no plans for expanding their services as demand is weak.  - 9 - International Transport Network 1.29 Uganda's main international transport links are schematically represented in Figure 1. Figure 1 Uganda : Primary International Transport Links SUDAr, UGANDA ZAIRE TANZANIA Tanga Car es Sataa'll Rail and road route Road route Rail/ferry route Prior to the introduction of URC's wagon ferries Uganda was entirely reliant on Kenya for access to the sea. Deteriorating political relations within the region convinced the Ugandan Government in the late 1970's that reduced transit dependency was essential. The wagon ferries have resulted in major shifts in Uganda's external traffic routings : Dry cargo rail traffic to/from Kenya has largely shifted from the Malaba route to wagon ferries operating through Kisumu, A significant proportion of Uganda's external traffic now moves by wagon ferry to Mwanza and then through Tanzania on TRC, to/from Dar es Salaam.  - 10 - 1.30 During 1990, there has been a significant increase in the use of the Malaba line for petroleum (POL) traffic as a consequence of the Government's directive to the oil companies to increase the use of rail transport. Some POL is moved by ferry from Mwanza but the ferries are not fully equipped for petroleum fire-fighting. It is planned to have one ferry fully equipped to carry POL from Tanzania. The routing of rail traffic for 1989 and the first eight months of 1990 is shown in Table 1,9, Table 1. 9: International Rail Traffic ('000 tons) 1989 1990(8 months) Malaba Kisumu Mwanza Total Malaba Kisumu Mwanza Total Imports POL 7 1 7 15 42 6 48 Other 18 127 51 196 6 90 41 137 Total 25 128 58 211 48 90 47 185 Exports 12 121 70 203 10 71 30 111 Total 37 249 128 414 58 160 77 296 (%) 9 60 31 100 20 54 26 100 Source: URC 1,31 If the Government succeeds in routing 60 percent of POL imports by rail, the use of the Malaba route will probably increase markedly unless and until the pipeline in Kenya is extended to Kisumu. 1, 32 i ed by In 1989, 60 percent of Uganda's foreign trade was carr. truck through Kenya. In the early 1980's Kenya dominated the market through Kenatco's monopoly of coffee traffic, Despite no apparent growth in the total Ugandan trucking fleet a recent survey at Malaba suggested that for dry cargo traffic, at least, Ugandan registered vehicles now play a significant role carrying 50 percent of import and 60 percent of road export traffic. Ugandan vehicles also carried over 20 percent of Zaire's imports and 40 percent of its exports. This change may reflect some increased local participation in the sector but it also reflects the growth of international freight forwarders/transporters with branches in several, if not all the countries of the region. Ugandan truck owners still complain that their activities are hampered by the difficulties they face in obtaining foreign exchange from the Central Bank. 1.33 Uganda is also an important transit country for the ZBR countries and, at times, southern Sudan. The political, economic and security problems of Uganda during the 1970's and early 1980's had serious repercussions for countries dependent on access through Uganda and encouraged the diversificat i on of transit routes within the region. Traditionally ZBR transit traffic was carried by rail to/from railheads at Kampala and Kasese but the decline in the capacity and service offered by  - 11 - the railways led to the abandonment of this pattern and all traffic now moves by road. Sustained improvements in the performance of KRC and URC could encourage the re-establishment of some rail transit traffic initially to Kampala, 1. 34 Most of the road transit infrastructure has been rehabilitated but the operating efficiency of the transit system could still be substantially improved. The success of Ugandan efforts to improve the capacity and quality of its international rail services is dependent on complementary performance by KRC and TRC and both these railways face major internal problems . Uganda is a member of the Northern Corridor Transit Agreement and the Preferential Trade Area and both organizations are attempting to simplify transit procedures and reduce transit costs. Unfortunately there appears little likelihood that Kenya will reduce its controls on transit traffic and vehicles : individual transit bonds, security procedures, police escorts for sensitive cargo, etc. Overall Assessment of the Transport Sector 1. 35 The present situation may not be completely adequate but it has improved substantially in the last few years The reconstruction/rehabilitation of the Northern Corridor will be substantially completed by the end of 1990, Many other important trunk routes have been rehabilitated and a start has been made to improve the secondary road network. URC has been re-established as a functioning institution which has, in many ways, progressed further than most other railways in Sub-Saharan Africa. URC has now adequate motive power, most types of rolling stock and maintenance facilities of high quality, More particularly URC has achieved considerable progress in reducing excessive staffing and introducing output- related incentives. Uganda has successfully reduced its dependency on a single transit route by increasing rail capacity and developing the alternative Tanzania route. The critical shortages of transport capacity, characteristic of the early/mid 1980's, have been largely alleviated in areas unaffected by continuing civil disturbance. This growth in capacity is reflected by the large number of mini-buses in Kampala, the plentiful availability of 'for hire' trucks and the increasing competitive pressures which constrain URC's tariff levels. 1.36 Despite these achievements Uganda's transport system must still be considered as a major constraint to economic and social development, Agricultural marketing is still severely hampered by the high costs of access into the rural areas, increasing the cost of food in the urban areas  - 12 - and reducing the value of crops to the farmer. URC operates with an infrastructure which has deteriorated, in some sections, to almost the point of collapse. Public transport has increased but fares are high in relation to average incomes. Uganda remains poorly connected, through air links, with the outside world. External transport remains constrained by operational and administrative difficulties in neighboring countries. 1,37 To return the transport system to its 1971 quality would require such massive investment that it is probably unattainable in the medium term. Nor is the 1971 infrastructure necessarily relevant to present conditions. A more restricted program targeted at the key constraints and issues will be necessary, The most obvious priorities in the transport sector have been or are being met, The second phase of the rehabilitation program will require much greater planning and careful analysis of choices if it is to provide maximum support to overall dev'elopment objectives. C. The Macro-Economic Framework 1,38 Uganda is slowly emerging from a period of severe economic decline and instability. Since 1987 the NRM Government has been pursuing a wide ranging package of financial stabilization and restructuring policies designed to bring inflation back to manageable levels and improve the balance of payments situation as preconditions for recovery and economic growth. The policies have included devaluation, the liberalization of trade, encouragement of non-traditional exports and the elimination of most price controls. The results have been impressive with growth rates of over 6 percent p . a. but recent events show how vulnerable the economy remains to external factors such as changes in the price of coffee and oil. Government revenue is still very low, even for SSA, and foreign financing remains a necessary supplement for government expenditure, 1. 39 The Government's economic targets include internal financial stability, sustained GDP growth rate of 5 percent p.a. and a substantially improved balance of payments position. The recent Public Expenditure Review (PER) clearly states the preconditions for continuing economic progress and the policy priorities: peace, security and political stabilit y; reduced inflation and improved fiscal and monetary performance; an environment in which private initiative can flourish; improved goverrunent economic services and infrastructure which facilitate, including higher quality of and wider access to education and public health; and  - 13 - strengthened institutions and increased capacity in both the public and private sectors. 1.40 Over the past three years the Government has made impressive progress in addressing the most urgent aspects of the reform agenda but major challenges remain. The reforms in the incentives and regulatory framework need to be deepened, the trade regime needs to be rationalized in conjunction with the Government's plans to achieve a unified market- clearing exchange rate by the end of 1991, incentives for traditional export crops must be improved, the industrial climate needs further improvements to attract private investment, and the financial sector needs comprehensive reform to improve the mobilization of savings and its allocation to productive activities. Such direct economic reforms must be supported by significant improvements in Uganda's economic infrastructure and services, includ.i ng transport, power and agricultural research and extension. Very considerable institutional strengthening will be necessary if the reform agenda is to be successfully implemented, Government capacity at both the national and local level must be increased and this will require substantial change; its is now critical that Government acts decisively to streamline and rationalize the civil service to make it smaller, better paid, motivated and more effective. 1.41 Public expenditure policy has to be geared to meeting the most pressing imperatives of this reform agenda. This requires, in particular, that public expenditure programs take into account the strengths and initiatives of the private sector, facilitate key sources of growth, principally through effective economic infrastructure and services; improve basic social services; and strengthen the capacity of the civi l service. At present, Government is largely unable to provide the basic preconditions for growth and development. Overall public expenditure is constrained by an extremely low revenue effort and by the need to reduce inflation. Defense comm.ands a major share of expenditure and the remaining resources are dispersed over a large number of ministries/self accounting agencies as well as an overstaffed, poorly paid and ill-equipped civil service. Meager resources are dissipated over a large number of public facilities and services with the result that the expenditure is not effective. Government is trying to do too much wit.h too little: it should do less better. Present realities necessitate an explicit recognition of financial and institutional constraints that limit the scope and pace of rehabilitation, and make it infeasible or undesirable to replicate the network of infrastructure and services of the past. 1.42 Major reforms are necessary, therefore, i .n public expenditure policy if Government is to fulfil succe ssfully its role in stimulating growth and development: planning and budgeting must be reoriented to ensure that activities critic al for the reform agenda receive greater priority in funding and institutional strengthening; concerted attempts must be made to raise the revenue effort;  - 14 - investigations must be undertaken to determine whether defense expenditure can be controlled and security provided more cost-effectively; expenditure allocations will need to be increased for critical activities and wages and salaries raised to improve incentives; and simultaneously, the financing of unproductive facilities, activities and personnel within and across sectors must be phased out. Public expenditure reform will require comprehensive actions that will ultimately result in a smaller size and scope of Government which will nevertheless be better equipped and motivated to carry out its essential functions. 1.43 The macroeconomic framework for the next three years is geared to achieving a 5 percent real GDP growth and reduction of inflation to below 10 percent by FY1992/93. Government expenditures are projected to grow over the next three years on account of increased revenue efforts and external assistance but the growth is quite modest. In the projections carried out for the Policy Framework Paper (FY1990/91-FY1992/93), public expenditures, consistent with inflation and growth targets, were progranu:ned to grow from 11.6 percent of GDP in FY1989/90 and a budgeted 13.9 percent in FY1990/91, to 15.4 percent of GDP by FY1992/93. This would imply a cumulative 30 percent real growth in recurrent expenditures over the three year period. Project aid and hence, development expenditure was projected to stay roughly constant in real terms. Recent economic developments (in particular, the oil price rise, a sharper depreciation of the exchange rate, as well as the shortfall in coffee exports thus far in FY1990/91) will, unless reversed, result in somewhat lower GDP growth (4.5 percent per annum) and a reduction in the projected real growth of recurrent expenditure to only 6 percent per annum. 1.44 The PER concluded, on the basis of rough orders of magnitude, that expenditure requirements for critical programs are considerably higher than the permissible increases in the overall expenditure envelope. Given a constrained resource envelope, a time-phased plan with prioritized and focused use of scarce resources towards these and other critical activities is essential. As a corollary to this, however, it is essential that resources be released within each sector by phasing out unproductive activities and facilities and undertaking cost recovery to the extent feasible. 1.45 Even if Government economic reforms are successful, therefore, transport policies and projects will still have to be developed within a framework of serious financial constraints. Critical choices must be made within these limitations to ensure that the selected actions fully support the underlying objectives of government policy. The PER conclusions on the need to target expenditure are equally valid at the intra-sectoral level. Similarly the recotmnendations on the need to strengthen institutional  - 15 - capacity must be applied to government activity in the transport sector: management capacity is weak, trained manpower limited and motivation largely absent. The overall skill shortage within Uganda and among Ugandans (including those resident abroad) cannot be fully quantified but the private sector, apparently, faces far fewer difficulties in attracting and retaining skilled staff and motivating employees. The private sector, with the right encouragement has enormous potential to undertake a wide range of functions in the transport sector for which Government lacks the implementation capacity. Unfortunately much of the emergent private sector is reluctant to work for government which either:: does not pay or pays late for services rendered. 1.46 The PER stresses the importance of the process of expenditure prioritization and allocation in Uganda. The present budgetary process largely replicates historical shares and, therefore, does not embody any mechanism for assigning greater emphasis to particular activities or phasing out others. Government has embarked on a budgetary reform program and the PER recommends that this is strengthened. Within the transport sector a coordinated effort is needed to review priorities between sub- sectors (road, rail, lake and air) to ensure that government resources, allocated to the transport sector, are used to maximum effects. Many of the critical programs identified involve decentralized initiatives and the PER recollllllends that the roles and responsibilities of the various levels of government be more clearly delineated and a careful study made of the appropriate institutional mechanisms for funding such activities. Implications for the Transport Sector 1.47 Successful implementation of the government's economic policies and a sustained growth rate of 5 percent p.a. will undoubtedly have a major impact on the transport sector, including substantial increases in demand in some areas and for some commodities. But because Uganda has to restructure completely parts of its economy, it is not possible to justify the standard assumption that traffic demand will grow at approximately the same rate as GDP or slightly higher, e.g., in the range 5 - 7 percent. The impact of trade liberalization, economic rehabilitation and crop diversification could have very widely differing effects on transport - ·in some cases increasing demand, in others reducing demand or shifting the direction of transport movement. 1.48 Tot.al Transport Demand Growth: There is, as yet, little coherent sectoral planning upon which to base overall traffic predictions. Agriculture is the key to economic growth but future policies have yet to be fully developed, let alone forecasts of possible tonnages. The Ministry of Agriculture has produced one set of forecasts but they are generally considered much too optimistic. Planning for manufacturing production is also not yet fully developed. In this Memorandum the following have, therefore, been taken into consideration when projecting transport demand: Overall GDP growth of 5 percent p.a., and a population growth of 3.2 percent p.a. Consumption per capita is, however,  - 16 - expected to be relatively static, especially in the near future. Urban population growth will be significantly faster than overall population growth, possibly 6 percent p.a. and it is this growth that will largely determine the domestic movement of food. The expected shift in urban food consumption from matoke to maize (much higher calorie : gross ton ratio) will tend to offset the transport effects of the growth in the urban population. Exports must grow rapidly if the economic objectives are to be achieved. The magnitude of the transport implications will depend crucially on crop diversification, especially whether maize is commercially viable as a regional export or whether the real increases will be in higher value crops such as beans, simsim and horticultural produce. Successful rehabilitation of the existing manufacturing and agro-industrial sectors could result in a major reduction in the import of basic commodities such as cement, sugar and possibly salt without materially affecting the total volume of consumption. The overall value of imports is expected to grow, at possibly 5 - 6 percent p.a., but a shift toward higher value commodities might be expected and consequently the volume of dry cargo imports could increase at a rather slower rate. Diesel imports would be expected to grow broadly in line with freight transport demand. In view of the overall budgetary and foreign exchange constraints Government might, however, restrict the growth in gasoline imports by raising tax. levels. Much will depend on the trend in world petroleum prices,. 1.49 Overall domestic transport demand seems likely to grow at about the same rate a.s GDP i.e. 5 percent p.a. This is likely to combine a rather faster growth in freight transport, possibly 6 - 7 percent p.a., and a rather lower growth in passenger vehicle movements, with possibly a shift toward higher capacity diesel vehicles and more fuel efficient cars as Government limits the growth of gasoline imports by making the fuel more expensive for the consumer. 1. 50 Export volumes could grow relatively fast, with a rapid growth in non-traditional exports but from a small base, possibly an annual average growth of 9 percent p.a. The growth in import volumes is likely to be significantly lower than for exports, probably at a rate around that of GDP. Given the existing predominance of import flows the rapid growth in export flows will not necessarily mean the need for additional transport capacity, Table 1.10.  - 17 - Table 1.10: Potential Future Freight Traffic Demand (million tons) Domestic Imports Exports Total Total POL Other External 1989 3.00 0.25 0.50 0.25 1.01 4.01 1995 4.38 0.34 0.68 0.37 1.39 5. 77 2000 6.00 0.43 0.86 0.58 1. 87 7,87 Source: Mission estimates 1.51 Modal Distribution: The macro-economic policies being pursued by the government could have important implications for the distribution of traffic between the modes, especially for external traffic. Key elements of the present policies are the liberalization of agricultural marketing and foreign trade, together with a reduction in the role of the parastatal companies and a reduced level of barter deals. Parastatals such as the Produce and Marketing Board thus no longer have the monopoly for marketing such commodities as beans and groundnuts but have to compete with private traders. Similarly, the reduction in barter deals has forced the Foods and Beverages Corporation into the marketing of agricultural crops to generate the foreign exchange necessary for its imports. 1.52 The trend in marketing away from monopoly parastatals toward the private sector is likely to make it more difficult for the railway to retain its market share. Small traders, dealing with relatively small consignments and having relatively limited financial resources, are likely to show a preference for the speed and service provided by road transport, especially for the relatively short domestic distances. For the railways the parastatal form of marketing was ideal as it tended to consolidate produce from small markets into central depots and thus allow bulk shipments. A more fragmented market gives the advantage to road transport. Even if the domestic rail lines of URC were to be fully rehabilitated its share of the market would remain very small. 1.53 The proposed liberalized external trading system will also tend to provide relative service advantages to the road transport sector. Acting against this trend will be the long hauls to the coast and the relatively low value of many of the non-traditional exports. With the increased volume of exports the relative directional imbalance will fall and road rates for export cargoes will rise. It does seem likely, however, that there will be a major increase in the containerization of both imports and exports, especially if coffee trading is fully liberalized. The modal distribution of traffic between road and rail will depend critically upon the efficiency and commercial policies pursued by the railways in the region, both URC and its partner railways to the sea. If present rail service standards are maintained, the shift away from public sector trading will probably result in a fall in the rail modal share. With increased efficiency and market-based pricing, however, the railways could attract  - 18 - considerable traffic, moving back toward its modal share of the early 1970's. D. Transport Sector Policies and Practices Direct. Government Ownership 1.54 Government provides the infrastructure but most transport services are provided by the private sector. Direct government participation in transport. consists of Uganda Railways Corporation, Uganda Airlines Corporation, Transocean (a nationalized freight forwarding and clearing Agency), two nationalized inter-urban bus companies (Peoples Transport Corporation and Uganda Transport Corporation) and the transport services provided as part of their other activities by such parastatals as Foods and Beverages, Coffee Marketing Board and Produce and Marketing Board. For domestic traffic the role of the public sector is limited; it is much greater for international transport. Gover.n ment Intervention: Domestic Transport 1.55 Government intervention is far more extensive than its direct participation. Government determines the allocation of foreign e.x change for fuel imports and controls pump prices. Many of the trucks and buses are imported under barter or aid arrangements and Government allocates the entitlement to purchase these vehicles to departments, parastatals, and cooperatives. Parastatals may receive some limited assistance in purchasing the vehicles but cooperatives must arrange their own financing. Private entrepreneurs have to compete for foreign exchange. A new agreement, for about 1,000 trucks, has been initialled but final arrangements have been postponed as there is no immediate shortage of trucking capacity. Government establishes rates for inter-urban bus services and indicative rates for urban services. URC rates have to be approved by Government but competition rather than government is becoming the major influence on domestic rail tariffs; trucking rates from Kasese to Kampala are reported to be as low as the rail tariff. 1.56 Government does intervene in the operations of the parastatal bus companies to ensure that services are provided in areas where private operators will not work. The fare structure provides an additional Ush 1 per passenger-km for running on bad roads but this does not fully reflect the additional operating costs. It seems likely that PTC and UTC are not fully compensated for their social service obligations especially as these have included providing buses to the army during periods of emergency. Government Intervention: International Transport 1.57 Government intervention in external transport is extensive through its ownership of URC and its direction of traffic by mode and route. Government external transport policies are designed to lower  - 19 - overall transport costs and increase transit security through increasing rail traffic and the use of the Tanzania route. Parastatals have been instructed to use rail for long distance freight transport and URC has the transport monopoly for coffee exports. The petroleum companies have recently been instructed to move 60 percent of fuel by rail. 1.58 There are considerable direct cost savings to be achieved by switching import traffic from road to rail on the Kenyan route: US$45 per ton for dry cargo and US$15/m3 for fuel (road rates may rise by $5 - $10 in the near future) but these are offset to some extent by higher indirect costs. Total tra.nsit costs for imports from Mombasa, reported in the Great Lakes Corridor Study, were: Road US$ 100 + 4.45% CIF Rail US$ 53 + 8.75% CIF There are much smaller differences in the road and rail transport rates for e,xports. Overall, within the region, there is considerable empty backhaul truck capacity for exports and truckers are willing to accept much lower rates: US$ 50 per ton was frequently quoted but i t appears that rates can vary widely, depending on the precise state of the market and the quality of service required. Rail export rate.s are very similar to those charged on import traffic. 1.59 Given the level of transport cost differences, especially for low value imports, the official direction of traffic might seem at best unnecessary and, at worst, economically inefficient as there will always be some situations when rapid delivery is required. If transport allocation by parastatal companies, between state-owned rail and private truck, was always made on purely commercial criteria the instructions would be redundant. Unfortunately the private interests of those allocating transport contracts can often be an important factor in decision-making. There may thus be some justification for the directive but as trade is increasingly liberalised this justification will diminish. Even in the present circumstances there must be some flexibility allowed to the parastatals. 1.60 Development of the Tanzania route was a key decision and it is intended that the route should have the capacity to carry 60 percent of Uganda's foreign trade; it presently carries about 12.5 percent. The route has been used mainly by barter consignments but during a period of tension with Kenya the oil companies were instructed that 70 percent of POL should be moved from Dar es Salaam (this would require about US$6 to US$8 million in additional investment). The route is significantly more expensive than the Kenya rail route (approximately US$ 23 per ton) and would probably be little used if the market alone determined route choice. The Ugandan Government considers the Tanzanian route an insurance against dependence on only one access to the sea. 1.61 Traffic direction to rail and the Tanzanian route has concentrated on the government controlled sector (parastatals and oil companies). The private sector chooses to use road transport through  - 20 - Kenya. This is reflected in the URC's customer profile: during the first eight months of 1990, 70 percent of freight revenue came from the parastatal sector and about 20 percent from the oil companies. At one time, even tighter control of state and parastatal trade was suggested; Transocean proposed that it should have the monopoly of forwarding and clearing but, fortunately this wa.s never implemented. Government Policy: Internationa.l Air Transport 1. 62 It is government policy to develop international air services by encouraging more foreign carriers, developing an efficient and commercially viable UAC and adopting a liberal policy toward air cargo services and the growth of private sector air services. Action has started to restructure UAC and it has been agreed that additional aircraft will not be added to the fleet without full economic justification. Government policy is not to subsidize or protect UAC which will remain, for strategic reasons, a parastatal company. The extent to which Government will allow UAC to operate with the commercial and financial freedom necessary in the airline sector is not clear nor what government policy will be if the commercial objectives are not achieved. Government has also made it clear that joint ventures with other airlines are favored as the approach to developing long haul passenger services. Government Policy: Cost Recovery 1.63 The private sector can be assumed to cover its costs and thus this discussion is centered on government and parastatal activities in the transport sector. 1. 64 Road Infras·t ructure: expenditure on the rehabilitation of the road network has formed a major element in the Government's investment expenditure program. A recent study suggested that in 1988/89 total revenues from road users and total expenditure on roads were broadly balanced, Table 1.11. Table 1.11: Road Expenditure and Road User Revenue 1988/89 (US$ million) Road Expenditure Total Road User Revenue Investment Main highways 39.65 Licenses/fees 5.51 Feeder roads I. 23 Road tolls 0.94 Transit fees 1.05 Maintenance Main highways 5.30 Fuel taxes 12.82 Feeder roads 1.52 Other import taxes 25.38 Total Expenditure 47.70 Total revenue 45.70 Source: Road User Charges Study  - 21 - 1.65 The study argued, however, that total road user revenue contained an element of 'pure taxation' to fund general government expenditure. It was assumed, on the basis of the estimated tax revenue from conunercial imports, that 33 percent duty might be the general tax. rate and that only revenue in excess of this level could be considered as a road user charge. If this adjustment is applied to the 1990/91 road user revenue, estimated by the study, the level of specific road user charge revenue is approximately 50 percent of total road user revenue and taxes on fuel become the key road user charge, accounting for approximately 90 percent of the expected 1990/91 road user charges, Table 1.12. Table 1.12: Road User Revenue and Road User Charges: 1990/91 (Ush Billion) Total Road User Revenue Road User Charge Revenue Licenses/fees 0.98 o.98 Road Tolls 0.42 0.42 Transit Fees 0.50 0.50 Fuel 21.28 14.93 Other Input Import Taxes 10.60 * Total 33.78 16.83 (* insignificant) Source: Road User Charges Study 1.66 The study concluded that, over the long term, road user charge revenues were likely to exceed total :r oad costs although there was likely to be an initial shortfall resulting from high levels of capital expenditure. Light vehicles contribute most of the revenue and, if the costs and revenues attributable to particular vehicles are analyzed charges on conunercial vehicles should be significantly increased. To cover attributable road maintenance costs the study suggested that the tax on diesel should be increased and that annual license fees would have to be increased very steeply to cover the capital costs of road rehabilitation. 1.67 Transit vehicles need temporary road licenses - the equivalent of border entry fees. Their level has fluctuated sharply in recent years the truck/trailer fee, paid in foreign exchange, rising from US $190 per entry to US $300 in 1986/87 and then falling to US $100 in 1988/89. Transit traffic is price sensitive and increased fees diverted trucks to routes through Tanzania. The Road User Charge study recotmnended a fee of US $27 per 100 veh-kms for a loaded truck to recover road maintenance costs (both routine and periodic), about 20 percent higher than the existing charge, and a fee of US$49 per 100 veh-kms to recover all costs. In negotiations within the Preferential Trade Area (PTA) for a harmonized transit toll, Uganda has insisted on a much higher fee than other countries, US$27 per 100 veh-kms for all trucks. On the basis of the distribution of loaded and empty transit trucks the US$27/100kms fee proposed for loaded trucks is very close to the US$20/100kms for all trucks proposed by some other countries in the PTA.  - 22 - 1.68 Parastatal Transport Companies : the Ugandan Government has adopted the general policy that parastatals should be financially self- supporting and not a burden on the budget. On the other hand the Government has strategic objectives in the transport sector and it is not certain whether closure would necessarily follow financial failure. 1.69 Uganda Railwais CorEoration: throughout most of the 1980's URC produced apparently acceptable financial results, Table 1.13. Table 1.13: URC Financial Ratios . 1980 - 1989 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Working 93 100 87 72 63 58 64 75 66 54 Operating 111 109 89 90 80 63 69 83 92 154 where: Working ratio = working expenses/operating revenue Operating ratio= (working expenses+ depreciation)/operating revenue Source: URC 1,70 While URC appeared to generate sufficient revenue to cover its recurrent costs, maintenance was limited to the funds available and consequently a considerable backlog developed. URC was dependent on outside sources for capital investment/replacement, The depreciation charges were based, until 1989, on historic costs and did little to reveal the real financial position. It is almost inevitable that in the absence of major change, URC will continue to depend on Government to fund part of depreciation expenses and new capital acquisitions: depreciation based on the revised asset values almost exceeds operating revenue, Table 1.14. Table 1.14: URC Accounts 1988 - 1989 (Ush million) 1988 1989 Operating Revenue 3446 5460 Working Expenses 2265 2956 Net Working Surplus 1182 2505 Deprecia.tion 905 5437 Net Operating Revenue 276 (2932) Miscellaneous 33 (17) Net Result 309 (2949) Source: URC  - 23 - URC generated a large working surplus but its expenditure program was curtailed in 1989 because of cash flow problems resulting from delayed payment by its parastatal customers. Outstanding debts rose from Ush 1.51 bi.llion in 1988 to Ush 3,54 billion in 1989, almost 65 percent of operating revenues. 1.71 Uganda Airlines Corporation: The Mission was unable to obtain detailed financial data on UAC's past activities but it is known that the Corporation has accumulated large debts and has generally to work on a cash basis with suppliers. Under the restructuring program the Government will assume responsibility for debts accumulated before 1989 but the accounts have not been finalized. Government policy for the future is that UAC should not require government subsidies but it recognizes that there may be need for 'occasional help'. UAC obtains substantial revenue, US$4 . 2 million annually, from its handling monopoly at Entebbe but losses have been generated by its actual air operations. 1.72 .Entebbe International Airport government revenue from airport fees are considerably higher than the recurrent costs of operating the airport, In 1989 almost US$3 million revenue was collected : Landing fees US$1, 072 890 Air navigation fees 530 324 Passenger fees 1,322 320 Total US$2,926 134 Total recurrent expenditure for Entebbe, including navigation and airport costs, totalled only Ush 210 million (about US $0.66 million) and development expenditure Ush 194 million (US $0.61 million). A total surplus of over US$1.5 million was thus generated. 1.73 Bus Companies : PTC and UTC have not received direct government operating subsidies although they have received buses on concessional terms. UTC is now in serious financial difficulties and Government's resolve on parastatal financial self-sufficiency will be tested. Unfortunately the accounts of the bus companies were not available to the mission but it is known that their financial position is complicated by having to operate on bad roads, to allow civil ser-vants to travel on warrants which are rarely paid by Ministries, and to provide buses to the army for which they may not be fully re-imbursed. If UTC and PTC are to continue as parastatal companies their management should be provided with transparent financial objectives and payments for the other services that they render to government. Without such transparency their financial performance cannot be clearly judged. Government Investment Program 1. 74 Investment in the transport infrastructu.r e and parastatals has formed a major part of the Government's Development Program, reflecting the acute needs and the priority which Government attaches to the sector.  - 24 - Expenditure in the roads sector has consumed the majority of the expenditure and this is likely to continue. The Government's recent proposed investment program, for the years 1990/91 - 1993/4, allocates over 17.5 percent of total development expenditure to transport, 82 percent of which is to roads, Table 1.15: Table 1.15: Planned Development Expenditure : 1990/91 - 1993/94 (US$mil1ion) Roads Main Highways 172.7 Feeder Roads 66.4 Urban Roads 18.5 Studies 4.8 Total 262.5 Railways 46 .1 Aviation 10 . 4 Water 0.6 Total 319.6 Source: MEP 1.75 The planned roads program shows the start of a considerable shift in emphasis away from the main road network toward feeder roads and the urban road infrastructure. In the two years 1987/88 - 1988/89 the main roads received almost 99 percent of expenditure, in 1989/90 over 80 percent while for the new four year program the other roads receive almost one- third of expenditure. 1.76 The planned expenditure is largely funded by concessional financing. There are, however, two significant exceptions. Uganda is locally funding the purchase of additional rail wagons from Zimbabwe at a cost of US$11.28 million. The Government has also been funding the construction of the Fort Portal - Mityana road partly through a coffee ba rter deal with the Government of Yugoslavia. The equivalent of US$19.3 million has already been spent on the road and another US$28 . 2 million is required. Donor funding is being req uested to complete the road but , in the 1990/91 Ministry of Works Development Budget, local funding of Ush 3.3 billion (US$6.9 million) has been allocated to the project. Government Recurrent Expenditure 1.77 Government expects the parastatals to generate sufficient revenue to recover their recurrent costs. Government recurrent expenditure is thus largely concerned with funding recurrent expenditure for the roads sector and civil aviation facilities and services . All expenditure is allocated from the general budget and no sources of funds are earmarked for p a rticular purposes. Cons equently the revenue generated from road users is not related to the funds allocated to either the rehabilitation or  - 25 - maintenance of roads nor is there any relationship between user charges in the civil aviation sector and expenditure on air navigation and the airports. 1.78 It has been apparent for several years that there is a growing imbalance between the funds allocated to the improvement of roads and funds allocated for their maintenance. Unless road maintenance receives a greater priority in overall Government expenditure then past investment in the road sector will be threatened. A marked increase in funding for main road maintenance has been approved for 1990/91 but the funds are still well the levels proposed by the Ministry of Works, Table 1.16. Table 1.16: Ministr?: of Works :Road Maintenance Funding (US$mi11ion) 1987/88 1988/89 1989/90 1990/91 Actual Actual Actual Proposed Approved Periodic 1. 72 1.57 1.11 8.25 2.87 Routine 1.84 3.73 1. 33 4.27 2.81 Total 3.56 5.30 2.44 12.52 5.68 US$per km Periodic 232 211 150 1110 386 Routine 248 502 178 707 378 Source: MOW and Mission estimates 1.79 Normal engineering 'rules of thumb' would suggest that an average of between US$1500/km and US$2000/km would be required annually for the routine maintenance of the Ugandan main road network. The approved budget for 1990/91 may be a significant incre.ase on previous years but is still nowhere near an adequate level. Unfortunately the situation has been actually worse than the estimates suggest as a large part of the Ministry's costs has been consumed paying labor with very little resources being available for the necessary complementary inputs of transport, plant and materials. There is evidence that the Ministry plans to continue to purchase equipment, for which there are no operating funds, while declining to use available donor funding for consumables to operate existing equipment which lies idle. 1.80 The situation is even worse in the other road sub sectors. Ministry of Local Government's expenditure on the feeder roads has averaged about US$50/km for the period 1987/88 - 1989/90, less than 10 percent of the funds required for vegetation and drainage control. Similarly there has been little or no maintenance undertaken on the urban roads as the Ministry of Local Government has not got the funds and the urban authorities can generate very little revenue themselves.  - 26 - II. MAJOR POLICY ISSUES AND RECOMMENDATIONS A. Future Strategy for Uganda Railways Introduction 2.1 URC's medium term strategy, outlined in a document entitled "Uganda Railways 1976-85 - 1991-95", envisages little basic change although the commercial viability of passenger services is questioned . Traffic is projected to increase to 900,000 tons and investment, totalling US$50 million, in new locomotives, rolling stock and wagon ferries, is considered necessary. A new transit port at Bukakata, near Masaka, is recommended as well as the re-introduction/expansion of inland water services. It is assumed that rail services will continue throughout the network and that track rehabilitation will be undertaken where necessary, probably using URC's Construction Department which is supposed to run on commercial principles. Many of the key issues for a commercially successful operation are not, however, discussed. This section attempts to highlight these issues and the means by which URC can maximize its contribution to the transport sector and Uganda's transit security: impact of the changing competitive environment on URC cross-subsidisation within URC continuation of domestic rail operations effective utilisation of URC's locomotives and wagons development of the Marine service expansion of URC's international transport capacity enhancing of URC's contribution to transit security The following paragraphs deal with Uganda Railways but much of the discussion centres on Lake Victoria and the marine service rather than conventional rail services. This simply reflects the reality of the situation, URC is a transport organisation in which marine operations are becoming the core business. The key issue for Government is whether it wishes URC to become a commercial enterprise, providing profitable transport services, or to continue attempting to recreate its traditional role. If a fully commercial, streamlined URC is desired, major changes in the size and structure of URC will be necessary: closure of most rail lines, concentration on marine services, and greatly reduced staff. Changing Competitive Environment 2.2 URC's traffic forecasts are based on additions to the existing traffic base. The successful rehabilitation of basic industries, changes in external trade policies and the role of the parastatal sector raise important questions regarding the volume and direction of even existing rail freight. Present URC traffic consists of coffee for export and bulk commodities imported by parastatals. Many of the bulk imports were previously produced locally and attempts are being made to restore local  - 27 - production; such commodities accounted for more than 50 percent of 1989 rail imports : Total URC Import Traffic 210 926 tons of which Cement 69 878 33% Salt 22 892 11% Sugar 20 646 10% Lime 2 912 1% Vulnerable import traffic 116 328 55% The bulk goods may still be moved by URC, cement from Kasese for example, but the switch in direction from imports to domestic traffic could have a major impact on investment needs. 2.3 Even if these imports continue, Government pol icies woul d suggest much greater participation by the private sector. This will probably result in smaller consignments and much greater use of containers. Coffee exporting is also being liberalized and three cooperatives can already export coffee using "the most effective means, be it road or rail or both". Government directives may continue to override this apparent transport freedom, as would seem to the case at the present time, but their effectiveness may diminish with increasing numbers of coffee exporters, especially if coffee starts to be sold from Kampala rather than ex-stock Mombasa. 2.4 URC attracts little private sector traffic and is thus vulnerable to a reduction in the role of the parastatal sector as a consequence of trade liberalization. To retain and expand traffic URC must be able to set competitive rates and provide the service leve,ls demanded. Rail rates from Mombasa are about 50 percent of trucking rates. Service quality is much lower, however, and the private sector is normally prepared to pay a very significant premium for speed and reliability, especially for high value goods and if container demurrage must be paid. 2.5 The rail cost advantage for exports is c onsiderably less as empty backhaul truck c apacity is available and truck rates as low as US$35/ton have been quoted. The backhaul trucking market is volatile, depending on Zaire exports and the service required; the Uganda Tea Growers Association is charged the equivalent of US$62/ton and rates as high as US$78/ton have also been mentio ned. US$50/ton may be a reasonable average for export trucking rates and, at that price, rail woul d be under severe pressure in a competitive market although a significant switch in exports to road would increase trucking rates. URC's freedom to respond competitively is constrained by: the need to cross subsidize domestic r a i l operatio ns from international revenues;  - 28 - the importance of KRC and TRC in determining total rail tariffs. The URC tariff accounts for only 40 percent or less of the total rail charges; service quality on KRC and TRC and periodic political intervention; and Ugandan cargo not being recognized as a key profitable traffic by, at least, KRC. 2.6 If URC is to provide more commer-cially oriented services it must also persuade KRC and TRC to take action to adopt more flexible pricing, block train oper-ations etc. Containers will be the key emerging market and there are already more than 600 TED/month coming from Kenya. URC needs, as a matter of prior-ity, to start negotiations with KRC on thr-ough container trains which can compete on service with road transpor-t. The price advantage of rail will, however, remain a key factor and it is necessary for URC to maximize its cost advantage. For the international market this means reconsideration of cross subsidies from the marine service to other URC activities and full development of the existing wagon ferry potential. Cross-Subsidization in URC 2.7 Ther-e are, at present, no cost accounts which allow detailed analysis of individual services and consequently the following results should be considered as order-s of magnitude. 2.8 Subsidies to Passenger Services are r-ecognized by URC as significant, some services hardly cover the costs of fuel consumed. The conunuter service is thought to have direct costs of over Ush 40 million and revenues of under Ush 7 million. Taking into account the cost of new coaches (US $500,000), the low revenues, the extent of vandalism and t .he growth of bus services URC should withdraw its passenger services, unless it can be shown that road transpo rt cannot provide a real i stic a l ternative. 2.9 Subsidies to Miscellaneous Services are l arge in relation to the revenues generated but small in absolute terms URC URC Hotels and Catering Road Transport 1989 Revenue Ush 12.2 million Ush 2.3 million Expenditure 27 . 0 5.9 Direct loss Ush 14.8 million Ush 3.6 million 2.10 Subsidies between Lines are now very considerable but it is doubtful whether some of the Northern Line or the Loop line were ever profitable. A revenue/cost allocation was made with the assistance of URC. This was s ubsequently revised for changes in total ton-kms, Table 2.1.  - 29 - Table 2.1: 1989 Revenues and Working Expenses (Ush billion) Central Western Northern Loop Kampala Cotmnuter Revenue 4.789 0.363 0,024 0.009 0.007 Way and works 0.289 0.131 0.020 0.036 0.017 Equipment maintenance 0.038 0.030 * 0.001 0.002 Traffic expenses 0.193 0.027 0,015 0.003 0.017 Running expenses 0.859 0.379 0.004 0,015 0.013 Total direct cost 1. 379 0.567 0,039 0.055 0.049 Contribution to: Admin/general costs 3.410 (0.204) (0.015) (0.046) (0.042) (Total Admin/general costs Ush 0.78 billion) Source: URC and Mission estimates 2.11 The Central line generates a large working surplus, all the other lines fail to cover even their direct costs. The financial results for the Central line are, however, deceptive as they include rail operations, marine services and the hire of wagons and locomotives to KRC and TRC. A more detailed analysis produces a different perspective, Table 2,2 below. Table 2.2: 1989 Revenues and Working E~enses: Central line (Ush billion) Rail Marine Hire Other Total Revenue 1.344 1.932 1.501 0.011 4.789 Direct Cost 0.819 0.559 * * 1. 379 --- Direct surplus 0.525 1.373 1. 501 0.011 3.410 Surplus as% revenue 39% 71% 100% 100% 71% Source: URC and Mission estimates 2.12 The marine service and equipment hiring generate large net surpluses for URC. Rail operations make a much smaller contribution to general and administrative costs and would only just break even if such costs were distributed pro rata to direct costs. 2.13 Cross-subsidy Marine to Rail will become critical when the Port Bell ferry terminal opens. Most traffic now using the Kampala - Jinja section will be diverted and, on the basis of 1989 traffic, use of the Central line could be reduced from 389,000 tons to possibly 37 500 tons. Except for POL traffic, almost all freight revenue will be generated by the  - 30 - ferries. Estimates of the impact of Port Bell on URC costs/revenues assume that import/export rail charges will be maintained at their existing levels, Table 2.3. Table 2.3: Financial Impact of Port Bell: 1989 Traffic (Ush billion) Rail Marine(!) Hire General Total w.o with w.o with Charges Costs w.o with Revenue 2.03 1.04 1. 93 2.92 1.50 5.46 5.46 Cost 1. 62 1. 30 0.56 0.64 0.78 2.96 2.73 Surplus 0.41 (0.28) 1.37 2.28 1.50 (0.78) 2.50 2.73 (1) with scenario includes rail costs between Kampala and Port Bell Source: URC and Mission estimates 2.14 The Port Bell terminal will convert URC into a very profitable organization, operating ferries and leasing equipment, which then uses its profits to run trains which fail to cover their direct costs, making no contribution to either general charges or depreciation. The marine service would cover all its allocated general charges and depreciation (possibly Ush 365 million at the average 1989 exchange rate) and still generate a surplus in excess of one billion Ush. Continued Domestic Rail Operations 2.15 When Port Bell is open, URC could simply become a ferry and leasing company. Such a streamlined operation would not require the present rail network, only working lines to the ferry terminals and workshops. Track maintenance and station staffing on the network would be avoided and general and administrative overheads could be reduced very significantly. URC's plans, however, are based on major investment in the domestic rail system. The potential role of each of the domestic rail lines is reviewed below. 2.16 Malaba - Kampala Mainline will lose much of its present traffic once Port Bell is opened; based on the 1989 flows there would be residual traffic of about 37 500 tons. During 1990, however, a much higher volume of POL products is being railed from Kenya and, under Government instructions, this flow should increase. POL rail movements could be, however, replaced eventually with a barge operation from Kisumu. The line is .in relatively good repair, with ballasting and heavy rail, and no investment is required to keep it open. 2.17 In view of the strategic importance of the line as a low cost alternative to the present Kisumu ferry route and its potential to  - 31 - supplement ferry capacity the line should be kept maintained but costs reduced to the minimum. Station and track maintenance staff could be reduced by at least 50 percent by running train operations over longer sections, corresponding to the microwave communication sections, and by adopting a directed track maintenance system using massed gangs. 2,18 Kampala - Kasese Line is presently scheduled for major rehabilitation at a total cost of US $160 million although other estimates place the cost at around US$ 120 million. At the time of the URC/HIMA Cement donors conference in April 1989 it was assumed that the railway was the most economic means of transporting HIMA's production. Since 1988, Government has started the construction, using its own funds, of a parallel paved road, Mityana-Mubende-Fort Portal. This road investment requires a review of the role of the Kasese line in transport services for Western Uganda. If both projects are completed, more than US $200 million will have been allocated to improve transport to Western Uganda. It is difficult to reconcile this expenditure with Uganda's severe resource constraints and its very extensive rehabilitation needs in other areas. 2,19 A preliminary re-appraisal of the Kasese rehabilitation project has been made, incorporating the Mityana - Fort Portal road (Annex 1). A base rail traffic of 320,000 tons was assumed, of which HIMA generates 220,000 tons, and six-axle truck-trailers were considered as the probable alternative to rail transport, A number of possible scenarios were investigated to explore realistically the range and sensitivity of results: Scenario 1: present locomotive utilization, availability and fuel consumption, general charges 10 percent of direct costs, Kasese line rehabilitation cost US$120 million, cost to complete the road alternative US$48 million; Scenario 2: as scenario 1, except locomotives and wagons are assumed to have no alternative use and thus have no capital value; Scenario 3: as scenario 1, except the capital cost of the Kasese rehabilitation is reduced to US$75 million; Scenario 4: as scenario 2, except the Kasese cost is reduced to US$75 million; Scenarios 5 - 8: as scenarios 1 - 4, except significantly improved URC performance reduces rail costs by 30 percent; and Scenarios 9 - 12: as scenario 5 - 8, except the Mityana - Fort Portal road is assumed constructed irrespective of the Kasese rail link and is thus a sunk cost. The results of the analysis for each of the scenarios are summarized in Table 2,4 below.  - 32 - Table 2.4: Net Economic Benefits of Kasese Line Rehabilitation Net Present Value(l0%) IRR URC Capital Kasese Road (US$mil1ion) (%) Scenario Costs Charges Cost Built 1 High Yes 120 No -53.6 Neg 2 High No 120 No -35 . 1 Neg 3 High Yes 75 No -19.5 Neg 4 High No 75 No - 1.0 9.6 5 Low Yes 120 No -42.3 Neg 6 Low No 120 No -28.1 Neg 7 Low Yes 75 No - 8.2 Neg 8 Low No 75 No 6.0 17.2 9 Low Yes 120 Yes -55.1 Neg 10 Low No 120 Yes -40.9 3. 1 11 Low Yes 75 Yes -21.0 4.5 12 Low No 75 Yes - 6.8 8.3 Source: Annex I 2.20 Under almost all scenarios, it is preferable for the Government to invest in the completion of the road route and for HIMA Cement to use truck-trailers to supply Uganda's major cement markets. For the Kasese line to be justified economically it is necessary that (a) Rehabilitation costs are reduced from the present estimate of US$ 160 million to US$ 75 million; (b) The Mityana - Fort Portal road is not cons tructed; (c) URC performance improves substantially; (d) The indirect cost savings from using road rather than rail transport are marginal; and (e) The capital cost of the locomotives and wagons is effectively zero, The viability of the project is, of course, also totally dependent upon the successful rehabilitation of Hima Cement. Even under the most favorable scenario, the transport operating cost savings would only amount to about US$ 16 per ton of cement transported, only US$ 7 per ton if the capital costs of the locomotives and wagons are included. 2,21 In view of the massive expenditures proposed, the low returns and the uncertainty of the funding it is essential that a full study of transport to the west of Uganda shoul d be undertaken as a matter of the highest priority. Specific benefits to transit traffic have not been included in the analysis as the costs of rehabilitating Kasese as a transit center are not known, the benefits for Rwanda and Burundi using Kasese rather than Kampala negligible and the level of Zaire traffic uncertain. The proposed study should develop an overall transport strategy to serve the needs of Western Uganda and neighboring countries - population, agriculture, industry etc - taking into account the costs and potential of both road and rail and the standards to which they should be improved. Terms of Reference for such a study are outlined in Annex 2. ·2 2 The Loop Line is e s sentially an irrelevance to the transport system in Uganda. Two passenger trains are run each week, one in each direct ion, and total annual passengers amount to only 22,000. The area  - 33 - served by the line is also served by a dense network of roads. The line is, however, maintained and the stations are manned. The costs of maintaining operations, Ush 55 million, must greatly exceed its economic and social benefits, fare levels would have to rise six.fold to cover even direct costs. The track itself has considerable potential value and if transferred the rail and sleepers would reduce significantly the costs of the Kasese line rehabilitation. If operations are to be continued, costs must be reduced to the absolute minimum; track maintenance should be done on a 'directed basis' and stations closed with tickets sold on the trains, Total closure and the re-use of the residual value of the track elsewhere should be the objective. 2.23 The Northern Line has, for much of its length, been closed for the last 15 years, and station staff beyond Kumi have been withdrawn and dispersed to other locations. Permanent way maintenance staff are still resident along the line and comprise about 500 men. Even during the peak years total freight traffic was limited (in 1960, only 50,000 tons were moved on the line compared with 850,000 tons on the Malaba line and 140,000 on the Kasese line) and currently only one freight train a week is run to Mbale although, recently, occasional trains have been sent as far as Gulu. Even when stability returns to the area there will be little economic justification for fully re-activating the line given the limited traffic, the investment being made in the road network and the costs of remedying years of neglected maintenance, especially on the line north of Kumi, 340km of which is laid with light rail and sleepers. 160 km.s of the line, north of Tororo, has rail and sleepers suitable for re-use on the Kasese line. The most cost effective future of the line may be continuation of services to a railhead at Mbale and use of the remaining suitable track eles,e where on the system. The track maintenance staff, given their technical skills, could be reformed into small private companies for rural road maintenance. Utilization of URC Locomotives a.nd Rolling Stock 2.24 URC has invested heavily in locomotives and wagons, and more wagons are expected. There is the possibility that URC has over-invested in some areas and that valuable assets will be under-utilised. An assessment of URC's internal locomotive and wagon requirements was made for its rather optimistic 1995 traffic forecasts, assuming more efficient utilization of equipment which should be possible. The results indicate a very large surplus of equipment which could be made available for leasing to KRC and TRC, Table 2.5.  - 34 - Table 2.5: 1995 Domestic Demand and Supply: Locomotives and Wagon.s Demand Supply Domestic Fleet Fleet Available Services Total Serviceable 60% 70% Mainline Locomotives Freight 11 Passenger 6 Commuter 2 Departmental 5 Total 24 44 38 23 29 Shunting Locomotives 12 29 20 12 15 Suppl! Fleet Fleet Available Total (25 years 75% 85% old Covered Wagons 354 997 868 651 738 Open wagons 50 270 114 86 97 Tanker wagons 85 230 193 145 164 Source: Mission estimates 2.25 The demand/supply position for locomotives appears in reasonable balance but: the demand forecast assumes that the Kasese line will be rehabilitated and that freight traffic will have increased from about 20,000 tons to 360,000 tons. Without the Kasese line freight requirements would be reduced by 4 locomotives. the forecast assumes that the Northern line is re-activated, requiring one freight locomotive. A more commercial strategy would satisfy transport in this area by other means. the forecast assumes continued long distance passenger and commuter services. In a commercial operation these services would be withdrawn and transport would be provided by other means, primarily buses. 2.26 Under a commercial operating scenario the demand for mainline locomotives, including the Kasese line, would be only 15 locomotives, leaving URC with an effective available surplus of 8 - 14 mainline locomotives, depending upon the rate of availability achieved. The surplus of available rolling stock to likely domestic demand is even greater with twice as many covered and tanker wagons than are required. This allows a very large measure of transit security in case neighboring railways cannot meet their wagon obligations for Ugandan traffic. 2.27 The analysis has a number of important implications for the development of a medium term strategy for URC:  - 35 - ( i) There should be no further investment in locomotives, except possibly for rehabilitating the British shunting locomotives; (ii) There should be no increase in the general wagon fleet although investment in container wagons or the conversion of existing stock will be necessary. Rehabilitating an additional 300 wagons would not be needed in the short to medium term; and ( iii) URC should investigate as a matter of priority the profitable leasing of its excess equipment on KRC and TRC. Unfortunately both railways are investing to meet their total needs and there may not be a market for URC equipment. There is little market for secondhand meter gauge locomotives and rolling stock and consequently the real value of URC's surplus stock may be very low. This raises particular problems when determining a strategy for URC, especially for the provision of additional international transport capacity and the rehabilitation of the Kasese Line. Development of the Exist.ing Lake Service 2.28 The wagon ferries are the key to Uganda's transit security and URC's financial viability . The lake service may not be receiving, however, the priority that its importance deserves. Unfortunatel y, unless the Kenyan wagon ferry, which is now immobilised and awaiting the de l ivery of spare parts, resumes operations, there is only a relat ively short period available for streamlining operations and organization before lake capacity presents a serious constraint. 2. 29 Under-Funding and Under-Rec.ognit.ion of the marine service is of considerable concern. Lake services in the region have traditionally been peripheral to railway business and have been negl ected by rail orientated management. For URC, however, rail operations will actually become largely peripheral to the marine service. The need to subsidize URC's overal l cash flow could prevent the marine service from receiving the resources necessary for efficient operations and having the commercial flexibility to reduce rates to compete more effectively with road transport. It is crucial that the marine service is recognized as the primary resource O·f URC, and that it receive sufficient funding and high level management attention. 2. 30 Uti.lizati.on is very low by international wagon ferr y standards . Average monthly utilization for the ferries, during 1989 and the first 8 months of 1990, were : Round Trips per Month Ferry 1989 1990 Kaawa 5.6 5.8 Pamba 6. 9 8.9 Kabalega 4.9 7. 1  - 36 - 2.31 During 1989, one ferry achieved 13 round trips in a month but 5 - 7 round trips were normal. Optimum utilizat i on of the ferries is considered, by URC, to be 9 round trips monthly per ferry . This utilization would give total capacity of 190,000 - 250,000 tons, depending on the wagon load factor, in each direction . Lake traffic was around 190,000 tons in each direction in 1989 and URC forecasts 1991 traffic as effectively over 200,000 tons in each direction (taking into account empty tanker returns). If one ferry is dedicated to POL movements from Mwanza, URC will have insufficient dry cargo capacity and additional ferry capac i ty would be necessary. 2.32 Existing ferry capacity would be substantially expanded if international utilization standards were achieved; for example, New Zealand Railways run multi-purpose ferries carrying 60 wagon units, commercial and passenger vehicles, and passengers to a timetable which allows one hour turnaround. Even if a four hour turnaround was accepted 200 round trips to Kisumu and 175 trips to Mwanza would be achievable, allowing at least one day/week and two weeks/year for maintenance. Intensive utilization would require active co-operation by the Customs and railways in each country, including night shifts and possibly some improvement to marshalling yards. 2.33 If the alternative is additional investment in new ferries, however, the benefits from increased utilization of existing ferries are very considerable - interest charges on a new ferry would be over US$ 3,500 per day, well above any incentive payments needed to alter working practices. Increased utilization could raise the capacity of the present ferry fleet from 190,000 tons in each direction to 330,000 tons, assuming one ferry operates to Mwanza and the other two operate to Kisumu. 2.34 More intensive utilization would require more trained ships' officers and engineers. Continuous operation.s would need an average of 2.5 crews per ferry and URC has barely the officers to provide one crew. Even with the existing pattern of operations, with senior officers unable to take leave, URC has a shortage of 6 deck officers and one engineer. Even though 11 officers are under training a major expansion in training will be needed to either use the existing ferries more intensively or to man additional ships. 2.35 Shore maintenance should also be strengthened. Major investment has been made in the Nalukolongo locomotive workshops but in terms of the total ton-kms performed and revenues generated the wagon ferries' maintenance does not receive sufficient resources nor URC management attention. Ma,intenance of two of the ferries is long overdue, the ordering of spares had been delayed through shortage of local resources and donor funding for marine spares and equipment has not been identified. Additional International Transport Capac.ity 2.36 Additional marine capacity may be necessary if traffic grows very rapidly, if utilization of existing ferries cannot be increased, or if additional transit security is required. URC management has proposed,  - 37 - and received government endorsement, for the purchase of two additional wagon ferries at a probable unit cost of US $13 million. It is far from clear, however, whether additional wagon ferries are really the least cost method of achieving the desired transport and transit security objectives. 2.37 URC believes that wagon ferries provide low cost. transport and consequently their use should be expanded. The ferries may be cheap to operate but they are, however, very expensive to purchase. The present ferries are cost effective because once in service they have no alternative use and thus little capital value. The purchase of additional ferries will have a real opportunity cost, however, and the capital costs must be considered. The option of additional wagon ferry must be evaluated against two alternative options: (i) More extensive use of the Kampala - Malaba mainline; and (ii) Introduction of bulk oil barges for POL transport. 2.38 More extensive use of the rail link to Kenya The economic costs for Uganda of international traffic depend partly on Ugandan costs and partly on KRC tariffs. The cost comparison shown in Table 2.6 contains four scenarios depending on the level of URC efficiency and whether capital charges are relevant for locomotive and wagon operating costs. Table 2.6: Wagon Feru: Rail Cost COJD1)arison (US$per ton) Present URC Efficiency Improved URC Efficiency Rail Option RaH (1) Rail (2) Rail ( 1) Rail (2) KRC 33.3 33.3 33.3 33.3 URC ..L.l. 4.6 ~ _bl Total 41.0 37.9 38.6 36.6 Ferry Option Rail ( 1) Rail (2) Rail ( 1) Rail (2) KRC 28.6 28.6 28.6 28.6 URC 18.3 18.3 12.5 12.5 Total 46.9 46.9 41.1 41.1 Rail Advantage 5.9 9.0 2.5 4.5 Rail (1) includes locomotive and wagon capital charges Rail (2) excludes locomotive and wagon capital charges Source: Annexes I and VI 2.39 Rail is significantly cheaper than ferry transport under all scenarios, if ferry costs include capital charges. Even if ferry utilization is 200 trips/year and the rail capital costs are included, rail is still preferred. The analysis might be altered if URC could avoid track  - 38 - maintenance and station costs on the central line but it would be unrealistic to expect the central line to be closed. The option does not, however, provide the flexibility of ferries and thus does not meet the transit security objective . 2.40 Bulk Oil Barges Petroleum products must have a high priority in the Government's transit security policy. A wagon ferry, dedicated to POL, could move 80,000 - 130,000 tons (depending on the level of utilization), between a third and a ha.lf of Uganda's annual consumption. It is, however, a high cost solution for fuel movement - the capital cost of the ferry is high and for every 35 tons of fuel, 17 tons of wagon have to be moved . Bulk oil barges (at a capital cost of about US$ 2,5 million each) could be a much lower cost alternative. Table 2.7 illustrates the likely marine costs for the Mwanza route. Tabl e 2.7: Costs of POL Movement: Mwanza Route (US$ per ton) Costs w.o. Capital Costs with Capital Ferry Barge Ferry Barge Vessel Utilization: Low 14.7 3,8 37.1 11. 7 Medium 13.3 3,3 27.9 8.3 High 12.6 3.2 23.2 7.3 Source: Annex VI 2.41 While the direct cost savings of the barge are large, other costs/benefits need also to be considered Costs : increased fuel losses through additional transhipments in the barge alternative, possibly 1 percent, approximately US $4 per ton. This would reduce the cost advantage of the barge alternative to US$ 15 per ton in the most plausible scenario (capital costs included, medium vessel utilisation), equivalent to about 3 percent reduction in the landed cost of fuel, September 1990 prices, Ush 8 per liter. the cost of transferring oil from tanker wagon to storage and then to the barge. investment in additional on-shore infrastructure; oil jetties at Port Bell and Jinja, short pipelines to existing storage facilities and some additional buffer storage. Overall costs might be around US$ 5 million. Improvements at Mwanza are already funded through the Tanzania Petroleum Sector Rehabilitation Project.  - 39 - Benefits introduction of bulk oil barges might be the appropriate time for the oil companies to move their bulk storage from the center of Kampala to Port Bell, reducing pipeline costs and providing environmental benefits. tanker wagon turnaround times would be significantly reduced. Whether this provides cost savings would depend upon whether URC/TRC have surplus tanker stock. 2 . 42 Bulk oil barges are an attractive solution to providing additional lake transport capacity, releasing existing ferry capacity for the movement of dry cargo. Barges would be especially attractive if the Kenyan pipeline is eventually extended to Kisumu; Port Bell and Jinja could be served and, in addition, fuel for Rwanda and Burundi might be shipped to a new oil jetty at Bukakata, near Masaka. In conclusion, more detailed studies should be undertaken before any final decisions are taken on additional wagon ferries. Increasing the URC's Contribution to Transit Security 2.43 The precise level of transit se.curity desired is not known but the ability to move 50 - 70 percent of trade via Tanzania has been mentioned. Assuming 60 percent transit security, lake transport capacity requirements would be as in Table 2.8: Table 2.8: Trade and Security Leve.ls: 1989 and 1995 (million tons) 1989 1995 Total Security Total Secur i ty Trade Capacity Trade Capacity Petroleum Products 0.25 0.15 0.34 0.20 Other Imports 0.50 0 . 30 0.68 0.41 Exports 0.25 o. 25 (1) 0.37 0.37(1) Total 1 01 0.70 1.39 0.98 (1) Transport capacity is determined by the dominant import flow, all exports can be carried as return cargo Source: Mission estimates 2.44 At present, the effectiveness of lake transport for transit security is dependent on the ability and willingness of neighboring railways, particularly TRC, to accept sudden increases in Ugandan transit traffic. It is clear, however, that TRC has nowhere near the capacity to provide the 60 percent security level sought by Uganda. Total traffic carried by TRC is presently less than a million tons and, even with the investments planned in the Railways Re- structuring Proje ct, TRC is not  - 40 - expecting to carry more than 400 000 tons of transit traffic (Uganda and ZBR combined). More Uganda traffic could be carried with trains composed of URC wagons and locomotives but track capacity on the Mwanza - Tabora section would eventually be reached. Some increase in track capacity might be generated at relatively low cost, through the creation of 2/3 more crossing points, but much greater investment would be necessary to meet Uganda's 60 percent requirement, both on TRC and perhaps also at the Port of Dar es Salaam. 2.45 The Ugandan Government has stressed the need for transit security but has not fully explored the cost and capacity implications of these needs. It seems imperative that a careful analysis is undertaken to determine the investments required to provide different levels of transit capacity on the Tanzanian route, including the costs of an adequate road route. Only once these costs are known can the Government make informed decisions on the level of additional land transport capacity needed for transit security in comparison with other remedial action such as financing higher stocks of essential commodities or placing greater reliance on chartered air transport to meet emergency needs during a crisis . Having determined the level of land transit security required the Government must then resolve the financing issue with Tanzania. It cannot be expected that TRC will invest in capacity which may only be utilised if the Kenya route were to be closed or its capacity severely reduced. 2. 46 Tr·ansit security and addition.a l trans.port capacity could be provided, at lower cost t .han additional wagon ferries, by the use of oil barges. Increased use of the Malaba line would reduce transport costs but would not improve transit security. Oil barges would, however, both reduce transport costs and meet the security objective of 60 percent of total traffic: Scenario (1): Closure of the Kenya Route: Based on 1989 flows, two 700 mt bulk oil barges, with a total capital cost US$5 million, could provide the 60 percent fuel security and the existing ferries, used intensively, could provide the dry cargo capacity of 300,000 tons. An additional wagon ferry to move oil would cost US$13 million and would provide considerably less capacity. By 1995 an additional oil barge would be required, but the three existing ferries should still be just sufficient to provide dry cargo capacity, assuming that all import wagons are loaded. Alternatively a second additional wagon ferry would be required, Scenario (2) Closure of the Tanzania Route: If the Tanzanian route closed, fuel could be moved through Kenya by tanker wagon or road tanker, as presently. The oil barges would not necessarily be redundant if the Mwanza route closed as the supply system could be replicated through Kisumu which has an oil jetty and bulk oil storage facilities. If the pipeline is extended to Kisumu then barges would appear the logical transport mode for onward movement to Uganda.  - 41 - 2.47 Overall the introduction of bulk oil barges could provide much greater transit security to Uganda at much lower cost than additional ferries, possibly reducing fuel costs by Ush 8 per liter. They could also form the basis of a much more efficient regional POL distribution system. 2.48 Conversion of the existing vagon ferries to multi-mode capability would add greatly to Uganda's transit security. The decks of the existing ferries could be modified at little cost to carry either wagons or connnercial road vehicles. In the event of a transit emergency, road transport can always respond more quickly than the railways but it needs a suitable lake link to the Tanzanian road system. Experimental sailings with trucks were made with the Mv Uhuru and it was found that 17 transit trucks could be accommodated, a net payload of 600 tons, versus about 800 tons with rail wagons. It may also be possible to add second decks to the existing ferries but this would involve the ferries having to be withdrawn from service for lengthy periods. 2.49 URC have proposed that any additi.onal ferries should be multi- purpose and carry transit trucks from Kiswnu to either Kampala or Bukakata. The capital cost of the second deck would be relatively modest if designed only for commercial vehicles, adding 20 percent to the basic rail ferry cost but a ferry with full facilities for vehicles and large numbers of passengers might be 50 percent more expensive than the basic ferry. Whether such an operation would be commercially attractive to trucking companies would require intensive analysis. Vehicle tariffs would probably have to be relatively low, the ferries would have to run to a fixed schedule and a reservation system would be essential. The additional commercial vehicle capaci.t.y would, however, improve Uganda's transit security via the Tanzania route. 2.50 Utilization of the Tanzanian Transit Route could become a significant problem as the private sector becomes increasingly involved in Uganda's international trade. The Tanzani.a route must be utilised if it is to retain its effectiveness as a security route. Utilization of the route may be in the national interest but it is not in the commercial interests of shippers as the direct and often the indirect costs are higher than the Kenyan route. At present Government can route barter traffic through DSM and instruct parastatals to use the route. If state controlled trade is diminished problems will arise: since the private sector does not even use rail through Kenya, it is even less likely to pay higher rail rates to use the Tanzania route. URC would have to lower the ferry rate from US$22.65 to around US$6 per ton to achieve the same direct costs on the two routes. Government, URC management and major customers must agree on appropriate financial arrangements which will ensure that the Tanzani.an route is adequately utilised, in other words agree on the cost sharing of what is effectively a transit insurance premium.  - 42 - A Strategy for URC 2.51 URC has a key role in Uganda's economic development and transit security objectives. This role is unlikely to be fulfilled, however, if URC management is constrained by attempts to either maintain or resurrect the past. (1) Central to its future is the development of URC as a commercial transport operation which, in present circumstances, is likely to be largely centered around the marine service and the leasing of equipment to KRC and TRC . URC is becomi ng an efficient producer of railway services and orientation must now change toward the production of efficient commercial services that customers require. Government must decide whether it wishes URC to be efficient and commercially orientated, able to compete in the transport market without government direction of traffic. URC management must discuss with Government the . mechanisms and policies to attract traffic to the Tanzania route, if the transport sector becomes more market orientated. (2) Government must take decisions on whether URC's loss-making services are really necessary and whether they could not be performed at lower cost by some other form of transport. If URC is to be commercially successful in the long term it cannot continue with its policy of cross-subsidising unremunerative services. These should be either closed or URC should receive specific payment from Government for these social services. The latter may be a necessary interim solution but the preservation of an outdated network and pattern of services will burden URC with increased administrative and general overheads and reduce top management attention to t he core business. Complete commercial orientation will allow management clear objectives as well as the possibility for transparent incentives and sanctions. (3) URC management must strengthen the marine service, increase ferry utilization and broaden ferry security effectiveness by converting them to multi-mode operation . (4) Management must ensure maximum utilization of the locomotives and rolling stock in which it has invested so heavily. Present indications suggest that even with a rehabilitated Kasese Line URC will have excess mainline locomotives and most categories of rolling stock. Unless these assets can be l eased the value of the investment will be lost. (5) Management must explore with its neighboring railways increased commercialization of rail transit services so that they can compete more effective ly with road transport, especially in the expanding container market.  - 43 - (6) The case for rehabilitating the Kasese line is doubtful and requires additional study. It is clear, however, that the projected level of traffic does not justify the costs presently proposed. At the very least, a much l ower cost solution for rehabilitation will be necessary. (7) The loop line and most of the Northern Line should be closed and the salvageable material used elsewhere, if required. (8) URC should withdraw from its inter-urban and cotmnuter passenger services as soon as adequate alternative public transport is available. In most cases this would allow immediate withdrawal. 2.52 A fully commercial, streamlined URC would probably consist of the Malaba - Kampala line, the marine service, short rail spurs connecting Kampala and Jinja to the wagon ferry terminals and the workshop facilities for the maintenance and repair of leased URC stock. Total staffing levels could probably be reduced from their present level of approximately 5,800 to under 2,000 which would include an expansion in the number of crews for the wagon ferries. The loss of domestic passenger and freight services would reduce total URC revenue by Ush 0.77 billion but total working costs could fall by almost Ush 1.5 billion and the working ratio would improve from 0.54 to 0,32, Perhaps, more importantly the need for major rehabilitation investment on the Kasese and probably Nor t hern lines would be avoided. B. Balancin.g Highway Reconstruct.ion an.d Maintenance 2.53 In 1986 Uganda was faced with the task of rehabilitat i ng or reconstructing most of its main highway network and its entire feeder road network. The majority of the main highways will be restored relatively soon but it is unlikely that the full quality of the feeder road network will be regained in the foreseeable future, Years of inadequate maintenance caused the 1986 crisis; unfortunately the same pattern of neglect is being repeated and, unless decisive action is taken as a matter of the utmost urgency, Uganda will be faced with another maintenance crisis, particularly on its rehabilitated main highway network in the early 1990's. Unless the Goverrunent can mobil i ze the resources necessary to undertake the levels of maint enance require d, much of the value of the investments made in the road sector over the past five years will be lost. 2.54 Inadequate funding of road maintenance is the main contributory factor (Para. 1.69) but the basic financial shortfall is exacerbated by: lack of a clear maintenance strategy and maintenance program planning irregular disbursement of funds which prevents efficient maintenance management high priority to staff costs which severely limits the availability of complementary material inputs  - 44 - excessively low salaries resulting in no motivation and very little output use of periodic maintenance funds for reconstruction or rehabilitation. Basically, too few resources a.re allocated to road maintenance and even these are not utilised effectively. 2.55 The levels of maintenance funding required are not difficult to estimate as they depend closely on the size and composition of the network. The Ministry of Works may realize that a maintenance crisis is occurring on the roads that have already been rehabilitated but it is not fully apparent that sufficient wa.rnings have been given or appreciated by those domestic and external institutions responsible for allocating financial resources. About 3 300 kms of main highway have been rehabilitated but only about 1,000 km receive any maintenance. All attention is still concentrated on extending the network of rehabilitated roads just as if once rehabilitated a road needs no further attention. 2.56 The problems will be compounded if the roads program described later (paras. 3.3 - 3.17) is implemented. This program would rehabilitate/upgrade an additional 4,500 kms of main highway by the year 2000. The investment is justified by existing traffic volumes and, resources permitting, should be la.rgely completed by mid-1995. The economic justification for most of the investment is, however, based on the assumption that once rehabilitated the roads will be maintained. If little/no maintenance is undertaken, the level of benefits from the program would fa.11 dramatically and a very much smaller investment program would be economically justified. 2.57 The rehabilitation of some bitumen roads and drainage improvements would probably stil1 be justified but there would be little justification in rehabilitating gravel roads if they were not subsequently maintained : without maintenance the road surface deteriorates, vehicle operating costs rise and the benefits from the rehabilitation decline rapidly. Without maintenance almost all the benefits of gravel rehabilitation would be lost in less than five years, sooner if traffic is relatively heavy and drainage is poor; typically rates of return from road rehabilitation/improvement will be reduced to a third or less of their estimated levels. 2.58 Emphasizing rehabilitation may be very attractive to both politicians and many donors but Uganda cannot afford to waste its scarce resources in the roads sector. The Ugandan Government and Donors are basically faced with four choices : (i) Continue with present policies and accept that much of the investment will be effectively wasted. Clearly this should not be a tenable option for either the Government or the Donors;  - '45 - (ii) Take the lack of maintenance into account when determining project priorities, avoiding road investments where the benefits are highly sensitive to maintenance and possibly designing other roads to higher structural standards to compensate for inadequate maintenance, This choice would result in sub-optimal designs and increased capital costs but would be preferable to option (i), but the option would not be applicable to gravel roads unless premature paving was to be accepted as a means of preserving the gravel base; (iii) Reduce the present level of the road program to a level which can be matched by the maintenance resources and allocating the freed capital resources elsewhere in the economy where the actual benefits will be higher; or (iv) Provide the level of resources commensurate with maintenance needs. 2.59 The only long term, sustainable solution is option (iv), raising the level of maintenance resources so as to ensure a proper balance between maintenance and construction. All existing rehabilitated roads must have assured maintenance funding before resources are allocated to additional capital expenditure. Donors should not place the Government in a position where it has to choose between maintenance and counterpart funding for capital investments. On the other hand the Government should improve the allocation of its own resources and avoid domestically funded investments with low economic rates of return. 2.60 Care, however, needs to be taken in determining the appropriate level of maintenance activity. The objective of road maintenance, in the Ugandan context, must be to ensure that the pavement integrity is preserved (potholes filled, culverts cleaned etc) and roughness is kept to a reasonable level. Road markings and frequent shoulder repairs may be desirable on very heavily trafficked sections of road but it is doubtful whether the costs are commensurate with the benefits on most of the network. 2.61 The rehabilitated roads must be maintained but it would also be desirable to allocate some funds to the unrehabilitated roads. The goals of such maintenance would include improving accessibility in the rainy seasons and some reduction in road roughness in the worst places. Traffic on most of the main highway network justifies the need for immediate road rehabilitation, but pending the availability of funds, limited routine maintenance and spot repairs could generate high economic rates of return. On unrehabilitated paved roads, which normally have relatively high traffic volumes, high rates of maintenance expenditure may be justified during the period prior to rehabilitation. 2.62 Road maintenance is the key issue in the roads sector and an issue which must be resolved by Government, supported by the donor community. A very significant increase in maintenance funding is necessary  - 46 - but, in the conditions of Uganda, funds alone are not sufficient to guarantee road maintenance. Institutional reform and development must accompany increased funding to ensure that the funds are used effect ively and that adequate financial control is maintained. C. Institutloms for Road Construction and Maintenance Existing Institutional Arrangements 2.63 The funding of road construction and maintenance activities is a major constraint but, even if the funds were available, the organization and implementation of the road program would present major difficu l ties. At present, neither the Ministry of Works (MoW) nor the Ministry of Local Government (MOLG) has the institutional capacity to implement the proposed programs of road rehabilitation and maintenance. The Ministries face fundamental problems: the salary scales do not attract competent managerial and technical staff; the competent staff who do exist in the ministries are underpaid and undermotivated and may well be attracted to a recovering private sector; and incompetent staff can only be dismissed with great difficulty. The problems affect not just senior staff but pervade the entire institutions. Very low wage rates for unskilled workers prevents the Ministries from competing straightforwardly for construction workers and adhoc arrangements, such as paying a month's wages for a few days work, have to be used. Unfortunately such tactics are not always successful in mobilizing enough workers to keep Ministry construct.ion and periodic maintenance projects functioning. Routine maintenance is the activity least likely to be well managed and fully staffed. 2.64 General reform of the civil service has started but its progress may not be sufficient to have a major impact on the Government's road maintenance and construction capability within the next five years. Unfortunately without the maintenance capability the past investment in rehabilitation will be placed at acute risk. Inadequate maintenance of gravel roads will normally result in the almost total loss of rehabilitation benefits within 1 - 4 years, depending upon rainfall and the level of traffic. Already 2,000 kms of gravel road have been rehabilitated and another 3 300 kms of rehabilitation are proposed in the road program discussed later. The rate of deterioration of paved roads may be slower but the eventual costs of remedying inadequate maintenance are very high. Several hundred kilometers of paved road will thus also be at risk unl ess steps are taken to provide the maintenance necessary.  - 47 - 2.65 If general reform will not stimulate sufficient progress to allow Ministries to implement maintenance programs of the magnitude required, other arrangements must be urgently devised. The private sector can be used much more extensively than at present to undertake road construction and maintenance. The really critical constraint is the organization, planning and control of the programmes. A Highway Authority ·f or Uganda 2.66 Financial resources and senior management attention at the Ministry of Works are concentrated on the large rehabilitation contracts, The funds allocated to the MoW for road maintenance have been insignificant compared with maintenance needs (paras 1.72 - 1,75) and this may help to explain the apparent lack of interest in maximizing the impact of those funds available. Often funds are not used to maintain those roads which have been already rehabilitated but are allocated to the rehabilitation of additional roads. Such priorities are not unique to Uganda and reflect the greater popular appeal of rehabilitation/new construction. Even with greater funding, however, the Ministry has not the personnel, motivation, systems nor control necessary to undertake the maintenance program which is necessary to sustain past and proposed rehabilitation investments. 2.67 A Highway Authority (HA) has been proposed by officials in MoW, and endorsed by Cabinet, as a solution to some of the more intractable problems of the present institutional structure. It is argued that the HA would make a significant improvement to performance by changing the conditions under which senior personnel are recruited and motivated. The HA would operate under parastatal rather than civil service personnel rules which allow a mu.ch larger measure of freedom to hire and fire personnel, set salary scales and introduce incentive payments. The success of URC, in these respects, shows the potential benefits of the approach. Whether suitable engineers/managers working within the private sector would be attracted by parastatal salaries and conditions is not clear but the HA could, however, help to retain and motivate technically competent personnel already in the government service. 2.68 One major benefit of a more competent and motivated organisation would be improved management and control of contracting. Most road construction and major rehabilitation is donor funded and contracts are awarded and supervised under their rules. The real benefits of the HA will be generated from improved planning, control and supervision of a greatly expanded program of road maintenance, largely undertaken by local private sector contracting. Studies, elsewhere, suggest that costs could be reduced by 20 - 30 percent by sub-contracting maintenance. While the HA should not itself carry out major works, a second major benefit would be its ability to recruit and motivate skilled and unskilled workers employed for any residual routine or periodic maintenance which had to be performed by force account; the HA could hire such workers at market rates and conditions, A third major advantage found with HAs elsewhere is the greater accountability of management and improved transparency that take place with the introduction of a commercial accounting framework. Such an  - 48 - environment facilitates the use of performance indicators and appropriate incentives. 2.69 The proposed HA could be superior to present MoW management but offers neither an immediate improvement nor guarantee of a long term panacea for the pressing problems of the road sector. Its success would depend on the climate of regulation, the division of responsibilities between the parent Ministry, Board of Directors and HA management, the clarity of objectives and performance expectations, the financial control systems and the degree of management autonomy. Establishing a fully functioning HA might take three or more years, during which the main road network would suffer the increasing consequences of maintenance neglect unless interim measures are taken. Moreover, parastatals are rarely models of efficiency nor are they often truly immune to day-to-day government interference. 2 . 70 The HA approach could have many advantages and it is perhaps significant that several developed countries are moving toward the agency approach for road construction and maintenance. The HA must, however, be considered within the wider context of overall public sector and civil service reform in Uganda. The advantages of the agency approach can also be invoked in the case of several other government activities: parastatals, created to circumvent civil service conditions, could profilerate. This would run directly counter to the need for streamlining the public sector, cutting the number of ministries, parastatals and other self-accounting units, reducing staff and raising salaries of remaining employees to realistic levels. 2.71 Rather than creating ad hoc agencies, it might be argued, institutional policy should concentrate on general civil service reform. Additional and specific assistance to the Ministries responsible for road maintenance could be provided with key staff employed on a contract basis . As with the HA proposal, the actual maintenance activities would, as far as possible, be contracted out to the private sector. If day to day running of highway maintenance requires some special relaxation of government rules ( e.g. foreign exchange or revolving funds for urgently required spares), there is no intrinsic reason why this cannot be done on an individual departmental basis, provided government has the will to support maintenance. 2.72 Clearly the HA has both advantages and disadvantages; experience elsewhere indica.tes that HAs have been su.ccessful in both developed and developing countries but. there are also many examples of gove·r nment ministries managing road programs efficiently and HAs performing poorly. The case for and against an HA rests on judgements of what is achieveable within the context of Uganda and within what timeframe. The African Development Bank has agreed to finance a study for an HA and a thorough evaluation of the organisational alternatives and their implications should be undertaken as a matter of priority. Neither the Ministry nor the HA will succeed, however, unless there i s the basic political commitment to road m .a intenance as an. esse.n.t ial activity with high  - 49 - priority in the allocation of funds as well as the willingness to use the private sector where appropriate. Interim Measures: Intensive, Collaborative TA 2.73 An HA may be a solution in the medium term but it will not solve the very pressing inunediate problems and some other mechanism is required to ensure that the essential road maintenance, rehabilitation and upgrading works are undertaken efficiently. Since there is not the time available for the normal process of institutional strengthening in MoW and MoLG a specially intensive form of technical assistance should be provided to the two ministries. Teams of Ministry officials and donor-financed technical assistance could assume operational responsibility for maintenance, upgrading and other assigned tasks under tightly framed terms of reference. They would be provided with sufficient donor resources to enable the jobs to be done effectively, including performance linked salary supplements for both local officials and technical assistance personnel. 2.74 Teams would be located both at the ministries' HQs as well as in the regional offices. The priority for the teams would be to ensure that the road maintenance required by the road program is accomplished, primarily by contracting out the activities to the private sector. After the interim period the teams would be absorbed into the longer term institutional arrangement, ministry or HA, whichever then had responsibility for maintenance. Planning for this type of technical assistance, which envisages temporary structures within line ministries, will have to be undertaken with the active collaboration, participation and agreement of the ministries concerned. It could be possibl e for this type of TA to form an integral part of an assistance package designed to help establish an H.A. In this context, a 'twinning' arrangement with an existing H.A. would offer many advantages over a more traditional consultancy based approach. The Consortium Approach 2.75 Circumstances have already forced the Government to explore the use of unconventional institutional approaches to the implementation of the roads program. In mid-1990, when a large fleet of Japanese-financed road construction equipment was about to arrive, MoLG found that it did not have the experienced engineers to operate this equipment. To prevent the equipment standing idle or being misused the Minister considered engaging groups of retired engineers. Draft terms of reference were prepared and discussed with the Central Tender Board which gave its initial approval to the concept. 2.76 One particular group registered as a consortium and was engaged, without proper selection procedures, to prepare and execute road works on behalf of the Ministry, undertaking its own engineering supervision. In addition the Consortium was expected to train young inexperienced MoLG engineers. It appears, however, that no formal contract  - 50 - has been issued which details the precise tasks, responsibilities and liabilities of each party. Operating costs of the Consortium are paid from the ministry's budget but the accountability for the funds is not strictly defined. 2.77 Given the circumstances facing Uganda and the need to employ the equipment provided and to circumvent the rigidities imposed by the Government salary and incentive regime the Consortium approach should be considered seriously, especially for an interim period while local private contracting capacity increases. The present consortium has moved rapidly and achieved significant initial success in opening roads but some doubts have been expressed regarding the attention given to drainage. It is clear, however, that for the consortium approach to provide a sustained improvement to Uganda's maintenance/rehabilitation capability the present rather ad hoc arrangements must be formalized into a more coherent approach which would provide detailed contracts, specifying precisely the role and responsibilities of the ministry and consortium; establish clear responsibility for the care and maintenance of the equipment used by the consortium; set up adequate maintenance and repair facilities for the equipment provided by the ministry; provide strict definition and supervision for the use of ministry funds; establish the standards to which the roads will be rehabilitated/maintained; and develop independent technical and financial supervision to ensure that the engineering standards are being met within the budgeted funds. 2.78 Further donations of construction equipment are possible and the Ministries, both MoW and MoLG, must have plans developed as to how it can be used most effectively. The use of the consortium approach, essentially a type of management/labor contract, is one alternative but there could be others such as leasing the equipment to private sector contractors. Whichever approach is adopted the arrangements and responsibilities for the maintenance of the equipment will be critical . Development of Pri.vate Sector Contracting 2.79 The domestic contracting sector in Uganda is small in size and technical capability and will require considerable expansion if it is to play a major part in implementing the road program. Unless specific actions are taken 'b y Government to assist the sector, expansion wil l be slow and consequently there will be continued reliance on foreign  - 51 - contractors and inefficient 'force account' organisations. Contractor training will be necessary but there is also the need to re-orientate official attitudes toward the sector. 2 . 80 While a policy of limited financial preference to domestic contractors may be useful, it is perhaps more important that a positive contractual and financial environment is established for the emerging contractor; an environment which provides assistance without introducing gross inefficiency. The fol.lowing types of measure are directed at both the technical and financial. limitations of local contractors: Technical Conditions (i) Appropriate technical design/specifications: most emerging domestic contractors will initially have relatively unsophisticated technical capability. Projects should be designed to allow, as far as possible, locally available techniques and materials. (ii) Appropriate size of contract: small contractors can only efficiently undertake small contracts. A system of 'slice and package' for large contracts would allow the potential participation of small contractors without preventing large contractors, with economies of scale, from bidding for the complete contract. (iii) Equipment hire organisation: small contractors have neither the finance nor the fulltime requirement for certain types of large and costly construction equipment. Government should consider either establishing an equipment leasing organisation, charging full commercial rates, or encouraging the private sector to establish such facilities. (iv) Predictable, and stable workload: if contractors are to invest in capacity for road work they should have reasonable expectations regarding the scale, duration and continuity of the road program. Routine and, to a lesser extent, periodic maintenance should provide a stable baseload for domestic contractors. In Uganda rehabilitation of the feede .r road network could also provide contracting work for a considerable number of years . Financial Conditio·ns (i) Reduced borrowing needs: small emerging contractors are unlikely to be rated as good credit risks by financial institutions and will thus find credit and bond guarantees difficult to obtain and expensive. The Government can help to reduce these problems by: providing mobilisation advances to contractors; setting contract bonds no higher than the level necessary to protect Government against financial loss or dislocation in the implementation of the road program; and  - 52 - making all payments, particularly interim payments, on time. Ugandan contractors often complain of lengthy payment delays. (ii) Provision of foreign exchange: most construction/maintenance equipment must be imported. It is necessary, therefore, that contractors have access to foreign exchange and that they do not face unreasonable delays and procedures in importing equipment and spares. (iii) Price adjustment provision: prices have, in the past, changed very rapidly in Uganda and small contractors need protection against future price instability. Contract terms must include clearly defined and easily administered provisions for price adjustments. General Contractual Conditions (i) Conditions of Contract should be clear, understandable and fair to both parties and should contain provision for the equitable settlement of disputes and claims. (ii) Contracts must be administered fairly between client and contractor and there should be no relaxation of contract conditions and prices (beyond those determined by the established price adjustment provisions) as the work proceeds. If the terms are relaxed during implementation, bids for future work may assume that Government will come to the aid of the contractor: the result could be complete lack of discipline in the bidding process. Financing the Road Program 2.81 Crucial to the improvement of road maintenance is adequate funding, paid regularly preferably on a schedule matched to expected expenditure. Without this financial stability neither the MoW nor an HA will be able to manage maintenance effectively nor stimulate the private sector construction and maintenance capacity. The road ministries in Uganda, like in many other countries, find that financial disbursements from the central budget are too small and erratic for effective road maintenance. The PER stresses the need for the Government to concentrate its resources on core activities, including road maintenance, and the TSM fully endorses the PER reco1IDI1endations. Other countries, facing similar problems to Uganda, have attempted to overcome the financial shortcomings by earmarking specific revenues for road maintenance. Revenue earmarking is often associated with HAs but this is not necessary and many road ministries are similarly funded. The institutional and financial issues can thus be treated separately. 2.82 The earmarking of specific taxes for road expenditures is practiced in a number of developed and developing countries but the system has serious disadvantages which may offset its presumed advantages :  - 53 - Disadvantages: introduces inflexibility into budgets, reducing government's ability to respond to changing priorities, the higher the proportion of funds earmarked the greater the problem;· leads to a misallocation of resources unless very stringent conditions are met, otherwise both over or underfunding of expenditure needs is possible; and hampers effective budgetary control, removing expenditure from close central scrutiny. Advantages: allows the potential application of the benefit principle of taxation to highways/road users; assures a minimum level of financing for critical programs; provides continuity of funding which will assist in reducing overall program costs; and links taxation and spending in the road sector which may help overcome resistance to increased taxation 2.83 In view of the disadvantages of earmarking, it may be preferable for the Ugandan Government, in the present stage of regaining budgetary stab.ility, to fund road maintenance through the central budget especially as experience suggests that earmarked funds do not quarantee minimum levels of funding for road maintenance. The resource value of earmarked revenues can be quickly eroded by inflation and serious general budgetary problems have frequently led to the freezing or diversion of earmarked road funds. There is also little evidence to suggest that earmarking of funds has increased the overall level of resources allocated to road maintenance. On the other hand several case studies have suggested that road funds have helped to circumvent cumbersome budgetary procedures, made it easier to use private contractors through competitive bidding and permitted better planning of the maintenance activities. The advantages derive from assured and regular funding rather than earmarked taxation, per se. Road funds should, perhaps, only be considered when the budgetary process has clearly failed to provide the necessary funding. 2.84 Clearly, Government commitment to road maintenance, rather than its precise funding through the budget or earmarked funds, is the key issue. Past experience has been poor but there is now greater realisation of the importance of maintenance activities within the key economic/finance ministries as well as the road ministries. If funding through the general budget does not improve, however, further, more detailed consideration of  - si. - the earmarking issue may be desirable to help provide at least some level of insulation for road maintenance finances. D. Targeted Feeder Road Programmes Background. 2,85 Under the District Administrations Act of 1967, development and maintenance of feeder roads are the mandatory responsibility of District Administrations (DA), which are supposed to finance these services from their various revenue sources while central government is supposed to provide block grants to top up their recurrent budgets. A revolving fund, the Local Authorities Loan Fund, should provide loans for development works, but has not been replenished for many years. The Ministry of Local Government (MOLG)is legally responsible for taking care of the interests of the local authorities at government level. 2.86 During the 1960's and early 1970's, the DA's Works Departments activities in feeder road maintenance were by and large adequate, and in some cases DA's even constructed additional feeder roads. Trucks and buses regularly used the feeder roads, providing dependable transport services. Feeder road maintenance took place through a direct labor system, with road gangs supplied with equipment, tools, construction materials, fuel and wages. 2,87 The system collapsed in the late 1970's and the 1980's. The local authorities were frequently re-organized, lost most of their revenue powers and no longer received government grants. Feeder roads deteriorated as maintenance was discontinued. Since LA's were unable to start rehabilitating feeder roads by themselves, MOLG, as a temporary solution, widened its role and resolved to take over the rehabilitation tasks of planning, costing and budgeting, procurement of local and foreign funds, plant and tools and the implementation of a feeder roads rehabilitation program. DA's were expected to fund routine maintenance and participate in the MOLG managed rehabilitation task. The Importance of Access Constraints 2.88 It is generally accepted that the dilapidated state of the feeder roads throughout the country is one of the important factors holding back Uganda's economic recovery. Uganda's recovery depends mainly on improvements in its agricultural sector, including the launching of non- traditional crops for exports. Government efforts to promote new crops have sometimes had disappointing responses when farmers found they could not sell their produce because traders could not reach them nor could they bring their produce to an accessible road. Moreover, the poor state of the feeder roads seriously affects the wellbeing of about 90 percent of the population located in the rural areas through lack of access to health and other social and administrative services. Highways cannot substitute for  - 55 - feeder roads; without feeder roads improvement commercial and personal interaction between rural and urban areas will remain severely constrained. The Government recognized the needs several years ago, but the fact that action has touched only a small portion of the feeder roads reflects the scale and complexity of the task. 2.89 According to MOLG's 1990 Strategy Paper on Rural Feeder Roads Rehabilitation and Maintenance (SP), some 12,000 kms of road should be rehabilitated as soon as possible and maintenance resumed on the entire 20,000 kms network. The objectives exceed the present capabilities of the MoLG and Da's combined and only a few hundred kms of feeder roads were rehabilitated since 1989 and even less kms maintained. The reasons why Ugandan capacity is so severely constrained are described below, Constraints on Feeder Road Improvement. 2.90 Institutional: Within MOLG, the Engineering Department (ED) is not adequately staffed. It has an establishment of 9 engineers and 2 planners and is expanding, but has difficulty recruiting experienced engineers and needs substantial staff strengthening on the managerial as well as the engineering levels. Although MOLG is receiving some technical assistance in its Engineering Department and expatriate project managers also assist at Headquarters from time to time, this is insufficient to compensate for local staff shortages . Due to lack of funds and vehicles the interaction between MOLG and the DA's is ineffective: there is a low level of consultation, coordination, advice, supervision and monitoring. 2.91 The overall role of the DA's was reaffirmed in the July 1990 budget speech and the respective roles of the more recently introduced Resistance Councils are now being defined more clearly. It has to be expected, however, that actual strengthening of the DA's will take many years and that in the next few years especially, the attention they can give to feeder roads among their multiple tasks wi.11 not be sufficient to ensure adequate maintenance . 2.92 Financial: the DA's revenues have fallen considerably due to the loss of certain taxation sources, general economic decline and a fall in grants from central government. On average, the annual recurrent and development budget of a District Administration is in the order of US$ 700,000 per year. On average, less than 5 percent of this budget is spent on rural feeder road maintenance. 2.93 The budget allocations for feeder roads activities in MOLG have been very meager during most of the 1980's, and grossly inadequate to cover the very large requirements of the extensive feeder road network. MOLG depended mainly on modest foreign financing for specific donor-supported projects, while it was struggling to run the locally-financed Emergency Rural Feeder Roads Rehabilitation Program for which release of funds was inadequate, irregular and below budget allocations.  - 56 - 2.94 Human Resources: as with other Ministries, MOLG cannot attract skilled and experienced personnel at current civil service salaries. The DA's are, if anything, in an even worse situation than the Ministry. Consequently ways are being improvised to attract qualified personnel, such as the consortium approach. The situation also suggests maximum utilization of the private sector local contractors and consultants to implement program activities. Unfortunately their numbers are rather limited and training in management and supervisory skills is required to improve the supply of these services. Traditionally feeder road maintenance was undertaken by a fairly labor intensive approach but it is not clear that unskilled labor for routine maintenance is in ample supply throughout Uganda, as 20 out of the 34 districts have a population density below 100 persons per km2, and 9 districts below 50 persons per km2. High agricultural growth may lead to alternative employment opportunities and increase wage rates. Therefore, the introduction of labor-intensive or labor-based methodologies needs to be preceded by area-specific labor surveys. 2.95 Equipment: The stock of road equipment has been very small and mostly old or bought second hand but substantial numbers of equipment have started to arrive in 1989 and 1990, through donor-supported projects and more are on order. Total equipment needs should be reassessed once the strategy is established. There is a strong tendency, encouraged by some external interests, to obtain equipment and assume that this is the key to solving the problems. Equipment which is not well managed and maintained will have a short operating life. Equipment which is not complemented by adequate funds for operations and by necessary road maintenance consumables will make a very limited contribution. DA facilities for maintenance and repair of equipment, offices, communication equipment etc. all deteriorated due to lack of maintenance and replacement and are presently unable to offer services in most cases. Recent Developments in the Sector 2.96 Some feeder roads rehabilitation has been executed at the same time that a Strategy Paper was under preparation. This includes ongoing projects in: Kabale, Rukungiri, Bushenyi, Mbarara, Rakai and Masaka with UNDP/UNCDF/ILO support; Kasese, Kabarole, Bundibudyo, Hoima with GTZ German support; Bushenyi, Kabale, Mbarara, Rukungiri, with !FAD/IDA support; Jinja, Kamuli, Iganga with Japanese equipment and consortium-executed; and Mbale, Tororo, Kapchorwa with IDA support.  - 57 - In addition, the Emergency Rural Feeder Roads Rehabilitation Program which was active between 1988 - 1990, claims to have improved about 800 kms of feeder roads spread over many districts. Further, BADEA is expected to support action in Mpigi, Mukono, Mubende, Luwero, Masindi, and Apach. Equipment expected to be financed by IDA under Economic Recovery Credit II is likely to be employed in Nebbi, Arua, Moyo and Gulu. ADB is preparing a project proposal for maintenance organization, possibly in Western Uganda. 2.97 While 26 of the 34 districts would receive at least some form of feeder roads activities, the above does not suggest that with the addition of the remaining districts full coverage would be reached. Rather, the ongoing activities would, at best, provide improvement of a small portion of the roads in each of the districts as well as a beginning of the reintroduction of routine maintenance at the local level. The need for further action, especially a comprehensive approach and a system for providing its practical implementation at the local level, remains crucial in feeder road rehabilitation and maintenance. HOLG Strategy Paper and Action Program 2.98 MOLG started drafting a Rural Feeder Roads Rehabilitation and Maintenance Strategy Paper (SP) in 1989 with the encouragement of the German Government and World Bank staff. The SP was to serve as the basis for a consensus within the Ugandan government and with interested donors, so that funding could then be mobilized for a national approach. Originally, a five year program was drafted, but judged too ambitious and revised to a ten year implementation period with an Action Program (AP) covering five years. The Strategy Paper and Action Program describe the challenges and constraints, and also introduce the need for prioritization of activities, criteria to rank the roads, the decision that part of rehabilitation will be executed by contractor, and that force account execution will be limited. The SP also states that there is a need for decentralization of power from the center to the local administrations, reflecting a recent breakthrough in general government policy. 2.99 However, the SP falls short of recommending concrete activities, for example in institution building, revenue mobilization or choosing appropriate technology, content with describing a number of various approaches without clear choices. At the September seminar on the SP and AP, participants underlined the constraints they experience on the local level and concluded that the Action Program was too optimistic. World Bank staff quoted farmers' preference for rural feeder road access, not speed, as food for thought for other participants who felt that rehabilitation had to be done to full design standards. The SP and proposed AP are being revised to take account of the seminar discussions. 2.100 A limit to the organizational capacity of MOLG and DA's is recognized, as well as a. financial constraint. Consequently, only a set of priority roads can be improved during the next five years. For maintenance a priority network of 4 153 kms is defined for 1990, expanding to 11 731 kms by 1995, with rehabilitation of 7 900 kms of this network. Total  - 58 - programme costs in constant prices for the first five years are estimated at US$214 million, of which rehabilitation costs would total US$126.8 million and maintenance costs US$29 million (the residual costs are for training and support facilities and personnel). It is proposed that 60 percent of the rehabilitation work is undertaken by contractor. Unfortunately the means by which local contractors are to be prepared for this workload are not defined. After deducting the donor pledges that have already been received a further US$106 million still needs to be mobilised . The Government has to raise its total contributions from 2.6 percent of its total budget to 5.1 percent, which may not be possible given other national priorities. MOLG proposes that long term financing of feeder road maintenance would be undertaken through a Road Maintenance Fund (see also paras 2.80 - 2.83). A Target.ed Approach to Feeder Road Improvement 2.101 The Strategy outlined by the MOLG concentrates resources on the rehabilitation of feeder roads. Unfortunately, given the relat.ive high costs of rehabilitation, even this very optimistic program will restrict the coverage of major improvement to less than 40 percent. of the feeder road network and will mean that many areas and many people will have to wait a considerable time before they obtain any improvement to their access. Moreover rehabilitation of roads requires a range of skills and a implementation capacity which is restricted in Uganda, even within the private sector. 2.102 It is perhaps possible that a more varied approach to the task of improving transport access in the rural areas would bring benefits to a wider population and be better integrated with the present capacity of many small contractors and entrepreneurs. The suggested approach is based on the premise that the function of feeder roads is not homogeneous and that some feeder roads have relatively high traffic flows and act as minor highways, while others serve as lightly trafficked access routes to small communities. On the relatively densely trafficked roads, with flows greater than 30 vehicles/day, the economic benefits of reduced vehicle operating costs can justify full rehabilitation. On the less trafficked roads, access rather than road condition is the most important factor. 2.103 Studies of rural road improvements in many parts of the world have tended to show that it is basic motorized access that brings the fundamental economic benefits to the rural economy rather than low cost motorized access. Usually the introduction of rudimentary motorized access will reduce transport costs (previously performed by headloading or animal transport) by a factor of 10. Subsequent improvements to the road are only likely to reduce motorized costs by a factor of 2 - 3. The major absolute reduction in costs comes when motor vehicles can access the area, not when roads are improved to very high standards. 2.104 In addition, therefore, to the full rehabilitation of the most densely used feeder roads a second programme is proposed which would attempt to raise the level of motorized access on a more extensive road  - 59 - network. Most feeder roads become impassable through drainage failures - either washouts or gross distortion of the embankment surface. It is therefore considered that the most effective partial improvement would be the installation of culverts to restore or improve basic accessibility. If the culverts were correctly installed and reasonably maintained they would still be serviceable when full rehabilitation was eventually undertaken, It has been estimated that the average frequency of culverts would be two per kilometer, although this would vary quite widely and in many places fewer culverts, possibly one per kilometer, could actually provide a basic level of access. While a culvert programme could be undertaken by either direct labor or international contractor, it would appear to be the type of activity well suited to small local contractors. Such contractors would not necessarily have to have extensive road work experience as a training programme to provide and adapt skills could be mounted. 2,105 According to the cost analysis made by the mission access could be improved on 4 - 8 krns of road, through the culvert programme, for the same cost as 1 km of full feeder road rehabilitation. Similarly the allocation of very small levels of maintenance funds on unrehabilitated roads, US$200 - 400/krn/year, can achieve very useful improvements to road serviceability, whereas average maintenance expenditures of about US$1 100/krn/year are required to keep rehabilitated roads from deteriorating. Total economic and social benefits could be substantially increased by diversifying feeder road investment away from total concentration on complete road rehabilitation. 2.106 A preliminary estimate for a financially unconstrained national program which is, however, tailored to gradually diminishing institutional weaknesses suggests a cost of US$ 51 million for the first five years, of which US$30 million for rehabilitation (implementation growing from 300 to 600 krns per year), US$10 million for culverting starting in 1991 and growing to 2,000 krns per year, and US$10 million for maintenance of a rapidly expanding share of the network, covering 3,000 kms in 1993 and increasing to 12,700 kms by 1995, Costs would double in the second five year period and overall, over a ten year period, the feeder roads component would require US$153 million out of an overall roads program, including the main highway network, estimated to cost US$ 626 million, The main reason that the costs are much lower than in MOLG's Executive Sununary described earlier is the more realistic assessment of the time it will require to strengthen DA's and MOLG and to ensure that the rehabilitation program does not outpace Uganda's maintenance capacity. The program, described above, assumes that implementation would be undertaken through the private sector with the role of the MOLG and DA's being the planning, supervision and financial control. Planning the Feeder Road Program 2,107 The formulation of a coherent feeder road strategy must necessarily include measures to strengthen capabilities at all levels - national, regional, district and local community. The strategy should also be closely coordinated with the main highway program as well as  - 60 - agricultural developments. Active participation of the Ministries of Works, Transport and Communications and Agriculture in the planning process will be necessary. A precondition for a coherent, prioritized strategy is a national road inventory and condition survey. This should be undertaken by the local Authorities with technical support from MOLG. Close liaison with MoW will be essential as the survey should be followed by a reclassification of the road network to rationalize road planning, design standards and clarify responsibilities for maintenance management. 2.108 In view of the scale of the feeder road problem and the need to prioritize investment careful consideration must be given to the planning process in order to ensure that key groups are involved and priorities are based on locally acceptable criteria. The MOLG Strategy Paper ackowledges these needs by the intended involvement of local authorities and RCs through the District Development Committees. Clear guidelines for assessing relative priorities will have to be prepared to assist planning at the local level. Appropriate Feede.r Road Rehabilitation and Maintenance Technology 2.109 The resource constraints identified by PER and the persistent problems with plant and equipment maintenance suggest the need to consider alternative approaches to executing feeder road improvements and maintenance which place less strain on the available financial and skill resources. The Bank's experience in several SSA countries indicates that labor-based methods should be considered as the normal choice for rural road works. The use of such methods was mentioned in the MOLG Strategy Paper. It must be recognized that the development of a labor-based capability is a long-term undertaking, requiring considerable investment in technical assistance and training. Successful efforts supported by the ILO have typically been sustained over a period of ten years, starting with pilot projects and gradually leading to national programs. The ILO proposes to introduce labor-based approaches for the continued maintenance of the feeder roads improved in south-west Uganda. 2.110 Community participation (including "Burungi Bwansi") is already an ongoing feature of feeder road maintenance in Uganda and has been an effective means of mobilizing local resources, particularly labor. Support is often required, however, in the form of tools and specialised plant or equipment. Guidelines and procedures will be required for execution and supervision of such road maintenance, and for the allocation of tools and equipmentto support local authorities and communities. The guidelines must also specify the roles and responsibilities of district works departments, RCs and community leaders in respect of feeder roads serving several communities.  - 61 - E. Priorities for Air Transport 2.111 Economic development will generate increased demands for air transport and require the fuller integration of Uganda into the international network for both passenger and freight services. The Government argues that in view of the country's landlocked position good air connections also have an important strategic importance as the means of independent international access. Domestic aviation has also a role in economic development, especially for tourism, but its importance in the short-medium term must be considered relatively minor and can essentially be left to the private sector. Civil Aviation Authority 2,112 The first priority for the sector must be to establish an institutional framework which can efficiently manage, plan and coordinate activities in the civil aviation sector. The present arrangement with three ministries involved in the civil aviation sector does not provide such a framework and consequently the establishment of an autonomous Civil Aviation Authority (CAA), as proposed by the recent UNDP funded study, is strongly recommended. The CAA would take control of air traffic services, meteorology and the overall running of Entebbe International Airport and the major domestic airports (the minor airports/airstrips might be best financed/operated by other organizations under the technical supervision of the CAA). The authority would be financed by the present navigation, landing and passenger fees which amounted to US $2.9 million in 1989. 2.113 The UNDP has agreed, on the basis of their feasibility study, to finance the establishment of the authority and to provide technical assistance. The UNDP funding would also include studies to determine immediate rehabilitation priorities at Entebbe. These studies should be undertaken at the earliest opportunity and major financial commitments at Entebbe should be delayed until the results are available in order that technical and economic considerations rather than donor commercial interests define rehabilitation needs. It is understood that the principle of a CAA has been agreed by Government but legislation has to be enacted before UNDP funds are available. 2.114 Creation of the CAA would be the opportunity to make the changes necessary within individual elements of the sector. Excess staffing is common - within the Directorate of Civil Aviation, at Entebbe airport (where there are 42 officers), and within the Department of Meteorology. The CAA should reduce staff levels and introduce incentives/sanctions to increase motivation. Lines of communication and responsibility must, in some cases, also be redrawn; a case in point is the Chief Fire Officer at Entebbe airport who reports to the P.S. Ministry of Works, and not to the commandant of the airport.  - 62 - Increasing 'Access to Air Transport Services 2.115 If Uganda is to upgrade its international air transpo rt links it must either attract more services from foreign carriers or provide the services itself. Essentially the trade-off is for Government fund new aircraft for UAC at a total capital cost of about US$ 160 million or encourage foreign carriers and accept that ticket payments will have to be made in foreign exchange. The additional economic benefits, even if they materialized, would be too small and their realization too risky for the Government to take the first option. Government should, therefore, give priority to encouraging the foreign carriers as they will provide services at the least financial outlay and risk to Uganda. The savings in capital costs would fund the rehabilitation of 13,000 kms of feeder road, over 60 percent of the network. An open skies policy should be pursued, accompanied by provision of the right operating environment. 2.116 Entebbe: Technical Rehabilitation: very high priority must be given to the technical rehabilitation of Entebbe Airport which presently acts as a deterrent to some carriers. The basic services s hould meet international standards if more foreign carriers are to be attracted - runway, navigation aides, aircraft control system, fire-fighting capability, secure power supplies, aircraft handling equipment and organization, and passenger security. The investments needed to remove the major constraints are not large : Runway rehabilitation Fencing and safety Navigation and telecoms Meteorology Electrical Allowing for some miscellaneous items, the total cost would be around US$10 million. New fire trucks have been supplied and these, when commissioned, will raise fire protection to international standards but adequate systems for their maintenance must also be introduced . 2.117 Improving Ground Handling Facilities: improvement of aircraft, passenger and freight handling must receive highest priority in the reorganization of UAC. The operations generate very significant revenues for the corporation (the equivalent of US$ 4.2 million in 1989), without the risks of air operations, and their quality could be greatly improved. Additional handling equipment is necessary but the total capital costs, about US$1 million, are relatively small and some arrangement could possibly be made with a foreign airline. Without these improvements foreign operators may demand their own handling arrangements . 2.118 Facilitating Improved Air Cargo Facilities: Uganda has the potential to develop a horticultural industry to supply Europe and the Middle East with fruit, v egetables and flowers as well as to develop the export of fish and spices . Some of these commodities are already airfreighted on a small s cale and a recent s t udy has suggested that demand  - 63 - could increase from about 2,000 tons to over 6,500 tons in five years. Ugandan exporters find it difficult to meet the quality and shipment terms required by European customers owing to the lack of reliable air cargo capacity, poor cargo handling and inadequate storage facilities at Entebbe . Improvements to cargo storage facilities are necessary but they are only one link in the marketing chain which has to be developed if such exports are to be promoted successfully in an increasingly competitive market. In view of the specialized nature of the products Government should not become directly involved but should facilitate development by the private sector by providing land and access to the airport for those wishing to invest. 2.119 The Role. of UAC in Providing Air Transport Capacity: It is unlikely that the Ugandan Government will be the exception in Africa and accept total dependence on foreign carriers. The perceived strategic nature of air transport, the marginal interest of European carriers in small individual SSA markets and the instability of relations with Kenya, all support the Government's view that some domestic air transport capability is necessary. The real issues are what type of capacity and how can it be achieved at the least cost and risk to the economy. The recent Rehabilitation and Development Plan (RDP) initially included US$160 million to re-equip UAC but such expenditure cannot be justified in view of other demands in the transport sector and the present condition of UAC. The recent Psair studies concluded that UAC is still an extremely weak institution, overstaffed and inefficient and that, while new management and some technical assistance, has been introduced, it is unrealistic to expect that capability can be instantaneously developed or imposed on a sustained basis. The role of UAC should be increased slowly, building on sustained achievements. Priority (1) must be the re-establishment of UAC as a credible institution: resolving the past debt issue, strengthening management, shedding staff and imposing work discipline and motivation. At the same time UAC's ground handling operations must be upgraded as discussed previously. Priority (2) will be developing effective freight services for the B707 which has been probably leased prematurely. The Psair analysis, Annex , suggested that the freight service is marginal and the actual lease terms are rather higher than those assumed by Psair. There is little export space available on existing flights from East Africa to Europe and the B707 will provide a secure base for the development of the horticultural sector and consequently may generate significant external benefits if operated efficiently. 2 . 120 i ces present major management problems and great Passenger Serv. financial risks. It is totally premature for UAC to consider resuming international flights to Europe in the near future. A limited capacity to connect Uganda with international services at other airports in the region might be justified for national security. Only when its other activities are well established and operating efficiently and the management and financial control systems fully developed should UAC seriously consider re- entering the long distance passenger market.  - 64 - 2.121 There is no prospect of UAC becoming a financially viable independent long-haul passenger carrier in the near or medium term. The subsidies resulting from such a financially unviable operation (estimated by Psair to be almost US$ 18 million in the first year of operations, and still over US$ 9 million after four years of operation) would be better allocated to other activities with higher and more immediate economic benefits. Block seat purchases or joint ventures offer the only real alternatives. Government supports the concept of joint venture but, because of the lower management burden and financial risk, priority should be given to seat purchasing. Once this is working efficiently and profitably, joint ventures with other airlines in the region could be considered. The Psair study indicated that such joint ventures could be financially profitable but also stressed the risks and problems in establishing efficient operations. 2.122 Government should accept that building UAC's institutional capacity to undertake passenger services will take time. It should agree with UAC a set of management and performance indicators linked to a timetable for the expansion of UAC's activities. Unfortunately there are real dangers that UAC will move prematurely into the passenger market, lose money and then seek either subsidy or protection; discussions have already been held for leasing a B737 and/or a B757. 2.123 Government Control Environme.nt must be modified if UAC is to develop into a successful commercial institution. Government wishes to retain UAC as a parastatal but, if UAC is to operate without major subsidies, it should have the following freedoms to ensure that it can act as a commercial, self-sustaining enterprise : - Access to foreign exchange through the Open General License - Freedom to adjust rates to reflect costs/market conditions - Freedom to determine optimal staffing levels - Freedom to determine the company's route structure - Freedom to open capital ownership to outside investors In view of the predominant importance of foreign carriers in providing air access for Uganda, Government should resis.t UAC requests to modify the open skies policy. Improving Passenger Facilities at Entebbe Airport 2.124 Full rehabilitati.o n of the Entebbe terminal will be costly as it was constructed for a capacity well in excess of present and likely medium term demand. Even if the projected five year growth rate of 15 percent continued to 2000, total traffic would still be less than 600,000 passengers for which a terminal of about 6,000m2 would be needed, while Entebbe has a total area of 22 500 m2. The Ministry of Works has discussed rehabilitation, through Spanish aid, but the costs were prohibitive, up to US $40 million, and the economic benefits of such an investment remain to be demonstrated. To be cost effective careful selection of the facilities to be improved and their priority must be made and no decision should be  - 65 - taken until the studies, funded by UNDP, have been completed. The present terminal provides the basic facilities and major problems are unlikely within the next five years, especially if growth is supplied largely by an expanded network of services. 2.125 The re-establishment of tourism is seen by Government as a means to expand and diversify foreign exchange earnings. Upgrading the Entebbe terminal may eventually be necessary to meet tourist demand at an internationally acceptable level but present conditions can hardly be considered a major tourist constraint when compared with the other deterrents to tourism - international perception of Uganda, security problems, lack of hotels/lodges, poor roads etc . The present visitor demand elasticity, with respect to terminal facilities, is probably very low. 2.126 The economic benefits from rehabilitation of the Entebbe passenger terminal are likely to be relatively small and certainly do not, at this stage, justify major expenditure. The establishment of functioning basic facilities, for example toilets, is necessary. Some re-modelling and renovation of the terminal to improve the flow of passengers through the various clearance stations would be desirable, if it could be achieved at low cost. Careful consideration might be given to leasing the catering facilities and the hotel, on favorable terms, to the private sector in return for private funding of renovation work. Government must give far greater priority to removing the technical constraints which deter airlines from operating into Entebbe. Development of Other Airports 2.127 The role of domestic air transport within Uganda will probably remain limited so long as the rehabilitated main road network is maintained. A growth in tourism developments could eventually stimulate further development of domestic air traffic and investment at domestic airports and airstrip facilities could be justified: Kasese or Mbarara, for example, could be equipped to accept direct tourist flights from such countries as Kenya, Tanzania or Rwanda. The scale of the investments j ustif.i ed in these airports/ airstrips would be modest, providing very basic facilities such as fencing, corranunications and safety equipment and, perhaps very modest terminal buildings. Decisions on such investments should follow the results of the ADB funded study and the investments financed through local administrations, the Ministry of Tourism or private tourist operators. Sorot.i Flyi.ng .Academy 2.128 The Soroti Flying School appears an anachronism in the light of Uganda's present financial constraints - the school costs over US$400,000 annually, over 40 percent of the Ministry of Transport's recurrent budget (about 80 percent of its total aviation budget) and further investment in training aircraft has been proposed. The benefits to Uganda from the  - 66 - school are not easy to define as there is no apparent shortage of pilots or engineering technicians. Serious consideration must be given to the future of the school within both the Ugandan and East African context. A study should be undertaken before any further investment is made in the school or its equipment to assess skilled manpower demands in the aviati.on sector, the most cost effective means by which Uganda's demand can be satisfied, and whether the Soroti school can be made financially self-sustaining through fee income from non-Ugandan students. F. Urban Transport Issues 2.129 Urban transport has justifiably received little priority in Government's transport programme with emphasis being placed on rehabilitating the main international and inter-urban transport networks. Within the time-frame encompassed by this Sector Memorandum greater attention will need to be given to the urban transport system, initially for Kampala but eventually for the other growing urban areas. Kampala Urban T.r ansport System 2.130 Only 40 kms of Kampala City's paved roads have been rehabilitated and the network is mostly in poor condition and several links, including some within the industrial area, are almost impassible. Average vehicle operating costs are very high and significant savings could be achieved by the improvement of selected links. Simply restoring Kampala's road network may be neither a sufficient nor cost effective approach, however, to improving the overall system and additional actions within a coordinated urban transport framework should be taken. 2.131 The Road Network, Congest.ion and Traffic Management: traffic within Kampala is generally freeflowing with minimum delays: 'flow quality' is good even if 'riding quality' is poor. The road network is overly complex, however, and a few major junctions are critical to the system. Traffic demand, at peak hours, is probably approaching saturation levels and major traffic delays can be expected at these junctions. These delays will then feed back into the rest of the system. A southern bypass has been proposed but this will not ease traffic conditions as divertible traffic is a very small proportion of total traffic. Further road rehabilitation is necessary but it should be implemented within a traffic management plan which simplifies the present network, increases use of one- way streets, increases traffic capacity at key junctions and gives greater priority to facilities for pedestrians and cyclists. 2.132 Only two junctions in Kampala are signal controlled and most important junctions are served by roundabouts. As traffic volumes increase uninterrupted traffic control will have to be replaced rather quickly by assigned-right-of-way control. Experience elsewhere suggests that traffic signals are the most effective means but they must be introduced in a gradual and programmed manner. Several new sites should be signalled each  - 67 - year, rather than a one-time project in which the city goes from zero to 100 signalized junctions, complete with advanced central computer control, in one year. The introduction of signal control will require extensive reconstruction at the junctions to eliminate the roundabouts themselves, which have become obstacles to traffic flow. At other junctions, greater use should be made of priority signing (stop/yield) accompanied by pavement markings and improved informational signing. Traffic flow within the main city center would also be improved by actual enforcement of parking regulations; at present much of the road space is consumed by vehicles inefficiently parked . 2.133 A Kampala urban traffic plan, detailing priorities, should precede any effort to rehabilitate all Kampala roads. It is probable that the entire network does not need to be rehabilitated to the same standard nor to cater for the same type of traffic. Some routes, for example, might be only improved for pedestrians/bicycles, others for light vehicles. The main routes might have dedicated cycle paths. 2.134 Non-motorized travel: over 50 percent of Kampala person trips are made by foot but no attempt has been made to improve pedestrian facilities. Their very poor condition force pedestrians to use the roads and probably accounts for the very high incidence of pedestrian accident fatalities in Kampala. Bicycle trips account for 10 percent of total person movements but there are no specific cycle facilities and again accident rates are high. Rehabilitation must be directed to improve conditions for all modes and encourage use of non-motorized transport. It should be noted in particular that cars and other light vehicles consume the greater part of road capacity while satisfying a very small part of total travel demand. The provision of better facilities for pedestrians and cyclists could make a significant contribution to reducing urban accident rates. 2.135 Public Transport: private sector mini-buses are plentiful and provide almost the entire public transport service, the parastatal bus companies confining their activities to inter-urban routes. They operate without significant government regulation and no subsidy. Fare levels are extremely high, reflecting only partly high operating costs, and are indicative, perhaps, of a self regulating cartel possibly enforced by extra-legal means. Government should try to ensure that freedom of entry into and competition within the industry is improved and maintained. Government should also take steps to remedy the extreme crowding at the Kampala taxi park and enforce vehicle safety standards and adequate testing of public service vehicle drivers. 2 . 136 Dependence on the mini-buses is satisfactory at present traffic flows, but with congestion a shift toward larger buses might be appropriate. A conventional bus can provide public transport at about half the seat-cost of the mini-bus and at a quarter the fuel cost per occupant. While potentially attractive, the larger bus does have disadvantages - increased average waiting time for passengers, high proportion of passengers standing - and there would be significant technical, management and institutional obstacles to be overcome. The decision on replacing  - 68 - mini-buses should be the responsibility of the private sector who should continue to provide public transport but government should set taxation to ensure that the costs of operating different vehicle types reflect the congestion that they cause. 2.137 Road Maintenance: experience with the Phase I road rehabilitation project demonstrated that isolated programs, even if executed by contractor, will not have a sustainable impact unless coupled with an effective road maintenance program. Further investments in rehabilitating the urban road network are essential but must be accompanied by the development of effective and realistic maintenance and contract management arrangements and procedures, together with implementation of required strengthening of maintenance organizations including their staffing, training, equipment, and technical assistance. 2,138 Financing of Urban Transport Improvement: The key constraint is finance. The Kampala City Council (KCC) is responsible for urban road construction and maintenance as well as urban traffic management but only the central government has the authority to levy fees on urban road users. Central Government must determine how urban road improvements and maintenance are to be funded; whether to subvent from the Ministry of Local Government's budget or to devolve some authority for raising and collecting taxes and fees from urban road users . Road tolls have been tried within Kampala but they are costly to collect and impede traffic flow. A supplementary license on vehicles operating in Kampala might be an alternative approach. 2.139 m ent: A secure financial base is Institutional De.v elop. essential but is unlikely to generate institutional development ·u nless accompanied by changes within the institution and substantial technical support. Strengthening KCC and providing additional support is also necessary. There is an immediate need to improve road maintenance capability and also traffic and road planning activities. Essential activities are to reclassify the road network, according to function and especially modal use, in order to redress the mismatch between urban travel needs and the available or planned road infrastructure. KCC needs to begin monitoring and planning activities for road transport in Kampala to provide better guidance in the formulation of investment programmes, and to begin to implement gradually traffic management measures. The basis for improved urban transport planning should be developed through the study for the preparation of an Urban Development Plan and Action Programs, which includes a traffic and transportation component. Transport in Other Orban Areas 2,140 Motorized flows are very much lower in Jinja and the secondary towns and traffic congestion is not an issue. The inunediate need is to reclassify the road networks, identify priorities based on a more realistic balance between the needs of motorized and non-motorized modes, and begin reconstruction of the most important links. As in Kampala this must be complemented by the development of an adequate road maintenance system,  - 69 - together with a reliable mechanism to generate the necessary maintenance funding. A supplementary license fee might be possible in Jinja but for the smaller cities other funding arrangements will have to be devised. G. Development of the Road Transport Industry Domestic Sector 2.141 Trucks are responsible for all longer distance, domestic freight movement. Despite the Government's policy that rail will carry long distance freight, the road transport industry will continue to play the crucial role in Uganda's domestic transport sector. It is thus critical that a policy framework be established which will stimulate the most efficient development of the sector. Such a framework needs to cover both the acquisition and use of vehicles to ensure that the most efficient operators are allowed to expand and that vehicles are used most cost- effectively. 2.142 The Government has been responsible for the purchase and distribution of a very significant proportion of the trucks recently imported into the country. It is thought that most of these trucks have been allocated to cooperatives, parastatal companies or other state institutions. Private sector operators have had much more restricted access to new vehicles, as they have had to go through the Central Bank. Even if the government imported vehicles are sold to the recipient institutions, there is no guarantee that they will be used efficiently. Evidence from numerous other countries indicates that the performance of cooperatives, marketing corporations and other parastatals is almost always much lower than trucks operated by the private sector. The effective utilisation of trucks allocated to schools, colleges and hos'p itals must be very low and their overall operating costs very high. 2.143 In view of the very large investments which will need to be made in trucks (paras 3.8 - 3.9), for both the replacement and expansion of the fleet, it is essential that the market, rather than a ministerial committee, should determine the allocation of trucking capacity. If Government continues to import trucks through barter or aid arrangements, the distribution of capacity should be through tender with no preference given to the public sector. Certainly the trucks should be sold at prices which reflect the parallel foreign exchange rate and not the government rate. 2.144 All the evidence suggests that loaded trucks are generally heavily overloaded in relation to the legal limits. A large number of two- axle Tata trucks are operated and these trucks are able to carry payloads well in ex.c ess of the 7 / 8 tons permitted. Overloading appears particularly prevalent among vehicles operating international routes and vehicles carrying matoke. Legal enforcement of axleload limits in Kenya will help to reduce overloading of transit vehicles but the Ugandan Government will have to determine action for the overloaded domestic vehicles. Enforcement  - 70 - of axleload regulations has rarely been fully successful in developing countries and the Government should perhaps consider the alternative of setting road user charges to reflect the probable degree of overloading. 2.145 Public passenger transport should be left, as far as possible, to the private sector with the Government's role being confined to the enforcement of safety standards. The Government does, however, own two bus companies which operate most of the full-sized buses in Uganda and provide transport on many of the less commercial routes. The future of these companies and their relationship to Government need to be determined. The mission was informed that a recent study recommended divestiture of PTC and liquidation of UTC but that the Divestiture Implementation Committee is recommending continued state ownership of PTC and privatisation of UTC. Due to the poor accounting practices of both companies and the lack of transparency in the financial transfers between then and Government, it is difficult to estimate the potential impact of divestiture. It is possible that the level of implicit subsidy, through the provision of replacement buses, is probably less than the value of non-commercial services provided to Government. At present the companies receive inadequate compensation for the social obligations they perform. If, for social reasons, fare levels on bad roads are not allowed to reflect operating costs other means of transparent compensation must be devised. Where Government requires below-cost services to remote areas or along poor roads, it should determine the service level and then contract with an operating company, providing an explicit subsidy to make it commercially attractive. Both public and private companies should be permitted to bid for these contracts. External Sector 2.146 While the proportion of Ugandan transit cargo carried in Ugandan registered vehicles has increased significantly in recent years, complaints are still heard that Ugandan truckers operate at a disadvantage to those from Kenya. The problems center around the proportion of trucking revenue, paid in Ush, that can be converted into foreign exchange (at present, Ugandan truckers can only convert 50 percent while they argue that they neeed between 60 - 70 percent) and the very long delays in obtaining any payment from the Central Bank. It is possible that many of the growing fleet of Ugandan transit trucks are carrying goods which are imported CIF Kampala. For such cargo, the transport rates are paid externally. 2.147 Increasing the efficiency of external road transport is largely dependent on changes in policy within Kenya. The restrictions placed on the trucking industry by Kenyan security regulations have been discussed extensively under the auspices of the Northern Corridor Transit Agreement (NCTA) but little or no progress has been made. Uganda has, however, started discussions with other members of the NCTA on further streamlining of transit procedures, particularly changes to the system of transit bonds. While the RCTD transit documentation has been introduced long delays are still experienced on both sides of the Uganda-Kenya border. Further  - 71 - streamlining of customs procedures should be explored in order to reduce such delays and increase vehicle utilisation. 2.148 At various times the possibility of re-establishing a parastatal trucking fleet, probably as part of Transocean, has been discussed. In view of the responsiveness of the private sector and the relatively low rates charged, it is very difficult to see either the need or commercial viability of such a trucking organisation. The Government would be better advised to provide access for the private sector to vehicles, spares, tyres, etc.  - 72 - III. AREAS FOR POTENTIAL PUBLIC INVESTMENT A. Fundamental Needs and Objectives 3.1 The public investment program must respond cost-effectively to the basic social, economic and strategic objectives of Government. Uganda faces a critical time in its investment planning; considerable investment and rehabilitation is still required but many of the most obvious and pressing priorities have been met. Much greater care will be needed in future to ensure that the right policy decisions are taken and the best set of projects and programs selected. An overall view is necessary of what the investment program should attempt to achieve, what are the likely budgetary and implementation constraints and what are sacrifices that have to made when choosing to invest in one sector/project rather than in another. Unfortunately transport planning in Uganda is still underdeveloped and responsibility fragmented among a number of Ministries and parastatals, consequently the coordinated view of the transport sector is hard to achieve; the opportunity costs of investment are not always fully appreciated - but they are very real and very large : The Kasese Line ($160m) = 13 000 km of feeder road rehabilitation Re-equipping Uganda Airlines ($160m) = Paving 1 500 kms of gravel road Paving 1 km of highway ($0.llm) = routine maintenance on 30 kms Rehabilitating 1 km of feeder road ($12000) = 6 kms of access improvement Leasing 1 B707 freighter ( $1. Sm) .. resealing 100 kms of paved road 3. 2 The investment program should be determined in the light of t .he basic macro-economic and social feat·u res of Uganda in the 1990' s and not the conditions that prevailed during the late 1960's and early 1970's. Today's concerns include: Uganda is a poor country with an agriculturally based economy and a growing population largely living in the rural areas. While great efforts have been made to rehabilitate the transport system, only the main highways in secure areas have been fully covered. The North and most feeder roads have not been touched. Investments in infrastructure must subsequently be maintained, if their value is to be preserved. Government is faced with pressing demands from many other sectors - health, education, water, power, etc. Uganda is a landlocked country which must develop secure access to international markets.  - 73 - Government's capacity to plan, implement and maintain large sea.le investments may be improving but it is still very limited. In the medium term, at least, preference should be given to those activities which can be undertaken by the private sector. These factors would suggest that proposed investments in each of the sectors, as well as between sectors should be evaluated against the following types of criteria (i) Large economic rates of return and/or social benefits; (ii) Low risks; (iii) Benefits which cannot be achieved by other means e.g. better management of existing facilities, use of other transport modes, improved pricing etc. (iv) Investment would not be undertaken by the private sector; (v) Widespread benefits rather than high benefits to small interest groups; (vi) Benefits generated by private sector response rather than dependent on government or parastatals; (vii) Improvement to Uganda's transit security; and (ix) Enhancement of Uganda's export/import substitution objectives. B. Program for URC A Program for the Railways 3.3 In terms of the priorities established previously it is likely that high priority investments for the railway operations of URC in the coming decade will constitute a relatively modest program: Mainline locomotives: the analysis suggests that if URC were to withdraw from its passenger services and cease operating services on the Northern line there would be considerable excess locomotive capacity for the foreseeable future. Shunting Locomotives: investment in new shunting locomotives is probably not necessary but rehabilitation of the existing fleet of British shunting locomotives will probably be required. Wagons: there is need for a limited purchase of container wagons to operate a through service with KRC, limited until it is demonstrated that the railways can effectively compete with road transport for this traffic. Given the substantial excess of other wagons, in relation to domestic needs, large additional wagon purchases cannot be justified. Similarly  - 7'4 - there can be relatively little justification for expendit ure to rehabilitate 300 ex-EARC wagons unless they can be commercially leased to one of the other railways. URC should include t he study of the justification for the wagon rehabilitation program as part of t he ADB funded, Wagon Workshop Study, Passenger Coaches: no investment in coaches is required as URC should be withdrawing from these loss-making services, which only benefit a tiny proportion of the population. Wagon Repair Facility: some facility for the repair of wagons is undoubtedly needed by URC, but its scale and function must be subject to stringent analysis to ensure that the most cost-effective solution is determined. Much of the priority for the facility will depend on whether URC can develop a market for the continued leasing of its excess wagon stock to other railways. Without that market URC might be better advised to slowly disinvest its wagon assets. The capability for the assembly/manufacture of more wagons has little relevance in view of URC's present wagon holdings . Container Infrastructure: if URC manages to develop an efficient through container service with KRC, additional handling and stacking facilities will become necessary at Kampala and a new container terminal might eventually be needed. Investment in such facilities should only be undertaken when the demand is well established. The flow of containers to other locations is unlikely to justify major expenditure to create the specialized facilities required. Rehabi.l!tation of th.e Kasese Line : this project may be marginally justified, if many assumptions are made (as illustrated in Annex I), but it is difficult to make a compelling case for the project's priority in comparison with other investments in the transport sector. Even with much lower rehabilitation costs than those originally estimated, the Kasese line project is a low return, high risk project. In case of completion to appropri.ate design standards of the Fort Portal road the transport of HIMA Cement could be undertaken with relatively little additional capital cost, US$ 5.2 million for a fleet of large truck-trailers. Very little additional investment in trucks would be needed to move the cargo via Ishaka and Mbarara. HIMA. is crucial for the Kasese project and the company should be offered the opportunity to undertake the rail investment; URC would then run the trains on contract for the cement factory. Investment on other Lines : there may be a strong strategic rationale for maintaining the Kampala - Malaba section of track, a l though its actual value is hard to determine as URC appears committed to the use of wagon ferries for most international traffic. There can be no justification for major investment expenditure on any of the other sections of URC track, The present and potential traffic is too low. Cl osure and real izing the salvage/scrap value of the assets is almost certainly the preferred policy .  - 75 - A Program for the Marine Service 3 .4 The marine service is crucial for URC and Uganda very carefu.l consideration must be given to the type and scale of investments which will maximize its effectiveness and commercial viability. Additional Lake Capacity: the scale and nature of additional lake transport capacity should be the most critical concern of URC management. If the MV Uhuru is not repaired and Kenya/Tanzania cannot be persuaded to modify their regulations to allow more continuous ferry operations, URC will be faced with severe capacity constraints by 1995, if not earlier. The level of marine tonnage capacity required will depend on the level of transit security desired and the utilization of the ferries. To explore potential investment needs in the marine sector two levels of transit security were tested, 50 percent and 60 percent of total imports (100 percent of exports can be carried as backhaul to dry cargo imports), and two levels of ferry utilization . Additional capaci.ty needs are then determined depending upon whether similar ferries are added to the fleet, whether one uses ferries with commercial vehicle decks or resorts to a combination of ferries and barges. The results of the analysis a.re shown in Tables 3.1 and 3.2 below. Table 3.1: Marine Vessel Options : 1995 and 2000 (i) Wagon Ferries Wagon Ferry Utilization(l) Utilization(2) Required Deficit Required Deficit 1995 7 4 5 2 2000 9 6 6 3 (ii) Multi-mode Ferries Wagon Ferry Utilization( 1) Utilization(2) Required Deficit Required Deficit 1995 6 3 4 1 2000 7 4 5 2 (iii) Wagon Ferries and Barges Wagon Ferry Barges Utilization(l) Utilization(2) Total Required Deficit Required Deficit 1995 3 5 2 3 2000 4 6 3 4 1 (iv) Multi-Mode Ferries and Barges Wagon Ferry Barges Utilization(!) Utilization(2) Total Required Deficit Required Deficit 1995 3 4 1 3 2000 4 5 2 4 1 Source: Mission estimates  - 76 - Table 3.2: Investment OJ>tions for New Vessels 1995 and 2000 (US$ million) Existing Utilization Improved Utilization (i) ( ii) ( iii) ( iv) (i) ( ii) ( iii) (iv) 1990 - 1995 52.0 46 . 5 33.5 23.0 26.0 15.5 7.5 7.5 1996 - 2000 26.0 15.S 15.5 18.0 13.0 15 . 5 15.5 18.0 Total 78.0 62.0 49.0 41.0 39.0 31.0 23.0 25.5 Notes Utilization (1) = 110 trips p.a . Wagon Ferry = US$13.0 million Utilization (2) = 175 trips p.a. Multi-mode = US$15.5 million Oil barge = US$ 2.5 million Source: Mission estimates The lowest cost capital solution to providing additional marine capacity for Uganda's security requirements would be the use of bulk oil barges and some multi-mode ferry capacity. Both elements of the solution would require some additional infrastructure investment, possibly in the order of US$5 - 10 million. The major capital cost savings come about, however, by increasing the use of the existing ferries. Depending on utilization and choice of vessels the capital costs could vary from as little as US$23 million to US$78 million. If the security requirement was to be reduced to 50 percent of total imports, marine capacity could be reduced by one ferry. Hodificati.o n of Existing Fe.r ries: to enhance the transit security made possible by the wagon ferries the existing ferries should be modified to allow the transport of loaded trucks/trailers. Advice should also be sought from naval architects regarding the feasibility and cost of adding commercial vehicle decks to the ferries. Investment in Additio·n al Crews : there is a very pressing need for URC to invest in more ships' officers and engineers. Without additional crews URC will not be able to increase the utilization of the ferries which is the lowest cost means of providing additional lake transport capacity. Development of the Tanzania Transit Route 3.5 If Uganda wants to develop the potential to move 50 - 60 percent of its foreign trade through Tanzania, the Government will need to consider the means by which the facilities will be provided, funded and maintained. It will not be in Tanzania's interest to develop an infrastructure which may not be fully used, or fully used only in periods of crisis. Uganda can provide, from its existing resources, the locomotives and rolling stock necessary, but creating any additional track and port capacity can only be undertaken in conjunction with Tanzania. If, for example, the Government wishes the oil companies to have the capability to lift 70 percent of Uganda's oil needs from Dar es Salaam, improved loading facilities will be required. Similarly if URC develops its marine service through oil barges, additional buffer storage may be required at Mwanza. At this stage it is difficult to quantify the likely magnitude of  - 77 - the investments needed in the Tanzanian transport network to provide Uganda's desired transit security. It would be unrealistic, however, to expect TRC to have the capacity to meet the levels of traffic, implied by Uganda's security objectives, for several years. Consequently Uganda must create the means to move, at least, some traffic through Tanzania by road. 3.6 The construction of the Musoma - Arusha rail link, to provide a transit link to the port of Tanga, has recently been proposed again. Investment of this magnitude cannot be justified, in the light of economic conditions in both Tanzania and Uganda, the limited traffic and the priority that must be given to improving the operating and commercial efficiency of existing rail links before embarking on the construction of additional links. c. Program for The Roads Sector Inter-Urban and Rural Roads Priorities 3.7 A considerable proportion of past development expenditure in the transport sector has been devoted to the roads sector and this emphasis will continue. The sector can be divided into three broad categories of roads, each of which needs to be considered individually in terms of the priorities set out above. (1) The Main Highway Network: the roads under the responsibility of the MoW provide the backbone of inter-urban communications for Uganda. The costs/benefits of rehabilitating and upgrading the network can be established with reasonable accuracy. The benefits are normally dependent on observable levels of traffic and changes in technical parameters (road surface condition and alignment) and thus the risks are relatively low, subject to the improvements in the technical conditions being maintained. When maintenance is not undertaken, the benefits can be reduced rapidly especially for gravel roads. Sufficient resources for maintenance are thus crucial and the analysis presented below specifically explores the maintenance cost implications of a number of programs. Whether the benefits of the investment are spread widely through the economy and society will depend largely on the extent of competition within the transport industry. The Government makes little attempt to regulate and impose tariffs on the trucking sector but it is possible that the marketing/distribution sectors may pass little of the reduced transport rates to producers and consumers. (2) All-Weather Rural Feeder Roads: Where these roads are passable they can be considered in a similar fashion to the main road network with benefits largely dependent on vehicle operating costs and traffic levels. (3) Seasonal or Impassable Rural Feeder Roads: Greater analytical problems, but also agricultural and social benefits, are found  - 78 - when the investments increase the level of motorized accessibility into an area. If marketed agricultural production is to rise, output is to be diversified and the rural population to be provided with even basic levels of social services, improvements to the level of rural accessibility are essential. In terms of the priorities, improvements to the rural feeder road network should receive particular emphasis but this does not necessarily mean full road reconstruction. Inter-Urban and Rural Roads Program 3.8 Financially Unconstrained Program. When determining the desired road program, account must be taken of the unavoidable institutional and implementation constraints which will limit activity but not the possibility of financial constraints. The following program was developed on the following assumptions: effective performance of all maintenance needs, resulting from the structure and state of the road network; construction of all existing economically justified rehabilitation and upgrading projects according to a feasible schedule; and construction of all additional road improvement projects as they become economic. 3.9 Traffic count data indicate that rehabilitation of most MOW highways and perhaps 3,000 km of feeder roads is presently justified. A program of culverting to remove critical drainage problems and increase motorized accessibility on most of the feeder road network is also justified. Additionally, as the economy and traffic grow, several types of investment are projected to be economically justified in the next decade, namely: (1) strengthening of some paved roads with asphaltic concrete overlays; (2) paving some gravel highways when traffic exceeds 200-250 vehicles/day; and (3) rehabilitation of rural feeder roads having traffic flows exceeding about 30 vehicles per day. The cost of this program would rise from present levels to about Ush 63 billion (US$89 million) in 1994/95 and then gradually decline, as the backlog of work is completed, to about Ush 43 billion (US$62 million) in 1999/2000 (in 1990 values), at a total cost for the period 1991/92 - 1999/2000 of Ush 422.4 billion (US$ 603.6 million), Table 3.3 below.  - 79 - Table 3.3: Unconstrain.e d Road Program Expenditure: 1991/92 - 1999/2000 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 Ush billion 27.8 41.6 61.2 62.5 52 . 2 46 . 5 44.6 42.7 43 . 3 US$ million 39.8 59.4 87 . 4 89 . 3 74 . 5 66.5 63 . 8 61.1 61.8 Source: Annex VIII This financially unconstrained program would result in significant changes to the road inventory, Table 3 . 4: Table 3.4: Uganda Road Status Inventory: Highways and Feeder Roads (kms) Octobe r June June 1990 1995 2000 Paved Highways Rehab. and maintenance 50 2,633 3,886 Rehab. and no maintenance 1,355 Unrehab. _ill_ _ _ 3 Total 1,976 2,636 3,886 Gravel Highways Rehab. and maintenance 962 4,647 3,902 Rehab. and no maintenance 961 Unrehab. 3,889 Total 5,812 5,152 3,902 Feeder Roads Rehab. and maintenance 29 3,121 5,521 Rehab. and no maintenance 542 Culverted 3,900 12,213 Unrehab. 19,763 13,313 2,000 Total 20,334 20,334 20,334 All Roads 28 , 122 28,122 28,122 Source: Annex VIII 3.10 The assumption that an effective solution is found for road maintenance is critical. The projections of maintenance output assume that the ministries' ability to maintain all highways and feeder roads will be phased in by mid-1994, Table 3. 5 . This will be a crucial task for Government and donor assistance.  - 80 - Table 3.5: Required Road Maintenance Performancel/ (kms) 90/91 91/92 92/93 93/94 Highways Rehabilitated - Maintained 1,246 2,660 4,522 6,296 Rehabilitated Not Maintained 2,316 1,437 674 0 Feeder Roads Rehabilitated - Maintained 329 857 1,575 2,521 Rehabilitated - Not Maintained 542 464 346 0 Source: Annex VIII 3.11 If this maintenance performance is not achieved, an untenable situation would quickly be created: Rapid gravel road construction on one part of the network would be combined with simultaneous rapid gravel road deterioration elsewhere. By 1993/94 1,600 km of gravel road per year would be added to the rehabilitated gravel inventory under the program - 1,000 km of highways and 600 km feeder roads; simultaneously, if maintenance is not carried out, hundreds of kilometers, perhaps) 1,000kms, would revert annually to their unrehabilitated condition. The program would become irrational. Since a significant proportion of the bitumen network would also urgently need maintenance by 1993/94, the same phenomenon would also apply : investment being offset by disinvestment. In addition, relatively small allocations of maintenance funds to unrehabilitated roads deserve high priority to alleviate the worst conditions. F.inancially Constrained .P rograms 3.12 The financially unconstrained program appears technically feasible (if optimistic) but may not be financially possible, particularly in the peak expenditure years. Consequently redu.ctions were made in the program to meet scenarios of financial limits. The changes are based on prioritized reductions in various sub-programs (in most cases resulting in postponement) based on rough estimates of their economic returns. Maintenance expenditures are derived from the resulting road inventories and thus vary between scenarios. 3.13 Overlays on paved roads and rehabilitation of international links are given highest priority (an initial reduction of 10 percent). Paving gravel roads and rehabilitation of non-international roads were given second priority (initial reduction of 20 percent). Other classes of construction were prioritized with reductions as follows: Class A gravel highway rehabilitation and the normal culvert program (25 percent), Class B gravel highway rehabilitation and the basic culvert program (35 percent) 1/ There is considerable uncertainty as to the level of current maintenance output, and the figures for 1990/91 are rough estimates of kilometers on which any maintenance was performed. Even more important, the adequacy of this maintenance is not known in any detail, for instance, whether the grading frequency, vegetation control or drain clearance were sufficient.  - 81 - and Class C gravel highway and feeder road rehabilitation (50 percent). Once these initial prioritized reductions are made, construction activity is scaled down to the finance available. If there is a surplus of funds, in any year, it is used to clear any previously deferred activity. 3.14 Government funding of US$ 20 million is assumed in 1990/91 (about the present level); funding then increases in line with GDP growth, 5 percent per annum . The level of donor finance available varies according to the scenario: $30 m, $40 m or $50 m per annum. Under these scenarios total finance is constrained to ranges of $50-60 m, $60-70 m and $70-75 m per annum over the decade. The two lower finance scenarios, which are consistent with past government and donor allocations, are insufficient to complete the financially unconstrained program by the year 2000, Table 3 . 6 below. Table 3.6: Financialli Constrained Road Program E:xpenditure (US$ million) Short 91[92 92[93 93[94 94[95 95[96 96[97 97£98 98[99 99[00 Fall Uncon- str. 39.8 59.4 87.4 89.3 74.5 66.5 63.8 61.1 61.8 Constrained: Donor Finance $30m 39.8 51.0 52.1 53.2 54.3 55.5 56.8 58.1 59.5 -123.4 $40m 39.8 59.4 62.1 63.2 64.3 63.5 66.8 68.1 69.5 - 44.9 $50m 39.8 59.4 72.1 73.2 74.3 75.5 67.9 65.3 66.3 9.8 Note: Underlined amounts are less than the unconstrai.ned road program in the indicated year. .B old amounts are for those years when the backlog of deferred projects cannot be cleared. Source: Annex VIII 3.15 Following an initial period of one or two years, when institutional constraints limit expenditure, both the lower scenarios are financially constrained throughout the decade and total road expenditures are reduced by $123 m and $45 m, respectively. Even with donor finance as high as $50 m per annum (total finance of $70-75 m), desired activity is constrained in three years. This upper scenario does, however, broadly succeed in completing the programme by the year 2000. Consequently it (or an equivalent one where government finance is substituted for part of the donor contribution) is the only scenario (of the three) that comes close to the financially unconstrained program. The effect of the financial constraints on the physical condition of the network is detailed in Table 3.7.  - 82 - Table 3.7: Road Conditions (kms): Financially Constrained Programs 1995 2000 No Donor Finance No Donor Finance Limit $30m $40m $50m Limit $30m $40m $50m Rehab. Paved 2633 2237 2372 2510 3886 3152 3660 3879 Unrehab. Paved 3 111 74 41 Rehab. Gravel 4647 3601 3972 4128 3902 4603 4128 3909 Unrehab. Gravel 505 1839 1369 1109 33 Rehab . Feeder 3121 2039 2404 2527 6121 3309 5255 6055 Culvert Feeder 3900 2101 2670 3121 12213 7308 9593 11041 Unrehab . Feeder 13313 16194 15261 14686 2000 9717 5486 3238 Total Roads 28122 28122 28122 28122 28122 28122 28122 28122 Source: Annex VIII 3.16 If the road programs are financially constrained an even higher priority must be given to planning and project selection. Only those economically Justified programs and projects are included in the unconstrained program but, under all three financial l y constrained scenarios, further prioritization must be carried out, since significant amounts of the program have to be deferred for lengthy periods. For instance, under the most constrained scenario, completion of bi.tumen highway rehabilitation would be deferred from 1995 to 1997 and completion of gravel highway rehabilitation would be deferred from 1996 to 2001. On the feeder roads, 2,800 fewer kilometers of feeder roads would be rehabilitated and 7,700 fewer kilometers culverted by the year 2000 . It should be emphasized that all programs are attainable only under optimistic assumptions about efficient construction and maintenance. All cost figures, for instance, are based on the use of efficient contractors . If contracting is less efficient or force account is used, the projected output could not be attained within the cost estimates and financial constraints. 3.17 All scenarios imply a level and efficiency of maintenance that has not been attained in Uganda for at least two decades; without maintenance at the indicated level, the investment will not yield the level of rehabilitation intended because of the deterioration described previously (para. 3,10). Whichever scenario is considered, the effects on the overall level of maintenance funding required is very small. By 2000 over Ush 21 bn (US$30 million) are required, Table 3.8 below.  - 83 - Table 3.8: Reguired Road Maintenance Funding (US$ million) Scenario 90/1 91/2 92/3 93/4 94/5 95/6 96/7 97/8 98/9 99/2000 No Constraint 3.1 7.5 14.7 22.0 26.6 29.8 31.0 31. 7 32.5 33.3 $ 30 million 3.1 7.4 14.6 22.3 24.3 . 26. 2 27.7 28.6 29.3 30.1 $ 40 million 3.1 7.5 14.7 22.9 25.3 27.5 29.1 29.9 30.9 31.9 $ 50 million 3.1 7.5 14.7 22.9 25.7 28.2 29.8 30.9 31.9 32.9 Source: Annex VIII The foreign exchange requirement will be approximately 70 percent of total maintenance expenditure. Provision of this level of maintenance funding and its efficient planning and use will be critical tasks for the Government and Donors over the next decade. An Urban Roads Program 3.18 Little attention has been given in Uganda to the optimum rehabilitation programme for urban roads. The costs of rehabilitating the classified roads, and then maintaining them for a 10 year period, can be calculated, as well as the additional costs of paving the present gravel sections, Table 3.9 below. Table 3.9: Costs of Full Urban Road Rehabilitation and Maintenance (US$ million) Existing Standards Rehabilitation Maintenance Total Paved 57.75 16.39 74.14 Unpaved 4.73 5.67 10.40 Total 62.48 22.06 84.54 All Paved Total 71.93 23.68 95.61 Source: Mission estimates 3.19 Rehabilitation of all roads is likely to be neither sufficient to solve the traffic problems in Kampala nor to meet the real transport i cycles for needs of most of the population who depend on walking or b. normal transport. Some selected links within the urban areas will undoubtedly need to be rehabilitated or improved for motorized traffic. The economic rates of return from such investment will be very high, in view of the high traffic flows and the poor road conditions. On the other hand higher rates of return may generally be achieved by combining these or lower level investments with greater traffic management on the network.  - 84 - 3.20 There is no economic justification for expenditure on major new links within urban areas to ease congestion nor for by-passes, su~h as proposed for Kampala. Traffic management and traffic restraint should form the primary means of treating traffic congestion. Much greater justification can be found for low cost improvements to those facilities used by pedestrians and cyclists, who form the majority of the urban travelling population. Little detailed study has been undertaken for the precise road investments needs of urban areas in Uganda. It is, however, reasonably clear that rehabilitation of all roads to the standards prevailing in 1971 would not optimize returns and thus the capital cost of US$62 million must be excessive and a much more modest investment, accompanied by other actions, would be preferable especially as the capital expenditure in roads would only benefit a very small section of the urban population. 3.21 Without a functional reclassification of the urban road networks, a.llied with a road condition inventory and analysis of the potential for low cost traffic management, precise needs for the decade cannot be estimated but they might fall within the range of US$ 35 - 45 million, equivalent to rehabilitating 50 - 75 percent of the urban network, but which might be allocated among a number of different types of improvement. D. Program for Air Transport Development A Programme for Civil Aviation 3.22 The immediate need in the civil aviation sector is to establish the necessary institutional framework for the sector and to remove any technical restrictions on airline operations at Entebbe Airport.. The short term investment needs 1990 - 1995 may, therefore, be around US$10 million, to which might be added US$1 million for improvements to basic facilities at the passenger terminal. 3.23 Increased air services could facilitate Uganda's economic development, thus encouraging such services through the removal of aircraft operational constraints has high priority. Improved passenger terminal facilities must have little priority in that the likely economic benefits to Uganda will be small, until tourism has increased to much higher levels, and the social benefits will largely be received by a very small group. Remodelling of the terminal should be delayed until the medium term and then undertaken to a very modest level, possibly US$6 - 8 million. 3.24 Additional ground handling equipment is needed, US$1 million, but arrangements might be made with a foreign airline to provide the requirements. 3.25 Improved cargo handling and storage facilities are necessary, especially if the export of perishable commodities is to be developed on a reasonably l a rge scale. Investment in such areas should be made by the  - 85 - private sector, with the state facilitating the process by providing land and acce.ss. A Programme for Air Transport 3.26 In the short to medium term, investment needs in UAC should be limited to the minimum while its management re-organizes, strengthens its systems and controls and reduces staff to realistic levels. UAC must develop a secure profitable base through its ground handling operations before re-entering the passenger market in any significant fashion. 3.27 The development of efficient freighter services could provide both economic and security benefits to Uganda and should thus receive second priority but the investment expenditure should be small with the aircraft lease being financed from revenues and the profits from ground handling operations. 3.28 Expansion into passenger services should have low priority in view of the high risks, limited returns and the lack of impact on Uganda's basic economy and society. UAC should only re-enter the market once it has demonstrated that it can operate profitably in its other areas and should thus be at the stage when it could attract the necessary finance. without recourse to government funding. E. Public. Investment for the Transport Sector 1990 - 2000 Investment Needs 3.29 Many of the sub-sectoral programmes discussed above contain major elements of investment which must be further analyzed to determine whether they are fully justified in the context of Uganda's needs and financial constraints. The cost of several investments are not known with any great precision and consequently the following program must be considered as only broadly indicative of what is necessary to support Uganda's development objectives, Table 3.10. 3.30 When estimating investment requirements, financial constraints have not been considered. The road investment program is thus the financially unconstrained scenario discussed previously (paras. 3.8 - 3.11); if the level of available donor finance was limited to the minimum level considered in the analysis (US$ 30 million), the total road investment program would be reduced by approximately US$ 100 million.  - 86 - Table 3.10 Public Investment Requirements (US$ million) Road Sector 1990-1995 1996-2000 Total Paved Highways: Rehabilitation 65 * 66 Strengthening 4 15 19 Gravel Highways: Rehabilitation 70 9 79 Paving 46 88 134, Feeder Roads: Rehabilitation 31 36 67 Culverting 10 22 32 Urban Road Networks 15 25 40 Total Road Sector 242 195 437 Railways Container Traffic: Wagons 5 5 10 Infrastructure 10 10 20 Wagon Repair Facility 3 3 Kasese Line Rehabilitation (50) (25) (75) Total Railways 18 15 33 (68)/1 (40)/1 (108)/1 Marine Service Converting Existing Ferries 1 1 Oil Barges 8 3 10 Multi-mode ferry 15 15 (15)/2 (15)/2 (31)/2 Supporting Infrastructure 5 5 10 Total Marine Service 14 23 37 (29) (23) (51) Civil Aviation Entebbe Airport Technical Rehab. 10 10 Passenger Terminal 1 8 9 Handling Equipment 1 1 Total Civil Aviation 12 8 20 Air Tran.sport Development Total for the Transport Sector 286 241 527' (351) (266) (627) ( ) investment requiring further analysis /1 excluding investment to increase Uganda transit capacity on TRC /2 required if ferry utilization is not increased * insignificant Source: Mission estimates  - 87 - Investment Financing 3.31 The overall public sector investment requirement for the transport sector is likely to be in the order of$ 520 - 620 million over the next ten years. Most of the investment is required in the roads sector, which reflects the overwhelming importance of roads and road transport to the domestic economy. Assuming that such investments as the Kasese line are avoided the financing requirement will be rather more than US $50 million p.a. While considerable the total investment in the transport sector is not significantly different to recent trends. The transport and communications sector accounted for 24 percent of total development expenditure during the financial years 1988/89 - 1989/90. Assuming, as in the PER, that development expenditure is maintained at a constant level of US$ 250 million, transport's share will also remain relatively constant. Given the experience of other SSA countries the allocation of 25 percent to transport cannot be considered as unusual. In addition to the investments Government must fund a rapidly increasing road maintenance program which will rise to over US $30 million by the end of the decade. In terms of the government's recurrent expenditure resource envelope, the share of road maintenance should increase from about to 2 percent to over 6.5 percent in the mid 1990's before stabilizing at around 6 percent of ministerial recurrent expenditure (the resource envelope is assumed to increase at an average annual rate of 6 percent). This level of expenditure will require major Government commitment to the efficient development of the transport sector. 3. 32 The major direct Government investment will be in the roa.ds sector. The financially unconstrained program would have a very much higher investment schedule than other recent estimates; the Road User Charges Study hypothesized an average annual investment of US $28 million, rather than US $44 million. The unconstrained road program investments are not, however, excessive in rela.tion to investment in the roads sector, 1987/88 - 1989/90, which averaged over US $50 million. Mobilizing donors for the investment program may be much less of a problem than funding the road maintenance program. A major increase in user charges will be necessary if road users are to finance the total program (on the assumption that annual maintenance and capital expenditure approximate the long run marginal cost for the sector). 3.33 The Road User Charge Study estimated that average road user charge revenue would broadly balance, over the period considered, the level of total expenditure estimates. Since this study, changes in fuel prices and the value of the Ush, t ogether with the expanded road program result in the likelihood of a major shortfall in road user charge revenue, Table 3 .11.  - 88 - Table 3.11 Non-Urban Road ExJ!enditure and Road User Charge Revenue (US$ million) Expenditure 91/2 92/3 93/4 94/5 95/6 96/7 97/8 98/9 99/00 Maintenance 7.5 14.7 22.0 26.6 29.8 31.0 31. 7 32.5 33.3 Capital 32.3 44.7 65.4 62.7 44.7 35.5 32.1 28.6 28.5 Total 39.8 59.4 87.4 89.3 74.5 66.5 63.8 61.1 61.8 Average Annual Cost US$ 67.1 million Road User Charge Revenue 91/2 92/3 93/4 94/5 95/6 96/7 97/8 98/9 99/00 Gasolene 31.5 32 . 8 34.1 35 . 4 36.9 38.3 39.9 41.5 43 . 1 Diesel 9.9 10.6 11.3 12.0 12.8 13.6 14.5 15.4 16.4 Licences 1.5 1.5 1.6 1. 7 1.8 1.9 2.0 2.1 2. 2 Tolls 0.5 0.6 0.6 0.6 0.7 0.7 0.1 0.8 0.8 Transit Fees --1.:1. 1.4 ..hl ..hl 1.6 1. 7 -1.:..§. --1.:..2. -1..:..Q Tot al 44.8 46.8 49.0 51.3 53.7 56.2 58.8 61. 6 64.5 Average Annual Road User Charge Revenue US$ 54 .1 milli.o n Source: Road User Charges Study and Mission estimates 3.34 Road user charge revenues will be sufficient to fund the road maintenance program but will finance less than 70 percent of capital expenditure. The Road User Charge Study proposed a number of changes to user taxation: diesel ta.xes increased to reflect attributable road maintenance costs; licence fees for commercial vehic l es increased to cover attributable capita l costs; transit fees increased to US$ 27 per 100 loaded truck/kms; and licences / taxes linked to the exchange rate. In Table 3.12, revised estimates of road user charge revenue are shown, the value of licence/toll revenue is based on the 1990/91 estimates of the Road User Charge Study which used an exchange rate of Ush 379.  - 89 - Table 3.12 Revised Road User Charge Revenue (US$ million) 91/2 92/3 93/4 94/5 95/6 96/7 97/8 98/9 99/00 Gasolene 31.5 32.8 34.1 35.4 36.9 38,3 39.9 41.5 43.1 Diesel 17.0 18.1 19.3 20.5 21.9 23.3 24.8 26.4 28.1 Licences 7.4 7. 7 8. 1 8,5 8.9 9.4 9.8 10,3 10.9 Tolls 1.0 1.0 1.1 1.2 1.2 1.3 1. 3 1.4 1.5 Transit Fees 1. 6 1. 7 1. 7 1.8 _h2 -1..:.Q 2.1 2.2 2.3 Total 58,4 61.3 64,3 67.5 70.8 74.3 78.0 81.9 85.9 Average Annual Road User Charge Revenue US$ 71.4 million Source: Road User Charges Study and Mission estimates 3,35 Average annual road user charge revenue (calculated net of the assumed general revenue tax of 33 percent on imports) is very close to the estimated costs of the road program. Unfortunately, the potential for higher diesel taxation may be constrained by the price of fuel in Kenya and the potential for smuggling. Pump prices for fuel in Uganda are already 15 - 20 percent higher than in Kenya (at the parallel exchange rate, and much more at the official rate), 3,36 Within the overall revenue, the excess taxes on light vehicles (in excess of attributable road costs) using paved roads effectively finances the feeder road program. Almost US$ 100 million is allocated to the improvement of feeder roads on which traffic flows are very light and consequently road user revenue is very limited. In vie~ of the major agricultural and social benefits that such improvements will generate, financing by means other than road user charges may be more appropriate. The revised road user charges are sufficient to provide the funds necessary for the urban road road program, estimated at US$ 3,5 - 4.0 annually. Alternatively some more specific urban road taxes, collected directly by the urban authorities (supplementary licences and/or parking charges) may be considered preferable, providing a certain level of financial independence for local government, 3.37 Financing of the relatively modest investments proposed for the civil aviation sector should be possible from existing user charges, especially if the high forecast rates of gro~h materialize. In 1989 Entebbe International Airport generated an operating surplus of almost US$ 2,3 million. If fees are maintained and there is an average annual gro~h in traffic of 10 percent p.a., the surplus by the year 2000 will have risen to almost US$ 6 million, It is recommended that the development of Uganda's air transport capacity is financed entirely by UAC through its operating profits. 3,38 Investments in URC, marine and rail activities, could range from US$ 70 - 159 million depending on the choices made regarding marine vessels and the Kasese Line. The operating surpluses generated by an efficient, streamlined URC could make a major financing contribution to its investment program but URC is likely to be operating in an increasingly  - 90 - competitive market and its ability to generate additional revenue through rate increases will be severely circumscribed. It is probable, therefore, that investment in the larger program would require a major Government contribution. Unfortunately the financial relationship between Government and URC has not been formally defined and thus the status of previous financial Government contributions (debt or equity) is unclear. Clarifying the financial structure of URC should be a priority for URC management as the base from which a realistic financing plan can be developed. 3,39 The present URC accounts indicate that depreciation charges, based on the revalued asset base, are very considerably greater than the corporation's operating surplus. A very significant proportion of the asset base should not, however, be replaced (much of the track and possibly also much of the stock of locomotives and wagons, if they cannot be profitably leased to other railways) and consequently the level of depreciation charges is unrealistically high. If Government is determined to maintain the total URC network and the full range of services, a major restructuring of URC's asset base should be undertaken to identify the assets employed in the core commercial activities as the basis for the preparation of both commercial and public service accounts. F. Private Investment in the Transport Sector 1990 - 2000 3,40 The previous section outlined the major public investments which are likely to be required in the transport sector during the, decade. Other investments will need to be made in the transport sector but these are more appropriately made by the private rather than public sector. While Government plays the primary role in providing the transport infrastructure, most transport services are supplied by the private sector. To support the e.fforts be.ing made to restructure the economy and generate increased agricultural production, investment in road transport storage facilities will be necessary. The private sector could also be encouraged to become more active,ly involved in areas which have normally been considered, in Uganda at least, the preserve of the public sector, The provision and maintenance of air strips to support tourist projects, the provision of specialized wagons for URC, and the growth of Uganda's air transport capability could all be possible examples of increased private sector involvement, 3,41 The scale of the private sector investments required in the transport sector will be very substantial, especially in the provision of road vehicles even with the relatively modest growth rates assumed. It is difficult to estimate the total investment in road transport required as the size of the present vehicle fleet is not precisely known. Table 3,11 provides an indication of the likely scale of requirements; replacements needs are estimated from an analysis of the probable age structure of the existing fleet, developed from new vehicle registration data and vehicle wastage rates.  - 91 - Table 3.13 Investment Requirements in Road Transport (US$ million) Vehicle Financial Investment Foreign Exchange Cost Type 1991-95 1996-2000 Total 1991-95 1996-2000 Total Car 230 266 496 99 114 213 Pick-up 101 135 236 55 73 125 Mini-bus 69 88 157 39 50 89 Large Bus 86 94 180 40 44 88 Truck 221 280 501 140 178 318 Total 707 863 1570 373 459 832 Source: Mission estimates The total private investment (including taxes and duties on vehicles) could exceed US$ 1.5 billion. Foreign exchange requirements for new and replacement vehicles could exceed US$800 million during the decade ($400 million for trucks and buses and $430 million for light vehicles), a very much larger requirement than for public sector investment.  - 92 - IV. DONOR POLICIES FOR THE 1990'S A. Financial Support for Capital and Recurrent Expenditure 4.1 Uganda will need subs tantial donor support during the decade 1990 - 2000 if its economic restructuring policies are going to generate the conditions for self-sustaining growth. The t ransport sector requires considerable further investment if the infrastructure, especiall y in the rural areas, is to be improved to the levels required to support the growth and diversification of the agricultural sector. An improved transport infrastructure is unlikely to be sufficient for re-generating growth but i t will be a necessary facilitating factor. Support for Recurrent Expenditure 4.2 Support for capital investment in the transport sector is vital but if donors restrict their assistance to capital projects Uganda will face immense problems in maintaining its infrastructure at the standards necessary for effective utilization of the investment, This is primarily a problem faced by the road sector as other sectors, such as civil aviation and the railways, should be able to generate sufficient revenues and foreign exchange to meet their own needs, so long as the Government allows them to pursue commercially orientated policies and retain some of their foreign exchange earnings. 4, 3 The desirable roa.d program was developed on the premises that road maintenance would be fully funded and that the government's allocation for the sector would grow at 5 percent per annum. from its present expenditure of about US$ 20 million. As long as donors require counterpart funding for capital projects it seems improbable that the Government will have sufficient resources to fund fully the maintenance needs of the network, Table 4.1 below. Table. 4.1: Resources Required for the Road Sector (US$ million) 1991- 1995 1996- 2000 Total Development expenditure 204 169 373 20% counterpart funding 41 34 75 Government funds 86 134 220 Avai.lable for maintenance 45 100 145 Maintenance needs 72 158 230 Government shortfall 27(37%) 58(37%) 85(37%) Source: Mission estimates 4.4 Over the decade there could be a shortfall of almost 40 percent in road maintenance expenditure if the Government has to fund all the maintenance needs (ev en if the average counterpart funding was only 10  - 93 - percent there would still be a maintenance shortfall of 20 percent over the decade). To meet the maintenance shortfall, Government funding for the sector would have to start at a much higher level than assumed in the analysis, US$27,5 million, or increase at a much faster rate, 10 percent annually. The estimates of maintenance requirements assume the lowest cost operations through the use of private contractors; reliance on Ministry controlled operations could significantly increase costs. The estimates also assume that the Government does not allocate any funds to locally financed road projects, such as the Mityana - Fort Portal road. 4.5 Donors could greatly assist the developmen t of an integrated road program by eliminating the incentives that their policies give to new investment or major rehabiliation (a very costly form of capital ised maintenance) rather than road maintenance. Donors should become actively involved in road maintenance activities, both financially and by providing additional technical and managerial expertise, If, for example, donors were prepared to meet 50 percent of the foreign exchange component of road maintenance costs, the overall shortfall would be largely eliminated, Table 4,2 below. Table 4.2: Donor Funding Support for Road Maintenance (US$ million) 1991 - 1995 1996 - 2000 1991 - 2000 Maintenance shortfall 27 58 85 Donor component: 50 percent of foreign cost 25 54 79 Net shortfall 2 4 6 Source: Mission estimates 4.6 With this type of support, equivalent possibly to supplying the necessary equipment and spares, the net maintenance funding shortfall would be reduced to less than 3 percent of total maintenance requirements. As a mechanism for providing support for maintenance donors involved in funding particular road projects should also conunit funds to ensure that the roads are subsequently maintained at adequate standards. This would also provide a vehicle for significant technical assistance into maintenance activities, supplementing the technical resources of the Government. Both Government and Donors must accept that investment in roads without maintenance is a misallocation of resources and that maintenance funding, by one means or another, has to be available before investment funds are committed. Despite efforts to increase tax revenues, the Ugandan Government is still faced with acute financial constraints and, with this in mind, donors should also be prepared to fund a proportion of local costs for road maintenance. Such funding should be linked with agreed actions to increase local funding and would thus be scheduled to decline progressively. 4.7 Donor support is also likely to be necessary to support operations within the transport sector through the provision of general foreign exchange support, essential if the private sector is to be able to  - 94 - purchase vehicles and spares. Such general support appears to offer the prospect of much more efficient allocation of resources than direct donor contributions which would be channelled through the Government to 'approved' institutions and operators. Support for Transit Security 4.8 Improvement to Uganda's transit security is a major priority of the Government and one which cannot be dismissed on narrow economic considerations alone. Further development of URC's marine capacity may not be the least cost alternative for increasing international transit security but it may be the best available alternative if all factors are evaluated. Donors should be aware of Uganda's geo-strategic concerns and be prepared to modify investment decisions when the additional costs are small and the security benefits large. More particularly, improving Uganda's transit position and reducing its costs of access to the sea may require investment in facilities outside Ugandan territory, at Mwanza for example. There are some proposed investments, however, which are so expensive that whatever their security benefits they cannot be seriously entertained, for example the Musoma - Arusha rail link. Improved Donor Coordination 4.9 Planning and implementation capacity in the transport sector is still weak and it will be a major task to develop detailed programs for road rehabilitation and maintenance which generate maximum benefits from the available resources. In these circumstances, when the priorities are less clear than in the recent past and maintenance increasingly important, much closer donor coordination in supporting Government's planning and implementation will be essential. 4.10 A coordinated approach to the provision of equipment and spares will also be essential if the Ministries are not to be overwhelmed. The capacity of the Ministries to maintain equipment is very limited and the provision of small batches of different makes of equipment will only result in very low utilization rates and waste of resources. If donors cannot provide, due to their procurement rules, equipment similar to that already being operated and maintained, they should seriously consider allocating the funds to areas where sustainability is less important. B. Technical Assistance and Su.p port for Training Supporting Financial Assistance 4.11 Donors should be encouraged to provide integrated pack ages of capital and recurrent finance coordinated with technical assistance in order to ensure that the financial assistance is used in an efficient manner. The Government must, for example, avoid the situation where it receives large inflows of equipment without provision of spares, nor  - 95 - training on how to operate and maintain the equipment nor assistance in planning the use of the equipment. Unfortunately, the provision of construction equipment has great attraction for some donors and, with the increased emphasis on maintenance, the possibilities of uncoordinated, unsupported assistance in the form of equipment packages are likely to increase significantly. The Government must be encouraged to insist that equipment packages come fully integrated, at least with spares and technical training. Road Maintenance Planning and Implementation 4.12 Planning and implementing the required road maintenance program is likely to necessitate very major donor support until realistic institutional structures have been identified and developed. If the impending road maintenance crisis is to be averted short-term to medium- term assistance will be essential as an interim measure (para ). While several donors could become involved in providing elements of the assistance it will be essential that they are coordinated with clear lines of responsibility to the two Ministries responsible for roads to avoid a series of small TA projects each operating independently, duplicating the demands on the senior ministry officials and not achieving country-wide maintenance coverage. At an early stage, interested donors should meet jointly with Government to determine what should be done in the road maintenance sector, how and by whom it will be done and what mechanisms are to be adopt.ed to coordinate and monitor the efforts. Training Reguirements in the Road Sector 4.13 Within the Ministries it is obvious that there are great shortages of trained and experienced personnel at all levels. To equip the Ministries with suitable staff would require a major training effort. Unfortunately under present circumstances it is probable that such training assistance is not sufficient to close the very visible skill gap. A major skill ga.p exists within the Government but, in many areas, it is by no means clear whether this reflects an underlying shortage of skills within Uganda or among Ugandans or simply a reflection of the very unattractive salaries offered by the Government. 4.14 While the Government has many vacancies for experienced engineers and skilled technicians the private sector finds no difficulty in recruiting people with the requisite skills and experience. Even if a major effort was successful in filling the vacant positions within the Ministries there is no guarantee that those trained would remain within government service or, if they did, would be motivated to perform to the level of their skills. Two-thirds of the new engineering graduates recruited by the Ministry of Works in 1989, for example, left the Ministry within the first year. Reform of the basic structure of the civil service, increasing salaries and providing performance related incentives where appropriate, are fundamental to increasing effective skill levels and performance within the Ministries.  - 96 - 4.15 Basic reforms of the civil service are being introduced but they will take time to produce major results and consequently there is the need for interim solutions to attract and motivate the available skill pool. Increased emphasis on private sector contracting has many attractions for many sectors, and recruiting skills by contract, for example the use of a formal consortium approach, may also help to mobilize the available human resources for the Government. 4.16 Despite the fact that there is a pool of skills and experience which is not available to the government it is unlikely that the pool is large enough to meet the demands generated by, for example the very major increase in road maintenance/rehabilitation in both the main and feeder road networks. Training programs must be established which will provide the basic technical and supervisory skills required. It is possible that these skills will be subsequently attracted to the private sector but this is where responsibility for most of the implementation of road maintenance and rehabilitation should reside. Training and Technical Assistance in other Transport Sectors 4.17 While the most extensive training needs are to be found within the road sector there are clearly other important skill gaps elsewhere in the transport system: Marine transport: a major training program is required to provide the officers and engineers necessary to allow more intensive utilization of the existing fleet and/or an increased fleet. Road Safety: Uganda's road accident rates are high, even for Africa. There appears to be no effective system for driver training/testing and little enforcement of the traffic regulations. Training and both equipment and technical assistance to the traffic police may assist in enforcing traffic regulations and improving road discipline and safety. Similarly training and technical assistance to those involved in testing drivers and public service vehicles might assist in improving public transport safety standards. In addition, however, to increased support of the e nforcement agencies basic improvements need to be made in vehicle licensing and registration systems. Without adequate and functioning systems actual legal enforcement of traffic rules and regulations is problematic. The limited technical training in road safety made available under a previous World Bank/UNDP project should be followed up with additional technical assistance, perhaps through a cooperative arrangement with a foreign traffic police agency. Railways: a new training school has been proposed by URC and will be included in an ADB financed study of manpower and training needs. Whether such specialized facilities are really necessary if URC concentrates on its commercial activities must be questionable. In many respects it is not in the more traditional areas where URC needs additional assistance and training but in the management skills and techniques which must be employed if URC is to become more commercially orientated and compete effectively with road transport. Cost accounting, marketing and business development must all have priority in URC's training program.  - 97 - Transpor't Planning: transport rehabilitation has reached a stage where transport planning has become essential if major mis-allocations of resources are to be avoided. Unfortunately it is by no means clear how the skills, attitudes and motivation for such planning can be fostered in the Ugandan Government environment. Continued and increased donor support to this sector is fully justified to provide detailed advice on transport planning within each sector as well as providing the overall coordinated planning perspective. Policy making is never simple but when there are no data on the origin/destination of traffic, nor indeed accurate data on the size of the vehicle fleet or the total volume of international trade, reliable decision-making becomes at least very hazardous if not almost impossible. Technical assistance and training must be complemented by more detailed data on the transport network and its use. The Transport Data Base has started to collect statistics. Its work needs to be extended. In some respects adequate data for transport planning have to be generated by other Departments responsible for such areas as foreign trade, agricultural production and even motor vehicle licensing. •