Tanzania - Second Integrated Roads Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 12536-TA STAFF APPRAISAL REPORT TANZANIA SECOND INTEGRATED ROADS PROJECI MARCH 17, 1994 MICROGRAPHICS Report No: 12536 TA Type: SAR Energy and Infrastruct3re Operat ions Division Eastern Africa Department This document has a rticted dsisibullou and may be used by repients ondy In the perfonnance of thewi officilt duties. Its cotnts may na otherwise be dicsed wihout Wodd Bank authrhizto  Currency Equivalent (As of September 30, 1993) Currency Unit =Tanzanian Shilling Tshl.0 = US$0.002 US$1.0 = Tsh450 FISCAL YEAR July 1 to June 30 WEIGHTS AND MEASURES 1 meter (m) = 3.2808 feet (ft) 1 kllometer (km) = 0.6214 miles (mi) 1 metric ton (tonnes) = 1.023 short tons GLOSSARY OF ABBREVIATIONS AADT - Average Annual Daily Traffic AfDB - African Development Bank AGC = Attomey General's Chambers ATC = Air Tanznia Corporation CCU = Contacts Control Unit CRB = Central Roads Board CFB = Central Freight Bureau CML = Central Materials Laboratory CODAP = Coordination Office for Donor Assisted Projects DC = District Council DE = District Engineer DMI = Dar es Salaam Maritime Institute DRA = Directorate for Roads and Aerodromes EEC = European Economic Community ERP = Econonmic Recovery Program ERR = Economic Rate of Retum ESAMI Eastern and Southem Africa Maagment Instute FINNIDA = Finnish Intemational Development Agency FY = Fiscal Year GDP - Gross Domestic Product GOT = Government of Tanzania ICB = International Competitive Bidding IM = Inbm ate Means of Transport IRP-I = Integrated Roads Project I LGRF = Local Govermnent Road Fund LPM Local Program Manager MAG = Mnent Action Group  FOR OFFICIAL USE ONLY MDB = Marketing Development Bureau MCW - Ministry of Communications and Works MCT - Minisry of Communcations and Transport MOF = Ministry of Finance MWCT = Ministry of Works, Communications and Transport MWTI = Morogoro WoksTraining institute MOW = Ministry of Works NASACO = National Shipping Agencies Company NC = National Coordinator NCC = National Construction Council NIT = National Institute of Transport NTI = Non-Transport Intervention NORAD = Norwegian Agency for Development Cooperation NPRA = Norwegian Public Roads Administaion NRSC = Nafional Road Safety Council NSC = National Steering Comnittee NTC = National Transport Corporation OPEC Ornization for Petroleum Exportng Countnies PEHCOL = Plant and Equipment Hire Company Limited PMO = Prime Ministers Office PPAR = Project Perfoimance audit Report PPF = Project Prearation Facility RE R Engin REO = Regional Engineers Office RETCO T Regional Tfrucking Company RMI = Road Mainteance Initiative RRB = Regional Roads Board RRP = Railways Restucturing Project SDC = Swiss Development Cooperation SINOTASHIP = China Tanzaia Shipping Line SOE = Statementof Expenditure TACOSHIL = Tanzania Coastal Shipping Line TANZAM = Tanznia-Zambia Eghway TAZARA = Tanzania-Zambia Railways Authority THA = Tanzania Harbours Authority TRC = Tanzania Railways Corporation UDA = Shiria La Usafiri Dar es Salaam UNDP = United Nations Development Programme USAID = United States Agency for Intemational Development VITP = Village Travel and Transport Program WPU = Women Participation Unit This document has a restricted distnbuion and may be used by recpients only in the puorma of thdeir oficial duties Its contents may not otherwise be disclosed without World Bank authorzatio  UNITED REPUBLIC OF TANZANIA SECOND INTEGRATED ROADS PROJECT TABLE OF CONTS CREDIT AND PROJECT S UM4ARY ................................................... i I. COUNTRY SETTING ..................................................1l II. MACROECONOMIC CONTEXT AND THE TRANSPORT SECTOR ...............1 A. Historical and Current Economic Performance ...............................................1 B. Inpact of the Integrted Roads Project on the Economy ................................2 III. THE TRANSPORT SECTOR ...............................................S A. Overall Sector Structure ..................................................S B. The Road Network .................................................. S c. Road TransportSe ..................................................Service.6 D. Port Subsector ...................................................8 E. Railways .................................................. 10 F. Civil Aviation .................................................. 10 G. Sector Organizaon and Admiisaon .................................................. 11 H. Sector Development Strategy .................................................. 12 1. Previous Bank Group Involvement in the Sector ............................................... 15 IV. THE ROADS SUBSECTOR ..................................................18 A The Network ................................................... 8 B. Subsector Development Strategy .................................................. 20 V. THE PROJECT .................................................. 27 A. Project Origin, Rationale and Objectives .................................................. 27 B. Project Description .................................................. 28 C. Project Costs and Financing .................................................. 39 VI. PROJECT IMPLEMENTATION .................................................. 43 A. Institutional Responsibilities .................................................. 43 B. Project Coordination .................................................. 44 C. Implementation Program .................................................. 44 D. Procurement .................................................. 45 E. Disbursements .................................................. 48 F. Accounting and Auditing .................................................. 50 G. Monitoring and Supervision .................................................. 50 VII. PROJECT JUSTIFICATION, BENEFITS AND RISKS ......................... ............ 52 A. Justification and Benefits .................................................. 52 B. Project Risks .................................................. 54  vm. AGREEMENTS REACHED AND RECOMMENDATION ............................. 56 B. Conditions for Cret E ne ............................................ 6 C. Condition ofDisbursement ................... 57 D. Recommendation ................... 57 The repowt is based on the work of preapprasal appraisal and post-appraisal mission in March June and October 1993 comrising the fbllowing: Mr. J. Maweni (Task Mer), Mr. R. Gopalrishnan (Senior Procrremn Specalist), Mr. L Hege (Pric Infiuatre Economst), Ms. R Matez (Operai Anlyst), Ms. C. Malmbeg-Calvo (Consultant), Mr. 0. EOevset (Conulta), Mr. T. Humes (Contan), Mr. B. Asebe (Cobsultant). ad Mr. 0. Soott (Consutant). Don repesnaIves who paicipated m t app l mission wee: Mr. B*. Tm s (EEC), and Mr. Nings (ODA). TIe analysis is based on the work of an earlier visit to Dar es Salaau by 'r. R. Tiliman (Senior Specialist). Secerial support and poduci of gpics was caried out by Ms. Nina Jones. The peer reviwers were Messrs. L. Revuelt (Principal Transport Engieer) and L. Roome (Fiancial Analst). Mes. F. Colago and S. Weissaman are the Director and Division Chief respectiey, ofd theopraton  Annex 3-1 Letter of SectorPolcy Annex 5S1 Capacity StrtheningProgm Amex 5-2 Trwn Roads Upradg and R ion Program Annaex 5-3 Rra Roads Upgradig and Rh ton Program Annex 54 Detaied Project Costiaes Annex 5-S Prr,-act Compoet by Fnnce Annex S.6 Summary of Unfnded Program Annex6-1 Schedules Annex 6-2 Estmated Schedule of Annex 6-3 Spin Pln Projec Progres Reporting an Impeenaio ies Annex 6-4 Key Permance Indica Annex 6-S Doments Avalle in the Project Fo ablm 2.1 Impact of Rhlitation Of the Kwa Sadala-sMbwera Rural Road 2.2 Improv in Freigt and Passg Servces (rundma-Sumwg Road) 3.1 Dar es ala Port: Past traffic Levels (million ton) 4.1 Tduk and Region Roads by Surface Type 4.2 Man Traffic Corridors and Leves 4.3 Lages Urban Mkets and Rdeatd Transport Corrido 4.4 Reun Budge Fnancing 5.1 Summy of Trunk Roads Program 5.2 Estmaed Project Cost 5.3 Proct Financs Plan MM 25511R  i UNlIED REPUBLIC OF TANZANIA SECOND EGRATED ROADS PROJECT CREDIT AND PROJECT SUMMARY United Republic of T =an Beneficiaries: MinistFy of Works, Comnunications and Transport, National Construct;,n Council, National Transport Corporation, and National Institute of Tramsport. Amount: SDR 123.3 milhon (US$170.2 million equivalent) Tems.: Standard IDA terms with 40 years maturity Description: The principal objective of the project is to support the coutrys economic ecovery program by reducing transportation costs, i;mproving accessibility to economically productive areas, and strengthening overall sector administrafion and organizational and financing arrangements in the roads subsector. The project would support: (i) upgrading, rehabiitaton and maintenance of high prioty truk, regional and essential district road networks (including bridges and culverts); (ii) policy and institutonal reforms to improve sector admiistion, managemen and financing of the road network and efficient provision of road transport services; (iii) a pilot program to improve village travel and transport through rehabilitation and maintenance of road infiastructure, improving access to intermed means of transport and through non-transport interventions; and (iv) resurfacing of the runway at Kilimanjaro Intenational Airport to improve safety and ensure continuation of services. Benefits: The main benefits of the project are facilitation of economic growth as accessibility is improved, markets are integrated, and travel times and transport costs are reduced. Other benefits include long-term efficiency gains from improved sector administration and intermodal coordination. Risks: The principal risks to the achievement of the project's developmental objectives include: (i) possible failure to improve or at least maintain institutional capacity to efficiently manage the road networks; (ii) shortfills of domestic resources to support the project; (ii) a slower rate of contractor development to meet project needs; and (iv) low levels of availability of road maintenance equipment. The projects policy and institutional support component and implementation arangements are specifically designed to manage these risks. Institutional risks would be mitigated through implementation of a capacity segtheing program to enhance staff skills in the key areas of procurment and contact management, transport planning and management development, improved  ii managemnt infonnation systems; and possible (depending on outcome of studies) fonnation, within 2 to 3 years, of a semi-autonomous road agency with authority to establish staffing and remuneration policies independedy of civil service regaions. Financing risks would be managed through: conditioning of IDA disbursement for each of the FY1995/96 through FY1997/98 trunk roads rehabilitation programs on satisfactory achievment of both physical and financing targets of the previous year and adequate budgetary provisions for subsequent year, and unplementation. prior to CREDfT effectiveness, of an action plan for widening the scope of the Road Fund, out of which mainktnance funds are provided, and increasg total revenues to fully fund all maOtance costs by FY1995l96. The risks related to the rate of development of the domestic construction industry would be addressed by improving managment of the Road Fund to ensure timely payments to contractors and by vaig the proportion of road works carried out by domestic and intemational contractors, as needed. The problem of equipment availability is being addressed under the ongoing project by contracting out rehabiliton of equipment to the private sector and by making management of the Plant and Equipment Hire Company Limited (PEHCOL) acountable to the Board for performance through explicit perfonnance indicators while the company is being prepared for private sector participation within the next 2-3 years. Economic Rate of Return: The project's weihted average economic rate of return is 21%.  Estimated Project Costs and Financing Plan: Local Foreign Total US$ million (Equivalent) Policy and Institutional Support 3.0 9.0 12.0 Road Upgrading, Rehabilitation & Maintenance 126.3 391.8 518.1 Village Travel and Transport Pilot Progaun 1.5 1.1 2.6 Civil Aviation 0.6 3.8 4,4 TOTAL BASE COST 131.4 405.7 537.1 Physical Coningcies 15.6 44.0 59.6 Price Contngencies 12.9 40.7 DA TOTAL PROJECT COST 159.9 490.4 6503 of Which duties and Taxes 34.9 34.9 minanin lann IDA 30.0 140.2 170.2 EEC 33.2 144.9 178.1 AfDB - 108.9 108.9 NORAD 11.0 30.7 41.7 OPEC 5.1 33.2 38.3 JAPAN 7.5 12.3 19.8 KUWAfT 2.0 12.9 14.9 SDC 1.1 4.0 5.1 FINNIDA 2.1 3.3 5.4 Government 67.9 - 67.9 TOTAL 159.9 490.4 60.3 Estimated IDA Disbursements: Fiscal Year Ending June 30 Year 1995 1996 1997 1998 1999 2000 2001 US$ Miion Annual 15.7 38.0 45.9 42.2 22.2 5.0 1.2 Cwnulative 15.7 53.7 99.6 141.8 164.0 169.0 170.2 % of Credit 9.2 31.6 58.5 83.3 96.4 99.3 100.0  I TANZANIA SECOND INTEGRATED ROADS PROJECT L COUNTRY SETTING 1.01 Tanzania has a large territory (slightly smaUler than France and Spain combined) and a population of about 28 nillion distributed mainly on its geographic periphery. Its economy is dominaed by agriculture which contributed about 60 percent of GDP in 1991. Most of the agricultura! output is produced by small farmers scattered in small rural comnunities, while the major markets and processing centers for crops, as well as the distrbution points for agriculura iputs and fuel, are cnceated in urban centers located at considerable distances firn each other and from the major coastl seaports. Because of this structure of humnn settlements and of production, transportation and communication assume an extraordinarily importat role in Tanans economic development In additior to its role in integrating domestic markets, Tanzani's transort system provides an outlet to the sea for the landlocked countries of Malawi, Zambia, Burundi Rwanda, Zaire and Uganda. After coffee, the transport sector is the second lagest eamer of foreign exchange. IL MACROECONOMIC CONTEXT AND THIE TRANSPORT SECTOR A. Historical and Current Economic Performance 2.01 Since indpendence in 1961, Tanzana's leadership has changed the countrys development strategy and economic managemt system froan market-oriented to socialist-oriented and back to market-oriented with serious consequenc to the spatial organization and distribution of the social and economic infrastructure as well as to economic progress and poverty alleviation objectives. In the first phase of market-led economic development (1961-66), the economy grew rapidly. The intemational and dometc trade that emerged determined the direction and pattern of transport infastru the relative growth of urban centers and the regional speciizaion of food and cash crop production. Within this frameworlc, Tanzania produced for the world market those commodies in which it had comparative advantage; viz., sisal, cotton, coffee, tea,etc. A small urban economy based on manufactureD handicraft and services emerged leading to urban-rural exchange. The transport sector fostered the spatal division of labor and the progressive integration of the domestic market. 2.02 In 1967, a new economic policy was announced by the leadership through the Anrsa Declaaton. The new policy was to speed-up rural development and overall economuc development and help the couny to achieve self-reliance. The impact of the new economic mmagmt system was to after the pattern of inter-ruraL urban -rural, intra-urban as well as linkages of domestic to intemational maets. Large m financial, commeria, consruction, mining and export and import businesses were nationalized, the rural economy was collectivized through a villagaton progrmn. With most ofthe economy under state control, public expenditures were seen as the veicle for developing the economy. Initially, the economy performed well with both agriculture (3.3% p.a.) and industry growing at moderate rates betwe 1966 and 1975. Impressive gains were recorded in education, health and rural development. In an ion, territorial pries were introduced and this enouaged production in some isolated parts of the country.  2 2.03 However, by the early 1980's, the gap between public expenditure and agegare supply had widened, the current account deficit was about 15% of G(DP, intlation was about 30% and the exchange rate was substantially overvalued. These economic imbalances were caused primadly by the high level of government expenditures and were exacerbated by the decline in the country's terms of trade (collapse of the coffee prices), cost of rebuilding the collapsed East African Community institutions, decline in donor aid and the war with Uganda in 1979-80. With tese difficuldes, the level of wublic expenditures allocated for construction and maintenance started to decline resulting in severe deterioration of road infrastructure. 2.04 The Govemment supported a highly overvalued currency by means of rationing and price controls which created an acute shortage of basic consumer goods. In the manufacturag sector, the shortage of foreign exchange for importation of intermediate goods led to under utilization of capacity and the parallel market began to flourish. 2.05 Having exhausted the various direct means of stimulating the economy and restoring growth to pre-1975 levels, in the mid-1980's, the Govermnent attempted a number of changes in economic incentives; but these were not comprehensive enough to address the high level of distortion in the economy. FiLlly, in 1986, the Gcovenmuent launched its first Economnic Recovery Progrm (ERP). The objectives of ERP were to achieve a positive growth rate in per capita income, lower the inflation rate and restore a sustainable balance of payments position. These objectves were to be achieved through policy and institutional refomis, market liberalization and enhancing the role of the private sector. Further, measures towards exchange rate equilibrium, positive interest rates, export promotion (eanings retention) were to be implemented through a gsadual dismantling of the administtive controls over prices and marketing and distribution afrfngements. 7The introduction of these measures stimulated production, integrtion of domestic markets and changes in production pattrns. 2.06 With the agricultural sector responding favorably to the ERP, it soon became apparent that the deteriorated road infrastructure, high transpor costs and lack of reLable means of transport had become serious constraints to expansion of production and integration of markts. In 1990, the negrted Roads Program wa launched as a ten-year prograsn aimed at stabi:zatic and restoration of the road network. Th Integrated Roads Program is essentially a component of dse countrys economic recovery program. The Integated Roads Project (IRP-1) is under implementation and financing is expected to be fully commied by FY1994/95 when the proposed project would come into effect. B. Impact of the Integrated Roads Project on the Economy 2.07 Implementaton of IRP-I has already made some significant impacts on the mobility of passegers and goods, and significant reductions in travel times have been achieved on many routes. Traffic volumes on the rehabilitated road sections have doubled or tripled in the past two yew. These indications of increased economic and social activity suggest that there have been income gains resulting from the roads programs. Specific evidence of the stimulus effect of road rehabilitation/maintenance progran on the economy is available from traffic surveys and impact studies which have been carred out recently. Studies by USAIDI and the Marketg Developmet Bureau (MDB)2 in 1992 and 1993 respectively indicate significant shifts in production mixes as a lEconomic Assessmet of KWA Sdala-Mbwe Road, USAID, Febnxmy 1993. 2]%U *wole Trae in Grins and Bers T=zai Marting Deveopment Buau, Dar es Salai, Jany 199m.  3 result of improved availability of transport. ne USAID sponsored study of the socio-cono-mic impact of rutal road rehabilitation in Kilimanjaro region is particularly illustrative. Tabke 21 Impact of RehabiUtation of the Kwa Sadala-Mbwera Rural Road _ lR~~ilmanjaro Re on Between July and September 1992, the Kwa Sadala4bwera road was rehabilitated from gravel standard to engi"neered gravel standard by a local contractor with USAID financing under the Integrated Roads Project. The road which stretchesfor a total of about 12.4 km has an area of influence encompassing eleven villages with a total population of about 34,000 settled on highly productive agricultural land The main crops are maize, beans, bananas and coffee. In De.ember 1992 USAID commissioned an economic and social impact assessment study. The main findings of the study were a Jbllow.: (f) Annual Average daily traffic flows had Increased from about 59 in 1990 to about 274 vpd; (ii) passenger traffic had Increasedfrom about 66 in 1990 to about 1,300 per day; (iff) vehicle operating costs were estimated to have declined by about 31% in real terms (from about US$0.51/km to US$0.35/kin; (iv) impact surveys of households, schools, health centers and shops strongly confirmed that access to agricultural inputs, equtpment and tools, marketfacilities, consumer goods, etc., had improved substantially compared to i990 when the baseline studies were carried out. The internal economic rate of return was re-estimated at about 33% and 41 % without and with generated traffc respectiey. 2.08 A particularly noticeable impact of the road rehabilitation and maitenance programs has been increases in the nwnber of tips by light vehicles and buses w1ich confirm the improved mobility of goods and passengers. Table 2.2 illustrates this phenonenon. Table 2.2 Improvments h Freight and Passenger Services Tunduma-Sumbuwanga Road (226km of unpaved road rehabilitated under IRP-) Before rehabilitation started on this road which stretches from Tunduma on the Tanzania-Zambia (Tanzam) Highway to Sumbuwanga the capital of Rukwa Region, there were no regular bus services. As sonn as initial advance maintenance had been carried out by the contractor regular bus services started Now there arefive relar trips per!dy. 2.09 The reduction in travel fmes resulting from road rehabilitation and better ma have geaaly shortned travel times. The impact has been to increase the number of trps and tere enhance economic and social actiiy. 2.10 Neverthless, transport (alongside credit and nrual taxation) continues to be a powerul constraint to income growth. This is demstrated in the studies conducted by MDB in 1991 and 1992. lUes reports indicate that the transport systam is charactized by high cos and unavailabilty for crop collection away from major routes and that this has limited the potetal for both incomes growth and maket integron. The high transport costs effectively lowr the producer prices, thus limiting incomes and production incentives. Non-availability of trspot, often caused by the reluctance of private sector truck owners to operate on badly deteriorated roads sections inhibits production, incomes growth and market integration. 2.11 Thus, te proposed project focuses on improving road conditions in high priority corridors which link the production areas with the dormec markets (or ports for exports) so as to reduce transport costs and foster greater market intgration. It would also give high priority to improving essential district roads in the most agriculturally productive areas in order to support high income  4 growth objctives. s alocation of hands for --bofaoWup roads among i as based on ctea which give high prioriy to tegions with more land suitable for agriculture, high populan to utlize the lad and low road des (amS.30.  5 mL THE ThANSPORT SECTOR A. Overal Sector Structure 3.01 The tansport system consists of: (a) a road new. xk toing about 88,000 knm; (b) two railway ystems - the Tanzania Zambia Railway (TAZARA) which liks Dar es saham with Zambia and the Tanzan Railways Corporaton (MRC) which seres the cental and northem rions and provides tt to Zaire, Rwanda, Burundi and Uganda; (c) te four tain ports of Dar es Salaam, Zanibar, Tanga and Mtwar. (d) a civil aviion subsector consisting of Air Tanzia Corporation, several small aiines, two iteatonal airports and more an 60 maller domestic aixports and air strips; and (e) afleetofroadvelesof morethan 100,000. L The Road Network 3.02 he road neork is by far the most domint tansport mode accounting for more than 60 % ofthe total intemal taffic flows. henetwork consist of about 3,800 km of paved runk roadis, 6,500 km of unpaved tunk roads, 17,730 km of rwnal roads and an estmated 30,000 km of district and fieder roads. In addition there are about 30,000 km of unclassified roads which are managed by pstatas, national pas and vilage councils. 3.03 By the mid 1980's, the road netwok had become sevely deteriorated as a result of iadequate mainteance ove several years. It was estimatd tat only about 15% of the trunk and 10% of he rual roads respectively were in good condition at dhe start of the gated Roads Project in 1990. As a result of the road rehabilitation, upsading and manxtena works carried oUt during the past 3 years, the proportio of tunk roads in good condition has more than doubled ad ta of ruml rads has iased by at least 50. 3.04 Despite im sse iwrove e ovrall codio of the road netwotk requires contiation of an intensive program ofehabflitation, upgrding and maintenance. The successes achieved under IRP-I are attnbutable to impl ion of key institutional changes early in the life of the project, support firm the Wold Baks Road Maintenance Iave (RI)3 in analyz policy issues reltd to the management and financing of roads, reom of proemet practices and cona a an, donor coopertion in support of an integrted strategy for the roads subsector, and itroducn of a road toll (in the f of a surarge added to the price of fuel) which i deposed into a Road Fund account for financig rehabilitaon and mnenanc works 3 RM is a cmpoat of the SSATP (SubSh Arica Trsport Policy Progmm) The RM support couy- basd effrts to develop improved poles to deal with key aset of road manaemen and taing in iht comuries. Mne SAT is a multidon collaborative effort to improve t t polices ila SSA. n is one of the prgams of e Aftica Technical Depar_eut imaged by Ihe Envometally Sustinable Development Diviaoa (AFES).  6 (curentty being used for nmintenance only). The key insitutional changes which were implemwnted at the start of the project included: (i) creation of a sepazue Directorate for Roads and Aerodromes (DRA); and (ii) fonnation of a Regional Engineets Office in each regon (by combining two prously existin offices), stegften staffing and decntralizing decision making authority for execution of road itenc activities and award of contrac up to higher fiacial limuts than before. While substal improvements have been made in strengthening the Ministry of Works, icmmunications and Trasport (MWCI) (alongside the improvements in road conditions), project implementation has also relied on heavy technWal assistance inputs by donors. To achieve sustable imprvement, the proposed project's policy and insitutional support componat will seek to fiurter build techical and managl capacity and stregthen management of the Road Fund through: (i) systematc reviews of organiional and management systems and procedures and implementation of best practices by MWCT staff with minimum technical assistance inputs; (ii) widenig the scope of the Road Fund to increase revenues for maintenance and improving the colletion and disbursement arrangm_ents for maitance funds to ensure their timely availability to users; (iu) inoducing performance-base incentive systems to increase staff motivation; (iv) providing training, especially in areas c ty posing constaints to project implementation (i.e. procurment managemen and contract administaon, local construction industry, etc.), and (v) waining of planners and engineers in transport planning at central, regional and district levels. C. Road Transport Services 3.05 There is limited available data on te size and charactristics of the vehicle population in the couny. However, the best available estimates suggest a total fleet size of more than 100,000 of which about 47% are private cars and pick-ups, 40% commercial vehicles, 7% buses and taxis, and the balance specdal purpose vehicles. In terms of ownership, the prvate sector dominates the mket for both freight and passenger services. There are no regulatory barrers to madket entry and tarffs ha been decontrolled. Howver, for intra-regional traffic, tariffs are still being established through a process of negotiation between operators and the Regional Transport Coordinating Commuttees. Simlarly in Dar es Salaam, bus tarffs are negotated betwee MWCT and the public and private operators. Inter-urban and intra-urban (apart from Dar es Salaam) passenger transportaton is provided entrely by the pnvate sector at maket deted rates. 3.06 In the trucking industry, the ten Se-owned Regional Tranport Companies (RETCOs) account for about 10-15% of the marke, marketing boards and parastals account for an additional 5-10% and the balance is held by the private sectw. Road passenger transport services are provided by the private sector with the exception of about 10% of Dar es Sal.-ms madrt which is served by Shirik La Usafid Dar es Salaam Bus Cmpany (UDA), a parastat jointly owned by the National Transport Company (NTC, 49%e) and the Dares Salaam City Counci (51%). Details of the ownesip and opeatng and financial performance of the RETCOs are given in the Project Fre (Part II) which is available in the Africa Region Information Center. 3.07 Alhugh the provision of road transport services has been liberalized, a number of critical issues remain to be addressed. These are: (i) a low rate of investnent to place the aging fleet of trucks and buses and to cater for growing demand; (ii) limited availability of transport services for both passengers and freight in the rural areas, especially those areas at long distanc from the min corridors; (iiw) weak financdal and operaing performance of UDA; (tv) poor road safer, and (v) non-enforcmen of axle load conrrol regulations and the damagn eftbct on roads of overloading. 3.08 Investment Performance: ITe recent Road Trasport Sty carried out by NTC indicates that the rate of vehicle replacement is only about half of what is required. Since the rate of demand for freight and passenge vehicles is esimabed to grow at about 8% and 5% respectively in  7 the next 45 years, investment requiamen are substntial. In recent years, the importation of trasport vehicles has been supported by several donors. In the past, the RETCOts investment requirments were principally financed through Governent loans and equity contributions. Thus, between FY1986/87, the RETCOs imported trucks for a total cost of about Tsh 4,897 miilion of which about Tsh 3,886 (79%) million was financed through the Goverment (42% in loans and 37% in equity contributions). The RETCOs are now required to operate on a commercial basis and to atract prvate sector capital to finance their investment needs. To assist the Governe in implementing this decision, IDA has approved a PPF to fimd a Road Transport Services Restructurig Study which will produce an action plan for comercialization /privatization of the RETCOs and UDA. The restructred/prvatzed compaues would be expected to operate more efficienly and to generate adequate funds for investent. 3.09 Rural Transport: The further one moves away from the main road corridors, the more acute the problems of transportation become for both passengers and feight. The high costs of tansport and in some cases non-availability, constitutes a powerful constraint to production and marketing activities. Most pdvate sector operators prefer to provide services on inter-regional routes mainly because of the better condition of roads. Provision of services to remote areas is left to the RETCOs which, as parastatals, are encouraged to operate in these areas. It is expected that commercialized or privatized RETCOs would pull out services to remote areas untl the condition of the roads has improved. Since the road rehabiliation works are expected to increase the proportion of the rural road network in good condition to only about 50% by year 2000, it is likely that some areas which are cuntly served by the RETCOs could be left without service as a result of restructuring the companies. The Road Trnsport Services Restrucnbg Study will exumine this issue and propose possible solutions including the provision of Govem t incntives or the maintenance and support of RETCOs in such areas pending the improvement of the road network. 3.10 Operational and nancial Performance of UDA. Although UDA is owned by the NTC and the Dar es Salaam City Council, in practice the Government is responsible for injecting new capital or bearing the burden of its inresing operatin losses. Between 1981/82 and 1990/91 the totl annual number of passengers caried and the total annual kIlometers made by UDA's buses declied by about 20% and 10% per annum respectively. Since 1986/87, UDA's financial performance has declined substantially each year and starting in 1988/89, the company has recorded increasing annual losses. UDA's weak financial performance is primarily due to its high overhead expenses relative to the size of its operations, an aging vehicle fleet which is expensive to maintain, manage inefficiencies and its inability to compete effuctively against the private sector which contols about 90% of the market The proposed Road Transport Services Restrcturing Study would provide mmdations for the restructuing of UDA involving privatzation or commercialiation with no recourse to Govement budgetay support 3.11 Enforcement of Vehicle Weight Control Regulations. The Traffic Act of 1973 provides authority for the fomulation and enforcement of vehicle weigt regulations. Under IRP-I, the Goverment agreed to formuate an actioa program for improving vehicle weight control by July 1, 1991. NORAD agreed to provide technical assistance to assist with the development of the program and IDA agreed to fund procurement of vehicle weight control equipment. An institutional cooperation agreement between MWCT and the Norwegian Public Roads Administration (NPRA) through which NORAD support is provided was signed in March 1993. Procurement of 6 stationery and 3 mobile weigh bridges and 15 sets of radio co ication equipment to facilitate communication with the traffic police is in process. 3.12 The main issue with vehicle weight control is that the existig reguations which were enacted in 1987 (Govermment Notice No. 625) are not being effectively enforced and overloading is  8 rampant, thus causing rapid deterioration of roads. New regulations which include specified fees for a range of overloads as wel as non-pricing enforcement arrangements have been formulated and submitted to the Attorney General and will soon be published in the Govennent Gazette. 3.13 Road Safety. About 60-70 persons per year per 10, 000 vehicles are killed in Tanzania as a result of road accidents. While this rate is about the same as the average for the region, it is nevertheless double that of Zimbabwe and Botswana and 20-30 times the average of developed countries. The costs in economic and social tenns are enormous. The main reasons for the countly's poor road safety record are laxity in traffic law enforcement, inadequate traing of drivers, poor condition of roads and vehicles and a lack of public awareness of safty issues. One of the principal constraints to management of road safety is the weak institutional framework. The National Road Safety Council (NRSC) is an advisory council of twelve members from the public and private sectors (appointed by the Prune Minister) and has special responsibility for education and training. The Commander of the traffic police provides the secretariat to the NRSC and is responsible for implementation of its policies and programs. 3.14 Some progress has been achieved in improving the institutional framework for road safety. A Road Safety Unit headed by a chief engineer was established in 1992. The Unit, in coordination with the Ministiy of Home Affairs, is currently revising the Road Traffic Act which will also provide the necessary legislation for reorganization of the NRSC. 3.15 Under IRP-, NORAD is providing about 36 man months of technical assistance to assist MWCT in preparing a road safety program comprising accident recording, analysis and researc, infoation and education, dnver traing and licensing, traffic law enforcement, vehicle testing and control and road infrastructure and environment. The assistance is provided under institutional coperation agreement with NPRA. Under the proposed project, NORAD will provide additional fnding for pilot efforts in accident recording and analysis in three regions (Dar es Salaam, Tanga and Mbeya). D. Port Subsector 3.16 The ports subsector and in particular the port of Dar es alaam consutes a vital link in the countrys transport system. The port of Dar es Salaam, together with the two railway systms and two road corridors (Central corridor and Tanzam Highway), comprise strategic intational trsport corridors serving the mainland as well as the regional economies of Zambia, Malawi, Zaire, Burundi, Rwanda and Uganda. 3.17 Traffic trends for the port of Dar es Salaam reveal; (a) dry cargo tonnages of about 9-10 % lower in 1991 than in 1987; (b) preponderance of transit traffic; (c) change in mix of transit traffic in the past ten years with increases in traffic for Zaire, Burundi and Malawi and declining proportion of Zambian traffic; and (d) increased contanerization, up from 19% of total dry cargo in 1983 to about 45% in 1991. 3.18 Between 1987 and 1991 total dry cargo traffic declined by about 5.2% per annum tTabl I). 1992 saw a substantial increase in dry cargo traffic (about 24.3%) due to the importation,  9 through the port, of drought relief supplies for Zambia and Malawi, about 344,000 and 64,000 tons of grains respectively. The declining dry cargo traffic between 1987 and 1991 is due to the economic slowdown of the regional economies, particularly Zambia, since 1989, but is also due to stronger competition emerging from other regiona ports. Operaing efficiency improvements in the port and in TAZARA and TRC are needed to improve route competitiveness and enable Tanzaia to maintain or increase its foreign exchange revenues from transit trade. Table 3.1: Dar es Salaam Port: Past Traffic Levels (million tons) 1986 1987 1988 1989 1990 1991 1992 Dry Cargo 1.73 2.08 2.05 1.91 1.88 1.89 2.35 Bulk Oils 1.71 1.50 1.86 2.02 1.81 1.92 2.28 T:tal 3.44: 3.8 391 : 3.93 3.69 3.81 4.63- 3.19 Estimates of future traffic increases will be provided by the Port Development Study which the Tanzaia Harbours Authority (THA) is undertading with the assistance of consultants under the ongoing Port Modernization Project (Credit 2095-TA). Future traffic increases will depend on the extent to which THA manages to improve its competitive positon against other regional ports given the likelihood of political stability in the concerned countries. Thus, while the decline in the Zambian traffic may be partly attributable to economic slowdown, there are indications that this may also be due to use of surfice transport for imports being sourced from the South. 3.20 While overall traffic growt has been minmal, the proportion of conainerized traffic has ncreased substantially over the years Wpma.1 . It is expected that future growth of ctonainerized traffic would continue to be fbster than that of non-containerized traffic. For Tanzana to retain its competitiveness against other regional transport corridors, it will be essenal to inprove railway facilities for transportation of containers and reduce the turn around times for containers. Possibilities for private sector construction and operation of inland container bandling facilities also need to be explored. 3.21 In the ports, attention needs to be focused on trainig, improving salaiy scales, productivity incentives, and divestiture of cargo handling and other activities. THA has initiated a commercialization/port restructuring study (under Credit 2095-TA) which would provide the basis for implmentaion of a new corporate stateg. Other related issues are the need for dismann of the monopoly fimctions of the National Shipping Agencies Company (NASACO) and the Tanzania Central Freight Bureau (CFB). NASACO was established in 1973 to take over the shipping agency business when private sector firms were nationalized. The CFB is responsible for booking space on ships for both imports and exports. There would likely be cost advantages if competition was allowed in these areas. Govermenfs plan to address these issues is reflected in its Letter of Sector Policy (Anmex 3.1).  l0 E. Railways 3.22 The railway systems play an important role in the country's overall transport system. They form, together with the ports, transport corridors for the country's trade flows, and are responsible for a significant proportion of the internal movement of passengers and goods, particularly the movement of bulk commodities between Dar es Salaam and the distant centers in the hinterland. They also carry transit traffic for the landlocked regional countries and thus contribute significantly to the country's foreign exchange earnings. 3.23 Tanzania Railways Corporation. From its establishment in 1978, TRC suffered from declining traffic levels and poor financial performance. The principal causes of these problems were poor availbility and utilization of assets, inadequate maintenance, inflexible tariff policies, weak management and overstafling. To address these issues, an Emergency Program (EP) was launched in 1987 as the first phase of a long-termn corporate recovery plan. The EP was successful in stabilizing TRC's overall performance and a follow-on phase was launched in 1990 with the support of IDA and other donors (Railway Restructuring Project, Credit 2267-TA). This project is aimed at assisting TRC to strengthen its organiztion, eliminate regulatory bottlenecks to its operations and set it on a course to achieving commercial viability. The project also provides support for infstructure rehabilitation. 3.24 About 20% of TRCs total tonnage is transit freight destined for Zaire, Rwanda, Burundi and Uganda. Thus, TRC makes a significant contribution to the transport sector's total foreign exchange revenues. With improvements in efficiency in both TRC and the Port of Dar es Salaasn, Tanznia could increase or at least maintain its share of the trade traffic of the hinterland countries even in the face of emerging competiton from other regional traffic corridors. 3.25 Tanzania-Zambia Railways (TAZARA). The TAZARA railway line primarily serves the Zanbian and Malawian markets although in recent years its share of the domestic traffic has increased. TAZARA's operations are plagued by poor locomotives availability and reliability, inadequate coordination with the Zambia Railways, organizatonal and management inefficiencies and weak financial performance. 3.26 These problems are being addressed under a multi-donor efficiency improvement program. The efficient operation of TAZARA is essential for the competition of the port of Dar es Salaam against other regional ports. F. Civil Aviation 3.27 Domestic air travel is important in Tanzania because of the long distances involved and because of the need to connect the abundant tourist attractions which could become a significant source of foreign exchange in the future. There are more than 60 airports (including air strips) of wlich three (Dar es Salaam, Kilimanjaro and Zanzibar) are used for scheduled international flights. The main problems encountered include lack of appropriate communication, navigation or fire fightng equipment and in some cases badly deteriorated runways. The fundamental problem is that airports are managed as part of Government departments without managerial autonomy or clearly defined financial objectives. The Government intends to create an agency to be responsible for management of the major international airports on a commercial basis. The Department of Civil Aviaton would be restructured and its role limited to regulation and licensing functions and initially management of the rest of the airports. As individual airports performance improve, they would be transsfrred to the Airports Authority. In the long-term, management of smaller domestic airports  would be devolved to local authoties. Under the proposed project, IDA assistance would be provided for resurfcing of the badly deteriorated mmnay at Kilimanjaro International Airport. Te resurfacing is needed to enable continuation of flights into the airport which is important fo tourism. The Government has provided in its FY1993194 budget adequae funds for procurement of a navigation aids systems for the airport. During negotiaffons agreement was reached that MWCT would complete a civil aviation restructuring study and agree with IDA on an action plan for implementation of agreed recommendations of the study not later than April 30, 1995 (parg 8 01 (A)d) JJP-I is fimding management assistance to support ATC's restructuring/privatization efforts. The Government has granted ATC managerial and operational autonomy and ATC is able to set its own tariffs as well as to establish its staff hiring and remuneration policies. As a result ATC has reduced its workforce, re-established sound accounting systems, increased tariffi in 1992 and is caying out financial restructuning of its balance sheet as a prelude to privatization. Iinplementation of these measures has enabled ATC to achieve, for the first tme in more than a decade, a modest operatig profit before interest during FY1992/93. To ensure continued progress in the preparations for privatization, ATC' should avoid incurring new long-term debt and therefore, during negotiations, the Government agreed that AC would refrain from entering into aircraft or equipment leasing agreements or invest in aircraft or equipment costing more than US$1.5 million for the purpose of increasing its operating capacity without prior consultation and agreement with LDA (para. 8.01 (Al(a)). G. Sector Organizaton and Administration 3.28 At present responsibility for ad on of the transport sector is divided among MWCT and the Prime Minstes Office. Since in , administration of the sector has been subjected to several changes as a result of changing political attitudes. In 1984, the then separat Minstre of Works and Transport were merged to form the Ministry of Commnications and Works (MCW). In the roads subsector, MCW was given responsibility for tunk roads, the Mnistry of Local Govemment and Cooperatives, though its Distrid Councils, was responsible for development and maintenance of district roads and the Prime Ministers Office, through Regional Administrations, was responsible for the regional roads. 3.29 In 1990, MCW was again split into the Ministry of Works (MOW) and Ministry of Communications and Transport (MCI). MCT was responsible for overall transport sector adinistation including oversight responsibilities for the tansport parasatls. On October 13, 1993 MOW and MCT were again merged to form MWCT. The orgnizational structure of MWCT is still being worked out. In developing new orgarrangements MWCT woultd be guided by the following principles: (i) the need to separt policy planning and formulation, ovesight and monitoring from operations and mnagemet of sactor activties; and (ii) ensure that in the short-term the so far successful project implementation aran for the IRP program will remain in force. During negotiations, the Government agreed to consult with IDA on any proposed changes before thy are put into effect, in Internal organizational arrangements that would materially affect the implementation of the project (para. 8. 01 (A)&)). 3.30 The following activities are already being managed by autonomous parastatls under MWCPs oversight: (a) Ports by the Tanzan Harbours Authority; (b) Railways by Tanzania Railways Corporation and TAZARA (c) Inland water ransport by TRC;  12 (d) M gmen of trmnsport companes and advisory support to the Govenunent on tanspost issues by the National Tanwsport Corporation; (e) Train by the National Institute of Transport (NrIl), the Dar as Salaam Maritime Institute (DMI) and the Morogoro Works Traiing Institute (MWT1); (f) Posts and Teleommcations by Poss Corporation and Telecommnunica- tions Cmpany; (g) Air transport by Air Tanzania; (h) Coast and ocean trasport by TACOSHILI and SINOTASHIP; and (i) Developmet of domestic onstruction industry by the National Construction Council. 3.31 About two years ago, the Governnt established an autonomous Plant and Equipment Hire Company (PEHCOL) to own and ret road maintenance equipment to MWCTs Regional Engnes' Offices (REOs) and to private sectr contracto on a commercial basis. Efforts are now under way to stengii, PEHCOL's mangemt prior to private sector participation. Further effor to s =prt opeating fiuctions fiom MWCT are being foused oan the road network -mi urgional transpont companies and UDA, and on the civil aviation subsector. In practice MWCT ladcs the necessary adequately-trained and motivated staff to formulate comvrehesve sworal policies, coordinate sectoral development plans, monitor the performance of individual parastatals and underakce regulatory fucions. Thefore, the proposed project's policy ad institutional support mpnt includes vaious fms of trnig to build capacity in these areas (aras. 5.!8. 5.19 and 5.20). 3.32 MWCT is responsible for nagent of the trunk and regional road netwo Responsibiity for the district and urban roads rem with the local arthonties under the overall ministera overt of the Prime Ministeres Office. As part ofthe nization of the tansport sector, the Govemet is considerig, amongst other options, establishing a semi-atonomous roads agency, wihin the next 2 to 3 years, to manage the road network (aM, 4.15). In the interim, the Government is implementg a management action pla ained at transformuig the culture of the Directe of Roads and Aerodromes into a perfrmance-oriented orgnization. Ihe management actin plan which compnse the estabhment of policy and tecnical advisory bodies and imp ttion of perfmance-based incetive systems is described in deti in Part I of the Project Fie. IL Sector Development Strateg 3.33 By the mid-1980's, Tanzaias transport sector had seriously deteriorated as a result of past neglect of manan, iadequate funding, lack of proper planning and coordination and highly centralized procum ant mnagemet procedures. inadequate funding was a pardcularly major factor in the deterioration of the transport in tructure as the Government gave relatively low priority to he ransport sector (about 10-13 % of the total development and rrent budget). The contion of the countrys transport infustrcture became a serious constra to the success of the Govnments Economi Recovery Program To remove this constaint to the recoy of the economy, in 1987, te Goverment formuated a National Transport Policy which amongst other  13 is recommended a significant shif of public expenditure resources to transport infrastructure (20-25%A) including both capital and recurm expedtures. 3.34 Since the the Govnmet's policy objecive is to generate immdiate improvements in the supply of transport servces and to iunate long-tenm development of the sector in tandem with the recovey of the economy. Comprehensive programs for each of the principal subsectors were formulated and financng was secured from donors and multlateral institutions. ih the roads subsector, the fir phase of the Integrted Roads Progam was designed to stabilize the condiion of the network tbrough rebabilitation and maintenance. In the ports subsector, the Port dnizton project was designed to expand conainer storage, rehabilitate and upgrade inland continer teminals and provide tachnical assistne for insutional development. In the Railways subsector, a Railways Rsrting Project (RRP) was formulatd to provide support for infstructure reabilition, st ig TRC's organization, remove regulatory bottlenes and set the coroation on a path to achieving commercial viability. All the three investnent programs are under implementation and the proposed project would be the second phase of the Interated Roads Progrm. The proposed project would consute the complete investment program for the roads (tunk regional and essential district) under the responsibility of MWCT during the project implementaton period. During negotiations agreement was reached that the Gownmnt would not wudertake any proposed new investment in the road subsector estimated to cost more than US$3.0 million unless it has an economic rate of return of at least 12%1o, talcing into account socio-economic criteria (pmra. &OI (A)(c)) such as the need to evacuate food from surplus to deficit areas and to provide access to social servic. 3.35 Overall the total budget allocation for the transport sector has incresed from about 14% to about 26% in FY1992/93 which is in line with the level mmded by the National Transport Policy document in 1987. The relative currt priorites among sectors are illustrated in the gaphs below. 3.36 The developmet budget compnrises four major categories: economic services; prctiuctive secto, social services and general administrationL The economic services sector which includes tansport, energy, water, post and t trade etc.; ommands the largest share of the development budget (45-55%) and transport is the single lagest subsector. Socal services which include health, education and housing is the second larget development budget category acounting for about 25-26% of the total budge The budget allocafions for FY1991/92 and FY1992/93 show increasing shares for the economic and social servic sectors and declining shares for the productive and geadministration sectors in line with the Govemes policy objectives of reducing the size of Govemnment and encouraging private invesmn in the productive sectors.  14 Allocation of Deeopment Budget Among Sectors (%) 1991192 1892/93 ADMIN ADMIN SOCIAL SOCIAL 259%. .... ECON. ECON, 49% 55% PROD. 17% 3.37 Within the transport sector itsel