Mozambique - Second Roads and Coastal Shipping Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 12580-MOZ STAFF APPRAISAL REPORT THE REPUBLIC OF NOZANBIQUE SECOND ROADS AND COASTAL SHIPPING PROJECT MARCH 15, 1994 Infrastrucutre Operations Division Southern Africa Department This document has a resticted disibuin and may be used by ipients ony in the performance of their offlcil dutis Its contents may not otherwise be dbclosed without World lank authoozaon.  CURRENCY EQUIVALENT (as of January 1, 1994) Currency Unit = Mozambican Meticais US$1.00 Mt 5,000 FISCAL YEAR Januay I to December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.2808 feet (ft) 1 kilometer (kin) = 0.6214 miles (mi) 1 metric ton (tonnes) = 1.023 short tons GLOSSARY OF ABBREVIATIONS ASDI (or SIDA) = Swedish International Development Agency ADT = Average Daily Traffic ADB = African Development Bank BADEA = Arab Bank for Economic Development in Africa BM = Banco de Mopambique CFD = Caisse Fran;aise de Developpement CNA = National Commission for the Environment DCA = Development Credit Agreement DEP = Provincial Department of Roads and Bridges, DNEP DNEP = National Directorate of Roads and Bridges DNTR = National Directorate of Road Transport ECMEP = Provincial State Enterprise for Construction and Maintenance of Roads and Bridges EEC = European Economic Community ERR = Economic Rate of Return ESRP = Economic and Social Rehabilitation Program FRP = Feeder Roads program FRG = Federal Republic of Germany FY = Fiscal Year GAPROMAR = Bureau of Maritime Projects, MTC GC = General Consultant GDP = Gross Domestic Product GOM = Government of Mozamnbique GTZ = Gesellschaft fur Technische Zusammenarbeit (Germany) HDM = Highway Design and Maineance Standards Model IDA = International Development Association  FOR OFFICIAL USE ONLY ICB = International Competitive Bidding IRP = Tanzania Integrated Roads Project KDF = Kuwait Fund for Arab Economic Development KfW = Kreditanstt fir Wiederaufbau (Germany) LCB = Local CompeWtive Bidding LRC = Local Road Contractors LRCI = Local Road Construction Industry -rm = man-months MCA = Miistry of Construction and Water MCr = Ministry of Transport and Communications MOF = Ministry of Finance N.A. = Not Applicable ODA = Ov-3rseas Development Administration (U.K.) OED = Operations Evaluation Deparment p.a. = per annum PDP = Priority Districts Program PPF = Project Preparation Facility RMI = Road Maintenance Initiative ROCS = Roads and Ctoastal Shipping Projects RSA = Republic of South Africa SOE = Statement of Expenditures TA = Technical Assistance TOR = Terms of Refrence UEM = University Eduardo Mondlane UNDP = United Nations Development Pogramme USAID = United States Agency for International Development voc = vehicle operating cost vpd = vehicles per day This documet has a rsticted distnbuton and may be used by recipients only in the pefme f ther official duties Its contents may not oherw be disclosed without Wold Bank auhorzaton.  MOZAMBIQUE SECOND ROADS AND COASTAL SHDPNG PROJECT STAFFAAISAL REPORT Table of Contepts pap. CREDrr AND PROJECT SUMM ARY .......................................... 1i-i CHAPTERl. SECTOR BACKGROUND AND OBKUNDB.ES..1.. A. CuntryB .g.nd.... 1 I B. IheT"mweeSeoor ..................... * 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. . . . . . . : . . . . . . . . B. 'Iie Transport Sector........ .. . .. *. .1.. C. 'heRoad Setr ......................... 2 Capacity Building .................................... 4 sttthona and Policy Ref rm............................ 5 Road Fincing . ..................................... 6 Refbrmof the TrWc ngIndustry ........ .................. 7 D. Leomns of PastExpdence . ................................... 7 CHAPTER 2. IHEPROJECT ......................................... 9 A. Project Objectives ............................ 9 B. Radonale fr IDA Involvement ................................. 9 C. Projecttrate ........................................ 9 D. ProjectDewption ........................................ 9 E. ProjectCost ........................................... 14 F. ProjectFinacng ........................................ 14 Foreign Funding . .................................. 14 Local Funding ..................................... 15 CHAPIER 3. PROJECT D PLEMENAJION ............................... 16 A. I.mplementation A ngen ............... ................. 16 B. Role of Technical Ass ne in hmlementation .. ................... 17 C. Status of Ptoject Prpaation ........................8......... i D. Procurement ......................................... 19 E. Disbursenmt ...................... .... .............. 21 F. Auditing and Accounting ................................... 22 G. Monitoring and Reporting .................................... 23 H. Supervision .......................................... 23 CHAPrER 4. PROJECT BEEFIS AND RISKS ............................ 24 A. Projec Economic Beefns . .. ..24 B. Key Indicators of Success. . . 25 C. Povert Reduction... .......... 25 D. Environmental Impact ...... 25 E. Project Size and Fiscal Impact ................... 26 F. Sustainabuity................................. 27 H. Project Risks. ...... .......* ..... *. ..... 27 CHAPTER 5. AGREEMENT REACHED AND RECOMMENDATION .............. 29 A. Conditions ofDisbursement . ................................ 29 B. Assurances Provided at Negotatons ....... ..................... 29 C. RommdaIon ........................................ 30  Table of Contents (continued) Annexes Annex 1 1.1 Leter of Scor Policy 1.2 Summary of Policy Implemen Plan Annex 2 2.1 Detailed First Year Road Program 2.2 Detailed Cost Estimates 2.3 Detailed Financing Pln 2.4 Lter of Commitnt 2.5 Quarterly Disbursement Schedule Annex 3 3.1 Summary of Project ImPlementation PlaM 3.2 Implementation Volume Index 3.3 Supervision Plan Annex 4 4.1 Economics 4.2 Performance Indicators 4.3 Environmental Issues Annex 5 5.1 Instituonal Program and Disburrfmement Conditions Annex 6 6.1 Documents in Project Working Files Maps: IBRD Nos. 25598 and 25599 Ihis report is based on the findings of a Bank appraial mission which visited Mozambique in lunefluly 1993, comprising Mr. John Roome (Financial Analyst and Mission Leader), Mr. Bernad Becq (Operations Officer), Mr. BBmce Brong (Highway Engineer), Mr. Nazir Alli (Civil Enginee), Mr. R. Gopalkrishnan (Senior Procurement Specialist) and Ms. Magda Lara-Resende (nvironment Speciist). Ms. Josiane Lucdmun and Ms. Robin Harri ovided administrative support in the preparation of the project. Mr. Carlos Alvarez and Mr. Teaje .. olden were the peer teviewers. Ms. Phylli Pomerat a4 Mr. Stephen Denning are the managing Division Chief and Depatment Director, respectively.  -i- REPUBLIC OF MOZAMBIQUE SECOND ROADS AND COASrAL SHIPPING PROJECT CRED1T AND PROJECT SUMMARY Borrower: Republic of Mozambique Beneficiaries: Department of Roads and Bridges Ministy of Construction and Vlater Amount: SDR 136.2 Million (US$188 mfllion equivalent) Terms: Standard IDA terms with 40-year maturity Desuiption: The priary objectives of the project are: (i) to support Mozambique's economic recovery program through rehabilitation and maintenance of priority roads; and 00i) to furher strengthen the management capacity of Road Sector institutions. lTe project comprises the government's agreed rolling roads investment and maitnance program for the five years 1994-1998, coordinating all donors through discrete paralel sub-projects. The first two years of the program have been defied and appraised in detail, as has the scope of the five-year program. A major review after two years and annual reviews thereafter will define in more detail the specifics of the program in the outer years. The civil works program comprises: (a) emergency works to open access in all 10 provinces; (b) rehabilitation of priority trunk roads; (c) labor based reconstruction of priority feeder roads; and (d) current routine and periodic maintenance of that portion of the network that is in good or fair condition. The project will also finance engineering services in support of the program and the continuation of the government's Road Sector Institution Building Program commenced under ROCS-1 (Credit No. 2374-MOZ). Benefits: Substantial quantifiable and non-quantifiable short- and long-term benefits are expected, particularly increased agricultural production and export of cash crops, reduction in transport and food costs and alleviation of poverty. Much of the rehabilitation and main;tnce will reverse road deterioration and gradually improve most major roads to good or fair condition. Capacity to manage the sector and sustain gains from investments will be increased. Economic analysis of all road works shows ERRs of at least 20% and an average ERR of 45% for the project. Risks: Risks relate to uncertainty as to: (i) the pattern and speed of agricultural recovery, (ii) the possibility of reversals of the security situaion and (iii) the timing and extent of regulatory reform and instutional strengthening, in particular in the areas of (a) funding, (b) procurement, contract management and contract supervision, (c) equipment and contractor development, and (d) training and staff retention within DNEP. Flexible overall project design, phased investment plans, and annual project reviews mitigate some of these risks. If agricultural recovery, the security situation or implementation capacity is worse than (or different from) that which was anticipated, the works program will be amended accordingly. If institutional development is patchy, resources will be reallocated to the critical areas at annual reviews. Technical assistance, training and supervision, and up-front policy reform have been included to manage the ridsks, but will not totally eliminate them.  Estmated Ptojec Costs Local Foreiga Total (UNI Millr) Road Nehter Reb _ab l mid Malatenaws Road RebabSed= I 412 164.7 205.9 Read R 1habIktmU 38.9 155.6 194.3 Em Rgasy0opengOfPeA NOWoi 24.6 80.4 1050 Labho,masdedr P Roads Ralitatho and Ma_itmaoe 9.6 2.4 12.0 pedij M Jmgjoa 22.7 683 910 RaesIn M _tabt 335 12.5 46. SubWtal Road N.twak lRbblllo ad Malduenae 170.5 4839 654.4 gn"eedg Sez*e Feasilky am Suey 05 4.0 43 Detaled Deigp 0.9 85 9A Suoivthp 3.7 28. 312 Subtotal Egineedg SewIes 5.1 40.6 45.7 Justltutloa D,ehprent Road Sewo Capacity Budg 0.4 2.5 2.9 Loca Contestm D*vvJqpuwt Popme 02 12 1A Policy Supt 02 1.3 1.5 Logistics 2.2 4.5 6.7 Subtotal nstltulol Devebpaut 3.0 9.S 1. Tota BASELINE COSTS 178.6 534.0 712.6 Phy ca1 ci gsa 11.9 42.5 54.4 Pric Camn 12.4 352 47.6 TotalPROJECTCOSTS 202.9 611.7 814.6 E3stimated Finandng Plan Local Foreig Totl (USS MilIon) IDA 24.8 163.2 188.0 ADD 9.2 742 83A BEC 14.9 83.0 97.9 USAID 5.9 19.1 25.0 CFDJRSA 1.9 15.1 17.0 BADEA 02 14.7 14.9 Kuwait Fund 0.1 13.9 14.0 KfW 2.2 6.8 9.0 FRP Donom 11.7 2.9 14.6 Pbse II Down 19.7 162.1 181.8 Govonunent 1123 56.7 169.0 Total 202.9 611.7 814.6 Etimated 1DA Disburseme FLscad Yea Endiing June 30 (US$ million) Year 1995 1996 17 1998 1999 2000 Asuual 3m1 30.1 33.8 41.4 30.0 226 Cwaxuhtlvs 30.1 602 94. 135.4 16S.4 188.0 %ofCiUdt 16% 32% 30% 72% 88% 100% Dconomlc Rate of Retur 45% average. Major works 24%, minor works 132%.  REPUBLIC OF MOZAMBIQUE SECOND ROADS AND COASrAL SHIPPING PROJECT CHAPTR 1. SECrOR BACKGROUND AND OBJECTIVES A. Country Backgri;md 1.1 Prolonged insecuity, periodic drought, and ineffective centralized planning and economic management since 1975, brought about widespread economic chaos and human suffering in Mozambique. Many of the rural population either fled the country, or took refuge in urban centers, with resulting overcrowding, chronic unemployment, poverty and famine. Today, Mozambique has the lowest per capita GDP in the world. Since 1987, the Government of Mozambique (GOM) has been addressing the major macroeconomic and fiscal instabilities and has established appropriate imcentves for growth. Early successes, such as a reversal of the collapse in production and exports and the achievement of an annual real growth rate of 5.4% in GDP from 1987-1990, did not continue into the 1990s (the economy has stagnated), due in large par to the continued insecurity. In October 1992, a peace accord was signed. The reconstruction of the Mozambican economy is now au urgent task. 1.2 Reduction in poverty and growth of the economy will depend on the recovery of the agricultural sector, which accounts for roughly 50% of GDP and 80% of both employment and export earnings. (From 1975 to 1986, overall agricultural production fell by about 30% and exports by nearly 75%). Given the terrible condition of the transport network, the most important requirement for recovery of agricultural production and efficient distribution of marketable surpluses is the restoration of reliable and efficient transport services. B. The Transport Sector 1.3 Mozambique's transport sector has deteriorated significanty over the past two decades. Activity has declined dramatically for all transport modes except aviation. The present poor condition of the transport infrastucture is attributable to many factors, including: (i) the security problem; (ii) the shortage of manageria and skilled manpower; (iii) the diminished resources available for investment in infrastructure as a result of the economic deterioration; (iv) the neglected maintenance due to unavailable financing and lack of proper organization of maintenance activities; and (v) the inappropriate transport sector policies. In addition, investment in the transport sector in Mozambique has traditionally been biased towards the major port-rail transit corridors serving Mozambique's inland neighbors. This has led to relative neglect of the transport infrastructure to serve the needs of the Mozambican domestic and export economy. 1.4 GOM's Transport Sector Stategy emphasizes supporting the Economic and Social Rehabilitation Program (ESRP) and, more specifically, the Priority Districts Program (PDP). The overall objectives in the transport sector are to: (i) suMpgrt agriculture in priority districts; (ii) generate foreign exchange from the rail corridors and (iii) reduce pa tl drain on the budget. The emphasis has been shifted in recent years from the rail corridors to the transportation of Mozambican agricultural products, but this will take time to be fully reflected in the expenditure patterns, as ongoing projects will still need to be completed. The strategy has three key elements: a. Reforming the policy and institutional environment including: (i) stinulating participation and growth of bhe pria sector (e.g., 7he Maputo Corridor Revitalization Project, Credit No. 2454-MOZ); (ii) restructuring remaining parastatals to be as far as possible self-financing and managerially autonomous; (iii) improving utilization and  -2- allocation efficiency of available physical resources and of foreign exchngo; (lv) achieving full gst reeovery (wherever possible) and adequate allowances for fuidlzo of capital investment; (v) coordinating policy-making, planning and usage of aU t Mies; and (vi) moving towards a more appropriate balanle between c1iedtal decentralized decision making. b. Commencing the develkaMent of the institutional, organizational and human regsource pacity required effectively to plan for, and manage the sector. c. Removing the limitations that the present transport infrastructure and services place on economic activity by investing in bhysical infrasucture rehabilitation and Maien focussed on those investments that contribute most towards increased domestic produedon and marketing of food and traditional cash crops, and generation of employment, as well as the facilitation of exports, and transport of basic inputs and consumer goods. Investments will take into account the PDP and will be phased In order to react to the recovery of the economy. Some investments will still be required in the port-tra corridors to complete ongoing programrs, but no new major investments should be undertaken until decisions have been made on: Oi the viability and priority of dte different corridors, and (ii) the form that private sector participation will take. C. The Road Sector 1.5 The national network of public roads is managed by DNEP (the National SM d_ Directorate of Roads and Bridges) and comprises some 5,300km of paved roads ______-______ and 23,900km of earth/gravel roads. _ Although only limited data exists on the status of the network, it is estimated that less than l0% of the network is now in _ good condition, and more than one-third currently is not transitable on a regular * basis. The feeder roads Qow-volume se( ndary and tertiary roads) in particular are in poor condition and many are currently impassable. Together this constitutes a major constraint to the transport of farm produce to the points of consumption and export. Consequendy, road user operating costs are high and vehicular raffic is currently very low and sporadic on much of the network. 1.6 The poor condition of the road network is due historically toll: a. Iack of security. which has made maintenance impossible on many sections of road; b. inadequate institutional capacity to manage the network, including: (i) the absence of au appropriate organizational structure; (i) a chronic shortage of skilled, well tained staff (both in the provinces and in Maputo), especily in planning and contac supervsion; I/ For a detailed analysis of the problems of the road sector in Mozambique see pages 11-17 of the First Roads and Coastal Shipping Project (ROCS-1) SAR (Report No. 10366-MOZ).  -3 - (iii) a weak personnel management system (with very low saiary scales) which inhibits the recruitment and retention of qualifled personnel; (iv) the lack of a long-term training program; and (v) several changes t, the organization of the road sector that, Inter alla, led to the loss of key staff; c. inefficient operational plicies and prv_JUres which have prevented DNEP from achieving the desired level of results with its available human, funancial and physical resources, including: (i) the virtual abAdonment of systematic maintenance due to the concentration on new construction in the 1970s, and the security problems of the 1980s, with recurrent maintenance done, where feasible, only on an ad-hoc basis; (ii) the 1ak of works planning and romU ing: (Mii) the almost entire reliance on inefficient governmental organizations to execute road rehabilitation and maintenance programs (the provincial ECMEPs-Enterprises for Construction and Maintenance ofRoads and Bridges) due to the very w3ak capacity. and lkw inters in road wrks of the pdyrivae log =Mctim firms; (iv) the poor men maintan due to insufficientiy qualified staff; low maintenance and repair budgets; inadequate planning of spare parts needs; difficulties in obtaining foreign exchange; and lengthy customs clearance processes within GOM; and (v) GOM's cumbersome L=Jatias for- procurement of goods, works and services, and bureaucratic review procedures of some central ministries; d. I oa af for road maintenance and operations (even with DNEP only able to carry out routine maintenance on less than one-fourth of the national network because of inaccessibility) due to the low level of user charges to fiance recurrent road maintenance; and e. in addition to the poor road conditions, the advanced age, poor condition and low utilization of the trucking fleet, lack of vehicle maintenance, and inadequate repair facilities limit transportation services. 1.7 Restoration of the national road network is an expensive, long-term undertaking but is absolutely ntial to the recovery of the national economy. Hence, a 15-year Road Recovery Strateg has been developed for the recovery of the roads sector.Z/ This strategy focusses on: a. reforming the regla ym and aliy kQI t b. stengthening the institutional aacit of DNEP, through human resources development and reform of operating procedures to ensure that DNEP has the capacity to manage the rehabilition and maintenance of this entire road network by the end of the decade; and c. restoring priority road links (focussed on improving access to marketing for agricultural produce and imports), through minimal-cost rehabilitation and deferred maintenance works, which will provide a reasonable st.rface and retard deterioration, and then re- instating regular maintenance. ZI This stategy is discussed in more depth in the Transport Sector Stategy Note in the Mozumbique Public Expendite Review (Report No. 7615-MOZ) and the ROCS-1 SAR (Report No. 10366-MOZ).  -4 - 1.8 Implementation of this strategy commenced with the Pirst Roads and Coastal Shipping Project, ROCS-I (Credit No. 2374-MOZ), which is focussing on policy issues and the commencement of institution building. For the Roads Sector, ROCS-1 is financing: (i) instiutional support for reforms in terms of organizational structure, road financing, procurement, trucking, and the development of the local road construction industry, (ii) development of training capacity in Mozambique, and the first phase of a comprehensive training program; (iii) technical assistance focussed on systems design and on-the-job capacity building" both in DNEP headquarters and in the provincial engineers' offices; and (iv) engineering services (feasibility studies and detailed designs) for the implementation of a five-year road rehabilitation program. 1.9 Investments in rehabilitation were postponed and hence excluded from ROCS-1, due to the uncertain securiq situatim in Mozambique at the tme of the ROCS-1 appraisal. Subsequently, with the signing of a peace accord in October 1992, the security situation has significantly improved to the extent that most of the country may now be safely accessed. Access to some areas remains restricted due to land mines on certain roads. 1.10 While a number of challenges remain, significant progress has been made, and/or time bound action plans have been agreed to: (a) develop the institutional capacity in the roads sector; (b) establish an adequate road sector policy and regulatory framework; (c) strengthen road financing; and (d) reform the trucking industry. The following paragraphs summarize the status on these issues. Details are included in the Implementation Manual, an index of which is attached as Annex ..2. Current GOM poiicy in the road sector is set out in the Letter of Sector Policy attached as Annex 1.1. A summary of the GOM institutional and policy action plan is attached as Annex 1.2. Capacity Building 1.11 A comprehensive insdtutional capacity building. staffinf. and manpower develoDment plan has been developed and is being refined. This includes a professional development program, under which young engineers are identified at university, receive scholarships under ROCS-1, are assigned to projects during their vacations and rotated through positions of increasing responsibility within DNEP, where they will work for a period equal to the time for which they received support whUe at university. At present, 85 students are participating in this scheme and the first "cadre" of five engineers joined DNEP in January 1994. Further appointments of graduate engineers are planned from the scholarship program in the coming years. Further financial/managerial staff will also be recruited. Ihe training technical assistance team recruited under ROCS-1 has been mobilized, a permanent Training Division (responsible for all road training activities) has been formed and the rehabilitation of the training center and associated housing in Chimoio has begun. It is expected that the shortage of trained personnel would be significantly reduced by 1998, provided that public sector pay and other civil-service-related benefits are brought more in line with those prevailing in the private sector. 1.12 Lone-term development will require: (i) continued and successful implementation of the comprehensive manpower development plan discussed above; (ii) improvements in basic education to ensure that longer-term staffing needs are met; and (iii) changes in GOM's personnel and pay policies. While the last point is an issue of overa civil service reform, GOM is committed to developing a strategy to retain qualified staff in DNEP add to ensure an environment that allows DNEP to operate on a conunercial basis. One option under consideration is the re-establishment of an Autonomous Roads Authority in Mozambique, independently financed through user charges. This would allow adequate salaries and benefits to be paid to retain good staff, and would also introduce more "commercial" management into DNEP, in part through a Board of Road Users. In the short term, DNEP will: O) retain staff through its scholarship program, career development opportnites (para 1.11) and the provision of housing and motor vehicles required for the job, as incentives (para 2.13.d); (i) appoint,  -S v by 1995 an Advisory Board that Includes public and private sector contractors and truckers as well as representatives of the agriculturil sector (Anoax 5.1, para 4); and (iii) underake a series of study tours of other African countries to review altenaives for, and retain consultn to advlse on, the options for the establishment of an Autonomous Roads Authority. The Bank's Road Maintenance Initiative unit has agreed to facilitae DNEP's review of its options in these areas. 1.13 To avoid overloading a weak management system, and to ensure that "urgent work gets done*, in the medium-term, there will be need for some continued foreign technical assistance personnel. : wever, care has been taken to ensure that this TA builds rather than destroys capacity (para 3.10). Institutfonal and Policy Reform 1.14 Re(ularMaintenanceboth routineandperiodic)onthatpartofthe networkthat is in good or fair condition is the bighest priority in the roads program for allocation of resources anl funds. (Since the signing of the peace accord, teams have commenced maintenance on high priority road sections). Contrcting of maintenance is government policy. DNEP does not have any true force account unit. Basic routine maintenance is done by lengtmen. Heavy routine maintenance is done by the ECMEPS (state-owned contractors which are being restructred and possibly privatized). 'his work will be in large part contracd out to local and regional contractors. Periodic maintenance will also be contracted out. Initially, regional or overseas firms will do much of the work, but over time domestic contactors should be developed for this work. 1.15 Progress has been made in strengthening the aym and rgnizational structure of A projects department has been formed as an integral part of DNEP to manage the ROCS subprojects, and a study on the organizaon structare of DNEP has recenty been completed. With the help of their General Consultant (GC), DNEP is focussing on establishing planning, progranming and management systems for the national network, and on establishing day-to-day project management systm and procedures (procurement, review of studies and special assignments). Top priority is being given to designig and implementing a comprehensive road network planning and programming system and road maintenance mamgement system, using the road data base which is cur y being built and should be orerational by mid-1995. Workplans have been agreed for the development of PNEP systems. 1.16 With the assitance of TA (mobilized in January 1994) tte U ncial eineers office (DEPs) will concentrate on implementig the programs developed by DNEP, conducting traffic couns and condition surveys, implementin comprehensive mainteance systems in the provinces, participating in road programing and monitoring conats in progress. The development strategy for the DEPs explicidy includes the joint development of systems between the TA and the provincial engineer and on- the-job assistance to, and training of, the provincial engineersstaff n theimplementionof these systems. 1.17 A study on deeloe of the local road construction indus (aRC is complete, following which GOM is creating conditions which will provide incentives to promote the establishment of small- and medium-size local road contractors. Consultants have been recnited to help privatize CETA (the largest state-owned contracting company) and to restucture, commercialize and, where possible, privatize some of the ECMEPs. A comprehensive set of policy measures, training and specW works contracts are being put into place. Inter alla, targeted training programs and simplified contracting documents and technical specifications will be provided for the local contcing industy. Short term TA will be provided to LRCI and DNEP (focussed on client side actions to support the LRCJ, such as appropriate contract packaging and simplified contracts and payments systems). Works will be specily packaged to suit the capacity of the local contractors (including part of the routine maintenance works). Up to US$2m in small "training contracts" will be set aside in ROCS-2 (para 3.13) to provide practic experience for the local contractors, and pilot attempts will be made to award small local contracts in the  vicinity of ICB contracts and have the ICB contractor provide assistance to the local contractor on a fee basis. To increase the short-term contracting capacity in Mozambique, experienced regional and international contractors are being encouraged (through appropriate works packaging and improved procurement procedures) to enter the Mozambique road civil works market. Also, local engineering firms will be used in surveys for small contracts, and later on for supervision of works as their capacity increases. A draft LRCI Strategy has been completed and a fuller version will be developed over the coming 12 months. 1.18 An inventory has been made of road equipment in Mozambique. A decision has been made to transfer most of the heavy road equipment to private plant leasing companies. Some equipment will be retained by the ECMEPs for routine maintenance (particularly in remote provinces) and the rest will be auctioned off. The valuation of the equipment and preparation of tender documents has begun for the frmatiDn of three private sector (or mixedcapitabl leasing companies. 1.19 Under ROCS-1, a review has been completed of GOM urement management pcedue standard bidding and contract documents for the road sector have been prepared and a comprehensive procurement management system is gradually being instituted at DNEP. Some progress has been made towards standardizing procurement documents for all donor and GOM funded works, so that any differences are reflected in special conditions. At the same time, actions have been taken or are being planned to ensure the quick clearance of ROCS contracts through the Ministry of Finance (MoF) (para 3.17). As a result of these initiatives, since July 1993, ROCS-1 roads contracts have averaged just 10 working days in MoF and procurement actions for ROCS-2 are well advanced (para 3.11). Road i1nancdng 1.20 To ensure the efficient raising and allocation of funds, and to increase cost recovery from road users, GOM has reinstated the pre-independence Road Fund. For 1993, about Mt 35 billion (US$7m at year end exchange rates) was deposited into the fund. A recent amendment now allows the fund to finance rehabilitation as well as maintenance. 1.21 From the beginning of 1994, the fund will be financed through transit Road Ust Charse for I4 (Est. US$19.!. charges on international corridors, a diesel o4 charge of Mt 177/liter (about 3.3 US . cents), and charges of Mt 671/liter (about 12.4 US cents) on regular petrol and I Mt 999/liter (about 18.5 US cents) on super ' 5 petrol. This will generate just over 3. US$19m for the road sector in 1994, 2. sufficient to finance planned maintenance e and the local share of rehabilitaton and TsmC D.a pz emergency works. 1.22 GOM is also committed to annually increse allocation for maintenance so as to domesticaly fund all maintenance requirements by 2000. These domestic funding requirements, for both the ma ntenace of the network and the GOM share of the rehabilitation program, have been quantified (para 2.18) and assurances have been provided by GOM in connection with this financing (para 2.19).  1.23 'Me Road Fund has been constituted with its own independent board where institutional stakeholders are represented. Steps are being taken to include representatives of road users. Once funds are deposited (on a quarterly basis at present), withdrawal requires the signature of the National Director of Roads and Bridges. While not perfect, the road funding mechanism is now satisfactorily efficient and transparent and has a moderately high degree of accountability. In the short term GOM will focus on ensuring the system operates as effectively as it should. In the medium- to long-term however, more approprlate tax levels, better distribution procedures, and a more effective revenue collectior. system will need to be introduced and the sustainability of the Fund will need to be strengthened. Reform of the Trucking Industry 1.24 A review of the trucking industry (including an approximate inventory of capacity) has been completed. GOM has developed agreed action plans to fully liberalize tariffs and carrier licensing, to rationalize taxes and duties, to modernize safety standards and to clarify the roles and responsibilities of the Government bodies in the trucking sector. For each of the large parastata fleets, tailored recommendations have been made to sell off, lease, privatize and/or commercialize the fleets. Action plans are under preparation In this area and conditions related to the completion and implementation of these action plans are provided for under the proposed project. Action plans, concerning axle-load control and overload regulations, are also under preparation, with implementation under the project. D. Lessons of Past Epience 1.25 Progress has been good on the roads component of ROCS-1 which focusses on capacity building in the sector. As of February 28, 1994, just sixteen months after effectiveness, 14% of the credit has been disbursed. Contcs have been signed for 55% of the roads part of the credit, with procurement well advanced for another 18%. The ROCS-1 roads component is substantively in compliance with all credit covenants and is without major problems. Although initially delayed, the coastal shipping components of ROCS-1 are now also progressing satisfactorily. The project is likely to meet its development objectives. 1.26 Lessons learned from similar projects in Mozambique and the rest of Africa have been given full consideration in the design of this proposed new operation: a. Lessons from the road and street rehabilitation and maintenance component of the Utban RehabUittion Egject (Credit No. 1949-MOZ), and from the First Roads and Coastal Shipping Project (ROCS-11 (Credit No. 2374-MOZ) have led to a special emphasis on: (1) procurement process, including standardization, advance procurement, and the strengthening of the procurement management function within DNEP and the review and contract clearance process within the Ministry of Finance; (ii) advance establishment of special accounts and carefil disbursement planning; and (iii) advance agreement on maintenance and counterpart financing. b. Lessons from the successful Tanzania Integrated Roads Project (IRP1 (Credit No. 2149- Tan) have been built into the design of the project, lier alla, (i) the benefits of the integrted sector approach; (i) the need to carefully phase policy and investments; (iii) the need to explicity address the demand side issues in developing the local contracting industry through the provision of suitably packaged works; and (iv) the need to focus significant attention on the quick resolution of equipment issues.  -8 - c. Ihe Road Maintenance Iniiative M has generated a number of lessons with respect to the estblismn of sustainable road maintenace in Africa which are reflected in the policy Initiatives descred above, especially those related to financing. d. The OED Report Freendin Technical Assistce for Institutional Dweloom i Africa (No. 8573) made a nunber of recommendations for icreasir, the fctivess of Technical Assistance in Africa. lhese recommendations (focussing on the need for clear terms of rehrence, a comprehensive training and institutional development strategy, and cose supevision) bave be applied to both ROCS projects.  -9- CHAPrER 2. THE PROJECT A. Project Objectives 2.1 Ihe primary objective of the project is to conbute to the restoration of economic growth through: (i) improving road transport and protect selected past road investments by rehabilitating priority roads and eliminating much of the huge backlog of deferred mantenanc d resuming regular maintenance activities; and (ii) fiuther strengthening the capacity of the Road Sec<ar, by continuing the regulatory reform and Institution building initiated under ROCS-1, to ensure effective planning and monitoring by the government and by the development of private sector conators and operators, to a large extent through on the job actities. B. RatIonale for IDA Involvement 2.2 By focussing on removing transport sector bottlenecks to recovery of the agricultura sector, ROCS-2 is an integral part of IDA's assistance to GOM aimed at facilitating economic recovery. In addition, the project supports capacity building and manpower development and the implementation of regulatory reform. GOM and MDA, supported by the donor community, agree that IDAs main role should be to contiue to asist GOM in: (i) implemendng its regulatory reform and institional strengthening; (Hi) financing priority civil works, as a lender of last resort; and (i) coordinatng donor participation in the transport sector. The project wil also provide a model of a more flexible sectoral investment approach which could have wider applicability within Mozambique and the Africa Region. C. Project Stategy 2.3 Now that some preparatory work has been underaken under the ROCS-1 project and peace has arrived, a program of investments to improve conditons on the grund can begin. The proposed program addresses the investuent objective of the 15-year Road Recovery Strategy. It will rehabilitate main paved roads to as-built, maintainable standards, reopen earth and gravel roads, repair and replace destroyed bridges with at least temporary structues, and gradually bring the national network back under regular maintenance. Ihe strategy is to restore high priority major trunk roads to good condition, but on secondary and tertiary roads the strategy is to open access to a larger area by spreading funds more widely and restoring roads to fair rather than good condition. Pmvided security and available funding permit, the goal is to restore serviceability and mainance to the 1973 level by 2000, with 85% of the paved network and 60% of the unpaved network in good or fair condition, compared to 50% of the paved network and 15% of the unpaved network at present. 'hese targets wil be updated once more accurate data is obtained from the planned road condition surveys. D. Project Description 2.4 The project Is an integrated sector Investment program in that it: (O comprises the goveament's agreed rolling roads investment program for the five years 1994-1998; (u) includes all donors financing of the program in a coordinated fashion (though discrete parallel-financed sub-projects); (lii) has common implementadon afngements for a}l donors; and (iv) is phased to incorporate policy and physical  - 10- initiatives. The project has also been designed to be implemented in a flexible manner. Due to uncertainty surrounding projected agricultural development (and bence traffic levels) and road conditions and rehabilitation costs, pre-determining the detailed Investments for the outer years of the program would be inappropriate at this stage. Rather, the first two years of the program have been defined and appraised in detail, as has the overall scope of the five-year program and an indicative program for 1996-1998. 2.5 A major review will be undertaken prior to embarking on the 'indicative' part of the program (around September 1995). The review will assess physical and institutional progress up to that time and will set out a more explicit program for the following three years. Disbursement of IDA funds for this indicative part of the program will be conditioned on the substantial completion of specific institutional, policy and implementation actions (Annex 5.1). Thereafter, annual reviews of progress on physical and institutional elements will determine the details of the next years' prograun, based on clear criteria/methodology agreed at negotiations, (and supported by data to be collected with the assistance of the TA to the provincial engineers). 2.6 An alternative design of two sequential projects (for two to three years each) was considered but rejected since the five-year approach (i) provides a more certain environment within which institutional development can take place, shifting the emphasis in Mozambique from crisis management to longer-term development; (ii) helps place more emphasis on implementation, rather than new project preparation and lending; and Qii) provides more flexibility to respond to changing circumstances. 2.7 The project would finance (i) a civil works program of road rehabilitation and maintenance, (ii) the engineering services in support of the program; and (iii) the continuation of the ROCS-1 Institution Building Program. 2.8 For the five years 1994-1998, the project would include a civil works program comprising: (i) emergency rebabilitation and hbackloggedw maintenance of about 11,700km of mainly unpaved roads, about 3,20Gm of Bailey-type Bridges (or lower cost alternatives such as drifts or inverts) and a road signing and marking program in all 10 provinces; (ii) rehabilitation of about 3,450km priority, mainly paved, tunk roads; (iii) labor based reconstruction of about 3,250km of feeder roads; and (iv) current routine and periodic maintenance of that portion of the network that is in good or fair condition.3/ This program has been developed not only taking into account priorities, but also considering the managerial capacity at DNEP and at each DEP; the availability of local contractors; and funding availability (jocal and donor, recurrent and capital). The table below summarizes the estimated 5-year civil works program (showing the kilometers to be carried out in each year). Km Completed cach year 1994 199S 1996 1997 1998 Total Major Rehabilatioa Paved 70 220 660 990 700 2,40 Major Reabion Unpaved 40 82 194 300 200 816 Emergency Woik (PWRP & Backlbg) 1,10 6,92 3,470 11,700 Feeder Roads 62S 625 625 650 725 3,250 Mastenan Basic Routie 6500 10,000 14,000 16,000 19,000 6S500 Heavy Routine 4,500 7,00 8,500 10,000 11,500 41,500 Perdio 1,00 2,000 3,000 4,100 6,000 16,500 3/ Te roads stategy in Mozambique so includ a Viliage Acco Roads rgam OVAR which focus on the eiminating the bottlenecks i connectons between villages and the atioal road network, based oan a self-help community-based ptogram, with limited technical and mara support. This is managed in dhe context of integrated nua} developmt proects and is not included in this progtam, or in te roads budget  - 1X - 2.9 For the first two years, priorities have been set based on the: (i) commencement of regular maintenance on those sections of the network in good or fair condition; (ii) need to open emergency access to priority areas and to inplement urgent 'backdogged' maintenance to protect the investments; (Mi) priority district program (for geographical emphasis); (iv) rehabilitation cf major high priority road sections comprising ongoing programs and roads previously identified as priorities that are 'ready to go'; and (v) network rationale ensuring that all links within a 'corridor' receive some limited teatment to bring the entire corridor from poor to fair, rather than bringing part of the corridor to good condition and neglecting the rest. 2.10 The project would finance the following Civil Works Program contracted during the fit two years (1994/5) of the program. Awnex 2.1 sets out a summary of the program. a. A two-year, Post War Emergency Recovery Progm (PWRP) aimed at opening access to key agricultural areas (based on the PDP) and commencing urgent protective maintenance, about covering 9,500km of roads and 2,200m of bailey type bridges in all 10 provinces. The works are aimed at quickly opening access to areas that have been obstructed due to insecurity, war damage and lack of regular maintenance. Works are also included to protect the structure of key roads (paved and gravel) against the potential damage that may be caused by increases in traffic. This is the most urgent part of the program. The average cost of these works amounts to about US$6,000/km. Roads have been selected at the provincial level, with engineering input from DNEP based on the suitability of certain types of roads and to ensure that the amount of work is limited according to implementation and supervision capacity and financing availability. Works will be carried out, for the most part, by international contractors. Road markings and signs will also be included. In addition, uBacklogged& maintenance will be carried out on about 830km of priority main roads that have not been maintained for many years, plus a further 1,000 m Bailey type bridges. b. Rehabilitation of about 530km of major paved trunk roads under 4 alread aroved r.iects which have committed donor funding and for which detailed design has commenced and about 980km of 8 sections of priority paved trunk roads; originally identified under ROCS-1, and for which funding has been secured and detailed design commenced. The average cost of rehabilitation is about US$150,000/km. c. Implementation of the second phase of the UNDP-coordinated Feeder Road Program (FRP), covering labor-based reconstruction of 1,250km of feeder roads in 40 priority districts. 'he Feeder Roads Program (FRP) is aimed at rehabilitating and maintaining secondary and tertiary roads, is focussed on the priority districts and explicitly is labor- based to inject cash into the community. The program has started on a pilot basis and is gradually being expanded so that it will cover all of the priority districts. Clear criteria have been established and within this framework, with local input, roads are selected. d. Periodic maintenance (resealing of paved roads and regravelling of gravel roads) on 3,000kn of roads at an average cost of US$17,000/lkm for paved, US$6,000/km for gravel and US$3,000/km for earth roads. e. Routne maintenance on that portion of the network in good or fair condition, which will be financed entirely by the government from the Road Fund. Over the two years, this witl include basic maintenance ass cutting, ditch and culvert cleaning etc. estmated to cost an average of US$20/kin) on about 16,500km using lengthmen and heavy  -12 - maintenance (grading, pothole patching etc. estimated to cost an average of $650/km) on 11,500kn to be performed largely by the ECMEPS and other local contractors. 2.11 The program for the outer three years of the program (1996-1998) will be refined on an annual basis. However, in order, to start to mobilize finance and to commence some forward planning of feasibility studies, an indicative Civil Works Progam has been developed, comprising: a. further Nbacldogged" maintenance (or emergency works) on about 350km priority roads and 450km of remaining PWRP roads, and additional road signing and markings; b. rehabilitation of about another 2,000km of oriority pave d a npaved trunk roads: c. a further 2,000km of labor based reconstruction of feeder rQads; d. godWic maintenance on about 11,800km of unpaved roads, increasing from about 3,500kh in 1996 to 4,5001km in 1998 and some 1,700km of paved roads (increasing from 400km to 750km per year); and e. Routine maintenance both basic (engthman system) on 14,500km in 1996 increasing to about 19,000km in 1998 and heavy on 8,500km in 1996 increasing to about 1 1,500km in 1998. CMvi Wed: Eat D;burmmut (USM 100 140 120 | 14 1005 F h. 10061007. 1M90 2.12 The project will also include Engineering Services in support of the project comprising: a. detiled feasibility sudies for sections of major roads and key bridges; b. engineering/detailed design studies for rehabilitation works in the outer years of the program (engineering for the early years is covered in ROCS-1); and C. mPr!ision of civil works for the entire five year program  - 13 - 2.13 The project will finance the continuation of the ROCS-1 Institution Building program (tecmhnical assistance, studies and training), through the end of 1998. This will cover: a. The extension of three technical assistance contracts, for 180- TA under ROCS I and 2 Immt 200mm, originally included in ROCS-1, but for which funding 450 was postponed due to re- 30 allocation of the ROCS-1 credit. 300 This is a*reuon from 500mm 200 originally envisaged and includes o the --ra CoslttDD0 for about 50"60 man-months, DEP' TRAINING ONEP HO CONTRACT. Technical Assistance to the DEP [ml ROCS1 ROCS-2 for about 60-70 man-months and Training Technical Assistance (for the development of training capacity within Mozambique) for the remain third. These numbers would be reviewed and exact details would be spelled out at the mid-term review. Disbursement by IDA against these hems will be conditioned on submission, to IDA, of an acceptable updated long term capacity building program based on a satisfactory detailed review of all human resources inidatives to be presented at the mid- term review (para 3.20.d, S.l.d). b. Technical Assistance to the Local Road Contracting Industry (about 100mm), that was envisaged under ROCS-1, but for which conracting has not yet begun and funding has been postponed. Terms of Reference wil be agreed at the first annua project review. c. A fund for about 100mm of Short Term Assistancs in engineerinr, policy and management issues. This will be defined on an annual basis and may include speciized advice and/or study tours to other countries to assist in (i) manageria issues, such as strengtheningthe sustainabiity of the Road Fund, improving the fimancial and managerial autonomy of DNEP, with a view to possibly re-establishing an independent Roads Authority; (ii) engineering issues such as bridge engineering; (iii) road safety and axle load control for which two acdon plans are under preparation; Civ) procurunent support for MoP in contract clearance; (v) defining the role and strengthening of the laboratory function; and (vi) enviromental support to DNEP. d. Logistical support to DNEP and the DEPs, including (1) office equipment; Cu) vehicles; (iii) laboratory equipment to improve national laboratory capacity to carry out surveys and tests related to rehabilitation works; (iv) weighbridges; and (v) construction or rehabilitation and firnishing of about 40 units of housing for DNEP staff and consultants in Maputo (30), the provincial capitals (10). Disbursement for one third of the houses will be conditioned on receipt of an acceptable plan from DNEP fur repayment/ownership by DNEP and DEP staff, with the remaining two thirds conditioned on final approval of the plan by GOM. In both cases, proof of DNEP's right to develop the land on which the houses are to be built will be required (paras 3.20.b, 3.20.c, 5.l.b, S.l.c).  -14- E. Project Cost 2.14 lbe five-year program (including contingencies) is estimated to cost US$814.6 million, of which about 75% would be in foreign exchange. Of the base costs of US$712.6 million, US$58.2 million would be for institutionl support and engineeing services, US$205.9 million would be for the firml major works progam in the first two years, US$194.5 million for the indicative major works program for 1996-1998, US$117 million for the emergency and feeder roads programs and US$137 million for the maintenmce program. Costs have been calculated including indirect taxes and duties for civil work, but excluding taxes on coultants. For mauor works, costs are based on feasibility studies, or where available, detailed design studies. Emergency works costs are based on swveys conducted under ROCS- 1. Unit prices for emergency and maintenance works are based on prices for standard options calculated from a collection of Mozambican cost data. Price contingencies of US$47.6 million have been included based on expected annual US$ inflation rates of 1.2% for 1994,2.4% for 1995 and 3.2%-3.4% for 1996- 98. Physical contingencies of about US$54.4 million (10% of base costs for all items except engineering and goods (5%) and maintenance (0%)) have also been included. A summary cost table is included in the project summary and a detdled cost table is shown in Anw 2.2. F. Projet $lFancing ai. @..t. & Atnn 413 AX _Ia 2.15 Of a total esimated cost of US$814.6 nillion over the five years, GOM will finance about US$169.0 ' million, ad total eterna financing is , m estimated to be about US$645.6 I II million over the five years. A i " XUm _ summary financing plan is included in ,0 the project summary and a detailed financing plan is included in A,wx 2.3. - Foreign Funding 2.16 The proposed, IDA credit of US$188 million equals 23.1% of project costs and will finance various parts of the project. As lender of last resort, IDA would finance the *next highest unfimded priority", but initially has had to lead some of the other donors by funding two main roads in the early part of the progrm as well as much of the emergency program. 2.17 About US$457.6 million will be required in parallel financing from the donor community. Significant donor support has been identified from AfDB, BADEA, EEC, Kft, Kuwait, SIDA and USAID. The first two years of the program and much of the third year are fully unded, with commitments amounting to about US$276 mfllion. Most donors are unable to firmly commit (at this stage) to the outer years of the program, but indications have been received that an additional US$170-200 million could be secured if the peace agreement holds and progress in the first two years is satisfactory.  LAl Funding 2.18 GOM will locally finance 100% of routine mainenance over the life of the project and an increasing share (40% to 80%) _ of current periodic manteance. lbis wil amount to about US$114 mUlion, with about US$21 million in the fist two years and _:_ about US$93 mUllon In the las thre year. Maintenance funding requirements will I stabilize at about US$45 million per anmnu by 2000. GOM wll also provi'de an rageMl of about LTS$10.5 million per annum as local i . saw contribution twards the rehabilitation and gm_ o_ o_ emergency components of the project. The graph opposite smmrizes the funding requirements from GOM. 2.19 IDA has received an acceptable letter of commitment from GOM agreeing to provide these levels of local financing and specifying the mechanims through which this funding will be made available. A copy of the letter of commitment is atached as Anna 2.4. GOM has already adopted and funded DNEP's first-year road matenance and rehabilitation program. GOM provided assurances at negotiations to make available, in a timely manner, resources required for the Proiect (for both maintenance and rehabiitation) that are consistent with the mechanisms and funding amounts set forth in the letter of commitment of local resoures (para 5.2.b). In addition, GOM would not make any dcanges to the strucure for the roads fund that would adversely impact on the efficient, tasparent and accounable fuing of road maineace, and before the mid- term review, would undertake a stdy of the operato of the Road Fund, on terms and conditions acceptable to IDA, and Implement Its recommendations as agreed with IDA at the mid term review (para 3.7).  - 16 - CHAPTER 3. PROJECT IMEMENATION A. bnplementation Armngements 3.1 Implementation arrangements are relatively simple. Project investments would be managed by the Ministry of Construction and Water (MCA), through the National Directorate of Roads and Bridges (DNEP), wbich managed the roads components of ROCS-1 and of the Urban Rehabilitation Project. GOM has designated DNEP . the implementing agency for the project and has delegated full implementation authority to them. GOM has agreed not to materially alter this delegation of authority without IDA's prior no objection. No new agencies would be created. GOM provided assurances at negotiations that it would retain throughout project implementation KyEiect Managme St, in particular, a National Director of Roads and Bridges, deputy national directors and department heads, with qualifications and experience acceptable to IDA (para 5.2.c). Priority setting will continue to involve significant input from provincial authorities. The vast majority of road works will be carried out by contractors, who will be encouraged, where applicable, to maximize labor utilization. 3.2 GOM provided assurances at negotiations that it will implement the project and policy reforms according to the Letter of Sector Policy (para 5.2a). Summaries of the institutional implementation plan and of the physical implementation plan are attached as Annexes 1.2 and 3.1, respectively. A detailed Implemention Manual, an index of which Is included as Annex 3.2, will be updated from time to time by GOM. Its primary audience is the implementing staff themselves. 3.3 Systematic beneficiary assessments and local involvement in priority setting will be built into the project so as to maximize benefits under financing constraints: a. Representatives of local contractors, truckers and the agricultural sector will be part of an Advisory Board to be created for DNEP and wlU participate in the anmual reviews. b. Surveys will be undertaken annually, by a consultant to be recruited under the project, ofthe contracting, consulting, trucking and agricultural industries to determine their needs and the extentto which these are being met by theproject. These surveys will form part of the annual review. 3.4 The IDA Credit is expected to become effective by July 1994. The ROCS-2 project should be physically completed by December 31, 200G, and the project's closing date would be June 30, 2001. 3.5 GOM provided assurances at negotiations that it shall, by September 30, of each year, carry out with IDA and other participating donors annual Project Implementation reviews, including a mid-term review, by September 30, 1995 (para 5.2.d). GOM further provided assurances at negotiations that it would submit to IDA (not later than four weeks prior to the annual and mid-term reviews), for its review and comments, a report including an evaluation of progress achieved in Project implementation, and to carry out the recommendations of these reviews as agreed with IDA. In addition, GOM would hold a Project Launch Workshop during the second quarter of 1994. 3.6 The ammual and mid-term reviews will review the status of the project and performance over the past year, in accordance with the performance indicators. Ibis will cover, inter atia, the following: (i) improvements in the policy, legal and regulatory ftamework for the transport sector; (Xi) scope and  - 17 - effectiveness of institutional capacity building programs; (iii) measures designed to ensure appropriate transfer of technology to local counterparts and the most efficient utilization of technical assistance financed under the project; (iv) performance achieved during the current year with respect to road maintenance and rehabilitation, and provision of funding to finance road maintenance and rehabilitation works as set forth in the LOC; (v) annual surveys of truckers and contractors; (vi) operation of the Special Account; and (vii) overall implementation of the Letter of Sector Policy. 3.7 The reviews will also (a) review the proposed budgetary allocations for the upcoming year to finance project recurrent expenditures, to ensure timely provision of local counterpart funds to the project as per the LOC; and to bear the cost of the reimbursement of the GOM taxes applicable to foreign consultants contracts under the project; (b) identify implementation issues and propose appropriate solutions; (c) update project timetables, the implementation progran and performance indicators; and (d) at the mid-term review, confmn and agree with IDA on (i) a detailed action program of works to be carried out for the next three years; (ii) a long-term capacity building program based on the results of a detailed review of all institution building initiatives; and (fii) an action program prepued on the basis of the results of the study of the operations of the Road Fund. 3.8 GOM also provided assurances at negotiations that it would submit to IDA for its review, by September 1, each year, workplans (containing information satisfactory to IDA) for the subsequent financial year, to revise such workplans based on MIA's comments and carry out the project for the year in question based on the workplans (para 5.2.e). These plans would include the rolling works program for the next three years of program and the firm works program for the next year in particular. The rolling program would show detailed physical targets (km to be achieved in various categories), financial costs and disbursement targets and detailed procurement arrangements. The detailed program for the next year would need to be fully financed and have survey or design documents already completed. 3.9 In implementing the program, GOM provided assurances at negotiations that, unless otherwise agreed with IDA, it will not undertake any proposed investmen in the roads sub-sector estimated to cost more than: a. US$4 million equivalent, unless: (i GOM has submitted the proposed investment to IDA for its review and comments; and (i1) the investment has an estimated economic rate of return of at least 20%, taking into account socio-economic criteria acceptable to IDA (para 5.2.f.i); and b. US$1 million equivalent, unless GOM has carried out an environmental assessment and prepared and applied design standards and construction methods aimed at minimizing possible adverse environmental impact, all in accordance with environmental guidelines satisfactory to IDA (para 5.2.f.ii). B. Role of Technical Assistance in hnplementation 3.10 ROCS-l included a significant amount to TA and the proposed ROCS-2 project will extend this TA (para 2.13.a). At the same time, the project has been carefilly designed to ensure that this TA (under both ROCS-1 and ROCS-2) builds capacity rather than destroying it. A detailed analysis has been conducted on the structure and role of, and procedures for, long term TA under ROCS, as well as the link between TA and other capacity building initiatives. The objective remains to phase out long-term technical assistance as soon as possible, increase short-term technical assistance, and gradually bring in local consultants. The TA strategy under the ROCS projects may be summarized as follows:  - 18 - a. To continue with the technical assistance alread contracted under ROCS-. Reducing this TA to the lsvel of local capacity alone would mean very slow agricultura activity, and hence delays in capturing the economic benefits expected under project and very little TA mm w v a (ROCS16h1 capacity building in the roads 4001 sector. Long term TA is s required to: (i) build domestic 2 traning capacity; 0i) help 1