Chad - Highway Maintenance Project

RESTRICTED FILE COPY Report No. P-619 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A DEVELOPMENT CREDIT FOR A HIGHWAY MAINTENANCE PROJECT TO THE REPUBLIC OF CHAD July 3, 1968  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMM'ENDATION OF THE PRESIDENT TO THE hXECUTIVE DIRECTORS ON A DEVELOPE3NT CREDIT FOR A HIGHWAY MAINTENANCE PROJECT TO THE REPUBLIC OF CHAD 1. I submit the following report and recommendation on a proposed development credit in an amount in various currencies equivalent to US $4.1 million to the Republic of Chad to assist in the financing of a highray maintenance project. PART I - HISTORICAL 2. The proposed credit would be the first Bank/IDA lending operation in Chad. The country became independent in 1960 and joined the Bank and IDA in 1963. 3. The present project was identified in 1966 by the Bankts Permanent Mission in Western Africa, and its appraisal by the Bank was completed in February 1968. Negotiations for the proposed credit were held in Washington in June 1968. The Government was represented by a delegation headed by Mr. Georges Diguimbaye, Minister of Finance. 4. A second IDA credit of $1.8 million to assist Chad in financing an education project was negotiated at the same time as the present highway credit, and it will be presented to the Executive Directors shortly. PART II - DESCRIPTION OF THE PROPOSED CREDIT Borrower: Republic of Chad Amount: Equivalent in various currencies of $4.1 million Purpose: 'To finance the foreign exchange costs of: (a) a five-year (1968-72) highwzay maintenance program; and (b) consultantst services comprising (i) a feasibility study, including preliminary engi- neering, of the 82 km. long Djermaya-Djimtilo road, (ii) detailed engineering of the same road if the economic justification of construc- tion is confirmed by the feasibility study, and (iii) other consultantsl services regarding highways. Amortization: Over a period of 50 years, including 10 years of grace, in semi-annual installments on June 1 and December 1 each year. Commencing December 1, 1978, each installment up to June 1, 1988 to be one-half of one percent of the principal amount, and each installment thereafter to be one and one-half per cent of such principal amount.  - 2 - Service Charge: 3/4 of one per cent per annum on the principal amount of the credit disbursed and outstanding. PART III - THE PROJECT 5. A report on the project entitled "Appraisal of a Highway Mainte- nance Project" (TO-645a) is attached. 6. The proposed project would consist of two parts, a highway mainte- nance program for the main highways of Chad, and a feasibility and engi- neering study of the Djermaya-Djimtilo road, as well as other consultantst services for highways. The first part of the project, i.e. the highway maintenance program, should significantly improve Chadts internal transport situation, which is quite inadequate at present. Many of the countryts highways are in poor condition and there are not sufficient all-weather roads. Consequently, transport costs are relatively high, with considerable burden on the countryls economy. 7. The highway maintenance program, which will be carried out by the Directorate of Public Works (DPW), includes the provision of equipment and spare parts, materials, extension and improvement of workshops, and the training of operators and mechanics. It would enable the DPW to extend the scope of its maintenance operations from about 1,700 km. of the road system at present to about 3,700 km. by 1971. The proposed IDA financing would be applied to the capital expenditure of the first three years (1968-1970) of the program, totalling $4.4 million, and would cover the foreign exchange component estimated at about $3.8 million (85 per cent). All procurement under the IDA credit would be made on the basis of international competitive bidding. 8. All the recurrent highway maintenance expenditure for the five- year program, totalling about $4.5 million, as well as part of the capital expenditure, would be borne by the Chad Government. This would place a con- siderable burden on the Government's budget, since average annual maintenance expenditure during the five-year program would rise by about 70 per cent above the present level. To meet this increase, the Government intends to raise substantially the existing motor fuel taxes. This raise would be put into effect in three successive stages beginning July 1, 1969. 9. The highways to be maintained under the program serve the areas in which the bulk of the economic activity of the country takes place. Road- user savings to be derived from improved highway maintenance are estimated to be substantial, leading to an economic return of about 11 per cent on the total investment under the program. This estimate is conservative in that it does not take into account the increase in vehicle operating costs should the project not be carried out, as well as a number of other benefits not easily quantifiable. 10. The consultantst services constituting the second part of the project would be carried out by the French consulting firm Bureau Central dt6tudes pour les gquipements dtOutre-mer (BCEOM). A contract between  - 3 - the Republic of Chad and the consultants for this purpose was finalized at the time of the credit negotiations. The total cost of the consultantst services would be $0.4 million, which includes the costs of the feasibility study and the engineering of the Djermaya-Djimtilo road and the lakeside facilities, as well as the establishment of a system for collecting traffic data on main highways. The foreign exchange component of this total cost, estimated at $0.3 million, would be financed under the proposed IDA credit. The Djermaya-Djimtilo road offers a direct link between Lake Chad and Fort Lanyr, and is expected to carry substantial traffic, mainly fish and agri- cultural products. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 11. The draft Credit Agreement between the Republic of Chad and the Association and the Report of the Committee provided for in Article 5, Section 1 (d) of the Articles of Agreement are being distributed to the Executive Directors separately. 12. The draft Agreement conforms generally to the pattern of credit agreements for similar highway maintenance projects. PART V - THE ECONOMY 13. A report on "The Economny of the Republic of Chad'" dated March 15, 1968 (No. AF-71a) was circulated to the Executive Directors on June 10, 1968. 14. Chad is one of the largest and most inaccessible countries in Africa. Population density is low and 90% of the people depend upon agri- culture (including livestock and fishing). About half of GDP still derives from the subsistence sector. Cotton is the only crop of commercial impor- tance, providing about 55% of exports. Livestock and fish exports are next in importance. Industry in Chad is very little developed (less than 10% of GDP), and there are no known important mineral resources. Economic growth through 1965 slightly exceeded population growth; in 1966, a bad crop year reduced GDP, but some recovery occurred in 1967. Per capita income, esti- mated at about $70, is among the lowest in Africa. 15. Central Government revenues have grown rapidly, in pace with expen- ditures, providing small current budget surpluses through 1965. Thereafter, internal unrest and conflicts on one of its frontiers caused a rapid increase in defense and security expenditures at a time when French military aid was declining, resulting in current budget deficits. The Government has recently introduced severe measures to control current expenditures. 16. In 1966, Chad adopted a Development Plan, 1966-1970, which was too ambitious both as a program of expenditures and in its targets for production and trade. Nevertheless, the over-all development strategy embodied in the Plan is sensible in its balance and direction, with emphasis on the expansion and diversification of agriculture, including livestock, improvement of the internal and external transport systems, and the development of human resources through education and training programs. With the elimination of some low-priority projects, the Plan deserves support as an action program extended to 1972. Its success will depend partly on Chadis  efforts to raise some domestic capital resources, mainly by restraining current budgetary expenditures, and on external financial aid, and equally upon Chadts being willing to maintain its efforts to attract and use technical assistance. Chad has foreseen this need for large amounts of technical assistance; for example, almost all projects, both new and on- going, include provision for the foreign technical and managerial staff necessary for their implementation. 17. Chad's economic performance has been reasonably good considering the difficulties which. it has encountered. Because of the country's poverty which severely limit its capacity to service conventional debt, external aid should be on concessional terms. Provided the bulk of the Plan is financed and technical assistance is effectively used, real per capita income is expected to increase by 1 to 2 per cent annually. PART VI - COMPLIANCE WITH ARTICLES OF AGREEMENT 18. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VII - RECCMMENDATION 19. I recommend that the Executive Directors adopt the following Resolution: RESOLUTION No. Approval of a Development Credit to the Republic of Chad in an amount equivalent to US $4.1 million RESOLVED: THAT the Association shall grant a development credit to the Republic of Chad in an amount in various currencies equivalent to four million, one hundred thousand dollars ($4,100,000) to mature on and prior to June 1, 2018, to bear a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum, and to be upon such other terms and conditions as shall be substantially in accord- ance with the terms and conditions set forth in the form of Development Credit Agreement (Highway Maintenance Project) between the Republic of Chad and the Association, which has been presented to this meeting. Robert S. McNamara President by J. Burke Knapp Attachment Washington, D.C. July 3, 1968