Uganda - Road Development Program Project

Document of The World Bank Report No: 18793-UG PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 67.2 MILLION (US$90.98 MILLION EQUIVALENT) TO THE REPUBLIC OF UGANDA FORA ROAD DEVELOPMENT PROGRAM PHASE I PROJECT IN SUPPORT OF THE PROPOSED ROAD DEVELOPMENT PROGRAM June 3, 1999 Transport 1 Country Department 4 Afiica Region  CURRENCY E.QUIVALENTS Currency Unit = UJganda Shilling (Ush) US$1.00 = Ush 1535 SDR 1 = US$ 1.355 (as of April 30, 1999) FISCAL YEAR July 1 * June 30 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan CAS Country Assistance Strategy DMTFU Disaster Management Task Force UJnit EIA/SIA Environmental/Social Impact Assessment EIRR Economic Internal Rate of Return EU European Union GOU Government of Uganda ICB International Competitive Bidding IDA International Development Association MMIS Monitoring and Management Information System MOF Ministry of Finance Planning and Economic Development MOWHC Ministry of Works, Housing and Communication NPV Net Present Value NURP Northern Uganda Rehabilitation Project PFP Policy Framework Paper PPF Project Preparation Facility RAFU Road Agency Formation Unit RDP Road Development Program RDPPI Road Development Program, Phase I RMI Road Maintenance Initiative RSDP Road Sector Development Program RSISTAP Road Sector Institutional Support Technical Assistance Project SDR Special Drawing Rights TRP Transport Rehabilitation Project TSIREP Transport Sector Investment and Recurrent Expenditure Programme URC Uganda Railways Corporation Vice President: Callisto E. Madavo Country Director: James W. Adams Sector Manager: Yusupha B. Crookes Team Leader: Yitzhak Kamhi  Uganda Road Development Program Road Development Program, Phase I CONTENTS A Program Purpose and Program and Project Development Objectives 1. Program purpose .......................................................... 2.. 2. Program development objective and Program phasing .................................................2 3. Project development objective ..........................................................3. 4. Key performance indicators .......................................................... 3.. B Strategic Context ................................................................ 3.. 1. Sector-related Country Assistance Strategy (CAS) goal supported by the Program ..... 3 2. Main sector issues and Government strategy .................................................................4 3. Sector issues to be addressed by the Program and strategic choices .............................5 4. Performance triggers for subsequent credits ................................ ,.,.6 C Project Description Summary ........................ 1. Project components ...................... 6.. 2. Key policy and institutional reforms supported by the Program .......................6 3. Benefits and target population .......................6 4. Institutional and implementation arrangements .......................7 D Program and Project Rationale ...................... 9.. 1. Program alternatives considered and reasons for rejection .......................9 2. Major related projects financed by the Bank and/or other development agencies ....... 10 3. Lessons learned and reflected in the Project design ...................... 10 4. Indications of borrower commitment and ownership ...................... 11 5. Value added of Bank support in this Program .......................11 E Summary Project Analysis ...................... 12 1. Economic ................ 12 2. Financial ................ 13. 3. Technical ................ 1.4 4. Institutional ................ 14 5. Social Assessment ................ 14 6. Environmental assessment ................ 15 7. Participatory approach ................ 15  F Sustainability and Risks ................. 16 1. Susta inability .......... ,,,,, ,... 16 2. Critical Risks . 17 3. Possible Controversial Aspects ..............................,,,,,,.17 G Main Loan Conditions ........................... 17 1. Conditions of Effectiveness ..................... 17 2. Legal Covenants . 18 H Readiness for Implementation ........................... 18 I Compliance with Bank Policies ............................18 List of Annexes Annex 1. Project Design Summary ........................... 19 Attachment 1. Development of District Feeder Roads and Community Roads ... ................... 21 Attachment I-Table 1 District Feeder Roads Rehabilitation ........................................... 23 Attachment 1-Table 2 Road Development Programn ....................................................... 24 Attachment 2. Trigger Indicators under the Adaptable Program Loan Instrument ................ 25 Annex 2. Detailed Project Description .......................................................... 28 Table 1. Main Road Network Investments 1996/1997 -- 2005/2006 ...................................... 33 Annex 3. Estimated Project Costs .......................................................... 34 Annex 4. Cost-Benefit Analysis Summary .......................................................... 35 Annex 5a.Financial Summary .......................................................... 44 Annex 5b.Financial Management Action Plan .......................................................... 47 Annex 6. Procurement and Disbursement Arrangements .......................................................... 52 Table A. Project Costs by Procurement Arrangements ................................................... 53 Table B. Thresholds for Procurement Methods and Prior Review .................................. 54 Table C. Allocation of Loan Proceeds .......................................................... 55 Annex 7. Project Processing Budget and Schedule .......................................................... 56 Annex 8. Documents in Project File .......................................................... 57 Annex 9. Statement of Loans and Credits .......................................................... 58 Statement of IFC's Committed and Disbursed Portfolio .......................................................... 59 Annex 10. Country at a Glance .......................................................... 60 Annex 11. Letter of Development Policy: Road Developme,nt Program ........................................ 62 Annex 12. EA/SIA Summary and Conclusions ......................... ................................. 71 Map  Uganda Road Development Program Road Development Program, Phase I Project Appraisal Document Africa Region AFC04 Date: June 3,1999 TernLAader YitzhakXramhi CountryMaM euerlrimber. James W. Adams Sedw rManageriDiror: Yusupha B. Crookes PhaJe2t5l7: W 2120cor. T6nspo2 t In ER lawumene APL Tlzenk^6s . Credi ________ __ ________ IDA Otheers Tol Commitment Completion GOU US$ m % US Sm USSm Date Date Phase 1 90.98 L76 28.96 11.4 November 1999 lune 2004 Phaedlt 65.06 75 21.20 86.26 J =e 2000 June 2005 Govemmnent of Phase 86.70 75 '28.63 11533 November 2000 October 2006 Uganda Credit___ __ Phae 4 26.25 75 8.75 35500 February 2002 December2006 C redit I__ _ _ _ _ I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ TOTAL 268.9 75 87.54 356.53 Notes: Credit amounts for Phases 2,3 and 4 are indicative only, and will be confuimed dunng subsequent appraisals. The start of Phase 3 and Phase 4 will depend on implementationproess, sand the achieve ovweed triof, and auns leamed duripogra inlementation in Phses I and 2. ProJect Fin ncing Data u Lr an [nr Credit [Gnt Guarantee [] Other [Speer ForELsot /edisrseOtherts Amnunta2U50.m)5 .0..8 Proposedterms n To berietined [I Muhicurrenc tXJ Single currency [] SCend.rd Varia 70e [8 Fixed 0 LiBOR-base Grace Wxrod (years): 10 YePrs to maturpty: 40 Conun C anent neee 0.5% Governn enl 28.96 -28.96 liBRD IDA 15.44 75.54 90.98 Other (epeify) Total: 44.40 75.54 119.94 BorAowerd 0 Gov 2rment og Uganda Gu r ntor. 93 Responsdbke ageny. Minishy cf`WOrkS, Housing an Commwuncaions (MdOWC) Estimated disbursements 'Bank FY/US$MI Annual 2,5 160 26.5 27.0 12.0 6.98 Cumulative 25 IS.,5 45.0 72.0 S4.8 90.9S Project insplernentatbon period: 54 months Expected e?lectivene5s date: Noveme 30,1999 Expected closing-date: December 31, 2004 Implementing 49ency: MOWHC through the Road Agency Formation Unit (RAFU); after 2002, though the Road Agency Contact person: Pemlanent Secretary Addre5ss P.O.Boxt7270, Entebbe, Uganda Tel: 256-41-320101/9 Fox: 256-41-320135 Einail:  -2- A: Program and Proiect DeveloDment Obiectives 1. Program purpose: (see Annex 1) The road transport system in Uganda comprises about 10,000 km of classified main roads - trunk, secondary and tertiary, about 20,168 km of district feeder roads, 1,000 km of urban roads, as well as community access roads estimated at 30,000 km. An estimated 25% of the classified main roads are paved to bitumen standards. The linkages and complementaty functions between the classified main roads, district feeder roads are urban and community access roads are being maintained in order to sustain an efficient road transport network. The Government of Uganda (GOU) has developed a 10-Year Road Sector Development Program (RSDP - 1997/8-2006/7) for the classified road network, which was endorsed by the participating donors in November 1996. The objectives of the RSDP, see Annex 2, Table 1, are (i) to provide an efficient, safe and sustainable road network in support of market integration and poverty alleviation; (ii) to improve the managerial and operational efficiency of road administration; and (iii) to develop the domestic construction industry. Projected total expenditure under the RSDP over ten years was estimated at about US$1.5 billion in constant end-1998 prices, whereas a further US$302 million would be allocated to the District feeder roads. The proposed Road Development Program (the Program) would support the implementation of a part of the RSDP, over the 1999/2000 - 2006/2007 period, see T'able 2, Attachment I of Annex 1. The RSDP reflects a strategy focusing on the preservation and selective upgrading of existing road assets. GOU would finance expenditures amounting to US$769 million; EU US$249 million; IDA US$450 million (of which US$269 million under the proposed Program and the remainder under the ongoing Transport Rehabilitation Project TRP - Cr. 2587-UG; and RSI STAP(Cr. 2987-UG) and various bilateral donors the balance. Under the ongoing Road Sector Institutional Support Technical Assistance Project (RSISTAP - Cr. 2987- UG), IDA is supporting institutional build-up in the roads sector by the creation of a professional, dedicated Road Agency Formation Unit (RAFU) to manage and operate the road network, as mandated by the MOWHC, until establishment of the Road Agency in FY 2002. In addition, under TRP, IDA is supporting capacity building of the local construction industry by conducting training of contractors under the Feeder Roads Component, and creating business opportunities for local participation. More than 70 contracts have already been undertaken by local contractors, under the main roads component of TRP, for periodic and mechanized and manual routine road maintenance. 2. Program development objective and Program phasing: (see Annex 1) The primary objective of the proposed Program is to improve access to rural and economically productive areas by removing major constraints to transport services on the country's road network. The Program would also support actions aimed at further strengthening of the road sector management. The Program supports Government's 10-year Road Sector Development Program (RSDP) by supporting the rehabilitation of priority links of the national trunk roads network and feeder roads to be upgraded or rehabilitated in selected districts. The Program cost is shown in Table 2, Attachment 1 of Annex 1. The Program's development objectives will be achieved with steady progress in four phases over a seven-year period, and would include the following phases:  - 3 - Phase 1: Upgrading of two highest priority roads, Busunju-Kiboga-Hoima (145 kIn) and (RDPPI) Karuma-Pakwach-Nebbi-Arua (Section Pakwach to Arua, 130 kIn), including related construction supervision (November 1999 - June 2004). Carrying out sector policy and management studies, including those related to feeder roads; Phase 2: Upgrading of main roads to paved standard: Kampala-Gayaza-Bugema-Zirobwe- Wobulenzi (70 km), Karuma-Pakwach-Nebbi-Arua (Section Karuma to Pakwach, 110 km), and, the Kapchorwa-Suam (85 kIn), subject to its being found technically feasible and economically viable; as well as related construction supervision. Preparation of a Transport Master Plan (June 2000 - June 2005); Phase 3: Strengthening of Main Roads Katanguru-Kasese-Fort Portal, Kasese-Kilembe, and Equator Roads (162 kIn). Upgrading of selected feeder roads to main roads standard (about 300 kIn). Pilot project on use of new materials for stabilization of low cost roads and construction of new Road Agency headquarters (November 2000 - October 2006); and Phase 4: Rehabilitation/improvement of selected feeder roads (about 1,000 kIn) (February 2002 - December 2006), to be identified by the National Feeder Roads Study, currently being carried out under RSISTAP. 3. Project development objective: The objective of the Road Development Program, Phase 1 Project (the Project) is to improve access to rural areas and economically productive areas and to gradually build up road sector planning and management capability. The Project comprises (i) upgrading of the two high priority main roads; (ii) studies targeting the strengthening of road sector management; and (iii) preparation of a basis for an efficient feeder road financing and management system which will enable the Government and donors to actively support development and maintenance of feeder roads. The Project would, in addition, include a number of institutional and management measures that will be tested and adjusted as the Program expands. TIhe measures are related to (i) performance effectiveness of the newly established administrative set-up (RAFU); and (ii) establishment of milestones for efficient contract management and administration. 4. Key performance indicators: (see Annex 1) The key performance indicators include increased industrial and agricultural activity; increased traffic growth; reduced travel time; and reduced transport rates and vehicle operating costs over the main road network. Improvement and integration of the national road network under the Program would be subject to an appraisal process aimed at evaluating its technical feasibility and economic viability, as well as to learn from previous phases. Trigger indicators have been defined in Attachment 2 of Annex 1 in order to assess readiness for integration, early identification of risks, and implementation of corrective measures before undertaking subsequent phases of the Program. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the Program: (see Annex 1) Document number: 16540-UG Date of latest CAS discussion: May 20, 1997 The program is consistent with the Bank group Country Assistance Strategy discussed by the Executive Directors on May 20, 1997. A primary objective of IDA's assistance strategy to Uganda is to reduce  -4- poverty, through a medium-term strategy focused on piivate investment-led growth and export diversification. Lowering transport costs, and improving reliability of access to infrastructure, is assumed in the CAS as a key element to facilitate business development and to support poverty alleviation. Regionally targeted public investment, mainly in the North, is also considered as a key element in IDA's strategy. 2. Main sector issues and Government strategy: The last Transport Sector Memorandum was prepared by the Bank in February 1991 (Report No. 9346- UG). The main conclusions and actions recommended were: (i) strengthen investment planning and program prioritization across the various transport modes; (ii) maximize role of the private sector in transport activities; (iii) balanced program of road rehabilitation and maintenance; (iv) preparation of a strategy for air transport development; (v) commercial strategy for the Uganda Railways Corporation (URC); and (vi) development of local construction industry. Many of these recommendations have been followed under the ongoing IDA-financed TRP. In addition, IDA assisted GOU in the preparation of its 1992 Rural Feeder Roads Rehabilitation and Maintenance Strategy document which formed the basis for Government and donor assisted feeder roads programs included in the TRP. During implementation of the TRP several positive developments have taken place, including: (i) selection and prioritization of transport sector investments and recurrent expenditures within the framework of the Govenmment's rolling three-year Transport Sector Investment and Recurrent Expenditure Programme (TSIREP); (ii) contracting out of road construction, rehabilitation, and maintenance works for both main and feeder roads; (iii) development of a road maintenance progran, with Government contributions rising to US$28 million in FY99 from US$12.5 rnillion in FY95; (iv) establishment of a Civil Aviation Authority carrying the responsibility for the aviation sector, and (v) signing of a Performance Contract between URC and the Government, which explicitly recognizes URC as a strategic but commercially oriented entity, and establishes Government's obligation to compensate the URC for non-remunerative services that it is required to provide. Overall, the Government has made progress in addressing the major issues identified in the past. The areas where progress has been slower, or current issues still need to be addressed, are: (i) definition of a policy for privatization of the URC and the flag airline (Uganda Airlines Corporation); (ii) establishment of an autonomous, and user financed, Road Agency and enhancing road sector program management and project implementation capabilities; (iii) exploring alternative financing sources and to ensure sustainable financing for the expanded road program; and (iv) comprehensive coverage of feeder road needs, including the need to improve the overall condition of the feeder network to complement an improving main road network; and (v) improving management and financing of feeder roads maintenance at the district level for a sustainable road worthiness condition. The Government has initiated action to address these issues, as detailed in its Letter of Transport Sector Policy of May 1998. Specifically, alternatives for private participation in URC and Uganda Airlines Corporation are currently being considered. A major restructuring effort has also been initiated in the road sector under RSISTAP, leading to the creation of RAFU as an intermediate step towards the establishment of a fully-autonomous and commercially-oriented Road Agency by 2002. The establishment of RAFU/Road Agency is expected to improve substantially project management capabilities, thus creating the conditions for the effective implementation of the RSDP. To date, GOU has assured adequate budgetary resources for roads development and maintenarnce through the provisions under the TSIREP. In addition, GOU has initiated studies to update its overall transport sector and feeder roads strategy, identify feeder roads for upgrading to main classified road standards, and establish an overall program to address  -5- feeder roads financing and expenditure requirements. 3. Sector issues to be addressed by the Program and strategic choices: Of the sector issues identified above, the Program will address the following main issues (i) establishment of an autonomous, and user financed, Road Agency for enhancing road sector program management and project implementation capabilities; (ii) alternative financing sources to ensure sustainable financing for the expanded road program; and (iii) appropriate coverage of the feeder road network; as well as the need to improve the network's overall condition, as well as its management at the district level. The strategic choices shown below were discussed and agreed with the Government in November 1996 and January 1998. They have been reconfirmed during appraisal of the proposed Program. (i) To maintain the existing institutional set-up of MOWHC. or create an autonomous, and user-financed Road Agency focused on efficient implementation of the RSDP. The creation of an autonomous Road Agency by 2002 is being pursued under the RSISTAP through a study for the establishment of the Agency, covering the statutory, legal and regulatory framework required for its establishment and operation. Prior to the establishment of the Agency, consultant services for the study of a transitional institutional arrangement within MOWHC have been financed under the PPF for the proposed Project. This institutional arrangement is intended to ensure a more effective program management and project implementation capability in the road sector. (ii) To have proceeded with a Sector Investment Project which would have covered both institutional and physical investments, or to phase IDA assistance under successive operations. The size and scope of the RSDP requires an increased absorptive capacity in MOWHC to effectively manage and implement the program. During an Identification Mission in November 1996, therefore, IDA agreed with the Government to phase its assistance, beginning with an institutional credit (RSISTAP) to assist in setting up the RAFU and finance initiating activities, followed by investment projects in support of physical road improvements and further enhancement of road sector management and implementation effectiveness. IDA's Adaptable Program Lending Instrument was selected for program definition for its flexibility and to facilitate this strategy. (iii) To continue the provision of financial resources for road programs from annual central budgets with their inherent constraints, or explore alternative means and sources of financing, including explicit road user charges and private sector participation. Studies are being undertaken to assess the funding arrangements for the road sector and for the operation of the Road Agency, including the possibility of a user-managed road fund. (iv) To implement an overall trunk and feeder roads network improvement under the RSDP. or separate feeder road network needs and implement them under complementary programs. recognizing their unique characteristics and management requirements at the district level. As part of its decentralization strategy, the GOU has recently initiated a program of directly allocating central revenues to sub-national levels of Government for rural infrastructure, including feeder roads, through conditional grants. Through their local representatives, beneficiaries are thus called upon to play a more important role than hitherto in selecting expenditure priorities. Empirical evidence elsewhere also suggests that operation and maintenance of infrastructure facilities is better carried out through the direct involvement of beneficiaries,  - 6 - district authorities and communities, rather than through central Government agencies. However, the Government is canying out studies to determine the strategy for the management of feeder roads. Development planning and program coordination and implementation performance auditing would remain the prinary responsibility of MOWHC. In this context, identified feeder road rehabilitation and maintenance requirements in selected districts would be assisted by IDA under Phases 3 and 4 of the proposed APL. 4. Performance triggers for subsequent credits: (see Annex 1, Attachment 2): C: Project Description Summary 1. Project components: (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown: Upgrading of Main Roads to Paved Civil Works 109.39 91.20 82.04 75. (Biturnen) Standards Construction Supervision Consultant 7.65 6.40 6.12 80 Services External Auditing Services Consultant 0.40 0.30 0.32 80 Services Project Preparation Facility (PPF) Consultant 2.50 2.10 2.50 100 Studies Services TOTAL 119.94 100 90.98 76 2. Key policy and institutional reforms supported by tlhe Program: The main sector policy reforms supported by the Program are aimed at building on those supported under RSISTAP, and include: (i) improving road sector management through the establishment of an autonomous Road Agency by 2002; (ii) ensuring sustainability of funding for road improvements and maintenance; (iii) increasing the effectiveness and involvement of private contractors in road works through strengthening project management and contract administration; (iv) improving the environmental and traffic safety management of the road network; and (v) defining overall transport sector strategy and updating the policy framework and strategy for district feeder roads development, maintenance and financing. 3. Benefits and target population: The road paving and strengthening works would lead to substantial savings in vehicle operating and infrastructure maintenance costs, as well as reductions in travel time and transport costs for road users and the rural population Since the identified subprojects are part of a comprehensive countrywide investment  -7- strategy for road development, they would contribute to fostering econornic growth and poverty alleviation through improvements in market integration and accessibility. These anticipated impacts are consistent with the objective of strengthening economic infrastructure which has been identified in the CAS as a key element in GOU's growth and poverty eradication strategy. The roads selected for inclusion in the Program have all been subjected to feasibility economic analyses carried out on all components proposed for inclusion in the RSDP (summary results of the economic analyses are given in Annex 4). Each road is also being subjected to final technical and economic analysis under RSISTAP before being included in the proposed Program. The components covering sector strategy review and update studies and institutional strengthening financed through the PPF are directly targeted at rationalizing road sector management, thus addressing the pressing need for improvement of public sector implementation capacity. They will build on the institutional restructuring already started under RSISTAP. By identifying activities which can better be performed by the private sector (project management and execution), and target capacity building initiatives for the activities which will continue to be discharged by the state (road safety, environmental protection, budget management), these components would contribute to the Government's civil service reform program. These objectives have also been identified in the CAS as a central element to be pursued in capacity building efforts. The consultant services to be provided under RSISTAP and those financed under the PPF are expected to lead to benefits from a reduction in road subproject costs and from availability of improved facilities to road users. 4. Institutional and implementation arrangements: 1. Administrative. The Ministry of Works, Housing and Communications (MOWHC) would have the overall responsibility for the implementation of the proposed Program. Recognizing the limitations of MOWHC's capacity to manage the expanded road program under the RSDP, GOU is taking actions to establish an autonomous Road Agency by FY 2002. The establishment of the Road Agency is aimed at fostering improved managerial capability through performance-based management and the contracting-out of services which can be more efficiently provided by the private sector. As a transitional measure, a Road Agency Formation Unit (RAFU) has been established with IDA support under RSISTAP. RAFU, through its management divisions, forms the nucleus for the future Road Agency during the transition period. RAFU has been mandated to be in charge of (i) road network development and management; (ii) planning and management of network maintenance; and (iii) overseeing the implementation of the Program, with emphasis on technical and financial monitoring and performance evaluation. Donor coordination functions will also be established under these arrangements. MOWHC's new role will concentrate on technical and economic regulatory functions, sector planning, safety and enviromnental protection; and budget programming and execution. The MOWHC vill set up a dedicated unit to increase its effectiveness in providing planning and programming, administration and management support to districts in developing and implementing a national strategic plan for feeder roads development and maintenance. 2. Implementation Period for RDPP1. The implementation period for the RDPP1 will be about four 1/2 years, and about seven years for all phases of the RDP. Pre-contract activities are being carried out with the assistance of consultants recruited with financing provided under the RSISTAP. Award of contracts for the construction of the various roads included in the RDPP1, following international competitive bidding, will be made as and when the detailed engineering designs and environmental and social action plans, bid documents and contractor prequalification reports have been completed. The Project Implementation Plan (PIP) prepared by RAFU includes the prograrn of contract awards.  - 8 - 3. Financial Management and Auditing. The Finance and Administration Division (FAD) of the Road Agency Formation Unit (RAFU) - within the institutional framework of the Ministry of Works, Housing and Communications (MOWHC) - will be responsible for ensuring that financial management and reporting procedures for RDPPI are acceptable to the World Bank. FAD's financial management system (FMS) would support management in their deployment of limited resources with the purpose of ensuring economy, efficiency and effectiveness in the delivery of outputs required to achieve desired outcomes. Specifically, the FMS would be capable of producing tirnely, understandable, relevant and reliable financial infornation that will enable management to plan, implement, monitor and appraise RDPPI's overall progress towards the achievement of its objectives. At appraisal, it was deternined that at this juncture in the establishment of FAD's financial management system, FAD is not yet ready for PMR-based disbursements, as discussed in the World Bank's Loan Administration Change Initiative Handbook (LACI, September '98). Thus, in the short-term, existing disbursement procedures, as outlined in the World Bank's Disbursement Handbook, will be followed, i.e., Direct Payment, Reimbursement and Special Commitment. However, the development of FAD's financial management system, in accordance with the Financial Management Action Plan presented in Annex 5b, is expected to facilitate the introduction of PMR-based disbursements within about 18 months of credit effectiveness. Salient features of the Action Plan include: appointment of a Financial Management Sub- Committee as well as a relevantly qualified and experienced Finance and Administration Manager; recruitment of support staff and capacity building; preparation of a Finance, Administration and Procurement Procedures Manual (including internal controls over civil works and consulting services); establishment of a Fixed Assets Register; monthly status of funds report and quarterly financial reporting; cash flow management including variance analysis; independent monitoring by internal auditors; and appointment of External (Systems) Consultants. Relevantly qualified, experienced and independent external auditors will be appointed on approved terms of reference; the annual audit report will be submitted to IDA within six months of the end of each fiscal year. Disbursement of IDA Funds. Disbursement from IDA will be made on the basis of incurred eligible expenditures. IDA will make advance disbursement from the proceeds of the Credit by depositing into a Borrower-operated Special Account to expedite Program implementation. The advance to a Special Account will be used by the Borrow to finance IDA's share of Programn expenditures under the Credit. Another acceptable method of withdrawing funds from the Credit is the direct payment method, involving direct payments from the Credit to a third party for works, goods and services upon the Borrower's request. Payments may also be made to a commercial bank for expenditures against IDA special commitments covering a commercial bank's Letter of Credit. IDA's Disbursement Letter stipulates a minimum application value for direct payment and special commitment procedures. Upon credit effectiveness, MOWHC will submit a withdraLwal application for an initial deposit to the Special Account, drawn from the IDA Credit, in the amount agreed to in the DCA. Replenishment of funds from IDA to the Special Account will be made upon evidence of satisfactory utilization of the advance, reflected in the SOEs and/or on full documentation for payments above the SOE thresholds. Replenishment applications should be submitted regularly on a monthly basis. If ineligible expenditures are found to have been made from the Special Account, the Borrower will be obligated to refund the same. If the Special Account remains inactive for more than six months, the Borrower may be requested to refund to IDA amounts advanced to the Special Account.  - 9 - 4. Monitoring and Evaluation. (i) A monitoring and evaluation system will be developed under the Project; (ii) semi-annual progress reports will be prepared on the basis of the project implementation plan; and (iii) a completion report will be submitted by the Government to IDA within six months of Credit closing. Annual reviews of project implementation will be carried out before the beginning of each fiscal year to facilitate annual program budgeting. A mid-term review will be carried out 30 months after Credit effectiveness. D: Program and Project Rationale 1. Program alternatives considered and reasons for rejection: Major Program alternatives considered include institutional reform and restructuring, infrastructure expenditure strategy, and detailed subproject design. 1. Institutional Reform. One alternative considered was to carry out institutional restructuring and to implement all the physical components of the RDP for the classified road network and feeder roads under one project. This was rejected in favor of starting with the institutional reforrn under RSISTAP by implementing transitional arrangements through the establishment of RAFU, leading to the establishment of the Road Agency by 2002. This would ensure that the capacity established under RAFU for program management is available before implementing an expanded roads improvement program. 2. Infrastructure Expenditure Strategv. Pre-investment strategies for the classified road network, as a whole (10,000 km), were considered as a basis for the development of the RDP. These were initially rejected, since they did not meet one (or several) of the following screening criteria: (i) compatibility of the expenditure level with macroeconomic targets, both in terms of the impact of the inflow of foreign exchange and the possibility of raising domestic revenue to fund counterpart expenditures; (ii) balanced allocation of resources for investment and recurrent expenditures; (iii) a minimum 12% estimated EIRR, the value assumed for the opportunity cost of capital; and (iv) capacity of the road administration to manage effectively. As a result of the above analysis, specific roads were identified for further technical and economic feasibility, with detailed engineering design studies to be carried out under RSISTAP for implementation under the proposed Program. The overall RSDP was also reviewed and updated during appraisal of the proposed Project. 3. Road sub-component Design and hnplementation. The alternatives considered included updating the feasibility and detailed engineering studies for all selected roads before implementation as opposed to a phased implementation. The former was rejected in favor of the latter to allow for the expected slower speed of the build up of institutional capacity and the associated procurement processing through an Adaptable Program Loan (APL) instrument. Consequently, implementation of each road sub-component will be contingent on the fulfillment of the following criteria: (i) economic viability established through an EIRR of 12% or above; (ii) completion of bid documents for contract award; and (iii) an environmental/resettlement mitigation plan satisfactory to IDA. These criteria will be tested during preparation of each subsequent phase and fulfilled prior to proceeding with implementation.  - 10 - 2. Major related projects financed by the Bank and/or other development agencies: (completed, ongoing and planned) DImplementation Development _ _ _ _ ~~~~~~~~~Progress (IP) Objective (DO) Bank-Financed Main Roads Strengthening and Fourth Highway S S improvement Road rehabilitation, maintenance and Transport Rehabilitation S S strengthening of district feeder road (TRP) maintenance capacity, and private contractor development Institution building RSISTAP S S Emergency restoration of damaged El Nino Emergency S S roads and bridges Road Repair Other development agencies Nordic Development Fund: Building of district road rehabilitation Feeder Roads and maintenance capacity Component of TRP S S African Development Fund: Building of district road rehabilitation District Roads and maintenance capacity, contractor Maintenance Project training European Union, Feeder Roads ditto DANIDA, Feeder Roads ditto IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the Project design: Experience from past projects in Uganda indicates that the main risk has been the limited capacity of the implementation agency, in particular, the ability of the agency to effectively address problems related to  - 11 - contract management, contract administration, and financial and technical monitoring. There have been substantial delays in the processing and awarding of contracts, leading to substantially higher costs at the initial stages of commencement and to delayed completion. The lessons from the modest success of technical assistance provided to develop the implementation and planning capacity of MOWHC is that major policy changes need to be carried out prior to undertaking major investment programs, and need full commitment by Government to ensure success. The structure of road administration in Uganda has been subject to frequent changes, resulting in confusion, poorly organized planning and administration, and ineffective long-term institutional and staff development. Therefore, major institutional and policy changes, including reorganization and institutional strengthening of road administration, as well as changes in the decision-making process, have been undertaken by the Government. These include establishment of an independent Road Agency by FY 2002, with RAFU in the interim. RAFU (and eventually the Road Agency) will facilitate implementation of the proposed increase in the size of the road program. This is the focus of RSISTAP. Other lessons are that inadequate engineering design and weak documentation resulted in implementation delays and cost overruns. Steps are therefore being taken during Program preparation to ensure the readiness and availability of completed contract documentation before commencement of works. These steps include, inter alia, recruitment by RAFU of the proper skill mix of professional staff with the ability to oversee the work of the various consultants preparing the designs. 4. Indications of borrower commitment and ownership: Three main factors are indicative of the Borrower's commitment to the Program. First, the Government considers the availability of basic road infrastructure as a key strategic element in the implementation of Uganda's economic program. Second, the Ministry of Finance has consistently allocated the agreed resources for road maintenance since 1993/1994, showing commitment to the sustainability of the proposed investments. Third, is the Government's decision to initiate a major sector restructuring including the road sector institutions. The Director of RAFU and several key staff have been appointed, with the remaining key staff expected to be on board by July 1, 1999. 5. Value added of Bank support in this Program: An important source of value added by Bank support is its comparative worldwide experience in the preparation and implementation of major capital expenditure programs. This has been acknowledged by the donor community active in Uganda, who have recognized the Bank's leadership role during preparation of the RSDP. The Bank also benefits from the experience, both positive and negative, gained in institutional reform and implementation of comprehensive road sector development programs in African countries such as Ethiopia, Mozambique, Tanzania, and Zambia. Another source of advantage is the Bank's experience in road sector reform in the Region gained over the last ten years through the steering of the Road Maintenance Initiative (RMI). This has provided the Bank with the goodwill of beneficiaries and donors in creating a cooperative framework where sector reform has gradually been shaped, implemented and monitored. The Bank has responded to the Government's request by flexibly targeting, and quickly delivering, its array of lending instruments (including a PPF and a technical assistance credit (RSISTAP)), in support of a credible assistance strategy, emphasizing sector and institutional reform prior to the commitment of resources to finance physical components. The APL instrument would also provide greater flexibility in adapting project design and financing to client needs as they evolve. The Bank's participation thus provides for better continuity for the implementation of the long-tenn national program.  - 12 - E: Summary Project Analysis 1. Economic: (supported by Annex 4) [x] Cost-Benefit Analysis for Phase 1: NPV (@12%)= US$ 69 million; EIRR (consolidated) = 19% Road investments under the proposed Program are part of the RSDP, a comprehensive planning exercise carried out by MOWHC in 1996/7. The RSDP reflects investment requirements and economic priorities, and respects macroeconomic constraints, such as overall spending ceilings and inflows of foreign assistance, as well as domestic counterpart funding. Overall, the road expenditure program is balanced, and adequate priority is given to the selective upgrading of roads to paved standards, rehabilitation, and maintenance of existing roads, as well as feeder road development. Investments to be undertaken under the RSDP would yield an EIRR above 12%, the value assumed for the opportunity cost of capital in Uganda. During appraisal, RAFU has carried out an updating of the RSDP, taking into account, inter alia, recent traffic counts on Uganda's main road network and the current prospects for economic growth; the damage to infrastructure caused by the "El Nino" weather pattem and the measures taken to correct it; a more realistic assessment of capital costs associated with alternative investment strategies; and the status of implementation of the ongoing projects under the RSDP. As a result, an updated expenditure and funding program for 1999/00-2005/2006 has been prepared. This program provides the basis for the identification of roads to be financed under the proposed Program. Investments in the four roads included in Phases 1, 2, and 3 of the proposed Program were subject to specific cost-benefit analysis during appraisal. Basically, the benefit stream comprises the vehicle operating costs and time savings accruing to road users tlhrough imnproved road condition. The cost stream comprises the costs to the road agency arising from the proposed investments, net of any incremental maintenance costs savings. In order to carry out the anal,ysis, traffic projections for various categories of vehicles were prepared, based on base-line traffic counts and on the Government's GDP and population growth projections. The interaction between traffic, road condition, and vehicle operating costs through time was then modeled through the Bank-developed Highway Design and Maintenance Model (HDM). For purposes of analysis the four roads (Kapchorwa-Suam, Katunguru-Kasese-Fort Portal, Busunju-Hoirna, and Karuma-Arua) were also disaggregated into ten sections, to reflect varying road condition, and other physical characteristics, as well as different traffic levels and composition. Typically, three investment and maintenance alternatives were generated and evaluated for each road section, and the one yielding the highest NPV (at a 12% discount rate) selected. As a result, the investments proposed under Phase 1 of the proposed Program (Busunju-Hoima road and the Pakwaclh-Nebbi and Nebbi-Arua sections of the Karuma- Arua road) would yield a consolidated EIRR estitnated at 19%, with no investment in any road section yielding an EIRR below 14%. Each of Phase 1 road sections was then subjected to sensiltivity analysis. To this extent, investments were increased by 20% and benefits separately decreased also by 20%. Overall, the investment efficiency indicators are equally sensitive to costs and benefits. Results of the sensitivity analysis also indicate that even under the sensitivity tests, the corresponding EIRR are always equal or above 12%. Moreover, and in order to factor uncertainty into the economic evaluation, a stochastic risk analysis was carried out using a commercially available model (Crystal Ball). Probability distributions were exogenously assumed for the two variables identified in the sensitivity analysis-as having the greatest influence in the net benefits. These  - 13 - variables are traffic levels and investment costs. A total of some 1000 "what-if' scenarios, combining the likely values for the two selected variables, were then generated for each road section, each leading to an estimated EIRR. Results of the risk analysis indicate the high likelihood that the EIRR would be above 12%, except for the Pakwach-Nebbi section of the Karuma-Arua road, for which a certainty level of only 83% is estimated. For this section, investment and traffic levels should be carefully monitored during implementation. As to the road sections under Phases 2 and 3 of the proposed Program, results of the risk analysis indicate that investments in the upgrading to paved standards of the Karuma-Pakwach sections of the Karuma-Arua road should be carefully reassessed. These investments should be subjected to further cost-benefit scrutiny and risk mitigation assessment, before they are considered eligible for inclusion under the subsequent Phases of the proposed Program. In order to be declared eligible for inclusion under Phase 2 and 3 of the proposed Program, road investments would need to reflect the recommended investment strategy under the RSDP and yield a revised EIRR estimated at above 12%, estimated in accordance with a methodology satisfactory to IDA. The economic analysis rests on the overriding assumption that the overall security situation in Uganda will not worsen. Furthermore, and specifically for the Pakwach-Arua road sections situated in the NW Region, the key assumption is that economic and social activities, including traffic flows, will regain at least their 1995 levels. Should this assumption not materialize in the short-run, then road construction works cannot be undertaken and investments in this road should be postponed until the improvement of the security situation. 2. Financial: (seq Annex 5a) NPV= n.a.; FRR= n.a. Fiscal impact: The financial implications of the Government's road sector program have been presented in its Budget Framework Paper discussed during its public expenditure review of May 1999. As stated in that Paper, Government's Poverty Eradication Action Plan identifies six critical sectors which require substantial budget expenditures if the objective of eradicating poverty is to be achieved. Of these, main roads, rural feeder roads and agriculture are seen as directly contributing to increasing rural incomes and supporting the private sector. The Paper confirms that the road sector continues to be one of Government's fastest growing program, with GOU resource allocation increasing from about USh 49 billion (US$45 million) in 1997/98 to USh 77 billion in 1998/99 (US$64 million), and as of May 1999 projected at USh 101 billion for the year 1999/00 (US$ 74 million) (see Annex 5, Table 5.1). This represents a percentage increase in real tenns of 40% between 1997/98 and 1998/99, and of 17% between 1998/99 and 1999/00. The share of roads as a percentage of GOU's total sectoral allocation is 6.2%, 7.8%, and 8.4% for 1997/98, 1998/99, and 1999/00, respectively. The medium-term sectoral allocations are shown in Annex 5, Table 5.2. This level of expenditure has been discussed with IDA and is considered acceptable, subject to future annual review of public expenditure. With regard to feeder roads, priority is placed in developing a prioritized Rural Feeder Road Investment Program. In the absence of such a Program, GOU will, in the meantime, put emphasis on feeder roads routine and periodic maintenance. This has been expressed in the more than doubling from the previous  - 14 - year of resource allocation under conditional grants to Districts for feeder road maintenance to UShl2 billion (US$ 11 million) in 1997/98. This allocation is fiirther projected to increase by USh 5 billion (US$3.6 million) in 1999/2000. 3. Technical: The main component of the Project comprises civil works and consultant services in respect of upgrading of main roads to paved (bitumen) standard. GOU with the assistance of consultant services provided under RSISTAP, had already prepared detailed designs, econonnic feasibility analyses and environmental impact assessment (EIA) reports for several of the roads proposed for consideration which were reviewed by IDA during Project appraisal. Economic feasibility analyses. In many cases, this comprised of review, verification and update of existing designs and ELA reports. The final designs are based on Ugandan national road design standards and specifications including safety, satisfactory to IDA. Under the same services, contract documents have been prepared. The project costs have been arrived at on the basis of substantially completed detailed designs and available cost data for ongoing contracts. Construction supervision will be entirely carried out by consultants. Civil works in all phases will be implemented sequentially following satisfactory completion and acceptance of the results of economic and environmental feasibility analyses. 4. Institutional: a) Executing agencies: The project builds on existing institutional arrangements and will contribute to a sustained effort of institutional strengthening. As discussed under Section C.4, overall responsibility for Project implementation rests with MOWHC. The main executing agency will be the Road Agency which is to be established by 2002, and in the interim by RAFU, the institutional nucleus set-up for the formation of the proposed Road Agency. The Director of RAFU and several key staff have been appointed, with the remaining key staff expected to be on board by July 1, 1999. The consultancy services that have been started under MOWHC continue under RAFU, which is responsible for processing, and managing all construction and supervision consultancy contracts, as well as the consultancy services for the various studies. b) Project management: Project management will be carried out under RAFU until full responsibility has been transferred to the Road Agency after its formation by FY 2002. Financial and Procurement Management Systems were reviewed during pre-appraisal stage and action plans have been developed to ensure that the RAFU will operate efficiently until its absorption into the planned Road Agency. 5. Social Assessment: (see Annex 12) Social Assessment for the physical components has been conducted prior to appraisal in conjunction with the EIA for the first of the priority roads to be implemented. The ETA team included social and environmental scientists providing a multi-disciplinary approach to preparing the EIA. Socioeconomic data have been collected and analyzed from each of the areas wThere the roads are to be inproved. The social analysis included analysis of the temporary and localized microeconomic impacts resulting from construction activities, as well as the potential for involuntary resettlement and quantification of the number of dwellings to be removed and associated relocation of households and compensation requirements and  - 15 - procedures. Road safety audits will be carried out under the RSISTAP which would further provide a basis for public road safety education programs in addition to safety considerations in road design, construction and maintenance. 6. Environmental Assessment: (see Annex 12) Environmental Category [ ] A [X] B [ ] C Environmental assessment was carried out for each road as part of the detailed feasibility studies. The main purpose of the road specific EIAs is (i) to prepare a comprehensive investigation delineating any environmental impacts of the proposed road works; (ii) to describe and quantify these impacts; (iii) to draw up feasible mitigation measures for minimizing, eliminating, or offsetting any adverse effects; and (iv) to recommend the most appropriate mitigation and/or enhancement measures. The potential environmental impacts along the proposed road sections include: stripping of top soil and loss of vegetation due to the creation of borrowing pits, soil erosion on road cuts and fills and stripped borrow areas, silting of road side ditches and subsequent sedimentation downstream of water, soil contamination and water pollution due to the spillage of toxic materials, slope stability problems and slopes affected by erosion, poor drainage, various forms of temporary land take, and impacts on human settlements (spread of -tIV/AIDS and other infectious diseases, increased levels of accidents). The success of the proposed mitigation measures rests with: (i) ensuring adoption of appropriate work practices through their specification in a management plan; (ii) contract documentation; (iii) costs and schedules; and (iv) on-site mnonitoring. The institutional, financial, technical, legal, and logistical implications of the implementation of the proposed mitigation measures will be agreed by the relevant parties. In addition, MOWHC/RAFU wvill ensure that mitigation measures are incorporated in final road designs and contract documentation, and that appropriate expertise is included in the supervision consultants' staff to carry out such measures. In addition to the road specific EAs, a Sector Environmental Assessment has been undertaken under the PPF for the proposed Project to review the environmental aspects of the RSDP with respect to (i) the adequacy of the current national system of enviromnmental policies and regulations regarding environmental impact assessment; resettlement policies and strategies, mitigation, monitoring, and management of road work activities; (ii) the capacity of the MOWHC and the National Environmental Management Authority (NEMA) to commission, facilitate and implement future environmental assessments of road projects; (iii) the identification of programs and organization of training courses targeted to appropriate government staff and consultants in environmental assessment techniques and methodologies for road projects; and (iv) an assessment of local consultant capacity and training needs to conduct relevant environmental assessments. Funds have been provided under RSISTAP for the establishment of an environmental managementlliaison unit in MOWHC. This support will provide the needed capacity to prepare the sector environmental assessment under the RSDP. 7. Participatory approach: * a. Primary beneficiaries and other affected groups: During preparation of the Program, initial drafts of the proposed RSDP were discussed in meetings of a task force comprising representatives of various sector ministries, including the M