World Bank Document

Document of The World Bank W zlE PIYI

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 4399a-MAG

Public Disclosure Authorized STAFF APPRAISAL REPORT

DEMOCRATIC REPUBLIC OF MADAGASCAR

SIXTH HIGWAY PROJECT Public Disclosure Authorized

June 2, 1983 Public Disclosure Authorized Eastern Africa Projects Department Transportation Division 1

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalent

Currency Unit = Malagasy Franc (FMG) US$1 - FMG 375

Weights and Measures

1 meter (m) = 3.28 feet 1 kilometer (km.) 0.62 mile 1 square kilometer (ki2) 0.386 sq. mile 2 1 square meter (m ) = 10.76 square feet

Acronyms and Abbreviations

AfDF African Development Fund BADEA Arab Bank for Economic Development in Africa BNI National Industrial Development Bank (Bankin' Ny Indostria) CATP MTP Training School (Centre d7 Application des Travaux Publics) CCCE Caisse Centrale de Cooperation Economique (France) CUM National Tender Board (Commission Centrale des Marches) DGE Directorate of Works (Direction G6n6rale de l'Equipement) DGP Directorate General of Planning (Direction Gen6rale du Plan) DI Division of Infrastructure (Direction de l'Infrastructure) DMAT Equipment Division (Direction du Materiel) DPCH Road Maintenance Division (Direction des Ponts-et- Chauss6es) EDF European Development Fund (EEC) EESP National Technical College (PEtablissement d'Enseignement Superieur Polytechnique) FAC Fonds d'Aide et de Cooperation (France) TFAD International Fund for Agricultural Development LNTPB National Soils Laboratory (Laboratoire National des Travaux Publics et du B6timent) MIC Ministry of Industry and Commerce (Ministere de l'Industrie et du Commerce) MPARA Ministry of Agricultural Production and Agrarian Reform (Ministere de la Production Agricole et de la Reforme Agraire) MTP Ministry of Public Works (Ministere des Travaux Publics) MTRT Ministry of Transport, Supplies and Tourism (Ministere des Transports, du Ravitaillement et du Tourisme) RN National Road (Route Nationale) RNCFM R6seau National des Chemins de Fer Malagasy

Fiscal Year

January 1 - December 31 FOR OFFICIAL USE ONLY

Democratic Republic of Matagascar

Sixth Highway Proje

Staff Appraisal Report

Table of Contents Page No.

I.. The Transport Sector

A. Geographic and Economic Setting ...... 1 B. The Transport System ...... ,., 2 C Transport Sector Management ...... 5 D. Planning ...... 0...... 5 E. Coordination ...... 6 F. Transport Sector Investment ...... 6 G. Transport Policy and Issues ...... 8 H. Previous Bank Group Assistance in the Sector ...... 12

Il[. The Highway Subsector

A. The Network ...... 14 B. Road Use ...... 15 C. The Road Transport Industry ...... 17 D. Traffic Regulations and Safety ...... 18 E. Administration ...... 19 F. Staffing and Training ...... 20 G. Maintenance ...... 20 H. Planning and Financing of Investments ...... 21 I. Engineering, Construction and Supervision ...... 23

III. The Project

A. Objectives ...... 25 B. Project Description ...... ,.,.26 C. Project Cost and Financing ...... 33 D. Implementation and Procurement ...... 37 E. Disbursements ...... 39 F. Accounting, Auditing and Reporting Requirements ...... 40 G. Environmental Aspects ...... 41

This report is based on the findings of an appraisal mission which visited Madagascar in November/December 1982; members of the mission were A. Soto (Deputy Division Chief/Economist), P. Sooh (Engineer) and C. Applegate (Technical Editor). M. Le Blanc (Economist), C. Delvoie (Financial Analyst) and J. Kipnis (Project Assistant) participated in the preparation of this report.

IV. Economic Evaluation

A. General ...... 41 B. Area of influence of the Program, Benefits and Beneficiaries...... 42 C. Economic Analysis ...... 43

V. AgreementsReached and Recommendation...... 48

Annexes

1. Tables 2. Bank Group Projects in the Transport Sector 3. Road Transport Industry and Spare Parts Requirements 4. Highway Design Standards 5. Earth Roads to be Maintained by Contractors 6. Earth Roads to be Maintained by Force Account 7. Highway Equipment for Road Maintenance 8. List of Equipment for LNTPB 9. Outline Terms of Reference for a Study Furture Pavement Maintenance and StrengtheningPrograms 10. Study of the Developmentof Feeder Roads 11. Outline Terms of Reference for TechnicalAssistance for the Trainng Program and the Management of MTP Road Operations 12. Outline Terms of Reference for a Study of the Organization, Management and Operation of MPT 13. Outline Terms of Reference for TechnicalAssistance in Transport Planning and Coordination 14. Terms of Reference for the National TransportationPlan Study 15. Outline Terms of Reference for TechnicalAssistance to LNTPB 16. Project Reporting Requirements 17. Economic Tables 18. Related Documents and Data Available in the Project File

C1arts:

1. Organizationof MTP 2. Project ImplementationSchedule

INLp

IBRD - 16909 DEMOCRATICREPUBLIC OF MADAGASCAR SIX-THHIGHWAY PROJiECT STAFF APPRAISALREPORT

I. THE TRANSPORTSECTOR

A. Geographic and Economic Setting

1.01 Madagascar, the fourth largest island in the world, covers an area of about 590,000 km2. The topography is generally rugged with a central mountain range of up to 2,800 m high traversing the country from north to south. The climate is marine tropical, but varies considerably: cyclones and heavy rainfall are frequent on the east coast which has more ithan2000 mm of rain annually; rainfall diminishes towards the south and west to less than 500 mm annually. The combinationof heavy rainfall over much of the country and rugged topography make the constructionand maintenance of roads as well as transportoperation difficult and expensive.

1.02 The population, estimated at 8.7 million and growing at 2.8% p.a., is predominantlyrural with roughly 85% living in the countryside. While, overall, the country is sparsely populated (about 14 per km2), population distributionis uneven, with about one half of all inhabitants occupying the central one-quarterof the island.

1.03 Agriculture is the dominant economic activity, accounting for about 35% of GDP and 80% of Madagascar'sexport earnings. The production of rice, the country's staple food, is the most important economic activity. Since 1970 production has stagnated, compared to the 2.8% increase in population, causing a jump in imports of rice from about 60,000 tons in 1.975to about 117,000 tons in 1980. The principal export cash crops are coffee, cloves, pepper, vanilla, cotton, sugar and tobacco. The small manufacturing sector is dominated by food processing (includingbeverages) aLndtextiles; other industrieswhich have shown regular growth over recent years have been cement, tobacco, leather goods (mainly shoes) and paper products.

1.04 During the 1970s the Malagasy economy stagnated. This, combined writh the population increase, resulted in a 12% decline in per capita in- come between 1970 and 1980. In 1979 an investment boom took place in all sectors of the economy. As this was financed mainly by foreign borrowing, it left the country with a severe repayments problem; the external resources deficit went from 5% of GNP in 1978 to about 17% in 1979. Debt servicing has put a great strain on the economy, acutely limiting foreign exchange for other purposes and consequently sharply curtailing imports. Shortages of new equipment and spare parts have been most acute in the transportsystem, the capacity of which has been greatly diminished for the movement of food and crucial supplies. -2-

B. The Transport System

1.05 Madagascar'stransport infrastructurecomprises nearly 50,000 km or roads of which about 4,900 km are paved; two unconnectedrailway systems totalling 860 km; 4 main ports and 11 lighterage ports of some signifi- cance; and 56 airfields. The only navigable waterway is the Pangalanes Canal along the east coast. The system is inadequate in that it fails to provide access to all productive areas of the country. The main transport corridor between the port of Toamasina and the central plateau area -- the country's lifeline -- is an inadequate railway line and an old road of modest specifications the maintenance of which has been neglected. The poor maintenanceof the road network during the 1970s has worsened the iso- lation of several areas. In the face of inadequateoverland communications Madagascar has developed an air transport network that is denser than in most comparable countries as well as an extensive system of ports and coastal shipping.

Highways

1.06 The highway subsector is described in detail in Chapter II.

Railways

1.07 The railways consist of two, single tIracksystems. The northern system (about 700 km) includes (i) a line between Antananarivo, the capital, and Toamasina, the principal port (376 km); (ii) a line from Antanana- rivo to Antsirabe, an industrialand populationcenter south of the capital (154 km); and (iii) a section north from Moraminga to the agriculturalregion of Lake Alaotra and the chromite mines (167 km). The southern system (163 km) connects the regional center of Fianarantsoaand the agricultural areas in the southern plateau to the port of lanakara. The Antananarivo- Toamasina line is the most important link, since it is the only reliable means of surface transportbetween the country'smain seaport and the capital city. The railways are operated by the R4seau National des Chemins de Fer Malagasy (RNCFM), a parastatal agency reporting to the Ministry of Transport, Supplies and Tourism (Ministere des Transports, du Ravitaille- ment et du Tourisme, MTRT).

1.08 The rolling stock and locomotive fleet are generally adequate to carry present traffic, although their condition is poor and their productivity is low due to maintenanceand operationalproblems. The track is also in very poor condition. Progressiverehabilitation of the track and renewal of the railway's locomotive and wagon fleet are being undertaken within the context of an ongoing project supported by the Bank Group, but progress has been relatively slow. The railway has also been plagued by financial problems due to the inadequacy of tariff increases, the lack of financial autonomy and poor financialprocedures. As a consequenceof all these factors, the railway's transport capacity declinecdduring the last few years to the point where it has been unable to meet transportdemaiid and has become a major bottleneck in Madagascar'seconomy. This deteriorationis re- fleactedin the decrease in total freight traffic from 861,000 tons in 1976 to 650,000 tons in 1981 (5.8% p.a.). 1.09 The GovernmenthAs recently taken major steps to arrest the deterioration of the railways by addressing the most urgent operational problems and resuming a normal flow of spare parts. This enabled the railway to resume normal operations in 1982 and transport inland the backlog of goods which had been piling up at Toamasina port. Following suspension of disbursementsunder the Second Railway Project (para. 1.45), the Government molunteda complete financial recovery program for the railway, which included (i) the granting of complete financialautonomy to the railway; (ii) a schedule for reimbursementof Government arrears and the establishmentof appropriateprocedures for paying current bills; and (iii) significanttar- iff increases. Introduction of this program enabled IDA to resume disbursementsunder the project at the end of 1982.

1.10 These actions need to be sustained by setting up effective procedures for operational planning and financialmanagement to ensure a long- term recovery. At the same time, the railway's long-term prospectsmust be closely analyzed: the railway will soon lose its monopoly on the Antananarivo-Toamasinacorridor, when a parallel road, presentlyunder construction, is opened to traffic (towards 1985); the economic viability of thiesmaller lines, particularly the Southern line, is doubtful in view of the low level of traffic. The railway will thus need to adapt to increasing road competitionby improving services, introducing dynamic commercial policies and specializingin the types of traffic for which it is most suited, mainly containersand bulk traffic.

Air Transport

1.11 Given its size, the distance between population centers, the rugged terrain and the poor condition of surface transport,Madagascar has delvelopeda dense domestic air transport network. Of the 56 airports, 17 are built to all-weather standards including 5 suitable for international flights; the remainderare gravel or grass strips.

1.12 Air Madagascar, the national airline, is owned 80% by the Govern- ment, 18% by Air France and 2% by private shareholders. It provides international service to Paris, Marseilles and several countries in East Africa; it has a monopoly on all internal service. Its fleet consists of one B-747 (combinationcargo/passengers) for European service, two B-737s for domestic and regional service, and two HS-748s and five Twin Otters for domestic service. It also has several smaller aircraft for air-taxi and charter services.

1.13 While the internationalairport at Antananarivohandles 50% of alL traffic, 40 of the small airports accounted for only 20% of the traffic. Serving the small airports is not financiallyprofitable but is provided to ensure access to otherwise isolated areas. In the past, Air Mada- gascar used its profitable international service to subsidize its money- losing domestic service. As a result of rising costs and a decreasingload factor on internationaloperations (from 56% to 33% from 1976 to 1980 due to increased capacity of the B-747), its financial situation has drastical- ly deteriorated in recent years. To help reduce the losses, in 1982 services were terminated at 12 small airports handling fewer than 1,500 passengers p.a. and tariffs were increased by 28% in October 1982 and by 15% in early 1983. The Government is reviewingmeasures to arrest the deterio- -4-

rating financial situation including (i) sharing Air Madagascar'sdeficits, initially on a 50-50 basis, with incentive programs for the airline to improve efficiency as the Government takes on a greater share of the defi- cits; (ii) as and when other transport alternativesbecome available, having Air Madagascar abandon unprofitable services; and (iii) undertaking a study on the viabilityand alternativesof providing long-distanceinterna- tional services (i.e. Europe). Discussion of these measures began with the Government during the preparation of a Transport Sector Memorandum (para. 1.29) and should be continued during a transport sector review between the Bank and the Government scheduledfor mid-1983.

Ports and Coastal Shipping

1.14 Madagascar relies almost exclusively on maritime shipping for foreign trade, while coastal shipping is important as the only means of transportingfreight between many areas of the country with no access to all-weatherroads. There are four main ports: Toamasinawhich handles 66% of the total traffic, Mahajanga with 11%, and AnLtserananain the north and Toliara in the south, each with about 4% of total traffic. The remaining traffic is handled in the coastal shipping ports. Toamasina, the main internationalport, serves the populated and economicallyimportant central highlands via the railway to Antananarivo. In view of the constraints on the railway's transport capacity, some international traffic has been diverted to Mahajanga. Its capacity, however, is limited as the port requires lightering and its use is restrictedby the conditionof the road to Antananarivo(RN4). The port of Toamasina is adequately equipped to handle present traffic, but the equipment of secondary ports is generally old and in poor condition.

1.15 The Societe Malgache des Transports Maritimes (SMTM), the state- controlled internationalshipping line operating four cargo vessels, carried 7% of the country's externally traded merchandise in 1981. Coastal shipping is handled primarily by the Compagnie Malgache de Navigation- - (CMN), 92% state-owned. Its nine ships are relatively modern but CMN is plagued by shortages of spare parts, difficult operating conditions, poor handling rates in the ports and low productivity. In addition to CMN, there are several private companies operating mainly on the eastern coast; however, they are fast disappearingbecause of the lack of spare parts and insufficienttariffs.

1.16 Port traffic has stagnateddue to the economic slowdown following the political changes in 1972 (Annex 1, Table 1). As a result, there is considerableover-capacity in the ports, especially Toamasina. FAC is carrying out a study on ports and coastal shipping aimed at introducingmore effective and economic use of infrastructureand consolidatingoperations. In view of this over-capacity,there appears to be need in the short to medium term orLlyfor selective investments in rehabilitationof some facilities and modernizationof others (e.g. to handle container traffic). -5-

C. Transport Sector Manag4ment

1.17 Whil.eseveral ministries and Government organizationsshare responsibility for the transport sector, the Ministry of Transport, Supplies and Tourism (11inisteredes Transports, du Ravitaillementet du Touirisme, MTRT) and the Ministry of Public Works (Ministare des Travaux Publics, MTP), play the most important role. MTRT is responsible for road, rail, air and water transport, and operates all airports and ports (except the Port of Toamasina), and oversees several autonomous Government agencies, including RNCF'M,Air Madagascar, the Port of Toamasina, CMN and the SMTM. The MTRT has a dual role in road transport: it is responsiblefor safety, tariffs, regulation and control as well as directing parastatals to transport basic goods so as to ensure that no shortages occur anywhere in the country.

1.18 MTP is responsible for planning, building and maintaining highways, ports and airports. Its operations are described in Chapter II.

1.19) In line with the Government's emphasis on the public sector, numerous other Government agencies have varying degrees of responsibility for transport policy, operations and services. The most important are the Ministry of Industry and Commerce (Ministarede l'Industrieet du Commerce, MIC), the Ministry of AgriculturalProduction and Agrarian Reform (Minis- tare de la Production Agricole et de la R6forme Agraire, MPARA), the Army, the DirectorateGeneral of Planning (DirectionGen6rale du Plan, DGP), and the regional governments. MIC's role includes (i) controlling virtually all state-owne,denterprises responsiblefor collecting and marketing crops, which represent a sizeable proportion of the road transport capacity, (ii) determining,jointly with the Central Bank, the foreign exchange allocation for importing road transport, maintenance and constructionequipment, and spare parts; (iii) establishing policies on importation and assembly of motor vehicles, thereforesignificantly influencing the supply of transport services; and (iv) influencing transport tariff'sthrough the control of prices of basic commodities. MPARA and the Army operate the largest stat:e-ownedroad transport enterprises,the Socigited'Int6r6t National pour la Production Agricole (SINPA) and the Rggiment du Train, respectively. Also, each reg:Lonalgovernment (faritany)has establisheda regional trucking company in the last two years.

D. Planning

1.20 Inter-sectoralpriorities are decided by DGP. The Planning and Programming Unit in MTRT's Directorateof Transport is charged with trans- porl:sector planning. Given, however, the low level of this unit within the ministry and its small inexperienced staff, it is unable to prepare sound plans and programs. Its task is further complicatedby agencies outside MTRT, which prepare project and investment proposals without coordi- nating them wiithMTRT. The Associationand other bilateral and multilater- al financingagencies have helped, not always successfully,to improve sector planning. Under the First Railway Project (Credit 488-MAG), a trans- porl:planning unit was established in the then Ministry of Transport and provided with technical assistance. However, the lack of qualified local staiff,the low priority accorded the unit by Government and subsequentor- -6- ganLzational changes within the Ministry, including the branching off of the Ministry of Public Works, considerablyreduced the role and impact of the unit. FAC is currently providing technical assistance to MTRT for planning in the coastal shipping and road transport subsectors. During the preparation of a Transport Sector Memorandum the Association discussed in detail with Government the importance of improving sector planning. Establishmentof a new, high-levelunit will be provided under the proposed project with FAC participation (para. 3.27). Beyond that, the recent transfer of DGP from the Ministry of Finance (MF) to the Presidencyand the accompanying elevation in status of that agency should benefit overall transport planning.

E. Coordination

1.21 In the past, intermodalcoordination was less important since the transport systems operated relatively independentlyexcept where the modes linked. As the subsectors have developed, intermodal planning and coordination have become indispensible. Moreover, the proliferationof transport organizations,which began with the separationof the Ministries of Trans- port and of Public Works in 1976, and the continuouslyexpanding role of the public sector in all aspects of transport have heightened the need for better coordination. The only regular coordinationtakes place during the preparationof multiyear investmentplans and annual budgets, and even then the exchange oiEinformation and discussion of projects is inadequate. Ef- ficient inter-agencycoordinating mechanisms are clearly needed. An im-- portant step in this direction has been adopted with the recent upgrading of DGP.

F. Transport Sector Investnent

1.22 Madagascar inherited at independencea transport system which, while sufficientfor the evacuation of the country'smain products, did not facilitatenational integrationand trade. The road network contained gaps -- several regions depended and still depend on a local port and coastal shipping for external communications--and the specificationsof the main road network were insufficient for modern road transport demands. The Government therefore invested heavily during the implementation of a 1978-80 investment plan in the expansion of its road network. It also expanded its air transport facilitiesand purchased a number of trucks, ships and aircraft. Even though transport's 27% share in total investment - 7 -

outlays during 1978-80was not excessive, the modal allocationsresulted in overcapacityin some areas (coastal shipping, ports) and undercapacityin other vital ones (road transport). Moreover, the new transport equipment has contributed to the deterioration of the balance of payments and the worsening financial results of the parastatals which own the new equipment. More significantly,maintenance of infrastructureand equipment was neglected in virtually all modes with a consequent deterioration in the quality and a rise in cost of transport services. A 1980-82 plan only aimed at completing the investment started in 1978-80 and contributedlit- tle towards redressing the modal imbalance.

1.23 In view of the failure of previous plans and of the dismal overall economic situation, the Government, with the support of the Associa-- tion, has embarked on a program of economic reform, including the preparation of a 1983-85 public investment program. The program envisages total investments of FMG 417 billion (about US$1.1 billion) distributed as fol-- lows: industry (41%), agriculture(30%), transport (16%) and others, mainly' social sectors (13%).

1.24 For the transport sector, the program aLimsat completing ongoing high priority projects, improving the utilization of existing assets, and rehabilitatingtransport infrastructureand equipment. The transport sector's share of the program totals FMG 67.8 billion (US$180.8million), of which FMG 40.0 billion (US$106.7million) is foreign and FMG 27.8 billion (US$74.1million) is local costs. Of this, about FMG 46.1 billion (68%) is for road transport, FMG 9.0 billion (13%) for rail transport, FMG 8.0 billion (12%) for air transport and FMG 4.7 billion (7%) for water transport. Both the overall size and subsectoralcomposition of the new transportplan. are more in line with the needs and constraintsof the country than previous plans. The road transport program includes 18 sub-programsfor which external financing has already been obtained and which represent about 77%, of the proposed investment. The remaining 23% includes 10 sub-programsor projects for which financing must be found or provided by Government. Of the 18 financed sub-programs,7 correspond to ongoing operations being financed by the Bank Group, African Development Bank (AfDB), Kreditanstalt fiirWiederaufbau (KfW), NorwegianAgency for Development (NORAD)and China, and 11 to new sub-programsproposed to be financed by the Bank Group, Euro- pean Development Fund (FED), AfDB, CCCE, FAC and USSR. The plan does not indicate order of priority or rates of return for such sub-programs,but the majority are included within the framework of the proposed project and are justifiable. Given the financialconstraints, both in terms of foreign exchange and local resources, a number of the smaallsub-programs or projects not included in the proposed project and which do not have any other source of foreign assistance will have to be deferred or phased out. Dur- ing appraisalof the proposed project the Government agreed in principle to limit its highway investments to those defined within the framework of the proposed project and discuss its investment budget annually with the Association (para. 2.25).

1.25 The railway investment program includes the rehabilitationof bridges, track, shops and warehouses; the overhaul of locomotivesand the purchase of tools, materials and spare parts for maintenance of motive power and rolling stock; and the purchase of new motive power, wagons, mo- bile cranes, radio-telecommunicationequipment, vehicles and ancillary - 8 -

equipment. Discussion of this program is being pursued in the course of supervision of the ongoing Second Railway Project as economic analysis is needed to determine the justificationof parts of this program.

1.26 The program for air transport,essentia:Lly the maintenanceof existing facilities and the reinforcementof landing strips to accommodate largieraircraft as well as the minor improvementsat Antananarivo'sInter- national Airport to handle the Boeing 747, is reasonable. Similarly,the modest investmentsin water transport,mainly mainltenanceof existing facilities and protection of port structures,are reasonable.

1.27 In summary, although a number of individual components require careful scrutiny and the overall program, particularly in road and rail transport,may have to be scaled down, the 1983-85 plan provides a realistic framework for investmentplanning in the sector.

G. Transport Policy and Issues

1.28 Despite a sufficientand broad resource base, Madagascarhas been unsuccessfulin achieving an adequate and sustainedrate of economic development. This has been partly due to policies that have often impeded rather than facilitated economic development,as in the case of the transport sector. Government policy in the sector during the 1970s was to expand transport infrastructure, increase the role of the state in providing transport services, and control transport tariffs and fares as part of overall price controls. Because maintenance of transport infrastructure and equipment was given a lower priority than constructionof new facilities and improvement of existing ones, the transport system deteriorated, particularlyin recent years, when imported materials and spare parts were severely curtailed due to scarcity of foreign exchange. The expanding role of the state without adequate technical and administrative foundation, a shrinking private sector, and the difficult financial situation of transport enterprises in both sectors, brought about a worsening of transport serviiceswhich threatenedto paralyze the economy.

1.29 In order to reassess the situationand help the Government reori- ent its sectoral policy framework,a transort sector review was carried out in 1982. Based upon the findings of this review and discussionswith the Government a Transport Sector Memorandum (TSM) was published in February 1983. The TSM identifiedin order of priority the following issues:

(a) the need for financial recovery i-ortransport enterprises including the railways, the national airline and parastatal trucking companies;

(b) the need for increased efficiency in the road transport industry including the removal of excessive state controls and a clearer definition of the role of public and private sectors;

(d) the need for a shift of emphasis from new investments to rehabilitationand maintenance;

(e) :improvementof sector planning and coordination;and

(f) the need for increased manpower training and technicalassistance.

1.30 The dialogue induced by the TSM has generated substantialchange in Government'sstrategy in the sector. Government has stated its intention to enable the private transportersto compete on equal terms with the public sector. Its agreement to the proposed US$10 million allocation under the proposed credit for spare parts purchasesexclusively for private transportersis a first indication of its seriousness. Government has also stated its intention to substantiallyreduce the fleets of the provinciaL trucking companies by selling their trucks to the private or other more finatncially viable trucking parastatals. Government has expressed willingness to move towards deregulation of goods haulage by lifting controls on routes and inter-provincialservices. Government has also recently increased tariffs substantiallyin air, rail and road transport. Finally, there has already been a marked shift in planned emphasis from new investment to rehabilitationand maintenance. Government has, with IDA assistance, selected about 10,000 km of the highest priority component of the road network for rehabilitationand -maintenance(para. 2.04). The small part of road components outside the 10,000 km in the Government's draft Public Investment Program's (PIP) is expected to be accorded low priority or dropped. The PIP's component for other modes is much smaller and contains practicallyno new investments. Notwithstandingthe above improvements in Government'ssector strategy and attitudes, much remains to be done and is being addressed under the proposed project as discussed below.

Need for a Financial Recovery Program

1.31 The financial difficultiesof transport enterprises result from unrealistic, regulated tariffs; shortage of foreign exchange for spare parts and equipment renewal; and the lack of adequate design and preparation of new state-controlledtransport parastatals. As a result, several transport agencies have had to severely curtail equipment maintenance and are facing short-term cash problems and medium-term operational limitations. Accordingly, the TSM recommended that the Government (a) review procedures for allocatingforeign exchange, giving the transport sector its due priority; (b) consider a moratorium on new investmentin the sector and concentrateon rehabilitatingand maintaininginfrastructure and equipment; and (c) prepare a financial redressment program for the sector including the revision of pricing policy (paras. 1.34-1.36),the rationalizationof transportservices and the gradual eliminationof subsidies.

1.32 As indicated earlier, the Government has already acted upon a number of these recommendations. It recently increased tariffs for road transport (20% for passengersand 35% for freight),rail transport (20% for passengers and 50% for freight) and air transport (12% for international passenger service in 1981 and 28% and 15% for domestic service in 1982 and 1983, respectively). The railways'new financial autonomy will make future - 10 -

tariff adjustmentseasier, especially after completion of the cost studies prepared with FAC-financedtechnical assistance. More increases for road transport, especially the state-controledportion, are needed in the short term to correct the serious imbalance between ccsts and tariffs; in the longer term, the Government will need to liberalize road transport tariffs. Therefore, the Government has agreed to (i) raise road transport tariffs for passengers and freight by 40% in the immediate future; (ii) by March 31, 1984, further raise tariffs to a level acceptable to the Associa- tion taking into account price variations between May 1983 (negotiations) and March 31, 1984, and (iii) by December 31, 1984, deregulate all road transport tariffs unless the transport plan study (para 2.12) provides reasons satisfactoryto the Association to do otherwise. The 40% increase in passenger and freight tariffs is a condition of effectivenessfor the proposed credit.

Need to EnhanLcethe Efficiency of Road Transport Industry

1.33 The road transport sub-sector is hampered by lack of autonomy and poor organizationof parastatals,the diminishing role of the private sector and excessive controls and regulationsof transport services. The most adverse regulationsinclude limitationson the routes and commoditiesto be moved and restrictionson inter-provincialtransport services. Aware of the deleterious effects of these policies, the Government has agreed in principle to (a) have the private sector compete on equal terms with the public sector; (b) rationalize and restructure the!road transport parastatals by greatly reducing their fleets and making them operate on a commercial basis; and (c) liberalize and deregulate the sector. The adoption of these measures should provide an adequate environment for the development of the private road transport industry and increase the efficiency of parastatals. The Gcvernmenthas agreed to deregulate road transport by remov- ing all restrictionson the selection of routes and on commoditiescarried by the private sector by December 31, 1984.

AdOption of a Sound Pricing Policy

1.34 The aim of the Government'spricing policy has been to restrain inflationand to counteractmonopoly and cartel tendencies. Almost all es- sentiialcommodities and services, including transport,are subject to some form of price control. In the transportsector, tariffs for road transport and coastal shipping were meant to be set by Government based on costs. However, due to the complexity and variety of factors underlying the esti- mation of costs, the shortcomingsregarding assumptions,and the inadequacy of basic data it:has been impossible to fix realistic tariffs. While the private truckers generally ignore official tariffs (para. 2.11), the parastatals must comply with them. Both the public and private passenger transport industries, on the other hand, comply with official passenger fares. This seriously affects the financial situation of transportenter- prises, since tariffs are in some cases considerab:Lybelow costs. As mentioned in para. 1.32, the Governmenthas agreed tc increase tariffs by 40% immedLately,followed by an adjustmentto compensatefor price increasesby March 31, 1984, and deregulationby December 31, 1984.

1.35 Transport of passengers,priority products and all services in low density railway lines are heavily subsidized. The preliminary results - 11 - of a recent costing exercise carried out by a consultantconfirm this for passenger traffic, with first class passengersand suburban services paying less than half their marginal transport cost, while second class passengers, surprisingly,cover full costs. The ongoing Second Railway Project provides for the setting up of a costing system and economic studies of low density lines. These will help the Governmentdefine an appropriate level of tariffs reorganizepresent operationsand close uneconomiclines.

1.36 Internationaltariffs for shipping and air transport are set by conferencesor thrcugh competitionand adhered to by Malagasy carriers. In the case of domestic tariffs for coastal shipping and air transport, tariffs are set at unremunerativelevels. In many cases, however, these services are the only reliable means of transport to some small communities. Should they be iaintainedfor social/developmentallconsiderations, an ex- plicit direct subsidy should be paid to carriers. The maritime and coastal shipp:ingstudy being carried out under FAC financing will address the tariff issue in that mode. No specific study or action is included under the proposed project for air transport because the Governmenthas already taken steps to correct the tariff issue in this subsector (para. 1.32).

Maintenance vtersus New Investment

1.37 The need for a shift of emphasis away frcm new investmentsto re- habil:itationand. maintenance is already being tackled in the draft PIP. Moreover, under the proposed project Government will discuss its road sector program over the period January 1984 to December 1986.

Iuprovement of Investment Planning and Coordination

1.38 These two interrelated issues have already been discussed in paras. 1.20 and 1.21, respectively.

Manpower Traiiig and Technical Assistance

1.39 Some of the problems now being experienced in the transport sector are due to the lack of sufficientlyexperienced and qualified personnel. The ongoing Fourth and Fifth Highway Projects contain important technical assistance and training components. The proposed Sixth Highway Pro- ject will further reinforce those efforts (paras. 2.17-2.19 and 3.11-3.13).

Outstanding Issues

1.40 Most of the main issues faced by Madagascar's transport sector, especially those dealing with highways and road transport,have been addressed under orgoing operations or will be addressed under the proposed project. There are, however, a number of issues which, while important, deserve a lesser priority and could be more properly handled in the framework of specific operations in other sub-sectors. Such is the case of pricing policy in the port subsector and operationalefficiency of coastal shipping. They wqillbe the object of discussionsin the course of the continuous sector dialogue between the Associationand the Government and will be addressed in detail in a subsectoraloperational context. - 12 -

H. Previous Bank Group Assistance in the Sector

1.41 Bank Group lending to the transportsector has amounted to US$128 million for eight projects. Lending has comprised five highway projects (Credit 90-MAG, US$10 million, 1966; Credit 134/Loan 570-MAG, US$8 million, 1968; Credit 351-MAG/Loan 876-MAG, US$30 million, 1973; Credit 641-MAG, US$22 million, 1976; Credit 938-MAG, US$24 million, 1979 plus an EEC Spe- cial Action Credit of US$10 million), two railway projects (Credit 488-MAG, US$6 million, 1974; Credit 903-MAG, US$13 million, 1979) and a port project (Credit 200-MAG, US$9.6 million, 1970, increased by US$1.8 million in 1973). A detailed descriptionof these projects is given in Annex 2. Fur- ther, several Bank Group agricultural projects have included feeder roads and three proposed projects (Lac Alaotra Rice Intensification Project, Second Village Livestock and Rural Development Project and the Cotton Development Project) in that sector call for the construction and/or reha- bilition of additional feeder roads.

1.42 The focus of the first three Bank Group projects in the highway subsector was on helping the Government pursue its objective of providing better road access to regional economic centers. In total the three projects financed the construction to paved standards of 708 km of roads. Project Performance Audit Reports (PPAR) for the three projects indicate re-evaluatedERRs for individualroads generally acceptable. Design difficulties, constructiondelays and lower than anticipated traffic increases or benefits from value added to agriculturalproduction have resulted in a few ERRs lower thlanthose anticipatedat appraisal. The PPAR for the Third Highway Project identified the lack of training and maintenance components as the main shortcoming in the Bank Group's assistance to Madagascar for highway development. Roads financed under these projects were already showing signs of deteriorationwhen the PPAR was written due to inadequate maintenance and, to a lesser extent, a failure to enforce weight regulations.

1.43 The Association'sattention was therefore shifted from expansion and improvement of the road network to road maintenance and institution building. The ongoing Fourth Highway Project was designed to improve road maintenance activities, institution building and staff training through a study to evaluate road maintenance needs (equipment and personnel), procurement of road maintenanceequipment and weighbridges,and initiation of a training program, in addition to the constructionto gravel standards of a 370--kmsecondary road and reconstructionto paved standard of a 67-km section of RN 1. The Fifth Highway Project was designed to strengthen road maintenanceoperations. It includes procurementof additional road maintenance equipment, improvementof workshops and road regravellingoperations as well as constructionof bridges and drainage structures on a 165-km road and rehabilitationof sections of RN 4 and RN 7.

1.44 The execution of the Fourth and Fifth Highway projects has, however, been hampered by a poor organizationand frequent changes in the management and staff of MTP, cumbersome administrativeprocedures, lack of experienced personnel, and shortage of funds. As a result, the projects have been delayed by three years and one year, respectively,and the road network has deterioratedfurther. To solve these problems, the Governmenthas put in place a more efficient organization, stabilized the management of - 13 -

MTP and shortened some administrativeprocedures. These measures have im- provedlthe implementationof the projects with significant results in road maintenance operations. Further measures to be taken under the proposed Sixth Highway Project include a study to make recommendationson how MTP can carry out road operationsmore efficientlyand assist rural communities in the improvementof rural and feeder roads (para. 3.25), provision of two experts to serve as line managers in MTP (para. 3.24), streamling of procurement procedures (para. 2.30) and provision of sufficient and timely funds for road uaintenance through the establishmentof a road fund and a revolving fund (para. 2.25). Also under these previous projects the Government has not allocated sufficient foreign exchange to contractors, suppliers and ccnsultants working under Association projects even though the credits covered the foreign exchange costs. This has resulted in delays in project execution. To eliminate this problem, the Government will ensure that all authorizationsrequired for the importation of goods financed under the proposed project are given within two weeks of the final approval of the related contracts and before notification of these contracts.

1.45 The First Railway Project financed a modest increase in capacity and improvementsin management and operations. It:also included the setting up of a planning unit (para. 1.20). The project had to be reduced in scope due to cost overruns and was completed three years behind schedule; the institution-buildingobjectives of the project were not achieved because of the overall political uncertainty in the country, and the recalculatedrate of return was less than 10%. The ongoing Second Railway Project continues the rehabilitationefforts undertaken in the First Rail- way Project; it provides replacementof outdated equipment, track renewal, improvement of telecommunicationsand workshops, and implementationof the recommendationsof the consultants on the management of the railway. Al- though the physical elements of the project have been implementedsatisfactorily, the railway faced severe operational and financial difficulties, and the recommendationsof the consultants on financial management could not be implementedbecause of the lack of financial autonomy of the railway. This led to credit suspension in June 1982; suspensionwas lifted in December 1982 afiterthe Government prepared a complete financial recovery program for the railway, including a change in the railway's statutes giving it complete financial autonomy. The Government also agreed to use the remaining credit funds for technical assistance tcoimprove financial management and training for a new financial directorateand feasibility studies to be carried out on two lines whose economic viability is in question. The port project provided for extension of the pott of Toamasina, creation of a pcrt authority and training. The physical components were satisfactorilycarried out, but the revised rate of return was 7% due to the decline in traffic since 1972 (para. 1.16). In;stitutionbuilding even- tually contributed to more efficient management after some initial problems. - 14 -

II. THE HIGHWAY SUBSECTOR

A. The Network

2.01 The road network comprises about 49,650 km of roads, of which about 4,890 km are paved roads, 5,260 km engineered earth and gravel roads and 39,500 km feeder roads and tracks. The roads are classified adminis- tratively and technically as shown in the following table:

Table 2.1: The Road Network (1982) (km)

Paved Engineered Feeder Total Earth/Gravel Roads & Tracks

National roads 4,350 4,260 - 8,610 (Routes Nationales, RN)

Regional Roads 540 1,000 9,500 11,040

Others - - 30,000 30,000

TOTAL 4,890 5,260 39,500 49,650

Nationial roads link regional capitals and major towns while regional roads link smaller towns and villages within and between regions.

2.02 The paved road network, the most important element of the surface transport system, consists of a main north-south artery -- RN4 and RN7 -- stretching from the regional center of Mahanjanga in the north, to Antanan- arivo in the center and continuing to Fianarantsoa in the south-central region. Other paved roads branch off from this ce-ntral axis or are found around the major coastal towns. The paved and engineered earth/gravel road network is adequate in length and meets the Governnent's objective of con- nectin,g all regional capitals by all-weather roads, a goal achieved under the Fifth Highway Project with the construction of bridges, approaches and drainage structures on the Antsohihy-Abanja road. However, some productive and potentially productive areas on the east and west coasts are still not connected to the rest of the country by all-weather roads. Road links to the southern regiLon are mainly earth roads or tracks, most of which are in poor condition although, with the dry climate prevailing most of the time, they are passable year round. The Government has obtained financing from the Federal Republic of Germany to upgrade to paved standards the road from Ihosy to Sakaraha, which will provide the final link of the north-south road axis.

2.03 The road network is in poor condition and constitutes a constraint on econoriic activity. Deterioration of the roads has been caused by a combination of a lack of maintenance and overloading of trucks. About 80% of the paved roads show signs of deterioration (uneven surfaces, - 15 - ravelled edges arLdwashed away shoulders). Of these, 50% require full re- habilitationto restore the pavement to serviceablecondition, while about 30% require resurfacingto avoid further deteriorationand costly repairs. Most earth and gravel roads are in an equally poor state. Many of the roads which serve rural areas have deterioratedto the point where they are barely passable to motorized traffic. As a result, many agriculturalareas can only be reached on foot or by ox cart. The distribution of agricultural input is difficult and collection of crops is seriously hampered.

2.04 In view of the general deteriorationof the road network and the limited resources (organization, manpower and finances), the Government selected, with the assistance of the Association,a limited road network, the "EconomicRoad Network" (see Map) which will be rehabilitatedand maintained within the available resources. This network consists of about 10,000 km of roads comprising 4,300 km of paved roads (about 90% of the country's paved roads, including the 1,100 km, all-importantnorth-south axis RX4 and RN7); 3,300 km of engineered earth roads (60%) and 2,400 km of feeder roads and tracks (6%). This network is essential to the country's economic development,linking main production centers,market places, principal cities, and railway, port and airline terminals. Major rehabilitation and maintenance operations are being carried out on many of these roads under the Fourth and Fifth Highway Projects and improvements are noticeable on some of the major links. The proposed project will assist and expand these efforts.

B. Road Use

2.05 The country's total vehicle fleet is estimated at 30,000 vehicles, of which 13,000 are light vehicles and 17,000 are commercialvehicles (11,000utility, 1,000 buses and 5,000 heavy trucks); the heavy trucks are the most important element, carrying about 80% of freight traffic. The growth of the vehicle fleet has slowed considerably in the past several years due to the stagnation of the economy and the severe shortage of foreign exchange which has in effect stopped the import of new vehicles. From 1977 to 1980, the overall fleet grew by 3% p.a. The largest increase (9.4% p.a.) was in the number of pick-up trucks which are more practical to operate than heavy trucks on the badly deteriorated roads. Trucks and buses only grew at about 3.6% p.a. and the number of cars dropped by an average of 4% p.a. Since 1980 the severe shortage!of spare parts resulting from the foreign exchange crisis has led to a drastic decline in the number of serviceablevehicles. The compositionand. condition of the vehicle fleet as of December 1982 are shown in Annex 3, Table 1.

2.06 Traffic counts indicate a wide variation in traffic volumes depending on the tylpeof road: average daily traffic ranges from about 1,000 vehicles on paved roads near the main cities to about 20 vehicles on earth roads. Traffic has generally stagnated since 1978 and on some secondary roads :Lthas actually decreased. The decrease in the number of cars as a proport:ion of the total vehicle fleet, the lack of spare parts and the condition of the road network have been some of the major reasons traffic levels have changed little in recent years. Another important factor has been the overall istagnationof the country'seconomy. - 16 -

2.07 Total consumptionof motor vehicle fuel (Annex 1, Table 2) has fluctuatedaround 290 million litres p.a. during the past eight years, reflecting the stagnation of the economy and traffic volumes. As shown in that table, domestic prices of petroleum derivatives increased following the suiddenhike in world oil prices in 1973, but increases did not keep pace with foreign.levels. It was only after 1978/79 when price increases accelerated; between 1978/79 and 1981/82 the price of gasoline rose 132% and diesel 108% in current terms. Accordingly, as shown in Table 2.2 below, the pump pr:iceof both products more than covers their international price (i.e., the relevant opportunity cost). Howevrer,the price differen- tial between the two fuels has widened, reflecting a Government policy aimed at encouraging the utilizationof diesel-poweredtransport. Although the general leveL of road user charges is adequate (para. 2.26), and un- doubtedly passenger vehicles pay for the use they make of the roads, it is not c]ear whether heavy trucks pay their share of road costs given the relativelylower taxes and duties for diesel users. To establish the fair share of charges in order to avoid possible uneconomic cross-subsidization of diesel users by consumers of gasoline, the planning unit in MTRT will examine current road costs and road user charges within the framework of the proposed project (para. 2.12).

Table 2.2: Price of Gasoline and Diesel Fuel (USe per US gallon)

Gasoline Diesel

Retail pricel! 307.17 140.75

InternationalPrice 128.52 129.93

(C.I.F. Toamasina)2/ (108.00) (1()9.00)

(Transportand distribution) (20.52) (20.93) Retail price as % of internationalprice 239.01 108.33

1/ Includes a tax component of US$0.63 for gasoliineand US$0.36 for de sel. No shadow pricing of foreign exchange has been considerednec die- ratery following adjustments.CIFh rcent adoption of a crawling peg System of exchange

2/ Based On CIF price Of gasoline and diesel at Toamnasinafor 1982. - 17 -

C. The Road Transport Industry

Freight Transport

2.08 The road transport industry comprises state-ownedand private enterprises, a large number of individual owner-operatorsand a few coopera- tives. Although the state owns about 40% of existing capacity (about 2,000 of the total 5,000 heavy trucks), it controls the tovement of basic commodities. Until recently the public sector included only several large trad- ing firms and some parastatals,such as regional development agencies, organizing transport for their own use. At the end of 1980, however, the Governnent created a trucking enterprise in each of the country's six ad- ministrativeregions in line with its policy of expanding its role in the transport sector. In general, however, these enterprises lack trained personnel and maintenance facilities,and operations have been poor. Private entrepreneurs,who account for the greater part of freight transport, have since 'beenreluctant to enter the industry or to expand their operations. The acute shortaEreof new vehicles and spare parts has placed additional stress on the industry.

2.09 As private truckers have been relegated to a secondary position in the allocation of foreign exchange for the purchase of vehicles and spare parts, the shortage of spare parts has become their most urgent problem. M4TRTrecently completed a survey of Madagascar's road transport fleet with the help of FAC; the major findings are summarized in Annex 3, Tables 2-4. The report shows that imports of spare parts fell drasticallyduring the last two years: from an average of US$20-25 million p.a. to US$5 million in 1981 and US$10 million in 1982. (The drop in new vehicle imports followed the same trend except for trucks imported directly by the Govern- ment.) As a result, more than half the private trtbckfleet is out of service for lack of spare parts. The report estimated the emergency spare parts needs, that which is required to overcome the maintenance backlog and to put the entire motor vehicle fleet back in operation, at US$20 million, of which US$10 million constitutes the minimum needed to rehabilitatethe private truck fleet. Normal annual recurrentneeds for the total fleet are estimal:edat about US$20 million for spare parts, of which US$15 million is required for commercial vehicles, both public and private. This amount, however, may be overstated as it includes the Government-ownedfleet, most of which is new and for which spare parts are allocated directly or are still covered by the purchase contracts for the trucks.

2.10 The proposed project includes a pilot scheme to meet the emergency needs of the private truckers (paras. 3.14-3.20). While the project will help meet emergency needs of private truckers, the Government will allocate a minimum of US$15 million in foreign exchange annually during implementation of the proposed project to meet the normal, recurrent spare parts needs of the entire commercial vehicle fleet (para. 2.05), and by December 31, 1986 the Government and the Associationwill exchange views on estimated import programs for spare parts for commercial transport enterprises for the next three years. Additional external assistance is likely to be needed to meet normal replacement and expansLon requirements of the entire road translport industry; it is expected to be provided by FAC. - 18 -

2.11 There are no barriers to entry into the industry after payment of appropriate fees, taxes and insurance. By statute the MTRT is responsible for regulating the motor transport industry, but in practice its role is limited to setting rates for transport between provinces. Provincial authorities are responsible for rate-setting within their provinces. The official rate system, however, is not respected as costs have escalated faster than MTRT's ability to make rate adjustments. As a result and for- tuitously, tariffs are now generally governed by supply and demand and vary considerably according to road condition, season and region, except for those commodities moved by parastatals.

PassengerpTransport

2.12 Passenger transport is more closely regulated than the trucking industry. MTRTand provincial authorities regulate passenger transport depending on whether the service is between or within the provinces. Indivi- dual carriers may operate independently for only one year, after which they must join an existing cooperative or form a new one (the law requires a minimum of seven members). Rates are based on the type and condition of the road, but they are not reviewed frequently enough to reflect changes in operating costs, and the methodology for cost analysis could be improved. MTRT's planning unit (para. 3.27) will be responsible for carrying out a study which will include recommendations on road user charges and fuel prices and taxes, as well as the cost structure of road passenger services. The terms of reference for this study will be approved by the Asso- ciation. The study will be completed no later than December 31, 1984; after submission of the study and recommendations to the Association, the Government shall promptly take appropriate action resulting from the study, taking into accoLnt the Association's comments. In the interim, the Government will rsLise tariffs for passenger transport by 40% (para. 1.32) in addition to the 20% increase made recently.

D. Traffic Reulations and_Safety

2.13 Regulations governing truck weight and dimensions are adequate. Weight regulations allow loads up to 10 tons/axle; weighbridges were bought under the Fourth Highway Project to help enforce these regulations but en- forcemernt remains poor. Recent spot surveys have revealed that more than 60% of trucks are overloaded and many exceed legal dimensions. Since enforcement has been lax, the Government has agreed to ensure that importation of vehicles is limited to those which meet all weight and dimensions specifications for road use. In addition, the Minister of Public Works will have the sole authority to approve the technical aspects of import licenses for trucks, the assembly licenses and the road licenses for trucks.

2.14 While IMSadagascar has adequate laws governing road safety, enforcement is lacking. Driver education, licensing arnd vehicle registration are hardly more than formalities. Vehicle inspection is carried out spora- dically and superfEicially. Although statistics on traffic accidents are scattered and inconclusive, the many demolished vehicles scattered along major roads point to a high toll of accidents. The Government will prepare and submit to the Association by December 31, 1983 an action plan to im- - 19 - prove enforcement of safety regulationsand, taking into account the Asso- ciation's comments, to implementthe plan no later than June 30, 1984.

E. Adiministration

2.15 In pri'ncipleMTP is responsible only for the administrationof national roads; provinces administer regional roads and communities administer feeder roads and tracks. In practice, however, MTP's assistance is sought for all significant improvementand maintenanceworks on the entire 50,000 km network. This overextensionof MTP is one of the problems impeding efficient and proper road maintenance. To alleviate this problem, the Governmenthas selected, with Associationassistance, a limited network of 10,000 km (para. 2.04) for which MTP will be responsible. This network includes the most heavily used roads in the country, carrying about 90% of the traffic, and the most economically important as determined by MTRT, MPARA, and MIC. The road rehabilitationand maintenance program envisaged under the project:(paras. 3.03-3.09)is confined exclusively to this network. The remaining 40,000 km are mostly tracks and serve local communities for administrativeservices and subsistenceagriculture. In the short to medium term, maintenanceand improvementof these tracks will be carried out within the context of rural agricultural,health and sanitation projects, with technicalassistance from MTP. As MTP's capacity increases,it will gradually assume responsibility for the maintained and improved tracks In the longer term a study will be carried out under the proposed projecl:to determine the appropriatemeans and organizationto maintain and improve these roads (para. 3.25).

2.16 MTP's alministrativeorganization was set up in 1977 giving con- siderable authority and independenceto the regions and districts in line with the Government's decentralizationpolicy. This organization was a major impediment to effective road maintenance:regions and districtswere accountable to no one, and single pieces of equipment were given to small work uniitsincapable of carrying out maintenanceoperations. MTP was reor- ganizeclin April 1982 (Chart 1) to bring about greater efficiency and ac- countability. Administrative,financial, planning and training functions are grouped under the General Secretariat. Technical operations are grouped under the Directorate of Works (DirectionGgnMrale de l'Equipment, DGE). The divisions under DGE responsiblefor road works are the following: (i) Division of Infrastructure(Direction de l'Infrastructure,DI) which is in charge of design and construction; (ii) the Road Maintenance Division (Directiondes Ponts et Chaussges, DPCH) which plans and executes road muLintenanceoperations through its seven regional offices correspond- ing to the six regions and the special subdivisionof Taolanaro and their 42 subdivisions; and (iii) the Equipment Division (Direction du Materiel, DMAT) which purchases road maintenanceequipment, spare parts, material and supplies; maintains equipment; stores spare parts:;and operates workshops. Although the organizationalset-up is still relatively new, it appears t:o be well-adapted to MTP's needs and has already begun to yield operationalimprovements. - 20 -

F. Staffing and Training

2.17 A shortage of qualified and experienced staff at all levels is hamper:Lngmaintenance operations; in addition, the work force is poorly managed. For the administrationof roads, MTP employs about 50 engineers, 700 techniciansand 2,000 skilled and semi-skilledlaborers. This staffing: strengt:his numerically adequate for MPT's current operations and will require only minor increases to cope with future workloads. However, MTP's engineers and techniciansare young and generally inexperienced:about 90% of the engineers and 70% of the techniciansire under 40 years old. This problem became acute after 1972, when a large number of expatriateswho had filled key positions in MTP left the country and Malagasy nationals without adequate preparation filled the vacancies. The proposed project will finance two experts to serve as line managers in MPI for three years and a study to further improve MPT's organization(paras. 3.24 and 3.25).

2.18 Civil engineering/technicaltraining in Madagascaremphasizes the theoretical rather than practical aspects. The technical college in Antan- anarivo (l'Etablissement d'Enseignement Superieur Polytechnique, EESP) provides alfour-year program in civil engineering;about 20 students graduate annually. EESP's civil engineering department suffers from a shortage of qualified lecturers, inadequate training equipment,,and a lack of funds. The country's 20 secondary technical schools have two to four year programs to train technicians;they produce about 250 graduates annually. Although the numkberof traiineesis sufficient to fill vacancies in MTP, the theoretical training is not always complete and practical training is almost non-existent. The only practical training and refrieshercourses available to MTP staff are given at MTP's own training center (Centre d'Application des Travaux Publics, CATP).

2.19 To improve the training of MTP personnel, a 1978 study by consultants Louis Berger (USA) under the Fourth Highway Project recommended: (i) improving EESP's engineering and technical courses by appointing a full- time lecturer for the roads sector and procuring training equipment; and (ii) rehabilitatingCATP and giving it the means to conduct a long-term, countrywide program of practical and, to a lessearextent, theoretical training for middle and lower level supervisorsand craftsmen. The Fourth Highway Project is financing the rehabilitationand equipping of CATP and consultantsare training instructors. Some 32 instructorsare enrolled in this program and are scheduled to graduate by mid-1984. A highway expert is giving refreshercourses to 27 MTP engineers at CATP. The proposed project will continue and expand this program, including the training of engineers, techniciansand skilled laborers (paras. 3.11-3.13).

G. Maintenance

2.20 During the past decade the Government concentratedon building access roads to regional economic centers and paid little attention to maintenance. Consequently, inadequate road maintenance is now the most serious problem facing the subsector and the effects are being felt throughoutthe economy, especiallyin the agriculturalsector where farmers are finding it increasingly difficult to get their crops to the markets. - 21 -

The Government has therefore decided to concentratemost of its financial and manpower resourcesin the subsector on maintenance. Under the proposed project, rehabilitationand maintenancewill be confined exclusivelyto the 10,000-km "economic"network (para. 2.04).

2.21 The main problems preventing proper maintenancehave been (i) an excessivelydecentralized road maintenanceorganization, making accountabi- lity iripossibleand distributingsingle pieces of equipment to small units incapable of mounting road maintenance operations; (ii) lack of equipment maintenance;inadequate workshop facilities, equipmientand tools; and low equipment availabilitydue to a shortage of spare parts; (iii) cumbersome administrativeand procurementprocedures; (iv) shortage of qualified road maintenance technicians; (v) inadequate and untimely allocations of funds for road maintenance;and (vi) poor management, budgeting and implementation of maintenanceoperations.

2.22 Major sl:epshave already been taken to remedy some of these problems under the ongoing Fourth and Fifth Highway Projects. First, in early 1982 MTP was reorganized and, as required under the Fifth Highway Project, a central unit was establishedand given overall responsibilityfor maintenance of national roads. Regional engineers are now accountable to a central authority and procedures have been simplified. Secondly, equipment has been regrouped at the regional level ending the highly inefficient practice of spreading individual pieces of equipmnentamong small work units. Thirdly, the rehabilitationof maintenance equipment has accelerated; equipment, spare parts, materials and supplies are being provided under the Fourth and Fifth Highway Projects to fully equip five earth-road brigades and six resealing and patching brigades. Three earth-road brigades are fully operationalas are two patching and resealing brigades; the remaining brigades are scheduled to be operational in mid-1983. Contrac- tors are carrying out rehabilitationworks on sections of RN 4. Fourthly, the workshops in Antananarivo, Mahajanga, Toliara, Fianarantsoa and Toamasina are being equipped and improved to maintain equipment effectively. Fifthly, a permanent training center has been establishedand a training program for road maintenancepersonnel is in operation.

2.23 The proposed Sixth Highway Project would continue and expand these operations by (i) helping strengthen the management and organization of MTP by providing technicalexperts and studies (paras. 3.24-3.25);(ii) providing complementaryequipment for seven multi-purposebrigades and continuing to improveworkshops (paras. 3.06-3.07);(iii) assisting in simpli- fying procurementprocedures (para. 2.30); (iv) ensuring that the training needs of MTP are fulfilled (paras. 3.11-3.13); and ensuring adequate and timely funds for road maintenance (para. 2.25).

H. Planning and Financing of Investments

2.24 Short- and long-term planning in the road subsector is carried out by MTP's Planning and External Affairs Unit. In preparing the plans, it gathers data from MTRT, MIC and MPARA to determine individual projects and the timing of their execution, and to identify and arrange financing. The Unit thereafter prepares annual investment budgets, monitors execution of the plans and produces annual implementationreports. Under the new - 22 -

Public InvestmentPlan, 68% of the investmentsin the transport sector will be for the road subsector (para. 1.24). The previous 1978-80 development plan called for an overly ambitious construction and rehabilitationprogram. Since the end of that period, constructionhas generally been confined to projects for which Madagascar has been able to find outside financing.

2.25 Road maintenance is financed from the general budget while new constructionis f:Lnancedfrom the investmentbudget which comes mainly from external sources. Thus, funds for new constructiondo not have to compete with other sectors for scarce local funds. Since [975, an average of FMG 1.9 billion (US$5.1 million) per year has been allocated to road maintenance,well below the minimum FMG 5 billion required under the Credit Agreement to the Fifth Highway Project to adequately maintain the entire network. This requirement was not met due to a misallocation of resources. Moreovrer,the disbursementof these funds has often been late and untimely, thereby interruptingand delaying the works. To solve the dual problem of over-investmentin new constructionand under-financingof maintenance, the Government will (a) by September 30 of each year during project implementationexchange views with the Association on investments for highway improvements and construction and (b) set up a mechanism to ensure adequate, timely and easily accessible funds for road maintenance and rehabilitation. As a means to implement (b) above and until a road fund can can be established, the Government will make FMG 5 billion (US$13.3 million equivalent) available to MTP in 1984 for road maintenance operations, and by January 31, 1984 will open a revolving fund in its Treasury, with an initial deposit of FMG 600 mil]Lionto be replenished quarterly, which will be used exclusively for road maintenance. By December 31, 1984 the Governmentwill establish a Road Fund in the Central Bank. The nationa,lpetroleum company, SOLIMA, will deposit monthly and in approximately equal installments revenues from taxes and duties on motor fuel into this account. The Governmentwill ensure that for 1985 and 1986 a mininiumof FMG 5 billion is deposited into the Road Fund, adjusted annually to take into account domestic inflation and the volume of maintenance operations. By January 1, 1985 the Governmentwill establish a new revolving fund under the same conditions as the previous one except that this revolving fund will be in the Central Bank and will be replenished from the Road Fund. In order that provision be made for financingroad maintenanceafter project implementatLon,the Governmentand the Associationwill exchange views by December 31, 1986 on the estimated funds required for road maintenance for the next three years. The Governmentwill take the measures necessary to ensure that such funds will be available to MTP as and when they are needed.

2.26 Revenues from road user charges are estimaled to have been FMG 23 billion (US$61.3 million) in 1981. This exceeds what was spent on roads for both constructionand maintenanceand is far above what normally should have been allocated for road maintenance. Import duties and sales taxes from transport equipment and spare parts totalled FM[G8.4 billion (US$22.4 million) in 1981 and annual license fees, vehicle inspectionfees, etc. added another FMG 1.5 billion (US$4.0million). Taxes on gasoline and diesel fuel (US$0.63 per gallon and US$0.36 per gallon, respectively) produced revenues of about FMG 13.9 billion (US$37.1 million) in 1981, or approximately 60% of all road user revenues. The general level of road user - 23 - charges is adequate, even when adding to the road maintenance needs, the rehabilitationof a portion of the road network. It is uncertain,however, whether the charges paid by the users are proportionalto the damage they do to the roads (para. 2.07).

I. Engineering,Construction and Supervision

2.27 The DI is responsiblefor feasibilitystudies, final engineering and constructionsupervision. It follows design and constructionstandards developed by the French Ministry of Equipment but adapted to conditions in Madagascar (Annex 4). DI is in charge of preliminaryengineering for major works and detailed engineeringfor medium-sizedproJects. Most design and construction supervision is carried out by foreign consulting firms and their aLffiliates. The Government-ownedconsulting firm DINIKA was established in 1979. Although it is staffed with young and inexperiencedengi- neers, it is participatingin road constructiondesign and supervisionin joint venture with foreign firms. No other consulting firm in Madagascar is capable of delivering similar services. This arrangementfor the development of DINIKA is acceptable for its participationin the proposed project.

2.28 MTP's national soils laboratory (LaboratoireNational des Travaux Publics et du Batiment, LNTPB) conducts soils investigationsfor the construction of civil structures, assists consulting firms and DI in the design and supervisionof these works, and carries out research on the use of local materials fc,rconstruction. Under the proposed project, LNTPB activities will be expanded to assist DPCH in the executLon of road maintenance operations. LNTPBfs services are charged to clients on the basis of a cost plus formula and its revenues are in general sufficiLentto meet its costs; however, its revenues are remitted to the Government as LNTPB is not finan- cially autonomous and its costs are met from general budget allocations. This is not satisfactorysince the allocations are inadequate, untimely, and req[uirelengt'hy approval procedures. Therefore, the Government will, by December 31, 1983, take all actions necessary to establish LNTPB as a separate legal entity under the responsibilityof MTP to be operated on a commercial basis with complete financial autonomy. LNTPB's operations would be audited by the Government audit services.

2.29 ConstrLctionworks are almost exlusively carried out by foreign contractors and their affiliates. The Government-ownedconstruction firm Socigte d'Int6ret National des Travaux Publics (SINTP) has undertaken some major construction works, but due to over-extension and mismanagement, these works were not completed and were subcontractedto local affiliates of foreign contractors. The Government is negotiating a joint venture between SINTP and foreign firms in order that SINTP acquire proper construction managementand budgeting techniques. This arrangementwould be satisfactory for SINTP participationin the proposed project. Although housing constructionis dominated by foreign contractorsand their affiliates, two domestic private contractors compete successfully in building construction. One of them, SARA, is building the training center (CATP) under the Fourth Highway Project. These domestic firms will be encouraged to participate in the constructionof workshop facilities to be carried out under the proposed project (para. 3.08) and will be allowed a 7#% preference over the bid price of competing foreign contractors. - 24 -

2.30 The National Tender Board (Commission Centrale des Marches, CCM) is responsible for all procurement matters in Madagascar, and contracts are awarded following acceptable competitive bidding procedures. Bidding documents are prepared by Government ministries and agencies and forwarded to CCM for approval. Later technical committees of the ministries and agencies open and analyze the bids; their recommendations on the evaluated low bidders are then submitted to CCM for study and approval. CCM-approved contracts are signed by managers of the various ministries and agencies before notification to the successful bidders. This process is long and cumbersome, generally taking 6 to 12 months but sometimes longer from bid opening to notification. Although MTP recently shortened its internal procurement procedures, much improvement is still needed in the overall system. Ihe Government will shorten the procedures by ensuring that (i) a CCM representative assist MTP in the preparation of bids (ii) all interested Government officials attend CCM's decision meetings, and (iii) duly authorized representatives from all ministries and agencies concerned gather at one meeting during which the contract documents will be agreed before final signature; contracts will then be approved within 15 days of this meeting. - 25 -

III. THE PROJECT

A. Objectives

3.01 The proposed project will continue and expand efforts to improve the condition of the road network started under the Fourth and Fifth High- way Projects. Its principal objectives are to (i) permit efficient and reliable transportaltionon the country's high priority roads by improving their condition and arresting further deteriorationthus reducing a major constraint to economic development;(ii) continue the strengtheningof the road administration'scapacity to maintain the road network and repair the Government'sequipment pool; (iii) improve transportcoordination and planning; and (iv) begin rehabilitationof the countryl'scommercial vehicle fleet.

B. Project Description

3.02 As appraised, the priority road maintenance and rehabilitation program includes the following:

(a) a three-year rehabilitation and maintenance program (1984-86) consistingof:

(i) rehabilitation,spot improvementand maintenanceof about 900 km of rural and feeder roads by contractors,including about 150 km of roads in the Highlands Rice Project are.a;

(ii) patching and resealingof about 2,500 lcmof paved roads, spot improvement and maintenance of about 2,000 km of rural and feeder roads (including about 150 km of roads in the High- lands Rice Project area) and routine maintenance of the entire 10,000 km economic network by force account:,requiring provision of (1) equipment, spare parts, materials and supplies, and (2) workshop facilities and equipment;

(iii) the second-phase (about 400 km) of a rehabilitationprogram of R.N4 and RN 7;

(b) improvementof LNTPB;

(d) rehabilitationof the road transport industry through the purchase of spare parts; and

(e) consulting services for: (1) supervisionand management of works under (a); (2) preinvestmentstudies of future paved road maintenance and strengtheningprograms and of the development of about 2,000 km of rural and feeder roads including about 1,000 km of roads in the highlands Rice Project area; (3) improvementof MTP's management arndorganizaition and the administration of the feeder road network; (4) imlprovementof transport planning and coordination; and (5) technical assist:ancefor training and for improvementof LNTPB. - 26 -

(a) Road Rehabililtation and Maintenance Program

3.03 The three-year road maintenance program (1984-86) would concen- trate on the rehabilitationand maintenance of the 10,000 km economic road networL (para. 2.04). To reach a double objective of increasing MTP's capacit:yto effectively carry out road maintenance operations and making the neltworkpassable year round in the near term, the maintenance operations will be carried out simultaneouslyby force account and contractors and the rehabilitationof RN4 and RN7 will be carried out exclusively by contractors.

(i) Rehabilitat:Lon and Maintenance of Earth Roads by Contractor

3.04 The rehabilitation,spot improvementand maintenance of about 900 km of rural and feeder roads will be carried out by contractorsand super- vised by qualified consultants. This will include about 150 km of roads located within the zone of the Highlands Rice Project, which is financed by the InternationalFund for AgriculturalDevelopment (IFAD). The remaining 750 km of roads, carrying between 20 and 60 vpd, are in the rice-producing regions of AntsohiLhyand Antananarivowhere their early reopening is necessary to spur production. The roads to be maintained or rehabilitated (Annex 5) will be discussed by Government and the Associationby June 30 of each year during project implementation. The roads will be selected according to criteria detailed in para. 4.14. Works to be carried out include (i) rehabiLitation and spot improvements, (ii) regrading and regravelling, and (iii) improvement of drainage structures. Bidding documents for the Highlands Rice Project area roads (150 km) have been prepared by consultantsLouis Berger (USA). Bidding documents for the remaining 750 km of roads will be prepared by consultantsunder the Fifth Highway Pro- ject.

(ii)) Maintenance by Force Account

3.05 DPCH will carry out (i) patching and resealing operations on 2,500 km of paved roads (Annex 17, Table 2); (ii) spot improvement,regravelling, improvementof drainage structures and regrading on about 2,000 km of rural and feeder roads including about 150 km of roads in the Highlands Rice Project area. The roads to be included in the first year's works are identified in Annex 6. The lists for subsequentyears will be discussed by the Government and the Association by June 30 of each year during project implementation. The 1,850 km of roads outside the Highlands Rice Project area are located mainly in areas of agriculturaland industrialdevelopment and carry between 20 and 60 vpd; (iii) cantonnage or labor-intensiveoperations on the entire 10,000 km network consisting of clearing, regravelling and regrading of shoulders, filling potholes, cleaning ditches and drainage structures,and maintainingbridges.

3.06 Under the Fourth and Fifth Highway Projects DPCH is being equipped to set ul?5 brigades for earth roads (spot improvement,regravelling and regrading),6 patching and resealing brigades for routine maintenance of paved roads, and 42 'cantonnage'teams (correspondingto the subdivision of the road maintenance organization) for basic routine road maintenance. To carry out the proposed work program, DPGH's brigades will be regrouped into seven multi-purpose maintenance brigades one of which - 27 - will be based in each of the six regions and the special division of Tolagnaro. The brigades and teams will be under the sole authority of the Minister of Public Works. This set-up was agreed at negotiations. Each brigade will include a unit for maintenance of earth roads and another for maintenance of paved roads; the units will share some common equipment. The brigades and teams will have the necessary equipment to give them flexibility to carry out all maintenance works on earth and paved roads. On the basis of present productivity rates, it iLs estimated that each multi-purposebrigade will maintain about 400 km of paved roads and 100 km of earth roads a year and each labor-basedteam, 250 km a year. DPCH will coordinate the activities of the brigades and teams. Most of the equipment and tools for the brigades and labor-based teams has been procured under the Fourth and Fifth Highway Projects. The proposed project will provide complementary equipment, the list of which (Annex 7) was discussed and agreed during negotiations.

3.07 Proper maintenance of the equipmentwill be ensured by seven regional workshops. Five workshops (Antananarivc,,Mahajanga, Toliara, Fianarantsoaand Toamasina) are being improved and e!quippedunder the Fifth Highway Project; the remaining two workshops (Antserananaand Tolagnaro) will be improved and equipped under the proposed project. These workshops will be run by the DMAT which will also provide all necessary spare parts, materials, supplies,personnel and logisticalsupport to DPCH.

(ii:L)Rehabilitation of RN 4 and RN 7

3.08 Under the Fourth and Fifth Highway Projects, studies were carried out on the 1,100 km of RN 4 and RN 7, the major road axis of the country. Rehabilitationof 200 km (RN 4) has begun under the Fifth Highway Project. The proposed projoectwill continue these efforts by rehabilitatingan additional 400 km. Tnese works are divided into five lots for contracting purposes (Table 4.]). Consultants INFRAMAD (Madagascar) and BCEOM-LCPC (France) have completed detailed engineeringand bidding documents are being prepared. Bidding documents are also being prepared for the remaining 500 km, works on iwhich could readily be carried out if additional financing were found (para. 3.32).

3.09 RN4 and RN7 were built in the 1950s as low volume roads (50 to 100 vpd); they ncw carry about 150 to 1,000 vpd, with 50% trucks on RN 4 and 25% on RN 7. Axle loads largely exceed the present permissiblesingle axle lcads of 10 tons. During the past decades maintenancehas been spotty and on an emergency basis. On most sections the pavement has deteriorated to the extent that:reconstruction is necessary. Paveipentwidths range from 4 to 6 m and some have eroded to 3.5 m; the designed paved width on the mountainous sections is 5.5 m and some of these sections will be rebuilt to this wLdth where economicallyfeasible. The rehabiLlitationworks consist of (i) improvement:of drainage structures, (ii) widening of some sections, (iii) rebuilding of subgrades, (iv) regraveling of shoulders, and (v) construction of a new base course of 15 cm to 20 cm of crushed rocks and a double surface treatment or a 5 cm to 8 cm of asphalt concrete wearing course. The road design is based on a realistic maximum single axle load of 13 tons for an economic life of 15 years. It is expected that resurfacing will be required after 7 to 8 years. Rehabilitationworks will be carried out by contractors under the supervision of consultants. - 28 -

(b) Improvement of LNTPB

3.10 LNTPB's activities will be expanded to enable it to assist DPCH in planning, designing and supervising road maintenance and pavement strengthening operations. LNTPB has been receiving support the past two years from (a) FAC, in the form of equipment and technical assistance (one engineer and one technician from CEBTP, France), which will continue to December 31, 1984; and (b) United Nations Develol?ment Programme (UNDP), which has provided an expert for exploration and identification of local materiials for use in road works; his services will end on December 31, 1983. The proposed project will continue and expand this support by providing supplementary equipment and qualified persoinel (para. 3.29). The list of equipment (Annex 8) was discussed and agreied upon during negotiations.

3.11 Under the proposed three-year (1984-86) training program personnel will be trained to carry out effective transport coordination and management, and proper and timely road maintenance operations. About 730 existinlg employees of MTP will be retrained, including 40 engineers, 180 technicians, 180 equipment operators, 270 mechanics' and 60 accounting and administrative personnel. Another 185 new employees will be recruited and trained, including 30 engineers, 75 technicians, 18 soils laboratory technicians and 62 storekeepers. The project will also provide training for about 1i0transport professionals and technicians of MTRT.

3.12 CATP will run the training program which has been prepared by consultants Louis Berger; it will also manage the Antananarivo multipurpose brigade for both field training and maintenance of roads in the region. The program will combine classroom and field training with greater emphasis on the latter. A competent Malagasy professional, assisted by technical experts, will head CATP. The Fourth Highway Project provided for the reconstruction of CATP, including equipment and technical assistance; the proposed project will provide additional equipment and experts (para. 3.28) to implement the training program.

3.13 The expesrts will help select trainees and will conduct classroom and field instruction. Field training will be carried out in CATP's brigade, other regional brigades and on construction s:ites. MTP will recruit new engineers from EESP who will be chosen during the last year of their formal training. They will follow a combination of classes at EESP and specialized courses at CATP. During their training period, trainees will receivE, daily allowances in addition to their salaries as an incentive to prospec:tive trainees and a means to attract personnel from outside Antanararivo. Successful trainees needing additional instruction will be granted fellowships for short courses abroad or organized in the country. Malagasy instructors, counterparts to the experts, will receive on-the-job trainirng in CATP and additional training abroad. The proposed program is designed to be the most cost-effectivemeans of providing transport management, road constructionand maintenance skills to MITRTand MTP personnel. The training program will be reviewed every year by the Government and the Bank. - 29 -

(d) RehabilitaLtion of Road Transport Industry

3.14 In order to help rehabilitatethe commercial vehicle fleet and strengthen private truckers, the proposed project will include a pilot scheme to provide US$5 million in foreign exchange to meet the private truckers' emergency need for spare parts, that is, the backlog of maintenance accumulatedduring the last two years. At the same time the Govern- ment will allocate at least US$15.0 million annually in foreign exchange to meet t:henormal, recurrent spare parts needs of the commercial vehicle fleet during,project implementation (para 2.10) to re-establisha normal flow of spare parts.

3.15 The foreign exchange from this component of the credit will be channelled through the Bankin' Ny Indostria (BNI), Madagascar'sindustrial bank and any other bank acceptable to the Association,as a "managed fund" under subsidiaryagreement(s) between the Government and BNI. The signing of subsidiary agreement(s), acceptable to the Association, will be a condition of disbursement of credit funds under this component of the proposed project. BNI, which will implementthe pilot scheme, has a competent staff and is already familiar with the Association's procedures through an ongoing DFC operation (Credit 977-MAG). Any other bank desig- nated by the Government for this purpose will be required to need the same criteriLaas BNI.

3.16 BNI will allocate foreign exchange to certified motor vehicle dealers on the basis of their share of the market as determined by their turnover during the previous five years and the composition of the truck fleet they service. The credit funds will be divided into tranches of US$250,000; in order to qualify for a tranche, dealers will be required to draw up a detailed import plan specifying the type and quantity of goods to be ordered, their CIF cost and additional costs expected in Madagascar (taxes, transport and dealer's commission), the delivery schedules, a justif:icationof the emergency nature of spare parts ordered and of the regional distribution based on a description of the trucking fleet and operat:ions of their clients, and a guarantee to sell the imported items only to private truckers, i.e., those with at least 51% of pr:Lvatecapital as shown in the "Registre du Commerce". Each import:plan will be submitted to IDA for approval prior to implementation. The dealers would place the order, provide BNI with the documentation, and BNI, through Government, would submit the application with supporting documents to IDA for direct payment to the foreign suppliers on the basis of t:heapproved letters of credit by BNI. The initial allocation of the credit among t:he certified dealers will be reviewed after one year in relation to the rate of disbursements.

3.17 The use of certified dealers has the advantage of simplification and control over the utilizationof the credit. There are about six certi-- fied motor vehicle dealers in Madagascar, specializingin the distribution and service of specific brands of vehicles. These major dealers have modern inventory control procedures and client monitoring systems, the necessary warehouse and service facilities,and a relatively extensive distribution system throughout the country. The lack of spare parts in the last few years has already forced the dealers to set:up prioriltiesand control orders placed by their clients; thus, the procedure outlined above should be easily implemented. - 30 -

3.18 The dealers will sell the spare parts to private truckers at the official retail prices (controlledby the Ministry of Economy and Trade) as under a normal import license. At present there are two markets for spare parts as a result of the shortage over the last two years --one market at the official price and the other reflectingthe parallel market price which is higher. The parallel market will not affect the pilot scheme as the dealers will deliver spare parts directly to the dlesignatedtruck owners. In addition, since the pilot scheme and a minimutmimport quota of spare parts for the private road transport sector will meet emergency needs and re-establisha normal flow of spare parts into the country, the importance of the parallel rmarketshould diminish.

3.19 Full advance payment in local currency will be required from the dealers at the time of ordering. BNI will retain an administrativefee of 3.5% and deposit the balance in a special account which will be used to pay for local costs of the project. For this purpose, the Governmentwill open an account at the Central Bank in the name of the Treasury for the benefit of MTP. The dealers may independentlyapply to BNI for a working capital loan to purchase specified items, if their cash flows are insufficient. BNI will be responsible for reviewing and approving the dealers' requests; ensuring that adequate procurement procedures have been followed; maintaining an overall inventory record of the parts procured under the project; and for monitoring the sales by the dealers and the use of spare parts by the truckers through regular spot checks. These procedureshave been agreed with the Government and are detailed in Schedule 4 of the Credit Agreement.

3.20 Prior to implementationof this component,BNI and the Government will transmit to the Association: (i) subsidiary agreement between the Government and BINImaking BNI responsible for implementingthis component, setting BNI's comamission,and ensuring that the local currency payments of the dealers will be deposited in a special account to finance local costs of the project; (ii) the list of the dealers and the proposed initial allocation of the credit among them with supporting justification; and (iii) agreement between BNI and the dealers setting up the procedures outlined above (para. 3.16), and including an overall estimate and justificationby the dealers of the utilizationof the credit allocated to them on the full US$10.0 million.

(e) ConsultingServices

(1) Spervision and managementof works.

3.21 In view of the staff constraintsat MTP, consultantswill supervise rehabilitationworks on RN 4 and RN 7 and will lead MTP teams in the supervision of spot improvementand maintenance works carried out by contractors on 900 km of rural and feeder roads. In addition constructionexperts will be prcvided to manage the seven multi-purposebrigades. The experts will be engaged under a management contract between MTP and qualified contractors. - 31 -

(2) Preinvestment studies of future paved road maintenance and strengtheningprogram and of development of the feeder roa network.

3.22 A major aim of the proposed project is to increase MTP's capacity to monitor the condition of the 4,300 km of paved roads in the economic network and to plan and carry out systematic maintenance and strengthening operations to prevent premature reconstruction. The project, therefore, includes a study to develop a systematic approach to maintenance and strengtheningof these roads, of which about 2,200 km now need strengthening and 1,500 km resurfacing. The proposed study will be carried out in three phases: (i) the first phase will include a general survey and inventory of the netwTork,systematic pavement testing program on about 2,500 km of roads which are more than five years old and not undergoing rehabilitation, and a study of appropriate road maintenance operations and techniques; (ii) the second phase, design of seasonal routine road maintenance programs and establishmentof a resurfacing program; and (iii) the third, pre-investment studies, detailed engineering and bidding documents for pavement strengtheningof roads that can no longer be maintained by routine maintenance and resurfacing programs. At the end of the first and second phases, the Government will seek the Association's comments and approval before going on to the next phase; during review oE the second phase, roads will be selected for pre-investmentstudies, detailed engineeringand bidding documents uinderthe third phase. The study's terms of reference (An- nex 9) were discussed and agreed upon during negotiations.

3.23 To address the long-term improvementand maintenance needs of feeder roads, the project will include a study for the development of approximately 2,00 km of feeder roads. About 1,000 km of roads in the High- lands Rice Project area and another 1,000 km will be selected from priority agriculturalregions. The study will review the condition of the roads and classify them inIto three groups: (i) roads needing no improvementbut only routine maintenance; (ii) roads requiring emergency repairs or spot improvements;and (iii) roads needing major rehabilitationworks before meaningful maintenancecan be undertaken. The capacity of small contractorsin the road zones vill also be assessed and recommendationsfor strengthening the local constructionindustry proposed. Terms of referencefor the study (Annex 10) were discussed and agreed with the Gcvernment during negotiations.

(3) Imtprovementof MTP's management and organization.

3.24 MTP is seriously handicapped by a shortage of qualified, experienced personnel at management level. While training will be provided under the proposed project, current and planned operationsneed effectivemanage- ment. The Government has requested and the Associationhas agreed that the proposed project:provide for two experts to serve as line managers in MTP for three years. One would act as Director General of Works and the other as Director of Road Maintenance. Outline terms of reference of these experts are given in Annex 11.

3.25 The organization of MTP has also impeded efficient operations (para. 2.15). In April 1982, the Government reorganizedMTP to improve its efficiency. The proposed project will finance a study to assess and recomi- - 32 - mend additional changes needed to (i) carry out efficient road construction and imaintenanceoperations and (ii) set up an organization to improve and maintain rural and feeder roads. The terms of reference of the study (An- nex 12) were discussed and agreed upon at negotiations.

(4) Transport planning and coordination.

3.26 Sector management and coordinationneed improvement. Most urgent are a critical analysis of the nature and scope of Government operations in the sector; a reordering of the organization,objectives and activities of the agencies participating in the sector with the purpose of streamlining operations;and the establishmentof adequate sectoral management and efficient coordinatingmechanisms. Moreover, a national transport strategy is needed on which to base development of the transport sector beyond the medium-term (1983-85)plan. The formulationof a program to achieve these objectives should be the function of the planning unit in MTRT's Director- ate of Transport. However, this unit, is understaffedand has a subordi- nate role. Further, the MTRT's Directorateof Supplies has a similar unit, responsiblefor, inter alia, the analysis and revision of transport tariffs and other transport-relatedactivities. Coordinat:ionbetween the two units and MTRT's two Directoratesis very poor. Better coordinationwithin MTRT and with the rest of the transport sector is essential.

3.27 As a basis for proper planning in the road transport and water transport subsectors, FAC has undertaken studies in both areas (para. 1.20). Further studies to complete a national transport strategy are necessary as well as the upgrading and restructuring of MTRT's planning system. Accordingly,under the joint auspices of the Association and FAC, the proposed project will include (a) the establishment by December 31, 1983 by December 31, 1983 of a high-level transport planning unit which would report directly to the MTRT's minister and/or permanent secretary; (b) the strengtheningof the new unit by providing two transport experts (about 48 man-months), one of whom could be seconded by IDA, the training of the new unit's staff through courses at CAT]? (para. 3.11) and, when necessary, through fellowshipsfor specializedstudies abroad; and (c) the financing of additional modal studies to complete a national transport plan. Outline terms of reference for the IDA technical assistance (Annex 13) and for the national transport plan (Annex 14) were discussed and agreed upon at negotiations.

(5) Technical Assistance

3.28 MTP will need technical assistance services to carry out the training program and to plan and monitor road maiAtenance operations. The technical assistance team, which will operate under the direction of CATP, will include th.reelabor-intensive experts (one ior 4 years and 2 for 2.5 years) and five road maintenance and mechanical experts for 2.5 years. The experts will assist in (i) developing appropriatecurricula, (ii) selecting trainees and conducting classroom and field instruction, (iii) selecting appropriate institutionsand trainees for short-term fellowshipsfor study abroad, (iv) monitoring the progress of the trainees and helping to integrate them into MTP or other Government services, (vi) planning and monitoring road maintenance operations, (vii) integrating training operations into the norma].activities of the brigades and iteams,(viii) introducing cost--accountingprocedures in DPCH and DMAT operations, (ix) establishing - 33 - unit costs of these operations,and (x) organizing and supervisingequip- ment repair in the workshops and in the field. The terms of reference of the technical assistance team are given in Annex 11, they have been agreed upon during negotiations.

3.29 The project will also extend the technical assistance being provided to LNTPB by FAC and UNDP. The technicalassistance team will include one soils engineer for exploration and identificationof local materials for use in road works for three years starting January 1, 1984, and two soils engineers for two and a half years starting July, 1984 to assist LNTPB in strengtheningand expanding its operations. The terms of reference for the experts are given in Annex 15, they have been agreed upon during negotiations.

C. Project Cost and Financing

3.30 The total program cost, net of taxes, is estimated at US$111.0 million equiva:Lent,with local costs of about US$31.0 million equivalent (28%) and foreign costs of about US$80.0 million (72%). Taxes are estimated at US$15.0 million. Base costs are at May 1983 prices; physical contingenciesof about 10% and price contingenciesof about 20% have been added to all components except the road transportindustry pilot scheme and labor. Price contingencies are based on recent estimates of inflation rates as follows: 8.0% in 1983, 7.5% in 1984, 7.0% in 1985 and 6.0% thereafter. The same percentage for local and foreign costs has been used under the assumption that the differentialinflation of Madagascar will be compensated by exchange rate adjustments. Program costs net of taxes are shown below: - 34 -

Program Cost Estimates (US$ Million, excluding ta:Kes) Foreign as Local Foreign Total % of Total

A. Rehabilitation,and 22.12 45.22 67.34 67 Ma:Lntenance Program =

1) Maintenance by Contractor (900 km) 3.92 9.15 13.07 70

2) Maintenance by Force account 7.04 10.03 17.07 59

a. Equipment and spare parts 0.43 3.84 4.27 90 b. Materials and supplies 1.39 3.25 4.64 70 c. Workshops and equipm!ent 0.92 2.14 3.06 70 d. Office and tele- communication equip. 0.02 0.13 0.20 90 e. Bridges 0.15 0.62 0.77 80 f. Labor for rehabilitation 4.13 - 4.13 0 works

3) Rehabilitation of RN 4 and RN7 (400 km) 11.16 26.04 37.20 70

B. LN1'PBEquipment 0.09 0.8:3 0.92 90 ;== C. TrEaining 0.12 0.85 0.97 87

1) Equipment 0.07 0.64 0.71 90 2) Fellowships 0.05 0.21 0.26 80

D. Road Transport Industry 1.50 10.00 11.50 90

E. Consulting Services 1.16 6.86 8.02 86

1. Supervision and management of A(i) + (2) 0.17 0.6,7 0.84 80 2. Supervision of A(3) 0.37 1.49 1.86 80 3. Preinvestment studies 0.17 0.70 0.87 80 4. MTP management 0.07 0.59 0.66 90 5. MTP study 0.01 0.09 0.10 90 6. Transport planning 0.04 0.40 0.44 90 7. TA for training 0.24 2.13 2.37 90 8. TA for LNTPB 0.09 0.79 0.88 90

Base Cost 24.99 63.76 88.75 72

PhysicEalContingencies 1.95 5.42 7.37 74 Price Contingencies 3.87 10.75 14.62 74

Total Cost 30.81 79.93 110.74 72 _ = _= (31.00) (80.00) (111.00) - 35 -

3.31 lhe cost of rehabilitationand strengtheningaverages about US$14,500/kmfor earth roads and US$93,000/kmfor paved roads; the cost of supervision for rehabilitationworks amounts to about 5% of construction costs. These costs are in line with those of similar recent and ongoing works in the country. Costs of equipment, spare parts, materials and supplies are based on recent bid prices and quotations in Madagascar. The man-month cost of consultants'services and technical assistance,estimated at US$9,200, includes US$6,700 for salaries and overhead (home office ex- penses, expatriate allowance, social costs andl other expenditures) and US$2,500 for reimbursableexpenses (travel, telecommunications,subsistence and other miscellaneous items); these costs are in line with those for similar and ongoing services in Madagascar. The costs of fellowships are estimated at US$10,000 per student per year including tuition and fees, housing, travel and subsistence;average daily allowances of US$4.00 per local trainee are foreseen.

3.32 Due to Madagascarts serious budgetary constraint, the Association and the co-lenders will finance the total foreign costs of total program costs, or at 'Least US$80.0 million. IDA will provide US$45.0 million, of which US$10.0 million will be made available to truckers through BNI and any other bank acceptable to the Association to purchase spare parts, and US$35.0 million for financing foreign costs of the remaining components of the project. The proceeds of the US$10.0 million through BNI or another bank (after repayment by the private truckers)will be made available for financing the local costs of the project. Other institutions have shown interest in participatingin co-financingthis road maintenance and rehabilitation program. They include AfDF, EDF and Kreditanstalt fur Wiederaufbau (KFW, Federal Republic of Germany) for the rehabilitationof RN 4 and RN 7; the UK for road maintenance and bridge repair programs; FAC/CCCE for transportplanning; and IFAD for the developmentof the feeder road network.

3.33 Given the urgent need for the rehabilitationof the road transport industry and for the maintenance and rehabLlitationof the road network and since other co-financiers(except AfDF) would not be able to provide funds for at least a year, the available funids(AfDF, US$19.2 million; IFAD, US$1.4 million; the Association, US$45 million; and the Government) would be used to support a project, as shown beLow, consisting of the key elements of the above program. This project has been designed so that as additional financing becomes available the elements can easily be expanded. The total cost of the project, net of taxes, is estimated at US$81.73 million equivalent with local costs of about US$22.16 million equivalent (27%) and foreign costs of about US$59.57 mLllion (73%). Taxes are estimated at US$11.6 million. - 36 -

Project Cost Estimates (US$ million, excluding taxes) Foreign as Local Foreign Total % of Total

A. Rehabilitation and 15.53 29.79 45.32 66 Maintenance Program

1) Maintenance by Contractor (470 km) 2.05 4.77 6.82 70

2) Maintenance by Force account 7.05 10.02 17.07 59 a. Equipment and spare parts 0.43 3.84 4.27 90 b. Materials and supplies 1.39 3.25 4.64 70 c. Workshops and equipnent 0.37 0.85 1.22 70 d. Office and tele- communication equip. 0.02 0.18 0.20 90 e. Bridges 0.71 1.90 2.61 73 f. Labor 4.13 - 4.13 0

3) Rehabilitation of RN 4 and RN7 (280 km) 6.43 15.00 21.43 70

B. LNTPB Equipment 0.09 0.83 0.92 90

C. Training 0.12 0.85 0.97 88

1) Equipment 0.07 0.64 0.71 90 2) Fellowships 0.05 0.21 0.26 81

D. Road TransporitIndustry 1.50 10.00 11.50 87

E. Consulting Services 1.13 6.75 7.88

1. Supervision and management of A(1) + (2) 0.17 0.67 0.84 80 2. Supervision of A(3) 0.34 1.38 1.72 80 3. Preinvestmientstudies 0.17 0.70 0.87 80 4. MTP managemnent 0.07 0.59 0.66 90 5. MTP study 0.01 0.09 0.10 90 6. Transport lplanning 0.04 0.40 0.44 90 7. TA for traLning 0.24 2.13 2.37 90 8. TA for LNTPB 0.09 0.79 0.88 90

Base Cost 18.37 48.22 66.59 72

Contingenciesl/ Physical 1.24 3.71 4.95 75 Price 2.55 7.64 10.19 75

Total Cost 22.16 59.57 81.73 73

1/ Excluding labor and Road Transport Industry. - 37 -

The financing plan is as follows:

Financing Plan

Local Foreign Total ------(US$ million)--

IDA 45.00 45.00 IFAD - 1.40 1.40 AfDF 6.03 13.17 19.20 Government/BNI(and any 16.13 1/ - 16.13 other bank)

Total 22.16 59.57 81.73

1/ In addition, the Government will finance any taxes it includes in contracts under the project; total taxes are estimated at US$11.6 million

3.i4 This reduced project includes the Highlands Rice Project roads (about 150 km for rehabilitationand 150 km for maintenance), rehabilita- ticonof the private road transport industry which has been kept at US$10.0 million, and the rehabilitationof only 100 km cf RN 4 and 180 km of RN 7. AfDF and the Government will finance the rehabilitationand supervisionof about 180 km of RN 7; IFAD will finance part of the foreign cost of corLsultingservices and technical assistance for the rehabilitationand maintenance of rural and feeder roads; the Association and the Government will finance the remaining costs of the project.

D. Implementation and Procurement

3.35 The project will be implementedby the MTP through its DGE except for the improvement of transport planning and coordination,which will be implemented by MTRT, and assistance to the road transport industry, which will be implemented by BNI and any other bank acceptable to the Associa- tion.

3.36 The expected implementationschedule for major activities of each project component is shown on the Chart 2. This schedule will be discussed at negotiations. The project covers a three-year period, starting January 1984. The rehabilitationof earth and paved roads will start in January 1984 and take approximately 36 months to complete. Constructionof workshop facilitieswill start in January 1984 and take approximately12 months to complete. Equipment for road maintenance, offices, telecommunications, workshops, soLls laboratory and training, should be delivered by June 1984, about six months after notification of contracts to the suppliers. Pro- curement of spare parts for truckers will begin in January 1984 and be spread over two years. Technical assistance for management of MTP operations, soils laboratory, transport planning will be provided for three - 38 - years starting January 1984. Technical assistance for training will continue for two and a half years starting in June 1984. The studies of future pavemeni:maintenance and rehabilitationprograms, and the development of feeder road network should start in January 1984 and take about two years to complete with a review by the Government and the Bank in the fourth quartier of 1984. The organization study of MTP would take about eight months, starting January 1984. The project is expected to be completed by December 31, 1986.

3.37 Major civil works for the rehabilitationof earth and paved roads will be carried out by contractors on the basiLsof internationalcompetitive bidding in accordance with Bank Group guidelines after suitable pre- qualification. Additional minor civil works, up to an aggregate cost of not more than US$1.0 million equivalent,may be carried out through amend- ment of contracts already approved under the Fifth Highway Project by the Association. Constructionof workshop facilities, which are at two sites at the extreme ends of the country and estimatedat US$2.5 million (including contingencies),will be carried out by contractors on the basis of local compet:itivebidding procedures,which are acceptable to the Associa- tion. Qualii-ieddomestic civil works contractorswould be allowed a pre- ferential margin of 7+% over the bid price of competing foreign contractors.

3.38 Equipment, spare parts, materials and supplies will be grouped into suitable lots and procured through ICB. Miscellaneousitems of equipment, spare parts, materials and supplies in lots of less than US$50,000 and totalling no more than US$500,000 may be procured from dealers on the basis of quotations obtained locally.

3.39 Consultants for supervision, technical assistance and studies will be selected following 1981 Bank Group guidelines;their terms of reference and conditions of employment were discussed and agreed upon at negotiations..Before awarding the fellowships,the Government will furnish to the Association for its approval, a detailed program for training. The program would include the qualificationsof the candidates, type and cost of training as well as the training institutions and an indication of assignments to be given to the trainees on their return to Madagascar.

3.40 The US$10 million line of credit for the pilot scheme will finance the foreign exchange cost of spare parts to be purchased by certified motor vehicle dealers on the basis of approved letters of credit by BNI and any other bank acceptable to the Association. The spare parts would be grouped in lots of at least US$250,000 and purchased from foreign suppliers in accordance with established commercial practices in Madagascar. Direct purchase will be required for proprietaryspare parts; all other items (tires and routine maintenance items) would be procured on the basis of limited international tendering, requiring price quotations from not less than three suppliers. BNI would be responsible for monitoring the outlined procurement procedures; specific orders of spare parts and price quotations would be analyzed by BNI in relation to the findings of the recent MTRT study on Madagascar'strucking fleet to ensure that the orders placed meet priority needs and are reasonably priced. All disbursementrequests will be fully documented. - 39 -

E. Disbursement

3.41 The proposed IDA Credit of US$45 million would be disbursed on the following basis:

a) civil works for the rehabiLitation of paved roads, maintenance of earth roads and construction of workshop facilities:

(i) 100% of foreign expenditure under contracts payable exclusivelyor partially in currienciesother than FMG;

(ii) 70% of total expenditureunder contracts payable exclusively in FMG;

b) 100% of foreign expenditurefor consultantsservices, technical assistance and fellowships;

c) 100% of the foreign cost of d:irectlyimported equipment, spare parts, material and supplies, or 70% of the cost if purchased locally; and

d) 100% of the foreign cost of directly imported spare parts for the private road transport industry.

All disbursementswill be fully documented.

3.42 The estimated schedule of disbursement is shown below. It is based on the project implementationschedule and the disbursement profile of past highway projects in the country, but modified to take into account the quick disbursementduring the first two years of the project of the US$10.0 million for spare parts for the road transport industry. It also allows for a year's delay from the end of the physical execution of the project and the last payment to allow for delays in issuing price indices governingprice variations in contracts. - 40 -

Estimated Schedule of Disbursements (US$'000)

Bank Group Fiscal Year CumulativeDisbursements and Quarter ending at:end of Quarter

1984

March 31, 1984 1,000 June 30, 1984 3,500

1985

Sept. 30, 1984 7,500 December 31, 1984 10,500 March 31, 1985 14,000 June 30, 1985 17,500

1986

Sept. 30, 1985 21,500 December 31, 1985 25,000 March 31, 1986 27,500 June 30, 1986 30,500

1987

Sept. 30, 1986 34,000 December 31, 1986 37,500 March 31, 1987 40,500 June 30, 1987 44,000

1988

Sept. 30, 1987 44,500 December 31, 1987 45,000

Closing Date: June 30, 1988

F. Accounting, Auditing and Reporrting Requirements

3.43 Project accounts will be maintainedlby MTP with separate accounts for each coumponentand will be available for inspectionby the Association during project supervision. Project accounts will be audited annually by the Auditing Department in the Ministry of F:Lnance. This arrangement is acceptable to the Association. If the Auditing Department is unable to perform this task due to excessive workload, it will be carried out by in- dependentauditors acceptableto the Association. The auditor's report together with the project accounts will be submitted to the Associationnot later than Six months after the end of each fiscal year. The foregoing was agreed upon at negotiations. - 41 -

3.44 During negotiations,the Government and the Associationagreed on progress reporting requirements(Annex 15) and submissionof a project completion report, in a form satisfactory to the Association,not later than six months of the closing date of the credit.

3.45 BNI and any other bank acceptable to the Associationwould be required to submit quarterly reports which would include the number of appli- cations for loans received, those pending and those aproved, the status of disbursements,and a statement of arrears and notes on borrowers encounter- ing operational and financial difficulties. The bank would also be required to submit annual audit reports, prepared by qualified auditors, in addition to the bank's annual report.

G. Envirormental Aspects

3.46 None of the project's components will harm the environment. Im- provement and rehabilitationworks will follow the existing alignment and will have little or no effect on current land use. In fact, improvementto culverts and drainage structureswill benefit adjacent areas, and the reha- lbilitationand maintenanceoperations will considerablyimprove road safety.

IV. ECONOMIC EVALUATION

A. General

4.01 The deterioration of Madagascar'Esroad network has reached a stage where road transport is an impediment to economic activity especially ithevital agricultural sector and the developing industrial sector. The Government, in recognitionof the importance of protecting its investment in transport infrastructureand its limitations in manpower and financial resources, is giving priority to the rehabilitationof an "economic net- iwork"of 10,000 km of roads, which includes the most heavily traffickedand the most important to the country'seconomy as determined by the Ministries of Agriculture,Transport, and Industry and Commerce. The economic network carries about 90% of the total traffic in the country. By concentratingon a reduced network, MTP is expected to be able to focus its limited resources on those roads which will yield the greatest economic benefits to the country. In addition the project will provide for the rehabilitationof about 400 km of the RN 4 and RN 7, the principal north-southaxis travers- Lng the most populous region of the country and linking the major centers of economic activity.

4.02 The project also develops and supports specific institution buildingand policy reforms as follows:

(a) further improveMTP and consolidatethe institution-building efforts and recent organizationalchanges introduced within the framework of ongoing Fourth and Fifth Highway Projects;

(b) increase the administrativeand technical capacity of LNTPB; - 42 -

(c) increase the efficiency of civil works construction and maintenance by introducing private civil works contractors for some of those works;

(d) reorganizeand upgrade the planning organizationof the MTRT and strengthen its staffing and operations;

(e) improve transport planning and coordination;

(f) continue past efforts to improve the road pricing policy, so as to eliminate subsidies aneldistortions and optimize the allocation of resources;and

(g) enhance overall transport sector management, planning and organization.

4.03 The project's impact on the modus operandi of MTP and on the management of the sector would be substantial. It would reinforce the trend begun with the Fourth and Fifth Highway P'rojectsof concentrating the Government''sefforts on the maintenanceand rehabilitationof the country's high priority road network, diverting it from the previous emphasis on road construction. The direct support to improve investment planning and coordination would help the Government avoid the misinvestmentand duplication of efforts that occurred in recent years and should provide a valuable tool to improve economic management. The policy objectives would result in en- hanced overall sector efficiency and an increase in utilizationof existing vehicles as well as a better overall allocation of resources.

4.04 Similarly, the project, through t'hedirect financial assistance to the private road transport industry, is expected to redress the balance between the parastatalsand private truckers, and to foster the efficiency and competitionof the country's road transportindustry.

B. Area of Influence of the Program, Benefits and Beneficiaries

4.05 As mentioned in para. 4.01, the maintenanceprogram covers a 10,000 km network of high priority roads located throughout the country. This network comprises the most importantroads in Madagascar,linking centers of economic activity to each other and to their agriculturalhinter- land. Since it includes all road classif;'cations--- trunk, rural and feeder roads, the benefits of improvementswould accrue to the whole range of users and communitiesfrom urban to rural.

4.06 The rehabilitationof the RN 4 and RN 7 has a direct impact on an area of higrheconomic activity and affects about one-third of the country's population. RN 4 links the capital, Antananarivo,to Mahajanga, the second most important port in the country. It is an alternate supply route to the capital and also is the link to the northwesternpart of the country. When the bridges, their approaches and the drainage structures financed under Credit 938--MAGlinking Antsohihyand Ambanja are completed, it will provide the only all-weather link to the province of Antseranara,via RN 6, which branches off from the RN 4. RN 7, on the other hand, links the capital to the industrial city of Antsirabe and continues south to Fianarantsoa,a re- - 43 -

gional center and hub of an important agriculturalregion. The project will rehabilitateabout 400 km of the most critically deterioratedsections of the 1,100 km road (Table 4.1), of which about 200 km are being rehabilitated under the ongoing Fifth Highway Project. Both of these roads were built more than 30 years ago and have received little or no maintenance over the last 15 years.

4.07 The provision of foreign exchange for for the purchase of spare parts for private operators of commerc:Lalvehicles is a pilot project and is expected to be supplemented by further assistance for the entire vehicle fleet by FAC. This component is expected to directly benefit producers, consumers and the entire economy since the current foreign exchange crisis has caused a curtailmentin the importationof spare parts, thus severely reducing transport capacity.

4.08 The main benefit of the project will be its impact on reducing vehicle operating costs (VOC), which are given in Annex 17, Table 1. Im- proved road maintenancewill also allow better access to productive areas, provide cheaper and more reliable transport:,arrest the deteriorationof roads and improve the MTP's maintenance capacity. Important benefits not quantified in the economic evaluation include reduced freight damage, accidents and travel time and better access to social and medical services. The provision of year-round access to areas where transport was previously restrictedwill encourage increases in agricuilturalproduction since transport will no longer be a bottleneck. Except for the technical assistance and training and improvement of the LNTPB, for which no separate rate of return has been calculated,all other project components have been subject to economic analysis. The technicalassistance and training componentare nevertheless considered indispensible elements of project implementation and the strengtheningof the MTP and MTRT.

4.09 The benefits identified above will accrue to owners and operators of commercial vehicles in the form of reduced vehicle operating costs. While, in principle, freight tariffs are regulated by the Government, they are in practice set by competition (para. 2.11) and it is expected that producers and consumers alike would benefit from the resulting reduced transport costs. Owners and operatorsof pr:ivatevehicles would also benefit from these reduced VOC's. Because of the rapid deteriorationof vehicles and the network, improvementof maintenancewill prolong the lives of both the vehicles and the roads which should result in savings, mostly in foreign exchange, to Government.

C. Economic Analysis

4.10 Except for the technical assistance and training and improvement to the L]qTPB,all other components of the proposed project have been individually analyzed to assess their benefits. These include: (1) the road maintenanceprogram, (2) the rehabilitationof sections of RN 4 and RN 7, and (3) the provision of financial assistance to private commercial truckers to purchase spare parts. Economic costs 2/ are based on detailed engineering for the rehabilitationof RN 4 and RN 7; for the maintenance program the costs are based on similar ongoing works in the country.

2/ End 1982 prices. - 44 -

4.11 The basis for the economic analysis of the project is an assessment of costs and expected benefits with and without the proposed works. In the "without"project case it is assumed that the road would continue to deteriorate and that VOC's would increase by 10% p.a. In fact, this is a conservativeassumption since the continued lack of maintenancewould ren- der most roads impassable in a few years. Only savings in vehicle operating costs are quantified for the analysis. Benefits not quantified such as savings in delays of future reconstructionas a result of the maintenance program, increased value added in agriculturalproduction, time savings and reduced freight damage representsubstantial benefits which, if quantified, would enhance the rates of return. The economic evaluation results, therefore, underestimatethe expected rates of return.

4.12 The VOC savings for analysis of all project components are based on the different road conditions in Madagascar and on the vehicle composition and traffic growth as established by the MTP and consultantswho prepared the maintenanceprogram.

Rehabilitation of RN 4 and RN 7

4.13 The road sections to be rehabilitatedwere analyzed according to their level of deteriorationand traffic levels. The required improvements range from pavement strengtheningto complete reconstruction. The RN 4 in particular requires major rehabilitationon most sections. For the RN 7 where traffic levels are the highest in the country, the improvementworks will conslistof resurfacingand reconstructionwhich will yield substantial savings in VOC's. The economic analysis of this project component is based on (1) a 15-year economic life of the investment; (2) annual maintenance costs per km of US$2,000 throughout the life of the investment; (3) a 50% residual value at the end of the period; and (4) traffic volumes ranging from 150 vpd to more than 1,000 vpd in 1981 and having a proportion of heavy vehicles ranging from 15% to 60%. The analysis also assumes a growth rate of 5% annually throughout the period of which 1.5% is considered as representingone half of the benefits of generated traffic which will accrue as a result of the proposed investments. Based on these assumptions, the various sections of RN 4 and RN 7 have an economic rate of return ranging from 13% to 157%, with the weighted average being 49%. Individual rates of return for RN 4 and RN 7 are given below. - 45 -

Table 4.1: Rehabilitationl of Paved loads

RN 4

Sensivity PK Cost i/ERR T Z/ C + 10% B - 10% C + 10% + B -10%

10-38 2.5 31 29 28 26 25

38-160* 13.0 23 22 21 21 19

160-350 13.75 32 31 30 29 27

350-436* 8.25 39 37 36 35 32

436-559.5 15.0 35 34 33 32 30

559.5-567.4 0.8 15 14 14 14 12

Overall 32 30 29 29 26

Total km 557.4

1/ US$ million. 2/ Using an annual traffic growth rate of 3.5% instead of 5%. * Sections included in the project.

RN 7

Sensitivity PK 1/ Cost 2/ ERR T 3/ C + 1l% B - 10% C + 10% + B -10%

6-31 1.8 41 40 38 37 34

31-111* 7.5 157 155 143 142 129

111-164.5* 3.7 51 50 47 46 42

202-262* 4.0 48 46 43 43 39

262-404 11.0 41 40 38 37 34

418-508 4.0 13 11 11 11 9

Overall 67 65 61 61 55

Total km 502

T7-351.5km of sections excluded as follows: 19.5 km of urban roads and 32 km not in need of any rehabilitation. 2/ US$ mLllion. 3/ Using an annual traffic growth rate of 3.5% instead of 5%. 7 Sections included in the project. - 46 -

Road Maintenance Program

4.14 The economic analysis for this program has been done for paved and earth (rural and feeder) roads separately. On paved roads, maintenance activitieswill consist of patching and resealingat an incrementalcost of US$2,500 per km with routine maintenance costs of US$250 per km per year. Traffic on these roads ranges from 25 to 600 vpd and is assumed to grow at 3.5% p.a. Only direct benefits in the form of VOC savings have been quantified. For the paved road component, the overall ERR is 179%, with individual rates of return ranging from 27% to 356% (Annex 17, Table 2).

4.15 For the rural and feeder roads, the proposed works consist of spot imaprovements, regravelling and improvement of drainage structures. About 2,900 km of roads will be maintained under this component. About 900 km of these roads have been selected as the highest priority sections in light of ongoing agriculturaldevelopment projects, combined with a geogra- phically reasonable distribution,to be executed during the first year of the proposed project. These roads are located in agriculturallyproductive areas with traffic varying from 20 to 60 vpd. The economic analysis of these roads assumes a worst case scenario in which a maximum likely cost of US$14,500 per km is used combined with the minimum traffic level of 20 vpd as registered on these roads. The VOC savings used are those which would result from the difference between poor earth and good earth roads as shown in Annex 17, Table 1. A threshold analysis at that level with a traffic growth rate of 3.5% p.a., a five year economic life and annual routine maintenance costs of US$250/km, has been used to evaluate the works. The results of this analysis yields an ERR of 16%. For the remaining 2,000 km of the rural and feeder road component, to be improved during the second and third years of the proposed project, it is understood that they will be selected by Government following preparation of bid documents and cost estimates to be establishedby consultantswho will also be required to carry out an economic analysis before selection. The Government shall submit to the Associationits proposals for each year not lat6r than six months before the end of each fiscal year, and shall take into considerationthe As- sociations'scomments, if any, on the yearly program. This was confirmed at negotiations (paras. 3.04 and 3.05). Only those roads exceeding an ERR of 12% will be included in the program.

4.16 The combined return for the entire maintenance program for paved and earth roads is 63%. The investment is thereforewell-justified.

Assistance to Private Road Transporters

4.17 The project includes a US$10.0 million component to provide assistance in the form of foreign exchange to private commercial road transporters of freight to purchase much needed spare parts. These spare parts would allow better utilization of the existing truck fleet. While the costs are easily identifiable,the benefits,although likely to be substantial, are more difficult to quantify. The principal benefit would be the avoidance of losses to the economy caused by the reduced transport capacity, including time saved for goods in transit, loss of perishable goods and output foregone as a result of transport demand not being met. These are very difficult to quantify under the present circumstances and have not been included in the analysis. The current estimate of the trucking fleet - 47 - is 5,000 units of which about 50% are out of service because of a lack of spare parts. Based on an average util:Lzationof 50,000 km per truck per year, the total loss without this element of the project would amount to about 125 million truck-km. Assuming the total cost of spare parts at FMG 4,126 million and the cost of labor for installing them at FMG 826 million, the total cost of this program would represent FMG 4,952 million. If the consunption of spare parts per truck-km is FMG 57.17 (FAC study), then the benefit of the program amounts to 87 million truck-km per year. This re- presents a 70% increase in the trucking capacity available.

Overall Evaluation

4.18 The overall economic rate of return for the project is 42% for all the quantitativelyanalyzed components, which amount to 87% of total project costs. As is usual for maintenance projects, the rate of return is high lbecauseof the relatively small investment required in relation to the initial capital costs of construction. Sensitivity analyses were carried out for the rehabilitationand road maintenance components. For the rehabilitationof RN 4 and RN 7 sensitivityanalysis of a combined 10% increase in costs and 10% reduction in benefits for individual sections indicate that the ERR remains above the opportunity cost of capital for all road sections included in the project (Table 4.1).

4.19 For the maintenance of paved roads where rates of return range from 27% to 356%, increases in costs of 10% combined with benefit reduc- tions of 10% yield ERRs ranging from 15% to 300%. For the earth road component, a combined cost increase and benefit decrease of 10% would still yield an ERR of 12% under the most conservativeassumptions. The project is thereforewell justified.

Risks

4.20 While the project is designed to reduce as much as possible risks associated with implementation,there is neverthelessthe possibility that implementationof the maintenance component would be hampered by lack of funds being made available by the Government in adequate amounts and timely manner. To overcome this problem, the Government has agreed to establish a a financing mechanism to be used exclusively for routine and periodic road maintenance and to ensure that adequate funds are available for this purpose during project implementation. The other major risk concerns MTP's capability to manage and execute force account works and the possibilityof poor quality which would reduce the economic life and thus the benefits of the works undertaken. The project includes technical assistance and contractors to carry out part of the civil works to reduce these risks to the extent possible. - 48 -

V. AGREEKENTSIREACHED AND WRECMNElT~ION

5.01 The followingmajor items were discussed and agreed upon with the Government during negotiations:

(a) the Government will (i) in the immediate future increase road transport tariffs for passengers and freight by 40%, (ii) by March 31, 1984, further increase road transport tariffs taking into account price variations between May 1983 and March 31, 1984, and (iii) by December 31, 1984 deregulate all road transport tariffs unless the transportationplan study provides reasons satisfactory to the Association to do otherwise (para. 1.32);

(b) the Government will remove all restrictions on the selection of routes and commodities carried by private transportersby December 31, 1984 (para. 1.33);

(c) the Government will ensure that all authorizationsrequired for the importation of goods financed under the proposed project are given within two weeks of final approval of the related contracts and before notificationof those contracts (para. 1.44);

(d) the Government will allocate a minimum of US$15 million in foreign exchange annually during implementationof the proposed project to cover normal, recurrent spare parts needs of the commercial vehicle fleet, and by December 31, 1986 the Government and the Association will exchange views on the estimated import programs for spare parts of transport enterprises for the next three years (para. 2.10);

(e) MTRT's new planning unit will carry out a national transport planning study, whose terms of reference will be subject to the Association's approval, including recommendations on road user charges and fuel prices and taxes, as well as the cost structureof road passenger services; by December 31, 1984 the completed study and its recommendationswill be submitted to the Association; the Government thereafter shall promptly take appropriate action resulting from the study, taking into account the Association comments (para. 2.12);

(f) the Government will ensure that importation of vehicles is limited to those which meet all axle weight and dimension specifications for road use; further, the Minister of Public Works will have-the sole authority to approve the technical aspects of import licenses for trucks, assembly licenses and road licenses for these trucks (para. 2.13);

(g) the Government will prepare by December 31, 1983 an action plan for road safety to be submitted to the Association and, taking into account the Association'scomtaents, implemented the plan no later than June 30, 1984 (para. 2.14); - 49 -

(h) the Government will, by September 30 of each year during project implementation,exchange views with the Asociation on investments for road improvementsand construction(para. 2.25);

(i) the Government will make FMG 5 billion available for road maintenance in 1984 and will set up a revolving fund in the Treasury by January 31, 1984 with an initial deposit of FMG 600 million to be replenishedquarterly (para. 2.25);

(j) the Government will, by December 31, 1984, set up a Road Fund in its Central Bank to be used exclusively for road maintenance; revenues for the Road Fund will be provided from revenues from taxes and duties on motor fuel; the Government will also set up a new revolving fund under conditions similar to the previous one, except it will be in the Central Bank and financed from the Road Fund; the Government will, by December 31, 1986, exchange views with the Association on estimated funds required for road maintenance for the next three years and will take measures to ensure that such funds are available to MTP as and when needed (para. 2.25);

(k) the list of roads to be maintained by contractor and by force account during the each year of project implementationwill be agreed upon with the Association by June 30 of the preceding year (paras. 3.04 and 3.05);

(1) the regrouping of existing bridges into seven multi-purpose maintenance brigades, one of which would be placed in each region and the special division of Tolagnaro under the sole authority of MTP (para. 3.06);

(m) the lists of equipment for road maintenance and for LNTPB (paras. 3.06 and 3.10);

(n) BNI and any other bank acceptableto the Associationwill implement the pilot scheme following procedures and criteria acceptable to the Association (paras. 3.19 and 3.20);

(o) the Government will, by December 31, 1983, open a separate account at the Central Bank for deposit of repayments to BNI and any other bank acceptable to the Association (para. 3.19);

(p) the terms of reference for preinvestmentstudies, the study of the organizationof MTP and the national transpo~rtplan (paras. 3.22, 3.23, 3.25, and 3.27);

(q) the Government will establish a high-level transport planning unit within MTRT by December 31, 1983 (para. 3.27);

(r) consultantswill be employed in accordancewith Bank Group guidelines and under terms and conditions acceptable to the Association (para. 3.39); - 50 -

(s) the Government will furnish the Association, for its approval, the qualificationsof candidates for fellowships,the type and cost of training, the institutionsselected and the probable assignmentsof the trainees upon their return (para. 3.39);

(t) accounting and auditing requirements(para. 3.43);

(u) reporting requirementsincluding a completion report (para. 3.44);

(v) reporting requirementsfor BNI (para. 3.45).

5.02 A condition of disbursement of the credit funds for the rehabilitation of the private road transport industry component will be that subsidiary agreements, acceptable to the Association, between the Government and BNI and between the Government and any other bank acceptable to the Associationhave been signed (para. 3.15).

5.03 A condition of effectivenessof the proposed credit is that the Government has increased road transport tariffs for passengers and freight by 40% (para. 1.32).

5.04 Agreement having been reached on the items listed in para 5.01, the proposed project is suitable for a credit of SDR 41.7 million (US$45 million equivalent)under standard IDA terms.

June 1983 - 51 - Annex 1 Table 1 DEMOCRATIC REPUBLIC OF MADAGASCAR SIXTH HIGHWAY PROJECT

Maritime and Coastal Shipping Traffic ('000 tons)

1977 1978 1979 1980 1981

Maritime 1,448.3 1,436.9 1,441.3 1,528.4 1,305.5

General Cargo 787.2 866.3 894.5 951.2 747.7

Petroleum Products 661.1 570.6 546.8 577.2 557.8

Coastal 842.9 853.9 888.1 932.0 857.9

General Cargo 494.9 504.2 586.0 526.0 544.3

Petroleum Products 348.0 349.7 302.1 406.0 313.6

Total 2,291.2 2,290.8 2,329.4 2,460.4 2,163.4

Source: Service de Douanes - 52 -

Table 2

MADAGASCAR

SIXTH HIGHWAY PROJECT

Motor Fuel Consumption and Price - 1974-82

GASOLINE DIESEL TOTAL

YEAR CONSUMPTION PRICE CONSUMPTION PRICE CONSUMPTION

('000 m 3 ) (FMG) (FMG) ('000 m 3)

1973/74 113 56.6 176 37.7 289

1974/75 111 74.6 170 39.6 281

1975/76 107 N/A 117 N/A 224

1976/77 110 86.0 151 48.6 261

1977/78 117 N/A 151 N/A 276

1978/79 116 139.0 181 71.0 297

1979/80 111 165.0 183 85.0 294

1980/81 101 263.0 176 122.0 277

1981/82 86 323.0 155 148.0 241

Source: Institut National de la Statistique et de la Recherche Economique & Solima

N/A - Not available - 53 -

Annex 2 DEMOCRATICREPUBLIC OF MADAGASCAR SIXTH HIGHWAYPROJECT STAFF APPRAISAL REPORT

Bank Group Projects in the Transport Sector

1. The First Highway Project (Credit 90-MAG, US$10 million, 1966) provided for constructionto paved standards of two sections of the Antananarivo-Mahajangaroad (145 km). The Project PerformanceAudit Report (PPAR, No. 1409), dated January 3, 1977, found that the cost of the road constructionwas far below original estimates and the recalculatedeconomic rate of return (between 15% and 20%) was greater than that estimatedat appraisal (11%). Surplus funds were used to finance supplementaryworks and studies, which necessitateda delay in project completion.

2. The Second Highway Project (Credit 134-MAG/Loan570-MAG, US$8 million, 1968) helped to finance constructionof 146 km of two major trunk roads and constructionof three bridges. The project did not completely meet its objectives,and completionwas delayed by about one year due to difficultiesof the contractorswho carried out the project. Actual project cost was US$15.2 millicn in contrast to the appraisal estimate of US$11.5 million, including contingencies. This representedan overrun of 30%, of which about half was due to price increasesand half to increased quantities. The cost overrun wrasfinanced in large part by the Government, but savings under the First Highway Project also contributedto financing. PPAR No. 811, dated July 18, 1975, found that the economic justificationof one of the project roads, Ambilobe-Ambanja(91 km), was doubtful in view of its low rate of return--8%--primarilycaused by higher constructioncosts than foreseen at appraisal. The ERR on the individual components of the Second Highway Project ranged from 4% to 21% compared to the 8% to 16% estimated at appraisal.

3. The Third Highway Project (Credit 351-MAG/Loan570-MAG, US$30 million, 1973) provided for constructionof 417 km of primary roads, detailed engineeringof the Antschihy-Ambanjaroad and a review of the traffic counting system. In 1975 the project had to be modified due to substantial cost increasesas a result of price and quantity increases not anticipatedat appraisal, as well as the develuationof the US dollar. A supplementarycredit of US$5.6 million was thereforeprovided while constructionwas reduced by 67 km. PPAR No. 2143, dated July 27, 1978, found that while the overall recalculatedrate of return of 14% was acceptable and in line with appraisal estimates (or slightly below the originally estimated 16%), two road sections had individualrates of return of 10% or less, since expected agriculturalbenefits failed to materializedue to the deterioratingpolitical and economic situation of the country. The PPAR outlined the project'sdeficiencies, including insufficientprovision of funds for road maintenanceand a failure to train Malagasy nationalswhich would have contributedto institutionbuilding.

4. The Fourth Highway Project (Credit 641-MAG, US$22 million, 1976) helped finance constructionof 370 km of secondaryroads between Tsiroanomandidyand Maintirano and the 67 km of primary roads between Arivonimamoand Analavory deleted from the Third Highway Project. A road - 54 - maintenance componentprovided for a study to evaluate maintenanceneeds, including equipment and technicalassistance for training local staff in road maintenance. The project's road constructioncomponent is partially completed but the largest section, Tsiroanomandidy-Maintirano,encountered major difficultiesdue to poor management and organizationof works by the state-owned constructioncompany (SINTP). Bridges have been completed but earthworks and approacheshave yet to be finished. The maintenancestudy is complete;implementation of the recommendedtraining program has been delayed. Since training of local staff was essentialto improving maintenance operations under the Fifth Highway Project, the Government agreed to take measures to allow an early start of training.

5. The Fifth Highway Project (Credit 938-MAG, US$24 million, 1979; plus a US$10 million EEC SpecialAction Credit) is helping finance urgently needed resurfacingon about 200 km on RN4 between Mahajanga and Antananari- vo, constructionof bridges for the Antsohihy-Ambanjaroad, continuationof improvementof maintenanceoperations begun under the Fourth Highway Pro- ject, a feasibilityand detailed engineering study, and training of MTP staff by technical assistance. The project is about two years behind schedule due to mismanagementand lengthy Government procurementprocedures. However, since early 1982 implementationhas greatly improved with all major components underway.

6. Bank Group assistancehas also helped finance constructionof feeder roads under agriculturaland rural developmentprojects. The Village Livestock and Rural DievelopmentProject (Credit 506-MAG, 1974) financed the constructionof about 170 km of secondaryroads in Mahajanga province and maintenanceof about 280 km of roads. The Mangoro Forestry Project (Credit 525-MAG, 1974) provided for constructionand maintenance of 56 km of gravelled service roads, 840 km of plantation truck roads and 910 km of tracks. The Morondava Irrigationand Rural DevelopmentProject (Credit 332-MAG, 1972) included the improvementof 24 km of secondary rural roads and constructionof about 90 km of feeder roads. Constructionof farm roads was also included in the Lake Alaotra IrrigationProject (Credit 214-MAG, 1970). The Second Village Livestock and Rural Development Project (Credit 1211-MAG, 1982) will help in the constructionand maintenanceof about 100 km of rural access roads, continuingthe work begun under the first project.

7. A port project (Credit 200-MAG, US$9.6 million, 1970) provided for extension of Toamasina Port, creation of the Toamasina Port Authority, and technical assistance for management personnel and training. In 1973 the credit was increased by US$1.8 million to cover a shortage of funds resulting from a currency realignment. PPAR No. 2299, dated December 22, 1978, concludedthat (i) the physical objectives of the project were satisfactorily carried out; (ii) a lower, revised economic return of 7.0% was due to lack of traffic growth resulting from adverse local and international political and economic conditions that could not have been foreseen at the time of appraisal,and (i.ii)although the technicalassistance for institution building did not achieve satisfactoryresults initially because - 55 -

8. Bank Group assistance has included two projects to aid the Reseau National des Chemins de Fer Malgache (RNCFM). The First Railway Project (Credit 488-MAG, US$6 million, 1974) assisted RNCFM in replacing outdated equipment to provide a modest increase in transportcapacity, improving the railway's managerial and operationalcapacity, and setting up a framework for transport planning. The project had to be reduced in scope due to cost overruns and was completedwith a three-yeardelay. Although a transport planning and coordinationunit was created in the Ministry of Transport,it did not succeed in setting up a general framework for transportpolicies mainly because the Government failed to integrate this team into the decision-makingprocess. The recalculatedrate of return on the project was less than 10%. The major problems faced by the project resulted from deterioratingeconomic conditionsand from general political uncertainty regarding transportpolicy formulationand the overall institutional environment. Management of the railway was, however, considered generally efficient. No audit report is yet available on this project. The Second Railway Project (Credit 903-MAG, US$13 million, 1979) continues the rehabilitationefforts undertaken in the first project and provides for replacement of outdated equipment, track renewal, and improvementsin telecommunicationsand workshops. It also provides for implementationof measures to strengthen the railway's financialmanagement. Most of the physical elements of the project have been implementedsatisfactorily; however, in view of the deteriorationin the management of the railway dn non-compliancewith a number of covenants, the credit was suspended in June 1982. It was later reinstated (December 1982) following implementationby the Government of a complete financial program for the railway. Reallocationof the remaining funds under the credit is presently envisaged to help strengthen the financialand operationalmanagement of the railway. - 56 - Annex 3

DEMOCRATICREPUBLIC OF MADAGASCAR

Sixth Highway Project

Road Transport Industry and Spare Parts Requirements

Table 1: Estimate of Madagascar's Road Transport Fleet

Total Fleet Estimate of Of which Operational Fleet Operating ----Immobilized------Needing Needing ______repairs rehabilitation

Light vehicles 13,420 10,720 59% 36% 5%

Utility vehicles 11,210 9,060 61% 33% 6%

Buses 740 560 1 ] 61% 28% 11% Heavy trucks 4,620 3,880

Table 2: Annual Imports of New Vehicles

Annual Average 1972-1977 1978 1979 1980 1981 1982

Light vehicles 1,550 1,035 1,390 1,220 195 275

Utility vehicles 1,200 1,135 1,470 1,095 165 160

Buses 60 50 145 135 20 5

Heavy trucks 350 405 410 600 780 310

(of which Govern- ment: EBRO/IFA) (30) (92) (269) (621) (142) - 57 - Annex 3

Table 3: Estimate of Recent Imports of Spare Parts: Turnover of the Main Motor Vehicle Dealers (FMG million)

1978 1979 1980 1981 1982

Spare parts 2,920 2,500 4,055 1,775 925

Tires 2,435 3,665 4,410 135 2,920

Total 5,355 6,165 8,465 1,910 3,845

Table 4: Estimate of Emergency Spare Parts Needs (FMG million; CIF prices)

Spare Tires Routine US$ parts maintenance TOTAL equivalent Itemsl/ (million)

Light vehicles 1,137 415 113 1,665 (4.5)

Utility vehicles 1,164 659 128 1,951 (5.4)

Buses 355 259 38 652 (1.8)

Heavy trucks 1,207 1,532 130 2,869 (7.8)

Total 3,863 2,865 409 7,137 (19.5)

1/ Batteries,oil and air filters; braking fluid; spark plugs

SOURCE: FAC study, Februaryt1983 - 58 - Annex 4 MADAGASCAR SIXTH HIGHWAY PROJECT Highway Design Standards

Primary Secondary Road Network Road Network

1. Roads

Maximum design speed (km/h) 80 50

Minimum radius for

horizontal curves (m) 200 (30) 1/ 70 (25)

Maximum radius for

vertical curves

crest (m) 2,000 (1,500) 1,000 (750)

sag (m) 1,000 (750) 500

Maximum grade (%) 8 12 (14)

Transversalslope

Pavement (%) 3 3

Shoulders (%) 4 3

Pavement width (m) 5.5 to 7.0 4.50

Platform width (m) 8.8 to 10.3 6.50 (4.00)

Maximum Permissible

Axle load (t) 10 10

2. Bridges

Carriageway widt:h (m) 3.5 and 7.0 3.0

Sidewalks (m) 2x0.75 to 1.00 2xl.0

Design load:

in accordancewith fascicule 61 61 B

1/ Figures in parent:hesesindicate values adopted in exceptionalcases for specific short sections located either in very mountainous terrain or in other part:icularlydifficult conditions. Source: Ministry of Public Works, 1982. - 59 -

Annex 5

DEMOCRATIC REPUBLIC OF MADAGASCAR

SIXTH HIGHWAY PROJECT

Earth Roads to be Maintained by Contractors

Road Description Length

(km)

Lot 1 - North

RN 32 Befandirana - Mandridsara 110*

Off RN 32 Abararata 45

Off RN 32 Tsaraonenana 20

Off RN 32 Antsakabary 75

RIP 116-RN 32 Andohajango 35

RIP 119 Manditsara - Marotanarana 35

Sub-total 320

Lot 2 - Center

RN 43 Soavinanavian - Sambaira 110*

RIP 91 Fenoarivo -Mahitsy 135

RIP 91 Feneorivo - Kiranomera 115

RIP 92 Miarinarivo - Soavin 50

RIP 108-RN 1 Mahasolo 20

Sub-total 430

* Roads to be maintained in the first year. - 60 - Annex 5

Road Rehabilitation Program in the Highlands Rice Project Area

Designation Length (km)

Ambositra-Imerin-Imady- 25 Ambalasoaray

Ambalasoaray- 10 Ambohimandrosa

Ambatolahy-Amboniriana 5

Anjanamasy-Behena 10

Ivato-Antoetra 24

Anjoma-Ambovombe 19

RN34-Alakamisy-Mahaiza 19

Talata-Tritriva-Alakamisy 18

Ambohibary-Soahazo- 20 Kelivozona

SUB-TOTAL 150 - 61 -

Annex 6

DEMOCRATICREPUBLIC OF MADAGASCAR

SIXTH HIGHWAY PROJECT

Earth Roads to be Maintained by Force Account

Road Description Length

RN (km)

5. Maroantsetra- Soamiana Ivongo 200*

5a. Sabamva - Antalaha 90*

5a. Sambava - Vohemar 45

8. Marofototra - Tsirihihana 95

10. Andranovory - Ambovombe 105

11. Manjagara - Nosy Varika 100

12a. Taolagnaro - Manatenina 120

13. Ihosy- Ambovombe 380*

27. Ihosy - Furafangama 270

44. Ambatonarazaka - Vohitraivo 70

55. Tanandara - Revoay 15

Sub-total 1,550

Selected Feeder Roads 1/ 300

I/ To be detailed for execution in the second and third years.

* To be maintained in the first year. - 62 - Annex 6

Road Maintenance in the Highlands Rice Project Area

Designation Length (km)

Ambositra

Ambositra-Andina 17

Soavina-Ambondromisotra 10

Ambatondradama-Vinaninony 15

Faratsiho-Andranomiady 25

Anstrabe

Antokefoana Ambohimasina 23

Nordtsarazaza-Ambatolampikoly 15 (passarit par lalatsara) Fandriana Ambehibary 20

Anovy-Mahazoacivo 25

SUB-TOTAL 150 - 63 -

Annex 7

DEMOCRATICREPUBLIC OF MADAGASCAR

SIXTH HIGHWAYPROJECT

Highway Equipment for Road Maintenance

Equipment Quantity Unit Price Cost

(US$'000) (US$'000)

Batch A (5th Highway Project)

Hand compactor 37 14.7 543.9

4-wheel-drivevehicles 8 16.0 128.0

Miscellaneoustools 194.4

866.3

Batch B (Sixth Highway Project)

Grader 1 81.3 81.3

Truck 8 20.0 160.0

Water tank truck (6000 1) 7 21.4 149.8

Service truck 5 80.0 400.0

Pneumatic compactor 2 60.0 120.0

Van 8 9.3 74.7

Light vehicles 15 9.3 140.0

Road patching truck (CamionPAT) 1 58.7 58.7

Bitumen melting furnace 1 42.7 42.7

Mechanical shovels 7 85.7 599.9

Miscellaneous tools 387.1

2,214.20 - 64 -

Annex 8

DEMOCRATICREPUBLIC OF MADAGASCAR

SIXTH HIGHWAY PROJECT

List of Equipment for LNTPB

Equipment Group 1/ Cost

(US$'000)

1. General 70

2. Soils and foundationtesting 300

3. Material testing 200

4. Supervisionof civil works 330

Total 900

1/ Equipmentwill be bought in order of priority as determinedby consultantsCEBTP (France). - 65 - Annex 9

DEMOCRATICREPUBLIC OF MADAGASCAR

SIXTH HIGHWAYPROJECT

Study of Future Pavement Maintenanceand StrengtheningPrograms Outline Terms of Reference

Introduction

1. The Malagasy Government intends to carry out a study on systematic methodologiesfor maintenance,conservation and bettermentof its paved road network. The Governmentwill need the services of experienced consultants to carry out this study in collaborationwith LNTPB, the Government's soils laboratory.

Objectives

2. The objectives of the study are:

(i) to review the different pavement structures'capacity to withstand present and future traffic conditionsand their adaptabilityto regional,topographic, climatic and geotechnicalconditions and, if necessary, design a new set of typical cross-sections;

(ii) to design appropriatemaintenance operations for the different pavement structures;

(iii) to prepare short- and long-termprograms of pavement resurfacingand road improvement;and

(iv) to prepare economic and engineering studies for the improvementof roads requiring reconstruction.

Scope of Consultant Services

Phase I

3. Consultantsshould carry out:

(i) an inventory of the paved road network including existing conditions of the roads (alignment,grades, pavement structure, drainage, etc.);

(ii) an estimate of traffic based on the existing data (traffic count including its composition,loads and projection);

(iii) an inventory of constructionmaterials including quantitiesand qualities (existing borrow pits and quarries); - 66 -

(iv) deflection tests of the existing pavements (about 2,500 km);

(v) pavement evaluation in light of the existing conditions.

Phase II

4. They should:

(i) review the existing pavement design and constructionpractices and, if necessary, design appropriatetypical sets of pavement structures;

(ii) design appropriatemaintenance operations for each type of pavement structure and regional setting;

(iii) prepare short- and long-termprograms of pavement resurfacing;

(iv) prepare a program of improvementworks for roads that can no longer be economicallymaintained by (ii) and (iii) above.

Phase III

5. Following agreement between the Government and the Bank, consultants should prepare feasibilitystudies, detailed engineeringand bidding documents for roads that need immediate resurfacingand/or reconstruction.

A. FeasibilityStudy

6. The objective of the feasibilitystudy is to define the optimum economic solution for the improvementof the identified road section. The choice will be based on a comparison of alternativesand the optimum solution will be based primarily on:

(i) determinationof the scope of the resurfacingand/or reconstruction to be undertaken;

(ii) the technical characteristicsto be given to the sections to be reconstructedand/or resurfaced;and

(iii) the cost of executing the works.

7. The feasibilitystudy will include:

(a) Traffic studies. Additional traffic counts and load distribution should be carried out on the selected road sections. The following vehic.Letypes should be used: heavy trucks (greater than a 5 ton load) and buses, light trucks, vans and land rovers, and cars. -For each section of road studies, forecastsof traffic shall be estabLishedfor each five-year period during the economic life of the proposed investments. The forecasts should be establishedwith the help of origin-destinationsurveys of typical users of the existing corridors. - 67 -

(b) Study of road transport costs. For each technical solution considered,the operating costs for each type of vehicle as well as its evolution during the economic life of the investmentwill be studied. The costs of routine and periodic maintenancewill be included, as well as the costs of resurfacingand/or reconstruction. The interrelationshipbetween traffic, the vehicle operating costs, maintenance costs and the cost of reconstruction will be considered.

(c) Technical investigations. Consultantsshould undertake all pertinent topographic,soils and hydrologicalsurveys and testing of the performanceof the existing pavement to determinenew technical characteristicsof the identifiedroad sections. All bridges and drainage structuresto be repaired or reconstructedwill also be examined and the necessary works defined. The documents necessary for the execution of these works will be prepared, including investigationsfor foundation studies and hydrologicalsurveys for drainageworks. The consultantsshould also study with special attention the materials best adapted for the constructionof the subgrade, sub-base, the base and wearing courses. They should identify and carefully evaluate the quality and quantity of materials of the borrow pits and rock quarries within economical hauling distance of the road. They should also, if necessary, carry out soils surveys and identify quarries and borrow pits for road maintenance in the regions where these needs are identified in Phase I.

(d) Economic comparisonof the solution examined. To define the economicallymost advantageoussolution, a comparisonwill be made to the total transport costs on the road (includingall vehicle operating costs) for the economic life of the proposed investment, as well as the costs of investmentsand maintenanceassociated with the different solutions considered. The comparison is to determine the optimum technicalcharacteristics as well as the timing of the investment. Normal, generated and diverted (if foreseen) traffic will be separatelyidentified. Other benefits to be quantified are: the economic savings due to time-savingsfor the transport of high-value goods, and reduction in spoilage of perishable goods.

8. The various solutionswill be compared to a reference solution (without case), which is defined as the continueduse of the existing road, on its preserLtalignment, without major investmentsand with maintenanceas required. The economic rate of return and the net present value using a 12% discount rate will be determined for each solution, as well as the first-year return (comparisonof costs to benefits for the first year after completion). A sensitivityanalysis will be performed to account for uncertaintyin any of the cost and benefit parameters entering into the calculation. Any possible interdependenceamong the variables should be considered.

9. The costs to be taken into account are economic costs, i.e., net of taxes and adjusted to reflect the scarcity or surplus of the resource. - 68 -

B. Detailed Engineeringand Bidding Documents

10. This step will include the preparationof detailed engineering,cost estimates and bidding documents for the works selected by the Government on the basis of the feasibilitystudies' recommendations. It will include the final detailed topographicsurveys and geotechnicalstudies to complement the work done during feasibilitystudies.

11. The bidding documentswill be prepared for international competitivebidding with prequalificationof contractors,in accordance with the Guidelines Concerning Procurementunder World Bank Loans and IDA Credits. The consultantswill recommend the grouping of the contract works according to the directivesof the Government and the best way to enhance internationalcompetitive bidding.

12. As soon as the necessary elements for the detailed definition of the works are shown, the consultantswill prepare a prequalificationdossier. It will include an invitation to apply for prequalificationas well as a brief descriptivenotice on the nature of the works. The consultantswill also prepare the newspaper publicity and the circulars for informing the embassies of Bank member countries, Taiwan and Switzerland.

13. The bidding documents shall include:

(a) all sections necesary for staking out the road centerline, cross-sectionsand grades and for constructionof sub-grades,base course, ditches, shouldersand the pavement, as well as for all drainage structures and bridges and the associatedequipment fitting;

(b) the general conditionsof contract, especially concerning the rules about performancebond, price adjustment,insurance to be provided and advance payments;

(c) the special conditionsof contract,including the technical specificationsof the constructionmethods and materials and the control and measurementsprocedures;

(d) schedule of unit prices; and

(e) the quantity estimates.

14. Consultants should also prepare a confidentialreport which should comprise the detailed cost estimate, broken down into foreign costs, local costs and taxes. The foreign costs will include, in particular,the following: depreciationof imported equipment, imported materials and supplies, salaries and benefits for expatriate personnel, overheads and profits of the contractor,as well as the main foreign exchange cost-of goods produced in Madagascar which are used in the project. - 69 - Annex 10

DEMOCRATIC REPUBLIC OF MADAGASCAR SIXTH HIGHWAY PROJECT Draft Terms of Reference

Study of the Developmentof Feeder Roads

Introduction

1. The purpose of the proposed study is to provide a basis for the integrated planning of rural road improvementsin the agriculturalprojects areas. A second major objective is to establish criteria and methods for road maintenanceactivities following such improvements. Finally, the study will specificallyconsider ways and means of supporting the growth of small contractorscapable of undertaking road works in these areas.

2. The first criterion in planning rural road improvementsshould be to provide all-weatheror nearly all-weatheraccess to the maximum number of people and the maximum amount of productive areas within the limits imposed by aailable resources. The second criterion is to establisha system of prioritiesrelfecting national and local developmentobjectives, both economic and social in nature. A third criterion is the capacity to program improvementworks and subsequentmaintenance in such a way as to make the most effectiveuse of available resources.

Road Network Inventory

3. It should cover about 2,000 km, including 1,000 km located in the area of the Highland Rice Project, financed by IFPD, and 1,000 km in priority agriculturalareas identifiedby local agriculturalextension staff. The inventory should include length, surface type and condition, major structures,and general geometric characteristics(width, slope, etc.). Each road should be described in summary fashion, at about the level of detail given in the pre-feasibilitystudy for this project. Informationconcerning the socio-economicpotential of the zone served by each road should also be collected. These data should include, bkut need not necessarilybe limited to the following:

- population served

- collectivities served

- schools, clinics, etc. served (present and planned)

- present traffic levels (includingoxcarts, bicycles and motorcycles,and pedestrian traffic)

- agriculturalarea served (may be divided into rice paddies, rain-fed crops, and pasture)

- other developmentresources (forest,minerals, rural industries, tourism potential). - 70 -

Based on this information,each road should be assigned to one of three groups: (1) roads in good condition,requiring only regular maintenance to remain that way; (2) roads which could be restored to an acceptable condition through spot improvementsand subsequentlyaintenance; and (3) roads which will require major reconstructionbefore a meaninful maintenanceprogram can be undertaken.

Local Resource Inventory

While carrying out the road inventory, the study team should also investigate the availabilityand quality of local resources for carrying out maintenance and minor improvementworks. These would include, in each community:

- availabilityof labor to work at half time throughout the year on routine road maintenance (one person per 2 km of road);

- willingness and ability of community to donate group labor for road maintenance,three or four times a year;

- availabilityand capacity of skilled workers/smallcontractors;

- availabilityand location of road bulding materials (stone, lateritic soils, wood)

- availabilityof local means of transportfor materials;

- willingnessand abilityh of community to assume supervisoryand fiscal responsibilityfor the routine maintenanceof improved roads.

5. This informationwould also be used in developing the system for setting priorities for future road improvementsand maintenanceactivities.

Maintenance,Planning and Programming

6. Bas(edon the technical characteristicsof the roads to be reconstructedand the roads receivingspot improvements,the study will define minimumnmaintenance requirements for each improved link as well as for roads presentlyin good condition. The planned maintenanceactivities should be, in3ofar as possible, those capable of being carried out by labor-intensivemethods with a minimum of technical supervision,using only hand tools andlnon-motorized means of transport,and depending to the maximum extent:possible on the use of local constructionmaterials. The most important routine maintenancetasks to be carried out would be:

Routine Maintenance

a) keeping drainage structuresand roadside drainage free from obstructions;

b) cutting and clearing vegetationwhich presents a potential danger to traffic safety and/or the structural soundness of the road; - 71 -

c) repairing damage to the road surface (potholes,deformations) and initial erosion to any part of the road;

d) minor repair to drainage structures.

Periodic Maintenance

e) resurfacingofearth or gravel roads (every 10 years);

f) resurfacingof sections paved with water-boundmacadam (every 25 years).

EmergencyMaintenance

g) reconstructionor major repairs to road surfaces or structures damaged by rain or floods or for any other reason.

7. It is envisaged that routine maintenanceactivities would be carried out using the "cantonnage system, supportedby occasional communityeffcrts for tasks (c) and (d) above. The study should specify the types of tools and transport to be provided and should investigate local costs and sources of supply, including spare parts.

8. Periodic and emergencymaintenance is expected to be carried out by small constractors,with possible support from the local subdivisionsof MTP (in the case of provincial roads) and MPARA/GenieRural (in the case of tertiary roads). Community contributionsof funds, food, labor, materials and/or transportmay also be mobilized for item (g) under unusual circumstancessuch as the recent cyclone damage.

9. The study should provide an initial estimate of recurrent costs for maintenanceunder different conditions of soil type, terrain (slope), surface type, and traffic. These estimates can then be tested against actual experience.

10. Using the inventory data and priorities establishedabove, the study should estimate the necessary funds and local resources to rod maintenance and spot improvementactivities, according to the principle of assuring a maximum of all-weatheraccess throughout the area. A reconstruction,maintenance, and spot improvementprogram will be drawn for these roads. The study should be coordinatedwith the organizationstudy of MTP to find an appropriateinstitution(s) to carry out the development and maintenanceof feeder roads.

Support for Small Contractors

11. The local resource inventory described above will identify a number of skilled individualsor small enterprses capable of undertaking minor road works or suportingactivities such as stone crushing, culvert manufactur,materials transport, too, repair, etc.

12. The study should investigatein detail the present capacity and constraintsfacing these small contractors,and should propose a program to increase this capacity and overcome these constraints. The following -72- information, at a minimum should be obtained:

- level of formal education

- ability to read contract documents and technical specifications,including plans and drawings;

- ability to make formal calculations;

- years of experience in road work;

- lBvel of technical skill;

- nmmber of employees;

- inventory of tools and equipment, including means of transport;

- contacts with suppliers of raw materials, tools, spare parts, and repair facilities;

- experience with credit (formal and informal);

- cash flow constraintsaffecting ability to perform work as required.

Based on this information,the study should present an analysis of general problems facing small constructionenterprises in these areas and recommend an individualizedprogram of support for contractorswho appear to have the capacity to assume increased responsibilityin the future. Such support could include:

- subcontracting of minor works;

- individualcontracts to carry out spot improvementsunder the direct supervisionof the project technical assistanceand counterpartstaff;

- field demonstrationsof improved techniquesand/or use of new tools and materials;

- basic education, if required, to improve literacy and numeracy;

- group or individual instructionin subjects such as work organizationand payment procedures, financialand cost accounting,bid prparation,equipment procurement,management and maintenance,and use of credit;

- possible establishmentof a small equipment pool available to contractorson a rental basis (light trucks, roller, small crusher); - 73 -

possible establishmentof a revolving fund to provide short term credit to contractorsundertaking spot improvements.

Implementation

The study will be carried out in a year by an experienced engineeringfirm. - 74 - Annex 11 MADAGASCAR SIXTH HIGHWAY PROJECT

Technical Assistance for the Training Program and the Management of MTP Road Operations Outline Terms of Reference

Objectives

1. The objectives of the technical assistance for the training program are: (a) installationof a permanent training center in Antananarivo; (b) design of appropriatecourses for the specialties required; (c) continuationof training of transport sector personnel, including engineers, technicians,skilled and semi-skilledlaborers; (d) implementationof training and seminars for road sector chiefs and other skilled personnelrequired for the road maintenance brigades; (e) management, administrationand supervisionof road maintenance brigades and workshop operations; (f) assistance to MTP and MTRT in recruitingand training addition.alskilled staff needed for the management of road and transport sector operations.

2. Since MTP is seriouslyhandicapped by the shortage of experienced and qualified personnel especiallyat the managerial level, while the training program is underway, MTP will be provided with in-line experts to efficientlymanage road constructionand maintenanceoperations.

Compositionof the Training Team

3. The center will be headed by a Malagasy professional. A team of seven technical experts will be assigned to the center. Compositionof the team and the length of each expert's assignment is summarizedbelow:

Consultants Man-Months

(a) highway engineer (chief of mission) 30 (b) two road maintenance and constructionexperts 60 (c) one mechanical engineer specializingin heavy equipment for gasoline- and diesel-poweredmachinery 30 (d) one expert in training equipment operators 30 (e) three labor-intensiveexperts 108 TOTAL 258

Qualifications

4. Each expert should have: (a) fluency in spoken and written French; (b) training experience in his field in order to facilitate professionaland technical instruction; (c) work experiencein a developing country; and - 75 -

(d) education commensuratewith the position to be occupied.

Particular qualificationsand functions of the team members are described below:

Chief of Mission

5. The chief of mission should be a highway engineer with experience in operation and maintenance of road equipment. He should have at least (a) ten years' experience in road administration,construction and maintenance,as well as in budget matters and cost price accounting;and at least (b) five years' experience in technical and professionaltraining, preferably on-the--jobtraining. Experience in administrationand financial management of a constructionfirm and/or in manpower planning and personnel management is desirable. His duties will include:

(i) coordinatingall mission activities and maintaining liaison with MTP;

(ii) preparing professionalability tests to be used as a basis for recruiting personnel, and recommendingthe personnel to be recruited;and

(iii) training.

Road Maintenance and ConstructionExperts (2)

6. They should be road engineers or senior road work foremen with at least five and ten years' experience in the field respectively. In particular they should have extensiveknowledge of and experience in (a) road maintenanceand constructionand maintenance of equipment; (b) use of heavy equipment; (c) various elements of road constructionmanagement, contract and specifications;and (d) soils engineering. They should:

(i) train the road engineers, constructionforemen and laborers; (ii) assist in training equipment inspectorsand operators; and (iii) provide technical,on-site training of regional road chiefs.

Heavy EquipmentMechanic (1)

7. He should have at least eight years' professionalexperience in the use of heavy equipment for public works. His qualificationsshould be as follows: (a) specializationin both diesel and gasoline engines; (b) experience in operation and maintenance of equipmentused in maintenance work; (c) knowledge of vehicle electrical systems; and (4) basic knowledge of general mechanics. He should:

(i) train and give refresher courses to diesel- and gasoline- engine mechanics; - 76 -

(ii) train and give refresher courses to mechanics and mechanic-helper/greasersfor workshops and mechanized roads units;

(iii) train spare-partsstoremen; and

(iv) assist in training equipment inspectors.

Expert in Training Equipment Operators

8. This expert should have at least five years' experience in training equipment operators. He should be familiar with the major types of heavy equipment currentlyused in road constructionand maintenance. He will:

(i) train and give refresher courses to operators of various types of road machinery;and

(ii) supervise the mechanics and greasers assigned to worksites.

Labor-intensiveExperts (3)

9. They should be highway engineerswith at least five years' experience. In particular they should have extensive knowledge of and experience in (a) constructionand maintenance of roads; (b) organization of labor intensive execution of road constructionand maintenance operations;(c) use of tools and light equipment;and (d) soils engineering. They should assist (i) DPCH and regional services heads in planning and supervising"cantonnage" or routine labor-intensiveoperations for road maintenance;and (ii) the chief of team in executing those operations.

MTP Management

Compositionof the Management Team

10. A team of two in-line managers, a road organizationmanager and a road maintenancemanager, will be assigned to MTP for three years to assist in the management oi-road constructionand maintenanceoperations.

Qualificationsand Functions

11. Each expert should: (a) be fluent in French; (b) have experience in a developingcountry; and (c) have education commensuratewith the position to be filled. Specific qualificationsand functions of the different team members are described as follows:

Road OrganizationManager

12. The expert will serve a line function in MTP; he will act as Director General of Works. He should be a highway engineer with at least ten years' experiencein the field and in management of road operations. His duties will include: - 77 -

(i) coordinatingall activitiesof the DirectorateGeneral of Works, including road constructionand maintenance,workshop and soils laboratoryoperations;

(ii) planning of road operations;

(iii) preparationand implementationof contracts and specifications;

(iv) assistance in hiring technical assistance and personnel for road operations;and

(v) supervisionof work.

Road MaintenanceManager

13. The expert will serve a line function in MTP; he will act as Director-ofRoad Maiatenance. He should be a highway engineer with at least ten years' experience in the field of organizationand execution of road maintenance operations. His duties will include:

(i) planning and coordinationof road maintenanceoperations;

(ii) organizationof brigades and teams, and choice of techniciansfor the execution of road maintenance operations;

(iii) selectionof chiefs and personnel for the brigades and teams; and

(iv) supervisioniof the execution of road maintenanceoperations.

Reports:

14. Consultantsshould prepare:

(a) monthly progress reports;

(b) a yearly project review, its accomplishments, shortcomings,,and future orientationssubmitted to the Government and the Bank for their assessment;and

Annex 12 I)EMOCRATICREPUBLIC OF MADAGASCAR SIXTH HIGHWAYPROJECT

Outline Terms of Reference Study of the Organization,Management and Operation of the MTP

I. Objectives

1. The MTP intends to carry out an analysis of its working efficiencywith the object of improving the overall effectivenessof its operation and assist the communitiesin the improvementand maintenanceof the feeder road and track network. To this end, the MTP intends to seek the assistance of an expert to review its present organization,personnel and workload, and to make recommendationsfor optimizing its efficiency.

II. Scope of Consulting Services

A. General

2. In order to attain the objectives detailed above the NTP proposes to invite an expert to provide about eight man-months services for the analysis of MTP's organization,staff, workload and management, its sufficiencyto meet the specific requirementsof the MTP, both in terms of numbers and skills, the day to day functioningof the MTP in terms of its present responsibilitiesand structure, and to make recommendationsfor improving the basic efficiency of the MTP in terms of organizationalsetup, staff performance and iLnternal management. The expert shall perform the services herein described. In performance of the services,the expert shall cooperate fully with the Government which may assign counterpart personnel to provide liaison with the MTP and other Government agencies as necessary. The expert shall, however, be solely responsible for the findings and recommendationscontained in their reports.

B. MTP Operations/Organization

3. In order to make a meaningful analysis of present operation of the MTP, the expert shall review the basic structure of the MTP, its responsibilities,internal regulations,relations with other Government agencies and ministries, and personnel regulationsunder which it operates. Within the context of this framework the expert will assess the functional efficiency of the MTP in its day-to-dayoperations at all levels. he will assess the efficiency of the operating structureand organizationalstructure and note areas, setups and specific procedures which could increase the effectivenessof the operation of the component parts of the MTP and the MTP as a whole.

4. All aspects of the organizationand management of the MTP will be reviewed and the expert will be expected to make recommendationsfor the improvement of management policies, system organization, coordination and implementation of works, and simplified procedures for efficient implementation. - 79 -

C. MTP

5. Concurrentlywith the analysis of the operation and organization of the MTP the expert will.study the staffing of the MTP and any related personnel, in terms of skills, working efficiency and working conditions. The expert will also review job descriptions,personnel policies (including hiring practices). On the basis of this staff study and the review of NTP operation and organization(see "B" above) the expert will make an analysis of the actions required to provide the staff necessary conditionsto ultimately meet the recommendedimprovements in MTP operations. These actions shall include the incentiveand promotion of MTP staff.

D. Program for Improvementof MTP Operation

6. On the basis of the study of MTP operations and organization(see "B" above) and in the context of staffing (see "C" above) and other constraints,the expert will develop a program to optimize efficiency of MTP operations.

III. Timing

7. The study is to be carried out over a period of eight months by one organizationexpert . It is expected that the expert will remain in Madagascar at least six months of the eight month period.

IV. Reports

8. The expert shall submit the following reports in French:

(a) An inceptionreport three months after the starting date. The report shall include details on the expert's schedule. The report shall give the methodologyand possible solutionsand recommendations,specific areas of concentration,and necessary data and cooperationto properly carry out the tasks. The Government and IDA should comment on this report within one month after it is submitted;

(b) A draft final report within two months after receiving comment on the inception report. The report will detail the results of the study and the recommendationsmade. Ten copies should be given to Government,of which the Government shall send two to the Association. This will allow one month for review and discussion;and

(c) A Final Report within a month of receipt by expert of comments on draft final report from Government,incorporating all revisions deemed appropriateby the expert.

V. Data to lbeprovided by the Government

9. The Government wi:Llmake available to the expert all apropriate data on the organization,responsibility, structure and regulations (internaland external)under which the MTP operates as well as personnel - 80 - data including pay scales, recruitmentpolicies and practices,job descriptions,skills and training of employees and other pertinent data. These data will be treated as strictly confidentialby the expert and will appear in his reports only in such form as to preclude any identification of an individualnature. The Government will also make available to the expert any reports, studies etc. which deal with the overall function and operations of the MTP and will advise the expert of any likely change in the present structureor function of the MTP. Such probable change will be taken into account by the expert when developinghis recommendations.

10. When, in connectionwith the work by the expert cooperation and/or data from other Government agencies is required, the Governmentwill provide liaison to ensure that such cooperationand/or data is forthcoming. - 81 - Annex 13

DEMOCRATIiCREPUBLIC OF MADAGASCAR SIXTH HIGHWAYPROJECT

Outline Terms of Reference for Technical Assistance in Transport Planning and Coordination

1. In order to assist the Government of Madagascar and in particular the Ministry of Transport, Supplies and Tourism (MTRT) to expand and improve its transportplanning capability,the project will include two experts to work closely with Malagasy officialsin this respect.

2. The team of experts will include: (1) an economistplanner (mission head) to be responsiblefor overall transport coordinationwithin MTRT and with other ministries;and (2) an engineer-economistspecialized in road transport.

3. The experts shall be attached to the Transport Planning and CoordinationUnit in the MTRT, such unit to be elevated to a level reporting directly to the permanent secretary. The consultantsmay also assist the DirectorateGeneral of Planning in the Presidency,as required by the Government, but they shall report in all cases to the Permanent Secretaryof the MTRT.

4. The unit will be responsiblefor establishingthe proper inter-ministerialcoordinating imechanisms and will work closely with the Directorateof Planning in establishingtransport demand models based on macroeconomicprojections.

5. In addition, the expert will: (i) determine and assist iincollecting and compiling the data required to implementa continuous and effective transport planning mechanism in the country; (ii) recommend and assist in setting up an effective system of intersectoraldevelopment information enabling transportplanning to be made responsive to priorities developed for other sectors (interministerialmeetings or through the Direction du Plan), and improving the level and effectivenessof intersectoralinvestment coordination; (iii) train Malagasy nationals in matters related to transportation planning and coordinationso that once these services are completed the Malgasy staff will be capable of taking over full responsibilityfor transportplanning in Madggascar,including the preparation,evaluation and supervisionof transportprojects and policy formulation; (iv) advise and assist the Government and the MTRT on current transportationproblem3 and issues, includingplanning, reviewing and coordinatingtransport studies and evaluatingmajor investment projects proposed for transportation; (v) assist the Government and MTRT in preparing coordinatedtrans- portation investmentprograms includingbudgeting of investment and operating funds for the entire transportsector; and (vi) advise and assist the Government in transportpolicy formulation such as pricing and regulation. - 82 - Annex 14 DEMOCRATIC REPUBLIC OF MADAGASCAR SIXTH HIGHWAY PROJECT

TransportationPlan of Madagascar Terms of Reference

INTRODUCTION- PURPOSES OF THE STUDY

The inadequacy of transportation planning and coordination in Madagascar is one of the major causes of the poor functioningof the transportationsector, which is a serious constrainton the country's economy.

Conscious of the need to improve transportationplanning, the Government, aided by French cooperation,supplemented later by that of the InternationalDevelopment Agency, proposes to upgrade and strengthen the existing transport planning unit in the Ministry of Transport, Supplies and Tourism and to engage the services of a consultant to develop a program of action to support the activitiesof such unit, comprising three phases:

In Phase 1 the task will be to obtain a better knowledge of present and foreseeabletransportation demand in Madagascar, the effective cspacitiesoffered by the various modes of transportation,and the conditionsand true costs of existing transportationsupply.

In Phase 2 a comparisonwill be developed between foreseeable transportationdemand and foreseeablesupply, taking into account the present situation and the projects under execution. A detailed analysis of road user charges and taxes, including the taxes and pricing policy of petroleum derivatives used by the transport sector, as well as an analysis of regulation policies affecting the movement of passengers and commodities, will be carried out to prepare recommendations to optimize the economic use of resources in all modes. The object is to formulate a transportationcoordination, pricing, regulationand planning policy and identify the developmentprojects to be selected, together with a timetable of the related investments. This phase of the study is to be carried out in close liaison with the Administration,at the highest level.

Finally, Phase 3 would comprise the implementationof the transportationplan followingupon the formulationphases, to be undertaken -under the aegis of the upgraded traLnsportation planning unit within the Malagasy Administration reinforced with the assistance, if necessary, of foreign experts.

The planning study will cover the various modes of transportation in Madagascar. It will take into account all previous or ongoing studies, particularly the study of Madagascar's mkaritime transportation services tndertaken with the support of French cooperation. - 83 -

SERVICES TO BE PROVIDED BY THE CONSULTANT

I. PHASE 1: COMPILATION OF DATA

(a) TransportationDemand

The purpose of this part of the study is to assess the transportationdemand that the various modes will have to satisfy at the projection horizons adopted, i.e. five years and ten years after 1984. To that end, present demand will first be determinedand then extrapolated.

Present demand will be determined in the form of origin-destinationmatrices between traffic zones and will then be allocated to the various networks to produce flow charts. This set of matrices and flow charts will furnish the base for developmentof the projections in phase 2.

To establish this base, the consultantwill need to:

(i) collect and analyze all the existing statistics on maritime, rail, air and road transportation;

(ii) prepare monograph studies for the major products to be tr.nsported,placing special emphasis on the localities of production, c.onsumptionor export;

(iii) carry out an origin-destinationsurvey based on interviewsof drivers, in stations judiciouslydistributed over the roads network, each of which shall have been operating for a sufficient time to ensure meaningful results. Special attentionwill be paid to the problem of seatsonal variations, due mainly to the farm calendar;

(iv) conduct a survey, based on interviews and sampling, among the major road carriers, Madagascar Railways (RNCFM), and Air Madagascar,and the major users, such as agriculturaland industrialproduction and marketing agencies.

To be able to analyze the origin-destinationsurveys and express the transportationdemand in the form of matrices, the consultantwill need to divide the country into traffic zones. These zones will have to be homogeneousand consistentwith the transportationnetworks and, at the same time, limited to a reasonablenumber to keep the data manageable. This involves difficultbut unavoidablechoices, to ensure that present and future traffic can be allocated satisfactorily.

Once this base has been set up, the next step will be to project demand to the referencehorizons, i.e. five and ten years, in order to arrive at future demand in the form of a set of origin-destination matrices. A number of methods are available for this purpose, which will be applied case by case and in combinations,depending on the types of traffic, goods, etc. involved.

For this purpose the consultantwill need to: - 84 -

(i) prepare a general economic study embracing the macroeconomicand demographicaspects and yielding growth prospects and a set of indicators of that growth, at both the national and the regional levels, on the basis of the division into zones adopted;

(ii) perform analyses supplementingthe monograph studies, with the object of projecting production and consumption, by zones, for the major agricultural, mining and industrial products. These analyses will have to review and take into account those mining, industrial and agricultural projects, already started or firmly committed, whose effects on transportation flows will not be felt until later;

(iii) prepare matrix projections, i.e. estimates of the origin-destination matrices to the five-year and ten-year horizons, using the basic matrices and employingprojection methods selected case by case, the principal methods being as follows:

- correlationwith macroeconomicparameters or with the indicators resulting from the monograph studies, either globally for the entire matrix, or reasoning zone by zone and calculating the future matrix with the aid of a FRATAR-typemodel, which consists in adjusting the matrix line by line then column by column iteratively;

- direct projection,flow by flow, on the basis of the monograph studies;

- projection on the basis of a gravity-typemodel.

(1b) TransportationSupply

The effective capacity of the various existing modes of transportation,and its foreseeabletrend of development,depend both on technicalfactors, associatedwith infrastructureand equipment conditions, and on internal factors, associatedwith the degree of organizationand the financial soundness of the transportationenterprises.

It is accordinglynecessary to prepare (a) an overall diagnosisof the enterprises,and (b) an inventory of existing infrastructuresand equipment.

This inventory is already provided for in the case of the ports; the above-mentioned study of Madagascar's maritime transportation service. In the cases of roads, railways, and airports, the pertinent services and agencies already possess certain data, whiichwill have to be assembled, checked and amplified followingfield reconnaissances,then classifiedand summarized to make them usable at the top decision-makinglevels. The road network inventory will cover the roads open to public traffic, excluding the roads reserved exclusivelyfor use by agricultural,forest, mining or other specific indistrialoperations. The roads will be classiEied into homogeneouscategories on the basis of their technical and geometric characteristics(natureof the roadbed, width, and curve and gradient characteristics)and their present condition. - 85 -

An inventory of main structures .nd ferries will also be prepared. The road inventorywill be supplementedby an inventory of ongoing projects and an analysis of road-maintenance technical and financial capacities.

In the case of the railways, a detailed analysis will be performed of the state of the infrastructures, superstructures and rolling stock, and of track and equipment maintenance capacity.

On the basis of the inventory of airport infrastructures, the sites will be classified according to nature of runways, service and navigat:ionequipment, and operations buildings. An analysis will also be performed of physical developmentand improvementneeds, ranked in order of urgency, from the standpoint of the safety of the infrastructuresand equipment and their suitabilityfor the types of aircraft used by Air Madagascar.

The diagnostic study of road transportationindustry will beperformedby means of a questionnairesurvey, supplementedby an in-depthsurvey,by sampling,among the most representativeenterprises in various categories(freight, passengers, public/private, size) and single-c,wned,single-operated trucking and busing services. The survey will cover (a) quantitativeand qualitativestate of rolling stock, and mechanical maintenance capacity,and (b) the financial situationsand performancesof the enterprises.

Special attentionwill be paid to energy consumption. The diagnostic study of the road transportindustry will be supplementedby an analysis of existing tariff regulations,tax situationsand how these effect te efficiency of the country's road transport industry. The study of the road transport industry will furnish the basis for estimating transportationcosts (includingall taxes; excluding taxes; and foreign exchange costs), accordingto the various types of vehicles and roads, as well as provide the data to assess the level and adequacy of road user charges.

On the basis of the previous analysis, recommendationswill be prepared to improve the efficienclyof the road transport industry in the country.

Similarly,a diagnosticstudy will be carried out of the operation of the companies Air Madagascar and SNCFM, togetherwith an assessmentof air and rail transportation costs.

This supply inventorymust provide the basis for definition of the networks, by modes, at present and at the five-yearand ten-year horizons; in the case of the roads and railways, the network will be defined by homogeneoussegments to which the traffic can be allocated.

This third stage of phase I of the study consists in comparing transportationsupply and demand, as previously determined-- not, at this point, in order to judge their suitabilityand adequatenessand to study any needed modificationsof supply (which will form the subject of phase II - 86 - of the study), but in order to analyze the assignment of transport demand to the network, i.e. the transition from the origin-destinationmatrices to flow charts for each mode.

It is thus a matter of analyzing the rules of modal competition and of taking into account all the special features of the situationin Madagascar, so as to express properly the rules of traffic assignment applicable to Madagascar. The flows arrived at in this way must then be compared with the measured traffic in order to calibrate this assignment model, if necessary by successive iterations. This comparisonof calculated traffic and measured traffic will also furnish an important check on the hypothesesmade in the monograph studies and during constructionof the matrices.

(d) Analysis of Basic Costs

For the purpose of the comparativeanalyses to be performed in phase II, it will be necessary also to study the transportationcosts and to group them together in the form of grids for (a) motor vehicle operating costs (by type of vehicle, type of relief, arndtype of road), railway operating costs , air transport costs, and port costs, with respect to transportationcosts proper; (b) capital costs, taking into account the possibilitiesforsuccessive improvements and thereforecalculating the cost of transition from a given development level to the next higher level, and this for each of the modes; and finally (c) maintenancecosts, which will be detailed according to the levels of maintenance.

(e) Compositionof the Team Responsiblefor Phase I

The bulk of phase I of the study constitutesa task more of compilationthan of analysis. It is desirable that it be carried out by the consultantin close collaborationwith the Malagasy Administration.

However, the staff that will be appointed to participatein this first phase of the study may not be of the same level of competence and responsibility as those who have to participate very closely in formulation of the recommendations of phase II, which involve choices of transport policy.

II. PHASE II -- COMPARISON OF TRANSPORTATIONSUPPLY AND DEMAND: ANALYSIS

OF PROBLEMS,AND FORMULATIONOF RECOMMENDATIONS

Phase I of the study will have provided informationon foreseeable transportationdemand, expressed by flows defined in terms of direction and volume, and also the capacity offered by the existing transportation system. The task in this second phase of the study is to compare transportationdemand and supply and to propose solutions for meeting demand at lowest economic cost and, in partictLlar, at lowest energy cost. In the event that the shortfall of resources requires that implementation of the recommendedsolutions be spread over time, a set of priorities will be drawn up, together with an execution timetaLble. - 87 -

It is essential that the analysis work done during phase II be performed iriclose associationwith the responsibleauthorities, at very high level, so that the officials subsequentlyresponsible for applying the recommendations of the Transportation Plan will have been involved very closely in formulatingthem. They will then be aware of and perfectly understandthe reasons and circumstancesunderLying the recommendations. Since a number of ministries are involved, it will be advisableto set up an inter-ministerialcommittee and to pay careful attention to the distributionof the tasks and responsibilitiesof each one in the Malagasy Administration.

Participationin this phase is also necessary of a small number of Malagasy experts, who will later form the core of the transportation plannig unit responsiblefor monitoring implementationof the TransportationPlan during phase III. Finally, it is desirable that the foreign experts who will later furnish advisory,assistance to this planning unit, or at least some of them, also participatein this analysis and recommendationsphase.

Phase II wilL comprise the followingmajor tasks:

(a) Assignment of Transport Flows

The task here is to assign the projected transportationdemand flows to the various transportationmodes in light of potential capacities and ofeconom:Lccosts including the relevant energy costs.

In practice, competitionbetween two or more modes arises only in certain cases, the most importantof which are the links Antananarivo- Toamasino,Antananarivo-Antsirabe, and Manakara-Fianarantsoa,for which the question arises of the choice between rail and road investments.

Other cases of competitioncould arise between road and coastal sea transportationor the use of canals (Pangalanes)or between road and air transportation(passengers and certain types of freight). All these cases will be studied by comparingthe updated balance sheets of generalized costs, includinginvestment, maintenance and operating costs and also, where appropriate,the value of time, for each mode. Special attention will be paid to the foreign exchange iandenergy balance sheets.

(b) Programmingof Investmentsand DevelopmnentActivities

The task here is to determine for each transportation mode:

- the list of infrastructure and equipment investments to be programmed, together with their timetable;

- the infrastructure maintenance programs;

- the personnel training programs; distinguishing first between the private sector, the public sector and the administration,and second between personnel levels: manage!rs,supervisors and foremnen,and operatives; - 88 -

the programs of financing of the transportation enterprises; possible programs of technical assistance to the transportation enterprises.

This programmingwill take the form of a precise priority program for the short term, and of guidelines for the longer term. It will be supported by the results derived from the previous phases of the study:

- quantitativeshortfalls, revealed by the comparison between

foreseeable tra!nsportationsupply and demand;

- qualitative deficiencies, reflected in high costs detected during the diagnostic study of the transportation sector;

- recomniendations concerning modal allocation of traffic, derived from comparison of the updated balance sheets of total, foreign-exchange and energy costs.

The composition of the programs will have to be such as to ensure consistencyand. complementarity between the developmentof the various modes of transportation.

The study will also review road transport costs in light of current and adjusted tariffs and will assess the impact of a complete liberalizationof tariffs.

In light of informationgathered on present and future road transportationcosts an the associated costs of buildingand maintaining the required infrastructure,th study should make recommendationson the required levels and sources of road user charges and methods of ensuring their adjustementon a timely basis.

(d) Coordinationand OrganizationPolicy

Cohesive and harmonious developmentof the transportationsystem calls for coordinationof the investmentand mainlenance programs of the various modes and also of tariff and fiscal polic:Les.

To this end it will be necessary to assemble the whole of the measures recommendedfor the various transportationmodes in a single summarizingdocument so as to demonstratetheir cohesion and complementarity.This document will also serve as action guidelines for verifying that this cohesion is duly observed in the execution of the programs.

III. PHASE III -- IMPLEMENTATIONOF THE TRANSPORTATIONPLAN

The transportationplanning study (phases I and II above) will have to provide the basis for setting up a planning unit within the Malagasy Administration,responsible for monitoring and implementingthe recommendations of the Plan. - 89 -

The compositionof this unit and its integrationinto the existing administrativestructure pose institutionalproblems. Thus, it is necessary to know what the respectiveroles will be of the ministries involved and how the tasks and responsibilitieswLll be distributed. This is not the place to go into these questions,but it may neverthelessbe stressed that one of the major roles of the unit will be to act as the veritable permanent secretariatof the Inter-MinisterialTransportation Planning Committee (Comitg Interministerielde Planificationdes Transports). The Committee will already have been involved very closely in the analyses conductedin phase II and will have to continue to monitor implementationof the policy defined.

This unit will have to consist of a number of Malagasy engineers who have participatedin the previous phases, together with two permanent expatriateexperts who, so far as possible, will also have participatedin phases I and II. The unit will also have to be provided with the means to call on high-levelexperts in highly specific fields to perform short missions.

This implementationof the recommendatiornsconcerning coordination and organization,together with monitoringof execution and evalution of results, will involve mainly the following tasks:

developmentof a system of compilationand processingof statisticaldata for keeping track of chEnges in the situationsof the transportationenterprises and in the various kinds of traffic; - developmentof system of monitoringof the evolution of transportationcosts;

- monitoring of execution of the investmentand development actLvitiesprograms of the various transportationmodes;

- preparationof all measures for adjustmentof the above progyramsand of the tariff or fiscal policies found to be necessary;

- preparationof all desirable supportingmeasures.

REPORTS TO BE PRESENTED

1. Report on transportationdemand, presented upon completionof the studies described under task 1 (a) above, within five months following notificationof the order to start the study.

2. Report on the diagnosticstudy of the transportationsector, presented upon completionof the studies describedunder tasks 1 (b), (c) and (d) above, within seven months following notificationof the order to start the study.

3. Provisionalreport on the transportorganization and planning proposals,presented upon completionof the studies described at 2 (a), (b) and (c) above, within ten months followingnotification of the order to start the study. - 90 -

This report will constitute,to some degree, the putting into form of the decisions of the Inter-MinisterialTransportation Planning Committee.

4. Final report, presentedwithin two months following receipt of the comments on the provisional report (referredto at 3 above), containing the summarizingdocument referred to at 3 (d).

5. Progress reports, presented every three months during phase III. - 91 - Annex 15 DEMOCRATIC REPUBLIC OF MADAGASCAR SIXTH HIGHWAY PROJECT

TechnicalAssistance to LNTPB

Outline Terms of Reference

Introduction

1. The MTP intends to strengthen and expand the operationsof LaboratoireNational des Travaux Publics et du Batiment (LNTPB), the Government SoiLs Laboratory for road constructionand maintenance. To do so, MTP will need the assistance of consultantsexperienced in soils, materials and Eoundationengineering and soils laboratorymanagement.

Objectives

2. The objectivesof LNTPB are to: (i) participate in running road constructionand maintenanceworks and carry appropriatesoils and foundation studies in design and implementationof these works; (ii) carry out research on the utilizationof local materials for the constructionand maintenance of civil works; and (iii) assist in the supervisionof the execution of these works.

Team composition

3. A team of three experts will be assigned to LNTPB. One for three years to carry out soils explorationand identificationof local materials for use in road works; and two for two and a half years to assist in strengtheningand expandingCNTPB's operations in road constructionand maintenance.

Qualifications

4. These engineers should hold degrees in civil engineeringwith a specialty in soils and foundationengineering; in addition they should have at least ten years' extensive experience in managementof soils labora- tories. They should have worked in a developing country, preferablyin Africa, and should be fluent in French.

Scope of Services

5. The consultantswill assist LNTPB in (a) selectlng and procuring laboratory equipment; (ii) planning soils testingrand evaluationprograms; (iii) designing structuresand maintenance;(iv) supervisingthe execution of these works; and (v) carrying out material research programs. - 92 - Annex 16

DEMOCRATICREPUBLIC OF MADAGASCAR SIXTH HIGHWAYPROJECT

Project Reporting Requirement

A. Project Progress Reports

1. The borrower will prepare Progress Reports that should be submitted semi-annuallyin triplicate,no later than one calendar month after the end of each six-month period. The first report should cover the half- year period ending June 30, 1984.

2. The informationthat Progress Reports should contain is described below:

(a) General Information:This should include the following:

(i) the physical progress accomplished during the reporting period;

(ii) actual or expected deviations from the project implementation schedule;

(iii) actual or expected difficultiesor delays and their effects on the implementationschedule, and the steps planned or taken to overcome the difficultiesand avoid further delay;

(iv) expected changes in the completiondate of the project;

(v) key personnel changes in the staff of the administration, consultantsor contractor;

(vi) matters which may affect the cost of the project; and

(vii) any development activity likely to affect the economic viability of project components.

(b) A bar-type progress chart, based on the project implementation schedule should show the progress in each project component.

(i) original estimatedcost;

(ii) revised cost, if appropriate;

(iii) actual expenditure;

(iv) projectedexpenditure; and

(v) actual and projected withdrawalsfrom the Credit Account. - 93 -

(d) Finally, Progress Reports should state the status of action on each covenant of the Credit Agreement.

3. Progress Reports will be an important input in the preparationof the Project Completion Report.

B. Project Completion Report

4. The borrower will prepare a Project CompletionReport (PCR) to be submittedto the Association not later than six (6) months after the Clos- ing Date.

5. The primary objective of the PCR is to reinforce self-evaluation by the borrower and the Association'soperating departmentsand to facilitate disseminationof lessons learned through the project:

(a) the performanceby the borrower and the Association of their re- spective obligations under the Credit Agreement and whether the Association could have been more helpful;

(b) the results that can be expected from the project, as compared with expectationsat appraisal, and whether the original expecta- tions were realistic;and

6. For those components of the project for which a rate of return was estimated during appraisal, the PCR should contain a new estimate of the return the project is now likely to yield and analyze the reasons for physical or economic deviations. However, the new rate of return calculations should be as simple as possible under the circumstancesand should absorb only a minor portion of the time devoted to the preparationof the PCR. An annex with the relevant information supporting this analysis should be included.

7. The basic documents to be referred to are: Credit Application Feasibility studies, AppraisalRelport Credit Agreement documents, supplementaryletters, etc. Semi-annualProgress Reports Project CorrespondenceFiles MiscellaneousEvaluation Reports.

8. The Eastern Africa TransportationDivision 1 will review and comment on the PCR. After approval by the Highway Division Chief, the PCR is sent Itothe Bank Group's Operations EvaluationDepartment (OED) which is responsiblefor conductingan audit of the project. This audit can lead to suggestions for changes or additions in the PCR as OED prepares the Project PerformanceAudit Report (PPAR) for submissionto the Bank Groups, Board of Directors. Before going to the Board, the draft PPAR, which includes the PCR, is sent to various Bank Group diviLsions,to the Government, and occasionallyto consultants. - 94 -

Amnex17

DEMDRATICREPUBLIC OF MADAGASCAR

SDXHIEEGIAY PROJEC

Vehicle Operating Costs (RMV/km)

Type of Road

Iype of Vehicle GoodPaved Poor Paved Bad Paved Earth Gbod Earth Fair Earth Poor (1) (2) (3) (4) (5) (6)

Car 124.93 143.67 157.15 201.40 241.68 271.02

Bus 176.96 205.27 2214.82 312.36 390.45 464.61

Pickup 189.22 221.39 247.14 344.06 447.28 532.14

Heavy Tnuck 257.91 304.33 339.41 471.61 636.67 742.88

Source: linistry of Trareport, Supplies and Tourism and mlssion estimates. - 95 -

Annex 17 Table 2

Economic Analysis Paved Road Maintenance

RN From To Km Cost 1/ ERR

6 Ambanja Ambilobe 102 255 250

5a Vohemar Sambava 107 263 191

3b Sambava Andapa 99 248 83

31 Antsohiny Antsanabe 60 150 38

32 Antsohiny Befandriana 75 188 127

6 Ambondromamy Antsohiny 298 745 165

5 Toamasina Fenerive 140 350 164

22 Fenerive Manatenina- Anjahambe 55 138 60

2 Antananarivo Moramanga 115 288 264

3 Antananarivo Anjozorobe 90 225 355

51 Ivato Ambohimanga 5 13 245

3a Vohidiala Vohitraivo 105 263 124

33 Moramanga Ambakireny 40 100 30

35 Ivato-Mahabo Morondava 109 273 54

34 Antsirabe Miandrivazao- Malaimbandy 323 808 356

4b Analavory Tsiroanomandy 94 1,067 177

1 Antananarivo Analavory 124 310 146

43 Analavory Soavinandriana 75 202

12 Manakara Vangaindrano 177 443 109

13 Ambovaombe Ta:Loagnaro 110 275 27

7 Toliary Sakaraha 135 338 147

55 Morombe Tanandava 62 155 268

1/ (US$'000) - 96 - Annex 18

DEMOCR&TICREPUBLIC OF MADAGASCAR SIXTH HIGHWAY PROJECT

Related Documents and Data Available in the Project File

1. Etude de Reforcement et de Reconstructiondes Tranqons Bitum6s sur les Routes Nationales RN 4 et RN 7: Etude de Factibilitg (Fevrier 1983);

2. Elements d'Evaluation(Entretien Routier) du 6eme Projet Routier (Decembre 1982);

3. Projet FIDA-FAO de DeveloppmentRizicole sur les Hauts Plateaux, Volet Routier (D4cembre1982);

4. Etude des Besoins de Formation du Personnel pour l'Entretien Routier et les Travaus en Regie;

5. LaboratoireNational des Travaux Publics et du Batiment (LNTPB): Projet du Developpementdes Activities(AoGt 1982); and

6. Evaluationdes Besoins en Piaces de Recharge de Parc Automobile Malgache (Fevrier 1983). MADAGASCAR SIXTH HIGHWAY PROJECT

OR.GANIZATIONOFMrTP

rMinisterof |Pol,lic Works

Inpector (5) Secretariat

| eoter of Policy j soad Tecnimcol Studies }

|Generfl Dtrectorate | -iGeneral Secretarnto| of Wor-k (DGE) (Adininstration)

|Contracts | Off ice of Geosnall

Read Architectors. Disisioo of 4ntipmsnf Directorate ofat Coaputing Maintenance ijekantemsoad Gofrastructare Hivisiso | inance lDvso Disision (PCR)MacnEn Disision(DIIe (DMA?) =-~~~~~~~~~~~~~If tr.

kbn Planning ||Public so DSevelap.ent | |ulidions|

Regionsl Road Aotoneinous Regional Financial |AccoonmtiOn Segiotatios Planning and Mlaintenance Snkdivieion of SnppiePs Services Office and Legal Frternast Pernsonnsl Training Divisions (6) Tolagnaro j ivinlon (6) Division Affairs

EqupetfoetSply pr at n MADAGASCAR

SIXTH HIGWAY PROJECT

PROJIBCTrIPLEENTATION SCHEDUL 1/

C.lendar Year

1983 1984 1985 1986 Item It-m Comonents Ac-tivity Action By _ - - - _ - - _- - _ 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Credit Signing Government/IDA Effectiveness Government/IDA

Road mainte- Equipment, Materials and Preparation of Bids Suppliers nance Supplies Evaluation and Award Government/IDA Supply Suppliers

Workshop Construction Preparation of Bids Contractors Evaluation and Award Government/IDA Works Contractors

HTP Management Proposals Consultants Evaluation and Award Government/IDA Services Consultants

Works by Contractors Preparation of Bids Contractors Evaluation and Award Government/IDA Works Contractors-

Rehabilitation RN 4 and RN 7 Preparation of Bids Contractors Paved Roads Evaluation and Award Government/IDA Works Contractors _ - _ _- _ _- _

Improvement Equipment Preparation of Bids Suppliers LNTPB Evaluation and Award Government/IDA Supply Suppliers

Technical Assistance Proposals Consultants Evaluation and Award Government/IDA Services Consultants - - - - - _ _

Transport Technical Assistance HTRT Proposals Consultants Planning Evaluation and Award Government/IDA Services Consultants _ _- _- _ -

Training Equipment Preparation of Bids Suppliers Program Evaluation and Award Government/IDA Supply Suppliers

Technical Assistance Proposals Consultants Evaluation and Award Government/IDA Services Consultants - - _ _- _

Transport Spare Parts Government/BNI/IDA = = = = _ _ Industry

Preinvestment Pavement and Feeder Roads Proposals Consultants Studies Evaluation and Award Government/IDA Feasibility Studies Consultants Review Government/IDA Detail Engineering Consultants

MTP Organiza- Organization Studies Proposals Consultants tion Studies Evaluation and Award Government/IDA Studies Consultants

1/ All Bidding documents and short lists of consultants will have been completed by September 1983. I

I B RD 16909R 44'4 48 50 JUNE 1983 MGAnCtseranona MA DAGASCAR SIXTHHIGHWAY PROJECT ECONOMIC ROAD NETWORK

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