ReportNo. 1182a MA FILECOPY Appraisalof a ThirdHighway Project Public Disclosure Authorized February22, 1977 TransportationDivision ProjectsDepartment EastAsia and Pacific Region

FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized

Documentof the World Bank

Thisdocument hasa restricteddistribution and may be usedby recipients Public Disclosure Authorized only in the performanceof their official duties. Its contentsmay not otherwisebe disclosedwithout World Bankauthorization. CURRENCY EQUIVALENTS*

Currency Unit = Malaysian Dollar (M$) US$1 = M$2.50 M$1 = US$0.40 M$1 million = US$400,000

*The exchange rate is floating; the rate used in this report is indicated above.

FISCAL YEAR.

January 1 - December 31

MEASURES AND EQUIVALENTS

1 foot (ft) 0.3048 meters (m) 1 mile (mi) 1.6093 kilometers (km) 2 1 square mile (sq mi) 2.59 square kilometers (km ) 2,204 lbs or 0.9842 long ton or 1.1023 short ton = 1 metric ton (m ton)

ABBREVIATIONSAND ACRONYMS

ADT - Average Daily Traffic c.i.f. - cost, insurance, freight ERR - Economic Rate of Return FEPU - Federal Economic Planning Unit FMWU - Federal Ministry of Works and Utilities FPWD - Federal Public Works Department GDP - Gross Domestic Product HP&PTU - Highway Planning and Public Transport Unit KAMPSAX - KAMPSAX InternationalA/S (DanishConsultants) KAMPSAX-SSP - the joint venture of consultantsKAMPSAX AND SSP MAS - Malaysian Airline System MR - Malayan Railway PWD - Public Works Department SEPU - Economic Planning Unit SMWC - Sabah Ministry of Works and Communications SPA - Sabah Ports Authority SPWD - Sabah Public Works Department SSP - Sepakat Setia Perunding (MalaysianConsultants) TMP - Third Malaysia Plan UNDP - United Nations Development Programme vpd - vehicles per day MALAYSIA FOR OFFICIAL USE ONLY

APPRAISAL OF A THIRD HIGHWAY PROJECT

TABLE OF CONTENTS

Page No.

SILMiIARY...... i-iii

I. INTRODUCTION ...... 1

A. The Project .. 1...... B. Previous Transport Projects .. 1...... C. Project Preparation ...... 2

II. THE TRANSPORT SECTOR .2...... 2

A. Economic Setting ...... 2 B. The Transport Modes ...... 3 C. Planning and Coordination ...... 5

III. HIGHWAYS ...... 6

A. The Network ...... 6 B. Road Transport ...... 7 C. Highway Administration ...... 8 D. Highway Planning and Financing ...... 9 E. Highway Design and Construction ...... 10 F. Highway Maintenance ...... 10

IV. THE PROJECT ...... 12

A. Description ...... 12 B. Cost Estimates ...... 15 C. Financing ...... 17 D. Implementation and Procurement ...... 18 E. Disbursements ...... 19

V. ECONOMIC EVALUATION ...... 20

A. General...... 20 B. Roads to be Reconstructed ...... 20 C. Roads to be Upgraded ...... 23 D. The Sabah Maintenance Program ...... 23 E. Pavement Strengthening in Johore ...... 23 F. Conclusion ...... 24

VI. RECOMMENDATIONS ...... 24

This report has been prepared by Messrs. J.G. Yenny (Economist), H.J.van Helden (Consultant) and R. Alexander (Engineer).

This document has a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bankauthorization. *-2-

ANNEXES

1. Outline Terms of Reference for the Transport/Railway Study 2. Outline Terms of Reference for the Urban Study

TABLES

1. State of Sabah: Public Development Expenditures for Transport First, Second and Third Five Year Plans 2. State of Sabah: Annual Change in Length of Road Network By Pavement Type and Administrative Class 3. State of Sabah: Motor Vehicle Registration 4. State of Sabah: Road Expenditures 1970-75 5. State of Sabah: Revenues from Motor Vehicle Taxation 1970-75 6. State of Sabah: Summary of Highway Design Standards 7. State of Sabah: Design Standards for the Project Roads to be Reconstructed 8. Equipment for the Four-lear Highway Maintenance Program in Sabah 9. Road Upgrading Program in Sabah - Proposed Roads for Design and Construction 10. Estimated Cost of Project 11. Project Implementation Schedule 12. Schedule of Estimated Disbursements 13. Estimated Traffic and Growth Rates on Project Roads 14. Estimated Future Traffic. on Project Roads to be Reconstructed 15. Vehicle Operating Costs 16. Road Reconstruction in Sabah - Estimated Cost and Benefit Streams 17. Road Upgrading Program in Sabah - Estimated Cost and Benefit Streams 18. Road Maintenance ProgramL in Sabah - Estimated Cost and Benefit Streams 19. Pavement Strengthening i.nJohore - Estimated Cost and Benefit Streams

CHARTS

1. Federal Ministry of Works and Utilities: Organization 2. Federal Public Works Department: Organization 3. Sabah's Public Works Department: Organization

MAPS

1. Peninsular Malaysia, IBED 10050 R3 2. Sabah, IBRD 12223 Ri MALAYSIA

APPRAISAL OF A THIRD HIGHWIAYPROJECT

SUMMARY

i. During the Third Malaysia Plan, 1976-80, the Government of Malaysia will emphasize investment in the less developed parts of the country and the consolidation and maintenance of existing infrastructure elsewhere. This project supports the Government's policy, and focuses on the improvement and maintenance of roads in the state of Sabah, and the maintenance and strength- ening of roads in Peninsular Malaysia. ii. The further development of Sabah depends upon better land connec- tions between isolated development centers on its west and east coasts. So far the Sabah Government has rapidly expanded and maintained its road network largely with its own forces. The practice of Sabah's Public Works Department (SPWD) has been to produce the maximum length of roads with the limited funds available rather than constructing fewer roads to sounder engineering and construction standards. The consequence has been that many roads cannot be properly maintained unless they are upgraded. Additionally, expansion of road maintenance activities has been hampered by the lack of equipment and a suit- able organization. Now that a basic road network is approaching completion, the Sabah Government is ready to upgrade its main roads and improve its maintenance.

iii. The situation is quite different in Peninsular Malaysia, where the road network is well developed (86% paved) and generally well maintained. The problems identified by the Bank-financed maintenance study were the organization of maintenance and the critical condition of the pavements of many roads because they are old and were not initially built for the present high levels of traffic. The application of pavement strengthening overlays in Peninsular Malaysia is a priority item to prevent serious damage to many road sections.

iv. The proposed highway project will be the sixth Bank-financed trans- portation project in Malaysia and the second for Sabah. Previous lending for transport totalling US$93.6 million consisted of a port project in Sabah, and one railway, two highway and one urban transport project in Peninsular Malaysia. v. The Third Highway Project comprises reconstruction of 146 miles of trunk roads and the improvement of road maintenance in Sabah, including the procurement of equipment and 290 mi of upgrading works on road sections totalling 530 mi. The project also includes a pilot road maintenance and pavement strengthening program in Peninsular Malaysia; a transport/railway study primarily aimed at defining the future role of the Malayan Railway (MR); and an urban study for Kota Kinabalu, Sabah's capital city. Provision is also made in the project for various consulting services to carry out these studies and to assist in the execution of the construction and maintenance elements in Sabah. The project was prepared through feasibility, engineer- ing and maintenance studies financed in part under the first and second high- way loans (851-MA and 931-MA). - ii - vi. Civil works and the procurement of maintenance equipment will be carried out by contracts awarded on the basis of international competitive bidding in accordance with the Bank's Guidelines for Procurement. The local road construction industry is small because of the country's practice in the past to execute road works by force account. Under the project, road upgrad- ing work in Sabah and pavement strengthening in Peninsular Malaysia will be carried out by contract and thus provide an opportunity for local contractors to win contracts and to develop and expand their capacity to undertake these and larger works. Tenders for the reconstruction works in Sabah, valued at US$46 million, were opened at the end of November 1976. Tenders have been evaluated and awards to the lowest bidders are expected before the end of March 1977. While three local or local-expatriate firms were prequalified to tender, expatriate firms were the lowest bidders; however, local firms will probably participate as subcontractors. vii. Supervision of the reconstruction works in Sabah will be by a qualified expatriate-local joint venture. Local consulting firms in Sabah have had limited opportunities in the past to become involved in road works; however, under the project several qualified firms, monitored by the SPWD and assisted by a small expatriate technical support team, will be selected for engineering and supervising the upgrading work. The same support team will assist in implementing the maintenance program in Sabah. Engineering and supervision of the pavement strengthening works in Peninsular Malaysia will be carried out by the staff of the state public works departments, assisted by the Federal Ministry of Works and Utilities (RFWU). The transport/railway and urban studies will be carried out by foreign consulting firms with local associates. viii. The estimated total cost of the project is US$108 million with a foreign exchange component of US$69 million or 64%. The proposed loan of US$35 million will finance 39% of the portion of the project subject to financing by the Bank estimated to total about US$90 million and represents 62% of the foreign exchange component of this portion of the project. The cost estimates for the project are based on the tenders mentioned in vi above and the costs of services for similar works and studies.

ix. The responsibility for execution of the Sabah component of the project will rest with the Sabah Ministry of Works and Communications with ultimate control by the federal Government of MIalaysia. Road maintenance and pavement strengthening in Peninsular Malaysia will be the responsibility of the FMWIU and the transport/railway study will be supervised by the Federal Economic Planning Unit and the Federal Ministry of Communications. The Kota Kinabalu urban study will be supervised by the Sabah Economic Planning Unit. x. The benefits of the Sabah component of the project are measured in terms of vehicle operating cost savings, as well as savings in costs of maintenance and road repair works needed to make roads passable after the rains. The economic rates of return are 14% for reconstruction, 22% to 26% - iii - for upgrading,and 29% for maintenance. The benefits of pavement strengthen- ing in PeninsularMalaysia result primarily from the preventionof major damage to roads which would entail later reconstructionat much higher costs. The economic rate of return of this work has been estimated at 28%. The average economic rate of return on reconstruction,maintenance, upgrading and strengtheningworks, which account for 99% of all project costs proposed for financing by the Bank is 18%. The transport/railwaystudy will assist the Governmentin its reappraisalof the MR's role in the transportsector and prepare the base for future Bank assistance to the MR. An urban planning study for Kota Kinabalu, Sabah's capital is also included. It will inter alia consider the feasibilityof developinga new industrialport north of the city. xi. The project constitutesa suitable basis for a Bank loan of US$35 million to the Governmentof Malaysia for a term of 17 years including a 3-1/2 year grace period.

February 1977

MALAYSIA

APPRAISAL OF A THIRD HIGHWAY PROJECT

I. INTRODUCTION

A. The Project

1.01 The Government of Malaysia is seeking Bank financing for a project consisting of: (a) the reconstruction of two roads totalling 146 miles in the state of Sabah; (b) the improvement of highway maintenance in Sabah, including road upgrading; (c) a pilot road maintenance and pavement strengthening pro- gram in Peninsular Malaysia; and (d) a transport/railway study in Peninsular Malaysia and an urban study for the capital of Sabah, Kota Kinabalu.

B. Previous Transport Projects

1.02 This proposed highway project will be the sixth Bank-financed trans- portation project in Malaysia and the second in Sabah. Previous lending for transport totalling US$93.6 million included a port project in Sabah (Loan 774-MA of US$16.1 million in 1971), and in Peninsular Malaysia, a railway project (Loan 799-MA of US$16 million in 1971), two highway projects (Loan 851-MA of US$16 million in 1972 and Loan 931-MA of US$19.5 million in 1974), and an urban transport project for Kuala Lumpur (Loan 1214-MA of US$26 million in 1976).

1.03 After initial delays because of contractors' mobilization difficul- ties, port construction works in Sabah are now virtually complete. The rail- way project in Peninsular Malaysia is 24 months behind schedule due to late ordering and receipt of material. The Malayan Railway (MR) was unable to meet the financial targets set by the Loan Agreement for 1973 to 1976 but the Gov- ernment now seems to be dealing with the fundamental problems of the MR. A new general manager was appointed a year ago, external managerial and techni- cal expertise is being sought, and consultants will shortly be retained for a transport/railway study with emphasis on the future role of the MR. Prelim- inary information for 1976 indicates improvements in the MR's financial posi- tion and operations and the possibility of meeting the Loan Agreement's financial target for 1977 if the recovery trend continues.

1.04 The First Highway Project (Loan 851-MA), is about 11 months behind schedule. Progress on the Second Highway Project (Loan 931-MA) is also slower than expected. Three out of four contracts for the latter project were awarded shortly before the increase in oil prices in 1973. A period of uncertain prices and shortages of materials and equipment followed which caused contractors to take longer to mobilize than previously planned. Poor initial management by contractors has also contributed to slow progress. There have been delays on the part of the Government in relocating utilities, issuing permits and licenses, acquiring land and removing squatters from the right-of-way. Much progress has been made to acquire land with the inclusion of a site and services component in the 1976 Urban Transport Project which provides alternative sites for the squatters. Nevertheless, it will probably be necessary to extend the Second Highway Project's closing date by at least two years to late 1979. -2-

C. Project Preparation

1.05 Except for the urban project, all Bank transport projects in Malay- sia, including this one, were identified by the 1968 General Transport Survey financed by the UNDP, executed by the Bank, and carried out by R.R. Nathan Associates (US). In 1973, the Government retained US consultants King and Gavaris together with R.R. Nathan Associates to study the feasibility of three roads in Sabah. In March 1974, a Bank mission visited Sabah to review the study and concluded that detailed engineering could start on the southern part of the west coast road and the east coast road at agreed reduced standards. The Bank also recommended that the economic feasibility of the proposed improvements should be confirmed. After some delay, the Government retained Danish consultants KAMPSAX International A/S (KAJIPSAX)in association with a local consultant Sepakat Setia Perunding (SSP), referred to as KAMPSAX-SSP, as consultants for the detailed engineering and feasibility study of the west and east coast roads. This study, begun in February 1975, was financed under the Second Highway Project (Loan 931-MA).

1.06 The maintenance component of the project is based on a country-wide highway maintenance study completed in December 1976 by consultants KAMPSAX- SSP and financed under the First Highway Project (Loan 851-MA). The Bank and the Government concur with the recommendations of the study and have agreed to implement them in Sabah and in a pilot program for three states in Peninsular Malaysia.

1.07 During the initial years of the Third Malaysia Plan (TMP) the Government will emphasize the development of the less developed parts of the country. For this reason the Government decided to postpone the reconstruction of sections of Route I, Malaysia's main highway on the already well developed west coast of Peninsular Malaysia, including sections of this highway north, south and through Ipoh, Malaysia's third largest city, which had earlier been identified for possible inclusion in the project. These reconstruction works may form part of a future Bank highway project.

1.08 This report is based on information provided by the Government and consultants and on findings of an appraisal mission composed of Messrs. Yenny (Economist) and van Helden (Consultant) in March 1976.

II. THE TRANSPORT SECTOR

A. Economic Setting

2.01 The Federation of Malaysia comprises 13 states, 11 on the Malay Peninsula (Peninsular Malaysia, 51,000 sq mi) and 2 in North , Sabah and Sarawak (77,500 sq mi), about 900 miles from the rest of the country. In part because of their distance from Peninsular Malaysia and in part be- cause of historical circumstances, the two Borneo states have a relatively high degree of autonomy. - 3 -

2.02 Because this project is primarily concerned with the development of roads in Sabah the economic and sector background discussions will concentrate on the state of Sabah rather than on Malaysia as a whole. Sabah is a relative- ly isolated area. The state has no overland connections with Sarawak, nor with the Sultanate of Brunei, nor with the neighboring Indonesian province of Kali- mantan that occupies most of Borneo.

2.03 Sabah's 30,000 sq mi are predominantly mountainous and covered with dense tropical forests. The population of only 850,000 is growing at around 5% p.a., which includes substantial immigration from the Philippines and Kalimantan. The state's population is primarily concentrated on the coasts, around or in the immediate hinterland of the ports. Except for the Pegalan Valley parallel to the west coast across the , the interior is only sparsely populated. Transport between towns has traditionally been by sea with roads radiating out from the ports, rather than forming a unifying network. In recent years the Sabah Government has actively pushed road construction to connect various parts of the state, but the road system remains substandard. Sabah is now concentrating on upgrading the basic system. The main purpose of this project is to assist in this pursuit.

2.04 Sabah's economy has been led by the rapidly growing forestry and logging sectors which in 1974 contributed nearly 40% of the state's Gross Domestic Product (GDP) and 80% of its export earnings. Timber exports reached M$870 million (US$350 million equivalent) in 1974, more than twice the 1969 value. Because of a slack in world demand, particularly in the main customer for Sabah timber, the 1975 level of production was about 10% lower than that of 1974 and, since prices also dropped, 1975 export revenues were 35% lower than those of 1974. In 1976, however, export revenues regained about 10% as timber prices started to recover.

2.05 Sabah's economic dependence on timber should diminish with the development of its off-shore oil and copper deposits. In addition there is a concerted effort to raise Sabah's agricultural output by planting oil palm and cocoa and by substantially increasing the Government's assistance to rice farmers. Forecasts show the state's GDP continuing to grow at 5% to 6% p.a. in real terms during the next few years. Although income statistics are lacking, there is a great disparity between the incomes in the modern, export related sectors and the traditional rural agricultural sector which accounts for the majority of the population.

2.06 Labor, particularly skilled labor, was in very short supply dur- ing the timber boom. Wlhile the situation improved somewhat in 1975, the renewed demand for timber will again place a stress on the labor supply and induce further immigration from the Philippines and .

B. The Transport Modes

2.07 The further development of Sabah depends upon more road connections between the isolated development centers as an alternative to coastal ship- ping, which is slow, and air transport, which is expensive. About M$350 -4- million or 24% of the state's total development expenditures is earmarked for Sabah's transport sector in the TMP (1976-80). Roads account for the largest share of the sector's allocation (over 70%) followed by ports and airports (Table 1).

Highways

2.08 Details on the state's road sector are given in Chapter III.

Railways

2.09 The Sabah State Railway (96 mi), which runs from Kota Kinabalu southwards along the west coast to Beaufort (70 mi) and turns into the Crocker Range to reach in the Pegalan Valley, was the first all-weather land transport facility in the state. As roads have been built or improved, railway freight traffic has decreased from an annual average of over 3 million ton-miles during 1966-70 to an annual average of less than 2 million ton-miles in 1972-74. Volumes are very small and traffic figures vary substantially from year to year. Passenger traffic has increased slightly and is now con- tributing two-thirds of the revenues versus 50% in 1970. In the last few years expenditures have been twice as high as revenues, with deficits reach- ing M$2 million a year. Because of the low traffic volumes and short dis- tances between towns on the west coast (averaging only 6 mi between stations) there is no doubt that a paved highway would provide more efficient service than the railway. The Sabah Government is aware of this problem and assur- ances have been received from the Government that service would be phased out between Papar and Beaufort once the west coast road, financed under this project, opens. In particular, the Government has agreed not to make any new capital investments in the Sabah Railways and to provide the Bank with a plan for phasing out railway service within one year of the opening of the road between Papar and Beaufort. During that year the Government will close down minor stations and reduce passenger service between the two cities.

2.10 From Beaufort the railway turns inland to serve Tenom and the surrounding logging areas in the Crocker Range. There is presently no direct road connection between Tenom and the west coast and in 1974 this section of the railway carried 45,000 tons of freight (twice as much as on the coastal section of the line) and 53,000 passengers. Service on this section must continue until better road connections are built between the Pegalan Valley and the west coast. This will be a difficult and costly project since the railway passes through narrow gorges where there is no room to build a parallel road. If the railway roadbed were converted to road use, service would be disrupted for a considerable time.

Ports

2.11 The large number of ports in Sabah, some of which are only 50 miles apart, is because of the lack of all-weather roads. Even with the construction of rudimentary road links in the last few years, the smaller ports are los- ing traffic. Once a good road network is completed, port activities will - 5 -

probably concentrate in Kota Kinabalu (the capital), (the largest city), and (a rapidly growing town with a rich hinterland); the road distances from Kota Kinabalu to Sandakan and from Sandakan to Tawau are only about 220 to 230 miles, respectively. The importance of the port at Labuan, a small offshore island, will depend upon the success of the new free trade zone being developed there.

2.12 At present there are seven ports under the jurisdiction of the Sabah Ports Authority (SPA), but over 90% of the cargo, except logs which are loaded from roadsteads, passes through the three ports of Kota Kinabalu, Sandakan and Tawau. New facilities, partially financed under the 1971 Loan 774-MA, are now virtually completed at the first two ports. Consultants are working on a 20-year master plan for Sabah's ports and also on the feasibil- ity of port expansion at Tawau. While wharf traffic (excluding logs) for all Sabah ports grew about 17% per year between 1970 and 1974, it increased three-fold at Tawau. There are also small jetties on various rivers which are utilized for both passenger transportation and commodities in areas with no roads. Rivers are also intensively used for floating logs to loading points on the coasts.

2.13 The SPA is also considering the construction of an industrial jetty at Sapangar Bay about 10 miles north of the present Kota Kinabalu port. The concept of developing Sapangar Bay into an industrial zone must be related to a general development plan for Kota Kinabalu, including consideration of the cost and convenience of transport for persons and goods between the pro- posed industrial zone and the rest of the urban area; and also the compati- bility with other land uses, existing or planned. The Government has re- quested the Bank's assistance (para 4.10) for an urban study of Kota Kinabalu, to examine the above questions and other issues facing the city's future development.

Air Transport

2.14 Air transport is vital for connecting Sabah with the rest of Malay- sia and neighboring countries, as well as for internal communications. The Malaysian Airline System (MAS) offers daily Boeing 737 service between Kuala Lumpur and Kota Kinabalu. MAS and foreign carriers also operate direct routes between Sabah and Singapore, the Philippines, and Hong Kong. Internally, MAS has a fleet of seven Fokker F27-500 and four Britten Norman Islander (BNI) aircraft exclusively assigned to service Sabah and Sarawak. In Sabah, five airports are served daily: Kota Kinabalu, Sandakan, Tawau, and Labuan. Kota Kinabalu and Labuan accommodate international jet aircrafts while the others receive the Fokkers. Another six minor airports are served by the BNIs. Passenger traffic, now over half a million passengers p.a., has roughly doubled since 1970. With the current limited road network civil aviation will continue to play a important role in connecting the east and west coasts with remote locations in the interior.

C. Planning and Coordination

2.15 The 1968 General Transport Survey which reviewed all aspects of transport planning in Malaysia identified investment requirements up to 1975. - 6 -

For Sabah the study emphasized mainly the development of roads and the recon- struction of the ports of Kota Kinabalu and Sandakan. The recommendations have generally been followed with the construction of the two ports just completed. With regard to roads the practice of the Sabah Public Works De- partment (SPWD) seems to have been to produce the maximum length of roads with the limited funds available rather than constructing fewer roads to sounder engineering and construction standards. Consequently many roads become impassable during the rainy season and others require heavy repairs shortly after construction. Now that the basic network is approaching comple- tion, the Sabah Government is ready to embark on a consolidation phase. In upgrading the roads it will be important to select levels of improvement which are economically justified (para 3.14).

2.16 Transport coordination is not an issue in Sabah. Once the west coast road from Papar to Beaufort is reconstructed, railway service between Papar and Beaufort will be phased out (para 2.09). When this phaseout is completed there will be no major issues of modal competition. Some short distance passenger traffic will divert from air transport to roads as the latter are improved, e.g. between Lahad Datu and Tawau after the east coast road is reconstructed.

2.17 Until very recently, transport planning in Sabah was rather limited, and left to the individual departments of the state Government dealing with the various modes, with SPWD responsible for roads. Roads were built where needed, but inadequate planning led to the shortcomings mentioned in para 2.15. Late in 1975, prompted by the economic slump and under pressure from the federal Government, a Sabah Economic Planning Unit (SEPU) was created on the model of the Federal Economic Planning Unit (FEPU). The SEPU will help coordinate Sabah's transport development.

III. HIGHWJAYS

A. The Network

3.01 Sabah's road network comprises about 2,350 miles of roads of which only 28% are paved. This contrasts sharply with Peninsular Malaysia where 86% of the 12,000 mile network is paved (Table 2). The Sabah network has a very low density in terms of area, 0.08 mile of road per square mile versus 0.2 in Peninsular Malaysia. The population of the state is so small, however, that the comparison appears more favorable on a per capita basis, 2.8 mi/ 1,000 inhabitants versus 1.2 in Peninsular Malaysia. The very sparse popu- lation spread over a vast area explains why road expenditures per capita in Sabah have been and will continue to be high and why the network is still rather undeveloped. There are no federal roads in Sabah. The network is classified administratively into trunk, district and local roads.

3.02 The conditions of Sabah's roads lag far behind those of Peninsular Malaysia where federal and state roads were already well developed before independence. However, in Sabah many roads were initially built by private companies as penetration roads to serve logging and plantation interests - 7 - rather than as through roads to serve public transport. On the east coast, the Sandakan area is still not connected to the Tawau area, and the through road Lahad Datu-Tawau is only a few years old. These roads were in poor condition when turned over to the state, since they were not built to sound engineering standards. Therefore, a considerable upgrading program was needed to put the roads in a condition where they could be properly maintained. Although substantial progress has been made in recent years, much remains to be done. The situation is further aggravated by undertaking an extensive paving program with inadequate funds, resulting in recently upgraded and paved roads which are already showing deficiencies. Whereas in Peninsular Malaysia emphasis must now be on strengthening pavements to protect prior investments in the generally adequate system, the emphasis in Sabah must be on upgrading a large part of the system and completing the integration of the road network.

3.03 Traffic densities are on the average much lower in Sabah than in Peninsular Malaysia. For several years to come many road sections will con- tinue to carry traffic volumes which are too low to justify asphalt paving. Well maintained gravel roads would be adequate, but many road sections can- not be satisfactorily maintained until drainage, embankment levels and gravel surfaces have been upgraded. Excessive funds are now expended on emergency repairs to keep roads passable during and after heavy rainfalls.

B. Road Transport

3.04 Between 1970 and 1975 Sabah's motor vehicle fleet grew at an average annual rate of over 10% (Table 3). About 57,000 vehicles were registered in 1975; less than 10% of these were motorcycles compared with Peninsular Malaysia where about 60% of the fleet consists of motorcycles. Indeed, the per capita ownership of cars in Sabah is higher than in West Malaysia with 1 car for 20 inhabitants versus 1 for 25. Most of the vehicle fleet is located in and around the three largest cities of Kota Kinabalu, Sandakan, and Tawau. Motor vehicles of many makes are assembled in Malaysia and pro- tected by high import duties. The total tax levied on directly imported vehicles amounts to 70% of the c.i.f. price compared with some 20% for vehicles assembled in Malaysia.

3.05 The distribution of traffic on Sabah's road network reflects the concentration of vehicles in the major towns and the poor conditions and limited mileage of the total road network. The most heavily trafficked roads are the paved sections of the west coast road from Kota Kinabalu north to (25 mi) and (50 mi) and south to Papar (27 mi). Volumes are well in excess of 1,000 vehicles per day (vpd) in the rural sections and much higher near the towns; elsewhere, traffic volumes are low, ranging from a few vpd to 200-300 vpd, mostly 4-wheel drive. SPWD conducts regular traffic counts every year, but poor road conditions prevent regular passage during the rainy season and result in traffic counts on the rural sections that are often erratic.

3.06 Public transport of both passengers and goods is regulated in Sabah in a similar, although somewhat simpler, way than in Peninsular Malay- sia. Licenses are issued by the Transport Authority Board under the Sabah -8-

Ministry of Works and Communications (SMWC) on the basis of general esti- mates of transport demand in various areas of the state. Service seems generally adequate. Bus licenses cover routes as well as maximum fares. The authorized fares for buses are Mi 15 per passenger for the first mile and Mi 5 for each subsequent mile while those for taxis are M$1.00 and Mi 80 respectively. Licenses for transport of goods do not distinguish between common carriers and "carriers for own goods" as they do in Peninsular Malaysia, but service regions and routes are regulated. There are no maximum freight rates as the uneven and poor quality of most roads would make such regulation impractical; rates therefore vary greatly.

3.07 The road traffic ordinance which regulates the types, weights, and sizes of vehicles dates from 1953 and is inadequate for the operation of modern road transport. The limits for trucks are based on vehicle size and unladen weight rather than on axle load. Both size and weight limits are unnecessarily restrictive and exemptions are granted fairly freely after con- sultation with SPWD since bridge capacity is the limiting element on many routes. As Sabah is embarking on a large and costly program of upgrading its public road network, the road traffic ordinance should be revised to protect road investment by proper axle load regulation and enforcement. A modifica- tion to the ordinance specifying maximum laden axle loads has been prepared by the state of Sabah and agreed with the Bank; assurances were obtained from the Government that the modification will be introduced and enforced by January 1, 1978. The project includes the procurement of weighbridges to improve the enforcement of the road traffic ordinance (para 4.05).

C. Highway Administration

3.08 Because there are no federal roads in Sabah, the SPWD is responsible for the planning, design, construction, maintenance, and administration of the highway network. It receives occasional assistance from the Federal Ministry of Works and Utilities (FMWU) on planning and engineering matters (para 3.10 and Charts 1 and 2). The SPWD's responsibility is not limited to roads but also covers the construction and maintenance of airports, water supply, and all governmental buildings. It is organized under a director-general into headquarter functions of planning and administration, and field functions through divisions which handle both construction of civil works and mainte- nance of public facilities. However, the project provides for reorganiz- ing highway maintenance by establishing separate divisions exclusively for this purpose (paras 3.19, 4.05 and Chart 3).

3.09 The total SPWD engineering and architectural staff numbers only 50 at present, about half of which are still expatriates. Agreements cover- ing 20 expatriate positions were recently renewed with the UK. A number of young engineers joined the department in 1976 from the first class of Malay engineers to graduate locally and more are expected to join in 1977. Some of them will have the opportunity to be trained by the consultants retained for supervision of the project roads. In view of Sabah's good development -9- prospects, the claims on SPWD, not only for roads but in other fields, should continue to exceed the capacity of its staff. Consequently, until a more advanced stage of development is reached, consultants' assistance will be necessary for the planning, designing and execution of major road projects.

D. Highway Planning and Financing

3.10 The feasibility studies and detailed engineering for the preparation of this project, as well as recent studies financed by Japan for the Crocker Range Crossing, were contracted for and supervised primarily by the Highway Planning and Public Transport Unit (HP&PTU) of the FMWU, with some assistance and participation of the SPWD. The newly created SEPU (para 2.17) became involved in the latter stages of project preparation and is expected to con- tinue to assist the SPWD in future highway planning activities.

3.11 During the country's first (1966-70) and second (1971-75) plan periods, Sabah's investment in roads exceeded the original allocations; capital expenditures on roads were respectively about M$85 million (55% above allocation) and about M$190 million (50% above allocation). The TMP (1976-80) allocation for Sabah is presently M$250 million. It is expected that the TMP allocation will be increased during the mid-plan review as was done in the previous two plans, to cover the implementation of the Japanese- aided Crocker Range Crossing and to continue work on other projects now underway such as the Sandakan-Lahad Datu road. Because of the large size, low population density, and early stage of development of the state (para 3.01), its road investment per capita has been about 5 times larger than in Peninsular Malaysia over the last 10 years. Total road expenditure, including maintenance and administration, reached M$60 million in 1975 (Table 4), twice the 1970 level. This is about one-fourth of the total road expenditure in Peninsular Malaysia and emphasizes again the need for very careful road planning in Sabah.

3.12 Highway expenditures in Sabah are financed from both federal and state budgetary resources supplemented by foreign grants and loans. Because the special constitutional status of the state of Sabah differs in many respects from that of states in Peninsular Malaysia 1/, it is very difficult to ascertain exactly how expenditures and revenues are channelled between the federal Government and the states. Since there are no federal roads in Sabah, the state receives only the federal allocation for the maintenance of its roads like the Peninsular Malaysia states (para 3.17). This amount is supplemented, however, by federal grants determined on an ad hoc and project basis.

3.13 Road user taxes are not earmarked but form part of the general re- venue both at the federal and state levels. In Sabah, revenues from these

1/ For instance, some road user revenues are kept by Sabah but not by states in Peninsular Malaysia. - 10 -

taxes increased faster than road expenditures, tripling between 1970 and 1974 from M$22 million to about M$70 million, and matching expenditures in 1973 and 1974 (Table 5). In 1975, however, revenues from road user taxes were down by a third following the fall in timber export revenues (para 2.04) whereas road expenditures remained at their 1974 level. Nevertheless, for Malaysia as a whole, revenues from road user charges still amount to more than twice the total expenditures on roads. This is explained by the high user charges on private cars, e.g. progressive license charges for larger models and high duties on gasoline, which should be seen as taxes on consumption rather than taxes directly reflecting the cost of using roads.

E. Highway Design and Construction

3.14 Sabah's official design standards for roads, although revised in 1971, do not closely reflect the characteristics of the network and thus do not provide adequate guidance for design. The main problem is that most Sabah roads fall within one large range of Average Daily Traffic (ADT) namely, 300 to 2,500 vpd for which a wide range of surface widths (18 ft to 24 ft) is prescribed (Table 6). While some roads need to be reconstructed to higher standards to achieve a more permanent and maintainable condition, such standards should not be used for roads with low traffic volumes unless they can be economically justified. Assurances were obtained from the Government that appropriate modifications to the design standards, as agreed with the Bank, will be introduced by July 1, 1977.

3.15 It has been SPWD's practice to construct roads and improvements to its own design by force account. SPWD's supervision of its construction works has sometimes resulted in compromising specifications when available funds were insufficient to achieve the construction targets. It is now recognized that contractors should be used for construction and experienced consultants for design and supervision of major road projects.

3.16 The road construction industry in Malaysia is small because of the country's practice in the past of executing road works by force account. There are only two or three local contractors qualified to execute major road construction projects; however, a number of local contractors have the capa- city to undertake simpler road works. The upgrading of roads by contract in Sabah and the pavement strengthening program in part by contract in Peninsular Malaysia (paras 3.19, 4.05 and 4.07) will provide a significant long-term work program that should help develop and expand the local consulting and construction industries.

F. Highway Maintenance

(a) Sabah

3.17 The SPWD maintains the highway network using its allocation of fed- eral funds of M$5,000 per mile which is supplemented by state funds (para 3.12). The workload is presently divided among 21 districts within 6 SPWD field divi- sions. These divisions now carry out road maintenance, new construction and the other SPWD activities listed in para 3.08 with a common pool of equipment - 11 - which is generally overage. Maintenance suffers because under this organi- zation priority is often given to new construction (this will be remedied under the proposed project, paras 3.19, 4.05, 4.07, Chart 3). A major problem of road maintenance in Sabah is the poor initial standards of many roads. Because these roads lack proper drainage and pavement structure, they cannot be placed under normal maintenance and thus costly repair works have to be repeated each year after the rains to reopen them to traffic. Additionally, the level of maintenance on other roads is inadequate mainly because of the shortage of maintenance equipment.

(b) Peninsular Malaysia

3.18 In Peninsular Malaysia, the state PWDs execute maintenance works using the federal allocations to the states of M$5,000 per mile for state roads and M$2,900 per mile for the routine maintenance of federal roads. In addition, the federal Government provides the states with most of the equipment needed for road maintenance and finances the periodic resurfacing of federal roads. The states have considerable freedom in the use of the state road maintenance funds, and in practice the amounts actually spent on road maintenance vary from state to state and year to year. The amount of M$5,000 per mile is arbitrary because actual needs vary greatly with traffic densities and road conditions, but on average the system seems to work rea- sonably well and most toads are adequately maintained. However, the cost of maintenance tends to be high for the following reasons: (i) road main- tenance is one of several activities assigned to state PWD's. As a conse- quence priority is not always given to road maintenance operations and delays lead to higher costs at a later date; (ii) the quality of some mainte- nance operations is inadequate e.g., the materials for producing pavement overlays requires more control and earth shoulders and drainage ditches need to be kept below pavement surfaces to permit proper drainage; and (iii) the pavements of many roads are in critical condition and some are beginning to fail as they had not been initially built for the present volumes of traffic which frequently exceed 10,000 vpd.

(c) Government's Plan to Improve Maintenance

3.19 The key recommendations of the maintenance study (para 1.06), gene- rally accepted by the federal and Sabah state Governments, are the establish- ment of separate road maintenance organizations in each state which will be adequately equipped and staffed to carry out improved maintenance operations, a road upgrading program in Sabah to permit normal maintenance to be per- formed thereafter, and a program of pavement strengthening in Peninsular Malaysia to avoid costly reconstruction of collapsed pavements. In line with these recommendations, the Government has prepared a four-year mainte- nance program for Sabah that includes road upgrading, and a pilot program for improved road maintenance and pavement strengthening for the states of Johore, Perak and Kelantan in Peninsular Malaysia. The project includes these two programs (paras 4.05-4.08). Assurances were received from the Government that in substance the technical recommendations of the maintenance study will be - 12 - adopted, and that the new maintenance organization as recommended in the study will be introduced in the remaining states of Peninsular Malaysia during the TMP.

IV. THE PROJECT

A. Description

4.01 The main objective of the project is to improve Sabah's highway network through the reconstruction and upgrading of priority links and the development of its maintenance capacity. A further objective is to protect road investments in Peninsular Malaysia through a pilot road maintenance and pavement strengthening program in three states.

4.02 The proposed project conisists of:

(a) the reconstruction to paved standards of 128 mi, and to gravel standards of 18 mi of trunk roads in Sabah, including supE!rvisionby consultants;

(b) a four-year maintenance program for Sabah including procurement of equipment, upgrading 290 mi on 13 road sections and assistance by consultants;

(c) the development of pilot road maintenance and pavement strengthening programs for the states of Johore, Perak and Kelantan in Peninsular Malaysia including pavement strengthening of about 120 mi in Johore;

(d) (i) a transport/railway study in Peninsular Malaysia; and (ii) an urban study in Kota Kinabalu.

(a) Reconstruction and Supervision of Roads in Sabah

4.03 Two sections of trunk roads in Sabah, totalling 128 mi, will be reconstructed to paved standards: Papar-Beaufort (37 mi) on the west coast, and Lahad Datu- (91 mi) on the east coast. A third section Beaufort- Sindumin (35 mi) on the west coast will be upgraded to an all-weather gravel standard. Standards for the three sections are given in Table 7. The exist- ing roads are rough gravel roads with poor horizontal and vertical alignment. Inadequate drainage makes the roads impassable during periods of heavy rain which are frequent on both coasts. Travel speeds are extremely low, averaging about 15 mph. The Papar-Beaufort road will follow an entirely new alignment reducing the distance between the two towns from 48 to 35 mi; a 2-mile con- nection to Papar is included in the project. The Lahad Datu-Semporna road will generally follow the existing alignment with local improvements. The pavement on both roads will be a 2.2ft double bituminous surface treatment (DBST) on a 33 ft wide formation (including shoulders). Paving of the Beaufort-Sindumin section has been deferred in view of its low economic re- turn, but some 18 miles will be rec:onstructedto raise the road above flood level and ensure all-weather passage. - 13 -

4.04 Sabah proposes that supervision of construction be provided by KAMPSAX-SSP who prepared the detailed engineering and tender documents for the roads above (para 1.05) and who assisted SPWD in evaluating tenders for the works which were received on November 24, 1976; this would be an acceptable arrangement as the performance of the joint venture had been satisfactory. About 290 man-months of services are required of which 140 would be supplied by KAMPSAX. SSP's involvement under the proposed project will be greater than in the past because of the earlier experience it gained in working with KAMPSAX. Additionally, the FPWD will provide SPWD with a project coordinator and a few engineers to ensure proper administration of the works by SPWD.

(b) Four-Year Maintenance Program for Sabah, including Equipment Procurement, Road Upgrading and Consulting Services

4.05 The three main impediments to achieving a satisfactory level of maintenance are (i) organizational deficiencies, (ii) insufficient equip- ment, and (iii) the unmaintainable condition of some roads. Sabah has adopted the recommendations in the maintenance study (paras 1.06 and 3.19) and its program for improving this situation. The study recommends estab- lishing five separate divisions to deal exclusively with road maintenance (Chart 3), the permanent assignment to these divisions of existing and addi- tional equipment items to be purchased (Table 8), and the upgrading of 290 mi on 13 road sections totalling 530 mi (Table 9) which will then permit the sections to be properly maintained by the new divisions. Workshops are now adequate in number, location and facilities to service existing and new equipment. Bank financial assistance is attached to the procurement of main- tenance equipment (capital costs), the upgrading of 12 road sections by contract (the one remaining section of road will be upgraded by SPWD's own forces), and a technical support team (para 4.06). Equipment procurement also includes the purchase of six weighbridges which will be located on main roads (map) to control vehicle weights. Sabah's recurrent budget for maintenance is now about M$18 million p.a. and will rise to about M$21 million under the maintenance program.

4.06 Three qualified local consulting firms will carry out the final engineering and supervision of construction for the 12 road sections to be upgraded by contract. Man-month costs for these services cannot be readily determined because of the scattered nature of the works; the total cost is estimated at about 8% of the estimated construction cost and will be financed entirely by the Government. A foreign consulting firm will provide a techni- cal support team to SPW4Dheadquarters to cover design, construction, mainte- nance and quarry operations. The latter team, which would provide about 80 man-months of expert services, will assist SPWD in all matters related to the implementation of the maintenance program and the supervision of design, ten- dering and construction of the upgrading works. The opportunity to be given to local firms, probably from Sabah, to design and supervise the upgrading works will add to their experience and skills and increase their capacity to undertake more complex assignments in the future. - 14 -

(c) Pilot Road Maintenance and Pavement Strengthening Program in Peninsular Malaysia

4.07 The federal Government has generally adopted the recommendations of the maintenance study for Peninsular Malaysia (paras 1.06 and 3.19) which aim at improving the efficiency and the technical standards of maintenance. The main thrust of a national maintenance program will be to reorganize main- tenance by establishing a separate maintenance unit in the FPWD to assist the states in planning and coordinating maintenance efforts and in evaluating and designing pavement strengthening needs; and a separate section in each state PWD that is adequately staffed and equipped to deal exclusively with mainte- nance. As implementation of the recommendations on a national scale will take several years to achieve,.the federal Government has decided to initiate them through a pilot program for the states of Johore, Perak and Kelantan in order to gain experience and then judge how best to implement the recommendations in the remaining states.

4.08 Implementation of the pilot program has already started. Main- tenance equipment is in the process of being procured for the three states; some equipment is also on order for the strengthening works (totalling about 250 mi) in Perak and Kelantan as these states will carry them out by force account. Johore will carry out the pavement strengthening by contract; this work comprises about 120 mi of Federal Route I and is the only item in the pilot program for which Bank financial assistance is provided. All pavement strengthening will be preceded by corrective roadway drainage works, includ- ing digging deeper ditches, to dry out the pavements' base and subbase and thus possibly reduce the thickness and cost of the pavement strengthening required.

(d) Studies

4.09 Transport/Railway Study. As indicated in para 1.05, all previous Bank transport projects, as well as this one, were identified by a comprehen- sive transport survey conducted in 1967-68. The resulting report made pro- jections of transport demand for various modes to 1975. The rapid economic development of Peninsular Malaysia, the opening of new areas to settlement on the east coast, and the lesser reliance placed on the port of Singapore have changed some of the characteristics of the transport sector. Of particular concern to the Government is the role and condition of the railway (para 1.03). At the Government's request a transport/railway study has been in- cluded in the project for Bank financing. The terms of reference have been agreed to (Annex 1) and include: updating sector information, making new projections of transport needs, and examining the future role of the rail- way in the overall transport pattern of Peninsular Malaysia. The study is expected to require about 50 man-months of expatriate assistance. Consul- tants (Canadian Pacific Consulting Services) have been selected from a short list of five firms and a contract is now being negotiated. The study may result in future Bank assistance to the MR. - 15 -

4.10 Kota Kinabalu Urban Study. Kota Kinabalu, the state capital of Sabah, is growing very rapidly. The lack of efficient land use planning and control measures, the wide disparities of housing standards, deficiencies and disparities in basic infrastructure and services, inadequate flood control within the immediate vicinity of the urbanized area, the proliferation of private and public development schemes among which the proposed industrial zone with a new jetty at Sapangar Bay (para 2.13) are creating a number of problems. The federal and state Governments wish to engage consultants to undertake a study leading to a plan for the future development of the city and have requested the Bank's assistance. Such a study is, therefore, included in the project for Bank financing. It could result in further Bank lending for the urban area. Terms of reference have been agreed (Annex 2) and in December 1976 six consulting firms were invited to submit proposals. The Urban Projects Department will participate in the selection of consultants and the supervision of the study. The study is expected to require between 50 and 60 man-months of both expatriate and local expertise.

B. Cost Estimates

4.11 The total cost of the project, including contingencies, is estimated at US$108 million, with a foreign exchange component of US$69 million, or 64%. The base for all costs is November 1976. Details are given in Table 10 and summarized below. The project costs are separated into those elements proposed for Bank financing and those not proposed for Bank financing. - 16 -

M$ Million US$ Million % Foreign Exchange Local Foreign Total Local Foreign Total Component I. Elements Proposed for Bank Financing A. Road Reconstruction in Sabah (146 mi) 43.7 71.3 115.0 17.5 28.5 46.0 62 B. Capital Costs of 4-Year Road Main- tenance Program in Sabah, includingRoad Upgrading (i) Procurementof equipment, in- cludingweigh- bridges - 9.7 9.7 - 3.9 3.9 100 (ii) Road upgrading 8.6 12.8 21.4 3.4 5.2 8.6 60 C. Pilot Pavement Strength- ening Program in Johore, Peninsular Malaysia (120 mi of Federal Route I) 5.1 7.7 12.8 2.0 3.1 5.1 60 D. Consulting Services for: IA and B, and for Trans- port/RailwayStudy in PeninsularMalaysia and Urban Study of Kota Kina- balu in Sabah 5.5 6.0 11.5 2.3 2.3 4.6 50 Subtotal A-D 62.9 107.5 170.4 25.2 43.0 68.2 63 E. Contingencies: Physical 5.5 9.5 15.0 2.2 3.8 6.0 63 Price 14.5 25.0 39.5 5.8 10.0 15.8 63 Subtotal E 20.0 34.5 54.5 8.0 13.8 21.8 63 Total I 82.9 142.0 224.9 33.2 56.8 90.0 63 II. Elements Not Proposed for Bank Financing A. Right-of-Way 2.5 - 2.5 1.0 - 1.0 0 B. Other ConsultingServ- ices (Domestic)for IB(ii) 2.5 _ 2.5 1.0 - 1.0 0 C. Capital Costs of Pilot Road Maintenance and Pavement Strength- ening Program in Pen- insular Malaysia 9.5 30.5 40.0 3.8 12.2 16.0 76 Total II 14.5 30.5 45.0 5.8 12.2 18.0 68

Total Project Cost, I and II 97.4 172.5 269.9 39.0 69.0 108.0 64 - 17 -

4.12 Cost estimates for the reconstruction works in Sabah are based on quantities derived from completed engineering and on international tenders received in November 1976. Tenders have been evaluated. The cost estimates take into account the value of the lowest bids; awards to the lowest bidders are expected by the end of March 1977. The cost estimates for equipment are based on a detailed list of proposed purchases and current unit costs. The costs for the upgrading works in Sabah and pavement strengthening in Johore are based on comprehensive engineering assessments of the work and quantities by consultants and by the states involved, and the application of unit price rates from recent tenders for similar works.

4.13 Cost estimates for various consulting services are based on a detailed review of man-months and unit costs for similar work or studies in Malaysia; an exception are the local services for engineering and super- vision of the upgrading works for which a percentage of construction cost was used (para 4.06). In summary, the costs of the expatriate services, including foreign travel, equipment and all other related expenses, are:

Type of Expatriate Service Average Cost in US$ Equivalent per man-month per mi

Construction Supervision in Sabah 6,000 5,000

Technical Support Team for SPWD: 7,500 Not relevant

Studies: 8,000 Not relevant

All these estimates are reasonable.

4.14 A contingency allowance of 10% has been added to cover quantity increases on all items, except for the roads to be reconstructed in Sabah where only 8% has been added because the tender prices already provide for a 2% quantity increase. Allowances for price escalation have been provided as follows: 12% p.a. in 1977-79 and 10% p.a. thereafter for all civil works; 10% for equipment; and 8% p.a. in 1977-79 and 7% p.a. thereafter for all con- sulting services. These allowances are considered adequate.

4.15 The foreign exchange component of the various project elements have been estimated by consultants and are 62% for the reconstruction works and 60% for the upgrading and pavement strengthening works. The foreign exchange com- ponent of the consulting services for reconstruction supervision is relatively low because of the significant involvement by the local firm, SSP (para 4.04); the component for the studies is high because the work will be mainly carried out by expatriates. These estimates appear reasonable.

C. Financing

4.16 The proposed loan of US$35 million equivalent will cover 39% of the total cost of the project elements proposed for Bank financing (para 4.11) and represents about 62% of the foreign exchange component of such cost. The Government will finance the remaining project costs of US$73 million equiva- lent as part of the SPWD and federal annual development budget. Additionally, - 18 - the annual recurrent costs of the road maintenance programs in the states of Johore, Perak, Kelantan and Sabah will be financed through the annual budgets of the PWD's in each of these states.

D. Implementation and Procurement

4.17 The SMWC will be responsible for carrying out the reconstruction element of the project and the road maintenance and upgrading program for Sabah through its SPWD assisted by qualified consultants; assurances were obtained from the Government that suitably qualified consultants for super- vising the reconstruction element will be engaged prior to the commencement of construction. The responsibility for the pilot maintenance project in Peninsular Mfalaysiawill rest with the FMWU through its FPWD, and the respon- sibility for the transport/railway study will lie with the FEPU and the Federal Ministry of Communications. The SEPU will supervise the Kota Kinabalu Urban Study. The federal Government will retain overall responsibility for the Sabah elements of the project and appropriate arrangements for effective control have been agreed between SMWC and the federal Government and confirmed during loan negotiations.

4.18 All civil works assisted with Bank finance will be carried out under unit price contracts awarded after international competitive bidding following Bank Group Guidelines for Procurement. Thirteen contractors were prequalified for all or part of the reconstruction works, ten were foreign firms, two were joint ventures of foreign-local firms, and one was a local firm. Six firms presented tenders, but the only local interest was from one foreign-local joint venture. Expatriate firms were the lowest bidders but local contractors will probably participate as subcontractors. Construction should start around June 1977 and be completed 30 months later. The tender documents were agreed to and contain adequate provisions for performance guarantees, retentions, price escalation, etc.; similar documents will be used for the remaining civil works. In respect of the upgrading and pavement strengthening works, a new prequalification of contractors will be carried out by mid-1977 and it is expected that some local firms will be successful in winning contracts as these works are small, ranging in value from US$800,000 to US$2,000,000, and within the capacity of local contractors to execute. Tendering for these works should begin early in 1978 as soon as designs and tender documents are completed for the first sections. Work on individual sections will take from 9 to 24 months to complete. All civil works contracts under the project will be entered into under terms and conditions satisfactory to the Bank, and should be completed by mid-1980.

4.19 The maintenance program in Sabah will be implemented over a four- year period and purchases of equipment following Bank Guidelines and inter- national competitive bidding should be completed before the end of 1977. For the purpose of bid comparison, a preference of 15% of the c.i.f. price of imported goods, or the customs duty, whichever is lower would be extended to local manufacturers. The pilot maintenance program in Peninsular Mfalaysia is under implementation and further measures will be implemented in the next two years on the basis of experience gained (para 4.08). - 19 -

4.20 The Bank Group Guidelines are being followed for the procurement of all consulting services and all agreements for services will be entered into under terms and conditions satisfactory to the Bank. The Government has invited a proposal from KAMPSAX-SSP to supervise the reconstruction work (para 4.04) and proposals for the Kota Kinabalu urban study (para 4.10). Proposals for the technical support team and for the upgrading works (para 4.06) will be requested from a short list of firms by the end of March 1977. The transport/railway study is expected to start in March 1977 and last nine months and the urban study should start in the second half of 1977 and also take nine months to complete.

4.21 The project is not expected to have any significant adverse ecolog- ical effects. On the contrary, the paving of the roads will eliminate the dust raised by vehicles traveling on gravel roads and proper drainage will reduce erosion and flooding. Land acquisition is only significant for 35 mi of the west coast road since other sections follow existing alignments. Because of the rural character of the areas traversed by the project roads, land acquisition in Sabah is not expected to be a problem as was the case in previous road projects in the vicinity of Kuala Lumpur. Assurances were received from the Government that all land will be acquired in a timely fashion for the project. A detailed project implementation schedule was agreed with the Government, including key actions dealing with the establish- ment of the new maintenance organizations and staff for them (Table 11).

4.22 The current and likely near-term shortage of labor in Sabah (para 2.06) has precluded consideration by the Government of more labor intensive methods for road construction or maintenance. The pavement strengthening program in Peninsular Malaysia involves largely the placement of 1-1/2" to 4" of asphaltic concrete on existing roadways and is an operation that is capital intensive.

E. Disbursements

4.23 Disbursements from the loan will be on the basis of:

(i) 35% of the total cost of construction items for which Bank financing is proposed, including physical contin- gencies and price escalation;

(ii) 100% of the c.i.f. cost of directly imported equipment and weighbridges for Sabah; or 100% of the ex-factory price of such items if manufactured locally or 70% of the price of such items if imported but locally procured; and

(iii) 100% of the foreign exchange cost of consultants services proposed for Bank financing. For the urban study in Sabah disbursement could alternatively be 80% of total cost.

On this basis and upon the schedules for project execution (para 4.21), an estimated schedule of disbursement has been prepared (Table 12). It is expected that disbursement would be completed by June 30, 1981. - 20 -

V. ECONOMIC EVALUATION

A. General

5.01 The Third Highway Project for Malaysia focuses on road improve- ment in Sabah, where further development depends on improved land connections between isolated development centers. So far, the Sabah Government has been expanding and maintaining its road network largely with its own forces with only occasional assistance from the federal PWD. The only external assistance received for roads, except for the numerous expatriates still serving in the SPWD, has been an Australian technical and financial grant for the construc- tion of the east-west highway between and Sandakan. The road was not built by contractors but by SPWD's own forces; some pavement problems are reported already only a few years after opening to traffic. In addition to the economic benefits described below, this project will hopefully demonstrate the validity of proper planning, engineering, and execution and set standards for future road work in Sabah.

5.02 The project offers an overall and graduated approach to the improve- ment of roads in Sabah through (a) the reconstruction of two major trunk roads on the west and east coasts, which already carried traffic in excess of 200 vpd in 1976, (b) the upgrading of other priority trunk roads with traffic levels around 100 vpd, and (c) the improvement of maintenance for the entire network. The project will reduce transport costs through savings in vehicle operating costs and savings in heavy maintenance and repairs which are regu- larly needed after heavy rains. The project will also improve communications between various towns and villages, and thus reduce the present isolation of a scattered population by providing easier and faster transport.

B. Roads to be Reconstructed

5.03 The economic analysis of the project roads to be reconstructed was carried out by consultants KAMPSAX-SSP, who updated an earlier feasibility study (para 1.05). The consultants' estimated traffic flows are based on SPWD counts, the results of a 1973 origin-destination survey, and special counts carried out in 1975 and early 1976. As mentioned above the present condition of the roads causes traffic flows to be erratic and there is some uncertainty attached to existing traffic average levels. However, base year traffic volumes used for the economic evaluation are at the lower end of the range of available data; they are given in Table 13. Traffic counts on both project roads are over too short a period to derive any valid trends for estimating future traffic. Projections were based on trends in motor vehicle registra- tion, fuel consumption, and their relationship to GDP and population. Given the low level of development in Sabah, traffic growth rates are expected to continue at high levels for the earlier part of the project's life and to taper off in the later years. They range between 14% and 10% p.a. for cars for the first 5 years after completing the project to 7% and 5% after about 15 years, and are somewhat lower for trucks and buses. Expected growth - 21 - rates and corresponding future traffic volumes are given in detail in Tables 13 and 14. Diverted traffic for the Papar-Beaufort section of the west coast road was estimated on the basis of rail traffic volumes (para 5.04). A re- cent Peninsular Malaysia study of price elasticity of transport demand as a function of income was used to project generated traffic. Benefits of the proposed road reconstruction are mainly savings in vehicle operating costs (Table 15) and reductions in maintenance and repair costs. Because of pre- sent low travel speeds on the existing roads (para 4.03), passenger time savings will be substantial but they have not been quantified.

(a) The West Coast Road

Papar to Beaufort

5.04 The coastal plain between Papar and Beaufort is presently served by the railway, while the existing road, which originated as a logging track, takes a circuitous route through the foothills of the Crocker Range. Beaufort is a small town of about 3,000 people which functions as a re- gional market center. Because the population is served by rail, the road has been left in poor condition and carries relatively little traffic (100 to 200 vpd). Distances between the various coastal towns are very short and volumes of goods are too small for an efficient railway operation. This is illustrated by the recurrent and increasing deficits of the railway (para 2.09). There are 4 stations between Papar and Beaufort located only 6 miles apart which ship and receive between 500 and 2,000 tons of rail- freight p.a. The maximum freight density on the line is about 25,000 tons p.a. or the equivalent of 14 5-ton trucks/day. The passenger density is about 250,000 p.a. or the equivalent of 25 buses/day. Travel is slow, with the fastest railcar averaging about 25 mi per hour and the passenger trains about half as much. When the new road is opened it is expected to carry the railway traffic, and railway service will be discontinued. The traffic diverted from the railway is estimated to total about 190 vpd in 1980.

5.05 The new road is 13 mi (or 27%) shorter than the existing road and will provide a direct paved link between Beaufort and the port and markets of the state capital Kota Kinabalu. Besides the sizeable savings due to the shorter distance there will be considerable savings of vehicle operating costs due to the improved alignment and surface. Savings on the new road range from 40% for cars to 53% for trucks. In the absence of detailed economic costs of , it was assumed that rail transport costs are midway between the road transport costs on the existing road and those expected on the new road. Thus benefits assigned to diverted traffic were taken as 50% of the savings in vehicle operating costs accruing to normal traffic. The first year benefits due to diverted traffic resulting from this estimate are about M$700,000 and appear to underestimate the real magnitude of benefits; an indication of this is the present financial deficit of the railway in recent years of M$2 million per year, which will be eliminated when railway service is discontinued. The streams of costs and benefits are shown in Table 16. The economic rate of return (ERR) calculated over an assumed 20-year service life of the investment is 14%. The sensitivity of the ERR was tested by varying construction costs by +10% and benefits by +20%. The ERRs ranged from 11% to 16%. - 22 -

Beaufort-Sindumin

5.06 This is the last section of the west coast road before the border with Sarawak. While there are plans to construct a link with Sarawak in the future there is no road on the other side of the state line at present. Consequently, traffic averages only about 180 vpd, and is somewhat higher towards Beaufort and lower towards Sindumin. The paving of this section, which was considered in the earlier stages of project preparation, will be deferred in view of the low return resulting from low traffic volumes and from construction costs which are higher than anticipated. On the basis of traffic projections it is expected that paving would become justified by about 1984 when traffic would approach 400 vpd. Meanwhile certain sections, totalling about half of the total length and which are frequently flooded, will be reconstructed to gravel standards to ensure all-weather passage. Quantified benefits are in terms of savings in vehicle operating costs, and considerable savings in the heavy maintenance and repairs now regularly undertaken after heavy rains. There will also be social and economic benefits resulting from the year-round opening of the road which have not been quantified. The quantifiable benefits of the investment are calculated for the 6 years between completion in 1978 and 1984 when traffic levels are expected to justify paving of the road. It has been assumed that by 1984 the investment would still have a 75% residual value. The streams of costs and benefits are shown in Table 16; the ERR is 16%. The sensitivity of the ERR was tested by varying construc- tion costs +10% and benefits +20%. The ERRs range from 12% to 21%.

(b) The East Coast Road: Lahad Datu to Semporna

5.07 This road will improve the land connection between three east coast towns: Lahad Datu, Semporna, and Tawau. The road from Tawau to the intersection with the proposed road (28 mi) is being paved by SPWD's own forces. While small ships still call at Lahad Datu, the existing road is already competitive with coastal shipping, the slightly higher financial cost being more than compensated by the speed of delivery. The port of Semporna has practically no calls. After valuable timber is extracted, the forest is being replaced by oil palm and coconut plantations, first in the vicinity of the existing towns, but gradually expanding along the road. Cocoa is being introduced near Tawau and is reportedly doing very well.

5.08 Traffic is presently higher on the branch road to Semporna, with near 300 vpd than toward Lahad Datu with 220 vpd. Generated traffic is ex- pected to be larger on the latter section, however, particularly when Lahad Datu will later be connected to Sandakan. Savings in vehicle operating costs on the new road range from 35% for cars to 50% for trucks. They are somewhat lower than for the west coast road since the project follows the existing hilly alignment while on the west coast the new Papar-Beaufort road will be in the coastal plain. There will also be some savings in maintenance costs. The streams of costs and benefits for each section are given in Table 16. The ERR over a 20-year service life is 14% for both sections. The sensitivity of the ERR was tested by varying construction costs +10% and benefits +20%. The ERRs range from 12% to 17%. - 23 -

C. Roads to be Upgraded

5.09 The project will upgrade 290 mi on 13 trunk road sections totalling 530 mi. A separate economic analysis has been done for the two types of upgrading work planned, i.e. for sections requiring raised embankments and a gravel course, and sections requiring only a gravel course. The analysis is done on the basis of average costs and benefits per mile and using a con- servative average traffic density of 100 vpd/mile in 1977 with two-thirds light and one-third heavy vehicles and growing at an average of 9% p.a. till 1985 and 6% thereafter. About three-quarters of the benefits of the new gravel course come from vehicle operating cost savings, and the rest from reduced maintenance costs. For the sections requiring raised embankments, savings in maintenance and repair costs needed after the rains account for 50% of the total benefits. Benefits have been calculated for 10 years after the investment, assuming that on average traffic levels on these roads would justify further upgrading by that time (Table 17). The ERRs are 22% for road sections with raised embankments and gravel course, and 26% for those with gravel course only. The sensitivity of the ERR was tested by varying con- struction costs + 10% and benefits + 20%. The ERRs range from 16% to 33%.

D. The Sabah Maintenance Program

5.10 The benefits of the program made possible by the purchase of equip- ment and the reorganization will be mainly in terms of protecting the invest- ment in roads already improved and roads which will be reconstructed and upgraded through the project. The surface condition of most roads in Sabah is poor and vehicle operating costs are unduly high. The improvement in maintenance will also result in reduced vehicle operating costs and improved communications between areas frequently isolated during the rains. It has been assumed that vehicle operating cost savings would average 5% on paved roads and 10% to 15% on gravel roads one year after the new maintenance divi- sions are allocated the new equipment. For calculating vehicle operating cost savings, sections of the network to be maintained have been grouped according to traffic densities (Table 13). The sections to be upgraded (290 mi) will be brought under routine maintenance in about 4 years, following completion of upgrading works. For the purpose of the analysis, costs have been defined as the capital cost of the new equipment and technical assistance for the program and the difference between the recurrent costs of maintenance with and without the project (Table 18). Benefits have been calculated over a 7-year period estimated to represent the average life of the equipment, and the ERR is 29%. The sensitivity of the ERR was tested by varying the capital cost of the program +10% and benefits +20%. The ERRs range from 18% to 38%.

E. Pavement Strengthening in Johore (Peninsular Mialaysia)

5.11 The benefits of pavement strengthening result primarily from the prevention of major damage to roads which would entail later reconstruction at much higher costs. While the cost of reconstruction can be estimated, the exact timing of future failures is more difficult to pinpoint. The pavements of road sections to be strengthened under the project have been - 24 - tested in the field and are all within a few years of the end of their useful life, and some should have been strengthened already. Consequently, it has been assumed that all sections would have failed within the four years following the proposed strengthening and that failures would be equally spread over this four-year period. While vehicle operating costs would also increase as a particular road section approaches failure, bene- fits due to vehicle operating cOSt savings with the project have not been quantified, as they would vary greatly from section to section. Thus, the estimated ERR of 28% on the basis of reconstruction cost savings alone is on the conservative side (Table 19). The sensitivity of the ERR was tested by varying the estimated cost of pavement strengthening and reconstruction by +10%. The ERRs range from 22% to 34%.

F. Conclusion

5.12 There are no unusual risks associated with the project. The risks, normally, are in the estimates of traffic growth rates and savings in vehicle operating costs and they have beein fully covered by examining the sensitivity of the EERs to variations in costs and benefits. The average ERR on the project components above, which account for 99% of all project costs proposed for financing by the Bank, is 187;. This excludes the two studies financed under the project.

VI. RECOMIENDATIONS

6.01 During loan negotiations:

(a) satisfactory assurances were received on the following principal points:

(i) the phasing out of railway service between Papar and Beaufort following the opening of the road to traffic (para 2.09);

(ii) the modification of legislation regarding vehicle weight limitation including enforcement aided by the weighbridges to be procured under the project (para 3.07);

(iii) the implementation of the maintenance and upgrading program in Sabah and the maintenance and pavement strengthening program in Peninsular Malaysia sub- stantially in accordance with the recommendation of the maintenance study (para 3.19); and

(iv) the consultancy arrangements for the project, parti- cularly the supervision of the road reconstruction work in Sabah (paras 4.04, 4.06, 4.09 and 4.10). - 25 -

(b) confirmationwas obtained on an implementationschedule for the project (para 4.21, Table 11).

6.02 The project constitutesa suitable basis for a Bank loan of US$35 million to the Government of Malaysia for a term of 17 years includinga 3-1/2 year grace period.

ANNEX 1 Page 1

MALAYSIA

THIRD HIGHWAY PROJECT

Outline Terms of Reference for the Transport/Railway Study

Background

A comprehensive General Transport Survey was conducted in 1967-68. The resulting report entitled "Transport Development in Malaysia" made pro- jections to 1975 of transport demand for various modes, including railways, and recommended investment programs. Based on this survey, a railway project was prepared, which was supported by a World Bank Loan (Loan 799-MA (1972) - US$16 million). The project aimed at modernizing the Malayan Railway (MR), improving its efficiency and achieving financial viability. Investments and a parallel "Program of Action" were both included. While some progress has been achieved, the overall results have not measured up to expectation and, in particular, the MR's finances have steadily deteriorated. There have been changes in the overall transport situation since the last survey, with traffic patterns changing in a radical manner, generally to the disadvantage of the railway and a stage has been reached when a fresh review of the rail- way's role and of the sectoral developments is needed. The present study will, however, be confined to Peninsular Malaysia.

Objectives of the proposed study

The objectives of the study would briefly be:

(a) to update information and review developments in all sectors of the economy particularly in the agricultural, forestry, industrial and transport sectors as they affect the railway system, since the General Transport Survey in 1967-78;

(b) to study in depth the situation of the railway system in regard to competition with other modes, especially road transport and coastal shipping, and assess the effect on this, of governmental policies in the sector as a whole in regard to investment, pricing and regulation;

(c) to develop, in the light of overall economic growth prospects in Peninsular Malaysia, forecasts of transport demand for each year during the next four years 1977-80 and for 5-year periods (1981-85) and 1986-90); ANNEX 1 Page 2

(d) to evaluate and quantify the contributions made to the national economy by the respective transport systems and their relative "worth" to the national economy, current and prospective, given the total national investments in the respective transportation modes;

(e) to determine where the MR can have a definite economic advantage over other modes, both for freight and passenger traffic, in handling its share of the fore- cast demand; and taking into account, amongst others, the recent increase in fuel oil price and environmental considerations; and

(f) to consider and recommend a realistic comprehensive corporate and strategy plan for MR, with a detailed investment program (with priority rating) for the years 1977-80 and an indicative program for the next 10 years, together with other parallel measures (operational, management, etc.) needed to enable MR to play its appropriate role in the economy; any other changes needed in regard to investment, pricing and regulatory policies in the sector also to be in- dicated.

February 1977 ANNEX 2 Page 1

MALAYSIA

THIRD HIGHWAY PROJECT

Outline Terms of Reference for the Kota Kinabalu Urban Development Study

I. INTRODUCTION

1. The Government of Malaysia and the State Government of Sabah propose to engage a team of consultants to undertake a detailed Urban Development Study of Kota Kinabalu and the surrounding areas within a radius of 15 mi or so.

2. Kota Kinabalu is the focal growth center of Sabah and the hub of economic activities for the region. The town has a reasonably diversified employment base and has the potential to develop into a main industrial and tourist center for the region. With the completion of the new port and the proposed development of the liquid cargo port at Sapangar Bay, coupled with the expansion of the Industrial Estate and the completion of the Kota Kinabalu airport, the future prospect of Kota Kinabalu developing into a main industrial and commercial center for Sabah is assured. With the tempo of development taking place currently, Kota Kinabalu is facing a number of problems, notably lack of efficient land use planning control measures, a wide disparity of housing standards, deficiencies and disparities in basic infrastructure and services, and inadequate flood control within the immediate vicinity. Added to these are the even greater disparities in basic services between the town and the villages along the coast and the surrounding areas. In addition, if not suitably controlled, any future development of the town and the surrounding areas will pose a real threat to the environment and the natural beauty which the coast in and around Kota Kinabalu now possesses.

3. The proposed study addresses the above problems and is designed to lead to rapid implementation of high priority projects consistent with a sound economic development strategy for the urban region. A number of studies have been undertaken and are currently being implemented in the State of Sabah, including water supply and sewerage study for Kota Kinabalu, ports develop- ment study, regional master-plan study for Sabah and hydro-power study for Sabah Electricity Board. These will no doubt have an impact on Kota Kinabalu town. Therefore this Study is essentially a complement focusing on urban infrastructure needs and problems of the state capital region. ANNEX 2 Page 2

II. SCOPE AND OBJECTIVES

4. Given the present stage of Kota Kinabalu's development, the broad objectives of the Study are: to identify and design a program which will

Firstly reinforce Kota Kinabalu's position as a major growth pole for the State of Sabah and as far as possiblecreate the job opportunitiesand physical/social environment for rapid development consistent with the objectives of the new economic policy;

Secondly ensure that the supporting activities and infrastructure are in line and keep pace with economic expansion.

5. The Study is intended to prepare a Capital Development and Improvement Program (CDIP) for Kota Kinabalu with emphasis on employment and income generation and provision of urban services for low-income population groups at costs which can be recovered from residents and businesses without need for public subsidies. To this end, the Study will:

(a) review and further identify the proposed program components, define the scope of the components and select appropriate sites;

(b) establish the physical, economic, social, financial and institutional feasibility of the program components;

(c) prepare site plans, engineering designs, cost estimates and tender documents for selected program components; and

(d) assist in staff training.

6. Some of the possible components of the CDIP are:

(a) integrated sites and services (for residential, commercial and small-scale industrial development) within the Study area;

(b) an industrial estate in the Sapangar Bay area;

(c) a liquid and bulk cargo jetty at Sapangar Bay;

(d) upgrading of infrastructure services of squatter and low-income kampong areas in and around Kota Kinabalu; ANNEX 2 Page 3

(e) facilities for low-cost transport/public transport;

(f) institutional and policy actions;

(g) credit for small-scale businesses; and

(h) technical assistance.

III. SCOPE OF CONSULTANT SERVICES

A. General

7. The Study area is to be primarily limited to the immediate urban region of Kota Kinabalu within a radius of 15 or 20 miles, but the Study should cover all significant impact zones and axes as required by the detailed analyses.

8. The Study shall be based primarily on analyses and extrapolations of existing data including the recent 1970 Census of Population and Household Survey. Collection of new data shall be kept to a minimum level consistent with the nature and objectives of work required herein.

9. The consultants shall perform all technical and administrative studies, economic analyses, financial investigations, and related work herein described, as required to attain the objectives given in Section II hereof. In the conduct of this work the consultants shall cooperate fully with the Government, which will provide agreed data, services, and facilities. The consultants shall be solely responsible, however, for the analysis and interpretation of all data received and for their findings, conclusions and recommendations.

10. The study shall be divided into two phases as follows:

PHASE 1: The consultants shall:

(a) analyze the current situation and trends and prepare projections for employment, population, housing and related socio-economic services (health, education, commerce, recreation etc.) in the Kota Kinabalu Region, using mostly available data supplemented when needed by data obtained by the consultants;

(b) determine land use and infrastructure needs to accommodate the growth of the various elements of urbanization projected in (a) above and recommend the optimal location of these needs over time; ANNEX 2 Page 4

(c) review and assess the present and any proposed institutions dealing with planning, financing,implementing, operating and maintainingurban infrastructureand services in the Kota Kinabalu Region, and recommend any changes and/or tech- nical assistancedeemed necessary;

(d) prepare terms of reference for technical assistance;

(e) on the basis of the above develop a CDIP with priority ranking of projects giving particular considerationto the list in para 6 and reviewingprevious feasibility studies done for items (a) to (d) in para 6;

(f) prepare preliminary site plans, engineering designs and cost estimates for the priority projects; and

(g) carry out economic social and financial feasibility analyses for the priority projects.

An Interim Report shall be submitted after completion of tasks (a) to (d). The report shall include a list of projects likely to be included in (e) so that the Steering Committee can interact and provide guidance to finalize (e) and carry out (f) and (g). The draft Final Report would then summarize (a) to (d) and cover in further details (e) to (g).

PHASE 2: The consultantsshall:

(a) on the basis of the Government'scomments on the draft Final Report clarify, revise and/or complementtheir recommenda- tions; and

(b) prepare final site plans, engineeringdesigns, cost estimates and tender documents for selected program components.

February 1977 TABLE 1

MALAYSIA

THIRD HIGHWAY PROJECT

State of Sabah Public DevelopmentExpenditures for Transport First, Second and Third Five Year Plans (M$ Million)

First Plan Second Plan Third Plan Mode 1966-1970 1971-1975 1976-1980 Allocation Actual Allocation Actual 1/ Allocation

Roads 49.5 79.8 128.4 187.9 208.9

SWPD Plant and 4.7 4.7 (incl. in 5.0 41.1 Equipment above)

Civil Aviation 6.0 14.3 46.6 35,3 46.7

Ports and Maritime 7.3 5.8 60.3 76.2 55.0 Services

Railways 1.3 3.9 8.0 9.6 -

Total 68.8 108.5 243.3 314.0 351.7 Achievement in % 158 129

In % of Total Public 31.8 2 4. 2 Development Expenditures

1/ estimatedas of February 1976

SOURCE: Second Malaysia Plan and Third Malaysia Plan

Februarv 1977 TABLE 2

MALAYSIA

THIRD HIGHWAY PROJECT

State of Sabah Annual Change in Length of Road Network By Pavement Type and Administrative Class (In Miles)

Pavement Type

Year Paved Gravel Earth Total

1970 322 1,112 362 1,796 1971 345 1,161 362 1,868 1972 375 1,217 362 1,954 1973 406 1,262 362 2,020 197i4 431 1,287 362 2,080 \~ ._ J 1975 664 1,690 2,354

Malaysia Total

1974 10,989 3,354 1,005 15,348

AdministrativeClass

Year Trunk District and Local Total

1975 894 1,460 2,354

SOJRCE: 1970 - 74 HP&PTU and Malaysia Highway Maintenance Study October 1974

1975 PWD Sabah

Februarv 1977 TABLE 3

MALAYSIA

THIRD HIGHiAY PROJECT

State of Sabah Motor Vehicle Registration (In Thousands)

Year Motorcycles Cars 1/ Buses Trucks Others Total

1970 5.2 22.1 .5 4.8 2.4 35.o 1971 4.7 26.3 .5 5.9 3.0 40.4 1972 5.2 29.2 .5 6.5 3.2 44.6 1973 5.1 31.4 .6 7.3 3.6 48.0 1974 5.2 34.3 .6 8.9 3.9 52.9 1975 5.2 37.4 .7 9.9 4.2 57.4

Malaysia Total

1975 755.0 467.6 9.8 106.4 45.9 1,384.7

Average Annual Growth Rates (% p.a.)

1970-75 0 11 7 16 12 10.5

1/ includes taxis and hire cars

SOURCE: HP&PTU and Sabah Road Vehicles Department

February 1977 TABLE 4

MALAYSIA

THIRD HIGHWAY PROJECT

State of Sabah Road ERcpenditures 1970-1975 (M$ Million)

1970 1971 1972 1973 1974 1975 /

Administration 1.1 1.3 1/ 1/ 1/ 1/

Maintenance 6.9 8.4 9.0 8.7 17.7 16.5

Construnction and 21.4 21.5 34.7 34.o 43.7 43.4

Improvement - -

Total 29.4 31.2 43.7 42.7 61.4 59.9

Malaysia Total Federal and 131.5 147.2 210.5 217.6 292.6 344.5 State Roads

1/ recurrent expenditures combined with maintenance

2/ estimates

SOURCE: HP&PTU March 1976

February 1977 TABLE 5

LALAYSIA

THIRD HIGHWAYPROJECT

State of Sabah Revenues from Motor Vehicle Taxation 1970-1975 (M$ Million)

Item 1970 1971 1972 1973 1974 1975

Driving Licenses .5 .6 .7 1.5 1.7 1.7

Motor Vehicle 2.7 3.1 3.4 6.4 7.2 7.8 Licensing Fees

Other Road Vehicle .2 .2 .3 .5 .7 .7 Fees (registration, examination, driving tests)

Import Duty and Excise Tax on: Gasoline: 11.2 12.8 15.0 24.8 26.6 19.2 Vehicles: (7.0) (8.5) (9.0) 9.4 28.4 11.0 Tirss and Parts: (.3) (.4) (1.0) 1.6 5.7 3.6

Total 21.9 25.6 29.4 44.2 70.3 44.0

Malaysia Total Revenues 428.8 478.6 557.7 660.8 747.2 748.5 From Vehicle Taxation

Note: ( ) indicates mission estimate

SOJRCiE: Sabah Economic Planning Unit from Financial Statement, Sabah and Statistics Department: Import Custom Revenue

February 1977 TABLE 6

MALAYSIA

THIRD HIGHWAY PROJECT

State of Sabah Summary of Highway Design Standards

Administratively, the roads are divided into three classes:

Class I - Trunk Roads: specified roads serving the whole country, linking main population centers.

Class II - District Roads: main roads feeding into a town area or linking sections of a town.

Class III - Local Roads: all other roads carrying purely locally generated traffic.

Carriageway Width and Surface

Grade Width Surface Average Daily Traffic

A min. 24' bituminous over 2,500

B 18' - " 300 - 2,500

C 12? - 18' 50 - 300

D up to 14' it up to 75

E 18' more than 50 - 600 6"'gravel

F full forma- less than up to 75 tion not less 6"'gravel than 24'

Design Speeds in mp

Mountainous Hilly Level and Rolling

Class I 20 40 60

Class II 20 30 50

Class III 1', 20 40

February 1977 TABLE 7

MALAYSIA

THIRD HIGHWAY PROJECT

State of Sabah

Design Standards for the Project Roads to be Reconstructed

Terrain Geometric Features Flat Rolling Hilly Mountainous

Design Speed (mph) 60 50 40 30

Minimum Radius of Curvature (ft) 1,040 700 430 230

Maximum Gradient (%) 3 6 8 9

Roadway Features Paved Standards Gravel Standards ------in ft------

Width of Pavement 22.0 18.0

Type of Pavement Double Bituminous Gravel Surface Treatment

Width of Shoulders 5.5 3.0

Width of Right-of-Way 132.0 132.0

Structural Design Features (all areas)

Axle Loads 10 m tons

Bridge Design Based on British Standard 153 - HA Loading checked for 45 units of HB Loading along center line

Bridge Width 24 feet + 2 x 4 feet (sidewalks)

Pavement Design Based on cumulative 10 ton axle loads in a 20-year period using Road Note 29 of the British Road Research Laboratory

February 1977 MALAYSIA

THIRD HIGHWAYPROJECT

Equipment for the Four-Year lighway Maintenance Program in Sabah /a

Maintenance Divisions /b Paving West Coast North West Coast South (Labuan District) /b Interior Sandakan Tawau Teams /c Totals Total To be Total To be Total To be Total To be Total To be Total To be Type of Vehicle Re- Exist- fro- Re- To be To be Exist- Pro- Re- Exist- Pro- Re- Exist- Pro- Re- Exist- Pro- Re- Exist- Pro- Pro- Re- Exist- Pro- or Equipment quired ing cured inm quired cured quired ing cured guired ing cured quired ing cured quired ing cured cured quired ing cured Pickup (I 1/2 ton) 13 Nil 13 10 Nil 10 2 Nil 2 12 Nil 12 7 NilM 7 Nil 7 51 Nil 51 Truck Utility (4 ton) 5 Nil 5 4 Nil 4 3 Nil 3 2 Nil 2 4 Nil 4 3 Nil 3 21 Nil 21 Tipper (10 ton) 20 Nil 20 Nil Nil Nil Nil Nil Nil 23 Nil 23 Nil Nil Nil Nil Nil Nil 7 50 Nil 50 Water Tanker (1200 Gal.) 5 Nil 5 1 Nil 1 1 Nil 1 6 Nil 6 2 Nil 2 3 Nil 3 18 Nil 18 Grader, Medium (130 h.p.) 5 2 3 1 1 Nil I Nil 1 6 2 4 2 1 1 3 2 1 18 8 10 Loader (1 1/2 cu.yd.) 5 2 3 1 1 Nil I Nil 1 6 2 4 2 1 1 3 2 1 18 8 10 Backhoe!Loader 2 2 I I Nil Nil i i Nit 2 2 Nil I 1 Nil I I Nil 8 8 Nil Roller, 3-wheel (10 ton) 9 7 2 3 3 Nil 1 1 Nil 12 8 4 4 3 1 6 5 1 2 37 27 10 Roller, Tandem (4 ton) 1 Nil 1 1 Nil 1 1 Nil 1 2 Nil 2 1 Nil 1 1 Nil 1 4 11 Nil 11 Vibrating Plate 3 Nil 3 3 Nil 3 2 Nil 2 2 Nil 2 3 Nil 3 2 Nil 2 15 Nil Compactor Rammer 15 3 Nil 3 2 Nil 2 2 Nil 2 2 Nil 2 2 Nil 2 2 Nil 2 13 Mower Pedestrian Nil 13 4 Nil 4 4 Nil 4 2 Nil 2 2 Nil 2 4 Nil 4 2 Nil 2 18 Nil Tipper (6 ton) 18 6 6 Nil 7 7 Nil 3 3 Nil 7 7 Nil 10 10 Nil 15 15 Nil 48 Paver 48 Nil I Bitumen Sprayer I 2 Pneumatic Roller 2 3 3 Chip Spreader Mechanical Broom/Tractor 2 2 Weighbridges 3 3 6 6

/a In future, some equipment may be reallocated to other divisions on basis of requirements. /b There will be five divisions. Labuan District is part of the West Coast South Division, but being on an offshore island, equipment is shown separately since it cannot be moved easily within the rest of the division.

/c Equipment is for all paving work (surface treatments or premix). None available now.

February 1977 TABLE 9

MALAYSIA

THIRD HIGHWAY PROJECT

Road Upgrading Program in Sabah

Proposed Roads for Design and Construction

Road Miles

1 Ranau- 39

2 Tambunan- 28

3 Keningau-Tenom 29

4 Tenom-Tomani 24

5 Keningau- 38

6 Ranau-Sandakan 148

7 Papar-Kota Kinabalu 30

8 Kota Kinabalu-Kota Belud 42

9 Kota Belud-Langkong 30

10 1/ Langkong- 44

11 Langkong-Pingan Pingan 29

12 Tawau-Sungai Merotai 17

13 Tawau-/Semporna Junction 32

1/ This item is to be carried out by PWD Sabah with its own forces.

February 1977 TABLE 10

MALAYSIA THIRD HIGHWAYPROJECT Estimated Cost of Project

_ M$ (million) u5$ (million) Foreign Project Elements Local Foreign Total Local Foreign Total Exchange %

1. Proposed for Bank Financing

A. Road Reconstruction in Sabah

1. West Coast Road: (a) Papar-Beaufort (37 mi) (b) Beaufort-Sindumin (18 mi) 14.8 24.1 38.9 5.9 9.7 15.6 62

2. East Coast Road (a) Lahad Datu-Ciram (48 mi) 12.6 20.6 33.2 5.1 8.2 13.3 62 (b) Giram-Semporna (43 mi) 16.3 26.6 42.9 6.5 10.6 17.1 62

Sub-Total A 43.7 71.3 115.0 17.5 28.5 46.0 62

B. Capital Costs of 4-Year Road Maintenance Program in Sabah, including road upgrading

1. Procurement of Equipment, including weigh bridges - 9.7 9.7 - 3.9 3.9 100

2. Upgrading of 12 Road Sections 8.6 12.8 21.4 3.4 5.2 8.6 60

Sub-Total B 8.6 22.5 31.1 3.4 9.1 12.5 73

C. Pilot Pavement Strengthening Program in Johore, Peninsular Malaysia (120 mi of Federal Route 1) 5,1 7.7 12.8 2.0 3.1 5.1 60

D. Consulting Services for

1. IA, construction supervision 4.8 3.2 8.0 2.0 1.2 3.2 40

2. IB, technical support team to Sabah Public Works Department 0°9 1.2 1.5 0.1 0.5 9.6 80

3. Transport/Railway Study in Peninsular Malaysia 0.2 0.8 1.0 0.1 0.3 0.4 80

4. Kota Kinabalu Urban Study in Sabah 0.2 0.8 1.0 0.1 0.3 0.4 80

Sub-Total D 5.5 6.0 11.5 2.3 2.3 4.6 50

Sub-Total I 62.9 107.5 170.4 25.2 43.0 68.2 63

Contingencies

Physical (810 on IA, 10% on all other items) 5.5 9.5 15.0 2.2 3.8 6.0 63

Price (For IA, IB2 and IC: 12% p.a. through 1979, 10% p.a. thereafter; For IB1 10%; For ID: 8% p.a.) _45 25.0 39.5 5.8 10.0 15.8 63

Sub-Tota 1 20.0 34.5 54.5 8.0 13.8 21.8 63

Grand Total 1 82.9 142.0 224.9 33.2 56.8 90.0 63

II. Not Proposed for Bank Financing (including contingencies)

1. Land Acquisition in Sabah for IA 2.5 - 2.5 1.0 - 1.0 0

2. Domestic Consulting Services for Detailed Engineering and Construction Supervision of IB2 2.5 - 2.5 1.0 - 1.0 0

3. Capital Costs of Pilot Road Maintenance and and Pavement Strengthening Program (maintenance equipment and construction 1/) for States of Johore (excluding IC), Perak and Kelantan. 9.5 30.5 40.0 3.8 12.2 16.0 76

Sub-Total II 14.5 30.5 45.0 5.8 12.2 18.0 68

Grand Total I and II 97.4 172.5 269.9 39.0 69.0 108.0 64

1/ Maintenance equipment for the 3 States totalling about US$5 million equivalent; construction of about 250 mi of pavement strengthening in States of Perak and Kelantan and preparatory drainage improvement works for Federal Route I in Johore, to be carried out by State Public Works Department, and totalling about US$11 million equivalent.

February 1977 MALAYSIA

THIRD HIGHWAY PROJECT

Project Implementation Schedule

Project Element Key Actions Dates for Completing Key Actions

In Sabah

A. Reconstruction of East 1. Tender Evaluation January 1977 and West Coast Roads in 2. Contract Award March 1977 Sabah (146 mi) 3. Notice to Proceed April 1977

B. Four-Year Highway Maintenance Program, including Road Up- grading, in Sabah

(i) Maintenance Program 1. Issuance of Administrative Circular by PWD Covering New Maintenance Organization June 1, 1977

2. Appointment of Additional Staff: 1977 1978 Engineers 3 3 Technicians II 2 3 Technicians III 3 0 Overseers 25 30

3. Establishment of Required Maintenance Crews for all Divisions By end of 1978 > H

(ii) Procurement of Equipment 1. Tender Documents February 1977 r 2. Invitation to Tender March 1977 3. Open Tenders May 1977 4. Evaluation of Tenders June 1977 5. Contract Awards July 1977 Project Element Key Actions Dates for Completing Key Actions

(iii) Upgrading Program 1. Prequalificationof Contractors December 1977 (530 mi) /a 2. Invite Tenders (for 3 packages in total): For Package 1 April 1978 For Package 2 July 1978 For Package 3 October 1978 3. Open Tenders: For Package 1 June 1978 For Package 2 September 1978 For Package 3 December 1978 4. Evaluation, Contract Award, Notice to Proceed: For Package 1 July 1978 For Package 2 October 1978 For Package 3 January 1979

C. Pilot Road Maintenance and Pavement Strengthening Programs in the States of Johore, Perak and Kelantan in Peninsular Malaysia

(i) Pilot Road Maintenance 1. Issuance of AdministrativeDirective from Programs Federal PWD to Pilot States By end of 1977 2. Establishmentof Road Maintenance Sections in these States to Cover Maintenance of Federal and State Roads (organization,staff and equipment) By end of 1977

3. Creation of Additional Posts for the Federal > Road Maintenance Section (FRMS) June 1977 X vQ 4. Appointment of all Staff Required in FRMS who are to Provide Technical Advice to the Pilot 0 _ States and the other States, to Coordinate Implementationof the Pilot Programs and Ad- ditional Programs to be Initiated Subsequently in other States, and to Prepare Maintenance Programs for the Remaining States by the end of the TMP June 1978 Project Element Key Actions Dates for Completing Key Actions

(ii) Pavement Strengthening of 1. Corrective Drainage Works by State PWD By end of 1977 Federal Route I in Johore 2. Final Benkelman Beam Testing April 1978 (120 mi) /b, /a 3. Pavement Design and Tender Documents May 1978 4. Prequalification of Contractors (start Dec'77) March 1978 5. Invite Tenders May 1978 6. Open Tenders July 1978 7. Evaluation September 1978 8. Contract Award/Notice to Proceed October 1978

(iii) Pavement Strengthening of 1. Final Corrective Drainage Works and Federal Roads in Perak Benkelman Beam Testing By end of 1978 and Kelantan by the Re- 2. Final Design and Quantity Estimates By end of 1978 spective State Public Works Departments 3. Start Construction of First Sections June 1978 (250 mi) /c 4. Complete Construction of Last Sections December 1980

D. Consulting Services

(i) For A above, Construction 1. Invite Proposal December 1976 Supervision, by Expatriate Consulting Firm 2. Letter of Appointment February 1977

(ii) For B above, Technical 1. Invite Proposals February 1977 Support Team to Sabah 2. Evaluation March 1977 PWD HQ, by Expatriate 3. Negotiations April 1977 Consulting Firm 4. Letter of Appointment April 1977

(iii) For B(iii) above, Detailed 1. Invite Proposals May 1977 Engineering and Construc- 2. Issue Letter of Appointment August 1977 tion Supervision, by three 3. Completion of Tender Documents Local Consulting Firms /a (for Roads 1-9 and 11-13) March-June 1978 e 3 (one for Roads 1 and 6; one for Roads 2, 3, 4 and M 5; and one for Roads 7, 8, @ j 9, 11, 12 and 13)

(iv) For Transport/Railway Study 1. Issue Letter of Appointment February 1977 in Peninsular Malaysia, by Expatriate Firm 2. Draft Final Report December 1977 Project Element Key Actions Dates for Completing Key Actions

(v) For Kota Kinabalu Urban 1. Invite Proposals December 1976 Study in Sabah, by Ex- 2. Evaluation April 1977 patriate and Local Firms 3. Start and Complete Negotiations May 1977 4. Letter of Appointment May 1977 5. Draft Final Report January 1978

E. Other

(i) Acquisition of Right-of- Detailed Survey for Purpose of Way for A above Compensation June 1977

(ii) Introduction of Modifica- tions to Road Traffic Legislation in Sabah January 1, 1978

(iii) Introduction of Modifica- tions to Road Design Standards in Sabah July 1, 1977

/a Roads to be upgraded as listed in Table 9.

/b Earlier dates for the listed actions may be given for those portions of the upgrading work for which final testing and design work have been completed.

/c Detailed program for completing engineering and implementing construction to be provided by the Government in August 1977.

> q

February 1977 0 TABLE 12

MALAYSIA

THIRD HIGHWAY PROJECT

Schedule of Estimated Disbursements

Bank Fiscal Year Cumulative Disbursement and Quarter at End of Quarter (US$ '000)

1976/77

March 31, 1977 June 30, 1977 2,000

1977/78

September 30, 1977 4,500 December 31, 1977 6,500 March 31, 1978 9,600 June 30, 1978 13,700

1978/79

September 30, 1978 17,500 December 31, 1978 20,500 March 31, 1979 23,400 June 30, 1979 26,100

1979/80

September 30, 1979 28,300 December 31, 1979 30,100 March 31, 1980 31,600 June 30, 1980 32,800

1980/81

September 30, 1980 33,700 December 31, 1980 34,400 March 31, 1981 34,800 June 30, 1981 35,000

February 1977 TABLE 13

MALAYSIA

THIRD HIGHWAY PROJECT

Estimated Traffic and Growth Rates on Project Roads

AVERAGE DAILY TRAFFIC Roads to be Reconstructed in Sabah Cars Buses Trucks Total West Coast Road (1975) Papar-Beaufort 60 10 60 130 Beaufort-Sindumin 125 5 50 180

East Coast Road (1975) Lahad-Datu-Balung Junction 140 10 70 220 Balung Junction-Semporna 200 5 90 295

Roads under the Maintenance and Upgrading Programs in Sabah

Maintenance 1/ Upgrading Total Paved Unpaved

Mileage at ADT levels below 137 137 390 340 1,060 290 2,354 miles

ADT (1977) 1,000 500 300 100 50 100 Average Traffic Composition: 65% cars & light vehicles, 30% trucks & 5% buses. Pavement Strengthening Program in Peninsular Malaysia: 1975 ADTs on Federal Route I in Johore range from 3,600 vpd to 9,700 vpd with a weighted average of 5,500 vpd. GROWTH RATES (in % per annum) Roads to be Reconstructed in Sabah Cars Buses Trucks West Coast Road

1975-1985 10 2.5 8 1985-1995 7 1.7 5 1995-2005 5 1.7 4

East Coast Road

1975-1985 14 3.5 11 1985-1995 9 2.3 7 1995-2005 5 2.3 4

Roads under the Maintenance and Upgrading Programs in Sabah Average Daily Traffic

1977-1985 9 1985-1995 6

1/ Maintenance will be extended to the 290 miles to be upgraded following completion of the upgrading works in about 4 years. SOURCES: Consultants' and Mission's Estimates

February 1977 TABLE 14 Page 1 of 4

MALAYSIA

THIRD HIGHWAYPROJECT

Estimated Future Traffic on Project Roads to be Reconstructed Average Daily Traffic

West Coast Road: Fapar-Beaufort Section

Cars Bus Trucks Year Normal Diverted Generated Normal Diverted Generated Normal Diverted Generated Total Traffic Traffic Traffic Traffic Traffic Traffic Traffic Traffic Traffic

1275 60 0 0 10 0 0 60 0 0 130 1 )76 66 0 0 10 0 0 65 0 0 141 1?77 73 0 0 11 0 0 70 0 0 154 1)78 80 0 0 11 0 0 76 0 0 167 l'79 88 0 0 11 0 0 82 0 0 181 1 80 97 173 20 11 10 7 88 iu 16 432 1981 106 191 22 12 10 7 95 11 18 1072 1?82 117 210 24 12 11 7 103 12 19 515 l 983 129 231 26 12 11 7 111 13 20 560 1 814 1141 254 29 12 11 8 120 14 22 611 vQ51 156 279 32 13 11 8 130 15 24 668 1q,6 167 299 34 13 12 8 136 16 25 710 1q37 178 319 37 13 12 8 143 17 26 753 1 8 191 342 39 13 12 8 150 17 28 800 1 IF, 204 366 42 14 13 8 157 18 29 851 1'0 218 392 45 14 13 8 165 19 31 905 1 D1 234 421 48 14 13 8 174 20 32 964 1 -2 250 449 51 14 13 9 182 21 34 1,023 1 * 3 267 480 55 15 13 9 191 22 35 1,087 1'L 286 513 59 15 13 9 201 23 37 1,156 t'`5 306 550 62 15 14 9 211 24 39 1,230 1 > 96 321 578 65 15 14 9 219 25 41 1,287 1 n37 338 607 68 16 14 10 228 26 42 1,349 1~ 38 354 638 71 16 14 10 237 27 44 1,411 1 :-? 372 670 74 16 14 10 247 28 46 1,477 TABLE 14 Page 2 of 4

MALAYSIA

THIRD HIGHWAYPROJECT

Estimated Future Traffic on Project Roads to be Reconstructed Average Daily Traffic

West Coast Road: Beaufort-SinduminSection

Cars Bus Trucks

Year Normal Generated Normal Generated Normal Generated Total Count Count Count Count Count Couit

1975 125 o , 0 5u 180 1975 138 C -0 o S j 197 I ? 1 1 a) 55) o0 214 197 166 a 0 63 ' 234 1979 163 O 0 257 19a0 201 14 6 l3 295 19i1 21 7) . 33 ;)3? 244 30 1 So 3 367 W3 268 33 593 401 W4 295 36 o 10J 438 TABLE 14 Page 3 of 4

UALAX~IA

THIRD HIGHWAY PROJECT

Estimated Future Traffic on Project Roads to be Reconstructed Average Daily Traffic

East Coast Road: Lahad Datu-Balung Junction Section

Cars Bus Trucks

Year Normal Generated Normal Generated Normal Generated Total Traffic Traffic Traffic Traffic Traffic Traffic

1975 140 3 1u 3 7j 0 220 1976 160 0 10 0 7b 0 248 1977 184 0 11 0 86 0 279 1 97 8 207 0 11 0 96 0 314 1979 23o 0 11 0' 106 0 353 1980 27r 46 1d 3 1ld 2 469 1981 307 92 12 6 131 39 587 1932 350 105 13 6 145 44 663 1983 399 120 13 7 161 48 748 1984 455 137 14 7 179 54 8146 1985 519 156 14 7 199 63 955 1996 566 170 14 7 213 64 1,034 1987 617 185 1:) 7 228 68 1,120 1988 6T2 202 1v 8 243 73 1,213 1989 733 220 15 8 261 78 1,315 1990 799 243 lo 8 279 84 1,426 1991 87. 261 ltz 8 296 89 1,542 1992 949 285 17 8 319 96 1,674 1993 1034 310 17 8 342 102 1,813 1994 1121 338 17 9 365 113 1,966 1995 1229 369 1d 9 391 117 2,133 1996 1290 337 li 9 407 122 2,233 1997 1355 406 19 9 423 127 2,339 1998 142Z 427 19 9 440 132 2,1449 1999 149,3 44R 19 10 457 137 2,564 TABLE 14 Page 4 of 4

M=AYSIA

THIRD HIGHWAYPROJECT

Estimated Future Traffic on Project Roads to be Reconstructed Average Daily Traffic

East Coast Road: Balung Junction-Semporna Section

Cars Bus Trucks

Year Normal Generated Normal Generated Normal Generated Total Traffic Traffic Traffic Traffic Traffic Traffic

1975 200 0 4 a 90 0 294 1976 228 0 4 0 100 0 332 1977 260 0 4 0 111 0 375 1978 296 0 4 0 123 0 423 1979 338 0 5 0 137 0 480 1980 385 41 5 1 152 9 593 1981 439 81 5 1 168 17 711 1982 500 92 5 1 187 19 804 1983 571 105 i 1 207 21 910 1984 650 120 1 230 23 1,029 1985 741 137 6 2 256 26 1,168 1986 80o 149 6 2 273 28 1,266 1987 881 163 6 2 293 30 1,375 1988 960 177 6 2 313 32 1,490 1989 1047 193 6 2 335 34 1,617 1990 1141 211 6 2 358 37 1,755 1991 1243 229 6 2 384 39 1,903 1992 1355 250 7 2 410 42 2,066 1993 1477 273 7 2 439 45 2,243 1994 1610 297 7 2 470 48 2,434 1995 1755 324 7 2 503 51 2,642 1996 1843 340 7 2 523 53 2,768 1997 1935 357 7 2 544 55 2,900 1998 2032 375 d 2 565 58 3,040 1999 2134 394 a 2 58d 60 3,186

February 1977 TABLE 15

MALAYSIA

THIRD HIGHWAY PROJECT

Vehicle Operating Costs (M$ per Mile)

Cars Buses Trucks Without With Without With Without With Project Project Project Project Project Project

Roads to be Reconstructed in Sabah

West Coast Road

Papar-Beaufort .58 .36 2.48 1.18 1.74 .83

Beaufort-Sindumin .54 .40 2.36 1.48 1.66 1.04

East Cost Road

Lahad-Datu - Balung Junction .58 .38 2.48 1.24 1.74 .81

Balung Junction - Semporna .54 .36 2.36 1.18 1.66 .83

Roads to be Upgraded in Sabah (gravel surface) .54 .45 2.36 1.77 1.66 1.25

SOURCE: Consultants and Mission's Estimates

February 1977 TABLE 16 Page 1 of 4

MALAYSIA

THIRD HIGHWAY PROJECT

Road Reconstructionin Sabah Estimated Cost and Benefit Streams (In M$ 000 Excluding Taxes)

West Coast Road: Papar-Beaufort Section

Year Costs Benefit Construction Maintenance Vehicle Total Supervision Cost 1/ Operating Right of Way Savings Cost and Savings Resurfacing -

1977 11,305.0 0.0 0.0 0,0 1978a .219PG0O 0.0 0.0 .0o 1979 8,0750 ,0 0 . 0.0 1980 j 0.0 0.0 3,695.3 3,695.3 1981 0.0 0.0 3,981.5 3,981.5 1982 0 0.0 4 291 9 4F291.e 198 i 0.0 .2¼ 6, 19884 0'0° 0.0 4994,QS , j,9Q4,5 1985 0.0 5 5,391.4 1986 25*74 0.0 5,67448 5,674 .6 198? 0,0 0.0 5,974,5 1988 0.0 0.0 ,291.! 6,291.5 1989 0.00.0 6O626.7 6#62b.7 1990 0.0 0.0 6,981.3 6,981.3 1991 0,0 0.0 7,356.5 7,356.5 1992 0.0 0.0 7,753.5 7,753.5 1993 1 245.7 0.0 FR173*6 a,173.6 1994 0.0 0.0 8,818. 8,618.3 1995 0.0 0.0 91089,0 9.089.0 1996 0.0 I 0.Oa46Q.6 ,49. 199? 0.0 0.0 ,b.6 ,866.8 1998 : 00.0 O .0 Ir)2814 j0,Z81.4 1999.. 0.0 0.0 1O,71a.1 10,714.1

The ERR is 13.8% l/ This column is the differencebetween the maintenancecosts with and without the project. It has been assumed that the existing road would continue to receive some maintenanceand that its cost would just about cancel any benefit due to the lower maintenancecost on the project road. TABLE 16 Page 2 of 4

MALAYSIA

THIRD HMHWAI PROJECT

Road Reconstructionin Sabah Estimated Cost and Benefit 5treams (In N$ 000 Eioluding Taxes)

West Coast Road: Beaufort-$indumin Section

Year Costs Benefit Construction Maintenance Vehicle Total Supervision Cost 1/' Operating Right of Way Savingi Cost and Savings asourfacwK,

1977 3946 .0 57$ .0 0.0 573.0 1978 6,435.0 573.0 0.0 57 3.0 1979 0.0 573.0 956.2 1,529.2 1;80 0.0 573.0 1,051.9 1,624.9 1I81 0.0 573.0 - 1,154.6 1,727.6 1982 C.0 573.0 1,251.7 1,824.7 1983 0.0 573.0 1,357.4 ;1930.4 1984 -7,425.0- 573.0 1,472.4 2,045.4

The ERR is 16.4%

1/ This column is the difference between maintenance costs with and without the project. Without the project, it is assumed that 4 inches of gravel have to be applied two times a year to maintain the section prone for flooding in passable condition. With the project, it is assumed that 1 inch of gravel would have to be ap- plied every 2 1/2 years. Given the low traffic volumes and the harsh weather conditions (heavy rains), these maintenanceworks have been assumed independentof traffic intensity. TABLE 16 Page 3 of 4

MALAYSIA

THIRD HIGHIWAYPROJECT

Road Reconstructionin Sabah EstimatedCost and Benefit Streams (In M$ 000 Excluding Taxes)

East Coast Road: Lahad Datu-Balung Junction Section

Year Costs Benefit Construction Maintenance Vehicle Total Supervision Cost 1/ Operating Right of Way Savings Cost and Savings ,Resurfacin__

1977 13,875.0 300.0 0.0 300.0 1978 22,200. 0 30 0.0 0.0 300. 0 1979 19,425.0 300.0 0.0 300.0 1980 C.O 107.0 4,856.8 4,963.8 1981 0.0 107.0 5,155.4 5,862.4 1982 0.0 101.0 6,408.7 6,515.7 1983 C.0 107.0 7,140.6 7,247.6 1964 C.0 107.0 7,960.9 8,067.9 1985 C.O 13r.C 8,880.3 8,987.3 1986 442.4 107.0 9,539.7 9,646.7 1987 0.0 107.0 10,250.4 10,357.4 198 6 1070 .0 11,016.5 11,123.5 1989 0.0 107.0 11,842.5 11,949.5 199 0.0 107.0 12,733.1 12,840.1 1991 0.0 107.0 13,693.6 13,800.6 1992 U.0 107.0 14,729.5 14,836.5 1993 442.4 107.0 15,846.9 15,953.9 1994 c.0 107.0 17,052.4 17,159.4 1995 C.0 107.0 18,353.0 18,460.0 1996 0.0 1or.0 i9151.1 19,258.1 1997 0.0 107.0 19,984.6 20,091.6 1998 C.0 107.0 20,855.2 20,962.2 1999 0.0 101.0 21,764.5 21,871.5

The ERR is 14.2%

1/ This column is the differencebetween the maintenancecosts with and without the project. It has been assumed that, during construction,traffic will be maintained by the contractor at a cost already included in the construction cost. Thus the savings are equal to the total maintenancecosts of the existing road. Given the very small contributionof maintenancesavings to the total benefits,about 2% the first year, they have been held constant rather than increasingwith trafficvolumes in order to simplify calculation. TABLE 1 6 Page 4 of 4

MALAYSIA

THIRD HIGHWAY PROJECT

Road Reconstruction in Sabah Estimated Cost and Benefit Streams (In 1M$ O0 Excluding Taxes)

East Coast Road: Balung Junction-Semporna Section

Year Costs Benefit Construction Maintenance Vehicle Total Supervision Cost 1/ Operating Right of Way Savings Cost and Savings Resurfacing

1971 8,t295.0 127.5 0.0 127.5 1978 9948C.0 127.5 0.0 127.5 1979 ,925.0 127.5 0.0 127.5 1980 C.0 51.4 2t185.2 2,236.6 1981 C.0 51.4 2,504.9 2,556.3 1982 C.0 51.4 2,802.5 2,853.9 1983 C.0 51.4 3,136.5 3,187.9 1984 0.0 51.4 3,511.3 3,562.7 1985 O.0 51.4 , 3,932.2 3,983.6 1986 193.9 51 .4 4,234.3 4.285.7 1987 0.0 51.4 4,560.3 49611.7 1988 0.0 51.4 4,912.1 4,963.5 1989 0.0 51.4 5,291.6 5,343.0 1990 o.a 5 1. 4 5,701.2 5,752.6 1991 0.0 51.4 6,143.2 61194.6 1992 0.0 51.4 66210,-.3 6,671.7 1993 193.9 51.4 7,135.4 7,186.8 1994 0.0 51.4 7,691.4 79742.8 1995 0.0 51.4 8,291.8 8,343.2 1996 C.0 51.*4 8,658.0 8,709.4 1997 C.0 51.4 9,040.6 S0C92.0 1998 C.0 51.4 9,440.4 9,491.8 1999 0.0 51.4 9,858.2 9,909.6

The ERR is 14.4%

1/ see footnotepreceeding page.

February 1977 TABLE 17 Page 1 of 2

MALAYSIA

THIRD HIGHWAY PROJECT

Road Upgrading Program in Sabah Estimated Cost and Benefit Streams (In M$ 000 Excluding Taxes)

Roads with Gravel Course and Improved Ditches

Year Cost Benefit (per mile) (per mile) Maintenance Vehicle Total Cost 1/ Operating Savings Cost Savings

1979 60.0 1980 5.0 10.0 15.0 1981 5.0 10.9 15.9 1982 5.0 11.9 16.9 1983 5.0 12.9 17.9 1984 5.0 14.1 19.1 1985 5.0 15.4 20.4 1986 5.0 16.3 21.3 1987 5.0 17.2 22.2 1988 5.0 18.3 23.3 1989 5.0 19.4 24.4

The ERR is 26%.

1/ This column is the difference between the maintenance costs with and without the project. It has been assumed that while the cost of maintenance both with and without the project would increase with traffic, the difference would remain constant. This is a conservative assumption. TABLE 17 Page 2 of 2

MALAYSIA

THIRD HIGHWAY PROJECT

Road upgrading Program in Sabah Estimated Cost and Benefit Streams (In M$ 000 excluding Taxes)

Roads with Raised Embankments and Gravel Course

Year Cost Benefit (per mile) Maintenance Vehile Total Cost 1/ Operating Savings Cost Savings

1979 110.0 1980 15.0 10.0 25.0 1981 15.0 10.9 25.9 1982 15.0 11.9 26.9 1983 15.0 12.9 27.9 1984 15.0 14.1 29.1 1985 15.0 15.4 30.4 1986 15.0 16.3 31.3 1987 15.0 17.2 32.2 1988 15.0 18.3 33.3 1989 15.0 19.4 34.4

The ERR is 22%.

1/ See footnote on p. 1.

February 1977 TABLE 18

MALAYSIA

THIRD HIGHWAY PROJECT

Road Maintenance Program in Sabah

Estimated Cost and Benefit Streams (In M$ Million Excluding Taxes)

Year Costs Benefits Equipment Increase in Savings in Vehicle and Recurrent Operating Costs Total Consultants Costs 1/ On Paved Roads On Gravel Roads 350,000 94,000 vehicle mile/day vehicle mile/day in 1978 in 1978

1977 2.3 1978 9.2 1.0 .34 .37 .71 1979 1.5 1.85 2.02 3.87 1980 3.0 4.03 4.40 8.43 1981 3.0 4.39 4.80 9.19 1982 3.0 4.79 5.23 10.02 1983 3.0 5.22 5.70 10.92 1984 3.0 5.69 6.20 11.89 1985 3.0 6.20 6.78 12.98

The ERR is 29%

1/ This column is the differencebetween recurrent costs of maintenancewith and without the project. It reflects the gradual build-up of the new or- ganizationwith new equipment over 3 years. It has been assumed that af- ter the build-up period, the cost of maintenanceboth with and without the project would increasewith traffic, but the differencewould remain constant.

February 1977 TABLE 19

MALAYSIA

THIRD HIGHWAY PROJECT

Pavement Strengtheningin Johore

EstimatedCost and Benefit Streams (In M$ '000 ExcludingTaxes)

Year With Prolect Without Project Cost of Cost of Reconstruction Strengthening after Failure 11 Overlay (per mile) (per mile)

1 112.0

2 50.0

3 50.0

4 50.0

5 50.0

The ERR is 28%

1/ The cost of reconstructionper mile is estimatedat M$200,000. It has been assumed that without the project, all sectionswould have failed within four years and that one-fourth would fail every year.

February 1977 MALAYSIA THIRD HIGHWAY PROJECT FEDERAL MINISTRY OF WORKS AND UTILITIES

MINISTER

SECRETARY GENERAL

SABAH AND OTHER STATE MINISTRIES OF WORKS

HIGHWAY PLANNING | ROAD AND SOAFET PUBLIC TRANSPORT SCOUNCT UNITCONI

ROAD TRANSPORT l ROAD TRANSPORT PUBLIC WORKS LICENSING BOARD DEPARTMENT DEPARTMENT PUBLIC UTILITIES

NOTE: THE MINISTRY OF WORKS AND TRANSPORT BECAME MINISTRY OF WORKS DEPUTY DIRECTOR AND UTILITIES IN DEPUTY DIRECTOR GENERAL MARCH 1976. GENERAL (ENGINEERING NEW ORGANIZATION (DEVELOPMENT) SERVICESI CHART NOT AVAILABLE

SEE CHART 2 FOR DETAILS

April 1976

World Bank-15989 MALAYSIA THIRD HIGHWAY PROJECT ORGANIZATION OF PUBLIC WORKS DEPARTMENT MINISTRY OF WORKS AND UTILITIES

DIRECTOR GENERAL~~DEUT DRETO GNEA

DEPUTYDIRECTOR GENERAL | EPT D RECTORGENERAL| (DEVELOPMENT) | (ENGINEERING SERVICES)

ELECTRICAL F ROADS LDING ~~~~~~~WATEREUCATO MECHANICAL

DSDIVISIONV DIVISIONEDIVISION DIVISION

PROJECT PROJECT DiVISION isi ON SUPPLIES CIVI WORKS UI COORDINATION SECTION DEINIMPLEMENTATION PROJECT MAINTENANCE STRSACCOUNTING QUANTITY SECTION DEVELOPMENT SCIN SECTION MANAGER SECTION DIVISIN DIVISION DIRVISION FEDERAL LAND DVSO

MAIN CIVIL VVORKS UNIT

LAND ACQUISITION UNIT DESIGN AND RESEARCH SERVICE RELOCATION UNIT DIVISION

AUDIT AND ACCOUNTING UNIT

SOIL DESIGN ~RESEARCH

Ap,Il 1976

Wodld Ba,,k-1 5990 CH{ART3

MALAYSIA THIRD HIGHWAYPROJECT STATE OF SABAH NEWORGANIZATION OF PUBLICWORKS DEPARTMENT STATE MINISTRY OF WORKSAND COMMUNICATIONS

DIRECTOR

DEPUTY DIRECTOR

DDVISIONS ll HEADQATR TEAMS

_ADMINISTRATION

|OTHER PWD l ROAD - DEVELOPMENT_ HtWA ACTIVITIES _ _ MAINTENANCE

- ROADSAND AIRFIELDS

HYDRAULICS PROJECTS

SOUTH with 6 Districtsand - BUILDINGS DIVISION WorkshopCente- at Kota Kinabalu _ DESIGNAND INVESTIGATIONS

_ MECHANICAL

WEST COAST with 4 Districtsand_ NORTH WorkshopCenter- ELECTRICAL DIVISION at Kota Bel.d - QUANTITY SURVEY

- ARMED FORCES

|SANDAKAN | with 4 Distrits ACCOUNTS _DIVISION andWorkshop Centerat Sandakan - STORES

TAWAU | ith 4 Districts - TRAINING DIVISION andWorkshop Center at Tawsau _ INTERNAL AUDITING

NTERIOR -~ith 3 Districts _ t VD I St O N endWorkshop Center at Keningau

February 1977

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