RESTRICTED Report No. TO-676a

This report Public Disclosure Authorized was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized APPRAISAL OF

THE SECOND HIGHWAY PROJECT

ZAMBIA

r" --.

I-Uc 1 Public Disclosure Authorized

September 10, 1968 Public Disclosure Authorized

Projects Department CURRENCY EQUIVALENTS

Currency Unit: Kwacha

US.$L - K 0.71b

Kl - US$1.O40 K1,000,000 = US$1,h00,000

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

British

METRIC - BRITISH/US EQUIVALENTS

1 mile = 1.6 kilometers 1 foot = 30.5 centimeters 1 acre = 0.41 hectares 1 imperial gallon = 1.20 US gallons = &.54 liters 1 ton = 1.12 US sh ton = 1.02 metric ton ZAMBIA

APPRAISAL OF THE SECOND HIGHWAY PROJECT

Table of Contents

Page

SUItThARY i

1. INTRODUCTION 1

2. BACKGROUND 2

A. Economic Setting 2 B. Transport System 3 C. The Zambia-Tanzania Transport Problem 4

3. THE HIGWRAY SYSTEM 9

A. The Highway System 9 B. Highway Traffic and Vehicle Fleet 9 C. Highway Transport Industry 10 D. Highway Administration 10 E. Design Standards, Engineering and Construction 11 F. Highway Maintenance 11 G. Highway Expenditures and Investment Planning 12

THE PROJECT

A. Description 13 B. Design Standards 13 C. Cost Estimates 14 D. Execution 15 E. Financing 15

5. ECONO0MIC E7ALUATION 17

A. Introduction 17 B. Economic Justification 17 C. Problems of Analysis 17 D. Probable Traffic Levels 19 E. Probable Unit Savings in Vehicle Operating and Road Maintenance Costs 21 F. Probability Analysis of Economic Rate of Return 22 G. Engineering of the Luangwa River-Nyimba Section of the Great East Road 23

6. CONCLUSIONS AND RECOMMENDATIONS 25

This report was prepared by Messrs. E. Jaycox and L. Pouliquen, economists, and F. Soges, engineer.

Table of Contents

-2-

ANMEX

1. Probability Analysis of the Economic Rate of Return 2. Hypotheses of Probability Analysis of Economic Rate of Return, Mpika-Tunduma Road 3. Diagram: Probability Profile of Economic Rate of Return

TABLES

1. Highway Budgets 2. Design Standards 3. Cost Estimates 4. Estimated Vehicle Operating Costs (1967-1968) 5. Estimated Vehicle Unit Operating Costs on Project Road Sections

MAPS

Map 1 - East & Central African Transport links - IBRD-1253R8 Map 2 - Zambia Highway System - IBRD-1710R3

ABBREVIATIONS - ACRONYMIS

UDI - Unilateral declaration of independence by Southern Rhodesia BCK - Bas-Conga-Katanga railways CARS - Central African Road Services Ltd. ZTRS - Zambia-Tanzania Road Services Ltd. USAID - US Agency for International Development Lonrho - London and Rhodesia Mining Company RD - Roads Department

ZAMBIA

APPRAISAL OF THE SBCOND HIGHWAY PROJECT

SUMMARY

i. The proposed project consists of the reconstruction of the Mpika- Tunduma section (235 miles) of the Great North Road and of the detailed engineering of the Luangwa river-Nyimba section (63 miles) of the Great East Road. The Great North Road forms a part of the Tanzam Highway linking the Zambian Copperbelt with the sea at Dar es Salaam in Tanzania. Construction is already being executed under two contracts awarded in 1967 through inter- national competitive bidding, and was 35 percent complete as of July 1968. ii. This would be the second loan for highways in Zambia. In 1966, a loan of US$17.5 million equivalent was made to help finance the reconstruc- tion and/or engineering of other sections of the Great North Road and of parts of the Great East Road. Execution is proceeding satisfactorily, and was 60 percent complete as of June 1968.

iii. Retroactive financing of part of the Second Highway Project is recommended. The possibility of Bank financing of the road sections was considered during negotiations of the first highway loan in 1966. At that time the political and transport situation in Central Africa was so uncer- tain that a Bank appraisal was impractical. However, execution of the project could not be delayed because of the transport crisis facing Zambia, and the Government proceeded with it late in 1966, on the understanding that the project would subsequently be appraised on its merits and that if proved to be justified retroactive financing would be recommended to the Executive Directors. In January 1968, the Zanbian Government submitted an application and the project was appraised in 14arch/April.

iv. The total cost of the project is estimated at US$17.5 million equivalent. The UK has provided a grant of US$2.2 million equivalent toward the project, which covered total expenditures up to about March 1, 1968. The proposed Bank loan of US$10.7 million would cover the estimated foreign exchange costs of the part of the project not defrayed from the U.K. grant. Retroactive financing would amount to about US$3 million by October 1968. v. Execution of the project is the responsibility of the Roads Depart- ment. Construction is being supervised by consultants satisfactory to the Bank. The project is expected to be completed by the end of 1969. vi. The project forms part of a larger international program to improve the entire Tanzam Highway to suitable standards, with a view to developing transport capacity to the sea for landlocked Zambia. Because of the uncer- tainty with respect to various developments which could affect traffic de- velopment on the project road, a probability analysis of the economic rate of return was conducted. The results of this analysis indicate that the project can be expected to earn a rate of return of 15 percent, which is satisfactory. - ii -

vii. During negotiations, satisfactory assurances were obtained from the Government that (1) the progran for the technical education and training of Zambian nationals will be increased with a view to ensuring an appropriate supply of Zambians qualifying for professional and other positions within the Roads Department, and (,2) the pavement on th.e project rcard will he strengtlened by overlay,s when an(' it'necessarz..

viii. The project is suitable for a Bank loam of UJ$,10.7 million to) the Government of Zambia. iAn appropriate loan term would be 20 years including a two-year period of grace. ZAMBIA

APPRAISAL OF THE SECOND HIGHWAY PROJECT

1. INTRODUCTION

1.01 The Government of the Republic of Zambia asked the Bank in January 1968 to help finance the reconstruction of the Serenje-Tunduma section(382 miles) of the Great North Road and of the Rufunsa-Nyimba section (113 miles) of the Great East Road. The possibility of Bank financing of the road sec- tions was considered during negotiations for the first highway loan (469-ZA) in 1966. At that time, the political and transport situation in Central Africa was so uncertain that a Bank appraisal of the above road sections was impractical. However, due to the transport crisis facing Zambia, the Government undertook execution of the project on the understanding that the project would subsequently be appraised on its merits and that if proved justified, retroactive financing would be recommended to the Executive Directors.

1.02 A Bank appraisal mission visited Zambia in March/April 1968 and found the reconstruction of the 235 mile Mpika-Tundumna (Tanzanian border) section of the Great North Road ready for appraisal and suitable for Bank financing. The reconstruction works on the Serenje-Mpika section (147 riles) of the Great North Road, and the Rufunsa-Luangwa section (48 miles) of the Great East Road were let to contracts on a negotiated basis and are therefore not eligible for Bank financing. The detailed engineering of the Luangwa-Nyimba section (63 miles) of the Great East Road is not ready, and a preliminary economic analysis indicates that its reconstruction would yield only a marginal return. However, as the analysis is sensitive to costs, proceeding with the detailed engineering is considered Justified at this time in order to establish accurate cost estimates. Therefore, the detailed engineering of the Luangwa-Nyinba section is included in the proposed project.

1.03 This appraisal was carried out in conjunction with the appraisal for possible Bank/IDA lending of improvements to further sections of the Great North Road in Tanzania which links Zambia to the Tanzanian port of Dar es Salaam on the Indian Ocean. The Tanzanian part of the project will be submitted for consideration by the Executive Directors shortly. The appraisal is based on the findings of a Bank appraisal mission consisting of Messrs. E.V.K. Jaycox and L. Pouliquen, economists, and F. Soges, engineer, which visited Zambia in March 1968. Mrs. J. Comer, programmer-analyst, contributed substantially to the appraisal.

1.04 This would be the second loan by the Bank for road projects in Zambia. The first loan (469-ZA) was made in 1966 and covered the recon- struction of one section of the Great North Road and of two sections of the Great East Road. Performance under the first loan is satisfactory, and the project is expected to be completed on schedule and within the original cost estimates. Previously, the Bank made two loans for railways (NR-74 and RN-197) in Northern and Southern Rhodesia and two loans for power (RN- 145 and RNS-392) to the Central African Power Corporation jointly owned by Zambia and Rhodesia. Zambia has assumed responsibility for its share of these loans. - 2 -

2. BACKGROUND

A. Economic Setting

2.01 Zambia is a landlocked country in Central Africa. With an area of about 291,000 square miles, it is comparable in size to France and West Germ.any combined. Zambia's; population is about 3.8 million, and is growing at an estimated rate of 2.8 percent per annun. Ninety-eight percent of the population is of African origin. The Gross Domestic Product in 1966 is estimated at K 761 million (US$1,070 million equivalent); annual per capita income is about US$260 equivalent.

2.02 The economy is highly dependent upon foreign trade. Over 50 per- cent of total production by value is exported, and about 45 percent of total domestic consumption and investment is imported. To maintain economic activity at current levels, about 3.5 million tons of cargo worth over .IS,1l billion must move in and out of the country each year.

2.03 Zambia's market economy has two main sectors. The primary sector is the copper mining and refining industry which dominates the economy. It is the third largest in the world, ranking in value of output after the copper industries of the U.S. and U.S.S.R. Copper and other mining produc- tion accounts for nearly 50 percent of GDP and over 90 percent of export proceeds. The second main productive sector consists of European tobacco and maize farning. By far the greatest majority of the African population is engaged in subsistence agriculture.

2.04 Economic activity in Zambia is concentrated in the ';Copperbelt and along the 'Line of Rail';. The Copperbelt is a relatively small area located in the north central part of the country adjoining the border with Katanga Province of the Congo. The Line of Rail area is a narrow, north- south strip along the railway where the larger towns of the country are located and the bulk of the economic and administrative activity takes place. Ineither the copper industry nor European farming has had much direct effect upon the development of the rest of Zambia. Less than one-third of the people live within the zone of influence of the Line of Rail/Copperbelt complex.

2.05 During the country's federation with Rhodesia and Nyasaland (1953- 1963), the economy grew in real terms at the annual rate of about 3.6 per- cent. In the period 1960-1963, GDP virtually stagnated, due mainly to a fall in copper prices and to political uncertainties arising out of the move- ment toward dissolution of the Federation (December 31, 1963) and achieve- ment of national independence (October 24, 1964). However, in the period 1964-1966 the economy registered an average annual increase in real GDP of 7 percent, despite a 15 percent fall in copper output in 1966 due to trans- port and fuel supply problems arising from the political situation in Central Africa. -3-

B. Transport System

Internal Transport

2.06 The 665 mile Zambia Railway system contributes little to the internal exchange among the various regions. Extension of the rail system to meet inter-regional transport requirements is not practical. However, the 20,800 mile road network, which branches from the primary road along the rail line, is basically appropriate for meeting these needs. River and canal transport and air transport, while irmortant in certain areas or for limited purposes, are not suited to the major task of integrating the economy. As far as transport is concerned, the process of economic development and diversification will be helped most by investment in improving the existing primary and secondary road network and in improving and constructing agri- cultural feeder roads.

Access to the Sea

2.07 As a landloc&ed country Olepending heavily on exports and imports, Z7anbia must concern itself with ensuiring a.reliable access to the sea as well as witlh building an adeouate irternal network to facilitate economic development. Zamnbia's primaryr link to the sea has historically been via the Rhodesin Railways fror. the Copperbelt through Southern Rhodesia to the Mozambiaue norts of Beira and Lourerco M4arques, both about 1,500 rail miles from the Copperbelt (see Miar 1). In the past virtually all of Zambia's imports and exports moved over this line. U(ntil late 1967, the Rhodesia Failways was jointly owned by the Governmcnts of Zambia and Southern Rhodesia and was operated by a statutory corporation as a common service to the two countries. As a result of the unilateral declaration of independence (UDI) by Southern Rhodesia. in 1965, the Zanbian Railways and Rhodesia Railway have been formed into separate operating entities. Discussions as to the division of assets and liabilities have not yet been completed. Existing rail rou:tes which could provide alternatives to the Rhodesia Railway are (see Sap 1): (1) the Bas-Congo-Katanga. (BCK)-Benguela Railways through Katanga Province and Angola to the Atlantic port of Lobito; (2) the Katanga- ,latadi rail/water route via Port Francqui; and (3) the Katanga-Lake Tanganyika- East African Railways line to Dar-es-Salasm. In addition to the alternative rail links, Zambia is connected through its primary road network to the neighboring highway/rail systems in Tanzania and Malawi, which provide outlets to the sea.

2.08 Historically, the movement of Zambia's copper production (currently about 700,000 tons per year) has been governed by several international agree- ments 1/, which have had the effect of ensuring that at least 80 percent of Zambia's copper output would move via the Rhodesia Railways and port of l/ The Tripartite Agreement between Rhodesia Railways, Chemin de Fer du Bas Congo au Katanga, and Caminho de Ferro de Benguela (1956); the Beira Convention between the U.K. (on behalf of Zambia, Malawi, Rhodesia and the U.K.) and Portugal (1950); the Agreement between Southern Rhodesia and Northern Rhodesia relating to Rhodesia Railways (1963). Beira. A 1960 agreement between the Federal Government and the Copperbelt mines limited export via Lobito to 36,000 tons per annum. As a result of these arrangements, the alternative rail routes have not developed sufficient capacity to handle more than a small amount of Zambian traffic.

2.9 The orientation of Zambia's trade, economy, and transport faci- lities toward Southern Rhodesia is an outcome of African history and Zambia's federal past. Since independence it has become the established long-range policy of the Government of Zambia to reduce the country's dependence upon Southern Rhodesia for access to the sea and for the supply of a wide variety of manufactured and raw material reouisites. Zambia wishes to develop new and closer trade relations with neighboring nations to the north and east, and to change the inherited and somewhat arbitrary pattern of international traffic.

C. The Zambia-Tanzania Transport Problerm

The Transport Crisis

2.10 UDT a,gravated the already troubled atmosphere of Central Africa, and transformed Zambia's lonF-ranrue aim to diversify its trading and trans- port pattern into an i:mediate problem. Following UDT, a series of UN Security Council resolutions 1/, plKapiri Mposhi to Dar es Selaar, which is now carmonly k:nown as the Tanzarx highway. During 1966 nearly 1,000 privately-owned. truc's in Zambia and Tanzania were put into service for this purrose iunder contract to the Central African Road Services (CARS), acting as agent of the Zamlbian Governnment. In mid-1966, the Zambia- Tanzania Poad services Ltd. (ZTRS) was formed and began operating 30 ton capacity truck-trailer umits to carry petroleum and general cargo imports and conner exports: by,r mid-1968 the 7CRS fleet had reached 442 units. In early 1967 a number of large foreirn firms, operating a total of about 300 large tanker-trailers, entered the oil lift service over the Tanzam highway. Oil lift operations over the Great ]ast Road via the Malawi and Mozambique rail systems from Beira were also instituted on a smaller scale.

2.11 In addition to the emergency transport over the Tanzam highway, a rmilitary-type airlift of oil products and copper was instituted early in 1966 by the US, U.K. and Canadian Air Forces via the Congo and East Africa. This has since been discontinued and replaced by the operations of Zambia

1/ Resolutions 216 (1965) of November 1965; 217 (1965) of 20 November 1965; 221 (1966) of 9 April 1966; 232 (1966) of 16 December 1966; and 253 (1968) of 29 May :1968. - 5 -

Air Cargoes Ltd., a newly formed company operating four large cargo planes, which carry copper to Dar es Salaam and return with fuels.

2.12 Attempts have also been made to increase ZaTnbian traffic on the alternative rail routes to Lobito, to Matadi, and via Lake Tanganyika and the East African Railways to Dar es Salaam. The only significant results so far have been achieved on the BCK/Benguela line via the Congo and Angola to Lobito, for which additional rolling stock and personnel have been pro- vided by Zambia to handle Zambian traffic on the BCK portion through the Congo (see para. 2.15).

2.13 The Tanzam highway has been the principal route for the traffic diverted from Rhodesia, due primarily to the greater flexibility inherent to trucking operations as compared to the rail routes. The most important constraint on traffic movement has been the condition of the road, although the combined problems encountered in the areas of traffic control, trucking organization, goods storage, port capacities, commercial arrangements and border formalities have also had a considerable imnact on the volume of traffic. The emergency operation of about 120 heavv trucks per day over the Tanzam highway, in addition to normal traffic, required extraordinary main- tenance expenditures of about USQ3.O million eauivalent in 7ambia and about US$2.0 mnillion equivalent in Tanzanxia during 1966/67, but even so the road has often been closed at one or more noints for several days at a time due to broken structures or mired or wrecked vehicles. Over 100 drivers have been killed on this road since early 1(66. The damage to vehicles in the course of a journey renuires extensive vehicle maintenance (averaging 5 days for ZTIS after each one-way trip). Under these conditions the 7TRS averares only 1.1 round trips rer vehicle unit per month. Wahile the condition of the road un(oubtedly affects the capacity of the existinri trucking fleet, the traffic on the existinr' roaC cou]d be pushed up by continued expansion of the fleet until caracity constraints on ]ess flexible parts of the system, i.e., the ports and storag-( facilities, becore operative.

2.14 Since mid-1966 drastic f'uiel rationing has been imposed periodically in Zambia, often for many months at a time. Refined copper production in 1966 was down 15 percent due to fiuel shortages that interrupted smelting operations. Costly stockpiles of copper concentrates had to be held as inventory. Fuel (coal and heavy fuel oil) costs for the copper industry averaged K 6.0 (US$8.110 equivalent) per ton in 1965 prior to UDI; in 1967 the average cost had risen to K 18.0 (US$25.20) per ton including a surcharge placed by Rhodesia on coal exports to Zambia. Copper transport costs to the sea averaged K 32.0 (US$44.80) per ton in 1965; the 1967 average by all routes and modes was K 52.0 (US$72.80). In October 1967 the Rhodesia Railways increased the charges on Zambian copper by 50 percent and at the same time on other Zambian traffic by an average of over 25 percent. No systematic accounting of the economic costs to Zambia of the present situation has been made; however, the recent increases in rates for Zambian cargoes via the Rhodesia Railway, demonstrate the degree to which the Zambian economy is dependent upon a single access route, and the lack of competitive pressure from alternative routes which could help to ensure low cost external transport for Zambia. - 6 -

2.15 While the diversion of transport of oil, copper and general imports has so far proved to be very expensive, it has failed to reduce appreciably Zambia's dependence upon Rhodesia for access to the sea. In 1967, the average division of the monthly tonnage of import/export traffic between the various routes was approximately as follows:

Average Monthly Import/Export Tonnap_es

Imports

Via Via Via Via Rhodesia Dar es Salaam Lobito Mtalawi Total

Coal & Oil products Coal. & Oil products general &f general general & general

145,000 20,000 14,000 5,000 184,000

Fxnorts

Copper & Copper P. Coprer & general Copper general general Total

6o,ooo 17,500 11,5o0 4,500 93,500

* * TOTAL: 205 000 37,500 25,500 9,500

* Including 90,000 tons of co01 fror Wankie, Dhodesia, wVhich is to be replaced by local supply in 1969.

Long-Range Solutions

2.16 Some 50 or more possible combinations of land transnort solutions have been considered at various times to meet Zanbia's import/export traffic needs. Among these are three means of reaching Dar es Salaan--bv pipeline (para. 2.17), by road (para. 2.18) and by rail (para. 2.19). Another possi- bility is the Great East Road from Lusaka to MfIalawi, and then via either an existing rail route to Beira in Mozambique or a new rail line that is under construction to connect the Malawi railways with the Nova Freixo-Nacala line in Mozambique. This alternative, in addition to involving additional railway investments, would involve transshipment in Malawi and would also pass through two countries outside Zambia.

2.17 The most advanced of current projects to develop permanent alter- native transport capacity to the sea is an oil pipeline from Dar es Salaam to the Copperbelt. The pipeline is estimated to cost about US$48 million equivalent and will be capable of handling the entire refined fuel require- ments of Zambia - about 200,000 tons in 1967. The Zambian and Tanzanian Governments have formed a joint company to own and operate the pipeline. Construction began in 1967, and the pipeline is scheduled to be in full - 7 -

operation by October 1968. At this time, the oil traffic, which accounts for about half the total present traffic on the Tanzamn highway, will be diverted to the pipeline, except for the relatively small amounts of oil types unsuited to pipeline transmission.

2.18 Reconstruction to two-lane bituminous paved standard of the full length of the gravel/earth sections of the Tanzam highway from Kapiri Mposhi at the Line of Rail in Zambia to Morogoro in Tanzania (965 miles) is now in advanced stage of planning, and partly under execution. The Zarnbian sections are all under construction; the first 122 mile section from Kapiri 1Mposhi to Serenje is part of the project under Bank Loan 469-ZA, and the 235 mile Mpika-Tunduma section is the subject of this appraisal report. In Tanzania, reconstruction of the 150 mile section from the border at Tundurna to Iyayi is being financed with the assistance of USAID; the remaining 311 miles from Iyayi to Morogoro are being considered for Bank/IDA financing. The plans call for completion of the Zambian sections by the end of 1969 and for the Tanzanian sections by the end of 1971. The improved and realigned Copper- belt - Dar es Salaam road link will be about 1,170 miles in length, including the section along the Line of Rail north of Kapiri Mposhi.

2.19 In addition to the pipeline and improved road connection, the Zambian and Tanzanian Governments have announced their intention to construct a 980 mile rail link from Kapiri Mposhi on the Zambian Railway systemn to the Kidatu railhead of the East African railway system in Tanzania, which would provide a 1,300 mile route from the Copperbelt to the Indian Ocean, at a cost of roughly US$400 million equivalent including line construction, rolling stock, and additional deep water berths at Dar es 'Salaam. The idea of a rail link predates the emergency by many years and has been the subject of a number of engineering and economic investigations. The latest inves- tigation took place in 1966 with financial assistance from the U.K. and Canada. The Bank has reviewed the consultants' report in conjunction with the UNJDP and the African Development Bank. This review concluded that three technical and one economic supplementary investigations were necessary to complete the feasibility analysis of the project. The major technical investigation has been undertaken with INDP financing. The Governments of Tanzania and Zambia, however, have so far not indicated their intention to proceed with the economic enquiries. The detailed engineering of the link is now undervay with the assistance of Mainland China, which has also given some assurances with respect to the financing of eventual construction. The timing of construction is uncertain. Detailed engineering is to be completed by the end of 1969. A five-year construction period is probably a minimum feasible schedule. Presumably, the commitment to invest this magnitude of capital will remain subject to further decisions based on final cost estimates and the foreseeable demand for the facility.

Traffic Prospects on the Tanzam Highway

2.20 The future volume and duration of through export/import traffic on the Tanzam highway is uncertain. Once the pipeline is in operation, and oil traffic over the road ceases, the intention is to increase the transport of copper exports and general goods imports. However, while the trucking capacity could be converted with relative ease from oil to copper and general cargo, the same is not true of the capacity at the port of Dar es Salaam, - 8 - where new deep water berths are required for any additional Zambian general goods traffic beyond the approximately 190,000 tons of copper exports and 70,000 tons of general cargo imports handled in 1967. Three berths are now under construction and a further two are planned to be in operation by 1971 to handle increased Zambian traffic in addition to the normal growth of Tanzanian traffic. The possibilities of containerization of cargoes at Dar es Salaam in general and of Zambian import cargoes particularly are also being investigated, and could affect significantly the capacity of the entire Tanzam highway transport system. If and when the Tanzam railway is built, it is very likely that most, if not all, Zambian import/export traffic using the road connection would be diverted to the rail which, regardless of its economic characteristics, would have to haul the bulk of available traffic to be financially viable. Under these uncertain circum- stances, the forecasts of traffic over the project road have been made taking into account the probabilities of future traffic levels and trends as they are affected by the main foreseeable constraints on the physical system and the timing of major investments (See Section 5, Economic Evaluation, and Annex for details). - 9 -

3. THE HIGHWAY SECTOR

A. The Highway System

3.01 The road network comprises over 20,000 miles of various types of roads (see Map 2):

Length, in miles Bituminous Gravel Earth Paved Roads Roads Roads Total

Primary roads 905 2,474 519 3,898

Secondary roads 82 1,492 11,807 13,381

Tertiary roads - 25 3,532 3.557

Total 987 3,991 15,858 20,836

3.02 The geographical distribution of the primary roads is generally adequate to meet current transport requirements. The primary road along the rail line is constructed to modern bituminous paved standards; the re- construction to similar standards of two other primary roads from the rail line to Malawi (Great East Road) and to Tanzania (Great North Road) is in process, partly financed by proposed and previous Bank projects. The re- maining primary roads are gravel surfaced or earth roads, sone sections of which are becoming inadequate for growing traffic volunes. Many of the secondary and tertiary roads are poorly maintained, if at all.

B. Highway Traffic and Vehicle Fleet

3.03 Highway transport is relatively undeveloped. It is concentrated mainly along the Line of Rail, utilizing the country's only long-distance bitumen-surfaced highway. Light Vehicle traffic in particular is concen- trated in this area. Traffic on the trunk roads to the outlying areas is generally heaviest near the rail line, and falls off rapidly according to distance from this rail zone. Since late 1965, this general traffic pattern has been altered significantly on the Great North Road and to a lesser ex- tent on the Great East Road by the imposition of heavy through traffic of imports and exports, as described in the preceding section.

3.04 The motor vehicle fleet expanded rapidly in the 1950's until the general economic downturn of the early 1960's. Since 1960, the average growth rate of the light vehicle fleet (cars, pickups, etc.) is estimated at 7 percent per annum, while for trucks and tractor-trailers, the expansion has been on the order of 8 percent with the emergency shift to road trans- port over the past three years. Statistical information on vehicle age is limited, but on the basis of registration data the fleet appears to be relatively modern with over 60 percent of all vehicles less than 5 years old. - 10 -

3.05 On the basis of a 50-point traffic count system instituted under the supervision of the U.K. Road Research Laboratory in 1961, and of the past growth of fuel consumption, the current normal traffic growth is esti- mated at about 7 percent per annum. In arriving at this normal growth rate, the current import-export road operations through Tanzania and Malawi, and the rationing of fuel supplies in 7ambia, have both been discounted by extrapolating pre-196 6 traffic trends.

C. Highway Transport Industry

3.06 Most of the commercial vehicles engaged in public road transport are run by owner-operators. However, the industry is dominated by three re-7 latively large companies: CARS, a subsidiary of the United Transport Group (U.K.); Smith and Youngson Ltd., owned by the London and Rhodesia Mining Company (Lonrho); and the recently formed ZTRS owned by the Zambia and Tanzania Governments (35 percent each) and Italian vehicle supply and finan- cial interests (30 percent). Recently the trucking industry has become increasingly competitive, especially for internal transport for which the licensing policy has been significantly liberalized.

D. Highway Administratior-

3.07 The Roads Department (RD), under the Mfinistry of Works and Housing, is responsible for the administration of the highway system. It has central services in Lusaka for engineering, construction and maintenance, and eight provincial divisions throughout the country. The RD has direct control over the primary road system and about half of the secondary roads: the Rural Local Authorities are responsible for the rest.

3.08 Professional posts and middle-level technical positions are held to a large extent by expatriate civil servants inder a program of the U.K. Ministry of Overseas Development. The RD lost manv experienced officers during 1966 and 1967 and, although the total number of staff has been kept about constant through recruitment, the newly recruited personnel is often inexperienced in the conditions of road administration in Zambia. Moreover, some vacancies have not been satisfactorily filled. The shortage is still within acceptable limits at the professional level, but is serious at middle level technical positions where recruitment is virtually impossible at the salaries being offered. The present staff is competent but is overburdened by the increasing demands of road development and maintenance which make it difficult to maintain satisfactory standards of performance.

3.09 Africanization of public services is an established policy, but the availability of nationals qualifying for technical positions is extremely low. The Government is aware that this is a constraint on Africanization. So far it has taken a pragmatic approach in employing expatriate technicians to meet the present personnel requirements of the RD. However, the prepar- ation for Africanization as a long-term solution requires that the profes- sional education and training of nationals for positions in the RD be promptly and substantially strengthened. Opportunities for the engineering education of talented Zambians exist at foreign universities through numerous scholar- ships, and are being created at the University of Zambia in its recently established School of Engineering. The Zambian Government has requested - 11 - that the Bank consider providing financial assistance for the development of this institution. However, only a few Zambians are currently taking advantage of the existing opportunities for engineering studies. The Government gave assurances under Loan 469-ZA that it will continue its efforts to retain RD personnel and to recruit replacements for the departing personnel from national sources and from foreign sources to the extent that qualified Zambians are not available. During negotiations for the proposed loan, the Government gave an additional assurance that it will maintain the professional standard and strength of the RD at appropriate levels, and will take appropriate steps, both through the promotion of technical education and training, and through career incentives, to encourage the development of national technical talent so as to enable Zambians to assume an increasing share in the operations of the ED. The Government agreed to exchange views with the Bank from time to time concerning the progress in achieving this goal.

E. Design Standards, Engineering and Construction

3.10 Design standards follow basic American and British patterns, with appropriate adaptations to local conditions that make it practical to build and improve the roads in stages according to traffic growth. The standards are considered appropriate; however, in the engineering of recent works, they have not always been applied with adequate care for economies, -which has led to overdesigning of some of the works.

3.11 In previous years, the RD was heavily engaged in road engineering and construction. At present, however, the Department is using extensively the services of engineering consultants and contractors for all major con- struction projects to cope with the sharp increase in road works since 1965. The locally established road contractors are mostly foreign owned: all major road works now underway are being carried out by international firms. Bid- ding procedures are sound and have proved adequate to attract contractors on an international basis. Physical conditions are favorable for road construction and maintenance in most parts of Zambia.

F. Highway Maintenance

3.12 The condition of the roads maintained by the RD is still generally satisfactory, but that of the roads maintained by the Bural Local Authorities is poor. The maintenance operations of the RD are highly mechanized and are carried out by units located throughout the country. In recent years, contractors also have often been employed in road maintenance for major regraveling or bituminous resurfacing works. The RD's maintenance practices are sound; however, increasing demands on personnel and equipment in recent years have resulted in some deterioration of previous standards.

3.13 Under Loan 469-ZA, the Government stated its intention to improve the maintenance of the roads under the responsibility of the Rural Local Authorities. The Government is now planning to set up mechanized Provincial Construction Units with a view to strengthening the capacity of the Authori- ties to maintain roads and to carry out some construction works. Technical assistance is being sought for this purpose from the United Nations. The Bank considers these preliminary steps by the Government as satisfactory with regard to its statement of intent. - 12 -

G. Highway Expenditures and Investment Planning

3.14 Highway expenditures rose from about K 5.0 million in 1960/61 to the annual rate of nearly K 20.0 million in late 1967 (see Table 1). The increase has not been gradual; a large increase in the maintenance budget occurred between 1961/62 and 1962/63; the budget for new construction has been substantially increased since the first development plan of independent Zambia got underway in January 1965. In 1966/67 new construction accounted for over two-thirds of total highway expenditures. This marks a new period of intensive road development; the rate of increase in public capital expen- diture has also been high in other infrastructure sectors.

3.15 In recent years the total recurrent and capital highway budget has been equivalent to about 6 percent of total public expenditure; investment in new construction has represented roughly 10 percent. of public capital formation. Under the current National Development Plan, road construction is supposed to take up 11 percent of government investment; however, the relative ease with which road works could be started and the current transport crisis have pushed the share of road construction to over 17 percent. In 1968, expenditure on road construction is likely to make the highway sector the largest single recipient of government capital funds, and only a slightly smaller investor than the whole mining sector. Total road investments over the 4½2 years period of the present plan (July 1966-December 1970) are now estimated at about K 105 million.

3.16 Planning of highway investments on the basis of economic criteria has not been given adequate attention. Feasibility studies have not been carried out on any of the roads in the current plan. Most of the larger projects have been decided on the basis of the transport crisis facing the country. It is now being recognized by the Government, however, that some resources have been wasted through overdesign and/or the extension of the crisis mentality to less urgent transport problems. Feasibility studies are being organized to evaluate future major investments for which funds are not already committed. Also, the Office of National Development and Planning is drawing up terms of reference for major studies to provide the strategy for future transport development and coordination. The Bank's Permanent Mission for Eastern Africa has offered to assist the Government in these pre-invest- ment efforts. - 13 -

4. THE PROJECT

A. Description

4.o1 The proposed project consists of:

(i) The reconstruction to two lane biturinous paved standard of the IT'pika-Tundum. section (235 miles) of the Great liorth Road (see 1ao 2);

(ii) The procurement and installation of three weigh bridges for use in connection wTith the above road-

(iii) Consultants' servi.ces for the detai].ed engineering and the supervision of construction of the road secti.on umder (i), and the detailed engineering of the Lupngwa. Piver-YTyimnba sectior (63 wniles) of the G7reat East Road. h.02 The project section of the Creat lorth Road rmns in long straight stretches through the vast plate.au of northern 7anbia with occasional gradients between terraces. The road was improved cduring the last decade from an old earth track to its nresent engineered gravel standard. It will require only minor alignment improverents before bituninous paving, except for some relocations and the easing of the grad.xents. Although kept under intensive maintenance, the riding condition of the road has deteriorated, and surface failures occur frequently since the Z'a.-bian exoort-import traffic was imposed in 1965. The weigh bridges will assist enforcement of vehicle weight limit regulations, which is necessary since pavement perform ance is sensitive to overloading.

4.03 The section of the Great FRast Road included in the proposed project for detailed engineering runs through hilly terrain along the divide between the Zambezi and Luangwa rivers. As a condition of the loan i6)9-ZA for the first highway project, this road section was reconstructed in 1966-67 from an earth track to primary standards with gravel surfacing. The detailed engineering under the proposed project is for the bituminous paving of the road section.

B. Design Standards

4.o4 The detailed engineering of the Mpika-Tunduma section was carried out on the basis of standards adopted by the RD in 1965 for primary roads (see Table 2). The design speed is 60 mph, and the maximum gradient 7 percent. In general, the standards are suitable to the terrain and consistent with the expected traffic. However, the flexibility within the given set of standards has not been adequately utilized to achieve potential savings. Insufficient attention was given to fitting the road alignment as closely as possible to the terrain; gradients in particular were treated too generously. These inadequacies in the engineering are causing unnecessarily heavy earth works over some sections, which can not at present be avoided as works are in advanced stage of execution; however, despite them, the project remains well justified with a satisfactory rate of return (see Section 5, Economic Evaluation). 4.05 Depending on the volume and duiration of the export/import traffic, the pavement over some sections may reouire strengthening a few years after the road is opened to traf'fic. The design allows for stage construction so that the pavement can be strengpthened by overlays as required by traffic growth. The appropriate time for strengtheninrg woul.d depend on the amount of traffic and would have to be determined on the basis of the observed behavior of the pavement. Durin, negeotiations, assurance was obtained that the condition of the road will be kept undler observation, and the pavement strengthened when and if necessar,..

C. Cost Estimates

4.o6 The cost estimate of the inroject anrd the estimnted foreign exchange component are as fol.lows (for norp (ietails, see T'able 3):

- - Total Cots - - Foreigfn ::Lxchange Component r'Cwa.cYia. 1!'( Louivrll':. opt, EuivalentFIo'; (I '000)

A. Construction

(a) Vpika.-Tun'c½m' n r(, O, ,~ 1' 9,290 (b ) Three weigh br '8 22

B. ]Engineerinr, Services

(a) Detailed enrineerinr nnd supervision of constructi'rm, Mipika.-Tuanduma road 8(0 1,.!:0 784 (b) Petailed en,gineering, Luanf7wa 7.iver-'-,Lriba roac; 7-' 67

C. Continrenc AllowarffS

(a) for quantity variations (Onout 10 ,5 of Iten A) 950 ,230 931

(b) for price variptions (about 10 5 on aLL costs) 1j10() j1,5]i 1,078

Total 12,490 17,li86 12,238

Rounded off 12,500 17,500 12,200

Amount defrayed by U.K. constribution (see paragraph 4.10): 1,600 2,200 1,500

Remainder: 10,900 15,300 10,700 - 15 -

4.07 The estimates for construction are based on contract prices, except for the weigh bridges. The estimates for engineering services are based on contracts with consultants (see para 4.05). The consultants have estimated that an allowance of about 10 percent is required to cover possible quantity variations in construction. This, together with an allowance of 10 percent for price variations, is considered appropriate. Construction prices have increased since the contracts were awarded because of the need to import materials at higher costs in amounts larger than originally estimated (see para 4.08).

4.08 The foreign exchange component of the project is estimated at about 70 percent. It includes depreciation of equipment, inported materials, fuels, snare parts, and the foreign cost of expatriate personnel, overhead, and profit. The local component includes mainly labor, local services, and about 3 percent for government revenue from duties and taxes on fuel, equipment and company profits. The foreign exchange component of civil engineering work has been rising in Zambia since 1965, due to the outstrip- ping of local supply canacities by the sudden exnansion of construction activity, and the increase in transnort costs for imported goods.

D. Execution

4.09 l"xecution of the project is the responsibility of the RD. The detailed engineering of the Great 'iorth Road sections was carried out in 1966 and 1967 by consultants, Edwards and Burrow (UK-Kenya) for the ripika- Chinsali section and E.G. Pettit and Partners (Ireland) for the Chinsali- Tundunia section. These consultants are also supervising construction. Con- struction is being carried out under unit price contracts which were awarded on the basis of international competitive bidding in mid-1967 to Frederici Construction Co. Zambia Ltd. (Italy) for the Mpika-Chinsali section, and to Stirling Astaldi (UK-Italy) for the Chinsali-Tunduma section. Construction is progressing satisfactorily, it was 35 percent complete as of July 1968, and is expected to be completed by the end of 1969. The detailed engineering of the Great East Road section is being carried out by Edwards and Burrow and is scheduled to be complete by the end of 1968.

E. Financing

4.1o Total expenditures on the project as of March 31, 1968 amounted to about US$2.4 million equivalent, and an additional amount of US$4.1 million equivalent is likely to have been spent by October 1968. The UK has made available to Zambia a grant in the amount of UKEl3.85 million (US$33.2 million equivalent) in 1966 to cover contingency reauirements arising from ULI. Fran this grant, an amount of K 1.58 million (US$2.2 million equivalent) has been allocated for the engineering and construction of the Mpika-Tunduma Road section, and is being disbursed against total expenditures, both local and foreign. The U.K. contribution has been fully expended and covered past expenditures up to about March 1, 1968.

4.11 The amount of the proposed loan is US$10.7 million equivalent, which would cover the estimated foreign exchange cost of the part of the project not defrayed from the U.K. grant. On this basis, Bank retroactive financing to cover foreign exchange costs would be required from about March 1, 1968 - 16 - and would amount, by October 1968, to about US$3 million equivalent. Retro- active financing in this amount is considered justified since, as explained before, a Bank appraisal of the project in 1966 was impractical, but execu- tion could not be delayed because of the transport crisis facing Zambia. The Government proceeded with the execution of the project in late 1966, on the understanding that the project would eventually be appraised on its merits by the Bank and that if the project proved to be justified, retroactivp financing would be recommended to the Executive Directors. The Government is prepared to meet the costs of the project not covered by the U.K. contribution and the Bank loan from its own budgetary resources.

4.12 The Bank would reimburse to the Government 70 percent of payments made to consultants and to contractors, over and above the amounts alread2y covered by the U.K. contribution. Any surplus funds remaining on the loar account would be cancelled. Disbursements from the proposed loan are exrected to be as follows (US!1_ million equivalent):

1"68 1 96 1Q70 Total

3.7 (Ks 0.5 10.7 - 17 -

5. ECONOMIC EVALUATION

A. Introduction

5.01 Due to the uncertainties surrounding this project and the relatively complex economic issues it raises, the economic evaluation section of this re- port is somewhat longer than usual. The uncertainties arise in forecasting the economic levels of traffic using the road in the period after it is im- proved, and how long this traffic would use the road in view of plans to build a parallel railway. To meet these uncertainties, a probability anal- ysis was employed in the economic evaluation.

B. Economic Justification

5.02 The Zambian economy is highly dependent uron import/export trade. The country is landlocked, in the center of the African Continent, 1200 miles from the sea. The cost and reliability of transportation for the large volume and high value of the country's external trade are crucial factors in the viability and growth of the Zambian economy. The country's over denendence upon a single link to the sea and the high cost of disruptions in its avail- ability have been amply demonstrated in the past three years of political crisis in central Africa.

5.03 The project forms part of a wider international road improvement and port expansion project that will improve the reliability of transport. for Zambia by providing alternative access to the sea through Tanzania at reasonable cost and reasonably quickly. By reducing trucking costs to Dar es Salaam it will place competitive pressure on the high prices now being charged by rail facilities. Thus the project should ultimately reduce the external transport bill of the country way beyond the proportion of total import/export traffic carried by the road itself. In the evaluation of the project, a probability analysis has been made, which takes explicit account of the major uncertainties affecting the volume and duration of import/export traffic that will use the improved road. The investment is expected to earn a rate of return of over 15% on the basis of road user savings alone. Even if the planned railway parallel to the project road were put into operation as soon as possible, that is, by mid-1974, the road investment would still earn nearly 11%. In the analysis a clear separation has been made between re- gional and national perspectives (see para 5.08). While the traffic diver- sion on which the Justification of this project rests involves a redistribu- tion of economic activity, the project is justified both on an inter-regional basis as well as from the point of view of Zambia alone.

C. Problems of Analysis

5.04 As indicated above, the economic Justification of this project for the most part depends upon savings in the movement of import/export traffic diverted to the road. Without the savings from this traffic, the project would earn only about a 4% return on the basis of the normal growth of local traffic in Zambia. The volume and duration of future import/export traffic, however, is very uncertain. By the time the proposed road improvements are completed in 1970, the present situation, which largely developed out of UDI, - 18 - may have been ended. As a result, the need to use the road may have di- minished considerably. Furthermore, if and when the plans to build a parallel railway are carried out, the bulk of any import/export traffic that might then be moving over the road would be diverted to the new railway.

5.05. In addition to this problem of forecasting the volume and duration of import/export traffic likely to move over the road, there is the problem of how to assess any savings on this traffic. Most of any such traffic would be diverted from the existing Rhodesian Railway system, which has adequate physical capacity and low operating costs. This traffic could probably be handled also by other existing rail alternatives given major investments to increase their capacity. As a first approximation, therefore, the economic evaluation of this project would allow savings in respect of handling fore- seeable import/export traffic over the improved road only if the costs of such transport were lower than the incremental costs of handling this traffic via existing facilities.

5.06 This approach, however, apart from ignoring the possibility that there may be little or no change in the current political situation in the area, and its inevitable impact on the movement of traffic, ignores two important economic considerations which stem from the fact that Zambia is a landlocked country. First, Zxambia's vital trade routes to the sea are be- yong its national control. Second, the relevant economic costs to Zambia are the full prices it has to pay for services beyond its national boundaries (net of any equity participation in the services) rather than the incremental costs of providing these services. These considerations suggest that some reasonably efficient alternative capacity and some minimum level of traffic diversion to this capacity from existing facilities may be economically justified to give an appropriate measure of transport reliability and to place sufficient competitive pressure on the existing facilities so that the prices charged for external transport services do not greatly exceed the relevant costs of providing *them.

5.07 The level of traffic that it is economical to divert to the project road depends primarily upon the availability and reliability of existing and possible other new facilities, the level of prices via these alternatives, and the costs of diversion. In the circumstances prevailing today for in- stance, the level of import/export traffic moving over the existing earth/ gravel road is assumed to be economically justified, despite its very high cost. However, since the future circumstances are highly uncertain, the levels of traffic diversion that are necessary to achieve reliable access to the sea and put competitive pressure on the prices of existing facilities are also uncertain. For the purpose of this economic analysis, therefore, the likely future volume of such heavy import/export traffic over this road was arrived at by assessing the probable future need to use the facility, known physical constraints, the probable timing of other proposed investments, and the possibilities of future diversion to other alternative routes or modes (see paras 5.09-5.14 below).

5.08 Having determined the probable economic level of future import/ export traffic over the project road, the evaluation of the proposed investment rests on the savings in vehicle operating and road maintenance costs in respect of this traffic on the improved road as opposed to those on the existing - 19 - earth/gravel road. These savings, together with the savings derived from normal and generated Zambian traffic, comprise the benefits of the invest- ment. In addition to these road user savings, there would be substantial benefits to Zambia from an exclusively national point of view. At present, the rates charged by trucking companies to carry traffic to and from Dar es Salaam (not subsidized) and the average rates now being charged by the railway companies for traffic via the routes to Beira and Lobito are roughly the same at about US$49.00 per ton/trip. To the extent that the US$2.35 expected saving per ton/trip over the road section lowers trucking rates and forces the rail companies to lower their average rates to remain competitive, the road user savings will spread to the tonnages using the railway. The savings to Zambia in this case would exceed US.t7 million per annum (over 3 million tons), in addition to the road user savings. If we consider both the Zambian and Tanzanian road improvements, these savings would exceed US$21 million. 1/ The benefits thus resultinr from reduced railway rates are not included in the rate of return calculation. While perfectly real for Zambia, from a regional and strict economic point of view these benefits result from the cessation of transfers (excess profits) frorn Zanbia to the Rhodesia and Mozambique railways and are offset bv the losses of these profits to Rhodesia and Mozambique. There would be, however, true economic benefits to the extent that the large reduction in the cost to Zanbia of external transportation stimulates increased production, or at least removes the barrier to growth that the recently imposed high price level entails. These latter benefits, are extremely difficult to quantif>- and are also excluded from the rate of return calculation.

D. Probable Traffic Levels

Local Traffic

5.09 Local traffic (i.e. excluding import/exnort traffic) is very low on the proiect road. The economy in the Zambian territory to the north of Mpika is in an early stage of development. From ?¶pika to Chinsali daily traffic is estimated at about 50 vehicles of which about 60G5 are trucks or buses. INorth of Chinsali to the Tanzanian border only about 40 vehicles per day use the road of which about 65%O are trucks or buses. This traffic is estimated to be growing at the rate of 6% for cars and buses and about 8&vfor trucks. Given the low economic potential for this area of Zambia, traffic generated by the improvement of the road is not likely to be substan- tial. Local traffic is not subject to the great uncertainties surrounding import/export traffic, and therefore not much attention was paid to it in the probability analysis (see Annex 2 for details).

Import/Export Traffic Volumes and Duration

5.10 The major traffic to be considered is the import/export traffic which is likely to be using this route after the road is improved. Present

1/ To the extent that the railways do not adjust prices to the new competition Zambia would be justified in increasing the capacity of the system to Dar es Salaam until full diversion were possible. - 20 - traffic and political conditions do not provide a clear guide for forecast- ing the needs of the future. The oil traffic which now forms the bulk of import traffic is about to be diverted to the new pipeline. Many of the tanker trucks used to import oil were also used to exrort about 200,000 tons of copper per annum. This copper traffic may be affected by the unbalanced load that will result from diversion of the oil. The buildup of general goods import traffic and a balancing load of copper will depend upon capacity expansion at Dar es Salaam and the continuing need to maintain traffic in this direction.

5.11 To the extent that the complete embargo on traffic through Southern Rhodesia declared by the IJnited Nations is in effect after 1970, all alternatives to the Phodesia Railways would have to be utilized at full capacity to clear Zambian traffic. Therefore, in this situation the eco- nomic level of copper and general goods ir-ports using the improved road would then be determined by the maximum capacity available for Zambian traffic in the road/truck/port/conmercial distribution system to Dar es Salaam. Fv late 1970, five additional deer-water berths et Dar es Salaan will have been completed, and port capacity should be sufficient to handle about 1.1 million tons of Zambian traffic in addition to Tanzanian requirements. If the truck- ing fleet is expanded as required, the maximum possible movement over the project road at that time would be about 0.6 million tons of copper exports and about 0.5 million tons of general cargo imports. If containerization (now being seriously investigated) would prove feasible, this maximum traffic level could be increased by at least 50%0! to about 1.6 million tons per annum.

5.12 If and when the UN embargo is discontinued, the economic level of import/export traffic via the project road would be determined by the nminirnum traffic level reouired to induce and support appropriate road, port and storage investments in Tanzania and to support a basic trucking fleet. These facilities and an operating commercial system will require a certain level of utilization if this route is to provide the ready capacity and re- liable service to meet the kinds of emergencies a landlocked state rust in- sure against. The minimum traffic level required to keep the system avail- able for use in an emergency is estimated at from 300,000 to 550,000 tons per annum, (125,000 - 250,000 tons of general imports and 175,000 - 30o,000 tons of copper exports) or roughly 33-55 truck-trailers per day. Contracts and guarantees for various period of this tonnage range are in effect at present.

5.13 Between the wide extremes of possible economic levels of import/ export traffic, the actual level would be affected by many factors, includ- ing the occurrence and duretion of circumstances in which use of the existing railways is denied, the development of alternatives, the capacity of the entire system to Dar es Salaam and the portion of this capacity which could be devoted to Zambian needs. These factors have been assessed in so far as possible on the basis of probabilities. The details of the probable traffic levels are given in Annex 2. In brief, the judgment used in the rate of return calculation is that there is only a 15% probability that the economic level of import/export traffic (up to the time when a parallel railway may be constructed) would be less than 300,000 tons per annum or about 33 truck- trailers per day. This would be a situation in which (a) the present - 21 - difficulties with Rhodesia were terminated and other disruption did not re- occur in the post-1970 period up until the uncertain time when the parallel railway is built (see para. 5.14); and (b) that either another of the many conceivable modes or routes were (developed to ensure transport reliability in this period, or less than 300,000 tons were required to keep the road system to Dar es Salaam available and adequate to meet possible crises. The analysis also rests on a judgrent that the probability of an economic level of import/export traffic of over 1 million tons per annum was not over 25%. This condition would be one in which (a) the present crisis continues for an undetermined time after the road is improved but before the railway is built; or (b) that recurrent disruptions plague transport in the area during this period; or (c) that the existing railways refuse to reduce their rates to competitive levels; and (d) that the system to Dar es Salaam is capable of carrying Zambian traffic of these magnitudes. On the basis of the probability analysis, the expected average level of import/export traf- fic up to the time when a parallel railway may be built is roughly 750,000 tons per annum or about 430,000 tons of copper exports and about 320,000 tons of general imports per year or abc)ut 75 30-ton truck-trailers per day on the road.

5.14 The duration of the traffic utilizincr the improved road is also uncertain, especially in view of the proposed parallel development of a rail link. This link, regardless of its economic rerits, would divert most of the import/export traffic from the road. The most optimistic estimate of the time when the rail link could become operational is mid-1074, i.e. after 18 months of engineering and about 5 years of construction. There is also the possibility that the railway would not be built prior to the 1980's should the Governments concerned conciude that the proposed road improvement would adequately serve as an alternative or otherwise decide to postpone construction. The details of the probalbilities employed in the rate of return calculation with respect to the timing of cessation of the import/ export traffic on the project road due to the coming into operation of the parallel rail link are given in Annex 2. Briefly, the coming into operation of the railway before the end of 19T7) apnears to have no more than a 105 chance of being realized. There is a 50%P chance that it will be operational sometime before the beginning of 1977, fnd there is a 20% chance that it will not be built prior to 1981. The most probable completion date is late 1976 with diversion of all import/export traffic to it being in 1977.

E. Probable Unit Savings in Vehicle Operating and Road Maintenance Costs

5.15 Table 4 sets out estimated vehicle operating costs over (a) a typ- ical bitumen/asphalt surfaced road; (b) a good gravel road; and (c) a lower class gravel/earth road in flat-to-rolling and in rolling-to-hilly terrain. To reflect the actual existing condition of the project road-sections, the cost of operating over the typical roads have been adjusted on the basis of transit time, visual inspection, and interviews with major transporters (see Table 5). The estimated unit savings in vehicle operating costs for various vehicle types are represented by the difference between the totals in Table 5 and those for the typical bitumen/asphalt road in flat-to-rolling terrain in Table 4. - 22 -

5.16 The savings in road maintenance costs depend to a great extent upon traffic volume and composition. With a certain level of import/export traffic on the road there are maintenance savings; without this level of traffic it would be cheaper to maintain the existing earth/gravel road. The probable daily traffic on the road has been translated from the various types of vehicles into equivalent traffic units and the annual costs of maintaining the road with and without improvement have been derived from formulae which are estimated to reflect the fixed and variable elements of road maintenance costs.

5.17 While a careful assessment of both vehicle operating costs and road maintenance costs has been underway in East and Central Africa for a number of years, there are anomalies and conflicts in the data and in the approaches used in their assessment. Thus, the uncertainties with respect to these critical parameters in the rate of return calculation were also taken into account explicitly by applying probability distributions to the range of possible values for vehicle operating costs and maintenance costs. The details are set out in Annex 2.

F. Probability Analysis of Economic Rate of Return

5.18 Choosing the most probable estimate for the level and duration of the heavy import/export traffic would obviously yield a single rate of return. This, however, would not reflect the uncertainty surrounding the determinants of these variables and the range of possible and probable economic results of the project. Furthermore, the application of vehicle operating cost, road maintenance costs and other critical data to a specific project involves a multitude of subjective judgments which cannot be synthe- sized into single values without being affected by some degree of optimism or conservatism. To avoid this bias, all of the values considered possible for each critical factor have been employed in the rate of return calculation, each value weighted by its assigned probability on the basis of judgment. With the help of a computer programn developed for this purpose, a large sample of rates of return were computed. The computer program randonly selects for each rate of return calculation a single value for each of the variables and computes the result. The more probable values for each varia- ble are selected more often than the less likely values in accordance with their probability weightings. The full range of possible outcomes, each with an estimated probability according to its frequency in the sample of results, is the output of the analysis. In this case, 300 economic rates of return were computed, with results ranging from 2.1% to 29.2%. The probability of earning a specific rate of return or more is deduced from the sample results. The way in which the probability analysis was carried out is discussed in more detail in Annex 1.

5.19 On the basis of this analysis, the expected rate of return, or the mean of the sample of 300 rates of return is 15.4%. The probability of earning any specific rate of return or more is as follows: - 23 -

Probability of Earning Rate of Return More than Rate of Return

0% 10 0"" 5% 98%1

8% 90 p 10% 855 12% 75, 15. 50,

20%o 15 25, 35"

(See Cumulative probability curve presented in Annex 3). Thus, while there is a high degree of uncertainty with respect to the values of inportant variables, there is a relatively small risk that the proposed investment will not yield a satisfactory return.

5.20 In order to demonstrate the sensitivity of the economic results to the timing of completion of a parallel railway, rates of return were also calculated using the single most conservative estimate for this variable in place of the probability distribution of the values. On the basis of an otherwise full probability analysis, but with probable import/export traffic using the road only until mid 1974, the earliest feasible time for corpletion of a railway, the savings in respect of vehicle operation and maintenance costs on the road would still yield a 10.8t rate of return.

5.21 In view of the satisfactory economic returns that can be expected, the project investment is economically justified. These results explicitly account for the major uncertainties affecting future utilization of the road. In addition, together with complementary investments it will yield substan- tial benefits to Zambia in terms of transport reliability and less expensive external transport services.

G. Engineering of the Luangwa River-Nyimba Section of the Great East Road

5.22 This 63-mile section is the remaining section of the 400 mile Great East Road not now either paved or in the course of being paved. This road connects Lusaka, the capital, with the agriculturally rich Eastern Province of Zambia and ultimately with the sea via the road/rail networks of Malawi and Mozambique. On the basis of the very preliminary and probably high cost estimates for paving this section of US$3.2 million equivalent, the investment appears to be marginal, yielding an economic rate of return of about 8%. This estimate is on the basis of 1967 local traffic levels of about 95 vehicles per day of which about 60p are trucks and buses growing at roughly 8% per annum. Present emergency traffic on the road consists largely of oil which will shortly be diverted to the pipeline from Dar es Salaam. No long-term plans exist for developing this route as a primary link to the sea. However, fuel rationing in Zambia has undoubtedly suppressed the local traffic levels on this section; traffic generation from the improvement of the other 336 miles of this road will also affect future traffic. The outlook with respect to economic results is very sensitive to variations in con- struction costs and traffic estimates. The detailed engineering phase is being conducted with special emphasis on reducing construction costs as well as on developing firm cost estimates. In these circumstances, detailed engineering is justified at; this time, and appropriate for Bank support. - 25 -

6. CONCLUSIONS AND RECOMMENDATIONS

6.o0 The project forms part of Zambia's long-term plans to diversify its trading pattern and to develop alternative access routes to the sea. It is soundly conceived, its execution is well underway and holds pranise of satisfactory completion. The investment is economically justified from savings in transport costs alone, accounted for with due regard to the uncertainties surrounding the future volume and duration of traffic.

6.02 During negotiations, satisfactory assurances were obtained from the Government that:

(i) the program for the technical education and training of Zambian nationals will be increased with a view to ensuring an appropriate supply of Zambian nationals qualifying for positions in the RD, and that the Government will exchange views with the Bank from time to time concerning the progress in achieving this goal (see para 3.09);

(ii) the condition of the project road will be kept under observation and the pavement will be strengthened by overlays when and if necessary (see para 4.05).

6.03 The project provides a suitable basis for a Bank loan of US$10.7 million equivalent, with a.20-year term including a two-year period of grace.

September 10, 1968

ANNEX 1

ZAMBIA

APPRAISAL OF THE SECOND HIGHWAY PROJECT

Probability Analysis of the Economic Rate of Return

1. Due to the uncertainties surrounding the major variables of the economic evaluation, the selection of single values for these variables and use of them in the rate of return calculation would give a misleading impression. A probability analysis was conducted to reflect the full range of possibilities, and the likelihood of various results within this range.

2. The first step of the analysis consisted of writing a computer program for the calculation of the rate of return of the project. The in- puts of the program were the Bank staff's best estimates of the volume and composition of future traffic, project costs, vehicle operating and road maintenance costs with and without the project, the price elasticity of demand for transport, and. the economic life of the assets as variables; the output was a single rate of return.

3. In the second step a sensitivity analysis was made of the rate of return. For this purpose, each of the parameters was varied one at a time, and the corresponding values of the rate of return comnuted. Each parameter was tested by a 10 percent variation around the value which had been chosen in the determination of the initial rate of return, and for those parameters which had ranges of uncertainty estimated to be larger than t 10 percent of the initial estimated value, the rate of return for the two extreme values of the range was also computed. The results of this sensitivity analysis 1/ indicated which parameters had an important effect on the value of the rate of return, and allowed the number of variables to be considered in the pro- bability analysis to be limited to these.

4. The third and final step in the analysis was the probability analy- sis proper, which was done by way of a simulation (Monte Carlo technique). For this purpose a probability distribution was estimated of the values for each of the parameters selected in the sensitivity analysis. These distribu- tions reflect the Bank staff's judgments of the uncertainties with respect to data, and its judgment as to probable future developments. The rate of return was then computed repeatedly (300 times) using each time, for each of the selected parameters, a value drawn at random from the range of its probability distribution. The frequency of a particular value's selection is governed by its probability weighting. Care was taken to correlate correlated variables. Finally, the distribution of the rate of return was statistically deduced from the sample of values obtained.

5. The hypotheses employed in the analysis are shown in the accompany- ing table (Annex 2) followed by a graphic presentation of the results in terms of cumulative probability of earning more than a specific rate of return (Annex 3).

1/ Technically a partial analysis since combinations of parameters were not varied simultaneously.

SRC0NDHIGHWAY P8WJT

Oppotthese.of prbability nIaye orfonoo r te of rero, 5p,iko-Td. Road

Dies BeetBonertatoty Estimate Natore of Probability Dl-tribution

A. Nooloerlgaed Co-tro-tim Co.ts -

RGod Sectio

Mpik.- iiendli Qoatity R-ot-ogl-r n range $7 100 000 to $8,300,000 Chilneal-Taod-m Qetity Reota-glar orage $6,8003,000 to $8,100,000

B. local Trafip (167) AdT

Core

Mpik.-Chin-.1i 20 A-opormo of traffic -oot Re-toog-lar o range 17 to 23 Chiosali-Tnd- 12 Adoprmop of traRffo ocunt RGetn3golr op range 10 to 15 Troolo.

$ptka-CbAoaail 26 Aocuracy of tra rfi o-ot Re-tnla.ular o fogy 22 to 30 Coaoeail-Topd- 20 Accura-y of troffio p -ot R-ataogolar on raoge 17 to 23

Tr-ok-Tr-ler Combination

Mp,ka-Chioasli S A-oorany of traffio o,nit R ct-golar on raoe 3 to 8 Cbioeai.i-Tooduoma S Acooracy of troff to romat Eeot-ga0 o 3 to 0

Traffi GOrovthRPain

Care 6% Trooke 8G 2/ frock-TraTler coettoatimn 8G

Elneticity of Trafc Dmand

Care 75 Trpk. .75 2/ Tr-ok-Tr-tler opeltoatio 75

C. Inport/Rrort Traffic (1971) ADT St pvi'e -etlerI Volo, Peibroih;bllty r

- pap otty of Or e a harbor lo, 33

_-75 dieirihattoo of iraffstro7 too be.eg 200 33 - 66 lao=han eoport -inport traffio a1teroattnea.c..er-tee to M.e seho% 66 -100 - Cotral Afripan political ittotiot 202 lo5 -120 5S 120 -155

Grovtb (Dpratto) Yerer to oich traffic 0ed-tie, ata to eree ~bblity (ri 1 -atoritoa lOS 1974 30% 1975 Zabian port-port traffic 102 1976 Period 1971-1976 0% D-orti-s of the traffto 7.5% 1977 Prom 1927 no -50% Tirdg of -peltio of p-ralie 7.50 1978 ratlay ltck 2.50 1979 7.5% 1980 202 poe 19Al

Elaticlity of Trafflo D=a-d

Zabian porti-aport tr-iTlo

D. Vehiole Cpeation Cfet (ICWmile)

Old iond Epik.-Chla..il Seot=in

laro .088 lack of data ) Re-t.egolr b-tueo .88 tio, the bint e.teate ad 1.15 Tp.cko .170 Lack of dati & .eeof truck) tinee the h, t estimate; all folly oreloted. 3/ La addl- Trock-Trailer -oobitn .460 Lack of data ) ti= operating ote, of t-cks ie varied nolforedy on a -SS .460 Lock f data ) 010 range to mo-o-nt for noceriaoty regardlog sle of tocks. Zabtian oopori-i=pert trf fi 0

Old Road Cblneali-TundUma Seotin Cor .10-ak ofdata R eiooa beteem .8% time tie btt tsiite and 1.15 TCroke .205 Laok of da i f t-o) tiMe the bet .eitmate; al folly orrelted. 3/ La oddi- Trock-Tra-ler -bdm.atoo .580 Lack of data ) tlon opertlng .oete of -ouok. Ie yerlod anlfornly n a -SS Zaelan eaport-iport traffl .580 Laok of data ) o102 range to a-o,eot for regordiogMarieilty ete, of tp.is.

env d. BPothSeotan-

Core .061 Trooke .095 Trock-Trailer obtna ti.250 Catlan eopori-inpori tr ifto .250

E. RGod elDlnteomoce (F0$/mile) Porsoia a o bs Traffio malt eoivlaimot per day - ?lainieoanoe ooat per Aroo Old Goad

Fined tern 583.8 Di-ergmo-e of data U-oertaioty aco ted fr- b7 taking -tai.ble tir niflrolry Variable ter b - 5904 diltribtted betoeeo $4.2 nd $7.0.

hev R-de

Fined ter a - 840.0 Dive... oe of data Unoertalnty moonoted fo- by teking voriatle tern a,nlfosy Variable tern b - 3 15 dletriboted betien $1.4 and $3.5.

F. Trafflo Hoitn Pila-lete f-or Edntlvoanpe feet Calooulatioou

Type of Vebiole t UPqiivaeiot)

Light trokn 1 Troobo 2 Trck-Traller-o=bltt 3 Zabiac port-i-porit v len 3

. Life of Goad (yearn) 20

0. Othere

Logth of rad, (miles)

Ipika-Chi.n.ei 104 Ctioeaj.i-TanGone 130

Teare of etteo of 1967 CGtironti- period 2 yea

1J Raclodiog dirnot tae.e and dties. 2/ Ion emittiity variable; variatin aooord-ig to probability eihin rmngie oooedsred. neneseoy. 3i Thil diatributi Ie rtificial and ie intended oly to obtin a plaioeble dietriboti-n of tibe emlnge from the ispros-.mPt of the road VI geoared bDce=se vmHdaiG f -oviege is filly take oas of by varailot of opmatig oete no old road.

ANNEX 3

ZAMBIA SECOND HIGHWAY PROJECT PROBABILITY PROFILE OF ECONOMIC RATE OF RETURN

100%

------90% CHANCE OF MORE THAN 8%/

w EXPECTED RATEz OF RETURN 620%

10%/CHANCE OF MORE THAN 21% '

0 5% ~~10%/ 15% 20 % 25 % 3Q0%

RATE OF ECONOMIC RETURN

IBRD-4045

TABLE 1

ZATMBIA

APPRAISAL OF THE SECOND HIGHWAY PROJECT

Highway Budgets

(k 1,ooo)

Year Administration Maintenance Construction Total

1960/61 532 1,800 2,752 5,o84

1961/62 708 1,636 2,758 5,102

1962/63 786 2,782 3,376 6,944

1963/64 914 2,666 2,244 5,824 1964/65 674 2,926 2,586 6,186

1965/66 1,018 2,922 6,000 9,940 1966/67 (18 months) 1,6022' 8,186 - 18,450 28,238 1968 (estimated) 674 4,100- 27,210 31,984

Source: Roads Department l/Estimated

- Including K3.6 million for extraordinary maintenance

- In addition, K1.45 million for road maintenance in Tanzania

TABLE 2

ZAMBIA

APPRAISAL OF THE SECOND HIGHWAY PROJECT

Design Standards

Desirable Minimulr /

Design speed, mph 60 30

Maximum grades, percent 7 7

Maximum length of limiting grade, feet2/ 700 700

Road reserve width, feet 200 200

Formation width, feet 32 32

Bituminous surfaced width, feet 20 20

Pavement type:

subbase Gravel, locally stabilized

base Cement stabilized gravel

surface Double bituminous surface treatment

design axle load 18,000 lbs. equivalent

Bridge structures width, feet:

span less than 30 feet equal to formation width

span more than 30 feet 24 feet

Bridge loading According to British stand- ards 153, type HA loading

- Minimum Design Standards of the order indicated shall be agreed between the Director of Roads and the Bank for short sections of road involving the traversing of difficult terrain or other special problems, where an economic evaluation indicates that the use of "desirable" standards does not provide the optimum economic solutions. 2/ Alternatively, unlimited length with climbing lanes.

TABLE 3

ZAPIBIA

APPRAISAL OF THE SECOND HIGHlrAY PROJECT

Cost Estimates US $1,000 Kwacha 1,000 Eouivalent

A. Road Construction Contracts and Weigi-dges

1. Road construction contracts:

Great North Road:

Mpika-Chinsali section 4,750 Chinsali-Tunduma section 4,730 9,480 13,272

2. Allowance for quantity con- tingencies on road construc- tion contracts (about 10%) 950 1,330

Subtotal, road construction contracts including allowance for quantity contingencies 10,430 1,602

3. Installation of three weigh- bridges 90 126

Subtotal, road construction and weighbridges 10,520 ]4,728

B. Engineering Services by Consultants

Detailed engineering and supervi- sion of construction, Great North Road: b5o

Mpika-Chinsali section 45o Chinsali-Tunduma section 350

Detailed engineering of the Luangwa River-Nyimba section of the Great East Road 70 870 1,218

Subtotal 11,390 15,946

C. Allowance for price contingencies, about 10% on all costs 1,100 1,5hO

Total 12,1490 17,486 Rounded off 12,500 17,500 Amount defrayed by UK contribution (see para. 4z.lO) 1,600 2,200 Remainder 10,900 15,300

SECOND HIUaWAY PROJRCT

Estimated Vehicle Operating Coats (1967-1968) on: (I) Erneineered Bitusan/Anohalt. (II) Bagineered Gravel, and (III) Uniuzroved Earth (US cents per vehicle mile)

A. Flat to Rolling Terrain

Vehicle Category Average Car Pick-up Track Average Truck 7 Ton Capacity Average Bus 50 Passengers Truck-trailer 30 Ton Capacity Fuel Type Gasoline Gasoline Diesel Diesel Diesel Road Type . II III I I III II III I I II III

Fuel 1.11 1.24 1.38 1.62 1.68 1.81 1.86 2.26 2.68 1.82 2.28 2.70 4.15 5.18 6.15 Lubricants .06 .08 .10 .08 .11 .15 .14 .17 .26 .15 .19 .26 .42 .50 .63 Maintenance Labor .22 .29 .,39 .26 .32 .55 .88 1.39 2.32 .77 1.31 2.29 6.30 10.47 22.30 Parts .44 .56 .82 .48 .69 1.10 1.48 2.44 4.00 2.16 3.71 6.40 Tires .20 .40 .68 .32 .62 1.20 1.18 2.68 6.05 .64 1.80 4.48 4.30 5.88 11.30 Crew Wages 1.12 1.40 1.85 1.24 1.56 2.08 1.40 1.77 2.34 1.77 2.34 2.80 1.95 3.55 6.30 Interest .78 .97 1.30 .63 .79 1.05 .40 .49 .66 .87 1.15 1.40 1.10 1.60 2.52 Insurance .37 .46 .61 .32 .40 .53 .34 .43 .57 .79 1.05 1.26 .40 .60 .90 Depreciation 2.12 2.79 4.14 2.02 2.74 4.54 1.52 2.32 3.97 4.17 6.28 10.32 6.80 12.40 20.05 TOTAL 6.42 8.19 11.27 6.97 8.91 13.01 9.20 13.95 22.85 13.14 20.11 31.91 25142 40.18 70.15

B. Rolling to Hilly Terrain

TOTAL 7 5 11.80 7711 9.-1 13.90 9 .7515.05 25.0274.4 1.21 26,o 7651 3.49

1/ Net of taxes, license fees and other transfer payments. Costs of terminal operation, waybills, company administration, which are not directly affected by road improvement, are not irrluded.

2/ Account not taken of present fuel rationing and inflated fuel cost situation.

Sources: J. DeWeille - "Quantification of Road User Savings" IBRD Occasional Paper No. 2 (East African prices) United Research Incorporated, Consultant to the Government of Tanzania. Interviews with trucking firms in Zambia aid Tanzania Mission estimates.

ZAM4BIA

APPRAISAL OF THE SECOND HIGHWAY PROJECT

Estimated Vehicle Unit Operating Costs on Project Road Sectionsa

(US cents per vehiclo mile) Truck Truck Bus Truck-Trailer Miles Car Pickup 7-Ton 50 Passengers 30-Ton Capacity Remarks

,4pika-Chinsali 104 8.87 9.51 15.a7 22.55 46.08 Good gravel road

Chinsali-Iso'ka 57 8.87 9.51 15.87 22.55 46.08 Good gravel road

Isoka + 41 miles 41 9.48 10.32 17.65 241.85 52.0Y Rapidly deteriora- ting gravel

33 miles to Tundlsma 33 11.05 12.65 22.13o 30.o5 67.13 Failing gravel/earth

1/ Costs comparable to totals set out in Table 4

Source: Interpolation from Table 4. Mission estimates on basis of visual inspection, vehicle operating speeds, and interviews with transporters. Ii

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