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 The report may not be published nor may it be quoted as representing their views.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.