World Bank Document

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

ReportNo. 4230-ET Public Disclosure Authorized STAFF APPRAISAL REPORT

ETHIOPIA

SECOND ROAD SECTOR PROJECT Public Disclosure Authorized

June 3, 1983 Public Disclosure Authorized

Eastern Africa Projects Department Transportation Division I

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

Currency Unit = Birr (Br) = 100 cents US $1.00 = Br. 2.072 Br 1.00 = US$ 0.483

UNITS OF WEIGHT AND MEASURES: METRIC SYSTEM

Metric British/US Equivalent

1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.20 pounds (lb) 1 metric ton (m ton) = 2,205 pounds (lb)

ETHIOPIAN CALENDAR

The Ethiopian Calendar year runs from September 11 to September 10 and the fiscal year from July 8 to July 7. Unless otherwise specified, all years are fiscal years.

ABBREVIATIONS

AfDF - African Development Fund AIDB - Agricultural and Industrial Development Bank ATA - Air Transport Authority CPSC - Central Planning Supreme Council EA - Ethiopian Airlines EASC - Ethiopian Audit Services Corporation ESC - Ethiopian Shipping Corporation ERA - Ethiopian Road Authority ETCA - Ethiopian Transport Construction Authority MOC - Ministry of Construction MTC - Ministry of Transport and Communications MTA - Marine Transport Authority NATRACOR - National Road Transport Corporation MTSC - Maritime and Transit Services Corporation PPD - Planning and Programming Division - ETCA RTA - Road Transport Authority TSM - Transport Sector Memorandum FoR OFFIcL US ONLY ETHIOPIA

SECOND HIGHWAY SECTOR PROJECT

STAFF APPRAISALREPORT

Table of Contents Page No.

I. THE TRANSPORT SECTOR ...... I

A. Economic Setting ...... I B. The Transport System ...... 1 C. Transport Sector Issues and Policy ...... 4 D. Transport Sector Management and Investment...... 6 E. Past Bank Group Involvement...... 9

II. THE ROAD TRANSPORT SUBSECTOR ...... 10

A. The Highway Network ... 10 B. Traffic ..... 00...... 11 C. Vehicle Regulations ...... 11 D. Road Safety ... 12 E. Highway Administration . . .12 F. Planning and Financing . . .14 G. Engineering and Construction Supervision .14 H. Highway Construction . .. 15 I. Highway Maintenance ...... 17 J. Training ... 19 K. Accounting and Auditing .. .19 L. Future of ETCA ... . 20 M. Road Transport Industry ...... 20 N. Pricing and Road-User Charges . .21

III. THE FIRST ROAD SECTOR PROGRAM AND PROJECT .23

IV. THE SECOND ROAD SECTOR PROGRAM FY84-86 ...... 24

A. Introduction ...... 24 B. Objectives...... a ...... 25 C. Program and Project Description...... 26 D. Size of the Second Road Sector Program and Project.... 33 E. Financing .... *...... 35 F. IDA Participation ...... 35 G. Implementation and Procurement. . . 37 H. Disbursements . ... 38 I. Accounting and Reporting Requirements . . .38 J. Environmental Aspects ...... 39

This report was prepared by A. Soto (Deputy Division Chief/Economist), S. Sigfusson (Sr. Engineer), E. Henriod and B. Herbert (Construction Industry Unit, TWD), H. Beenhakker (Regional and Rural Road Transport Advisor, TWD), J. Segerstrom (Technical Educator, EAPED) and J. Kipnis (Project Assistant) who appraised the project in April/May 1982.

This document has a restricteddistribution and may be used by recipient only in theperformance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. Table of Contents (continued) Page No.

V. ECONOMIC EVALUATION ...... 39

A. Introduction ...... 39 B. General Assessment of 1984-86 Road Sector Program 39 C. Area of Influence of the Program and Beneficiaries 41 D. Economic Analysis ...... 42 E. Risks ...... 45

VI. AGREEMENTS REACHED AND RECCMENDATION ...... 46

ANNEXES

1.1 Highway Projects Financed by the Bank Group 2.1 Terms of Reference for Road Transport Study 4.1 Conditions and Procedures for Eligibility of Subprojects and for Procurement of Goods and Services 4.2 Outline of Terms of Reference for the Provision of Contract Management Services 4.3 Project Progress Reporting Requirement 5.1 Screening Procedure for Rural Roads

TABLES

1.1 Comparison of Sectoral Allocations in Ten year (1980/81-1989/90) and Five Year (1981/82-1985/86) Investment Plans 1.2 Comparison of Transport Investment Programs of the Ten Year Plan (1980/81-1989/90) and Five Year Plan (1981/82-1985/86) 2.1 Inventory of All-Weather Roads 2.2 Highway Design Standards 2.3 Motor Vehicle Fleet 2.4 Ethiopian Transport Construction Authority Annual Expenditures 2.5 Central Government Revenue from Road-User Charges 2.6 Changes in Structure of Fuel Prices (1979/80-1980/81) 2.7 Quantity and Value of Imported Petroleum Products 2.8 Consumption of Petroleum Products 4.1 Physical Plan for Road Rehabilitation and Construction(km) (FY84-86) 4.2 Cumulative Disbursement Over Five Years (FY84-FY88) 5.1 Summary of Economic Evaluation 5.2 Economic Evaluation of Road Maintenance Element

CHARTS

1. Ethiopian Transport Construction Authority Organization Chart

MAPS

1. ETHIOPIA - Second Road Sector Program; Roads To Be Constructed or Improved (IBRD 16854-R) 2. ETHIOPIA - Non-Cereal Cash Crops (IBRD 3756R) 3. ETHIOPIA - Major Food Production Areas (IBRD 10233R1) STAFF APPRAISAL REPORT

ETHIOPIA

SECONDHIGHWAY SECTOR PROJECT

I. THE TRANSPORTSECTOR

A. Economic Setting

1.01 Ethiopia, with an area of 1.22 million km2, about twice the size of Kenya, is one of the largest countriesin Africa. With an estimatedper capita GNP of $140 in 1980, it is also one of the world's least developed countries. The population,estimated at 32.8 million in 1982, and growing at about 2.5 percent annually, is about 85 percent rural. The mainstay of the country's economy is agriculture,which currently accounts for about 50 percent of GDP, 85 percent of employment and 90 percent of exports. Agri- culture production is mostly for subsistenceand only about 25 percent of it is marketed. The main cash crops are coffee, oilseeds, cotton, sisal, tobacco, teff (a locally consumed cereal), fruits, pepper and sugar-cane. Coffee alone makes up around 65 percent of total export earnings. The country is also first in Africa in livestockresources.

1.02 Although the population is predominantlyrural, four urban centers, Addis Ababa, the capital; Asmera in the north; Jimma in the southwest coffee-growingarea; and Harar in the east, constitute important foci of regional trade and transportdemand. Also importantare the import-export corridors betweenAddis Ababa and the Red Sea ports of Assab and Djibouti (road and rail, respectively)and between Asmera and the port of Massawa (road). The dispersionof Ethiopia's population,the relatively long distances between production areas, urban centers and ports of embarkation, and the rugged topographyand severe climatic conditions of most of the country, render the provision of transport services difficult and costly.

1.03 The status of Ethiopia's economy and its future prospectsare presented in the Country Economic Memorandum of December 15, 1981 (Gray Cover Report No. 3552b-ET). The following conclusionsof the Memorandum are relevant to the transport sector needs and issues: (a) agriculturewill continue to be the backbone of the country's economy; (b) the Government faces serious resource constraintsand would need to mobilize unusually large amounts of domestic resources and foreign assistance in order to sustain the annual rate of growth of nearly 5 percent, attained during the three year period ending in 1980/81;and (c) transport still constitutesa major bottleneck for development,especially in agriculture.

B. The Transport System

1.04 The transport system consists of some 43,200 km of roads of which about 4,000 km are paved; the ports of Assab and Massawa; one railway line (780 km) connecting Addis Ababa with Djibouti; maritime and coastal shipping; river and lake transport (of relatively little significance); two international airports (at Addis Ababa and Asmera) and 27 local airfields - 2 -

and rudimentary airstrips. Roads and ports are the country's dominant modes of transport. About 95 percent of interurban passenger traffic and 90 percent of interurban freight is carried by road. Away from the major roads, transportation is generally by mule and donkey in the highlands and camel in the lowlands. About three-quarters of Ethiopia's farms were more than a half-day's walk from an all-weather road in 1977.

1.05 Although no detailed study of commodity flows has ever been carried out in Ethiopia, available information indicates that the major com- modities carried along the external corridors are imports comprising petroleum products, construction materials, equipment and agricultural products (the country has a sizeable deficit in grain production) and exports consisting of live animals, hides and skins, and agricultural products, mainly coffee, sugar and molasses. The main goods in the internal network are agricultural, forestry and some industrial products (e.g. cement, steel) from outlying production areas to the regional consumption and consolidation centers, and inputs for agricultural production (e.g. fertilizers, fuel, seeds) in the opposite direction. The maps IBRD 3756R and IBRD 10233R1 show the major non-cereal cash crop production regions and the major food production areas, respectively.

1.06 Inter-regional trade is still incipient, concentrated principally along the north-south main axis, the Asmera-Dese-Debre Berhan-Addis Ababa-Awasa highway, and the east-west main road, the Harer-Awash-Nazret-Addis Ababa-Jimma highway. The export corridors described in para. 1.02 complete the principal road network (see Map IBRD 16854). This network is insufficient and inadequate for efficient production, exchange and distribution throughout the country. The main road network needs rehabilitation and improvement and it leaves many areas, particularly in the west and south, without access. Moreover, because the pattern of roads is radial, converging into the capital and Asmera, adjacent regions often lack links between them. This militates against the development of a strong integrated national economy. The inadequacy of the transport system is compounded by a population settlement pattern concentrated in the north and center of the country, while most of the potentially rich agricultural areas are located in the west, south and southwest. Hence the importance given by the Government to expanding and improving the transport sector.

(i) Highways and Road Transport

1.07 The highway subsector and road transport are discussed in detail in Chapter II.

(ii) Railways

1.08 Historically the Addis-Djibouti railway was the main import and export corridor in the country, but lost its monopoly in the 1950's when the Port of Assab was built and a road was constructed from Addis Ababa to the new port. In addition to the failure of the previous railways owners, a Franco-Ethiopian company, to renew motive power and rolling stock and to replace worn out rails, the hostilities in Ogaden that interrupted through service for one year (1977-78) and the uncertainty surrounding the ownership of the railway following the independence of Djibouti, have caused - 3 -

railway traffic to decline steadily. Freight traffic which reached 471,000 tons in 1975-76 has thereafter decreased to about 236,000 tons in 1981-82. Passenger traffic, by contrast, has been constantly increasing reaching 1.2 million passengers in 1981-82, but their average travel distance is only about 250 km, well within the range in which road transport is more economical. To revive the railway's contribution, the Ethiopian and Djiboutian Governments have established a binational agency and, with EEC's assistance, have undertaken a modest emergency repair program. To significantly improve the capacity and quality of service, however, a large renewal and modernization program would be required. Even though such a program may be justified by some optimistic prospects of additional cargo demand including that associated with the proposed construction in Ethiopia of two cement factories, the future role of the railway needs careful analysis. Under the Second Road Sector Project, the role of the railway will be studied in conjuction with the preparation of a National Transportation Plan (para. 4.20).

(iii) Ports

1.09 Ethiopia is served by three major ports: Massawa and Assab on its own territory and the Djibouti port. Massawa serves the northern part of the country, while Assab and Djibouti compete for essentially the same hinterland within Ethiopia, namely, the southern two-thirds of the country, including Addis Ababa. Total traffic through the two national ports increased between FY76 and FY82 from 1.34 million to 2.31 million tons per year, or at an average annual rate of 9.5 percent. This reflects the expansion in the country's economy but more importantly, a shift of traffic from the port of Djibouti to Assab. Before the unrest in Ogaden and the independence of Djibouti, the latter moved over one-third of Ethiopia's foreign trade. In 1979/80, the year of maximum total port traffic volume, Assab moved 84 percent, Massawa 10 percent and Djibouti 6 percent of Ethio- pia's total port traffic.

1.10 The Marine Transport Authority, under the Ministry of Transport and Communications (MTC), administers the two Ethiopian ports. Very low tariffs which induce port congestion, inadequate coordination among the various agencies intervening in port operations, and operational shortcomings have hampered efficiency, especially at Assab. Further, port facilities and cargo handling equipment require improvement and expansion. The MTC, aware of these problems, has directly commissioned and financed a series of master plan, feasibility and port management studies which have been recently completed. A review of these studies indicates that they constitute a sound basis to establish priorities and to undertake administrative, operational and policy reforms aimed at removing existing bottlenecks. In addition, the studies will provide a cost-based pricing structure which would help remove congestion at the port of Assab and establish a fair basis for competition with the Port of Djibouti.

(iv) Shipping

1.11 Ethiopian Shipping Corporation (ESC), the national maritime carrier, operates five vessels and has commissioned four more recently. ESC, which has made profits for the last two years, is the main coastal carrier between Assab and Massawa, transporting mainly petroleum products. - 4 -

The three deep-sea vessels, used mainly on liner service to Europe, carry less than one-third of the country's trade with Europe, but the two coastal vessels carry over nine-tenths of all coastal shipping in Ethiopia. Inland water transport, limited to the Baro River and to a fe-w lakes, mainly Lake Tana, is of limited local importance. The Lake Tana services account for 90 percent of the yearly total of 75,000 passengers and 3,500 tons of freight carried on the country's inland wateriwaysD

(v) Air Transport

1.12 Air transport understandably plays a very important role in sup- plementing the difficult and insufficient land transport system. Four airports at Addis Ababa, Asmera, Dire Dawa and Jimma, have paved runways, but only the first three can accommodate commercial jets. Most of the remaining airports have runways less than 1,500 m long, are unpaved and without landing lights, and have to be closed during part of the rainy season. Ethiopian Airlines (EA), the national carrier and one of the better run airlines in Eastern Africa, provides 70 percent of international air transport and all scheduled domestic air services. Traffic reached 460 million passenger-miles and 15 million ton-miles in 1982. Although the carrier reported financial losses in 1979 and 1980, it has shown favorable financial results in 1981 and 1982.

C. Transport Sector Issues and Policy

1.13 In preparation for the proposed Second Road Sector Project, a transport sector review mission visited Ethiopia in April 1982. The mission analyzed the main issues facing the sector, reviewed and discussed with Government its strategy to deal with such issues and to further develop the transport sector, and prepared a Transport Sector Memorandum (TSM), a draft of which has been commented by Government. The TSM, dated September 15, 1982, also contained a number of policy recommendations, several of which have already been adopted by Government, Specifically, the TSM identified as the main issues in the sector, the following: (a) the excessive role of force account in civil work road construction; (b) the role and functions of ETCA after its reorganization (1981) and the establishment of the Ministry of Construction (1982); (c) the inadequate control of vehicle overloading and the related need for new legislation regarding maximum axle weights; (d) the efficiency of the country's road transport industry; (e) the adequacy of road user charges; (f) the role of railways in the country's transport sector; (g) the need to bring about institutional, operational and pricing policy changes in Ethiopia's two main seaports; and (h) investment priorities and the size and composition of the country's investment program, particularly regarding the road and rail subsectors.

1.14 A number of these issues have been the oDject of continuing dialogue between the Government and the Association under previous and ongoing projects, and in most of them good progress has now been attained. An example is the substantial increase in fuel prices, especially gasoline (Table 2.6), and road user charges. Studies are underway to analyze and recommend further improvements to the present structure and level of road- user charges (para. 2.40). Also under the Sixth Highway Project, five weighbridges were installed and six more are being built with UK finan- - 5 -

cing. Necessary proper legislation to reflect the existing vehicle fleet has been agreed with Government and is expected to be enacted by June 1984 (paras. 2.06 and 2.07). Hence, both the road user charges and vehicle weight control legislation and enforcement are issues which have been discussed previously and are the object of further action under the proposed project.

1.15 There is another category of issues which are either the result of recent developments (e.g. the creation of ETCA and its transfer to the Ministry of Construction) or the result of internal developments which could not be meaningfully addressed in earlier projects (e.g. the increase in force account construction of civil works and in the regulation and control of the road transport industry). These issues have evolved from the unrest in Ogaden, the difficult internal situation in Ethiopia, the consequent lack of interest of foreign contractors and the weakening of the domestic construction industry, and the disruption in supplies of vital inputs to the economy including fuel, materials, spare parts and equipment for road construction and improvement. These issues, which are discussed in more detail elsewhere in this report 1/, are also being addressed by the proposed project. For example, as a result of the exchange of views between the Association and the Government during the preparation of the TSM and of the proposed Second Road Sector Project, the Government has modified its policy regarding major road construction and has agreed to limit ETCA's force account forces in the future to a small proportion of the construction capacity of roads and to the maintenance of all types of roads. To accomplish this new policy objective, the main policy change induced by the proposed project, the Government has decided to establish commercially based public construction enterprises which would absorb the existing major road construction brigades. The creation of the first such enterprise took place recently (para. 2.25) and, provided that it complies with certain criteria set forth by the Association (para. 4.18), it would be able to participate in international competitive bidding (ICB) for the construction of new roads to be financed under the proposed Project.

1.16 Two more issues, the role of railway transport and the careful selection of investment priorities in the future, are discussed in the con- text of the proposed Project (paras. 1.08 and 1.23-1.26) and are further supported by studies to be financed by the proposed Credit (para. 4.20). Finally, the Government itself has undertaken the studies required to improve the situation of the country's two main ports and, based on their conclusions and recommendations, has requested the Association's support in preparing a proposed port project. Therefore, the issues regarding ports are not dealt with under the proposed Second Road Sector Project, but would be addressed in the framework of a project dealing specifically with ports, which has been identified by the TSM and will be prepared in the near future following the conclusion of the recently completed port studies.

1/ Transport sector management and ETCA's future are reviewed in paras. 1.17-1.20, 2.12 and 2.34; highway construction in paras. 2.12, 2.19-2.25; and road transport industry in paras. 2.35-2.37. -6-

D. Transport Sector Management and Investment

1.17 The transport sector is directly under the responsibility of two Ministries, the Ministry of Transport and Communications (MTC) and the Ministry of Construction (MOC), and several public sector enterprises reporting to them. The MTC, the Ministry with principal responsibility for the sector, according to its officially stated functions: (i) defines sector policies, priorities, plans and strategy; (ii) oversees the construction, improvement and maintenance of all transport infrastructure; (iii) regulates all transport services; (iv) classifies, licenses and controls commercial transport; and (v) prepares and implements, with Government approval, tariffs in all modes. The Road Transport Authority (RTA), the Na- tional Road Transport Corporation (NATRACOR), the Djibouti-Ethiopia Rail- way, the Marine Transport Authority (MTA), the Civil Aviation Authority (CAA), the Maritime and Transit Services Corporation (MTS), and Ethiopian Airlines (EA) are transport-related autonomous institutions or public enterprises within the portfolio of the MTC. Transport coordination takes place through the membership of the Minister of Transport and Commu- nications in the Boards of Directors of the transport agencies mentioned above, where major investment and policy proposals are formulated and operational decisions discussed and adopted, and through the close contact between MTC's staff, particularly that of the Planning and Projects De- partment (PPD), and the staff of the agencies through ad-hoc committees and informal discussions. Moreover, coordination among the three main planning offices of MTC, MOC and the Central Planning Supreme Council (CPSC) seems adequate.

1.18 The Ministry of Construction, established in mid-1981, brought under its wings the Ethiopian Transport Construction Authority (ETCA), previously within the MTC, and the Ethiopian Building Construction Authority. MOC is responsible for, inter alia: (i) carrying out the construction, improvement and maintenance of Government buildings and transport infrastructure; (ii) establishing and supervising organizations engaged in construction works as well as licensing and registering construction consultants, contractors, surveyors, architects and other construction professionals; and (iii) encouraging the participation of the population in construction works and providing the necessary technical assistance thereto,

1.19 Although as indicated in para. 1.17, planning for the entire transport sector is the responsibility of the MTC, in practice, since ETCA's transfer to MOC, highway planning has continued to be the main activity of the Planning and Programming Division (PPD) within ETCA (para. 2.14). The PPD of the MTC has meanwhile concentrated on formulating investment planning proposals in all modes other than the highway subsector. Because of the relatively recent separation of ETCA, the PPD at the MTC is not as strong as the one at ETCA and, in contrast to the latter, it prefers to contract out most of its studies to international consultants. Re- cently, it has used this approach in preparing basic modal studies and master plans aimed at an eventual coordinated development strategy for the sector. Further strengthening of the PPD at MTC is one of the objectives of the proposed Second Road Sector Project (para. 4.22).

1.20 The Secretariat of the CPSC, the country's principal planning organization, reviews and coordinates all investment proposals before submit- - 7 -

ting them to the Council. The Transport and Comminications Division of the Secretariat, consisting of nine professionals, is responsible for reviewing and coordinating the sectors' annual budgets and investment plans based on the inputs from the planning wings of ETCA and MTC.

1.21 The Government's development strategy for the transport sector aims at (a) improving the main road network to ensure safe, cheap and efficient communications between population centers and export outlets; (b) improving accessibility to agriculturally productive areas as well as to drought-prone areas by building feeder/rural roads; (c) continuing maintenance and rehabilitation of the road network as well as increasing the capacity of ETCA to maintain new roads; and (d) rehabilitating and improving the trucking industry, as well as the ports and airports, to ensure an efficient production and distribution system and to facilitate international trade. This constitutes a sound strategy which the Association fully supports. In March, 1981 the Government presented a ten-year (1981-90) indicative investment program at the UN Conference on the Least Developed Coun- tries. It was the first attempt at a long-term plan since the 1974 revolution. A Bank Group Economic Mission which reviewed it in May, 1981 found it too ambitious and identified the outlines of a more modest five-year public investment program. Both "plans" have been superseded by a new planning exercise currently being undertaken by Government2/ (para. 1.25). Nevertheless, the two plans were reviewed during the preparation of the 1982 Transport Sector Memorandum and are discussed briefly below because they constitute a background to the current exercise and because the projects incorporated in the five year public investment program are appar- ently going to be also included in the new plan.

1.22 Both plans recognized the importance of improving transport in Ethiopia as a basis for development of the productive sectors, particularly agriculture. Table 1.1 compares the two plans per sectors, while table 1.2 compares the transport sub-sectoral allocations. The overall investment program under the ten-year plan (1980/81-1989/90) amounted to Br 23.5 billion (US$11.4 billion), of which transport accounted for 30 percent, agriculture for 28 percent, industry for 13 percent, and the remaining sectors for 29 percent. The five-year plan, on the other hand, totalled Br 5.5 billion (US$2.6 billion) of which the transport sector had a share of 40 percent, followed by agriculture (26 percent), industry (11 percent) and other sectors (23 percent). Although transportation deserves high priority, the proportions allocated to the sector in these plans were too high and the Government is reportedly contemplating reducing the transport share of the new plan to around one-fourth of the total, a more reasonable level.

1.23 Concerning the distribution of proposed investment among the various transport subsectors, the two plans are very similar with roads and road transport representing between 62 percent of the total (in the five- year plan) and 57 percent (in the ten-year plan), rail between 24 and 28 percent, ports between 9 and 12 percent, and air between 5 and 3 percent. This balance is generally reasonable, although the proportion of the sector's investment in rail is probably too high given the doubtful economic merits of major new investments in rail transport in Ethiopia.

2/ A draft in Amharic is under preparation and an English version is expected to be ready in the next few months for Bank comments. -8-

1.24 Since the ten-year plan is to 3 : projects contained in the five-year plan have been reviewed, This plan incorporates 11 projects for transport. The subsectoral distribution comprises 4 programs for road transport, 2 for ports, 4 for aviation, and i for railways. The four road transport programs are discussed in Section IV. The other transport projects comprise the expansion of the port of Assab and the rehabilitation and improvement of the port of Massawa, as well as the purchase of cargo-handling equipment for both ports; the improvement of airports, purchase and installation of navigational aids and telecommunica- tions equipment, and acquisition of new aircraft for trunk and feeder air services; and the rehabilitation of the Addis Ababa-Djibouti railway. In order to judge their priority, these projects must be examined in the light of adequate feasibility studies, which have not been carried out except for the Addis-Djibouti railway project (a short-term emergency plan), for the ports of Assab and Massawa, for which a draft study has been completed, and the current updating of a study of airports and aircraft carried out in the early 70's. However, most of the proposed projects, particularly in ports and civil aviation, seem justified. Only the proposed improvement and expansion of the railway system (para. 1.23) raises concern. The National Transport Planning study included in the proposed Second Highway Sector Project (para. 4.20) will provide an important input to the overall planning process. At negotiations, agreement was reached that the Government will carry out the study before June 30, 1985 and will give the Association the opportunity to comment on its findings and recommendations.

1.25 As mentioned above, the Government, aware of the shortcomings of previous plans, has begun the preparation of a new plan. Broad development guidelines for the ten year period 1984-93 (called the Ten-Year Perspec- tive) are being defined and medium- and short-term programs, including detailed two- and three-year investment plans, are being prepared. Regarding project composition, preliminary indications are that this plan is likely to contain the same projects discussed above, in addition to the construction of a new 860 km railway line between Awash and Assab. A pre-feasibility study prepared by a joint team of Italian and Ethiopian experts has been completed under a recent bilateral agreement, and feasibility studies, including detailed engineering, should commence in the near future. The Association intends to follow up the progress of these studies, given the doubtful role of a new railway to Assab especially since the existing Addis-Assab paved road currently being strengthened and improved along its entire length (830 km) would, together with the Addis-Djibouti railway, be sufficient for the 2.3 million tons of international trade and expected increases in the foreseeable future. It is clear, however, that even if attempted, a project of this nature is unlikely to be financed and constructed within this decade. At negotiations, agreement was reached with Government that, prior to making any investment decision in the proposed Awash-Assab railway line, the Government would (a) carry out studies on the technical, economic and financial feasibility of the railway; (b) exchange views with the Association on the findings of such studies; and (c) ensure that any proposed investment in this railway would be economically and financially justified.

1.26 Another important issue concerning the transport sector investment is the likelihood of securing the required financing and the adequacy of Government's implementation capacity. Regarding the first, some of the - 9 -

projects, particularly those in the ports, rail and civil aviation subsectors, will include important equipment components for which suppliers' credits and bilateral concessionary assistance may be readily available. More difficult, however, would be financing the foreign costs of the important road subsector component, despite the expected participation of IDA and AfDF (para. 4.25). Concerning the implementation capacity, the five- year sector program is feasible, particularly if private contractors participate in civil works as agreed by Government. ETCA is capable of handling the planning and administration and, with additional staffing and technical support, the supervision of the civil works in the various subsectors. The Authority would, however, require the assistance of qualified experts and consultants in the feasibility and detailed engineering phases of those subsectors where ETCA's experience is yet untested, namely in railways and ports, and the general design of the civil aviation system.

Es Past Bank Group Involvement

1.27 Bank Group involvement in the sector started in 1950 but has been confined to the highway subsector, in which it has played a significant role. Seven loans and credits have been made for highways, totalling US$135.7 million. The Bank Group's most important contribution to the Ethiopian highway subsector is its significant role in developing the country's road authority into one of the best in the region. This has resulted in improved proficiency in road maintenance, force account construction and general network administration. In terms of physical infrastructure, after initial emphasis on rehabilitation and minor improvements, the Second, Third and Fourth operations financed new main road construction to paved standards (1,700 km), paving of existing roads (1,000 km) and equipment and technical assistance to improve road maintenance. The Fifth and Sixth Pro- jects paid higher attention to rural roads in line with a shift in the emphasis of the Bank Group's program. These Projects also continued the assistance in road maintenance and included support to the development of the local construction industry. Although the efforts in building the local construction industry initially yielded encouraging results, they proved unsuccessful in the long run under an adverse climate for the private sector in Ethiopia.

1.28 The Second, Third and Fourth Highway Projects have been the subject of formal ex-post reviews3 /. Road construction under the Second Highway Project was considerably delayed by institutional weaknesses, including poor engineering, slow preparation of specifications, inefficient procurement and force account work, and poor supervision. In subsequent projects, the Bank used the lessons learned from the above to help the then Ethiopia Road Authority (ERA) to improve in these areas, and the Operations Evaluation Department noted in 1974 that: "The agency can now do better technical planning, advanced surveying and cost estimating than before, and can produce feasibility studies that bear comparison with similar work prepared by international consultants. Also, the administration of the ERA

3/ The Second Highway Project was included in a "Comparative Evaluation of Selected Highway Projects," 1974; there has been a Project Performance Audit on the Third Highway Project, 1975, and a Project Completion Report on the Fourth Highway Project, 1976. - 10 -

has improved considerably" 4/. Since this assessment was made, there has been further strengthening in financial administration, road maintenance and equipment management under the Bank's Fifth and Sixth Projects, and through USAID assistance.

1.29 As the quality of ERA (now ETCA) staff improved, their participation in project execution increased. ERA staff supervised the paving works under the Fourth and road construction under the Fifth and Sixth Projects, with the help of an expatriate Resident Engineer. Also, the Authority's force account construction capacity improved so much that the Bank agreed increasingly to its use under the Sixth Highway Project.

1.30 Another lesson from the Second Highway Project was the need to integrate road construction and agricultural development. In subsequent projects, the Bank has sought to include rural roads construction under agricultural programs (e.g. the Minimum Package Program, Coffee Processing, and Amibara Irrigation Projects). As a result of the emphasis on development of lower class roads, and of improved project implementation, the economic impact of roads under the Fourth Project improved: economic returns for all roads except one were between 12 and 29 percent, equal or higher than appraisal estimates. In the case of the only road for which the economic return has been lower than estimated (6X), it was due to a disease which adversely affected coffee production in the influence area of the road, slower than expected progress in complementary investments in agriculture, and an increase of 20 percent in road costs.

1.31 Experience with the ongoing First Road Sector Project (Credit 708-ET) is discussed in Chapter III. Annex 1.1 gives details of the first six highway projects.

II. THE ROAD TRANSPORT SUBSECTOR

A. The Highway Network

2.01 Ethiopia has a relatively limited road network of about 13,300 km (Table 2.1) of all-weather roads, of which about one fourth is paved; in addition, there are some 30,000 km of unclassified, low standard earth (dry weather) trails and tracks. The network is categorized as primary, secondary, feeder or tertiary, and rural 5/, a classification more related to design standards (Table 2.2) than fuinction. At negotiations, the Govern- ment agreed that it will take all necessary measures to revise the existing system and establish by March 31, 1984 a comprehensive functional classification system (para. 4.16).

2.02 The highway network is one of the least developed in Eastern Af- rica, with a density of only 10 km per 1,000 km2 and 0.4 km per 1,000 popu-

4/ "Comparative Evaluation of Selected Highway Projects," p. 62.

5/ Throughout this report, "feeder roads" refers to the lowest class road in the main network, while "rural road" refers to a low class local (farm-to-market) road that is not a part of the main network. - 11 -

lation. The main network extends radially from Addis Ababa with few inter- connecting links; large areas still lack an all-weatherlink to the capital or to other economic centers. However, the network has expanded considerably in recent years. The length of paved roads and the total length of the network have increased about 2.4 times in the last 16 years or over 5.7 percent annually with an even faster rate of increase over the last 6 years at 8.6 percent annually. This latter increase has taken place mostly in the lower class roads.

2.03 Nearly one third of the network of main roads was built before 1960 and some roads were built as early as 1930. These roads need exten- sive rehabilitationand upgrading. Further, despite recent efforts, there are still many areas under cultivationor with large agriculturalpotential, accessible only by pack animals. The main emphasis of the proposed Second Highway Sector Project is therefore to: (a) rehabilitateand upgrade the older part of the network in order to preserve past investmentand (b) improve the rural accessibilityby upgrading part of the existing 30,000 km of dry-weather tracks to all-weatherstandard and some trails to roads.

B. Traffic

2.04 The 55,000 vehicle fleet (Table 2.3), representinga density of less than 2 vehicles per 1,000 population, is the lowest in Africa, well below that of the neighboringcountries of Kenya (16 veh./1,000 persons), Sudan (6 veh./1,000 persons),and even Somalia (4 veh./1,000 persons). Moreover, the geographicaldistribution of vehicle ownership is highly con- centratedwith over 80 percent of vehicles registeredin the Shewa (including Addis Ababa) and Eritrea (includingAsmera) Regions. However, there are apparent deficienciesin RTA's records of vehicle registrationand ongoing technical assistanceis identifyingand addressingthe problem (para. 2.09).

2.05 Despite the small vehicle fleet, traffic flows on the main highways are high 6/. In 1980, 9 percent of the main network had an average daily trafficTADT) greater than 500 and 76 percent greater than 100. Total non-urban vehicle-km grew by about 10 percent per year from 1962 to 1975 and by about 7 percent, to a level of 2.3 million vehicle-km,in 1980.

C. Vehicle Regulations

2.06 Vehicle weights and dimensionsare regulated; limits on dimen- sions are still adequate, but those for axle loads, 8 tons, are too low and generally disregarded. A comprehensivesurvey done some six years ago on major routes out of Addis Ababa found that axle loads of 12-13 tons were quite common. The Sixth Highway Project provided financing for five weighbridges and facilitiesand these have been installed at strategic locations and are operational. However, RTA, which is responsiblefor enforcing the regulations,has not done so mostly because the 8 ton limit is unrealistic and unenforceable. Proposed modificationof the existing legislationto a

6/ Traffic surveys for seven consecutivedays are conducted three times annually at 78 stations covering over 80 percent of all-weatherroads. - 12 -

general axle load limit of 10 tons, with provisions for 12 tons on selected major routes, have been under consideration by Government and are expected to be enacted soon; these limits, which have already been used in designing the reinforcement of these routes, are based on a recent analysis by ETCA's Design Division together with technical assistance from TRRL (UK).

2,07 RTA has already trained staff to operate the weighbridges and is ready to enforce the new limits when the necessary legislation has passed. In addition, RTA plans to expand the weight control by establishing 12 new weighbridges, 6 of which have already been ordered with UK financial assistance. The proposed increases in axle loads are being taken into account in the design of new roads and in strengthening of existing roads. During negotiations, assurances were obtained that the Government will modify the legislation for vehicle weight control along the lines indicated above and start the actual control thereof not later than June 30, 1984.

D. Road Safety

2.08 RTA is responsible for enforcing traffic safety measures. How- ever, little attention has been given to basic aspects of traffic management. Road design does not consistently include safety features; driver education and licensing and vehicle registration are hardly more than formalities; vehicle inspection is carried out sporadically and superficially; enforcement of traffic regulations is very weak; and statistical information on vehicle fleet and traffic accidents is scattered and inconclusive. As a consequence, the toll of accidents is high, as evidenced by the many demolished vehicles scattered along major highways. The Government has indicated its concern and its intention to take corrective action and has approached the Association for assistance.

2.09 The First Road Sector Project provided funds for consultants to help improve road transport planning and the operations and efficiency of the country's road transport industry. The consultants will also study RTA's organization, to identify weaknesses and to provide technical assistance to address the main problems identified, including the formulation of a road safety program. These services started in January, 1983 and will be continued under the proposed Project.

E. Highway Administration

2.10 The Ethiopian Transport Construction Authority (ETCA) 7/ is responsible for highway administration. Since the 1950's, when a modern Road Authority was established in the country, staff from the U.S. Bureau of Public Roads managed the Road Authority until 1963, when Ethiopians assumed management responsibilities with expatriates assisting as managerial and technical advisors. After further training and technical assistance under the last four IDA-financed projects, all divisions of the Authority are currently ably headed and staffed by Ethiopians.

7/ Originally, the Imperial Highway Authority (IhA), then the Ethiopian Highway Authority (ERA), later on the Ethiopian Road Authority (ERA) and since 1980, the Ethiopian Transport Construction Authority (ETCA). - 13 -

2.11 Organizationally,ETCA has two operating departmentsunder the Chief Engineer (Chart 1): (a) the Heavy ConstructionDepartment responsible for building highways, airports, sea ports, railroads and urban streets, and (b) the Rural Roads Constructionand Road Maintenance Department. Eight divisions -- four administrative and four technical -- support the operating departmentsas follows: (i) AdministrativeServices and Training Division; (ii) Legal Services Division; (iii) Fiscal Services Division; and (iv) Audit and Methods Division; and four technical support divisions: (i) Planning and ProgrammingDivision; (ii) Design Division; (iii) Supplies and Equipment Division; and (iv) Contract and Quality Control Division. The total number of ETCA's employees is around 20,000, of whom about 55 percent are seasonally employed; professionalsare about 110, of whom 65 are engineers and 10 economists. Although more professionalsare required, particularlygiven the increasing responsibilitiesof the Authority, these figures compare very favorably with most other African countries. Further, under the proposed project ETCA's training activitieswill be strengthened and expanded (para. 4.15).

2.12 Until 1977, when the First Road Sector Project was approved, the Ethiopian Road Authority (ERA) was efficientand had adequate capacity and capability to discharge its assigned responsibilitiesof planning, building and maintaining the country's network of classified roads. However, after the unrest of 1977-78, when foreign contractorswithdrew from the country and the Government was faced with an urgent need to expand the road network to support the defense of Ogaden and to compensate for the disruption of railway services, ERA was forced to expand its construction force account activities considerably with the concomitant dilution of its other activities, particularly maintenance and construction supervision, as some of the most experienced staff were transferred to organize and manage the new construction brigades. A resumption of past strengthening efforts is therefore called for. In addition, steps will be taken to reorient some of its main activities to reduce its force account construction capacity by shifting to construction by contract either by foreign contractors or construction enterprises (parastatals) being formed in the MOC. These objectives underscore the proposed Project's institutional goals regarding ETCA.

2.13 Until 1976, when ETCA's Rural Roads Department (RRD) was established, there was no organization specifically charged with the administrative responsibility for lower class rural roads. Much of the then existing rural roads network had been built by local authorities and, later, by construction units under agricultural projects. The increased emphasis on agricultural development and on the construction of low class rural roads, as well as the deterioration of existing rural roads because of lack of maintenance, resulted in 1972 in the setting up of a Working Group on Local Rural Roads Development to look into rural roads development and maintenance. The Group recommended that an organization should be established centrally to plan, construct and maintain rural roads but that ultimately, there should be full decentralization of this responsibility to the subre- gional (awraja) 8/ or lower level. The RRD was thus established. So far,

8/ Ethiopia is divided into 14 administrative regions, which in turn are divided into awrajas and woredas or subawrajas. There are 102 awrajas in total, the number per region ranging from 3 to 13. - 14 -

the decentralization of the administration of rural roads has been deemed premature by the Government -- with IDA's concurrence -- pending much more institution building at both regional levels and lower levels. ETCA will therefore retain that responsibility for several more years. At negotiations Government agreed that by December 31, 1985 it will review and exchange views with the Association on the decentralization of rural roads responsibilities.

F. Planning and Financing

2.14 Highway planning is undertaken by ETCA's Planning and Programming Division (PPD) which has been the recipient of a considerable input in technical assistance through the Bank Group financed road projects. As a result, PPD is adequately organized and staffed with about 14 professionals and 17 technical staff and has consistently produced well-prepared feasibility studies for the main road subprojects financed under the First Road Sector Project. Under the proposed project, PPD is expected to continue that role. In May 1981, PPD issued the Second Sector Program which reviews accomplishments under the First Road Sector Program (1978-82) and sets out the strategy and detailed components of the proposed Second Road Sector Program (FY1984-86). The Second Program has been revised and substantially scaled down in connection with the appraisal of the Second Highway Sector Project which would finance a portion of the Second Program (para. 4.04).

2.15 Budget preparation for roads is the responsibility of the PPD. Following review and approval by the Administrative Board of the MOC, the budget is submitted for review and approval to the CPSC and to a joint meeting of the CPSC and the Council of Ministers. Table 2.4 shows ETCA's capital and recurrent budgets and expenditures between FY77 and FY81. Capital expenditures decreased from Br 71.0 million (US$34.3 million) in FY77 to Br 50.4 million (US$24.3 million) in FY78, due mainly to the hostilities in Ogaden, but rose again in subsequent years, reaching Br 126.5 million (US$61.0 million) in FY81. Almost half of ETCA's capital expenditure since FY76 has been financed from foreign loans and grants.

2.16 ETCA's recurrent expenditures, on the other hand, have remained fairly constant, ranging from Br 34.8 million (US$16.8 million) in FY78 to Br 38.6 million (US$18.6 million) by FY81. These figures included a maintenance expenditure of about Br 2,600 (US$1,300) per km in FY77, which decreased to about Br 2,220 (US$1,100) per km in FY81, mainly due to the larger road network under maintenance. As discussed in para. 2.28, maintenance allocations are basically adequate.

G. Engineering and Construction Supervision

2.17 All detailed engineering of main roads constructed over the last decade has been carried out by the Design Division. The only exception is the design of a major bridge over the Blue Nile, which is being carried out by a foreign consultant (BCEOM, France). The Division has a staff of experienced engineers, surveyors and technicians divided into four branches: Surveys; Materials, Soil Testing and Research; Road Design; and Bridge De- sign. Quality of design and documentation is satisfactory. The Design Division i.s currently undertaking a joint program with TRRL of UK for surveying and mapping local construction materials, for investigating their - 15 -

properties and for devising appropriate specifications. This effort has already resulted in improved pavement design and lower construction costs. The Division's photogrammetic equipment (stereo plotters), however, is ob- solete (over 20 years old) and will be replaced under the proposed project. The project will also include purchase of additional equipment for field testing of soil and construction materials (para. 4.16).

2.18 The role of foreign consultants in supervision of main road construction has been gradually declining over the last decade. Under the Fifth, Sixth and First Road Sector Projects, all supervision personnel on contracted works were local except for one Resident Engineer on each job; this arrangement has proved satisfactory. In the supervision of force account works financed under the First Road Sector Project, local staff have been Resident Engineers and consultants have had responsibility only for overall supervision, visiting each site for a few days every month; this system has proved inadequate, with quality of work being unsatisfactory on occasion 9/. A minimum requirement for the construction works financed under the proposed project will be that the Resident Engineer on each work site under contract be a foreign consultant (para. 4.16).

H. Highway Construction

(i) General

2.19 The construction sector contributes about 4 percent of GDP. The main employer is the Government with the MOC having overall responsibility for the execution of the work. In the formal sector, building accounts for about 60 percent, roads for about 25 percent and other sectors for the remaining 15 percent. Road construction in Ethiopia has been undertaken both by private contractors under contract and by force account. Before the revolution in 1974, most major road construction was still carried out by international contractors, but domestic contractors were a growing segment in the industry. Since then, the political climate has become unfavorable to international contractors and construction has been carried out by domestic contractors and increasingly by force account. The situation, however, seems to be changing: international contractors are currently showing greater interest in reentering the Ethiopian market, domestic road contractors are mostly insolvent and being dissolved or absorbed by Government (para. 2.22), which also intends to convert a large part of its force account capacity into commercially viable autonomous (parastatal) enterprises.

(ii) Construction by Contract

2.20 Until 1972, major road construction works were the subject of ICB and contracts were won by international contractors. Assistance to develop Ethiopia's small civil works construction industry, constrained by tight

9/ A technical assistance team provided under the First Road Sector Project in 1981 considerably improved the quality of asphaltic concrete overlays; in early 1982 the team started focussing on improving the quality of pavement with bituminous surface treatments and of gravel roads as well. - 16 -

credit on hard terms and lack of qualified staff, was ff-rsLt uequested and provided under the Fifth Highway Project and continued under the Sixth and the First Road Sector Projects. A total of US$4.5 million was provided for procurement of equipment for onlending to contractors through the Agricul- tural and Industrial Development Bank (AIDB). Four contractors won contracts under the Fifth, Sixth and First Road Sector Projects and benefitted from these loans. In 1981, five private contractors -- the four engaged in civil works construction and one participating in the building sector -- were qualified for contracts in excess of Br 15 million; three for contracts between Br 2.5 and 15 million; and about 160 for smaller contracts, mostly in the range of Br 50,000 to 1 million, and mostly engaged in the building sector.

2.21 However, the four major civil works domestic firms faced increasing financial strains and accumulated large debts with the state-owned Commercial Bank of Ethiopia (CBE). By March 1982, loans to the four companies amounted to Br 91.4 million (US544.1 million) while work-related guarantees were Br 31.7 million (US$15.3 million). During the last few years, the firms had not been able to service their financial obligations because of the cumulative effects of diminishing works resulting in tough competition and under-bidding, shortages of fuel and materials, war and civil unrest, and serious management shortcomings. As a result, in April 1982, CBE took legal action to collect the debts 10/. Pending court rulings, all four companies have been placed under court administration which is being carried out by senior officials of ETCA.

2.22 Except for the individual experience gained by Ethiopian professionals and technicians working in these firms, and the equipment fleet purchased and still available in Ethiopia, the Bank Group assistance of US$4.5 million has not resulted in the improvement of the intended beneficiaries. It now appears unlikely that any of the four large civil works contractors will continue work after the court proceedings or that they could prequalify for ICB for civil works under the proposed Project. Some of them may be able to undertake subcontracting while reorganizing and could make use of technical assistance to be provided under the proposed Second Road Sector Project (para. 4.18). Furthermore, one of the contractors, the Ethiopian Earthmoving Equipment (EEE), has formed with its present administration, the nucleus of the first public enterprise (para. 2.25). The other domestic private contractors have little experience in civil construction and their specialized resources (engineering, equipment) are limited. It is doubtful that they will be able to take part in large civil works construction as main contractors, at least during the period of implementation of the proposed Second Road Sector Project; however, they could initially operate as sub-contractors or associates of larger con- cerns.

10/The expatriate owners of the company, Ethiopian Earthmoving Equipment (EEE) fled the country at the time of revolution; the company's assets were seized by Government and the firm has been operated since then under an administrator (ETCA) appointed by the principal creditor (CBE). - 17 -

(iii) Constructionby Force Account

2.23 To replace capacity lost by the withdrawal of foreign firms, the Government has been building up its force account capacity. In 1974 force account amounted to some 20 percent of road construction; by 1981 it had increased to 80 percent. Other factors have also been conducive to this development: increased emphasis on rural and other low class roads not particularly suitable for competitive bidding and general political preference for construction by force account rather than by private entrepreneurs. By the end of 1982, ETCA had 13 fully equipped force account units for construction of main and secondary roads. These comprised 2 asphaltic overlay brigades, 3 bituminous surface dressing brigades, 8 feeder (gravel) road brigades, and 18 units for construction of rural roads including 10 large size units, 6 medium size and 2 self-help units.

2.24 Labor-intensive methods are being introduced for construction and maintenance of rural roads with training being carried out under a UNDP project (para. 2.31) while technical assistance provided under the First Road Sector Project is presently helping to prepare a few rural roads for execution by these methods starting in early 1983.

2.25 For major civil works construction under the proposed Project Government agrees that ICB should be used; rural roads will continue being built by force account. Also, to improve public construction operations, the Government has decided to establish commercial and autonomous construction enterprises by drawing from the resources of ETCA's force account brigades, possibly supplemented from other resources. These could compete for works under ICB both under the proposed project and elsewhere including outside Ethiopia. The first such enterprise, the Blue Nile Construction Enterprise, is being formed and, subject to compliance with certain conditions (para. 4.18), should be eligible to participate in ICB for the first construction subproject under the proposed Project (para. 4.07).

I. Highway Maintenance

2.26 Maintenance of the main road network is still the responsibility of the Heavy Construction Department, although transfer of all maintenance functions to the Rural Roads Department is being planned (Chart 1) in association with the planned decentralization of the rural roads administration. As mentioned earlier, however, decentralization of the maintenance of all roads will not be attempted until appropriate regional institutions have been improved considerably. A Chief Maintenance Engineer supervises all maintenance operations in ETCA's nine district offices. The network is divided into maintenance sections, each of which is assigned to a maintenance crew; in 1981 there were 22 paved road sections of about 150 km average length, 62 main gravel road sections of about 120 km, and 6 rural road sections of about 300 km. Until recently, the planning of maintenance operations and the preparation of related budget needs was carried out by headquarters staff. This often resulted in unrealistic programs that were not always implemented by the districts. As part of the improvements introduced under the First Road Sector Project (para. 2.27), maintenance planning and budgeting are now the responsibility of the District Engineers with a marked improvement in performance. - 18 -

2.27 Other factors contributing to improved maintenance in recent years have been (a) the maintenance assistance provided under the Fourth Highway Project; (b) ERA's implementation of the recommendations of a 1973 Road Maintenance Study (financed by USAID) which identified maintenance priorities and resources required through 1982; (c) equipment procurement with assistance from multi- and bilateral aid agencies; (d) expansion and equipping of all district workshops (financed by USAID); (e) increased and improved training of technical and clerical personnel under the First Road Sector Program assisted by IDA, UNDP and ADF; and (f) an equipment management system and a road maintenance management system and quality control which are being introduced countrywide by technical assistance financed under the First Road Sector Project. Preparation of the road maintenance performance and budgetary system began, with the assistance of foreign consultants (Roy Jorgensen, USA), in February 1979. It comprised two main tasks: the design and implementation of a modern maintenance management system in a pilot area, and the provision to ETCA of advisory services in systems analyses and computer programming. The implementation effort involved (a) the reorganization of the pilot maintenance district (Alemgena) by the introduction of five management unit superintendents who control between one and four road maintenance sections, and who have the authority to move resources within their management units to more effectively resolve shortages or surpluses; (b) the training of all maintenance staff; and (c) the field implementation of the new maintenance management system. The field implementation included: identification of activities and definition of level of service; performance standards including defining frequency of activities; resources and work procedures required to maintain level of service; planning and scheduling system; performance-oriented budgeting; cost accounting; and monitoring, evaluating and reporting systems. Given the success of the test scheme, the Government in 1980 requested, and the Association agreed, to expand the maintenance management system countrywide.

2.28 Under the First Road Sector Project, an agreement was reached on targets for annual budget allocations for road maintenance to match road improvement/construction targets. Only about 61 percent of the financial targets were reached while about 73 percent of targets for physical implementation were attained. However, considering that construction achievement was greatest in the lowest class roads that require less funds for maintenance and also that depreciation of equipment is undervalued in ETCA's books, maintenance expenditures were adequate although use of resources could improve. At negotiations, therefore, annual maintenance allocations to match planned physical implementation targets were agreed upon between the Association and the Goverment (para. 6.01). It has been estimated that about US$2,000 per kilometer for paved roads, US$1,000 for gravel roads, and US$800 for low-class rural roads would be adequate. These aggregate over the network, in 1982 prices, to about Birr 35 million in 1984, Birr 40 million in 1985 and Birr 45 million in 1986. The Association and the Government agreed during negotiations that these amounts will be provided annually during the three year period of the proposed Project, and that not less than Birr 45 million in 1982 prices would also be allocated annually after 1986. - 19 -

J. Training

2.29 In addition to in-house and on-the-jobtraining provided by expatriate technicalassistance teams, ETCA has an active training program for all levels of personnel. Senior employees have been and are being trained in schools and universitiesin Ethiopia and overseas, assisted by the Bank Group's Fourth, Sixth and First Road Sector Projects and USAID and UNDP Projects. Middle- and lower-leveladministrative, construction and maintenancepersonnel are trained and upgraded at trade schools in some cases but mostly at ETCA's training center at Alemgena. Since the center was establishedin 1956 it has trained some 8,000 foremen, technicians, tradesmenand equipment operators.

2.30 The training center was expanded and strengthenedunder the Fifth and First Road Sector Projects including the establishmentof two training productionunits (TPUs) under the latter Project. The center presently has capacity to train about 600 people annually. This capacity is, however, insufficientto meet ETCA's needs, partly due to the fact that several gra- duate trainees have transferredto other areas in the Government and partly due to the continuous expansion in range and scope of the Authority's activities. Moreover, the quality of training, particularlythe curricula and course content, as well as training of instructors,need improvement. Under the proposed Project, scholarshipsfor Ethiopian trainers and staff as well as technicalassistance to improve and strengthen the center will be provided.

2.31 One of the TPUs, based at the Alemgena training center near Addis Ababa, is concerned only with the constructionand maintenance of main and secondary roads; the second, based at Ginchi, about 90 km west of Addis Ababa, provides training for the constructionand maintenanceof rural roads. The latter has a portable camp as well as workshops, classrooms and accommodationsfor about 50 trainees. Although the training includes equipment-intensivemethods, it has, with technicalassistance from UNDP, increasinglyfocussed on labor-intensivemethods (para. 2.24) Under the proposed Project, both TPUs will be further strengthenedand expanded (para. 4.15).

K. Accounting and Auditing

2.32 ETCA's accounting and financial functionsare the responsibility of its Fiscal Services Division. The accounting system is kept in accordance with normal public accountingpractices as specified in the procedures establishedby the Ministry of Finance and provides good control of all the expendituresfor project execution. The Fiscal Services Division prepares annual balance sheets which are submitted to the Ministry of Finance and to external auditors on behalf of the Auditor General, for their review. The present accounting system not only meets the basic requirements for budget administrationand control, but also constitutes the basis for a modern management informationsystem. The gradual introduction of cost accounting for maintenanceactivities started under the First Road Sector Project and will be continuedunder the proposed Project.

2.33 As a Government agency, audits of ETCA are the legal responsibility of the Auditor General or his designate. Since 1977 the Ethiopian - 20 -

Audit Services Corporation (EASC), a public audit corporation, has been designated Auditor of ETCA. EASC's management and senior auditors have had years of experience with well known international private audit firms, however, the number of professional accountants is inadequate. Hence, even though EASC is competent to audit ETCA and gives priority to its audits, ETCA's audits are consistently a year overdue. During negotiations it was agreed with Government that it will take all necessary action to ensure the submission of audited accounts to IDA within 6 months of the end of its financial year (para. 6.01).

L. Future of ETCA

2.34 As mentioned earlier further strengthening of ETCA and a reorien- tation of some of its main activities (para. 2.12) are required and would be undertaken under the proposed Project. During negotiations, it was agreed that, in consultation with IDA, the Government will (a) prepare a tentative program by June 30, 1985, for the gradual transfer, as may be needed by the Government, of ETCA's major road force account construction brigades to public enterprises until an optimum size of ETCA's force account forces is attained; (b) review ETCA's role and organization not later than June 30, 1985 and (c) upon completion of 30 months of construction operations by the recently established Blue Nile Construction Enterprise, set out specific deadlines for completion of all phases of the transfering program. This agreement will allow the Government to examine the experience of the new commercially-based construction enterprise and introduce any adjustment if required, before proceeding with the establishment of any other enterprise (para. 6.01).

H. Road Transport Industry

2.35 Ethiopia's road transport industry is dominated by private truckers, mostly individual owner/operators who own about 75 percent of the country's trucking fleet. Entry into the trucking industry is subject only to compliance with normal minimum personal, safety and financial requirements, but truckers for-hire must be associated to the Government-owned Na- tional Road Transport Corporation (NATRACOR), a parastatal road regulatory and transport company under the aegis of the MTC. In 1980/81, the total public road transport capacity in the country amounted to 5,775 trucks (56 percent of which had a net carrying capacity in excess of 9 tons), 631 tankers, and 2,273 buses. Of these, NATRACOR owned and operated 685 trucks, 631 tankers, and 297 buses. Although there has been traditionally a shortage of trucking capacity in the country and the age of the trucking fleet exceeded 10 years on average, following the unrest in Ogaden and the interruption of the railway services to Djibouti in 1977-78, the Government imported a large number of new trucks. As a result, a modern trucking fleet operates along the country's major routes (the old trucks have been assigned mainly to local services) and the average age has been reduced considerably. Still, there seems to be a shortage of medium and small size trucks for urban/suburban and short-haul services. Under the road transport study financed under the First Road Sector Project (para. 2.09), an assessment of the condition and needs of the country's trucking fleet will be carried out. - 21 -

2.36 Trucking services are closely regulated and controlled in the country. The RTA sets tariffs by type of cargo, type of road and distance, and generally cover transport costs. Tariffs are enforced and trucks and freights are assigned by NATRACOR which also provides the services of freight consolidation, forwarding and dispatching. One of NATRACOR's main functions is the allocation of trucks (both private and its own) to the various routes in the country. It accomplishes this under a two-tier system. First, when truckers register, they are assigned to one of six zones into which the country has been divided, depending on the demand and supply in each zone; the capacity, type and age of the truck; and the place of origin or area of preference of the trucker. Once the trucker has been assigned to a zone, he is assigned specific freight consignments and routes within that zone on a first-come, first-serve basis. The procedure for obtaining such consignments is based on standard request forms filled in by any individual or company (state-owned or private) wishing to ship any cargo within the zone. The requests are received by the local NATRACOR office which then assigns a trucker from its lists. The selected trucker fills out another form which allows him to carry out the transport service, to pass the check-points along the travel route, and to collect his fees from the shipper. This close regulation and control of trucking services are in line with the Government's development philosophy and with its per- ceived internal/external security needs.

2.37 The above system, which was developed in the last three years, has proven cumbersome, inefficient and costly. Under the Sixth Highway Project, a study was carried out by consultants and completed in January 1981. The study concluded that (i) the managerial resources of NATRACOR are insufficient to carry out its stated responsibilities; (ii) the hardware (storage facilities, parking areas, offices) and software (data gathering and information systems, auditing and financial accounting) are also inadequate to manage a wholly-controlled transport system of this nature; and (iii) as a result of the above two shortcomings, there is ineffi- ciency. The Government, with IDA's assistance under the ongoing First Road Sector Credit has engaged consultants to undertake the second phase of the study, which will make recommendations to rationalize and streamline current operations and provide related technical assistance. A summary of the terms of reference of this study is attached as Annex 2.1. The study, which will take nine months, began in January 1983. Under the proposed Second Highway Sector Project, this technical assistance would be continued to help implement the changes to be recommended by the studies (para. 4.17).

N. Pricing and Road-User Charges

2.38 As shown in Table 2.6, road-user charges have increased from Birr 51.7 million (US$25.0 million) in FY79 to Birr 92.2 million (US$44.5 million) in FY81, or by a factor of 1.8, while total road transport expenditures, both capital and recurrent, have risen from Birr 145.9 million (US$70.5 million) to Birr 164.0 million (US$79.2 million) in the same period, or by a factor of only 1.1. Thus, the Government has undertaken a serious effort to mobilize financial resources to cover an increasingly high share of its expenditures in highways. Road-user charges have covered all current expenditures in highways (road maintenance, administration and engineering services) plus a substantial portion of capital expenditures. - 22 -

In FY81, for instance, in addition to covering all current expenditures, road-user charges contributed US$26 million towards capital expenditures, i.e. 43 percent of total capital costs.

2.39 Concurrently with increases in road user charges, the Ethiopian Government has taken positive action in recent years to move petroleum- based fuel prices in the direction of international prices. The latest increase, effected in April 1981, has set the retail price of both gasoline and gas oil above the level of international prices, or the estimated opportunity cost. If a shadow price of foreign exchange of 25 percent is incorporated in the analysis, the price of gasoline still exceeds its opportunity cost, while that of gas oil is slghtly inferior. Also, the price of petroleum products as a whole cover their opportunity cost. Table 2.7, which is summarized below, shows the current structures for gasoline and fuel oil prices at Addis Ababa (prices change with location, reflecting changes in transport costs):

Prices of Gasoline and Fuel Oil (US c per US gallon)

Gasoline Gas Oil

Retail Price at Addis Ababa a/ - at official exchange rate b/ 217.38 144.31 - at shadow exchange rate c/ 173.24 115.00 International Price 117.27 119.42 (C.I.F. Assab, June 1982) (104.48) (107.09) (Transport costs) (5.48) (5.48) (Distributor's margin) (7.31) (6.85) Retail Price as a percentage of International Price - at official exchange rate b/ 185.4 120.8% - at shadow exchange rate c/ 147.7% 96.3% a/ The "pump" price of fuels includes taxes on regular gasoline which represent 12,% of retail price and on gas oil which amount to 13% of retail price b/ US$1 = Br 2.07 c/ US$! = Br 2.60

Source: PPD5 ETCA. October 1982

2.40 The Association will continue its dialogue with Government on road user charges and pricing of petroleum products to ensure that petroleum prices keep abreast of their opportunity cost and that the Government continues to mobilize adequate resources for its transport sector needs. To provide a solid basis for this dialogue, the study of road transport financed under the First Road Sector Project (Annex 2.1) includes an analysis of the structure and level of road user charges and will recommend improvements to the present system. During negotiations, the Government agreed to (a) exchange views with the Association on the recommendations of - 23 -

the study within three months after its completion,but in any event not later than June 1, 1984; and (b) commence implementationof its recommendationsby June 1, 1985.

III. TEE FIRST ROAD SECTOR PROGRAMAND PROJECT

3.01 In 1977, the Associationassessed that the ERA was an organization which already (i) possessed adequate capability to plan and carry out highway projects, (ii) had well-designedhighway investmentand maintenance programs,and (iii) was well equipped to participatein the expansion and improvementof the country's road network, particularlyfeeder and rural roads. Accordingly,the Associationagreed to a First Road Sector Credit (708-ET) for US$32 million to support the first three years (1978-80)of the country'sfive-year (1978-82)road sector program. On the physical side, the program comprised (a) strengtheningof existing paved roads; (b) upgrading of gravel roads to bituminous paved standards; (c) new gravel feeder road construction;and (d) constructionof rural roads. The software components of the program included (a) further strengtheningof the domestic constructionindustry through the provision of loans for the purchase of equipment; (b) further strengtheningof the road authority, especially its training and its maintenanceprogramming and operations; (c) a change in transport planning and policy, including further strengtheningof ERA's (now ETCA's) PPD; (d) a study of the road transport industry to reduce regulations,improve efficiency and establish needs; and (e) an effort to improve road pricing policy. Under the Credit, the Government and the Associationestablished agreed physical and investment targets for road constructionand improvementfor each of the three years covered by the Project (1978-80).

3.02 The Project is progressingsatisfactorily although with two years' delay. Progress during the first year was slow and overall performance was only 44 percent of the year's agreed target due, in the main, to politicalproblems and shortages of constructionmaterials and equipment. The followingyears saw a big improvementand ERA achieved 91 percent (FY79), 84 percent (FY80) and 78 percent (FY81) respectivelyof revised targets agreed annually between the Governmentand IDA. Total accomplish- ment over the four-year period FY78/81 has reached 73 percent of the revised physical targets on average. Successwith investment (financial) targets has been more modest, averaging 57 percent of agreed targets, which reflects a shift in emphasis toward constructionof less expensive lower class roads. The Project is expected to be completed by end 1983.

3.03 The flexibilityinherent in sector lending was of paramount importance in attaining the results mentioned above. Thus, while overall results have been reasonablyclose to targets in recent years, the composition of the program has varied to reflect changing needs and circum- stances. Several roads which could not be improved or built because of hostilitiesor difficultpolitical conditions in certain areas, were replaced -- with the Association's agreement -- by similar roads in other regions. Similarly,the constructionof a major sub-project,the Nekempte- Bure road, which had been consideredfrom the start as one of the likely program components,was deferred to the proposed Second Road Sector Project (para. 4.07) when it was established that the total cost of the subproject - 24 -

exceeded the funds remaining under the First Sector Project and those which the Government could obtain. Instead, the Government requested, and the Association agreed, to the continuation of the pavement overlay of the Addis Ababa-Assab road, the main highway corridor in Ethiopia. In summary, achievement of the physical targets has varied considerably between clas- ses: 62 percent for upgrading of primary roads, 70 percent for construction of feeder roads, 236 percent for construction of rural roads and 61 percent for construction of lower class roads. These changes also reflect an increasing and shared interest of the Association and the Government in expanding and improving the network of rural roads in Ethiopia.

3.04 A major objective of the First Road Sector Program was the institutional buildup of the Road Authority. Under the project, significant improvements have been attained in areas such as highway planning and design, maintenance management, staff training, and rural and feeder road construction and procurement procedures which were identified during its appraisal as essential to strengthen the road authority and to facilitate the implementation of the project. On the other hand, during the project period, the construction activities to reinforce the war effort in Ogaden and the lack of interest of foreign contractors, coupled with a Government preference for force account construction (para. 2.23), resulted in a deterioration of other areas of activity, mainly road construction supervision and maintenance. The related transformation of the road authority into a transport construction agency and its separation from the MTC, the agency responsible for coordinating overall transport planning, added further com- plexity to the institutional set up, rendering the planning and programming function of the road subsector more difficult to carry out. Hence, the important institution building objectives of the proposed Project (para. 4.03).

3.05 On the subsectoral policy framework, the First Road Sector Pro- ject is helping Government to finance the second phase (the first phase was financed under the Sixth Highway Project) of the required technical assistance to improve the country's road transport industry. The studies (Roy Jorgensen, USA and Hughes Economic Planning, UK) which began in January 1983 and will extend for about nine months, will help to identify and analyze the nature and scope of the problems facing the road transport industry, and to formulate specific recommendations aiming at improving the regulatory/pricing/operational environment of the country's road transport industry. A summary of the terms of reference of the study is shown in Annex 2.1.

IV. THE SECOND ROAD SECTORPROGRAM FY84-86

A. Introduction

4.01 The funds under the ongoing First Road Sector Project are fully committed and the Project is expected to be completed by end 1983. Given the continuing need to strengthen and rehabilitate the main road network, to expand the currently insufficient rural road system and to continue road maintenance, a follow-up sector project is called for. Accordingly, ETCA prepared a proposed Second Road Sector Program (1984-86) in May 1981. The Association, at Government's request, sent a Transport Sector Review - 25 -

Mission in April 1982 to examine the proposed Program as well as the sector's main management planning,operational and policy issues. As a result of the Mission, a draft Transport Sector Memorandum (TSM) was issued in September 1982, which discussed the main issues facing the sector and the adequacy of Government strategies to deal with them (para. 1.13). The Government has received and discussed this draft TSM with the Association and has transmittedofficial comments to the Association. Partly as a result of these discussions,the investment targets contained in the proposed Second Road Sector Program have been considerablyreduced to reflect economic prioritiesand the scarcity of foreign and local resources. A package of policy reforms to tackle the main issues facing the road transportsubsector, as identifiedby the TSM, has also been added to it (paras. 4.03 and 5.03). These policy decisions, several of which have already been adopted by Government (paras. 1.14-1.15),should, combined with ongoing and proposed institutionbuilding efforts, further strengthenETCA as well as provide a better planning and coordination framework for the entire sector.

4.02 Given the generally satisfactoryresults of the First Road Sector Project, the planning and implementationcapabilities of the institutions responsible for the transportsector, the nature and high priority of the investment subprojectsretained in the FY84-86 Transport Investment Program, and the nature of the policy objectivesmentioned above, the proposed Second Road Sector Project has been considered a natural follow-up in the Association'sassistance to the road subsector.

B. Objectives

4.03 The main objectives of the Sector Program can be classified in two categories: the physical targets and the software institutionaland policy objectives. Regarding the first group, the Program'sprincipal objectives are to continue and increase efforts aimed at:

(a) improving, expanding and maintaining the country's trunk highway network;

(b) increasing the reach of all-weathercommunications by improving, constructingand maintaining feeder and rural roads;

(d) purchase of road maintenanceequipment and the constructionof maintenancedepots.

On the institutional,operational and policy front, the main objectivesof the Second Road Sector Program are:

(a) further strengtheningETCA and improving its effectiveness;

(b) streamliningand rationalizingRTA and its agency, NATRACOR, thereby increasingefficiency in the road transport industry; - 26 -

(c) increasing the mobilization and efficient allocation of resources through the adoption and periodic updating of appropriate pricing policies;

(d) strengthening the local construction industry, including assisting ETCA in transforming most of its force account capacity for main and secondary roads into autonomous commercially based construction enterprises;

(e) improving road traffic safety; and

(f) improving transport sector organization, planning and administration.

C. Program and Project Description

(i) General

4.04 The proposed Program comprises the entire operations of ETCA during the 1984-86 three-year period, as well as technical assistance to MTC, RTA and NATRACOR. The proposed Project covers the capital investment portion of the Program (para 4.24). Major components of the Second Road Sector Program and Project (construction, rehabilitation, paving and maintenance) are defined in terms of priced annual physical targets. Other components (technical assistance, studies, training) are defined in terms of global needs (e.g. man-months) and unit prices based on recent contracts for consulting services. A general assessment of the Program and the Project and their impact on sector development and policies is given in Chapter V. As mentioned previously, following a review by the Association, particularly during preparation of the TSM and appraisal of the proposed Second Road Sector Project, the Program and the Project as conceived by ETCA have been revised and substantially scaled down. In doing this, more emphasis has been given to road maintenance, to strengthening the pavements of trunk roads and to improvement and construction of low class roads, the highest priority elements. Further changes may be required, however, in view of limited funds (paras. 4.26-4.27). These changes would further reduce the construction of low class roads, particularly those with lowest economic rates of return. The decision to assist the Second Road Sector Program with the proposed Second Sector Credit are based upon final agreements reached with Government during negotiations on:

(a) the scope and structure of an economically justified and financially feasible highway program covering the period 1984-86 and agreement on annual updating of such program;

(b) organizational arrangements for selection, engineering and implementation of individual subprojects included in the Government's program;

(c) specifications and procedures for subproject selection,preparation, tendering, disbursement and monitoring; and - 27 -

(d) appropriatemeasures to address selected sectoral issues concerning sectoral planning, road pricing, local constructionindustry both private and public, road transportservices and highway administration.

4.05 The components of the Second Road Sector Project -- the portion of the Second Program to be cofinancedby the proposedCredit -- were confirmedat negotiations. Conditionsand procedures for eligibilityand selection of subprojectsfor the proposed Project will follow methodologies outlined in Annex 4.1; the required technicaland economic analyses are well within ETCA's capabilities. Subprojectsfor inclusion in the Project will be initially selected on the basis of preliminaryengineering and feasibilityanalyses, while final selectionwill be based on detailed engineeringand cost estimateswithin 10 percent accuracy and a detailed analysis of economic rates of return. The engineeringwork has been completedfor the sub-projectsincluded in the first year of the project, and if well-advanced for many of the subprojects being considered for the following two years. The minimum economic return for subprojects to be included in the Project is establishedat about 12 percent. The subprojectsincluded in the First Sector Project and financed under the First Road Sector Credit (708-ET)have had rates of return of about 20 percent and up. During negotiations,the Government confirmed its agreement to (a) the selection procedures and criteria listed above for subprojects(Annex 4.1) to be included in the Project; (b) the Project elements to be financed during the first year of the Program; and (c) submission of all subprojectsfor the Association'sapproval.

(ii) New Construction

4.06 New construction works will be of two categories: (a) some 730 km of gravel-surfacedfeeder roads, and (b) some 2,940 km of low-class rural or access roads. These works are also a continuationof efforts under the First Road Sector Project which financed constructionof some 1,400 km of feeder roads and some 2,000 km of rural roads, but this time with a greater emphasis on rural roads in order to provide access to large areas of the country presently not accessibleby motor vehicles.

4.07 One subproject,the constructionof the Nekempte-Burefeeder road (250 km) to engineered gravel standard, includinga 150 m bridge across the Blue Nile, has already been approved based on detailed engineeringand a detailed economic analysis,with a rate of return of 24%. Roadway width will be 6.6 m with gravel surfacing; design speed will vary between 30 and 80 kph depending on type of terrain; maximum gradient will be 12.5% and minimum horizontal radius 25 m. The constructionworks have been divided into two contract sections. Evaluation of prequalificationapplications is underway, bids are expected to be submitted in September 1983 and contract awards could be accomplishedin November 1983.

4.08 Rural roads under the project will be constructedto a low all- weather earth/gravelstandard, varying according to terrain and expected volume of traffic. Design speed will have no lower limit but will range up to 40 kph unless higher standards can be attained at no extra cost. Road- way width will generallybe 4.0 m and gravel surfacingwill be applied only when expected traffic volume is over 50 vpd or soil and weather conditions - 28 -

requires it; minimum horizontal radius will be only 10 m and maximum gradi- ents will reach 17% in difficult terrain, although normally specified at 14%.

4.09 Rural roads will be constructed under force account by ETCA and the proposed Credit would assist only by financing procurement of equipment. Equipment requirement for rural roads construction, in addition to the existing fleet, will be defined in detail in late 1983 when it is expected that (a) the technical assistance team being financed under the First Road Sector Credit (Roy Jorgensen, USA) will have established a complete and up-to-date inventory of ETCA's total equipment fleet; (b) ETCA, in consultation with IDA, will have assessed equipment needs for carrying out the program of constructing about 2,940 km of rural roads; and (c) ETCA, in consultation with IDA, will have assessed possible transfer of equipment from existing construction brigades and availability of equipment from ongoing or expected assistance from other multi and bilateral financing agencies. The proposed Project would provide financing toward procurement of equipment to meet the additional requirements as defined above; the above procedures were agreed with Government during negotiations (para. 6.01).

(iii) Rehabilitationand Paving

4.10 Under the proposed Project, some 430 km of paved roads will be rehabilitated and some 360 km of gravel roads will be upgraded and paved with bituminous surface dressing. This is a continuation of efforts under the First Road Sector Project which financed rehabilitation of some 280 km of paved roads and rehabilitation and paving of some 370 km of gravel roads. However, much greater emphasis is now placed on rehabilitating paved roads in order to preserve their much greater investment costs.

4.11 The paved roads planned for rehabilitation are generally old, some dating back from the 1930's, constructed for low speed, low volume traffic and light loads. Geometric and structural design are deficient for today's traffic of 500-2,500 vpd with a high proportion of heavy vehicles. This is particularly so in pavement widths, which vary from 4.5 to 6.0 m, and in short sight distances, both of which impair traffic capacity as well as safety, and in pavement bearing capacity. These deficiencies have resulted in general deterioration, rather advanced in some cases. Proposed rehabilitation generally involves widening of pavements to 6.0 m and up to 7.0 m for the most heavily trafficked sections closest to Addis Ababa; and widening of shoulders to 1.0 - 1.5 m. Also, road safety will be improved by widening of curves, removal of roadside obstacles, and other similar measures; pavements will be strengthened by asphaltic concrete overlays; and roadside drainage will be improved. Only a few very short sections need reconstruction.

4.12 The existing gravel roads planned for paving/bituminous surface dressing were built to varying but adequate standards some 10 - 20 years ago. The rehabilitation/upgrading involves reshaping and, in some cases, widening of the roadway to accommodate pavements of up to 6.0 m with up to 1.0 m wide shoulders; improvements of roadside drainage; possibly a slight adjustment of the vertical profile; a new base course and a single or double bitumen surface dressing. No major reconstruction of the roads is anticipated. - 29 -

(iv) Maintenance

4.13 Technicalassistance is underway under the First Road Sector Project to improve the quality of maintenanceworks and to design and introduce a maintenancemanagement system and an equipment management system. Both systems have been set up and tested successfullyin one large district and are being introduced country-wide(para. 2.27);continued technical assistancewill be provided under the proposed Project until the systems have been satisfactorilyadopted countrywide. The Project also provides for replacementof equipmentand expansion of depots.

4.14 The total resources,including equipment, needed to maintain the road network to acceptable levels of service, are being establishedunder the maintenancemanagement system, while a complete and up-to-date inventory of ETCA's total equipment fleet is being set up under the equipment management system. The results of these assessmentsare expected to be available in late 1983. The proposed Project would assist in financing the additional equipment requirementsfor maintenance operationsafter allowance is made for possible assistance from other multi-lateralor bilateral sources, as well as for improvementsin efficiency of utilization of existing fleet as a result of improved overall management. At negotiations agreementwas reached that Governmentwill furnish to the Association for its review the results of the assessment of maintenanceequipment needs and its agreement on the list of additional maintenanceequipment to be purchased (para. 6.01).

(v) Strengtening of ETCA

4.15 The Project would continue strengtheningtraining activities started under previous highway projects. During the period FY84-86, ETCA's training program aims at training and retrainingapproximately 2,500 employees (about 50 professionals,800 technical,supervisory and clerical staff and 1,700 operators and mechanics). Required increase in resources and expansion of facilities would include:

(a) minor expansion of the Alemgena Training Center;

(b) procurementof training equipment, tools and materials;

(c) technical assistanceof a training advisor and a mechanical engineeringspecialist to revise and strengthen the composition of the training program and course content and to train existing instructors;

(d) technicalassistance to prepare and implementan expanded program, including training facilities,for the constructionand maintenanceof rural roads by labor-basedmethods; and

(e) short term training courses abroad for instructorsand other ETCA's professionalstaff.

A comprehensivetraining program, representinga modificationof ETCA's existing program, was agreed on at negotiations. - 30 -

4.16 Furthermore, ETCA is continuing or will undertake the following measures to improve and strengthen its managerial technical and operational capacity:

(a) Gradual reduction of ETCA's force account construction brigades by establishing autonomous and commercially viable construction enterprises and transferring ETCA's road construction equipment to these enterprises until a optimum size of ETCA's forces in view of its needs, is attained. Undoubtedly, the most significant improvement in ETCA's functions and responsibilities is the agreement already reached on this issue. The first such enterprise has already been created (para. 2.25) and technical assistance to strengthen it would be provided under the proposed Project (para. 4.18);

(b) further strengthening and expansion of the Monitoring and Evalua- tion Unit in the Planning and Programming Department which is being provided with technical assistance (Delcanda, Canada) under the First Road Sector Project;

(c) improvement of the capacity and work quality of the Design Divi- sion by providing it with new photogrammetric equipment (stereo plotters);

(d) improvement of the capacity of the soils and materials laboratory, in terms of facilities (equipment for field testing of soils and construction materials) and human resources, to routinely undertake quality control of materials and workmanship of construction and maintenance whether carried out by contractors or force account;

(e) improvement of the supervision of road construction through further strengthening of the staff of the Contract and Quality Con- trol Division and the provision of an expatriate Resident Engi- neer on each main road construction sub-project;

(f) continuing and follow up of ongoing technical assistance for the setting up and implementing of management systems for precon- struction, construction and maintenance, for equipment operation and maintenance and for parts and supplies management; and

(g) reclassification of the highway network along functional lines into main, secondary, and tertiary (district) roads by March 31, 1984 (para. 2.01);

During negotiations Government confirmed its agreement to adopt the above measures and that it will submit to the Association, for its review and approval, the plan, specifications, terms of reference and cost estimates, as appropriate, for the procurement of civil works, equipment, tools, materials, and other facilities and technical assistance as required for the above strengthening of ETCA; the information required should be submitted at least 60 days before invitations for procurement or employment of consultants are to be sent out. - 31 -

(vi) Strengtbening of RTA and NATRACOR

4.17 Under the First Road Sector Credit, the Associationhas helped finance studies and technicalassistance aimed at recommendingand implementingactions to improve the current organizational,regulatory and operationalframework of the country's road transport industry and to assess the most immediateactions required to improve road safety on roads with high trafficvolume (paras.2.09and 2.37 and Annex 2.1). The consultantsselected for this assistance (Roy Jorgensen,USA and Hughes Economic Planning, UK) are expected to (a) help systematizeand modernize RTA's organization,management and operations; (b) explore the operational network of NATRACOR to define obstacles to effective management and operationalpractices and to recommend concrete courses of action to ensure the availabilityof efficient services and the minimizationof unnecessary formalities,paperwork or delays that may hinder the provision of transport services or increase their cost; (c) prepare a five and ten year investment plan for RTA and NATRACOR as well as for the country's public and private passenger and freight industries;and (d) recommenda training and technical assistance program for RTA and NATRACOR to improve the efficiency of the road transportindustry. The required studies, which began in January 1983, are expected to be completed by end September 1983. The proposed Second Sector Credit will provide further technical assistance to implement the study's recommendations. During negotiationsagreement was reached with Government to (a) exchange views with the Association on the study's recommendationswithin three months after they are available from the consultantsand, in any event, not later than June 1, 1984; and (b) commence implementationof the recommendationsof the study not later than June 1, 1985.

(vii) Support for the ConstructionIndustry 4.18 The Project would provide support to the road constructionindustry in the form of technical assistance to the new commerciallybased constructionenterprises (para. 4.16[a]) by internationalcontractors under management contracts. The services would have three distinct phases: (i) assistance for reorganizingor establishingthe appropriategeneral management organization;(ii) assistance in preparing bids for constructioncon- tracts; and (iii) assistance for the management of contracts. The proposed project would finance the services during prebidding and bidding stages; the cost of the services during the constructionperiod would be included in the bid price. To be able to prequalify for ICB under the proposed Cre- dit, the new public enterpriseswill be required to be operationallyand financiallyautonomous and to engage the above mentioned technical assistance services of a type and in a manner acceptable to the Association. These technical assistanceservices would also be made available to private domestic contractors. Terms of reference for this assistance (Annex 4.2) have already been agreed with Government and have been confirmed during negotiations.

(viii) Road Safety

4.19 The detailed elements of this component will be defined by the ongoing Road TransportStudy and subsequentlyagreed between Government and the Association (para. 4.17). The following are the tentativeelements: - 32 -

(a) Civil works for road safety, including:

(i) upgrading of traffic signs, road markings and guardrails for main roads with over 500 ADT which are not otherwise included in the Project;

(ii) developing several experimental rest and vehicle maintenance areas for truckers along major highways;

(iii) establishing vehicle inspection (diagnostic) centers; and

(iv) establishing of a road safety training facility.

(b) Technical assistance and training including, but not limited to,

(i) setting up efficient programs and organization for vehicle registration, driver education and licencing, vehicle inspection, collection and analyses of statistical information on vehicles, traffic accidents and enforcement of traffic rules and regulations.

(lx) Transport Sector Planning and Administration

4.20 During the last few years, the MTC and its organizations (para. 1.17) have launched various feasibility studies, master plans, organization, management aud system studies and implementation programs. The Na- tional Transport Plan study would formulate an integrated and coherent transport sector plan based mainly on these studies. Under the study, consultants would (a) develop an indicative ten-year transport plan and a detailed five-year investment program; (b) recommend the introduction of efficient operational policies; (c) strengthen MTC's basic planning capacity including required data collection; and (d) evaluate in detail (at the level of prefeasibility) all transport options along the Addis Ababa-Red Sea transport corridor. It is estimated that some 45 man-months would be required for this exercise. During negotiations, the Association and the Government agreed on the terms of reference for the proposed study.

4.21 Attention needs to be given to the assignment of responsibilities between national, regional and district authorities for planning, programming, constructing, rehabilitating and maintaining the road network as well as for financial arrangements and the coordination of the use of equipment, workshops and established labor force. A timetable, detailed in para. 2.34, for the preparation and implementation of such reassignment of responsibilities was agreed upon at negotiations.

4.22 Although the MTC has rapidly developed a planning capability at the Ministry's PPD following the transfer of ETCA to MOC (para. 1.18), - 33 -

further staff strengtheningis needed. The Project will support short-term refresher courses and post-graduatestudies abroad for selected PPD staff.

(x) Other Studies and Technical Assistance

4.23 Experience with the First Road Sector Project has shown that to add flexibility to the Project and to respond to technicalassistance needs that may come up during its implementation,besides those identifiedduring Project preparationand appraisal, it is prudent to have a reasonable amount of financing available to meet such needs. Therefore, a nominal sum of US$2.0 million has been allocated under the proposed Credit to help support high priority studies or technical assistance required during Project implementation,and for which alternativefinancing is not available.

D. Size of the Second Road Sector Program and Project

4.24 The Program and the Project continue work already in progress under the First Road Sector Credit and as a whole presents a balanced set of priorities among its main components:contruction, rehabilitation, paving and maintenance. As mentioned in para. 4.04, however, first priority has been given to maintenanceand rehabilitation,with a lower priority to new constructionand paving, in that order. Should there be any need for further scaling down of the proposed Program to reflect financiallimitations, this order of priorities would dictate the componentswhich would be postponed or phased out. Physical targets included in the program are consistent with current resource forecasts as well as with implementationcapaci- ty, provided internationalcontractors participate in a few substantial contracts and thus supplement local capacity. An outline of the Program and Project is presented below, while a detailed breakdownis presentedin Table 4.1. - 34 - Seid fitd Sector P!grw ad PMrect (F04-86)

Million Birr Million US$ % of Foreign % of Total Li/ F1/ Ti! LI/ F1 l T'-/ Exchange Base Costs

Capital Costs 1. Civil Works (i) Main Roads - Asphalt Overlay 25.5 47.5 73.0 12.3 22.9 35.2 65 11 - Asphalt Surfacing 18.7 28.1 46.8 9.0 13.6 22.6 60 7 - Gravel Feeder 74.2 111.5 185.7 35.8 53.9 89.7 60 28

Sub-total 118.4 187.1 305.5 57.1 90.4 147.5 61 46

(ii) Rural Roads 34.6 29.4 64.0 16.7 14.2 30.9 46 10

(iii) Bridge Construction 3.5 5.6 9.1 1.7 2.7 4.4 62 1

2. Equipnent and Maintenance facilities - Civil Works Construction Equipment 8.9 79.6 88.5 4.3 38.4 42.7 90 14 - Road Maintenance Equipmnt 5.2 46.8 52.0 2.5 22.6 25.1 90 8 - Bridge Construction Equipment 0.4 2.1 2.5 0.2 1.0 1.2 84 - - Transport & Shop Equipment 1.1 9.4 10.5 0.5 4.6 5.1 90 2 - Maint. CampConstr. 1.1 1.6 2.7 0.5 0.8 1.3 59 -

Sub-total 16.7 139.5 156.2 8.0 67.4 75.4 89 24

3. Technical Assist. & Training 11.1 11.4 22.5 5.4 5.5 10.9 51 4

Sub-total 1-3 184.3 373.0 557.3 88.9 180.2 269.1 67 85

4. Price Contingencies 2 / 40.6 61.4 102.0 19.6 29.7 49.3 60 15

Tbtal Project Costs 224.9 434.4 659.3 108.5 209.9 318.4 66 100

IbtalProject Costs (193.4) (434.4)(627.8) (93.4)(209.9)(303.3) (69) (net of taxes)

B. oUflRFLRGRAA C061S Recurrent Cost 1.Road Maintenance 60.0 60.0 120.0 29.0 29.0 58.0 50 2.Price Contingencies 2 / 13.4 10.0 23.4 6.5 4.8 11.3 43

Sub-total 73.4 70.0 143.4 35.5 33.8 69.3 49

Total Progran Costs 298.3 504.4 802.7 144.0 243.7 387.7 63

1/ L = Local; F = Foreign; T = Total 2/ Expected price increases in percentage: 1983 1984 1985 1986 Local 10.0 10.0 10.0 10.0 Foreign 8.0 7.5 7.0 7.0 - 35 -

E. Financing

4.25 Governmentexpects the proposed FY84-86 Project to be financed as follows:

Birr million X

Government 385.3 58 IDA 145.0 22 ADF 66.0 10 Norway 37.0 6 Ongoing commitments 26.0 4

Total 659.3 100

4.26 The proposed Project has a total cost of Birr 659.3 million (US$318.4million) with a foreign cost componentof Birr 434.4 million (US$209.9million) or about 66 percent. The Government intends to finance 58 percent of total project costs, or Birr 385.3 million (US$186.1 million), from local resources;external sources are expected to finance the remainder (Birr 274.0 million) of the Project. The proposed IDA contributionof about Birr 145 million (US$70 million), would finance some 23 percent of the Project, and a contributionof AfDF of about Birr 66 million (US$31.8million) and a probable participationof the Norwegian Government of around Birr 37.0 million (US$18 million) would complete the Project financing. Further, already financed ongoing works amounting to Birr 26.0 million (US$12.5million) would be completedin the Project period. The Governmentwould finance entirely the recurrent cost component of the Program, estimated at Birr 143.4 million (US$69.3million) with a foreign cost component of Birr 70.0 million (US$33.8million) or about 49 percent. The Government financingplan and the total Project size were reduced during negotiationsto the proposed levels which appear reasonable, given past experience and likely availabilityof resources.

4.27 However, should Government in the future have to adjust the Project to more stringent budgetary constraintsthan agreed at negotiations,a reductionwould be made by scaling down or postponing feeder and rural road constructionsubprojects which were identifiedand agreed upon at negotiations,since these componentshave the lowest marginal economic returns of the Program, while being still fully acceptable.

Ft IDA Participation

4.28 The proposed Credit would finance componentsof the Government's FY84-86 Program. The specific civil works subprojectswould be selected and defined on the basis of agreed criteria and methods (Annex 4.1). Subprojectsto be continued or started during the Credit period are listed in Table 4.1; the items to be financed during the first year of the Credit were agreed with Government at negotiations. - 36 -

4.29 The major categories of expendituresto be financed by the Cred- it, i.e. construction,rehabilitation, paving, and equipment, would be defined annually on the basis of agreed criteria and procedures for subproject selectionand preparation. The other components,including studies and technical assistance in support of selected sectoral objectives,have been defined and were confirmed during negotiations. Further, a reserve for future needs in terms of studies and technical assistance,to be defined in the course of Project implementation,has been incorporated (para. 4.23). The projected distributionof the IDA Credit funds is as follows:

--- US$ million…------FY 1984 FY 1985 FY 1986 Total

1. Civil Works

(i) Constructionand Rehabilitation 8.9 11.3 14.0 34.2 (ii) Maintenance depots 0.3 0.5 0.7 1.5 (iii) Safety 0.2 0.4 0.4 1.0 (iv) Training 0.2 0.2 0.2 0.6 9.6 12.4 15.3 37.3

2. Equipment

(i) Maintenance,laboratory and design 3.0 4.0 4.6 11.6 (ii) Rural Roads 0.5 0.5 0.5 1.5 (iii) Safety 0.2 0.2 0.2 0.6 (iv) Training 0.2 0.2 0.2 0.6 T._9 T._9 5.5 14.3

3. Studies, TechnicalAssistance 1.0 3.0 3.0 7.0

4. Price ContingenciesI/ 1.3 3.6 6.5 11.4

Total Participation 15.8 23.9 30.3 70.0

1/ Expected price increases (%): 1983 1984 1985 1986 Local 10.0 10.0 10.0 10.0 Foreign 8.0 7.5 7.0 7.0

4.30 All cost estimates refer to April 1983 price levels. Cost estimates for rehabilitation, upgrading and construction works contained in ETCA'S Second Sector Program (para. 2.14) have been reviewed and revised to reflect costs of such works on the international market but with special reference to Ethiopian conditions. Costs estimates for constructionof rural roads and road maintenanceare based on ETCA'S force account opera- - 37 - tions for such activities,revised to fully account for equipment depreciation and overhead costs.

4.31 Cost estimates for civil works for maintenancedepots, road safety facilities and training facilities are based on costs of such works being carried out by local contractors;these are consideredadequate. Esti- mates for purchase of equipment are based on prices in recent ICB procure- ments in Ethiopia.

4.32 Over the three-year period FY84-86, it is estimated that some 80 man-years of consultant services will be required to provide for construction supervision,studies, training and technical assistanceat a total cost of Birr 22.5 million (about US$11.0 million equivalent). The man- month cost for supervisionservices is estimated at US$8,500, for technical assistance at US$9,500, and for studies at US$10,500. These costs include salaries, costs, fees, internationaltravel, subsistenceand accommoda- tion. The total estimated cost also includes provision for cost of vehicles, local travel, local offices and other minor expenses.

G. Implementation and Procurement

4.33 RTA would be responsiblefor the execution of the studies of and technical assistance and training for RTA and NATRACOR as well as for execution of the component for road safety; MTC would be responsiblefor the execution of the National Transport Plan study and for training of its staff; and ETCA would be responsiblefor the implementationof all other components to be financed under the proposed Credit. A project implementation schedule was developed and agreed during negotiationsafter the project scope and compositonwere firmed up.

4.34 All civil works to be financed under the Credit will be procured by contract through ICB in accordance with the Bank Group "Guidelinesfor Procurement". This was agreed with Government at negotiationsl2/. Consultantsfor the supervisionof civil works construction,for studies and technical assistancewill be employed in accordancewith "Guidelines for the Use of Consultants"and this was agreed at negotiations. Price may be a factor at Government'srequest and with the Association'sapproval, except for the studies for the National Transport Plan and for the technical assistance to further strengthen ETCA, RTA and NATRACOR; this was also agreed with Government at negotiations. Equipmentand spare parts for rural roads and for maintenancewill be procured through ICB but minor equipment for training, laboratoryequipment and instrumentsand photogrammetricequipment for mapping may be procured through international shopping on the basis of at least three responsivequotations from

12/An exception to finance under the Credit only civil works contracts awarded through ICB would be the financing of an asphaltic concrete overlay on the last 40-50 km section of the Addis Ababa-Awash road; these works are ongoing by force account under the First Road Sector Credit, but funds available under that Credit will not be sufficient to complete the last section of overlay. Furthermore,rural roads will be constructedand all roads maintained by force account by ETCA's brigades; the Credit, however, will finance only procurementof equipment for rural roads and maintenance. - 38 -

suppliers eligible unde,r the Bank Group's Guidelines for Procurement. Similar items would be grouped to the extent possible for bidding purposes. Contracts for equipment, vehicles, parts and tools with an estimated cost below US$50,000 and within an overall ceiling of US$700,000 would be procured from suppliers in accordance with local procurement procedures, which are satisfactory. Purchases of spare parts for existing equipment or for proprietary equipment may be procured directly from established dealers. Procedures for procurement of equipment were reviewed and confirmed during negotiations.

H. Disbursements

4.35 For the specific items to be financed from the proposed Credit, disbursement would be as follows:

(a) 40% of total expenditures for civil works;

(b) 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 80% of local expenditures for vehicles, equipment, tools or machinery; and

(c) 100% of foreign expenditures and 80% of local expenditures for consulting services, training and studies carried out by foreign consulting firms or individuals.

All disbursements will be made against full documentation of expenditures. Civil works by force account will be reimbursed against statements of expenditure, documentation for which will be retained by the Borrower and kept available for inspection by IDA supervision missions.

4.36 The estimated disbursement schedule set out in Table 4.2 is based on the Project's implementation schedule and the distribution of Credit financing (para. 4.29). The typical disbursement profile for the highway subsector in Ethiopia shows a disbursement period of about 7T years with the bulk of disbursements (about 88%) in 5 years. As preparation for civil works contracts to be financed under the Credit is either complete or well advanced, it is expected that start-up of works will be fast and disbursements are expected to be completed in 5 years.

I. Accounting and Reporting Requirements

4.37 Project accounts will be maintained by the executing agencies with separate accounts for each component and will be available for inspection by the Association during project supervision. Project accounts will be audited separately by the EASC or other independent auditor to be agreed between Government and the Association and an annual audit report submitted to the Association no later than 6 months after the end of each fiscal year. This was agreed with Government at negotiations (para. 2.33).

4.38 During negotiations, the Government and the Association also agreed on progress reporting requirements (Annex 4.3) including indices for measuring implementation progress, and submission of a project completion report in a form satisfactory to the Association, not later than 6 months of the Closing Date of the Credit (para. 6.01). - 39 -

J. Environmental Aspects

4.39 No major environmental problems are anticipated. Main and secondary roads to be constructed or rehabilitatedfollow or closely approxi- mate existing alignment and disturbance to current land use should not oc- cur. New paving will reduce dust and noise and wider and well-constructed shoulders will increase road safety. Constructionof rural roads will in some cases break new ground with the danger of soil erosion being increased by mountainous terrain in many parts of the country. Well-designedalign- ment and drainage facilities and tight construction control will, however, keep erosion to an acceptable minimum.

V. ECONGIICEVALUATION

A. Introduction

5.01 Historically, the development of Ethiopia's transport sector can be classified in three distinct periods: (i) the construction of the Addis Ababa-Djiboutirailway at the beginning of the century; (ii) the opening of the first road links between Addis Ababa, Asmera, and the then new port of Massawa, in the 1930's; and (iii) the building of a road network connecting several of the main regional centers to Addis Ababa and Asmera and to the new port of Assab, as well as the advent of modern civil aviation, after the 1950's. During the last period, the capacity of the road authority underwent significant improvement,which has facilitated the expansion and improvement of the road system, particularlyfeeder and rural roads. These accomplishments,which have been supported by substantial bilateral and multilateral assistance, including that of the Association, still leave crucial gaps in the country's transport system. The main road network is not yet complete and that which exists requires strengtheningand upgrading. Road maintenance must improve further. The feeder and rural road networks should be expanded to permit the evacuation of crops, the prompt access to drought-proneareas, and the provision of social services to the large and dispersed rural population. Lastly, there is a need to continue and reinforce the institution-buildingefforts to consolidate the changes and meet additional demands imposed on the road authority and other sector agencies in recent years and to enhance and expand the training efforts began under previous projects. The proposed Second Road Sector Project has this objective.

B* General Assessment of FY84-86 Road Sector Program

5.02 In line with the Government strategy to provide the infrastructure required for developing the country's agriculturalpotential and for stimulatingindustrial production, ETCA has prepared a Second Road Sector Program (FY84-86),which has been revised and scaled down after discussions with the Association (para. 4.03). The Program gives priority to works already in execution, in particular ongoing rehabilitationworks under the First Road Sector Program, and presents a proper balance among its components recognizing their relative priority in the following order (Table 5.1): (a) maintenance; (b) rehabilitationof the road network; (c) paving; - 40 -

and (d) new construction. The assumptions on which the financial plan is based are reasonable in light of Government overall financial constraints and consistent with established policies and with current projections concerning the evolution of the country's overall economic situation. Moreover, the Program is feasible given the administrativeand implementationcapabilities in the country, particularly if foreign contractors participate in the implementationof major civil works.

5.03 The FY84-86 Program also develops and supports specific institution building and policy formulation and changes to:

(a) further improve ETCA's highway design and supervision capabilities and consolidate the institution-buildingefforts and recent organizational changes of the road authority;

(b) increase the efficiency of civil work construction by transforming a substantial portion of the force account base into commerciallyoriented parastatals;

(c) continue past efforts to improve road pricing policy, so as to mobilize larger resources and optimize the allocation of resources;

(d) increase the efficiency of the road transport industry;

(e) improve road traffic safety; and

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

5.04 The impact of the Program, and hence of the proposed sector credit, on the modus operandi of ETCA and on the management of the sector would be substantial. It would commit ETCA to the priorities of maintenance and rehabilitationof trunk roads, and construction and maintenance of rural roads, releasing it from the increasing emphasis in main road construction which had become its primary focus of attention, particularly since its reorganizationin August 1980 and its transfer to the MOC in 1981. The establishment of public civil work contractors under commercially oriented principles will bring efficiency, order and a healthy degree of competitivenessto the civil works market in the country, a development which will be enhanced by the increasing interest of foreign contractors in participatingin road construction in the country. Once a portion of the major civil works force account brigades have been transferred away from ETCA, its role will be re-examined (para.2.34),and it is expected that overall sector management will improve as a result. This improvement will be reinforced by the technical assistance provided to the MTC, through the preparation of a National Transport Plan and through additional training in Ethiopia and abroad for its PPD staff.

5.05 Similarly, the Program would have a significant impact on the road transport industry. The reorganizationand streamlining of RTA and NATRACOR and the reductions of regulations and controls should reduce inef- ficiency and substantially increase the utilization of the vehicle fleet. - 41 -

Additionally, the preparation under ongoing technical assistance of an investment program in motor vehicles would provide an urgently needed tool for proper investment planning. Further, improved road traffic safety is bound to reduce the current high cost of accidents. Implementationof policy changes and significant improvements to the utilization of the vehicle fleet, would require, however, a consensus which would occupy the initial period of the Project, following ongoing analyses and formulation of policies. Changes in the regulatory framework for the trucking industry and in related user charges would therefore need up to mid-1980s to take hold.

5.06 The economic case for the physical components of the proposed Program rests on a reduction in vehicle operating costs (VOC), a decrease in repair and rehabilitationcosts of the road network, and a reduction in freight damage, travel time and other economic and social costs associated with the existing condition and use of the road network. Additionally, as a result of the Program, the agricultural frontier will expand. Agricul- tural production will increase in those areas where motor vehicle access is currently unreliable and weather-dependent,while the structure and nature of production may change from self-subsistenceto surplus food and cash crops in other areas currently without road access. Except for the technical assistance elements and training and for rural roads for which a new methodology is being developed (paras. 5.16-5.18), all the Program's components lend themselves to straightforwardeconomic analyses, i.e. about 80 percent of the proposed investment Program, comprising road construction, improvementsand road maintenance.

C. Area of Influence of the Program and Beneficiaries

5.07 The maintenance/rehabilitationcomponent covers the 13,300 km of all-weather roads in the country. This network comprises the most important roads in Ethiopia, linking centers of activity to each other and to their agricultural hinterland. It includes feeder and rural roads which facilitate the integration of the rural economy into the modern economy by ensuring all-weather access from the regional centers to the rural areas and vice-versa.

5.08 The resurfacing of paved roads will have a direct impact on the areas in which they are located. The ongoing Program has financed two sections of the Addis Ababa-Assab road, the main import/export corridor in the country. The proposed Program will extend the resurfacing to the remainder of the road (about 290 km). Additionally, one road totalling about 100 km will be resurfaced. These roads, some of which date back to the 1930's, play a vital role in some of the most important economic areas of the country. Similarly, the improvement and paving of existing secondary and feeder roads will benefit the areas which they serve. The construction of feeder and rural roads will have a significant impact in the areas in which they are located and, in some cases, will have a wider regional effect by providing new interregionalconnections. Such is the case of the Nekempte-Bure road which will provide a crossing over the Blue Nile and will open a new north-south corridor across the western portion of the country. - 42 -

5.09 The direct benefits of the Program will accrue in the first instance to the trader/truckersand transport companies in the form of reduced operating costs. The closely controlled tariff schedules which vary with road quality will ensure, however, that a significant portion of the benefits will be passed on to producers and/or consumers. To the extent that importation of vehicles and spare parts will be reduced due to less wear and tear as a result of better road conditions and of the road safety element of the Program, a favorable effect represented in a smaller demand of foreign exchange will further benefit the entire economy. An additional favorable impact on the balance of payments will accrue from a reduction in the transport costs for the country's main exports, particularlycoffee. For certain areas, the Program will also yield benefits of better integration in the market economy as existing tracks and trails have made transport availability costly and very unreliable. This has discouraged the production of marketable surpluses by the rural population. The improved and expanded network of all-weather roads will stimulate agricultural production in the long run, which is the main objective of the Government's development strategy.

D. Economic Analysis

5.10 With the exception of rural roads and technical assistance and training, all the major physical components of the Program have been evaluated individually to assess their benefits. The components include (a) the asphalt overlay program; (b) the paving of existing gravel roads; (c) the construction of feeder roads; and (d) the road maintenance program. Economic costs are based on detailed engineering for the constructionof the Nekempte-Bure road and on preliminary engineering for other subprojects to be started in FY1984, and average per kilometer cost estimates for the remainder, based on actual expenditures under ongoing programs adjusted to reflect renewal costs of equipment. In all cases, the foreign cost has been shadow-priced at US$1 = Br 2.60. The benefits, depending on the specific subproject being analyzed, consist of savings in VOC's, maintenance costs savings, savings in costly road reconstructionin the future, and value added in agricultural production, whenever applicable. Time savings are not included nor are reductions in freight damage and in vehicle accidents. The evaluation of benefits is therefore conservative. The VOC's savings are based on the terrain in which a particular subproject is located and on the vehicle composition and traffic growth as established by a countrywide system of traffic counting stations operated by ETCA. The minimum economic return for subprojects to be included in the Program is established at 12 percent the estimated opportunity cost of capital in Ethiopia.

Asphalt Overlay Program

5.11 The road sections to be resurfaced have wearing courses well past their service life, and costly reconstructionwill be required if they are not resurfaced soon. The proposed works will therefore have a favorable impact on future VOC, on road maintenance and repair costs, and will defer the need to reconstruct the roads. The economic analysis of this investment is based on: (a) a seven-year economic life of the investment; (b) annual maintenance cost savings ranging from Br 900/km to Birr 1,900/km, depending upon the level of deterioration of each major section of each - 43 -

subprojectand the correspondingtraffic volumes; (c) traffic volumes ranging from 350 to 2,400 vehicles per day in 1982 (base year for all estimates)and having a proportionof heavy vehicles which varies between 65 and 85 percent, with a growth rate of 2.7 percent annually throughout the period; and (d) deferred reconstructioncost estimated between Birr 45,000/km and Birr 85,000/km at the end of the seven-yearperiod. Based on these assumptions,the various subprojectshave an economic rate of return (ERR) which ranges from 20 to 47 percent (Table 5.1). The weighted average for this component is 32 percent.

Bituminous Paving of Gravel Roads

5.12 Bituminouspaving of gravel roads produces savings in VOC's and, above specified traffic levels, in road maintenance costs. The criteria used in the economic evaluationincludes an economic life of 12 years and traffic volumes which fluctuate from 135 to 160 vpd at year of completion of the works (80-90 percent heavy vehicles) and rates of growth of traffic of 2.9 percent annually throughoutthe economic life of the investment. Recurrent and periodic maintenance costs have also been included in the analysis. ERRs have been computed for four subprojects (Table 5.1) which yield returns between 23 and 30 percent, with a weighted average of 26 percent.

Construction of Feeder Roads

5.13 Ten subprojectshave been included in the Program (Table 4.1) for improvementof existing earth roads and tracks into engineeredgravel roads. The PPD at ETCA has already completed feasibilitystudies, which contain economic costs based on tenderswhich were awarded to private domestic contractors,revised to include adequate depreciationand overhead costs. The benefits included in these studies have also been revised down- ward to account for more conservativeestimates regarding future agricultural production;with these changes, they are adequate. As in all other cases, taxes have been excluded from the costs and a shadow price of foreign exchange amounting to US$1 = Birr 2.60 has been included. Benefits consistingof value added in agriculturehave been calculatedas a direct function of productionincreases. Since benefits for non-agricultural freight traffic have not been included, the evaluation results are conservative. Agriculture benefits derive from the introductionof new crops and the cultivationof new land. ERRs of return range between 15 percent and 24 percent (Table 5.1) with a weighted average of 20 percent.

Road Maintenance

5.14 The economic analysis for this program has been done separately for the five main maintenanceactivities: paved road maintenance,grading of gravel and earth roads, gravellingand regravelling,and bridge, culvert and other manual road maintenance. Two of these activities,paved road maintenanceand grading of gravel/earthroads, have a direct impact on vehicle operating costs. For the former, it is estimated that VOC's will increase by 10% annually on the roads on which no maintenanceis done. The postponementof paved road maintenance is also estimated to lead to an annual increase in future maintenancecosts of 20%. Similarly,for gravel/ earth roads, postponementof surface grading is estimated to increase VOC's - 44 -

by 5% annually and future maintenance costs also by 5% per annum. In the case of gravelling and regravelling, VOC's are expected to be lower, not only in the year in which these operations are carried out, but also during the following five years. In the case of gravelling, VOC's are estimated to be reduced by 25% during five years, while regravelling would bring about a 15% reduction during two years following the operation. Reductions in bridge, culvert and other manual road maintenance is not expected to have a measurable effect on VOC's during the three years of the project. Rather, they will result in higher maintenance costs for the following year and /or the need to reconstruct the structure earlier. The benefits for this part of the program, therefore, have been based on savings in future maintenance and repair costs. In general, it is estimated that for each part of the network which does not receive the needed maintenance, future costs will increase by 20% every year the maintenance is postponed. It has been further assumed in all cases that maintenance activities will be cur- tailed first on those parts of the network where the impact of the reduction would be minimal, i.e. those carrying lower traffic.

5.15 The incremental costs of the program over and above the costs which would be incurred without the program are composed of equipment renewal, spare parts and tools, fuel and lubricants and salaries, a total of Br 44.6 million. These costs were distributed over the three year period acording to the project's implementation schedule. The traffic on the road sections affected by the reductions is of the order of 200 vehicles per day in paved road sections, 50 vehicles per day in gravel and 10 vehicles per day in earth road sections and it is assumed to grow at a rate of 2.0 percent annually. VOC's and detailed assumptions are shown in Table 5.2, while economic results are given in Table 5.1. They indicate that the component has a very high rate of return estimated at over 100 percent, which is understandable since a large capital stock in road infrastructure would yield sizeable benefits with a relatively modest investment in maintenance.

Constructionof Rural Roads

5.16 Under the ongoing First Road Sector Project, rural roads are screened and selected based on a socio-economic point score system recommended in the Crown Agents' Rural Roads Study (1976). The First Road Sec- tor Project also contemplated the establishment of a Monitoring and Evalua- tion Unit within ETCA's PPD, to develop a simple but reliable methodology based on economic criteria. Technical assistance for the establishment of the Unit, the training of staff, and the development of a sound methodology, as well as the ex-post evaluation of a number of rural and feeder roads financed under previous IDA operations, was also included under the Pro- ject. The Unit was established in early 1982 and a consulting firm (Delcanda, Canada) was selected and started work in October 1982. The technical assistance will last 16 months, and a methodology based on economic criteria will be developed.

5.17 The proposed three year Project envisages the construction or improvement of about 2,940 km of rural roads, of which some 829 km would be included in the first year. The rural roads have been selected in a first instance using the socio-economic score system (see Annex 5.1). The roads to be financed under the credit will also be subject to economic analysis using a methodology already agreed upon with the Association and tested - 45 -

satisfactorilyin a number of cases. The methodology is similar to that used in the evaluation of feeder roads (para. 5.13), except that a number of simplificationshave been introduced,such as the grouping of interdependentroads or of roads with a unit cost of less than US$15,000 equivalent per kilometer but located in the same areas for purposes of their economic evaluation. Only those roads equal or exceeding an ERR of 12 percent will be included for financing under the credit. Because of previous agreements with other financingagencies, rural roads financed by these agencies will continue being selected solely on the basis of the socio-economicpoint score system.

5.18 Once the consultantsassisting the Monitoringand EvaluationUnit have establishedan approach to the evaluationof rural roads acceptableto the Governmentand to the Association,the approach used for the evaluation of rural roads may be replaced by the new method.

Overall Evaluation

5.19 The Program's overall economic rate of return is 30 percent, including all the componentsexcept rural roads and training and the majority of technicalassistance, which add up to about 20 percent of project costs. A sensitivityanalysis indicates that an increase in construction costs of 20 percent would reduce the rate of return to 24 percent; a decrease in benefits of 20 percent would bring down the rate of return to 23 percent; an unlikely combinationof the two variationswould yield a rate of return of 19 percent. Moreover, a lag of one year in Program implementationcombined with 20 percent increase in costs would bring the Program's return down to 21 percent, while a lag of two years (again with 20 percent increase in costs), an unlikely event, would yield a return of 15 percent.

5.20 The foregoing economic evaluationis conservative,since benefits due to reductionsin travel time, accident costs and comfort have not been included, as well as benefits to generated passenger traffic and non- agriculturalcommodities, in the case of feeder roads.

E. Risks

5.21 One of the main objectives of the project is to consolidate ETCA's achievementsin institutionbuilding and expand those efforts to other sector organizations,particularly MTC, RTA and NATRACOR. The success of technicalassistance in Ethiopia even during difficult times in the past and the relativelyhigh quality of staff in all these organizations should lead to a low risk of failure for this objective,particularly given the renewed emphasis on training under the proposed Program.

5.22 Regarding the physical elements of the Program , they involve proven technology,well within ETCA's capabilities , and quality of supervision will be reinforcedby the presence of a Resident Engineer in each major subproject.

5.23 The main areas of risk associatedwith the proposed Program are the availabilityof local and foreign resources to finance the entire Pro- gram and the timely implementationof complementaryagricultural invest- - 46 -

ments which support the feeder and rural road components. Regarding the former, the Associationand the Government agreed during negotiationson a reduced Program to match available funds at that time (para 4.26). Moreover, should Government in the future have to adjust the Program to more stringent budgetary constraints than agreed at negotiations,it would be made by deferring the constructionof those feeder and rural roads with the lowest economic evaluation results (para. 4.27). Given the nature of the Program and known prioritiesof major elements, this task should prove reasonably simple. More intractableis the problem of timely agricultural inputs. Experience indicates that it has adversely affected a few subprojects in previous cases. The close involvementof the Associationin both sectors and, more significantly,the close relationshipof the two sectors, a fact clearly acknowledgedby the Government,will help prevent this oc- currence. Moreover, the Monitoring and Evaluation Unit establishedunder the First Road Sector Program in ETCA's PPD, will provide a mechanism to closely monitor the link between investmentsin the two sectors.

VI. AGREEMENTS REACHED AND RECOMMENDATION

6.01 The followingmajor items were discussed and agreed upon at negotiationsand are included as special covenants in the Credit Agreement:

(a) by June 30, 1985 the Governmentwill carry out the National Transport Planning study and will afford the Association an opportunityto comment on the recommendationsof the study (para. 1.24);

(b) the Governmentwill, prior to making any investment in the proposed Awash-Assabrailway line: (i) carry out studies on the technical, economic and financial feasibilityof the new railway line; (ii) exchange views with the Associationon the findings of the studies; and (iii) undertake that any proposed investmentin the railway is economicallyand financiallyjustified (para. 1.25);

(c) the Governmentwill take all necessary measures to revise the classificationof the existing road network and establish by March 31, 1984 a comprehensivefunctional classificationsystem (para 2.01);

(d) the Governmentwill modify the legislationfor vehicle weight control to permit a general increase of the axle load limit to 10 tons, with provisions for 12 tons on selected major routes so designed, and start the actual control thereof not later than June 30, 1984 (para 2.07);

(e) by December 31, 1985, the Governmentwill review and exchange views with the Associationon the decentralizationof rural roads responsibilities(para 2.13); - 47 -

(f) annual maintenanceallocations, in 1982 prices, to match planned physical implementationtargets and aggregate amounts from Birr 35 million in FY1984, to Birr 40 million in FY1985, and Birr 45 million in FY1986 and annually thereafter (para. 2.28);

(g) the Government will take all necessary action, to ensure the submissionof audited accounts to IDA within 6 months of the end of its financialyear (paras. 2.33 and 4.37);

(h) the Governmentwill, in consultationwith the Association (i) not later than June 30, 1985, review the role and organizational structure of ETCA; (ii) not later than June 30, 1985, prepare a tentativeprogram for the gradual transfer of ETCA's force account brigades to constructionenterprises until an optimum size of ETCA's force account facilities is attained; and (iii) upon completionof 30 months of constructionoperations by the Blue Nile ConstructionEnterprise, set out specific deadlines for completion of all phases of said program (para. 2.34);

(i) the Governmentwill (i) within three months after the completion of the Road Transport Study but, in any event, not later than June 1, 1984, exchange views with the Associationon the recommendationsof said study; and (ii) not later than June 1, 1985, commence the implementationof the recommendationsof said study (paras. 2.40 and 4.17);

(j) the Governmentwill select sub-projectsin accordance with criteria and procedures mutually agreed upon (paras. 4.04 and 4.05);

(k) the Governmentwill, not later than December 31, 1983, furnish to the Associationfor its review a complete list of equipment needs and availabilityfor constructionof rural roads and a detailed list of additional equipment required for rural roads and for maintenanceof the Borrower's road network, including any additionalequipment that would be financed under the proposed Project (paras. 4.09);

(1) progress reporting requirement,including indices for measuring implementationprogress, and submission of a project completion report in a form satisfactoryto the Association,not later than 6 months of the Closing Date of the Credit (para 4.39).

6.02 Agreement having been reached between the Government and the Associationon the items listed in para. 6.01 above, the proposed project provides a suitable basis for an IDA Credit of SDR 64.9 million (US$70.0 million) on standard IDA terms. - 48- ANNEX 1.1 Page 1 of 7

ETHIOPIA

APPRAISAL OF THE SECOND ROAD SECTOR PROJECT

Highway Projects Financed by the Bank Group

First Hlighway PEroect, Loan 31-ET, September 1950 (US$5.0 mllion)

1. This loan financed urgently-needed cquippment for the reconstruction, repair and maintenance of the most important portions of the network, which had been built largely by the ltaliaris in 1936-41 and had fallen into disre- pair after World War II. The equipment was used for rehabilitation oL over 1,500 km and minor improvements of 2,700 km. As a condition for the loan, the Bank requireu that the Government transfer responsibility for' roads from the Mfnistri ef Public WTorks to an autonomous public agency, resulting in the establishment of the Imperial Highway Authority (I1,A). ImpleTmentation was slower than expected, but the project was completed satisfactorily and the loan fully disbursed.

Second Eighway Project, Loan 116-ET, June 1957 (US$15.0 million)

2. This loan assisted in financing a project consisting of major construction (about i,050 km) and road improvements (about 580 km), including demonstration works used for training, and eniineering by consultants of roads for future construction (about 1,000 km). Road construction was completed about three years later than expected at appraisal, and with a 60% cost overrun. A post-evaluation by Operations Evaluation Department in 1974 I/ attributed the delays primarily to political factors (which resulted in a change in the compositioni of the Project after Bank approval) and institutional weaknesses. 2/

3. The economic justification at appraisal was in general terms, with no rate of return analysis. Although the roads were classified as primary or secondary (in the sense that they linked main population centers), existing traffic levels were low and the roads were essentially penetration roads, with the major benefits expected to be increased agricultural production

1/ "Comparative Evaluation of Selected Highway Projects," 1974. It should be noted that the evaluation was completed some 18 months after approval of the Fifth Highway Project, and after appraisal of the Sixth.

2/ Poor engineering estimates, slow preparation of specifications, poor procurement and supervision. - 49 - ANIFX I.1 Page 2 of 7

in the roads' areas of influence and lmproved adninistration. The above- mentioned post-evaluation estimated the following rates of return for the five new roads constructed under the Project:

Gohassion-Azazo (551 km) negative Mieso-Dengego (211 km) 6% Jima-Agaro (44 kim) 22% Jima-Bonga (110 km) 7% Shashamane-Sodo (130 km) 11%

The major reason for the disappointing rates of return of three of the roads was their relatively low developmental impact; a secondary reason was the high cost of roads relative to the initial post-completion traffic levels. 1/ Savings in vehicle operating costs were passed on through the transport and marketing systems to producers, but Government-sponsored agricultural development programs would have been required to increase the roads' impact. 2/ Lack of lower class roads feeding into the Project roads was also a factor, although the evaluation pointed out that construction of such feeder roads witbout complementary agricultural measures probably would not have increased the development impact much. The Bank was aware at appraisal of the need for complementary action in agriculture, but this awareness did not lead to anv specific action programn or loan covenant. The Lank's approach irnsubsequent projects reflects the lessons learned from this Project. well belore they were formally identified i.n the post-evaluation.

Third Hg hway Project, Credit 35-ET, February 1963 OJS$13M5 million)

4. This Credit financed the foreign costs of:

(a) completing road construction started under the Second Highway Project;

(b) constructing new roads (about 210 km) and several bridges;

(d) consulting services to:

(i) replace staff of the United States Bureau of Public Roads in IHA management; and

1/ The roads were so costly because of construction delays but also, to some extent, because in retrospect the standards were too high.

2/ In some cases, the Government did later sponsor such complementary agricultural development projects. 50 - ANNEX 1.1 Page 3 of 7

(ii) carry out economic and engineeringstudies of a road through the Awash Valley.

5. Recognizing that implementation delays under the Second Highway Project were primarily attributable to poor engineering and institutional weaknesses, the Bank made design, new construction and supervision uinder this Project the responsibility of coutracters and consultants, while si- multaneously seeking to increase institutional capability. This approach succeeded in improving implementation: the average delay, 18 months, was half that under the Second Project, and the cost overrun of 23% was a considerable improvement on the 60% overrun with the Second Project. Imple- mentation delays under the Third lighway Project were mninly caused by disputes with contractors and unsatisfactory procedures for settling such disputes.

6. As with the Second Project, the economic justification was in general terms and not expressed in rates of return. The two new roads, again although nominally part of the primary/secondary network, were intended primarily to stimulate production in the areas of influence; the paxving projects were designed to reduce transport costs. In this inscance, the comDlementary agricultural projects (including construction of low class roads feeding onto the Project roads) were initiated in the areas of influence of the two ncz roads, though some 4-5 years after the roads were completed. A Project Per- formance Audit on this P-oject concluded:

"Although it has not been possible to assess wiLh certainty the economic benefits of the roads, there are strong indicators that the developments in agriculture (some of which were subsequently aided by the Bank and IDA) in the regions served by the roads come close to expectations.

With regard to the asphalting program, it is not possible to calculate the rate of return because the conditions of the roads before the investment are not known and the work done on them included asphalt surfacing combined with rehabilitation and, in some cases, maintenance. However, the high level and growth of traffic ... tend to justify the investment for the majority of these principal roads." 1/

However, the Audit did point out that, as with the Second Highway Project, the new roads were rather costly relative to traffic levels.

7. On the institutional side, the start of this Project coincided with the departure of U.S. Bureau of Public Roads (BPR) staff, who had been responsible for running the EHA since its inception in 1951. The Audit concluded:

1/ "ProJect Performance Audit Report on Ethiopia Third Hlighway Project (Credit 35-ET)," 1975, p. 12. -r5i - AN~NEX1.1 Page 4 of 7

"EHA's institutionalprogress after the departure of the BPR was just adequate to keep the organizationfunctioning and to administer the project ... This is no small achievement consideringthat ERA was for the first time under Ethiopian management and that it inherited considerable problems. However, there were no basic improvementsin ERA's efficiency during 1963-68." 1/

The Audit noted that the main reason why the institution-buildingefforts had not been more successfulwas that, although the Bank had correctly separated this component from the works component, 2/ the consultants'terms of reference failed to clearly specify the institutionalobjectives and whether the consultantswere acting in advisory or executive capacities. This lesson shaped the Bank's institution-buildingapproach under the Fourth Project (paras. 9 and 13).

Fourth Highway Project. Loan 523-ET (US$13.5 million) and Credit 111-ET (US$7.7million), January 1968

8. Under this Project, the Bank and IDA joined the Swedish Govern- ment, which provided a US$5.8 million credit, in financing the foreign costs of:

(a) constructingmain roads (about 420 km);

(b) asphalticpaving of existing main roads (about 170 km); and

9. Applying the lessons of the earlier Projects, the Bank required stricter standards in project preparation,insisting on feasibilitystudies and review of design by consultants. It continued to insist on construction by internationalcontractors and supervisionof new constructionby

1/ "Project PerformanceAudit Report on Ethiopia Third Highway Project (Credit 35-ET)," 1975, p. 8.

2/ It had been concluded that the slow progress with institution-building up to 1963 resulted primarily from the fact that such efforts up to that date were preoccupiedwith ensuring effective implementationof construction and rehabilitationworks. Thus, the institutionhad become comparativelystrong in these areas, but remained weak in maintenance and in headquartersadministration, planning and financial activities. - 52 - ANNEX 1.1 Page 5 of 7

consultants, but trained ElA staff supervised the paving projects. 1/ The Bank also assisted in the preparation of legislation to improve procedures for settling contractor disputes (para. 5). For consulting services and technical assistance, the Bank required a clear statement of objectives and schedules.

10. Despite the Bank's precautions, there were some delays in the commencement of the project because of slow progress in the preparation of acceptable tender documents and contractor prequalification, and because a second tender was needed with some changed conditions after a disappointing response to the first. Contracts were finally signed in July and August 1969 and progress with the works was highly satisfactory, with three of the four roads being completed in 12 months less than the contract period. 2/ Total project costs, expressed in local currency, were only 3% over appraisal estimates. 3/

11. The Project Completion Report on this Project, 4/ confirms that the road works were economically justified:

Estimated Rate of Return Appraisal Ex-Post

New Roads Awash-Tendaho (300 km) 10% 12% Bedelle-Metu (140 km) 19% 6%

Paving Existing Roads Nazreth-Awash (125 km) 28% 22% Jima-Agaro (45 km) 28% 29%

12. For both new roads, an effort was made to ensure complementary agricultural development through a Loan Agreement covenant and side-letter. In both cases, such development has taken place (in part with Bank Group assistance) though not as promptly as envisaged. In the case of Awash- Tendaho, this has been more than offset (in terms of the effect on the rate

1/ The Project provided for the employment of expatriate consultants should EHA supervision prove unsatisfactory, but it was not necessary to invoke this provision because the staff was competent.

2/ The fourth road contract required an extension of six months.

3/ The cost overrun in US dollars was higher (8%), due to exchange rate movements.

4/ "Ethiopia, Project Completion Report, Fourth Highway Project," 1976. 53 - ANNEX 1.1 Page 6 of 7 of return) by higher through-traffic levels than expected. In the case of Bedelle-Metu, the slow start with agricultural development measures has been compounded by effects of coffee berry disease. In addition, the road was probably built to higher standards than necessary.

13. The Bank took a more systematic approach to institution-building under this Project. Implementation of a reorganization of IHA recommended in an earlier consultants' study was included as a specific technical assistance item. Also, an overseas training program with a very practical orientation was funded, 1/ and technical assistance experts were provided to IRA in the areas of engineering, operations and maintenance. The Operations Evaluation Department's "Comparative Evaluation of Selected Highway Projects" noted (p. 62):

"...it is clear that the IHA has been improving faster since 1968 ... The agency can now do better technical planning, advance surveying and cost estimating than before, and can produce feasibility studies that bear comparison with similar work prepared by international consultants. Also, the administration of the IHA has improved considerably. However, progress has been relatively slower in financial management, maintenance and equipment operacions and the coordination of economic planning with other agencies."

14. Financial management, maintenance and equipment operations were improved under the Fifth and Sixth Highway Projects, and with USAID assistance. Selection of road projects is now coordinated by an Interagency Road Committee, comprising representatives of LTCA,the Planning Commission Office, and the Ministries of Transport and Communications, Agriculture, Defense, Interior and National Community Development and Social Affairs.

15. The Evaluation also noted that "highway planning in IHA still consists of selecting projects that pass a feasibility test and combining them into a program without elaboration of priorities" (p. 69), a shortcoming that has been overcome in the preparation of the 1978-82 Road Program.

Fifth Highway Project, Credit 332-ET (US$17.0 million), September 1972

16. Under this Project, which has now been completed, the emphasis shifted to lower class roads serving, and part of, agricultural development. The credit provided assistance for construction to gravel standard of 258 km of feeder roads and supervision thereof, strengthening ERA, and developing the domestic contracting industry. It was originally intended that the Credit would also finance a consultants' study to assess the need for low class rural roads and recommend the best way of meeting this need. How- ever, this item was taken over by the ODM.

1/ For example, reflecting earlier problems with equipment, half the trainees were equipment superintendents, foremen or mechanics. - 54 -

ANNEX 1. I Page 7 of 7

17. The Project was delayed initially due to delay in parliamentary ratification of the Credit Agreement and later due to an amendment to the ERA charter which necessitated changes in civil works contract documents. Because of these delays, the effects of petroleum price increases, and unsuccessful attempts to tender one of the originally proposed six feeder road projects because of its remote location, the length of feeder road construction under this Project was reduced from 434 km, to the present 258 km (representing four roads). The remaining two feeder roads were made part of the Sixth Highway Project. Three of the four roads under the Fifth Project were completed with minimun delays, one by a domestic contractor assisted under the Project, and the fourth was completed by the end of 1981, all with thle contract prices. A recalculation of the rates of return using current cost estimates confirms that the roads are still economically justified. Other Project components were also satisfactorily implemented.

18. Reflecting its continuing development, ETCA participation in the execution of this project was greater than under earlier ones; all construction supervision was done by ETCA staff, except for the Resident Engineer on each road, who was provided by consultants.

Sixth Highway Project, Credit 552-ET (US$32.0 million) June 4, 1975

19. This Project followed up the Fifth Project with further construction of feeder roads (four roads, totalling 400 km), and continuing assistance for ETCA training and Ethiopian contractors. It also built on previous assistance provided by other aid agencies. USAID had addressed one of the continuing deficiencies of the ERA, maintenance, by financing a consultants' studv to identify equipment needs and draw up a maintenance program. Flowing form this study, USAID financed the acquisition of some road maintenance equipment, as well as a program aimed at adequately equipping and staffing field workshops to maintain the equipment. IDA supported this by assisting in financing the balance of the road maintenance equipment identified in the consultanLts' study. To follow up the ODM-financed Rural Roads Study, the Credit assiste(d in establishing an organization to plan, construct and maintain lower class, local, rural roads through provision of technical assistance, workshops, tools and other equipment. The Credit also provided for strenghtening tht Road Transport Administration through proviison of weighbridges and technical assistance.

20. Implementation of the Project proceeded well. Three of the 'otfo- roads were let to contract, with the contract prices all within appraisal estimates; the fourth road was constructed by force account. Contracts for the road maintenance equipment and weighbridges were awarded and all the equipment has been delivered. Rural roads workshops for the provinces of Wellega and Illubabor were provided under the project. An Ethiopian contractor, a successful bidder on one of the feeder road contracts, received financial assistance through AIDB under the project.

November 1982 Annex 2.1 - 55 - Page I of 4

ETHIOPIA

APPRAISALOF THE SECONDROAD SECTOR PROJECT

TERMSOF REFERENCEFOR ROADTRANSPORT STUDY SCOPEOF CONSULTINGSERVICES

The consultant shall perform all services required to attain the objectives described in Section II, including but not limited to, reviewing all available data and studies on road transport activities in the country, observing and analysing current operating procedures and practices, and discussing present and prospectiveoperational problems with RTA and NATRA- COR personnel, public and private truckers,and general users of transport services particularlyin the agricultural,industrial and commercial sectors. The consultant shall also review the offices, facilities and equipment of RTA and NATRACOR including its various organizations,and shall assess the present condition and future utility of major components.

In the conduct of this work the consultant shall cooperate fully with the Ministry of Transport and Communicationsand shall keep it as well as RTA and NATRACOR fully informed regardingkey decisions which the consultant will be required to make, and which will affect either of the two organizations. The Ministry of Transport and Communications,RTA and NAT- RACOR will provide the necessary studies,data, personnel, local services and facilities. The consultantwill, however, be solely responsible for the analysis and interpretationof all data received and for the conclusions and recommendationscontained in its reports.

The work shall cover five inter-relatedareas:

1. forecast of the expected road transport demand;

2. review of the Road Network Plan and recommendationof road network that best suits the overall objectives of the Nation- al DevelopmentPlan;

3. analysis and evaluation of RTA's activities with a view to formulating specific programs to improve its operations as related to tariff, transport regulation, road safety, driver and mechanic training,etc. and capability of planning, programming and budgeting;

4. analysis and evaluation of NATRACOR's activities, including the activities of all organizationsreporting to NATRACOR, in order to formulate specific reorganizationand action programs aimed at rationalizingand increasing the efficiency of their operations. Further, the consultant shall recommend a training and technicalassistance program and a 5 and 10 years investment plan in road transport; and

5. implement the organizational,management, financing, training and operationalaspects of the recommendations. - 56 - Annex 2.1 Page 2 of 4

A. ROAD TRANSPORT DEMAND

In the forecast of the road transport demand, the medium (3 - 5 years) and long term (10 - 15 years) historical growth of road transport demand in Ethiopia, and the government ongoing and planned development programs have to be reviewed and similar analysis carried out recently by other consultants (particularly the Ethiopian ports Master Plan Study by Bertlin & Partners and Highes Economic Planning) ought to be considered.

Based on such reviews, the following tasks have to be accom- plished:

- the consultant shall establish seasonal and annual forecasts of road transport demand for 1983/84 - 1988/89 and a more tentative one for 1989/90 -1994/95;

- the road transport demand analysis must differentiate between inter-city passengers and freight, and the latter must be de- segregated in principal commodity groups so as to be able to determine the type and volume of packing and handling (i.e. dry or liquid bulk, sacs, containers, etc.) and the local trucking and storage/terminal technology required;

- the demand analysis should also contemplate freight and passenger traffic to be handled by competing transport modes (i.e. air and rail); and

- the transport forecast should be detailed enough to estimate the need for passenger and freight termini, for vehicle maintenance facilities and for future expansions in the motor vehicle fleet.

B. RTA

The Consultant shall review each and every function for which RTA is responsible and shall evaluate the adequacy and effectiveness of RTA in fulfilling its responsibilities as well as the need to redefine or add new powers and responsibilities to the organization. With this in view,

1. the consultant shall examine the organizational and management systems of RTA and its current staffing and will recommend organizational and administrative improvements as well as manpower development and training to ensure an adequate discharge of the responsibilities recommended for the organizations;

2. the consultant shall review the road network plan and recommend one that best meets the goals of the Ten-Year Indicative Plan;

3. the consultant shall also establish fleet requirements in physical terms both for the public and private sectors; - 57 - Annex 2.1 Page 3 of 4

4. procedures will be evaluated and defined for:

- planning, programmingand budgeting;

- maintaining and up-to-date registry and control of motor vehicles using the country's roads;

- licensing and controllingpersons driving vehicles on the roads;

- registering and licensing commercial and non-commercial road transportvehicles and organizations;

- ensuring the safety of passengers and goods through periodic and proper inspection of motor vehicles;

- issuing and revising as necessary traffic regulationsand ensuring their strict enforcement;

- keeping adequate accident records and carrying out analyses to identify the causes and possible prevention of accidents; and

- review and determine revenue from licensing, road user charges, etc., establish the economic costs imposed on the road network by differentvehicle categories and proposed improvementsor changes to the existing structureand level of road user charges.

5. The consultant shall also examine the current documentation procedures and recommend the most effective data collection and documentationsystem compatible with the need for proper planning, adequate control, easy retrieval and periodic updating of vehicles, traffic and driver information. The pos- sibility of applying computer technologyin combinationwith NATRACOR's data gathering, collating and reporting systems shall be assessed and the appropriate recommendationshall be made.

6. Regarding road safety, the consultant shall:

- evaluate the situationprevailing in the country and recommend a program coverning all aspects required to improve the situation including traffic engineering,driver and mechanic training,public awareness of the need for road safety and enforcementof traffic regulations;and

- contemplatethe need to acquire sufficient patrol vehicles and other equipment to facilitateRTA's enforcementof traffic and vehicle regulations. Further, the need for - 58 - Annex 2.1 Page 4 of 4

service stations and resting areas for drivers along the most heavily traffickedroutes of the country shall also be analysed.

7. The consultant shall identify the required technical assistance and prepare the details of the specific components of the road safety program, including training and educational equipment and facilities. All proposed investments shall be costed out in 1983 prices. Further, the benefits of the program and the expected economic rate of return shall be presented in the study.

C. N&TRACOR

The scope of the study will include, but not be limited to:

- Organization and Management; - Manpower Utilizationand Development; - Operationalor Dispatch and Control Procedures; - Finance and Accounting Systems; - Forecastingof Vehicle and Spare Part Needs; - Vehicle Maintenance; - Utilization and Location of Facilities; - Material Procurement,Stores Procedures and Dispatching; - Documentation Procedures; - Preparationand Disseminationof Information;and - Planning,Programming & BudgetingMethods and Techniques. - 59 - Annex 4.1 Page 1 of 2

ETHIOPIA APPRAISALOF THE SECONDHIGHWAY SECTOR PROJECT

CONDITIONSAND PROCEDURESFOR ELIGIBILITY OF SUBPROJECTS AND FOR PROCUREMENTOF GOODSAND SERVICES

1. In order to be declared eligible, subprojectsconsisting of road paving, rehabilitationand constructionof road maintenance depots would have to be: (a) technically sound; and (b) economicallyjustified. Civil works related to the safety and to the training components of the Credit would have to be: (a) technicallysound; and (b) consistent with the objectives of these components. Studies and technical assistance would have to be in direct support of the sectoral of subsectoralobjectives.

2. The procedure to declare a subproject eligible would be as follows:

(a) for rehabilitationand paving subprojects,ETCA would prepare, for each subproject,a Basic Data Sheet summarizingkey data concerning engineering,design standards,economic evaluation, cost estimates, and schedule for detailed engineering,tendering and construction,including division into lots.

(b) for each constructionsubproject, ETCA would prepare a fully documented feasibilitystudy;

(c) for civil works for safety and training, ETCA would prepare and submit the descriptionof works, their estimated value and the schedule of implementation;

(d) for purchase of equipment for highway design, highway construction,highway maintenance,laboratory, safety and training, ETCA would prepare and submit the list, type, and estimated value of the equipment and the scheduled repartitionof lots and the justificationin relation to the requirements,such as for the Maintenance and Equipment Management Systems; and

(e) for studies and technical assistance,ETCA or the MTC would prepare detailed terms of reference,manpower budget cost estimates and schedule of implementation.

3. The Bank would review the specified documentation,request additional informationas required, and assess eligibility. Rejected subprojectsmay be re-submittedfor future considerationin light of additional information,or if the subproject scope or standards are amended. Once a subproject has been declared eligible, ETCA would complete the detailed engineering or final documentation. ETCA would submit an Updated Basic Data Sheet once the detailed engineering has been completed to confirm eligibility.

4. Once the detailed engineeringfor an eligible subproject has been satisfactorilycompleted, ETCA would proceed with the procurementprocess. Ethiopian procedures for procurementconsist of the following seven steps: - 60 - Annex 4.1 Page 2 of 2

Step 1 - Prepare tender documents; Step 2 - Establish official cost estimate; Step 3 - Advertise, tender and open bids; Step 4 - Evaluate proposals and prepare award recommendation; Step 5 - Award contracts; Step 6 - Sign contracts and Step 7 - Legalize contracts. The procedures leading to acceptance by the Association, of civil works contracts for financing would be as follows:

Procedure A: Proposed civil works contracts with a nominal value of US$3 million equivalent or more would be subject to prior IDA approval. After completion of Step 4, ETCA would send to the Bank the tender documents, the documentation relating to Step 3, and the evaluation of tenders and the award recommendation (Step 4). After obtaining the agreement of the Association, ETCA would proceed with Steps 5, 6 and 7 and send to the Bank two copies of the legalized contract.

Procedure B: Prior Bank review would not be required for civil works contracts with a nominal value of less than US$3 million equivalent. After completion of the entire process, ETCA would send to the Association two copies of the legalized contract (Step 7) and the documentation relating to Steps 3, 4 and 5. ETCA would have the option of seeking prior IDA approval under procedure A for these contracts.

5. The Association would review the documentation submitted according to procedure A or B, and, if satisfied, would indicate no objection. The above procedures will be reviewed and confirmed during negotiations.

6. The procurement of equipment and spare parts will be by ICB in accordance with Bank guidelines. Similar items would be grouped to the extent possible for bidding purposes. Contracts for equipment, vehicles, parts and tools with an estimated cost below US$50,000 and within an overall ceiling of US$500,000 would be procured from suppliers in accordance with local procurement procedures, which are satisfactory. Purchases of spare parts for existing equipment for proprietary equipment may be procured directly from established dealers. Procedures for procurement of equipment will be reviewed and confirmed during negotiations.

7. Consultant services for technical assistance and studies would be contracted in accordance with the Bank Group Guidelines. Shortlists of qualified firms would be submitted for the prior approval of the Association. Subsequently, the evaluation of proposals and the recommendation for selection of a firm as well as the the related draft contract would also be submitted for prior review and approval by the Association. Consultant contracts financed by the proposed credit will be exempt from all taxes. Prices may be considered if requested by Government in the case of project supervision or for other technical assistance, but it should not be included in the criteria for selection of consultants to carry out the National Transport Plan. These arrangements will be confirmed at the time of negotiations. - 61 - Annex 4.2 Page 1 of 6

ETHIOPIA

APPRAISAL OF THE SECONDROAD SECTORPROJECT

OUTLINE OF TERMS OF REFERENCE FOR THE PROVISION OF CONTRACT MANAGEDENT SERVICES

1. Background Information

1.1 The Blue Nile ConstructionEnterprise (hereinafter"the Enterprise")was set up by Proclamation No. 232 of 1982, with the objective of strengtheningthe Ethiopian constructionindustry, and engaging in constructionwork as an autonomous general contractor, operating independentlyand competitivelyas any private business organization,both in Ethiopia and abroad. The Enterprise was set up integrating personneland equipment contributedby the Ethiopian Transport ConstructionAuthority (ETCA), and the organization,personnel, equipment and obligationsof the EthiopianEarthmoving Equipment Private Limited Company (EEE). The EEE was set up in 1967 as a general contractor. Since then, EEE primarily constructedasphalt and gravel roads, and an irrigation project, totalling in excess of 100 million Birr, and including financing from the World Bank, the EEC, and DFW. At present, EEE is constructingtwo roads and one irrigationproject; it employs between 1,500 and 2,000 people, including 15 professionals(university graduates with work experience in engineering,accounting, management, economics and law); and its assets, including road building equipment, transportvehicles and other assets have a value of 13 million Birr, as of December 1981.

1.2 The Ethiopian Government has approached the World Bank Group to assist in financing the constructionof roads and bridges, under the proposed Second Road Sector Project. One of the roads proposed for constructionis the Nekempti-Burieroad, hereinafter "the Project." The cost of constructionof the Project has been tentativelyestimated at 72 million Birr.

1.3 The Enterprise is hereby seeking specializedassistance from experienced contractorsto take part, with the approval of the Ethiopian government,in the internationalcompetitive bidding (ICB) for the Project.

2. Objectives and Scope of the Work

2.1 The Enterprisewishes to avail itself of the services of a firm (hereinafter"the Management Contractor")experienced in company and contract managementfor construction,to assist in setting up its overall organization,and provide specializedservices for tendering and contract management,aiming to achieve a high level of efficiencyand competitiveness,in consonancewith the objectives of the Enterprise,as set out in ProclamationNo. 232 of 1982. - 62 - Annex 4.2 Page 2 of 6

2.2 The scope of the services to be provided by the Management Contractor will therefore cover work under the following three main headings:

(I) Tendering for the Nekempte-BurieFeeder Road

The Management Contractor will assume executive responsibility and authority in the preparation and presentation of the Enterprise's tender for the Project, coordinating, guiding, and working in collaboration with the Enterprise's staff. The Management Contractor will also prepare detailed guidelines for bid preparation, to be used by the Enterprise in the future, including all aspectes of tender preparation, such as resource assessment, planning, productivity assumptions, cost estimating, and presentation of tenders.

(II) Contract Management

In the event that the Enterprise should be successful in the tender for the Project, the Management Contractor will act on behalf of the Enterprise in the period of contract negotiation and award, and will continue his responsibility and authority for the execution of the Project.

The Management Contractor will thus plan, organize, direct, and control Project construction using the Enterprise's resources; establishing, and training the Enterprise's personnel in the use of such systems, procedures, and methods as may be necessary to achieve timely and economical completion of construction of the Project, in accordance with the terms of the contract between the Enterprise and the client.

The Management Contractor will also prepare detailed guidelines for the future use of the Enterprise, on all aspects of contract management, including such control and reporting systems, manuals, procedures, and forms as may be agreed between the Enterprise and athe Management Contractor.

This item of the Management Contractor's duties will terminate at the time of the Client's acceptance of the Works as being "substantially complete," i.e. physically completed and having satisfactorily passed any final test prescribed by the contract.

(III) EnterpriseManagement

The Management Contractor will, in collaboration with the Enterprise's officers, carry out an analysis of the Enterprise's needs with regard to management means and methods, referred to the running of the whole enterprise as a modern, large construction company, capable of competing successfully for work in Ethiopia and abroad.

After the needs analysis, the Management Contractor will proposed steps to upgrade the Enterprise's management resources and methods, in all areas of personnel, materials, equipment, premises, and financial management and, after agreement of the specific tasks to be performed, will assist the Enterprise in establishing and training the Enterprise's personnel in the use of improved means and methods of construction enterprise management. - 63 - Annex 4.2 Page 3 of 6

These services will be performed for a period not exceeding 24 months. A maximum of 3.5 man-years of expatriate staff services has been allowed for.

2.3 The Management Contractor'sproposal will include a detailed descriptionof the manner in which he proposed to provide the services indicated under paragraph 2.2, detailing separately for items (I), (II), and (III):

(i) Work plan and nature of the services to be provided;

(ii) Time schedules;

(iii) Resources to be made available by the Enterprise;

(iv) Resources to be made available by the Management Contractor;and

(v) Price.

3. Resources

3.1 The Enterprise will make available such personnel, materials, equipment, working space and finances as may be required for the performance of the Management Contractor'sduties, both with respect to the management and advisory services to be provided by the Management Contractor, and to the functioningof the Enterprise. The above resources will be made available at the time and will be of the quality agreed upon between the Enterprise and the Management Contractor. The quantity and quality of the required resources to be made available by the Enterprise will be specified by the Management Contractor in his proposal.

3.2 The Management Contractorwill make available senior and middle management personnel, as required for the performanceof the duties outlined under paragraph 2.2 (items (I), (II), and (III) above). The Management Contractor'sproposal will detail the personnel required for each function proposed, specify the timing and duration of each person's participationin the work, and attach curricula vitarum of the persons available for each function. The minimum direct experience in management in the constructionindustry required from any of the persons proposed by the Management Contractorwill be ten years. Should it become necessary to replace one or more of the persons listed in the proposal, the new candidate(s)will have qualificationsand experience equal to or better than those of the person(s)replaced.

3.3 The Management Contractor,as part of his obligations,will provide the Enterprise with all necessary guidelines,handbooks, and forms agreed to be necessary for the performanceof the Enterprise as a modern, efficient contractor. The Management Contractor'sproposal shall include a listing of these documents, and of such proprietaryhard or software as may be necessary for the same purpose, whose purchase may be included within the Management Contract, or arranged separatelyby the Enterprise. - 64 - Annex 4.2 Page 4 of 6

4. Reporting

4.1 The Management Contractor will furnish the following reports with respect to its own performance of its duties, as referred to in items (I), (II), and (III) of paragraph 2.2:

Item (I): Final report, on completion and presentation of the tender for the Project.

Item (1I): Monthly progress reports, and final report on substantial completion of the work, setting out the results of the execution of the contract, in comparison with the tender prices; analyzing the performance of the Enterprise in construction; and making recommendations for further improving the Enterprise's performance.

Item (III): Quarterly progress reports, and final report, on completion of the two year assignment. These reports will detail the physical and financial performance of the Enterprise, analyzing contract by contract and the operation as a whole. Excessive deviations from pre-arranged standards will be analyzed in detail, to determine the causes of better or worse performance. In the latter case, correction measures will be proposed. The final report will also make detailed recommendations for further improving the efficiency of the Enterprise.

5. Price and Payment

5.1 The Management Contractor will specify in his proposal the following price elements, referring to items (I), (II), (III) of paragraph 2.2:

(i) A fixed fee for the performance of the work under Item (I);

(ii) A percentage fee, to be applied to the tender price, to be charged for the performance of the work under Item (II);

A proposed method for adjusting this fee upwards or downwards, according to the actual performance of the Enterprise's construction team relative to the tender price, considered for this purpose a target estimate; and

A proposed method of payment for time-related expenses by the Management Contractor for contract time extensions due to causes not attributable to contract management;

(iii) A man-month rate for the individuals who would perform the work under item (III), either on short- or long-term assignment, inclusive of salary, social costs, firm's overhead and fee and, where appropriate, overseas allowance; - 65 - Annex 4.2 Page 5 of 6

Reimbursableitems relative to individuals,such as international travel (includingexcess baggage and other allowance),housing, local transport, subsistenceand other allowances while in Ethiopia; and

(iv) The cost of any proprietaryhardware or software considered essential for the performance of the work, which would have to be purchased for the Enterprise.

5.2 Payment of the items 5.1 (i) to (iv) will be as follows:

(i) One-half of the fee at the start of work in Ethiopia, the balance on completion of this work and presentationof the Management Contractor'sfinal report;

(ii) 10% of the fee based on the original tender price, at the start of work in Ethiopia;

80% of the same fee in equal monthly installments,spread over the duration of Project construction;

The balance of the fee, after adjustment for the final actual price of the work and consequentadjustment of the fee percentage, on the Client's acceptance of the works and presentation of the final report by the Management Contractor;

(iii) An advance payment of the equivalent of 100,000 Birr, at the start of work in Ethiopia;

Payments on presentationof monthly accounts for personnel actually involved in the work, and reimbursableexpenses, less 10%, which will be held by the Enterprise, and applied to:

(a) cover the 100,000 Birr advance, and, after this is covered,

(b) form a fund to guaranteecontinuity and quality of the services provided; this fund will be paid in full on presentationof the final report by the Management Contractor;and

(iv) As required by the conditions of purchase of the hardware or system.

6. The Agreement

6.1 An Agreement will be drawn on the basis of these terms of reference, supplementedor modified as agreed after the negotiationswith the selected Management Contractor.

6.2 Particular attention will be paid, in drafting the Agreement, to the method of calculationof the tender and final contract prices for constructionwork, as they will affect the actual fee payable to the Management Contractor. In particular, the Agreement will establish clear - 66 - Annex 4.2 Page 6 of 6 bases for the calculation,inter alia, of the following cost elements of the Enterprise'swork:

(i) Wages and salaries; their reference levels; labor on-costs;

(ii) Cost of materials; sources of supply; volumes and opportunityof supply;

(iii) Equipment values; depreciationrates; capital charges; methods of purchasing spares;

(iv) Taxes, insurances,bonds; terms under which they would be available to the Enterprise;

(v) Components of Enterprise overheads; and

(vi) Adjustment of the target base because of cost escalation and through cost increases due to causes not imputable to the Management Contractor.

6.3 A method for settlement of disputes between the Enterprise and the Management Contractor also has to be agreed on. To reduce the likelihood of disputes,regular and final audits by an independentauditor will be establishedin the Agreement at the cost of the Enterprise.

7. General

7.1 The Management Contractor,its subsidiariesor affiliates,will not tender independentlyfor the Project. The Management Contractor's participationin the tenders for the Project will be exclusively in support of the Enterprise'spresentation. - 67 - Annex 4.3 Page 1 of 2

ETHIOPIA

APPRAISALOF THE SECOND HIGHWAY SECTOR PROJECT

Project Progress Reporting Requirement

1. Progress Reports should be submitted quarterly in triplicate,no later than one calendar month after the end of the quarter. The first Report should cover the quarter ending December 31, 1983.

2. The information that the Report should contain is described below.

(i) General information: this section should refer to Project Monitoring Indices (Table 1 of this Annex) in reporting the following:

(a) the physical progress accomplishedto date of report and during the reporting period;

(b) actual or expetted deviations from the project implementation schedule;

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

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

(e) key personnel changes in the staffs of ETCA' consultants or contractors;

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

(g) any developmentactivity likely to affect the economic viability of project components.

(ii) A bar-type progress chart, based on the project implementation schedule, should show the progress in each project component. - 68 - Annex 4.3 Page 2 of 2

(iii) A financial statement should be set out in tabular form and indicate for each project component:

(a) original estimated cost;

(b) revised cost, if appropriate;

(d) projected expenditure;and

(e) actual and projected withdrawalsfrom the Credit Account.

(iv) Finally, the Report should state the status of action on each covenant of the Credit Agreement.

November 1982 - 69 -

Annex 4.3 Table 1

ETHIOPIA

APPRAISAL OF THE SECONDROAD SECTOR PROJECT

PROJECT MONITORING INDICES

Indices: actual vs estimates: absolute and %. Where activity level, as measured by a specific index, is below estimates, the reason should be ascertained. If a lower than anticipated activity level is the result of an outstanding problem, recommend corrective action.

Estimated Actual Actual as % Reason for Recommend Corrective of Estimated Divergence Action, if Any

Construction Work

1. Preliminaries to mobilization (months) 2. Volume of earthwork (m3 ) 3. Length of subbase (km) 4. Length of base (km) 5. Length of shoulders (km) 6. Length of surfacing (km) 7. Pipe culverts (nos.) 8. Box culverts (nos.) 9. Length of bridges (m) 10. Construction work completed (date) II. Contractor certificates for payment (US$ or ) 12. Payments to contractor (US$ or __)

Road Maintenance

(a) Programs

1. Agreement of Rkoads Department Maintenance Program by Government and Bank (date) 2. Implementation of Roads Department Maintenance Program (schedule & dates)

(b) Equipment

1. Preliminaries to equipment delivery (months, by item) 2. Arrival of equipment (date) 3. Payment to suppliers (US$ or __)

. Technical Assistance

1. Preliminary to start of work (months) 2. Appointment of counterparts (date, by position) 3. Technical assistance work (months, by position) 4. Payments to experts (US$ or _)

.ember 1982 - 70 - Annex 5. Page 1 of 2

ETHIOPIA APPRAISAL OF THE SECONDROAD SECTOR PROJECT SCREENINGPROCEDURE FOR RURAL ROADS

1. In 1976 a rural road constructionand maintenance program for each province was prepared by Crown Agentsl/, who were retained by Govern- ment with financial assistancefrom ODM. Papers were prepared for each region by regional and awraja representativeslisting their rural roads requirements. The Crown Agents team reviewed these papers with these representatives,as well as with other parties interested in rural roads in the particular regions (e.g., the Extension of Project ImplementationDepart- ment, Livestock and Meat Board, and agriculturalproject units). Awrajas were then ranked by the following socio-economiccriteria:

1. Food crop production 2. Cash crop production 3. Livestock population 4. Agriculturalextension services (ratio of unserved populationto total population) 5. Ratio of uncultivatedcultivable land to total cultivableland 6. Commerciallyviable forest areas 7. Populationdensity 8. Proportionof total school age children not attending school 9. Number of health centers per 1,000 population 10. Regional integration: distance of awraja capital from nearest all-weatherroad or from provincial capital 11. Existing road facilities: ratio of all-weatherroads to total area of awraja (km/km2).

2. For all criteria except 9 and 11, the figure for each awraja is expressed as a percentage of the figure for the awraja with the maximum value

Food production in awraja A (e.g., Food Production in awraja with maximum production x 100).

For criteria 9 and 11, the figure for each awraja is expressed as a percentage of the figure for the awraja with the minimum value. Awrajas were ranked on their aggregate points score: each criteria was given equal weight in the absence of a clear basis for any alternativeweighting system. Individualroads were then ranked according to the priorities of the awrajas they served, in order to arrive at priorities for road construction within the region. Priorities between regions were determined according to the point scores of the awrajas comprising the regions. The resulting regional priorities are shown in Table C.

1/ Rural Roads Study, Crown Agents, 1976. - 71 - Annex 5.1 Page 2 of 2

3. While this ranking procedure suffers from some deficiencies2 /, it is satisfactoryfor preliminaryscreening purposes. The normal econo6ic feasibility study would not be appropriatefor such low class low-cost roads, but it is expected that after some time the monitoring and evaluation unit would develop improved criteria for selecting rural roads.

2/ Probably the most serious shortcomingis that the cost of providing roads, which could differ from one area to another, is ignored. ETHIOPIA APPRAISAL OF SECOND ROAD SECTOR PROJECT COMPARISON OF SECTORAL ALLOCATlONS IN TEN YEAR (1980/81 - 1989/90) AND FIVE YEAR (1981/82 - 1985/86) INVESTMENT PLANS(B{rr Billion in 1979/80 prices)

Ten Year Plan Five Year Plan

SECTOR Proposed Investment % Proposed Investment _ Transport 7.1 30 2.1 40 Agriculture 6.7 28 1.4 26 Industry 3.1 13 0.6 11 Health & 1.9 8 0.3 6 EdUdation

Energy 1.2 5. 0.3 6 Water Supply 1.0 4 0.3 6 Others 4.5 12 0.5 5 25.5 100 5.5 100

Source -- Ten-Year Investment Program, Government of Ethiopia, June 1981 Economic Memorandum on Ethiopia. Report No. 355b - ET, December 15, 1981 November 1982 - 73

Table 1.2 ETHIOPIA APPRAISAL OF THE SECONDROAD SECTOR PROJECT

COMPARISONOF TRANSPORT INVESTMENTPROGRAMS OF THE TEN YEAR PLAN (1980/81-1989/90) AND FIVE YEAR PLAN (1981/82-1985/86) (BIRR BILLION IN 1979/80 PRICES).

Ten-Year Plan Five-Year Plan Proposed Proposed Subsector Investment % Investment x

Roads and Public Transport 4.1 57 1.3 62

Rail 2.0 28 0.5 24

Ports & Navigation 0.8 12 0.2 9

Air 0.2 3 0.1 5

7.1 100 2.1 100

Source: Ten-Year Investment Program, Government of Ethiopia, June 1981 Economic Memorandum on Ethiopia. Report No. 3552b - E.T. December 15, 1981 - 74 _ Table 2.1

ETHIOPIA

APPRAISAL OF THE SECOND ROAD SECTOR PROZECT

Inventory of All-Weather Roads 1/ (km)

Fiscal Rural!2 Year Asphalt Gravel 1/ Roads Total

1964/65 1,455 4,006 - 5,461 1969/70 1,942 5,431 - 7,373 1974/75 3,121 5,012 - 8,133 1975/76 2,985 6,253 - 9,238 1976/77- 3,229 7,290 241 10,760 1977/78. 3,229 7,401 404 11,034 1978/79 3,229 7,415 1,021 11,665 1979/80 3,515 7,165. 1,450 12,130 1980/81 3,656 7,606 2,044 13,306

Average Annual Rates of Growth of Total Road Network

1964/65 - 1974/75 8.3 1969/70 - 1979/80 5.2 1964/65 - 1980/81 5.7 1974/75 - 1980/81 8.6

NOTES: 1/ Includes the so-called service-to-traffic roads.

2/ In addition to the rural roads built by construction brigades, there are about 30,000 km of dry-weather trails and tracks

Source: Planning and Programming Division, Ethiopian Transport Construction Authority, October 1981.

November 1982 - 75 - Table 2.2

ETHIOPTA

APPRAISAL OF THE SECOND ROAD SECTOR PROJECT

Highway Design Standards

Road Classification Characteristics Unit Primary Secondary Feeder F R H F R M F R M

1. Geometric Design Standards

Speed km/hr 100 80 40 .90 70 40 90 60 30 Minimm Horizontal Radius m 285 175 44 230 125 44 230 105 25 Maximum Gradient Z 6 8 10 .6 8 10 6 8 12 Minim= Gradient 00.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Pavement Camber Bituminous Surface Z 2 2 2 2 2 2 2 2 2 Gravel Surface Z 4 4 4 4 4 4 -.4 -- 4 4

2. Roadway Features

Width of Roadway a 8 8 8 7 7 7 6 6 6 Pavement Surface Gravel a 8 8 8 7 7 7 6 6 6 Bituninous a 6 6 6 5 5 5 - - -

3. Structural Design Features: In all cases: Maximum Axle Loading - 12 MT

Bridges Loadiag H.20-S.16 Width curb to curb 7.35 a

Notes: F - Flat terrain; R - Rolling terrain; M Mountainous terrain

Source: ETCA

November 1982 Table 2.3

ETHIOPIA

APPRAISAL OF THE SECOND ROAD SECTOR PROJECT

Motor Vehicle Fleet (Units)

Small Large Fiscal/Year Cars Buses Trucks Trucks Trailers Total

1969/70 28,100 1,490 1,680 2,940 1,090 35,300

1975/76 1/ 42,696 2,190 2,737 4,927 2,190 54,740

1976/77 37,541 1,925 2,406 4,332 1,925 48,129

1977/78 35,484 1,820 2,275 4,094 1,820 45,493

1978/79 40,656 2,085 2,606 4,691 2,085 52,123

1979/80 41,308 2,118 2,648 4,766 2,118 52,958

1980/81 2/ 43,002 2,205 2,757 4,962 2,205 55,131

Average Annual Rates of Growth (Z)

1969/70-1980/81 3.9 3.6 4.6 4.9 6.6 4.1

1977/78-1980/81 6.6 6.6 6.6 6.6 6.6 6.6

NOTES: 1/ The records for this year appear excessively high and have been changed in recent years to incorporate vehicles by owners (public sector agencies, others rather than by type of vehicle company, the constant rate of growth for all categories between 1977/78-1980/81 is, to say the least, rather surprising.

2/ According to NATRACOR, the country's-registered-public transport motor vehicle fleet (probably excluding trucks owned by state organizations and/or private companies for their own use) amounted to 6,406 trucks and 2,273 buses.

Source: ETCA

November 1982 - 77 - Table 2.4

ETHIOPIA

EthioDiar. Transoort Construction Au chori tv Annual S".enditures (Birtraillion)

CaDical Ex,enditure 1976/77 1977/78 1978/79 1979/80 1980/81

Road Cocistrucrion - Direct Labor 17.6 14.2 26.7 36.1 38.2 - Contract 23.2 25.5 30.8 32.9 53.8 - Rural . 7.5 10.5 41.3 23.4 21.3 Equipment and buildings 22.4 0.2 9.6 18.7 21.6 Other (Studies, Training) 0.3 - 1.8 1.3 1.9

71.0 50.4 110.2 112.4 126.5

Current ExDenditure

Admiaistracion 2.5 2.4 2.4. 2.6 2.9 Eagineering and Technical Services 4.8 5.7 5.2 5.8 6.2 Road Maintenance 28.2 26.7 28.0 26.3 29.5

35.5 34.8 35.6 34.7 38.6

Tota7 Capital and Current Expudtitur 1d06.5 85.2 145.8 1467.1 165.1

November 1982 - 78 - Table 2.5

ETHIOPIA

APPRAISAL OF THE SECOND ROAD SECTOR PROJECT

Central Government Revenue from Road-User Charges (Birr million)

1976177 1977/78 1978/79 1979/80 1980/81

Taxes on Fuel and lubricants 25.5 24.2 25.1 27.3 33.6

Import Duties on Motor Vehicles and Spare Parts 1/ 24.3 26.7 24.2 39.2 51.9

Motor Vehicle Inspection Fees 0.3 0.2 0.2 0.9 1.0

Registration Fees 1.9 1.9 1.9 3.6 4.1

Driving Licence Fees 0.3 0.3 0.3 1.3 1.6

Total 52.3 53.3 51.7 72.3 92.2

1/ Including tyres and inner tubes.

Source: ETCA, May 1982 - 79 - Table 2.6

ETHIOPIA

APPRAISAL OF THE SECOND ROAD SECTOR PROJECT

Changes in Structure of Fuel Prices (1979/80-1980/81) (all units in USi per US gallon)

Ex-Refinery Distributing Price of Import Marketing and Pump Price Parity-Assab Profit Retailers at Assab Product 1979/80 1980/81 Taxes Margin Margin 1979/80 1980/81

Regular Gasoline -87.68 161.67 22.83 7.31 5.48 123.30 197.29

Premiwn Gasoline 108.14 173.90 28.31 7.85 5.48 149.78 215.54

Gas Oil 54.34 96.36 15.53 6.85 5.48 82.20 124.22

NOTE: Only the ex-refinery and pump prices changed between 1979/80 and 1980/81. The ex-refinery price includes a municipality tax of US% 3.65 per US gallon. Pump prices in Addis Ababa after 1980/81 are as follows:

Product USJ/US Gallon

Regular gasoline 217.38 Premium gasoline 235.65 Gas Oil 144.31

Source: ETCA

November 1982 - 80 -

Table 2.7

ETHIOPIA

APPRAISAL OF THE SECOND ROAD SECTOR PROJECT

Quantity and Value of Imported Petroleum Products

Refined Petroleum Products* Quantity Cost Cost Year (000 tons) (Birr million) (Birr million) (1) (2) (3) (4)

1973/74 628 0.03 50 1974/75 581 0.09 114 1975/76 529 0.09 103 1976/77 587- 0.11 130 1977/78 578 0.12 137 1978/79 623 0.13 175 1979/80 637 0.19 300 1980/81-- 601 0.26 444

* Value of imports to complement the production at the refinery of Assab, plus value of oil refined at Assab (column 3). A small portion of the production at Assab is in turn exported.

Source: ETCA, based on data supplied by the Ethiopian Petroleum Refinery.

November 1982 ETHIOPIA Table 2.8

APPRAISALOF THE SECOND ROAD SECTOR PROJECT

Consumptionof PetroleumProducts (thousandcubic meters)

Fiscal Premium Regular Diesel Fuel Aviation Lubricants Year Gasoline Gasoline Kerosene Oils Oils LPG Fuels & Others Totall/

1973/74 23.7 87.4 8.7 255.8 98.9 5.1 87.9 28.1 595.7

1974/75 17.6 87.6 5.7 247.4 107.0 5.1 75.8 17.6 563.9

1975/76 12.7 82.8 6.2 211.6 78.8 4.9 62.6 9.5 469.3

1976/77 11.8 89.6 10.9 214.9 85.0 4.9 64.7 13.3 495.1

1977/78 8.5 93.7 10.0 224.3 69.7 5.3 71.2 14.5 497.2

1978/79 4.4 123.5 2.8 255.6 61.4 5.9 100.6 13.0 567.4

1979/80 1.0 134.6 2.4 298.7 76.6 7.4 92.6 15.7 629.1

1980/81 1.8 144.3 2.3 325.2 86.9 7.4 85.5 17.8 671.4

AverageAnnual Rates of Growth (Z)

1973/74- 1980/81 -30.8 +7.4 -17.3 +3.5 -1.8 +5.5 -0.4 -6.3 +1.7

1977/78- 1980/81 -40.4 4.15.5 -38.7 4-13.2 47.6 411.8 +6.3 +7.1 +1Q.5

t/ Small differencesare attributedto roundingup.

Source: ETCA, based on data supplied by the Ethiopian Petroleum Refinery

October 1981 - 82 -

TABLE 4.1 Page 1 of 5 ETHIOPIA SECOND ROAD SECTOR PROJECT (FY84-86) PHYSICAL PLAN FOR ROAD REHABILITATION AND CONSTRUCTION (km)

TOTAL I. ASPHALT OVERLAY 1984 1985 1986 1984/86

1.1 Addis-Awash* 44 - - 44 1.2.1 Mille-Asseb(A) 30 75 20 125 1.2.2 Mille-Asseb(B) - 80 85 165 1.3 Addis-Ginchi - - 100 100 Sub-Total 74 155 205 434

II. ASPHALT D.B.S.T.

2.1 Agaro-Bedele* 40 40 - 80 2.2 Shashamene-Sodo* 40 40 40 120 2.3 Ambo-Nekempte* 40 40 40 120 2.4 Awash-Kulubi - - 40 40 Sub-Total 120 120 120 360

III.GRAVEL ROADS

3.1.1 Nekempte-Bure(A) 15 50 50 115 3.1.2 Nekempte-Bure(B) 15 50 45 110 3.2 Tepi-Gore 25 35 35 95 3.3 Dera-Mechara - 30 40 70 3.4 Melka-Wakena* 4 - - 4 3.5 Gore-Jikao* 40 40 40 120 3.6 Wacha-Maji* 35 35 35 105 3.7 Mota-Bahardar* 15 - - 15 3.8 Worota-Woldia* 20 - - 20 3.9 Ghimbi-Shebel* 64 - - 64 3.10 Jima-Chida* 16 - - 16 Sub-Total 249 240 245 73T

IV. RURAL ROADS

4.1 RR-50** 361 357 379 1,097 4.2 RR-30** 308 363 435 1,106 4.3 Self-Help 160 245 330 735 Sub-Total 829 965 1,144 2,938

* Ongoing sub-projects started before the inception of the FY84-86 program. ** RR-50 = rural roads for a traffic of 50 vehicles per day. RR-30 = rural roads for a traffic of 30 vehicles per day. - 83 - TABLE 4.1 Page 2 of 5 ETHIOPIA SECOND ROAD SECTOR PROJECT (FY84-86) ANNUAL INVESTMENTPROGRAM FOR ROAD REHABILITATION AND CONSTRUCTION (million Birr, April 1983)

TOTAL I. ASPHALT OVERLAY 1984 1985 1986 1984/86

1.1 Addis-Awash* 9.5 - - 9.5 1.2.1 Mille-Asseb(A) 4.5 11.3 3.0 18.8 1.2.2 Mille-Asseb(B) - 14.4 15.3 29.7 1.3 Addis-Ginchi - - 15.0 15.0 Sub-Total 14.0 25.7 33.3 7TTT

II. ASPHALT D.B.S.T.

2.1 Agaro-Bedele* 5.2 5.2 - 10.4 2.2 Shashamene-Sodo* 5.2 5.2 5.2 15.6 2.3 Ambo-Nekempte* 5.2 5.2 5.2 15.6 2.4 Awash-Miesso-Kulubi - - 5.2 5.2 Sub-Total 15.6 15.6 15.6 4679

III.GRAVEL ROADS

3.1.1 Nekempte-Bure(A) 4.8 16.1 16.1 37.0 3.1.2 Nekempte-Bure(B) 4.8 16.1 14.5 35.4 3.2 Tepi-Gore 8.0 11.2 11.2 30.4 3.3 Dera-Mechara - 7.5 10.0 17.5 3.4 Melka-Wakena* 0.6 - - 0.6 3.5 Gore-Gambella-Jikao* 6.0 6.0 6.0 18.0 3.6 Wacha-Maji* 5.2 5.2 5.2 15.6 3.7 Motta-Bahardar* 3.5 - - 3.5 3.8 Worota-Woldia* 4.6 - - 4.6 3.9 Ghimbi-Shebel* 17.3 - - 17.3 3.10 Jima-Chida * 5.8 - - 5.8 Sub-Total 60.6 62.1 63.0 185.7

IV. RURAL ROADS

4.1 RR-50** 10.8 10.7 11.3 32.8 4.2 RR-30** 7.4 8.7 10.5 26.6 4.3 Self-Help 1.0 1.6 2.1 4.7 Sub-Total 19.2 21.0 23.9 64.1

V. BRIDGES 2.1 3.4 3.6 9.1

* Ongoing sub-projects started before the inception of the FY84-86 program. ** RR-50 = rural roads for a traffic of 50 vehicles per day. RR-30 = rural roads for a traffic of 30 vehicles per day. ETHIOPIA SECOND ROAD SECTOR PROJECT (FY84-86) ANNUAL CAPITAL AND RECURRENT COSTS (million Birr, April 1983)

1984 1985 1986 TOTAL

L F T L F T L F T L F T

A. CAPITAL COSTS 1. Civil Works 1.1 Asphalt Overlay 4.9 9.1 14.0 9.0 16.7 25.7 11.6 21.7 33.3 25.5 47.5 73.0 1.2 Asphalt D.B.S.T. 6.2 9.4 15.6 6.2 9.4 15.6 6.2 9.4 15.6 18.7 28.1 46.8 1.3 Gravel Roads 24,2 36.4 60.6 24.8 37.3 62.1 25.2 37.8 63.0 74.2 111.5 185.7 1.4 Rural Roads 10.4 8.8 19.2 11.3 9.7 21.0 12.9 11.0 23.9 34.6 29.4 64.0 1.5 Bridges 0.8 1.3 2.1 1.3 2.1 3.4 1.4 2.2 3.6 3.5 5.6 9.1

2. Equipment and maintenance facilities 5.6 46.5 52.1 5.6 46.5 52.1 5.5 46.5 52.0 16.7 139.5 156.2

3. Technical Assistance and Training 3.7 3.8 7.5 3.7 3.8 7.5 3.7 3.8 7.5 11.1 11.4 22.5 X

Sub-Total Capital Costs 55.8 115.3 171.1 61.9 125.5 187.4 66.5 132.4 198.9 184.3 373.0 557.3 Price Contingencies* 5.6 9.2 14.8 13.0 _20.2 33.2 22.0 32.0 54.0 40.6 61.4 102.0

SUB-TOTAL 61.4 124.5 185.9 74.9 145.7 220.6 88.5 164.4 252.9 224.9 434.4 659.3

B. RECURRENT COSTS 1. Road Maintenance 17.5 17.5 35.0 20.0 20.0 40.0 22.5 22.5 45.0 60.0 60.0 120.0 Price Contingencies* 1.8 1.4 3.2 4.2 3.2 7.4 7.4 5.4 12.8 13.4 10.0 23.4

Sub-Total Recurrent Costs 19.3 18.9 38.2 24.2 23.2 47.4 29.9 27.9 57.8 73.4 70.0 143.4

TOTAL 80.7 143.4 224.1 99.1 168.9 268.0 118.4 192.3 310.7 298.3 504.4 802.7

* Expected price increases (%): 1983 1984 1985 1986 0 Local 10.0 10.0 10.0 10.0 m a Foreign 8.0 7.5 7.0 7.0 0 4:- - 85 -

Table 4.1 Page 4 of 5

ETHIOPIA SECONDROAD SECTOR PROJECT (FY84-86) RURAL ROAD SUB-PROJECTS

TOTAL ADMINISTRATIVE SUB- PROJECTS LENGTH REGION 1984 1985 1986 TOTAL KMS.

A. RR-50 1. Bonga-Chida 95 KEFFA 35 - - 35 2. Bonga-Chiri 23 . 23 - 23 3. Gimbo-Keboch-Chira 50 , 5 35 40 4. Ehudgebeya-Kersa 100 ILLUBABOR 35 25 - 60 5. Bedele-River Dedessa 50 - 5 35 40 6. Felegeneway-Leha 90 GAMUGOFA 35 35 20 90 7. Turmi-Murle 80 - - 10 10 8. Nejo-Jarso-Begi 215 WOLLEGA 35 35 35 105 9. Dangla-Chara-Timwuha 50 GOJAM 20 30 - 50 10. Addis Kidame-Fageta-Fufa 50 - - 35 35 11. Adele-Grawa-Burka 127 HARRARGE 11 - - 11 12. Babile-Fik 170 15 35 35 85 13. Goba-Meslo-Bitata 200 BALE 35 35 26 96 14. Goro-Elmedo-Elkere 274 - - 5 5 15. Mekanesellam-Ajibar-Tenta 150 WELLO 35 35 35 105 16. Wdegeltena-Lalibela-Bugna .. _ _ _ _ 17. Chilga-Dingelber 145 GONDER 35 28 - 63 18. Delgi-Robit 45 - - 38 38 19. Dilla-Bule-Bore-Sellam 85 SIDAMO 35 11 - 46 20. Dilla-Gidiche 100 I. - 20 35 55 121. Ambo-Chitu-Ghion-Kimakil 120 SHOA 35 35 35 105

SUB-TOTAL 361 357 379 1,097 ETHIOPIA SECONDROAD SECTORPROJECT (FY84-86) RURAL ROAD SUB-PROJECTS

TOTAL ADMINISTRATIVE SUB-PROJECTS LENGTH REGION 1984 1985 1986 TOTAL KMS.

B. RR-30 1. Sorofta-Kokosa-Nansebo 130 BALE 33 - - 33 2. Dolsebro-Jarra-Sheikhussien 120 - 35 35 70 3. Arba Mench-Gelta-Felegeneway 165 GAMUGOFA 35 35 15 85 4. Ghencha-Dera-Mullo-Murka 80 - - 15 15 5. Bichena-Kui-Debremarkos-Rob.G 140 GOJAM 35 28 - 63 6. Robgebeya-Fassil 100 .. - 5 35 40 1 7. Hageresellam-Harencha-Kibre Mengist 160 SIDAMO 35 35 35 105 0 8. Ghinir-Imi-Gode 450 BALE 35 35 35 105 9. Sendafa-Debre Zeit 75 SHOA - 30 35 65 10. Deder-Harawacha-Mesllo-Hirna 110 HARARGIE 35 35 20 90 11. Mieso-Mandera 80 .. _ 10 10 12. Limugenet-Limu-Saka 40 KEFFA 20 - - 20 13. Genet-Beterbecho-Ghibe River 95 10 35 35 80 14. Genet-Atnago-Guna 100 . _ _ _ 15. Chora Duba-Ababora 110 ILLUBABOR 35 35 - 70 16. Gore-Asendabo-Kombolchia 120 - - 35 35 17. Bako-Shambu-Fincha 110 WOLLEGA - 20 35 55 18. Robi-Sedeka-Emdeltu 65 ARSI - - 30 30 19. Debretabor-Begocha 130 GONDER - - 30 30 20. Negele-Wachile-Mega 200 SIDAMO 35 35 35 105 SUB-TOTAL (B) 308 363 435 1106

C. Self-help 735 VARIOUS 160 245 330 735

GRAND TOTAL 829 965 1144 2938

OD 0 I-tp - 87 -

Table 4.2

ETHIOPIA APPRAISAL OF THE SECONDROAD SECTORPROJECT

Cumulative Disbursement Over Five Years (FY84 - FY88)

FY84 Cumulative % Amount

Sept. 30 0 0 Dec. 31 2 1.4 March 31 4 2.8 June 30 8 5.6

FY85

Sept. 30 11 7.7 Dec. 31 23 16.1 March 31 34 23.8 June 30 41 28.7

FY86

Sept. 30 50 35.0 Dec. 31 56 39.2 March 31 64 44.8 June 30 70 49.0

FY87

Sept. 30 75 52.5 Dec. 31 80 56.0 March 31 84 58.8 June 30 88 61.6

FY88

Sept 30 91 63.7 Dec. 31 94 65.8 March 31 97 67.9 June 30 100 70.0 ETIIOPIA APPRAISAL OF THE SECONDROAD SECTOR PROJECT ECONOMIC EVALUATION

Economic Annual Rate Benefits (Million Br) Project Component Investment Traffic (1982 AADT) of Growth VOC's Maintenance Other ERR /Sub-ProJect Length Costs Light heavy Total of Traffic Savings Cost savings Benefits (%) /Section (km) (million Br) (1 1/

1. Asphalt overlay 1.1 Addis Awash 2/ 203 24.07 10.79 0.36 12.02 3/ 33.3 1.1.1 Addis-D/Zeit 37 6.40 603 1,788 2,391 2.7 3.05 0.07 1.85 3/ 47.1 1.1.2 D/Zeit-Mojjo 24 2.99 258 925 1,183 2.7 0.89 0.05 1.20 31 28.1 1.1.3 Mojjo-Nazreth 17 2.11 155 537 692 2.7 0.50 0.03 0.85 3/ 20.6 1.1.4 Nazreth-Awash, 125 12.57 109 514 623 2.7 6.20 0.19 8.12 3/ 30.2 1.2 Mille-Asseb 8/ 330 34.90 25 362 387 2.5 11.20 0.40 14.85 3/ 25.5 1.3 Addis-Ginchi 100 8.31 155 520 675 2.7 5.10 0.14 5.00 3/ 34.1 2. Asphalt D.S.B.T. Four sections 250 13.75 30 118 148 2.9 2.52 0.82 - 26.4 3. Gravel Feeder Roads 3.1 Nekempte-Bure 250 84.0 4/ 6 5/ 78 5/ 84 5/ - - - 6.35 6/ 24.0 3.2 Tepi-Gore 2/ 146 55.94/ 5 5/ 68 5/ 73 5/ - - - 2.32 6/ 15.3 3.3 Dera-Mechara 246 81.2 4 11 5/ 79 5/ 90 5/ - - - 5.11 6/ 22.2

4. Road Maintenance co 4.1 All-weather network 13,300 44.6 50 7/ 150 7/ 200 7/ 2.0 108.5 co 87/ 42 7/ 50 7/ I 17/ 97/ 10 7/

5. Total Project 346.7 30.4

1/ Benefits estimated for the first year of completion of subproject; VOC's savings are based on VOC's adjusted to reflect the conditions of specific project roads. 2/ This subproject began under ongoing First Road Sector Project. A few aubprojects of the First Sector Program which are being completed in 1984 have not been included. 3/ Reconstruction cost savings which would accrue only in last year of economic life of new investment (amount shown corresponds to year 7). 4/ Capital investment costs only. The economic costs of annual maintenance and of investments in agricultural development were also included in the economic evaluation (see Table 5.2). 5/ Traffic at opening year of subproject. 6/ The benefits attributable to value added were based on additional net agricultural production tonnages and average wholesale prices as presented in the Appraisal Report for each project, prepared by ETCA's PPDj in several cases their estimates for average yield per crop and/or estimated growth in production were reduced to more conservative levels. 7/ See table 5.2 8/ Only 290 km of this sub-project is to be implemented within the three year project period. AABLE 5.2 itTBIOPIA APPRAISAL OF TEE SECONDROAD SECTOR PROJECT ECONO!4IC EVALUATION OF ROAD MAINTENANCEELEMENT

I. Road Network and Traffic Levels Proportion of Total of Road Length in Proportion of Traffic Volume which this Road Type Lenght Total (AADT) volume exists (km) Y%)-- -%)

Asphalt 3,515 27 301-2500 22 Gravel 2/ 5,430 41 101- 300 52 Earth 2/ 4,288 32 0- 100 26

Totals 13,233 100 100

II. Vehicle Operating Costs (Br/veh/km January 1983, net of taxes)

Paved Road Gravel Road Earth Road A 3/ B 4/ A B4 A 3/ B 4/

Light vehicles 0.68 0.87 0.72 1.18 1.05 1.41 Heavy vehicles 1.66 2.03 1.89 2.91 2.56 3.43

III. Assumptions (a) VOC's are an average of categories A and B for each type of road. (b) The proportions of light and heavy vehicles is on the average of 25% (light) and 75% (heavy) for paved roads, 85% (heavy) and 15% (light) for gravel roads and 90% (heavy) and 10% (light) for earth roads.

IV. Evaluation (Million Birr) Benefits Incremental Paved Road Gravel Road Earth Road Year Costs Maintenance Maintenance Maintenance Total

1 13.8 0 2 14.8 6.3 9.0 0.9 16.2 3 16o8 14a1 18.6 1.8 34.5 4 21.4 26.9 2.6 50.9 5 11.2 12.8 1.3 25.3 6 8.4 1.0 9.4 7 5.2 0.5 5.7 8 2.5 0.1 2.6

ERR = 108.5%

1/ Based on Annual Report on Rural Traffic Movement in Ethiopia, 1980; ETCA, November 1982. 2/ About 2000 km of servic5-to-traffic roads and other low class roads normally included as "gravel" roads by ETCA, have been reclassified here as earth roads. 3/ In good condition. 4/ Deteriorated. E T H I O P I A N T R A N S P O R T C O N S T R U C T I O N A U T H O R I T Y O G A N I Z A T I O N C H A R T

MINISTRY OF TRANSPORT AND COMMUNICATIONS

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