REPUBLIC OF UGANDA APPRAISAL REPORT ROAD SECTOR SUPPORT PROJECT 2

Transcription

1 AFRICAN DEVELOPMENT FUND REPUBLIC OF UGANDA APPRAISAL REPORT ROAD SECTOR SUPPORT PROJECT 2 TRANSPORT DIVISION.2 INFRASTRUCTURE DEPARTMENT August 2007

2 TABLE OF CONTENTS PROJECT INFORMATION SHEET, CURRENCY AND MEASURES, LIST OF TABLES, LIST OF ANNEXES, LIST OF ABBREVIATIONS, COMPARATIVE SOCIO-ECONOMIC INDICATORS, PROJECT LOGICAL FRAMEWORK, EXECUTIVE SUMMARY (i-xi) 1. ORIGIN AND HISTORY OF THE PROJECT 1 2. THE TRANSPORT SECTOR The Transport System Transport Policy, Planning and Co-ordination Regional Transport Facilitation Program 3 3. THE ROAD SUB-SECTOR The Road Network, Vehicle Fleet and Traffic The Road Transport Industry Road Administration and Training Road Planning and Financing Road Engineering and Construction Road Maintenance Impact of Bank Group Assistance in the Transport Sector 6 4. THE PROJECT Project Concept and Rationale Project Area and Project Beneficiaries Strategic Context Sector Goal/Project Objective Project Output and Description Traffic Demand and Road User Prices Environmental and Social Impact Project Costs Sources of Finance and Expenditure Schedule PROJECT IMPLEMENTATION Executing Agency Institutional Arrangements Supervision and Implementation Schedules Procurement Arrangements Disbursement Arrangements Monitoring and Evaluation Financial Reporting and Auditing Aid Co-ordination 15

3 6. PROJECT SUSTAINABILITY AND RISKS Recurrent Costs Project Sustainability Critical Risks and Mitigation Measures PROJECT BENEFITS Economic Analysis Social Impact Analysis Sensitivity and Risk Analysis CONCLUSIONS AND RECOMMENDATIONS Conclusions Recommendations 19 This Appraisal report was prepared by Messrs. A. BABALOLA (Senior Transport Engineer, Ext. 2525) N. KULEMEKA (Principal Socio economist, Ext. 2336), D. GEBREMEDHIN (Principal Transport Economist, Ext. 3684) and P. MWESIGYE (Environmentalist following their mission to Uganda in August Any inquiries relating to this report may be referred to Mr. J. RWAMABUGA, Manager, OINF.2, Ext and Mr. G. MBESHERUBUSA, Director, OINF, Ext

4 i AFRICAN DEVELOPMENT FUND Temporary Relocation Agency B.P Belvedere, Tunis, TUNISIA Tel: (216) Fax: (216) UGANDA ROAD SECTOR SUPPORT PROJECT 2 PROJECT INFORMATION SHEET The information given hereunder is intended to provide some guidance to prospective suppliers, contractors and consultants and to all persons interested in the procurement of works, goods and services for project approved by the Board of Directors of the Bank Group. More detailed information and guidance should be obtained from the Executing Agency of the Borrower. 1. COUNTRY : Uganda 2. PROJECT TITLE : Road Sector Support Project 2 3. LOCATION : Kabarole and Bundibugyo Districts in western region of Uganda 4. BORROWER : The Republic of Uganda 5. EXECUTING AGENCY : Ministry of Works and Transport Road Agency Formation Unit (RAFU) Plot 11 Yusuf Lule Road P.O. Box Kampala, Uganda. Tel: (256) / Fax:(256) rafu@rafu.or.ug 6. DESCRIPTION : The project consists of: A) Civil Works: Construction works for the upgrading of gravel-surfaced road to bitumen standard with 6.0-m wide carriageway and 1.5-m shoulders on either side from Fort Portal town through Bundibugyo to Lamia (103 km) in rolling, mountainous and flat terrain. B) Consultancy Services i) Construction supervision services for Fort Portal - Bundibugyo Lamia road works; ii) Feasibility study and detailed engineering design for (a) Kagamba Ishaka, (b)ntungamo Kakitumba, (c ) Kapchorwa - Suam and (d) Hoima to Kaiso Tonya Roads

5 ii iv) Consultancy Services for Project Audit; C) Resettlement Resettlement and compensation of the persons affected by the project. 7. TOTAL COST : UA million i) Foreign Exchange : UA million ii) Local Cost : UA million 8. BANK GROUP LOAN/GRANT ADF-LOAN : UA million ADF GRANT : UA 1.35 million 9. OTHER SOURCE OF FINANCE GOU : UA 9.67 million 10. DATE OF APPROVAL : 19 December ESTIMATED STARTING DATE OF PROJECT AND DURATION : January 2009 December 2011 (36 months), excluding 12 months of defect liability period for the physical works 12. PROCUREMENT OF GOODS AND WORKS : International Competitive Bidding (ICB) using the standard bidding documents for large works, among contractors from member countries of Bank and State participants of the ADF in accordance with the Bank's "Rules of Procedure for Procurement of Goods and Works" 13. CONSULTANCY SERVICES REQUIRED AND STAGE OF SELECTION : Consultancy services will be required for supervision of construction works, studies of four roads and project audit. Procurement will be in accordance with the Bank's "Rules of Procedure for Use of Consultants". The procurement will be through competition on the basis of shortlist of firms, and on the basis of technical quality with price consideration for supervision of civil works and road studies; and on the basis of comparability of technical proposals with least-cost consideration for project audit services. 14. ENVIRONMENTAL CATEGORY OF THE PROJECT : CATEGORY 1

6 iii CURRENCY AND MEASURES Currency Equivalents (August 2007 Exchange Rates) Currency Unit = Uganda shilling (UGX) 1 UA = UGX UA = US$ US$ = UGX WEIGHTS AND MEASURES 1 metric tonne (t) = lbs 1 kilogramme (kg) = lbs 1 metre (m) = ft 1 foot (ft) = m 1 kilometre (km) = mile 1 square kilometre (km 2 ) = square mile 1 hectare (ha) = 0.01 km 2 = acres FISCAL YEAR July 1 - June 30 LIST OF TABLES Table 4.1 : Summary of Project Cost Estimate by Component Table 4.2 (a) : Financing Plan by Source Net of Taxes (Civil Works) Table 4.2 (b) : Financing Plan by Source Net of Taxes (Road Studies) LIST OF ANNEXES Annex. Titles No of Pages 1. Map of Country and Project Area 2 2. Organisational Structure of Road Agency Formation Unit (RAFU) 1 3. Project Implementation Schedule 2 4. Road Sector Investment and Recurrent Expenditure; Road Sector Development Program (RSDP) 2001/2-2010/11 and RSDP Donor Support 3 5. Summary of Traffic and Economic Analysis 6 6. Provisional List of Goods and Services 1 7. Expenditure Schedule by Category and Source of Finance 1 8. Summary of Procurement Arrangements 1 9. Summary of Detailed Cost Estimates (Fort Portal Bundibugyo Lamia) Terms of Reference (Abridged) for Four Road Studies: feasibility study and detailed engineering design Summary of On-going Bank Group Operations List of Annexes in Project Implementation Document Project Preparation, Review and Donor Consultative Process 1

7 LIST OF ABBREVIATIONS AADT = Annual Average Daily Traffic ADB = African Development Bank ADF = African Development Fund BADEA = Arab Bank for Economic Development in Africa CBO = Community Based Organisation COMESA = Common Market for East and Southern Africa CSP = Country Strategy Paper DANIDA = Danish International Development Agency DBST = Double Bituminous Surface Treatment DFID = Department for International Development DRC = Democratic Republic of Congo EATTF = East African Trade and Transport Facilitation EIA = Environmental Impact Assessment EU = European Union EIRR = Economic Internal Rate of Return ESIA = Environmental & Social Impact Assessment ESMP = Environmental & Social Management Plan FE = Foreign Exchange GOU = Government of Uganda GDP = Gross Domestic Product GPN = General Procurement Notice HDI = Human Development Index HDM = Highway Development and Management HIV/AIDS = Immuno Virus /Acquired Immune Deficiency Syndrome ICB = International Competitive Bidding IDA = International Development Association (World Bank) JBIC = Japan Bank for International Cooperation JICA = Japanese International Cooperation Agency KfW = Kreditanstalt fur Weideraufbau MDG = Millennium Development Goal MFPED = Ministry of Finance, Planning and Economic Development MLG = Ministry of Local Government MOWT = Ministry of Works and Transport MTEF = Medium Term Budget Expenditure Framework NDF = Nordic Development Fund NEMA = National Environmental Management Authority NGO = Non Governmental Organization NPV = Net Present Value PAP = Project Affected Persons PEAP = Poverty Eradication Action Plan RAFU = Road Agency Formation Unit RAP = Resettlement Action Plan RSDP = Road Sector Development Programme RSISTAP = Road Sector Institutional Support Technical Assistance Project SPN = Standard Procurement Notice TAF = Technical Assistance Fund TSBFP = Transport Sector Budget Framework Paper TSIREP = Transport Sector Investment and Recurrent Expenditure Programme UA = Unit of Account SIP = Sector Investment Program UDHS = Uganda Demographic and Health Survey UGX = Uganda Shilling UJAS = Uganda Joint Assistant Strategy UNHS = Uganda National Household Survey URC = Uganda Railways Corporation UNRA = Uganda National Roads Authority VOC = Vehicle Operating Costs iv

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9 vi UGANDA ROAD SECTOR SUPPORT PROJECT 2 : UPGRADING OF FORT PORTAL NTANDI BUNDIBUGYO LAMIA ROAD & ROAD STUDIES REVISION DATE: October 2007 DESIGN TEAM: A. Babalola, N. Kulemeka, D. Gebremedhin Hierarchy of Objectives Expected Results Reach Performance Indicators Source Method Indicative Targets Timeframe Assumptions / Risks 1 - Goal 1.1 To contribute to poverty reduction by improving sustainable road access to all rural and urban areas of the country Impact - Long Term Results 1.1 Improved access to economic and social facilities 1.2 Improved road safety 1.3 Improved standard of living Beneficiaries 1.1 Rural and urban populations in the country Indicators 1.1 Proportion of habited land area within 5 km from all weather road. 1.2 Vehicle accident 1.3 Incidences of poverty Sources / Method: National Statistical Office data, Traffic Dept., MOWT, Uganda Human Development Reports, CSO and UNDP Target 1.1 Rural access index to all weather road increased from current situation (baseline data to be collected). 1.2 Reduced vehicle accidents from 76/1000 vehicles in 2000 to 40/1000 in Reduced proportion of people living below poverty line from 35% (2000) to 17 % in 2017 Assumptions 1.1. Successful implementation of the Poverty Eradication Action Plan (PEAP) 1.2 Effective implementation of the Five Year Road Safety Improvement Program 1.3 Efficient implementation of RSDP 2. Project Purpose (Objective): 2.1 To improve the road transport service levels between Kabarole and Bundibuygo districts and by so doing, provide access by the majority of rural people to socioeconomic facilities and integration to the rest of the country and also support regional integration with DRC Outcome - Medium Term Results 2.1 Reduction in transport cost on the project road 2.2 Increased movement of people, goods and services 2.3 Increased trade between Kabarole and Bundibugyo districts and DRC 2.4 Improved quality of life Beneficiaries 2.1 General population within Kabarole and Bundibugyo districts 2.2 Agricultural and manufacturing industries within the area 2.3 Local and regional business community and traders Indicators 2.1 Vehicle operating costs (VOCs) 2.2 Journey ( travel) time 2.3 Traffic levels on the project road 2.4. Human Development Index (HDI) Source/Method: Districts, National Statistics, RAFU /UNRA, MOWT and UNDP reports and data Target 2.1. Reduction of composite VOCs per vehicle km by 54% from USD in 2007 to USD in Average travel time reduced by 60 % from 5.15 hrs in 2007 to 2.06 hrs in Weighted Average Daily Traffic along the project road increased from 616 vehicles / day in 2006 to 1099 in During the same period NMT traffic increased from 368 to HDI of Bundibugyo and Kabarole districts to increase from 0.417and in 2004 to and 0.6 in 2017 respectively. Assumptions 2.1 GOU allocates sufficient funds for routine and periodic maintenance and maintenance of completed road will be optimum

10 vii 3. Resources and Activities: 3.1 Procurement of works 3.2 Construction of 103 km of 6.0m + 3m road from Fort Portal through Bundibugyo to Lamia 3.3 Consultancy services (Studies) 3.4 Supervision of works 3.5 Audit consultancy service 3.6 Compensation of affected people Inputs: Inputs - millions UA: Civil Works Consultancy (supervision) 2.56 Audit consultancy service 0.10 Consultancy services (studies) 1.38 Other (compensation) 1.63 Base Cost Physical Contingencies 5.39 Price escalation 5.35 Total Project cost Sources of financing (million UA) ADF Loan ADF Grant 1.35 GOU 9.67 Total Short Term Outputs: 3.1 New road with Double Bituminous Surface Treatment 6.0 m carriageway and 1.50 m SBST shoulders on either side between Fort Portal through Bundibugyo to Lamia 3.2. All project affected persons (PAP) fully relocated and timely compensated in accordance with the RAP 3.3 Construction workers and local communities sensitised and fully informed about HIV/AIDS 3.4 Road safety campaigns carried out along the project road 3.5 Feasibility study and detailed engineering design and bidding documents produced for (i) Kagamba Ishaka; (ii) Ntangamo Kakitumba; (iii) Kapchorwa Suam and (iv) Hoima Kaiso-Tonya. Beneficiaries 3.1 Regional and international contractors, local communities, consultants and suppliers 3.2 Local traders and producers 3.3 Construction workers, and Road users 3.4 Project Affected Persons 3.5 Consultants 3.6 GOU Indicators 3.1 Length of paved road in Kabarole and Bundibugyo districts 3.2 Restoration of social infrastructure. 3.3 Implementation of HIV/AIDS and Road Safety prevention and awareness activities 3.4 Submission, for review by GOU, of consultancy progress reports. Source / Method : Quarterly financial and technical reports, Technical and Financial Audit reports, Disbursement Records, Bank Supervision missions and Mid Term review Target 3.1 Increase length of paved road in Kabarole and Bundibugyo districts from 152 km in 2006 to 255 km in % loan disbursement by end of Completion of installation of social infrastructure by All construction workers and at least 11 communities reached with HIV/AIDS prevention and Road Safety awareness campaigns by Delivery of detailed quarterly reports on a timely basis. Assumptions 3.1 GOU disburse their financial contribution on timely basis 3.2 No major volatility in oil based input prices. 3.3 Effective supervision by GOU 3.4 Timely release of adequate resources for implementing the RAP 3.5 Security in the road corridor is maintained 3.6 Competent contractors and consultants respond to bids 3.7 The smooth and efficient transformation from RAFU to UNRA 3.8 Regular and constant supervision of consultants by GOU

11 viii UGANDA ROAD SECTOR SUPPORT PROJECT 2 : ROAD STUDIES MATRIX SPECIFIC TO ADF GRANT REVISION DATE : October 2007 DESIGN TEAM: A. Babalola, N. Kulemeka, D. Gebremedhin Hierarchy of Objectives Expected Results Reach Performance Indicators Source Method Indicative Targets Timeframe Assumptions / Risks 1 - Goal 1.1 To contribute to poverty reduction by improving sustainable road access to all rural and urban areas of the country Impact - Long Term Results 1.1 Improved access to economic and social facilities 1.2 Improved road safety 1.3 Improved standard of living Beneficiaries 1.1 Rural and urban populations in the country Indicators 1.1 Proportion of population within 5 km of all weather road 1.2 Vehicle accident rate 1.3 Incidences of poverty Sources / Method: National Statistical Office data, MOWT, Traffic Dept., Uganda Human Development Reports, CSO and UNDP Target 1.1 Rural access index improves over project period (baseline data to be collected during implementation). 1.2 Reduced vehicle accidents from 67/1000 vehicles in 2000 to 40/1000 in Reduced proportion of people living below poverty line from 35% (2000) to 17 % in Assumptions 1.1. Successful implementation of the Poverty Eradication Action Plan (PEAP) 1.2 Effective implementation of the Five Year Road Safety Improvement Plan 1.2 Adequate resources for implementing RSDP 2. Project Purpose (Objective): 2.1 To enable decision - making in the investment on 4 road development projects based on analytically and objectively assessed information (Kagama Ishaka, Ntungamo Kakitumba Kapchorwa - Suam and Hoima to Kaiso-Tonya) Outcome - Medium Term Results 2.1 Established 4 bankable (technically, economically, environmentally and socially) road projects. Beneficiaries 2.1. Decision making authorities 2.2 Financing agencies 2.3 Consulting service providers Indicators 2.1 Submission of acceptable and complete final feasibility and detailed design reports to GOU and ADF Source/Method: Consultant s progress reports, GOU and ADF review reports Target 2.1 Sufficient consultations and decision making meetings 2.2 Received feedback on GOU and ADF review Assumptions 2.1 Regular and timely submission of progress reports for review by GOU 2.2 Constant and regular supervision of consultant by GOU

12 ix 3. Activities: Short Term Outputs: Beneficiaries Indicators Target Assumptions 3.1 Procurement of Consultancy services to conduct feasibility studies and detailed engineering design. Inputs: Inputs - millions UA: Feasibility study and detailed engineering design review of Kagamba Ishaka, Ntungamo Kakitumba and Kapchorwa - Suam roads 0.88 Hoima Kaiso-Tonya 0.50 Contingency 0.07 Total Cost Obtained feasibility and detailed engineering design reports. 3.1 Local and international consultants 3.2 Government officials 3.1 Final feasibility study and detailed engineering design review reports of: - Kagamba to Ishaka road; - Ntungamo to Kakitumba road - Kapchorwa to Suam road - Hoima to Kaiso-Tonya road; Source / Method : Consultant Reports, Interim and final design reports, Bank Supervision missions 3.1. Submission of final detailed design reports to GOU within 18 months after commencement of study. 3.1 Capacity in GOU to adequately and effectively monitor the consultant, and to review and provide timely feedback on progress reports. Sources of financing Plan (million UA) ADF Grant 1.35 GOU 0.10 Total 1.45

13 EXECUTIVE SUMMARY Project Background x The Government of Uganda (GOU) in implementing its transport sector policy formulated in 2002 the second 10-Year Road Sector Development Program (RSDP2) for the period 2001/02 to 2010/11. The program, which incorporated the national roads as well as districts, urban and community access roads, was projected to cost of USD 2.28 billion. It is within this context that the GOU requested the Bank in December 2005 for financial assistance to support the upgrading of Fort Portal Bundibugyo Lamia road from gravel to bitumen surface standard and to study four main roads which are packaged as the Road Sector Support Project 2. The four roads to be studied are in the list of priorities of national road network for upgrading from gravel to bitumen standard and listed in the Technical Assistance/Studies component of the RSDP and in the MTEF/Budget Framework Paper. The project road is critical to achieving the objectives of the Ugandan Poverty Eradication Action Plan (PEAP) and regional integration/ trade between member countries of the Great Lakes Region. The Fort Portal Bundibugyo Lamia (103 km) gravel road is located in areas that are fertile in production of food, cash crops and livestock, and have high potential for mineral resources and oil. The road, which also links Uganda to the Democratic Republic of Congo (DRC) through the border town of Lamia, will serve as a feeder road to the proposed Lagos - Mombasa Trans African Highway Corridor. The project road was identified by the Bank and GOU under the Preferential Trade Area; and its economic feasibility and detailed engineering study was financed by African Development Fund (ADF)/Technical Assistance Fund resources between 1993 and The project implementation was delayed mainly due to insecurity in this part of the country, which is now pacified and is on the path to economic recovery. Given its prioritisation in the RSDP2, GOU used its own resources to update the study, with all necessary documentation submitted in August 2007 for the Bank Group intervention. Purpose of the Loan and Grant The proposed financing from ADF loan will cover part of the cost of upgrading of Fort Portal Bundibugyo - Lamia road from gravel to bitumen surfaced standard; while the ADF Grant will be used to finance part of the cost of studies of four roads. Goal and Project Objective(s) The sector goal is to contribute to poverty reduction by improving sustainable road access to all rural and urban areas of the country. The project objectives are: To improve the road transport service levels between Kabarole and Bundibuygo districts and by so doing, provide access by the majority of rural people to socio-economic facilities and integration to the rest of the country; and also support regional integration and cross border trade with DRC. Brief Description of the Project The project outputs consist of a 103 km bituminous surfaced road with 6.0-m wide carriageway and 1.5-m shoulders on either side from Fort Portal town through Bundibugyo to Lamia; and feasibility study and detailed engineering design with respect to four roads. The project will consist of: i) Construction of a two-lane Double Bituminous Surface Treatment (DBST) road with 6.0 m wide carriageway and 1.5 m shoulder on either side from Fort Portal - Bundibugyo Lamia (103 km);

14 xi ii) iii) iv) Consultancy services consisting of supervision of works and project audit; Feasibility Study and detailed engineering design of four roads (Kagamba Ishaka, Ntungamo Kakitumba, Kapchorwa Suam and Hoima to Kaiso - Tonya); and Compensation of the project affected persons and other social and environmental management. Project Cost The project cost estimate, net of taxes is UA million (UGX billion), which is made up of UA million (73.37%) in foreign exchange (FE) cost and UA million (26.63%) in local cost. The cost estimate for the four road studies amounting to UA1.45 million has also been included in the overall project cost. Sources of Finance ADF and GOU will jointly finance the project. The proposed financing from ADF would cover 100 % of the foreign exchange cost and 46.34% of local cost amounting to UA million (UGX139.78billion). The GOU will finance 53.66% of the local cost amounting to UA 9.67 million (UGX23.30 billion), which is equivalent to 14.29% of the total project cost. The ADF loan of UA million (UGX billion) will cover 85.55% of the total cost of the road works. The ADF Grant of UA1.35 million will cover 93.1% of the total cost of the four road studies Project Implementation The duration of implementation of the project is 36 months commencing in January 2009 and ending in December 2011, followed by 12 months of Defects Liability Period. The Implementing Agency will be the Road Agency Formation Unit (RAFU). Conclusions and Recommendations This second intervention in the RSDP 2 captioned as Road Sector Support Project 2 by the Bank for the upgrading of Fort Portal Bundibugyo Lamia (103 km) and the studies of four roads is consistent with the Bank Group Country Assistance Strategy for and the Uganda Joint Assistance Strategy (UJAS), which are in line with the Government's transport sector policy in support of PEAP. The project will support the economic and social recovery programmes taking place in Uganda through the removal of traffic flow bottlenecks to ensure economic recovery, poverty reduction and market integration and support regional integration with DRC. The project is technically feasible, economically viable, environmentally sustainable and socially desirable. It is recommended that an ADF loan not exceeding UA million and ADF Grant of UA 1.35 million be extended to the Government of Uganda for the implementation of the Road Sector Support Project 2 as described in this report subject to the conditions specified respectively in the Loan Agreement and Protocol of Agreement.

15 1. ORIGIN AND HISTORY OF THE PROJECT 1.1 The Government of Uganda (GOU) continues to pursue and implement the transport sector policy/strategy which is aimed at promoting the provision of reliable, efficient, safe and environmentally sustainable transport system to support increased agricultural and industrial production, trade, tourism, social and administrative services. In this context, the GOU formulated in 2002 the second 10-Year Road Sector Development Program (RSDP) from 2001/02 to 2010/11. The program incorporated the national, districts, urban and community access roads at an estimated cost of USD 2.28 billion, and currently under implementation with donors support. The African Development Fund (ADF) intervention in the program commenced with the Road Sector Support Project 1 (RSSP) which was approved by the Board in April 2005 (ADF/BD/WP/2004/181/Rev.1). This comprises upgrading of 98-km Kabale-Kisoro- Bunagana/Kyanika road and two road studies, which is under implementation. The GOU requested the Bank in December 2005 for financial assistance to support a second road sector project consisting of upgrading the Fort Portal Bundibugyo Lamia from gravel to bitumen surface standard and four road studies, which are on the list of the priorities of RSDP and critical in achieving the objectives of the Ugandan Poverty Eradication and Action Plan (PEAP). 1.2 The Fort Portal - Bundibugyo Lamia road, which is a 103-km gravel road is located in areas that are fertile for the production of food and cash crops and livestock, and have high potential for mineral resources and oil. The road also links Uganda to the Democratic Republic of Congo (DRC) through the border at Lamia and will serve as a feeder road to the proposed Lagos Mombasa Trans- African Highway. The project road was identified by the Bank and GOU under the Preferential Trade Area and its economic feasibility and detailed engineering study was financed by ADF/Technical Assistance Fund (TAF) resources between 1993 and The project implementation was delayed mainly due to insecurity in this part of the country, which is now pacified and is on the path to economic recovery. Following the Bank s admission of the project into its Pipeline and review of the Terms of Reference for the Design Review Study, GOU commissioned a consulting firm in September 2006 to update the old studies of the project road. Upon receipt of the Final Economic Feasibility Study and Preliminary Engineering design, a Preparation Mission was sent to Uganda in May The Bank fielded an Appraisal Mission in August 2007, following receipt of the project documentation including detailed engineering designs. This appraisal report is based on the review of the Consultant s reports, discussions held with the Government and other agencies including Donors (see Annex 13), field visit to the project road and on additional information collected by the Bank Mission. 2. THE TRANSPORT SECTOR 2.1 The Transport System General: The transport and communication sector plays a major role in the socio-economic development of the country by promoting the development of the productive sector of the economy and improving social service coverage and is a pillar for successs of the GOU s PEAP. Uganda operates a transport system consisting of four modes, namely, road, rail, air and inland water transport. Uganda transport infrastructure also serves as a transit corridor linking the land-locked neighbouring countries of Rwanda, Burundi, Sudan and DRC to the Indian Ocean via the ports of Mombassa and Dar es Salaam Roads: Road infrastructure has been identified in Uganda among the priority areas necessary for PEAP and the development of the economy. Road transport accounts for 99% of the country's passenger - km and 95% of the freight tonne km. Transit traffic is estimated at 30% of total traffic on the paved main east-west arterials. More details on the road sub-sector are given in Chapter 3.

16 Railways : The rail network of Uganda comprises about 1350 km long metre-gauge rail lines which extend from east to west connecting the rail lines of Kenya and Tanzania to the seaports of Mombasa and Dar-es-Salaam. These links provide for long-haul movement, which enter the import and export trade of Uganda and neighbouring countries of Burundi, Rwanda, DRC and Sudan. As of November 2006, the Ugandan rail network was jointly concessioned with the rail network of Kenya for 25 years to Rift Valley Railway of South Africa, while the asset remains the property of the Governments Waterways: Uganda s total area is made up of about 18 % of water, most of which are navigable such that inland water transport is a significant component of the transport system. It contributes to the overarching objective of poverty reduction by providing accessibility to remote areas on the lakeshores and islands. As part of the GOU s effort to overcome the challenges posed by this sub-sector, the pre-feasibility study on Inland Water Transport was carried out using an ADF /TAF grant in The final report of the study recommended a capital investment of USD million for the short to long term development of the sub-sector. However, GOU has not been able to mobilize adequate financial resource to improve the infrastructure needs of this sub-sector Air Transport: The air transport service in the country is rendered by one international airport at Entebbe, thirteen aerodromes and eight airstrips. Nineteen airlines provide scheduled international passenger services and sixteen airlines provide non-scheduled cargo and passenger services to Entebbe Airport. The sub-sector faces funding problem for runway strengthening and lighting. The Government has allocated about USD20.0 million in 2006/07 for converting Entebbe old airport into general/domestic terminal, improvement of Entebbe International Airport, construction of new cargo apron and upgrading of Arua and Kasese airports. 2.2 Transport Policy, Planning and Co-ordination The principal authority responsible for transportation policy, planning and coordination is the Ministry of Works and Transport (MOWT), while the Ministry of Finance, Planning and Economic Development (MFPED) is responsible for the Medium Term Expenditure Framework (MTEF) and the Budget Framework Paper in line with PEAP. MOWT has a Department, headed by a Director in charge of transport policy, planning and regulation that coordinates all policy and planning issues for the entire transport sector. The transport sector policy objective is to support socio-economic development of the country through an efficient, effective, safe and environmentally sustainable transportation system that integrates regional and national economic centres and provides a reliable access for the majority of the rural population, thereby contributing to reduction of poverty The MOWT is responsible for the regulatory and policy framework for the national, districts, urban and community access roads, Uganda Railways and its Waterway System, the Civil Aviation Authority and the Transport Licensing Board. The district and urban roads are under the statutory responsibility of districts and municipal governments, while the MOWT represents their interest at national and international levels. Planning and programming of projects and mobilization of local and international resources are done through the 10-Year RSDP2 (2001/02 to 2010/11) Sectoral co-ordination is achieved through the MTEF/ Budget Framework Paper. This is reviewed annually by the Development Committee of the budget, which prepares a 3-year rolling medium-term expenditure framework paper as a tool for implementing the RSDP. The Development Committee is made up of the MFPED, MOWT, Ministry of Local Government (MLG), Office of the Prime Minister and that of the President. The Committee ensures that projects included in the development budget are economically, environmentally and technically sound, and fit into the overall macro-economic framework of the country. The draft budget medium term expenditure framework paper with respect to the sector is also discussed with Development Partners prior to presentation to Cabinet and Parliament. Overall, through the

17 Development Committee, there is effective planning and investment co-ordination in the sector Regional Transport Facilitation Program Uganda is in the Great Lakes Region and is a member of the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA), both with the common objective to promote trade, economic cooperation and regional integration among its member countries. Accordingly, GOU has given high priority for the improvement of intra-regional transport infrastructure and cross border facilitation for the movement of goods and persons. The implementation of the COMESA Transport Facilitation instruments that are currently operational in Uganda include i) harmonized Road Transit Charges ii) harmonized axle load limits and maximum vehicle dimensions; iii) COMESA Carrier licence; iv) COMESA Yellow Card; and v) COMESA Transit Plate. Uganda s transport infrastructure is critical since it is a transit country to and from the ports of Mombasa and Dar es Salam for the land locked countries of Rwanda, part of DRC and Burundi. 3. THE ROAD SUB-SECTOR 3.1 The Road Network, Vehicle Fleet and Traffic The total road network in 2007 is estimated to be 68,800km and is classified into: (i) The national road network of 10,800km of which 3,000km is paved and 7,800km gravel surfaced; (ii) The district road network of 25,000km (mainly unpaved); (iii) Urban road network of approximately 3,000km (mostly paved); and (iv) The community access roads of 30,000km (unpaved). Uganda has a road density of 285 km per 1000 km sq. This is higher than that of Tanzania of 90 km/1000 km.sq. and lower than that of Kenya with a density of 334km/1000 sq.km The number of vehicles on the road was 189,105 in 2000 and rose to 363,658 in Out of the total vehicle fleet, 45.2 % (164,506) are motorcycles. The average annual growth rate of the fleet is about 9.85%, which indicates a good recovery and rapid growth of the economy. The total vehicle-km travelled on the entire road network increased from 4.69 billion in 2000 to billion in The weighted annual average daily traffic volume (AADT) was about 3,624 vehicle/day on the paved roads in June According to the 2006 survey, there were about 2.05 million bicycles in the country Road accidents increased from 14,384 in 2000 to 18,092 in 2005/06. The accident rate per 100,000 population rose from 63.2 in 2000 to 67.9 in 2005/06. During the same period, the correspondingly average loss of lives per 100,000 people has increased from 6.6 to 6.7. To reduce accident rates, Government conducted a Road Safety Audit and Improvement Study in 2000, which indicated that 80% of all accidents were due to human error. In 2002, the study led to the formulation of the National Road Safety Action Plan that comprised: a Three-Year Action Plan and a Five Year Road Safety Improvement Program. The main components of the 3-year Action Plan are: capacity building, equipping the Highway Patrol Unit of the Police, incorporating road safety education into primary school curriculum and training of casualty personnel in emergency and acute care. The implementation of all components is still on going because of the delay in the start up of the program. The 5-year program also involves improvement of road safety at selected road black spots and associated road safety enforcement and management. At the end of 2012, it is expected that the accident rate per 1000 vehicles will be reduced to at least 40 from 76 in To ensure the efficient and safe use of roads, the Traffic and Road Safety (weighbridges) Regulations 1998 is being amended to include strict measures for effective axle load control and an Axle Load Monitoring & Control Unit has been established in MOWT. Government is procuring four mobile and four fixed weighbridges under the World Bank financed East African Trade and Transport Facilitation (EATTF), in addition to the existing weighbridges at Busia and Mbarara in order to control overloading of vehicles.

18 The Government has not conducted periodic traffic count on its road network since 2003 but has plans to undertake one in Government needs to imbibe the culture of conducting regular traffic counts on the network to develop a database for planning and programming purposes. 3.2 The Road Transport Industry The Transport Licensing Board of the MOWT licenses vehicles and operators, regulates passenger routes, minibuses and sets tariffs. The passenger transport services are provided by 90 local and 16 interstate licensed bus operators. There are 15,000 licensed minibuses that are privately operated and form the Uganda Taxi Operators and Drivers Association, providing about 89 percent of road passenger services. Freight traffic is less organised in the private sector and operate independently on a negotiated basis with suppliers or producers. 3.3 Road Administration and Training MOWT statutorily has the overall responsibility for the development, management and maintenance of the national road network. In line with the Government policy of rationalising the management of sector agencies and restructuring the civil services, Road Agency Formation Unit (RAFU), a unit accountable to MOWT (but outside the ministry's structure), was established in September 1998 as a transitional semi-autonomous institutional arrangement to manage the implementation of RSDP. RAFU s establishment was financed under an IDA Credit (Road Sector Institutional Support Technical Assistance Project- RSISTAP) that will be closed in December The GOU will be supporting RAFU s establishment until 30 th June 2008, after which RAFU will be replaced by Uganda National Roads Authority (UNRA), as per UNRA Act of UNRA will be an autonomous body responsible for overall planning, construction, maintenance and management of the country's national roads. UNRA will be headed by an Executive Director who is also a member of the Board. Other members consist of Permanent Secretaries of MOWT and MFPED, National Planning Director, Representative of Engineers Association and two representatives of the private sector. The Executive Director and representatives of the private sector are yet to be appointed. The road map for the establishment of UNRA, prepared under the European Union (EU) funded technical assistance support to MOWT on the UNRA s Reform Implementation, has been approved by the UNRA Board of Directors. The transitional arrangements are prepared with due diligence to avoid disruption in the management of the ongoing development projects. The recruitment of staff of UNRA has commenced and the actual date on which UNRA is declared operational is a condition of the loan Under the District Administrations Act of 1967, Urban Authorities Act of 1964, the Local Government Statute of 1993 and decentralization provisions of the 1995 Constitution, district roads and urban roads, are mandated services of local and municipal authorities. The MOWT (in liaison with MLG) is responsible for providing policy guidelines, operating procedures, and technical advice to the districts Facilities for training of staff in the field of civil engineering are well established in Uganda. The Faculty of Technology of Makerere University and Kyambogo University offer training in areas of civil, mechanical and electrical engineering. In addition, four other technical colleges, thirty-one technical institutes, and twenty-seven public and thirty-six private technical schools also train staff in the transport sector. The MOWT has a Public Works Training Centre that offers training for the whole construction industry. 3.4 Road Planning and Financing

19 a) Road Planning: The MOWT / RAFU is responsible for developing plans for construction, rehabilitation, and maintenance of the national road network. Its proposals are subject to review and approval by MFPED, which has responsibility for inter-sectoral coordination and planning under the MTEF. The MOWT in liaison with MLG and municipal authorities oversees and co-ordinates the district and urban road planning, construction, rehabilitation and maintenance; and the Community access roads are the responsibility of the concerned communities The main tools for implementing transport planning in the road sub-sector is the 10-year RSDP2, which envisaged expenditure levels of US$2.28 billion (in constant end-1998 prices) for the period 2001/ /11 as presented in Annex 4. The main components include, among others, national road network improvements and institutional capacity building in which the Bank Group is intervening b) Road Financing : The road sector has been identified as one of the six critical sectors that require substantial budget expenditure if the objective of the GOU s PEAP is to be achieved. The sector contributes to increasing rural incomes and supports the private sector and continues to be one of the fastest growing programs with budget allocation accounting for about 6.5% of total Government expenditure. Annex 4 shows the details of the sector funding by components of the program. GOU s spending increased from a level of USD million in 2001/02 to USD million in 2006/07 while Development Partners contribution increased from USD83.5 million to USD million during the same period. On average the Government contribution accounted for about 54.6 % between 2001/02 and 2006/07. The list of the donor agencies/ financial institutions that contributed the 45.4 % of the road investment and recurrent expenditure and the breakdown of their contribution is presented as Annex Road Engineering and Construction The Engineering Division of RAFU usually undertakes minor works and designs, while the major ones are contracted to consultants and contractors. International consulting firms normally carry out major road feasibility and detailed engineering design. The contracting capacity of the country has improved over the years with the training of small and medium-scale contractors. To date, the domestic contractors that have registered with MOWT are 49 large-scale contractors, 62 medium-scale contractors and 111 small-scale contractors. The overall number of local contractors has increased by 25% when compared with the number in Even though the domestic contracting capacity for civil works has improved considerably, the industry still lacks equipment leasing facilities to foster its development, capacity building to bid for large works in excess of UA 10 million either directly or through developing strategic partnership with foreign firms. 3.6 Road Maintenance a) Organization of Maintenance: The Road Maintenance Section of MOWT is directly responsible for maintaining the classified road network and has divided the country into four regions. The regions operate under the regional engineers and are sub-divided into 22 field stations, which are managed by district engineers. The Maintenance function is still under the Ministry and is expected to be transferred to UNRA not later than 1 st July Routine and periodic maintenance activities are carried out by direct labour (force account) and by contractual service of small scale local contractors that are usually supervised by the Ministry's personnel at the district or area offices. The district roads are maintained by district administrations with the supervision of the MOWT in liaison with the MLG b) Maintenance Financing : The amount allocated for maintenance of the road network is contained in the Transport Sector Investment & Recurrent Expenditure Programme (TSIREP) that is revised annually within the Government s MTEF. Annex 4 shows that over the last six years

20 6 maintenance budget allocation by GOU and Donor s has declined from USD64.31 million in 2001/02 to USD49.51 million in 2006/07, though the allocation by GOU has remained around USD50.0 million per annum. According to the MOWT, the maintenance requirement for the national, district and urban roads per year is about USD million. Comparing this maintenance requirement with actual allocation, the historical funding gap has increased from about USD 35.7 million (2001/02) to USD 50.5 million (2006/07), indicating that only about 50.4 percent of the requirements are met. This could be attributed to the decrease in Development Partners support for maintenance and Government failure to increase its maintenance allocation annually by USD2.0 million (as agreed) starting 2003/04 until self-sufficiency in funding is achieved in 2008/09. This under funding has reflected in the national road condition of the country, which has declined from 60% in good to fair condition in 2003 to 47.5% in This is very low when compared with the road condition in acceptable condition in Kenya and Tanzania, which are 67% and 84%, respectively. The maintenance issue is a concern of Donors including the Bank that is being addressed by the creation of the Road Fund and UNRA GOU has recently agreed to the establishment of a fund to cover the maintenance requirements for all public roads. The Road Fund Bill has been approved by the Cabinet on 24 th June 2007 and has been sent to Parliament for approval. It is expected that the specific legislation of establishing the Fund will be enacted before the end of The dedicated Road Fund based on road user charges is expected to guarantee a regular and steady flow of funds for maintenance As of July 2007, the GOU has increased the fuel excise duty by 18%, i.e. 130 UGX (from 720 to 850) and 80 UGX (from 450 to 530) on petrol and diesel respectively. Up to now, the revenue from the excise duty on fuel has been channelled to the consolidated fund and apportioned through the normal budget process. With the enactment of the Road Fund Act, the full amount of the excise duty on fuel will be channelled to the Road Fund. Thus, the GOU maintenance contribution is expected to double with the introduction of the dedicated road fund from USD49.51 million in 2006/07 to USD million in 2007/08 and sustained at an average of about USD102.0 million per year till 2010/11. During the same period, it is planned that Donors contribute about USD7.0 million per year for clearing maintenance backlog. As per the Act establishing the Road Fund, statutory allocation will be on the basis of 63.5 % of its annual revenue to UNRA for maintenance of the national roads, 14.5% for districts roads, 7.5% for Kampala roads, 5.7 % for other urban roads, 7.0% for UNRA administrative and operational costs and 1.8% for the Fund s administration The other sources of revenue for the Road Fund include international transit fees/cross border charges, axle load fines, weight - distance charges and etc..will be determined by the Board of the Fund, when it is fully operational in January The Board will have nine members (four from public and the remaining 5 from the private sectors). The Secretariat would be headed by an Executive Director, with three directorates for financial management, audit and information and support services. In addition to the establishment of the Road Fund, the establishment of UNRA and the transfer of maintenance, axle load control and other activities from MOWT to UNRA by July 2009 would strengthen the institutional aspect of road maintenance. 3.7 Impact of Bank Group Assistance in the Transport Sector The Bank commenced its operations in the road sub-sector in 1975 and to date, has financed ten projects and eight studies for a total amount of about UA million, of which UA million has been in grants. Six studies and nine projects have been completed satisfactorily. These include the feasibility and detailed engineering studies of 1134 km of main roads. Two Studies under RSSP1 covering 208 km of main roads and 2105 km of district roads are still on-going. In terms of physical road infrastructure, the Bank has financed the upgrading of Iganga - Mbale Road (96 km), and Kyotera-Mutukula Road (44 km), which promotes regional integration between Uganda and Tanzania; and the Road Maintenance and Upgrading project consisting of: Gayaza - Kalagi Road upgrading (20 km), the resealing of six trunk roads (55.1 km)

21 7 and the regravelling of ten trunk roads (214.2 km). The Bank has also implemented the Rural Feeder Roads Maintenance Programme consisting of: (i) Light plant and equipment supply, (ii) a significant training programme for Local Government staff as well as contractors and (iii) 2400 km of routine maintenance of gravel roads and 2000 km spot improvements of feeder roads The Bank financial assistance has resulted in the rehabilitation and upgrading to bitumen standard of some 327 km of main roads, 270 km of road resealed and re-gravelled, 2400 km of district roads maintained and 2000 km of spot improved district roads; and the interventions have contributed to improved road conditions. This has contributed to the overall growth in transport activity, which has increased by 8.77%. In addition, the annual vehicle fleet and the average annual traffic growth rate have increased by 9.85% and 8.0% respectively in the last ten years. The Bank interventions have also fostered regional integration between Uganda, Tanzania and Kenya, while the on-going Kabale Kisoro Bunagana/Kyanika road under RSSP 1 when completed in 2010 would facilitate regional integration and trade between Uganda, Rwanda and DRC. 4 THE PROJECT 4.1 Project Concept and Rationale The upgrading of Fort Portal Bundibugyo - Lamia road from gravel to paved standard has been conceived under the RSDP2. The project road will be the only all weather road providing accessibility to the people of western part of Kabarole and the whole of Bundibugyo district. The current state of the road is unsatisfactory due to frequent blockages usually caused by landslides. The terrain is mountainous and is often slippery for trucks and vehicles during rainy season. The existing road is also highly susceptible to flooding because about 75% of the total length is located at the foot of Rwenzori Mountain. As a result, the people of Bundibugyo district are often cut off from the rest of the country during the rainy season, hence upgrading of this road is of utmost importance. The road improvement study has reviewed the geometric design and also considered three pavement design options namely: Re-gravelling, DBST, and Asphalt Concrete. Subsequently the DBST Option has been recommended for the road from technical, economic, environmental and social perspectives The rationale behind the proposed project is that the improvement of the road will contribute to poverty reduction by unlocking the agricultural and mineral resources potential of the two districts and providing access to social and marketing centres and also promote regional integration with DRC, and to develop bankable projects by undertaking feasibility study and detailed engineering design of 4 roads (Kagamba - Ishaka; Ntungamo - Kakitumba; Kapchorwa - Suam and Hoima to Kaiso-Tonya) to support the RSDP The major generic lessons learnt from the experience of the Bank's previous interventions in the road sub-sector are summarised below and have been considered in the design of this project. i) Delays in fulfilment of loan conditions and start-up of projects: The project has streamlined loan conditions and intense discussions were held with GOU to ensure commitment and buy-in. ii) Untimely release of counterpart funds: The MTEF has addressed this issue by placing RSDP2 in the core area of the consolidated budget. iii) Delays in submitting financial audit reports: The project has incorporated a provision for iv) procuring services of an independent auditing firm. Weak Axle Load control: Government is making efforts as stated under section to address the issue. After completion, this project will have a dedicated weighbridge. v) High incidents of road accidents: It is recognized that most road accidents are due to human error rather than road design. The project road will address this problem through enhanced traffic signs, guardrails and speed calming measures such as rumble strips and humps, and road safety awareness campaign as part of ESMP and all these in accordance with the National Road Safety Action Plan as stated in section

22 8 4.2 Project Area and Project Beneficiaries a) The Project Area: The project road traverses two districts of Kabarole and Bundibugyo in the Western Region of Uganda passing through Kichwamba, Karugutu, Itojo, Ntandi and Bubukwanga and further to Lamia at the border with DRC, where it provides a link to Buisega and Kamango in DRC. The direct area of influence is estimated to be 1,860 sq. km. and has an estimated population of 220,000. According to the 2006 census projections, the two districts have an estimated population of 375,500 and 252,800, respectively, representing 2.32% of the national population and have growth rates of 1.5% and 5%, respectively. The population densities of the two districts are 106 per sq. km. for Bundibugyo and 200 per sq. km for Kabarole, compared with the national average of 124; and an average household size of 4.6 persons across the area compared to national average of Agriculture is the main economic activity of the area and employs over 84% of the labour force. Major crops include coffee, cocoa, cotton, palm oil, vanilla, tea, bananas, maize, cassava, potatoes, yams, paddy rice, groundnuts, beans, vegetables and fruits. Animal husbandry includes cattle, goats, sheep, rabbits, pigs, poultry, bee-keeping and fish farming. There is vibrant cross border trading between Uganda and DRC both in finished and agricultural produce. The area is also rich in mineral resources such as gypsium, cobalt and sulfur. Recently, oil explorations have shown positive results. The area has distinct physical features including the Rwenzori Mountains, the Semliki National Park, the Great Rift Valley and Lakes Albert, George and Edward; the hot springs at Ntandi, the Rwenzori National Park and the Semliki Game Reserve, among others for the development of tourism Broad based economic growth of Uganda, at 6.0% per year over the last five years has helped to reduce proportions of poverty from 35% in 2000 to 31% in 2005/06 (PEAP). Nevertheless, the people of Bundibugyo are poor with an HDI of compared to the rural national average of (Uganda Human Development Report, 2005). In Western Region, over 50% of illnesses were malaria related (UNHS /06), 14% respiratory infections and 9% diarrhea. Bundibugyo has inadequate health facilities with only one hospital and 24 health units, and approximately 20% of households are at a distance of over 5 km to a health facility. Secondary education has been poor in Bundibugyo with Net Enrolment Rate of 7% where only 32% were girls Although the HIV/AIDS prevalence rate in the project area is estimated at 3.7% the pandemic has caused a large number of orphans and vulnerable children (OVC) estimated to be 12,821 and 38,005 representing 11% and 19% of the child population in Bundibugyo and Kabarole, respectively. This situation has increased dependency ratio and exerts pressure on child labor which has been reported at over 440,000 in Western Region (UNHS, 2005/06). Child labor is detrimental to education outcomes especially for girls The Gender Empowerment Measure (GEM) Index for Uganda improved from in 2001 to in However few women are in high position in Bundibugyo and Kabarole where 22% and 26% are in professional and managerial positions, respectively. Furthermore, the UNHS estimated that women earned on average 50% lower than men. Most women are in subsistence farming with only 10% of them engaged in market oriented agriculture. Control over assets such as vehicles, motor cycles and bicycles was in male domain with only 10% and 14% of women in Bundibugyo and Kabarole, respectively. Approximately 24% of households in the project area were headed by women whose propensity to fall into poverty is high. The revised National Gender Policy (2006), however, is striving to achieve gender equality in activities aimed

23 9 at stimulating economic growth such as the Strategic Exports Strategy, Plan for Modernization of Agriculture, Micro-finance Outreach Plan, etc b) Project Beneficiaries: The main project beneficiaries are the general population of the area. Bundibugyo district will stand to benefit most given that this road will be the first all weather road to be constructed. The cash crop farmers in the districts will benefit from the road. Farmers in food crops whose main markets are in Kampala metropolitan will also benefit from the road. The rural population, especially those seeking referral health and post primary educational services will also benefit from the road Other beneficiaries will include traders. Trading constitutes a major activity in the area and will be facilitated by an improved transportation system and in so doing benefit the transport operators. Those exploring oil and tourist operators will also benefit from the road. District and local government administrators, social service providers (health, education and social protection) both under public sector and NGO/CBOs will also benefit. In the short to medium term, beneficiaries of the project will be regional and international contractors, local communities who will get jobs during construction and other related services, local traders and producers of goods and services that will be required during construction. 4.3 Strategic Context The project is within the context of the ten year RSDP2 (2001/ /11) in response to Government s sector goal of providing a safe and efficient road transport system capable of supporting the productive sectors and the social and economic transformation of the country in general within the context of Uganda s PEAP. The project will also support the regional integration objective of the regional member countries of COMESA and Great Lakes Region, especially to DRC by providing the shortest route (124 km) for traffic destined to eastern DRC from Kampala and facilitating cross-border trade. The project road will also serve as a feeder road to the proposed Lagos-Mombasa Trans African Highway Corridor. The road project is consistent with Bank Group s Country Assistance Strategy (CSP) and Uganda Joint Assistance Strategy (UJAS), which focus on Improving Infrastructure for Growth, by creating infrastructure that reduces cost of doing business, links isolated areas of the country to the broader economy, and promotes regional integration, among others. 4.4 Sector Goal / Project Objective The sector goal is to contribute to poverty reduction by improving sustainable road access to all rural and urban areas of the country The specific objectives of the project are to improve the road transport service levels between Kabarole and Bundibugyo districts and by so doing, provide access by the majority of the rural people to socio-economic facilities and integration to the rest of the country; and also support regional integration and cross border trade with DRC. 4.5 Project Output and Description The project outputs consist of a 103 km bituminous surfaced road with 6.0-m wide carriageway and 1.5-m shoulders on either side from Fort Portal town through Bundibugyo to Lamia; and feasibility study and detailed engineering design with respect to four new roads The project components consist of: A) Civil Works: Construction Works for the upgrading of gravel surfaced road to bitumen standard (103.0 km) in rolling, mountainous and flat terrain. B) Consultancy Services: (i) Construction - supervision services of Fort Portal- Bundibugyo - Lamia road civil works; (ii) Feasibility study and detailed engineering design of four roads (Kagamba Ishaka, Ntungamo Kakitumba, Kapchorwa Suam and Hoima to Kaiso-Tonya) and; (iii) Consultancy Services for project audit. C) Resettlement: Resettlement and compensation costs to cover compensation of affected persons and other social facilities and environmental management.

24 Civil Works: The civil works involve the upgrading of a 103-km gravel road to bituminous standard by constructing typically a 150-mm thick stabilized sub-base, 150-mm thick crushedstone base and DBST pavement structure with a 90-m long-span bridge across River Lamia. The road design has made provisions for safety of pedestrians and motorists with adequate guardrails, road signs, pavement markings, and retaining walls with gabions. It also incorporates road humps and rumble strips as traffic calming measures to enhance traffic safety on the road Consultancy Services: One (1) consulting firm on behalf of RAFU will carry out consultancy services for the supervision of the road construction works. The responsibility of the selected firm will include inspection of works, quality testing of construction materials and project cost management. Three (3) firms will carry out the road feasibility study and detailed engineering design. One (1) independent auditing firm will carry out the project Audit services to ensure that the proceeds of the loan are utilised in line with the objectives of the project Resettlement: A Resettlement Action Plan has been prepared in line with the Bank s Involuntary Resettlement Policy (2003). This has been prepared with full consideration of the effects and needs of the PAPs including full compensation for properties, crops, trees, and livelihood restoration. Approximately 120 households will potentially be affected (section 4.7). 4.6 Traffic Demand and Road User Prices a) Traffic Analysis : The existing traffic volumes on the road were established on the basis of the result of December 2006 classified traffic count. The count indicates that motor cycles account for 65%, light vehicles for 22 %, passenger buses for 6% and trucks for 7 % of the traffic. The traffic has been divided into 3 homogenous traffic sections, with the base year weighted 2006 traffic volume of 616 motorized vehicles and 368 Non Motorized Traffic ( bicycles), as presented in Annex 5, Table A- 1. Diverted traffic of 143 vehicles per day and a generated traffic of 30 % of the normal traffic in 2012 are assumed in the analysis. For traffic projection, a growth rate of 7.5% per annum for the period and 6.5% per annum for the period and there-after 5% has been applied to all vehicle categories, as presented in Annex 5, Table A b) Road User Prices/Unit Maintenance and Construction Costs : The principal benefits of the road upgrading project are expected to derive from reductions in road user costs, comprising VOC and passenger time costs, as a result of lower road roughness and higher average travel speeds. The VOC input data calibrated for Uganda have been inputted into the HDM - 4 to arrive at the weighted average vehicle operating cost per vehicle kilometre in the with and without project scenarios. The project road feasibility study has been updated in August 2007 and all inputs were updated and revised considering DBST pavement intervention for the 103 km of the project road. The annual average composite VOC is estimated at USD 0.68/veh-km on the existing poor gravel road and would be reduced to USD 0.314/veh-km when the project road is completed and open to traffic in During the same period, annual average composite travel time cost per vehicle km is expected to reduce by 71 percent from USD on the gravel road to USD when the project road is completed and open to traffic in The unit construction and maintenance costs are based on the detailed design and recent offers. The project cost build-up has also considered the location of the project, availability and transportation cost of materials (cement, steel, etc.) and equipment and the 2007 oil based input prices into civil works. The average financial cost per km (inclusive of supervision consultancy and contingencies) is USD 876,000 for DBST for 6.0 m carriageway width and 1.5 m shoulders on either side. For the economic analysis, a standard conversion factor of 0.83 was used and the overall economic cost is estimated to be USD million for the project road. The financial unit rates for routine and periodic maintenance of paved road currently stand at USD 3600/km and USD222,000/km per year respectively. There are concerns that unit construction costs in Uganda are higher than in Kenya and Ethiopia, which is USD631,400 /km and USD556,000/km for upgrading gravel to DBST pavement

25 11 respectively. This is mainly due to the landlocked nature of the country, location and the terrain of the project road. 4.7 Environmental and Social Impacts Overview: The Environmental and Social Impact of the road works have been classified as Category 1 due to the potential of affecting approximately 120 households; and the possible re-routing of Itojo - Sempaya section (23 km). Key issues requiring attention in the project include: i) effective management of the environmentally sensitive areas especially those along the designated National Parks and forests; ii) management of potentially negative social impacts that may occur during construction and operation, including control of environmental pollution and degradation, spread of HIV/AIDS among workers, communities and transporters, and increased accidents; and (iii) proper implementation of the Resettlement Action Plan (RAP) and compensation. The Environmental and Social Impact Assessment (ESIA) and the RAP have been prepared for the project. There are no major issues that cannot be managed in this project and there are no specific wildlife corridors in the area. Nevertheless the road design along the Semliki Park has included speed limits (humps and rumble strips). The direct impact on land use and acquisition will be limited to the new section of the road and requirement to expand the road by 2-4 meters Environmental and Social Management Plan (ESMP): An ESMP for the project has been prepared based on the ESIA recommendations and it stipulates measures to be taken to mitigate the environmental and social impacts of the project. The estimated cost for implementing and monitoring the ESMP is USD million including USD 2.5 million to meet resettlement and compensation costs. The mitigation measures have been incorporated in the ESMP and specified in the tender documents. Specific elements of the ESMP include: (a) measures to mitigate environmental pollution, degradation of water sources, land and vegetation, and safeguard for the health and safety of the workforce; (b) rehabilitation of materials sites including areas acquired for the contractor s camps; (c) implementation monitoring of all measures incorporated in the detailed design and of the project; (d) implementation of the HIV/AIDS prevention and Road Safety education and awareness campaigns; and (e) implementation of the RAP ESMP/RAP Implementation: The contractor will be responsible for implementing the ESMP. The Resident Engineer will supervise implementation of the ESMP and the RAP. Their experts will liaise with the MOWT s Environmental Unit and NEMA s District Environment Officers for compliance. Implementation of the RAP per se will be the responsibility of RAFU. The Ministry of Lands, Housing and Urban Development will be responsible for asset valuation and setting compensation rates. The Uganda Land Commission and the district stakeholders will scrutinize and authorize the payment schedules for compensation and issuance of land titles. The RAP has elaborated the grievance mechanism for resolving compensation disputes. The full cost of relocation and compensation is part of the project cost, which will fully be met by GOU and its implementation, prior to commencement of civil works, is a loan condition in accordance with RAP Participation and Information Disclosure: The Summary ESIA/RAP has been disclosed on the ADB website as of 27 th July, 2007 and distributed to the Board (ADF/BD/IF/2007/160). Consultations with affected communities were held between May and July Overall sixteen (16) public consultations in at least 10 localities were conducted which included public hearings and interviews. In addition, informal discussions were held with transport operators. Although the project received full acceptance, a few concerns were raised, namely: a) fair and prompt compensation of assets, b) prostitution and spread of HIV/AIDS, c) participation by women and youth in construction, d) dust emissions and noise levels, e) disruption to infrastructure, and f) disruptions to traffic and businesses. Consultations and structured meetings will continue with those directly impacted by the road including local leaders, affected women and vulnerable persons during implementation.

26 Project Costs The project cost estimate, net of taxes, is UA million (UGX billion), which is made up of UA million (73.37%) in foreign exchange (FE) cost and UA million (26.63%) in local cost. The estimated project cost was based on the detailed design and recent tender rates. A provision of 10% was made to accommodate physical contingency and price escalation of 3% and 5% per annum for foreign and local costs, respectively. An amount of UA 2.56 million, representing 5% of the base cost for the civil works has been set aside for supervision consultancy services on basis of the man-month method. A lump sum amount of UA 0.10 million was incorporated for the consultancy services required for audit of the project. The cost of compensation and land acquisition to be paid to the PAP was estimated at UGX 3.94 billion (UA1.63 million). The cost estimate for the four road studies amounting to UA1.45 million has also been included in the overall project cost. A summary of the project cost by component is presented in Table 4.1 and the category of expenditure is shown in Annex 6. Table 4.1 Summary of Project Cost Estimate by Component (Net of Taxes) Ugandan Shillings (UGX in billion) Unit of Account (UA in million) Foreign Local Foreign Local Component Exchange Cost Total Exchange Cost Total A. Civil works B. Supervision of Civil Works C Project Audit D Four Road Studies E. Others (Compensation) Base Cost Physical Contingencies* Price Escalation Total * The physical contingency is estimated 10% of the base cost less compensation 4.9 Sources of Finance and Expenditure Schedule ADF and GOU will jointly finance the project. The proposed financing from ADF would cover 100% FE cost and 46.34% of local cost amounting to UA58.00million (UGX139.78billion). The GOU will finance 53.66% of the local cost amounting to UA9.67 million (UGX23.30billion), which is equivalent to 14.29% of the total project cost. The GOU has confirmed that it has capacity to provide the counterpart fund requirement of UA 9.67 million in the project implementation period of 3 years, an average of UA3.22 million per year. The GOU has been financing road developments through the RAFU by including the expenditure for the particular project in the MTEF. To safe guard the continuous flow of counterpart funds, the GOU is required to open a project account and deposit funds for the project execution in accordance with the financing plan, not later than 31 st December of each year, starting the first year of implementation until completion of the project. This is included as condition of the loan The ADF loan of UA million (UGX136.52billion) will cover 85.55% of the total cost of the road works. The ADF Grant of UA1.35million will cover 93.1% of the total cost of the four road studies. GOU has committed to seek funds to implement the recommendations of the studies. This is included as condition of the loan. The expenditure schedule by category net of taxes is shown in Annex The ADF Grant of UA 1.35 million will be utilized to finance the following project cyclerelated activities to ensure the building of a pipeline of national projects for implementation under the RSDP2 and improve the quality of projects at entry into RAFU portfolio viz: i) the preparation of feasibility studies, including preliminary engineering design, preliminary cost estimates, environmental and social impact analysis; and ii) the preparation of detailed

27 13 engineering, including designs, specifications, cost estimates, tender documents and prequalification of bids The Counterpart Fund requirement for the project is UA 9.67 million (UGX billion) exclusive of taxes and import duties, equivalent to 14.29% of the total project cost. The inclusion of the counterpart funds in the annual budget will be made a condition for the disbursement of the loan The expenditure schedule has evolved from the total estimated cost of the project spreaded over the implementation period in proportion to the works and services programmed for each year of project implementation. The financing plan by category and the yearly expenditure plans by component, category and by sources of finance are shown in Annex PROJECT IMPLEMENTATION 5.1 Executing Agency The Ministry of Works and Transport is the Executing Agency for the project, whilst RAFU is the Project Implementation Unit for all the projects under the RSDP2. RAFU's duties and responsibilities as agreed with the Development Partners include the planning, design, construction supervision, maintenance management, operation, development and management of the road links under the RSDP, including the financial and technical monitoring of programme activities, and management of policy studies. RAFU has the compliment of staff for contract administration and project management as discussed below. RAFU will eventually transfer all projects and activities that are being implemented to UNRA not later than 1 st July A Technical Assistance Consultant for UNRA s Reform Implementation has been recruited and has prepared the transitional arrangement with due diligence to avoid disruption in the implementation of development projects. 5.2 Institutional Arrangements RAFU is headed by a Director who has two advisers (Legal Adviser and Public Relations). The RAFU s organisational structure consists of four divisions namely Engineering, Maintenance, Information Service, and Finance and Administration. At the professional level, RAFU is made up of project engineers, middle level engineers, transport economists, financial analysts, environmentalist and administrative officers. RAFU has employed 10 women out of a total of 61 staff as part of gender mainstreaming in the road sub-sector. There are 3 women in the professional cadre and 7 as nonprofessional. The Directorate, the Divisional Managers and the full complement of secretaries and support staff are in place and constitute about 64% of its established positions. The organisation structure of RAFU is presented in Annex The supervision and monitoring of the implementation of the road project fall under the purview of the Engineering Division of RAFU. The Division is substantially staffed with 7 senior project engineers, 8 project engineers, 1 Transport Economist and 6 Short-term consultants. A Project Co-ordinator, with MSc. Degree in Civil Engineering and a minimum of 5 years experience has been designated. His qualifications and experience are found acceptable to the Bank and will be responsible for overall monitoring of the activities of the project, and serve as a contact person for all the parties involved in the project. The Project Coordinator in collaboration with an environmentalist will monitor the ESMP. This is included as condition of the loan. 5.3 Supervision and Implementation Schedules A contractor will execute the road upgrading works. A reputable civil engineering consulting firm on behalf of RAFU will supervise the works from December 2008 to December The construction works will be implemented over a period of 36 months, (January 2009 to December 2011), followed by 12 months of Defects Liability Period. The construction supervision consulting firm will be responsible for the day-to-day supervision of the works, quality control and certification of the works done. The project audit will be carried out by an independent auditing firm

28 14 throughout the project implementation period. The Project Implementation activities & schedule are attached as Annex Procurement Arrangements All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank s rules of Procedure for Procurement of Goods and works or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents. The procurement arrangements are summarized in Annex Disbursement Arrangements The ADF loan of UA56.65million and Grant of UA1.35 million, when approved, will be disbursed against two categories of expenditure namely: civil works and consultancy services using the direct payment method as specified in the Bank s Disbursement Handbook. 5.6 Monitoring and Evaluation Indicators for monitoring and evaluating project performance are included in the Project log-frame. RAFU/UNRA will be responsible for monitoring the project implementation by availing expertise in various project management areas. RAFU/UNRA shall prepare quarterly project progress reports including the implementation of the ESMP in line with the Bank's format covering all aspects of the project and forwarded to the Bank not later than one month after the end of each quarter. These reports will include progress achieved against agreed implementation and disbursement schedules, key performance indicators, work programmes and cost estimates for the next quarter. The progress report will provide updated information on project implementation, highlighting key issues and problem areas, and recommending action plans for resolving identified bottlenecks. Additional indicators, however, will be included to measure project impacts. These indicators will be reviewed at the start of project implementation and include (i) transport costs and travel time for specific types of vehicles and trips, (ii) transport fares and freight charges, (iii) accessibility index, (iv) accident rates, (v) jobs created in construction and maintenance, (vi) Gender empowerment and (vii) HIV/AIDS prevalence. At the beginning of project implementation, the Supervision consultant will establish baseline and target values for the indicators. The indicators will be measured at project inception, completion, and 3 years later, and results compared with the baseline. The Bank will mount a Project Launching Mission. The Bank will supervise the project implementation by visiting the project twice a year. A mid-term review will be undertaken during the second year of implementation in June 2010 to identify any major constraints facing the project and agree with the Borrower and executing agency on the required corrective measures. The Bank s Uganda Field Office will assist in launching and supervising the implementation of the project The ESIA mitigation measures shall be supervised by the Supervising Consultant and RAFU, and be monitored by the Environmental Liaison Unit of MOWT and by NEMA. The Consultant will prepare a quarterly brief on the implementation of the identified mitigation measures in ESMP and forward to the Bank, RAFU and NEMA. The consultant is required to prepare and submit to the Executing Agency and the Bank a final report at the completion of the project. Thereafter, GOU will prepare and submit to the ADF the Borrower's Project Completion Report within six months of project completion. The consultants' final reports and the Borrower's Project Completion Report will provide the background documents for the preparation of the Bank's Project Completion Report required to facilitate post evaluation of the project. 5.7 Financial Reporting and Auditing The Finance and Administration Division of RAFU will be responsible for financial management and reporting procedures for the project and other donor assisted projects under the

29 15 RSDP2. The Division has been fully established with its complement of staff in accordance with the Financial Management Action Plan agreed under the IDA/RSISTAP Credit. A well-documented Financial Management Manual, which outlines internal control procedures as well as financial reporting arrangement to Government and Development Partners has been developed and found acceptable. The Accounting System based on PASTEL accounting software is operational and will be eventually transferred to UNRA A qualified independent audit firm procured on the basis of terms of reference acceptable to the Fund and GOU shall undertake the auditing services. RAFU will open and maintain a separate account for the project in order to facilitate verification of expenditures by component/category and source of finance. The certified audit report will then be submitted annually to the Fund, not later than six months after the end of each financial year. 5.8 Aid Co-ordination The RSDP2 was a result of extensive consultation and collaboration between the GOU and the Development Partners. Nine donor agencies/financial institutions (Danida, EU, IDA, BADEA, ADF, NDF, KfW, JICA and DFID) are involved in funding the programme. In view of the institutional restructuring process in the road sector, and for effective and close co-ordination and monitoring of the RSDP, Government has established a RSDP Steering Committee since July The Committee is facilitated by a secretariat, the RSDP Co-ordination Unit The RSDP2 Steering Committee is responsible for the co-ordination of the planning and implementation of the RSDP2; monitoring and evaluating the performance of the programme, and organising Donor consultative Group meetings on a semi-annual basis. The Steering Committee is also responsible for disseminating information to the public and stakeholders about RSDP plan and progress on a quarterly basis. A Joint Government/Donor Transport Sector Review meeting was held in October 2006 to discuss the RSDP2. Since the establishment of the Bank s Uganda Field Office (UGFO), the office has been useful in facilitating the communication between the Government and the Bank by following up on projects and participating fully in the donors coordination and meetings The project, having been listed in the revised RSDP2 and MTEF, has been discussed and formulated in consultation with the principal donors in the sector (See Annex 13). The project has therefore gone through a thorough optimisation and rationalisation process with its funding fully agreed to and admitted into the TSIREP, MTEF for 2008/ / PROJECT SUSTAINABILITY AND RISKS 6.1 Recurrent Costs The project recurrent cost refers to the routine and periodic maintenance costs. The contractor will be responsible for road maintenance during the construction and the one year defect liability period. Thereafter, the maintenance expenditure of the project will be taken over by the GOU. The expected recurrent cost of maintaining the paved road is US$ 0.37 million per year and would be budgeted for annually in the national road maintenance budget. The impact of the project maintenance costs on GOU s recurrent costs will not be significant and the Government can adequately finance and carry out the routine maintenance. The first periodic maintenance of the road will be due around Project Sustainability In order to ensure sustainability, Government adheres to providing the financial requirements for road maintenance projected under the TSBFP. As per section 3.6 on road

30 16 maintenance financing, Government has taken measures to ensure a steady and regular flow of maintenance fund With the ongoing institutional reform, UNRA is expected to improve the efficiency of overall delivery of the RSDP and sustainability of the project. The maintenance works by force will eventually be limited mainly to emergency responses. This will lead to proper market creation and thereby enhance the growth of the private contractors and the domestic construction industry. 6.3 Critical Risks and Mitigation Measures The implementation of the project assumed several project risks, namely, implementation of the PEAP, funds for the project construction and maintenance, price escalation, effective supervision, implementation of the ESMP and RAP, security in the road corridor, competitive offer for works and supervision, smooth transformation from RAFU to UNRA. These risks and the mitigation measures are discussed as follows There is a risk that Government might fail to commit to the objectives set in the PEAP. The risk is manageable through continuous dialogue between Development Partners and GOU on the implementation of the PEAP There is the risk that annual capital budget estimates would not be made in accordance with the projections. The three-year Rolling MTEF is reviewed annually in May, consistent with the MTEF sector ceilings before finalization of the budget in June every year with Development Partners and the GOU, and this serves to minimize the risk. The Government has also committed itself that the proposed intervention would be the included in the MTEF for 2008/ /2012 and that commitment will be monitored during the project implementation. The project benefits would therefore be sustained as annual maintenance program would be implemented as scheduled given GOU s commitment to the establishment of the Road Fund. The increase on fuel levy in June 2007 will improve the revenue of the Government. In addition, the transfer of maintenance function from the MOWT to UNRA will improve planning, programming and execution of maintenance works. This is included as condition of the loan. All these measures would mitigate the risk of project benefit not being sustained There is the perceived risk of cost overrun that may have effect on the implementation of the project due to the impact of oil shock. In order to mitigate this risk, the base unit cost of road construction has been based on the tender rates on a similar project taking into account the current oil-based prices of inputs of road works. The risk is moderate and the future contract price escalation would be catered for by the contingency provisions in the estimate There is a risk of effective supervision of the project by the GOU. The risk is managed by RAFU, since it has experience in management of Bank funded projects and those of other Doners. The establishment of UNRA will minimize delay in procurement of works and services and supervision There is a risk of failure to implement the ESMP and RAP, which might delay the execution of the project. GOU is committed to the implementation of the ESMP and RAP. In order to mitigate this risk, a loan condition precedent to first disbursement requiring the GOU to implement the ESMP and compensate the population affected in accordance with the RAP has been included in the loan agreement as a condition precedent to first disbursement The political situation in the Great Lakes region could result in some security problems particularly in Bundibugyo district, which shares a border with DRC at Lamia. GOU would ensure additional measures to guarantee security within its territory. In addition, the International Community has been fully engaged in bringing peace and security to the Great Lakes Region, and Donors have initiated post-conflict initiatives to ensure enduring peace and stability. The GOU

31 17 and DRC have established a Joint Permanent Commission mechanism for implementing cross border infrastructure, which was signed in September 2007 between the two countries head of States in Arusha, Tanzania. This initiative will minimize the risk of insecurity to project implementation. Further, the security situation at the border zones may affect competent contractors and consultants in responding to invitation to bid. This risk is minimal given the fact that the design-review consultant and the Bank mission have been to the site several times without any disturbance. In Eastern DRC, EU had approved the regravelling / strengthening program for the Bunia Lamia under European Development Fund IX funding program ( ) and is currently being considered for implementation under European Development Fund X, scheduled to kick off in There is a risk of the smooth and efficient transformation from RAFU to UNRA. The risk is managed by GOU s commitment to the implementation of the road map prepared by the technical assistance support for UNRA s Reform Implementation. The transitional arrangements has been prepared with due diligence to avoid disruption in the management of the on-going development projects. Given that the recruitment of staff to UNRA has commenced, communication to the Bank of the actual date on which UNRA is declared operational and the transfer of road maintenance and development activities from MOWT and RAFU to UNRA not later than July 2009 has been made a condition of the loan. 7. PROJECT BENEFITS 7.1 Economic Analysis a) Methodology: The economic evaluation is undertaken only on the civil works components of the project (Fort Portal Bundibugyo Lamia road). The methodology for the economic analysis is based on cost benefit analysis using the Highway Development and Management Model (HDM-4). Construction works of the 103 km to DBST pavement is expected to start in January 2009 and would be completed and open to traffic in December The indicators of viability used in the analysis are the Economic Internal Rate of Return (EIRR) and a positive Net Present value (NPV) at a discount rate of 12%, which is the estimated opportunity cost of capital in Uganda adopted for acceptance for inclusion of any project in MTEF b) Economic Costs and Benefits : The economic costs taken into account in the HDM - 4 are the Road Agency Costs in the with and without project scenarios which consist of the capital investment costs including the physical contingency of 10%, the recurrent costs, costs of environmental and social impact mitigation. The estimated economic capital investment cost is put at USD million and consisting of the base cost for civil works, consulting services for supervision and audit services and physical contingencies. The recurrent costs are made up of routine and periodic maintenance expenses for the project road The benefits of the project accruing to road users as a result of improvement in the project road, over the project operating life of 2012 to 2031 at 2007 price has been estimated at USD63.88 million. The benefit streams consist of (i) savings in vehicle operating costs of USD million; (ii) savings in Motorized traffic travel time for passenger and cargo of USD5.85 million; (iii) savings in Non Motorized Transport traffic travel and operation of USD 7.59 million; and (iv) net exogenous (agriculture) benefit of USD 5.51 million c) Result of Cost Benefit Analysis: The measures of economic viability for the whole project were found to be satisfactory with EIRR of 14.6 %, which is above the opportunity cost of capital in Uganda and NPV of USD12.01 million. The intervention on the road project is therefore economically desirable and would contribute significantly to improve access to markets and social services in the project s zone of influence and inter-regional economic integration. A summary of the economic analysis results is in Annex 5.

32 Social Impact Analysis In line with the aspirations of the PEAP and the RSDP, the project road once completed will play a significant role in improving all weather rural accessibility and open up Bundibugyo to the rest of the country. This will be the first paved road in Bundibugyo and will increase the stock of paved roads from 169 km to 194 km in Kabarole. Consistent with the MDGs, this road will fundamentally improve the livelihoods and socio-economic development of the people in the area which otherwise have been hampered by lack of access Agriculture and fish farming: The project area is rich in agriculture but its potential has not been fully exploited due to lack of reliable transportation. Bundibugyo has the potential to increase production of coffee, cocoa and vanilla whose production (2005) was 1512, 2080 and 56 tons, respectively. Improved transport efficiency would result in increased farm-gate prices. In addition the area has big potential for fisheries and aquaculture, important for trade and nutrition. There are approximately 740 fish ponds in Bundibugyo producing annually about 370 tonnes and four rivers approximately 101 tons and Lake Albert about 56.4 tons. An improved road would improve the fishing sub-sector and facilitate fish trade between Bundibugyo and the rest of the country Employment opportunities and women participation: The road project will offer opportunities for employment and boost economic activities in the project area during and after construction. At project stage, an estimated 900 people will be employed as direct labor and in maintenance. MOWT has developed guidelines and manuals including gender compliance monitoring and evaluation tools that will ensure that women participate equally in the works. The presence of the workforce will increase the purchasing power and facilitate growth in the service industry such as food, hospitality and micro trading, predominantly operated by women. The road will also facilitate agricultural extension services through the National Agricultural Advisory Services (NAADS) which targets the poor and women at district level Improvements in social service delivery: The upgraded road will enhance health and education services especially for referral treatment at Fort Portal Regional Hospital and for secondary and post secondary education in institutions such as the Technical College at Kichwamba, the School of Clinical Officers at Fort Portal, Canon Apolo Community Polytechnic and Hakitengya Community College. In both cases the new road would enhance deployment of well qualified staff and distribution of medical supplies and education materials. In addition, it will improve access to markets, water and sanitation points, administration and security Potential for Tourism and Oil: The upgrading of this road will play a pivotal role in revitalizing the tourism industry. Tourism in Uganda contributed about 24.7% of the total export earnings in Tourism being a labour intensive industry will significantly create employment especially for women who account for 50.1% of hospitality workers in Uganda, and in Bundibugyo 28% of arts and craft workers were women (2004). Potential for tourism lies in the Toro-Semliki Wildlife Reserve, Sempaya Hot Springs, Amabere Caves, and activities surrounding the Lodge at Ntungama. The number of visitors to the Rwenzori and Semliki National Parks rose from 194 in 2001 to 2890 in The road will further facilitate exploration of oil and gas in the region. According to the Ministry of Energy and Mineral Development, the area south of Lake Albert in Ntoroko has potential oil and gas fields whose accessibility will be enhanced by the project road. 7.3 Sensitivity Analysis & Switch Values Sensitivity Analysis was undertaken on the base case result of the economic evaluation to determine the effect of changes in some important parameters of the analysis. Three alternatives were checked, namely: (i) construction cost increased by 10% while benefits remained the same; (ii) benefits declined by 10% while costs remained the same; and (iii) a combined 10% increase in cost and 10% decrease in benefit. The results indicate that in all the three alternatives, the project road is

33 19 satisfactory with an EIRR higher than the threshold of 12.0% opportunity cost of capital and NPV remaining positive. In the worst case scenario of simultaneous 10% increase in costs and 10% decline in traffic, the project is viable with an EIRR of 12.2 % and a NPV of USD 0.89 million. The results of the three alternatives are presented in Annex The results of economic evaluation are sensitive to both increases in construction cost and traffic decline. But the result is marginally more sensitive to the decline in traffic than increase in construction cost. The decline in the traffic by 10 percent is most unlikely as traffic growth rate of medium growth assumption of 5% to 7.5% has been considered. Project construction cost estimates are based on the detail design, the recent tender offers, taking into account the prevailing oil based input prices into civil works and considering an environment of international competitive bidding. In addition, physical and price contingencies have been taken into account above the base costs. With this consideration, the project is still viable with a 10 per cent increase in the construction cost An analysis of switching values is undertaken for the whole project. Switch values represent the percentage change in costs or benefits that would give NPV of zero or result in EIRR equivalent to the opportunity cost of capital of 12.0% in Uganda. The result indicated that the project viability will be threatened if construction cost increases by 22.6% or traffic declines by 18.4%.These are critical factors to watch, though the project is more sensitive to drop in traffic levels. These situations are most unlikely and are remote as explained under section above. 8. CONCLUSIONS AND RECOMMENDATIONS 8.1 Conclusions The project is to support the economic and social recovery programmes taking place in Uganda through the removal of transportation bottlenecks to economic recovery, poverty reduction and market integration. The project is consistent with the Bank Group's Country Assistance Strategy for Uganda for the period as contained in the UJAS The project physical works which consists of the upgrading of Fort Portal Bundibugyo- Lamia gravel road to paved standard based on technical option chosen and described in section 4.5 above is economically viable, socially justifiable and environmentally sustainable. The road upgrading would generate an EIRR of 14.6% based entirely on quantifiable economic benefits in terms of vehicle operating cost and travel time savings. Since the trucking industry in Uganda has been liberalized and the project road serves area of good agricultural potential, at least part of the VOC savings are expected to be passed on with time to agricultural producers and consumers, improve social service coverage and thereby support adjustment efforts in other sectors of the economy. The social benefits of the project includes, inter alia, enhancement of direct and indirect employment, and improved accessibility to market and production centres and to social facilities. It will also support regional economic integration efforts between Uganda and DRC. 8.2 Recommendations It is recommended that: i) A loan not exceeding UA56.65million from ADF resources be extended to the Government of Uganda for implementing the civil works components of the project described in this report subject to the condition specified in the following paragraphs; and (ii) A grant not exceeding UA 1.35 million be extended to the Government of Uganda for the purpose of undertaking the feasibility and detailed engineering design studies described in this report subject to the condition specified in the following paragraphs. A. Conditions Precedent to the Entry into Force of the Loan Agreement The obligations of the Fund to make the first disbursement of the loan shall be conditional upon the entry into force of the loan agreement as provided in Section 5.01 of the General Conditions Applicable to Loan Agreement and Guarantee Agreements of the Fund,

34 20 B Undertakings for the Loan The Borrower undertakes to: (i) Deposit its counterpart contribution to the financing of the project in the project account in accordance with the financing plan, starting from the first year of implementation until completion of the project (paras & 4.9.4); (ii) Transfer all the road maintenance and development activities from Ministry of Works and Transport (MOWT) and Road Agency Formation Unit (RAFU) to Uganda National Road Authority and inform the Fund that UNRA is operational (paras.3.3.2, 3.6.1,5.1.1, & 6.3.8). C - Conditions Precedent to First Disbursement of the Loan The Borrower shall submit evidence satisfactory to the Fund that: i) A bank account for RAFU in the name of the project, acceptable to the Fund, for the deposit of the counterpart funds to finance the project activities has been opened (paras & 4.9.4); ii) The legal Right-of-Way (ROW) in respect of the land for the first section of Fort Portal Bundibugyo Lamia road that is, Fort Portal to Karugutu has been acquired in accordance with the Resettlement Action Plan (RAP) (paras.4.7.3,& 6.3.6); and iii) All relevant project-affected persons for the said first section of Fort Portal Bundibugyo Lamia road referred in paragraph (ii) above have been fully and adequately compensated in accordance with the Resettlement Action Plan (RAP) ( paras &,6.3.6). D- Other Conditions of the Loan: In addition to the above mentioned conditions, the Borrower shall provide evidence satisfactory to the Fund with respect to the following: i) Before commencement of activities for each of the subsequent sections of the road that the legal Right-of-Way in respect of the land for such section of Fort Portal- Bundibugyo - Lamia road has been effectively acquired in accordance with the Resettlement Action Plan and (paras.4.7.3&6.3.6) ; ii) All the project affected persons have been fully and adequately compensated in accordance with the Resettlement Action Plan.( paras.4.7.3&6.3.6); iii) No later than 1 st July 2009 all the road maintenance and development activities have been transferred from MOWT and RAFU to UNRA (paras.3.3.2,3.6.1,5.1.1,6.3.3 & 6.3.8); iv) During implementation of the project, no later than 31 st December of each year, counterpart funds have been deposited in the project bank account (paras & 4.9.4). A Conditions Prior to Entry into Force of the Protocol of Grant Agreement: The Protocol Agreement shall enter into force upon signature by the Recipient and the Fund B Undertaking for the Grant Agreement The Recipient undertakes to: (i) Seek funds to implement the recommendations of the studies (para ); C - Conditions Precedent to First Disbursement of the Grant The Fund s obligation to make the first disbursement of the Grant to the Recipient shall be conditional upon the entry into force of this Protocol Agreement as set forth in (A) above and to the fulfilment by the Recipient the following condition to the satisfaction of the Fund: (i) Designate the Project Coordinator whose CV and experience have been previously approved by the Fund (para ).

35 UGANDA PROJECT MAP ROAD SECTOR SUPPORT PROJECT 2 (UPGRADING OF FORT PORTAL - LAMIA ROAD) SUDAN ANNEX 1 Pg 1 of 2 Ntor ok o # Budibugyo Kiju ra # Moyo BU NDIBUG YO # # Ka ru gu tu # Kic wam ba Ka go rogoro FT. PORTAL # # # # Rug ombe Ft. # Por tal Arua Adjumani Kitgum Kotido Lam ia# Kab Gulu Rwimi# # Hima Kilembe # Ka m wen ge # # KASESE D.R.C Nebbi Moroto Lira Apac Katakwi Masindi Soroti Hoima Kumi Nakasongola Kapchorwa Kiboga Kamuli Pallisa Mbale Budibugyo Kibaale Luwero Tororo Kabarole Mubende Mukono KENYA Iganga Busia Kampala Bugiri Kasese Sembabule Mpigi Bushenyi Mbarara Masaka Rukungiri Ntungamo Kabale RWANDA Rakai TANZANIA Kilometers N This Map was prepared by the map design unit of ADB, the boundaries, colours, denminations and any other information shown on this map do not imply on the part of the Bank group any judgement on the legal status of any territory or any endorsement or acceptance of such boundaries LEGEND Rest of Classified Road Network Paved Unpaved Uganda boundary Lakes & Rivers District Boundaries Project Road Project Districts

36 UGANDA PROJECT MAP ROAD SECTOR SUPPORT PROJECT 2 (UPGRADING OF FORT PORTAL - LAMIA ROAD) ANNEX 1 Pg 2 of 2 # Nodes1.shp Classified road network.shp Paved Unpaved Distarcs.shp Lakes12.shp Uganda boundary.shp RWAMABALE BURONDO KIBUKU ITOJO SEMPAYA # # # # # # Bundibugyo # Karugutu BUNDIBUGYO ## # # Kicwamba Ka FT. PORTAL # # LAMIA # # # Ft. Portal Kabarole

37 UGANDA: ROAD SECTOR SUPPORT PROJECT 2 ANNEX 2 RAFU ORGANIZATIONAL STRUCTURE- ROAD AGENCY FORMATION UNIT (RAFU) RAFU MANAGEMENT COMMITTEE RAFU DIRECTORATE LEGAL ADVISOR PUBLIC RELATIONS OFFICER Engineering Division Maintenance Division Information Services Division Finance & Administration Division Consultants: SHORT-TERM SPECIALISTS Consultants: TEAMS OF EXPERTS/ SPECIALISTS Project Implementation SENIOR/ PROJECT ENGINEERS Procurement Evaluation SENIOR /PROJECT ENGINEERS SENIOR /PROJECT ENGINEERS SENIOR /SYSTEMS ANALYST, MONITORING OFFICER SENIOR /FINANCIAL/A DMINISTRATI ON OFFICERS

38

39 Annex 3 Page of 2 of 2 UGANDA ROAD SECTOR SUPPORT PROJECT 2 PROJECT IMPLEMENTATION ACTIVITIES Activities Date Agency Responsible Approval of Loan and Grant Dec 2007 ADF Publication of GPN Jan 2008 GOU/ADF Loan Signature Jun 2008 GOU/ADF/JBIC Loan Effectiveness Sep 2008 GOU/ADF/JBIC Construction of Works Contract Advertisement and Notification (SPN) Feb 2008 GOU/ADF Call of Tenders Jun 2008 GOU/ADF Receipt of Tenders Sep 2008 GOU Evaluation & approval Award of Contract Nov 2008 Dec 2008 GOU/ADF GOU/ADF/JBIC Civil works commenced Jan 2009 GOU Construction completed Dec 2011 GOU End of Defects Liability Period Dec 2012 GOU Consultancy Service for Supervision Advertisement and Notification (SPN) May 2008 GOU/ADF Approval and Issue of RFP Jun 2008 GOU/ADF Receipt of Proposals Aug 2008 GOU Evaluation & Approval Award of Contract Oct 2008 Nov 2008 GOU/ADF GOU/ADF Commencement of Consultancy Services Dec 2008 GOU Completion of Consultancy Services Dec 2012 GOU Consultancy Services for Study / Design Advertisement and Notification (SPN) May 2008 GOU/ADF Approval and Issue of RFP June 2008 ADF Receipt of Proposals RFP Aug 2008 GOU/ADF Evaluation & Approval Oct 2008 GOU Award of Contract Nov 2008 GOU Commencement of Consultancy Services Dec 2008 GOU/ADF Completion of services May 2010 GOU Consultancy Service for Auditing Approval and Issue of RFP Oct 2008 GOU/ADF Receipt of Proposals Dec 2008 GOU Evaluation & Approval Award of Contract Feb 2009 Apr 2009 GOU/ADF GOU/ADF Commencement of Consultancy Services May 2009 GOU Completion of Consultancy Services Dec 2012 GOU Compensation/Land Acquisition Commencement of Payment Jan 2008 GOU Completion of Payment on Segment 1(Fort Portal to Karugutu) Dec 2008 GOU Completion of Payment on Segment 2 (Karugutu to Bundibugyo) Dec 2009 GOU Completion of Payment on Segment 3 (Bundibugyo to Lamia) Dec 2010 GOU

40 UGANDA ROAD SECTOR SUPPORT PROJECT 2 ROAD SECTOR INVESTMENT AND RECURRENT EXPENDITURE (2000/ /12 in USD million) ANNEX 4 Page 1 of 3 Implementation of RSDP2 - Maintenance (US$ MILLION) and Road Development ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL Projection Projection Projection Projection Year 2001/ / / / / / / / / /12 A) Road Maintenance (US$ million ) i) National Road Maint. - GOU ii) District and Urban Roads Mtc. - GOU iii) National & District Dev. Partners Total Maintenance v) GOU Mtc contribution vi) Percentage of GOU's Mtc contribution 79% 92% 93% 96% 100% 100% 95% 94% 94% 94% vii) Percentage of Dev. Partners contribut 21% 8% 7% 4% 0% 0% 5% 6% 6% 6% B) Road Development v) National Road. - GOU N/A vi) District and Urban Roads - GOU N/A vii) National & Districts - Dev. Partners N/A viii) Sub - total Dev N/A C ) Others ix) Inst. Capacity Building - GOU N/A x) Others - GOU N/A xi) Others Dev. Partners N/A ix) Sub -total others N/A Grand Total N/A Total - GOU N/A Total-Donors N/A Total Financing (GOU and Donor) N/A GOU % of Total 52% 72% 42% 45% 71% 46% 44% 47% 48% N/A

41 ANNEX 4 Page 2 of 3 UGANDA ROAD SECTOR SUPPORT PROJECT 2 ROAD SECTOR DEVELOPMENT PROGRAM(RSDP) 2001/2-2010/11(in USD million) Programme Component 1.1 Nat. Roads Routine Maintenance 1.2 Nat. Roads Periodic maintenance & Rehab. 1.3 Nat. Roads network Improvement/ Development 2.0 DUCAR Network 3.0 Institutional Development & Capacity Building Overall Programme Total Source: MFPED 2001/2 2002/3 2003/4 2004/5 2005/6 5-Year Totals 2006/7 2007/8 2008/9 2009/ /11 10-Year Totals , , ,280.06

42 ANNEX 4 Page 3 of 3 UGANDA ROAD SECTOR SUPPORT PROJECT 2 RSDP DONOR SUPPORT (in USD million) Actual Actual Actual Actual Actual Actual Donor 2001/ / / / / /07 ADF KFW DFID DANIDA EDF IDA NDF BADEA JICA Total (Donors) GOU Grand Total Source: The Updated 10 Year Road Sector Development Programme, MFPED & MOWT

43 UGANDA ROAD SECTOR SUPPORT PROJECT 2 SUMMARY OF TRAFFIC AND ECONOMIC ANALYSIS Annex 5 Page 1 of 6 1 Result of Traffic Analysis for Fort Portal Bundibugyo Lamia Road The result of the classified traffic counts undertaken in December 2006 for the project road is as indicated in the Table A.1 below. Table A -1: 2006 Traffic Counts Total Non P -up Light Medium Heavy Mini Medi Large Motor Motorized Motor Link km Car 4WD Truck Truck Truck Bus Bus Bus Cycle Traffic traffic Link 1 - Fort Portal - Karugutu % age of vehicle composition Link 2 Karugutu - Bundibugyo % age of vehicle composition Link 3 - Bundibugyo - Lamia % age of vehicle composition Weighted traffic % age of vehicle composition Source: Consultancy Services for Feasibility Study Review and Detailed Engineering Design for Upgrading of Fort Portal Ntandi Bundibugyo Lamia Road & ADF Appraisal Mission August Reduction in transport cost, following road upgrading generates additional traffic through a combination of an increase in trips and induced economic activity. Generated traffic of 30 percent for all vehicle type at the opening of the project road have been assumed considering the reduction in VOC, wet season access constraints, travel times along the project road and price elasticity of demand. The origin-destination (OD) traffic survey indicated that about 143 vehicles per day, destined to Democratic Republic of Congo (DRC), which are currently using the route through Karugutu Notoroko, will divert to the project road, a distance saving of 124 km, in addition to travel time saving. The motorized traffic projections for normal, generated and diverted traffic for the project road have been estimated on the basis of the current trends in Uganda and taking into account parameters such as demographic growth rates, GDP growth rate, growth rate for the road sector services, growth rate for the agricultural sector and the growth in fuel sales. In addition access constraints, risk of delays in wet weather limitations on traffic flow, potential of agricultural development, oil exploration in the region and the existing low traffic level due to the poor condition of the road were some of the factors considered to determine the traffic projection. Based on the medium traffic growth assumption, the traffic levels for all the vehicle categories are projected to increase annually by 7.5 percent between 2012 and 2019; 6.5 percent between 2020 and 2026, and thereafter 5.0 percent for the economic evaluation of the road. The non motorized traffic is assumed to increase annually by 3.0%. The traffic projection over the project life cycle is indicated in Table A-2. The detail traffic counts by sections are presented in the Project Implementation Document (PID).

44 Table A-2 : Projected Annual Traffic ( ) Annex 5 Page 2 of 6 Link km Link 1 - Fort Portal - Karugutu Annual Growth Percentage 7.5% 6.5% 5.0% Link Karugutu - Bundibugyo Annual Growth Percentage 7.5% 6.5% 5.0% Link 3 - Bundibugyo - Lamia Annual Growth Percentage 7.5% 6.5% 5.0% Total Motorized traffic weighted average Total Non Motorized Weighted Average) Source: Consultancy Services for Feasibility Study Review and Detailed Engineering Design for Upgrading of Fort Portal Ntandi Bundibugyo Lamia Road & ADF Appraisal Mission August * The annual growth percentage under 2017 refers to 2020 and that of 2025 to Methodology and Assumptions for Economic Evaluation 2.2 Methodology Economic analysis has been assessed on Cost Benefit Analysis using the Highway Development and Management (HDM - 4) model. The HDM - 4 allows modelling over the analysis period of 20 years for the whole project road, the interaction between traffic volume and composition, road condition, proposed engineering interventions and their costs, road geometric characteristics and vehicle operating costs for the with and with out project scenarios. The project implementation is assumed to commence in January With a construction period of 36 months, the first year of opening the road to traffic is assumed in January 2012 and the analysis period goes up to All analysis components have been inputted into the model in US Dollars at the rate of exchange prevailing at Appraisal. For economic analysis, financial construction and maintenance costs have been converted into economic costs by applying a conversion factor of 0.83, in order to exclude transfer payments within the economy and correct for distortions between international and domestic prices caused by applications of duties and taxes on traded items. The measures of project worth used are the Economic Internal Rate of Return (EIRR) and Net Present Value (NPV) at 12% discount rate, given the opportunity cost of capital of 12% in Uganda. 2.3 Assumptions taken during the Analysis Maintenance Strategies Maintenance of the existing road has been intermittent. The maintenance strategies incorporated into the economic evaluation are as follows: Without project do minimum: This is essentially the historic maintenance practice strategy, comprising routine maintenance, heavy motorized grading at 12 IRI and regravelling with 150 mm when the existing gravel falls to 50 mm thickness. With project improved road: involves routine maintenance, patching 100 percent of potholes and 100 percent crack sealing and applying surface treatment overlay when roughness reaches 7.0 IRI m/km and the overlay resets the roughness to 3.0.

45 2.3.2 Residual Values Annex 5 Page 3 of 6 Residual values are likely to have analytical significance and have been assumed as 15 % of the initial capital investment; thus credited to the project in the final evaluation year of Cost and Benefits The economic costs taken into account are the Road Agency costs in the with and without project scenarios, which include both the cost of maintenance, and the investment cost of upgrading to DBST for 103 km of the project road. These costs take into account the base cost for civil works plus the physical contingencies, consulting services for supervision of works and for project audit as indicated in Chapter 4. The financial contingencies and compensation costs paid to people whose properties are affected are not included. Construction cost was revised in August 2007 to take into consideration the detailed engineering design cost estimate, the recent tender offers and the 2007 oil based input prices into civil works. The revised financial cost on the Fort Portal Ntandi Bundibugyo Lamia road was valued at US$ 876,000 per kilometer for DBST intervention. The pavement design option considered crushed stone base layer of 150 mm cement stabilized, with sub base of 150 mm and wearing course of double surface dressing. The economic investment cost is estimated at USD million to be disbursed over the period 2009 to The benefits of the project accruing to road users as a result of improvement in the road condition with the upgrading of the road from gravel surfaced to paved road, over the project operating life of 2012 to 2031 at 2007 price has been estimated at USD63.88 million. The benefit streams consist of: the savings in vehicle operating costs for normal, diverted and generated traffic of USD million, the savings in Motorized traffic travel time for passenger and cargo of USD5.85 million, the savings in Non Motorized Transport (NMT) traffic travel and operation of USD 7.59 million, and net exogenous (agriculture) benefit of USD 5.51 million. Further traffic benefit is expected from future oil exploration and evacuation of oil products from the Albertan region. Other benefits, which are not quantified, include improved access to health and education facilities thereby contributing to reduction in maternal and infant mortality rates and improved school enrolment rates in the two districts in line with Millennium Development Goal (MDGs). Although the road is classified as a national road, with the upgrading of the project road, the cross border traffic with DRC is expected to increase significantly. The improvement in the road will further strengthen trans-border trade and in turn facilitate regional integration. Accident costs, benefits resulting from the road improvement, have not been taken into account as the profile and frequency of accidents were not available. The details on the estimation of each category of benefit and the streams of costs and benefits over the evaluation period are in the PID.

46 2.3.4 Result of Cost Benefit Analysis Annex 5 Page 4 of 6 a) The Base Case The economic evaluation results of the Base Case Cost Benefit Analysis for the central traffic forecast indicated an EIRR of 14.6 %, NPV of USD million and Benefit Cost Ratio (BCR) of The EIRR is above the cut-off rate of return of 12 % opportunity cost of capital in Uganda and thus confirms the viability of the intervention in the project. b) Sensitivity Analysis The economic analysis was calculated using the most likely forecast values in respect of traffic growth rates and other economic development scenarios. In reality however, the benefits and costs can be influenced by many factors that may change in comparison to the base case. Therefore, sensitivity analysis is normally conducted by increasing or decreasing inputs in order to measure the magnitude of changes in the economic parameters and the reliability of the results. The base case result for the overall project road was then tested for sensitivity to changes in the basic assumptions on construction costs and on traffic levels. Three alternatives were checked, namely, costs were increased by 10 percent while benefits remained the same; benefits were reduced by 10 percent while costs remained the same; a 10 percent increase of costs and 10 percent decrease of benefits concurrently. The economic parameters were calculated for all cases. The results given in the table hereunder indicates that in all the three alternatives cases, the project road is satisfactorily robust with an EIRR higher than the threshold of 12.0% opportunity cost of capital in Uganda and NPV remaining positive. In the worst case scenario of a combined 10% increase in costs and a 10% decline in traffic, the project is still viable with an EIRR of 12.2 % and NPV of USD 0.89 million. Table A - 3. Sensitivity Analysis on Base Case Scenarios EIRR NPV in mil USD B-CR Base case Cost Increased by 10% Benefits Reduced by 10% Combined 10% increased cost & 10% decreased traffic Source: Consultancy Services for Feasibility Study Review and Detailed Engineering Design for Upgrading of Fort Portal Ntandi Bundibugyo Lamia ; RAFU & ADF Appraisal Mission August c) Switch Values for Investment Cost and Traffic In addition to the sensitivity tests above, switch values for construction costs and road user benefits, which would result in an EIRR of 12.0% or NPV of zero for the project, has been calculated as part of the economic viability analysis. In this regard, it has been observed that the costs can be increased by a maximum of 22.6 percent with benefits remaining the same and the project will still be viable at 12 percent opportunity cost of capital. Similarly, benefits can be reduced by a maximum of 18.4 percent with costs remaining the same and the project will still be viable at the opportunity cost of capital. A more than 22.6 % increase in construction costs or a drop of traffic levels (AADT) by 18.4 %

47 indicate that the project s economic viability would be threatened. These are critical factors to Annex 5 Page 5 of 6 watch, though the project is more sensitive to drop in traffic levels. These situations are most unlikely and are remote as traffic growth rate on the project road has been estimated based on a medium growth assumption of 5.0 to 7.5 percent. Construction costs would also not go up to more than 22.6 % as project cost estimates are based on detailed engineering design study taking into account the recent tenders and the 2007 oil based input prices into civil works. In addition physical contingency provision of about 10.0 % has been taken into account in the economic analysis over and above the base costs. The following table shows the results of the switch values analysis. Table 4. Switch Values for Construction Costs and Benefit for EIRR of 12.0% and NPV = 0 Case Switch values for Construction Cost & Benefit (EIRR of 12.0%) Switch Values for Construction Cost & Benefit NPV = 0 USD million Base Case EIRR 14.6% Construction Cost 22.6% 0.0 Road User Benefits -18.4% 0.0 Source: Consultancy Services for Feasibility Study Review and Detailed Engineering Design for Upgrading of Fort Portal Ntandi Bundibugyo Lamia ; RAFU & ADF Appraisal Mission August 2007.

48 Annex 5 Page 6 of 6

49 ANNEX 6 UGANDA ROAD SECTOR SUPPORT PROJECT 2 PROVISIONAL LIST OF GOODS AND SERVICES Ugandan Shillings (UGX in billion) Local Unit of Account (UA in million) Local Category FE Cost Total FE Cost Total ADF % A. Civil works B. Consultancy Services i) Supervision ii) Audit Consultancy Services Road Studies Lot 1- Design Review Kagamba - Ishaka Road (36km) and Ntungamo - Kakitumba Road (38 km) Lot 2- Design Review Kapchorwa - Suam Road (77km) Lot 3 - Feasibility and Design Review of Hoima Kaiso-Tonya Road (85km) Subtotal of Consultancy Services C. Others (Compensation) Base Cost Physical Contingencies (10% base cost less compensation) Price Escalation (3% for FE % 5% for LC) Total UA1.00 = UGX UA1.0 = USD USD1.0=UGX as at August 2007

50 ANNEX 7 Page 1 of 2 UGANDA ROAD SECTOR SUPPORT PROJECT 2 PROJECT COST BY EXPENDITURE SCHEDULE BY CATEGORY, FINANCING PLAN BY SOURCE, EXPENDITURE SCHEDULE BY CATEGORY AND BY SOURCE OF FINANCE Table 7.1 Expenditure Schedule by Category (UA million) CATEGORY Total A. Civil Works-Upgrading B.Consultancy Services Supervision Audit Studies C. Others Compensation Total: Table 7.2 Financing Plan by Category (UA Million) ADF LOAN ADF GRANT GOU Category FE LC Total FE LC Total LC Total A. Civil Works B. Consultancy Services: - Supervision Road Studies Audit Sub- Total for Consultancy C - Miscellaneous (Compensation) Total Table 7.3 Expenditure Schedule by Category (UA million) CATEGORY Total A. Civil Works-Upgrading B.Consultancy Services C. Others Compensation Total:

51 ANNEX 7 Page 2 of 2 Table 7.4 Expenditure Schedule by Source of Finance (UA Million) Source Total ADF LOAN ADF GRANT GOU Total: Table 7.5 (a) Financing Plan by Source - Net of Taxes (Civil Works) (UA Million) Source FE LC Total % ADF LOAN GOU Total Table 7.5 (b) Financing Plan by Source - Net of Taxes (Road Studies)(UA Million) Source FE LC Total % ADF GRANT GOU Total

52 UGANDA ROAD SECTOR SUPPORT PROJECT 2 PROCUREMENT ARRANGEMENTS ANNEX 8 Page 1 of All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank s rules of Procedure for Procurement of Goods and works or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents. 1.2 Civil Works: The procurement of civil works as detailed above will be carried out through International Competitive Bidding (ICB) using the standard bidding documents for large works, i.e., FIDIC document, in accordance with the Bank s Rules pf Procedure for procurement of Goods and Works. One of such contracts will be awarded, for the project road, valued in total at UA61.42million. It will not involve domestic preference margin since the domestic contracting capacity is still low to execute civil works of this magnitude. 1.3 Consultancy Services: Procurement of consulting services for the supervision of works and studies will be acquired on the basis of four shortlists of qualified consultants, and in accordance with Bank s 'Rules of Procedure for the Use of consultants'. The selection criteria to be used for Consultancy Services will be Price is a Factor, i.e., technical quality and will be combined with price consideration. The selection procedure for audit will be Lowest Price for comparable services. The Office of the Auditor-General will clear the shortlist for audit services before forwarded to the Fund for no objection. The Implementing Unit shall complete both technical and financial evaluations for Consultancy Services and obtains the Bank's 'No objection' in one step. The procurement arrangement is such that one firm will be selected for the supervision service, 3 firms for the studies and one firm for the project audit services. 1.4 Miscellaneous: This involves compensation and resettlement of PAPs: The GOU through RAFU will be responsible for payments of compensation and resettlement of persons affected by construction of the road. An amount of UA1.63million has been estimated in the project costs for this activity. GOU has undertaken to finalize all compensation and resettlement of project affected persons in accordance with the RAP prior to commencement of the civil works and by section, the first being Fort Portal to Karungutu. This has been made condition of the loan. 1.5 National Procedures and Regulations: The Uganda s national procurement laws and regulations have been reviewed and determined to be acceptable. However, Bank rules will be applied in the procurement of works and services Executing Agency: RAFU will be responsible for the procurement of works and services. The resources and capacity, expertise and experience of the present RAFU are adequate to carry out the procurement. 1.7 General Procurement Notice: The text of a General Procurement Notice (GPN) has been agreed with RAFU and will be issued for publication in Development Business, upon approval of the Loan and Grant proposals by the ADF Board of Directors. 1.8 Review Procedures : The following documents are subject to review and approval by the Bank before promulgation: GPN and Specific Procurement Notices (SPN); tender document for works; Tender documents and Requests for Proposals for consultants; Tender and proposals evaluation reports, including recommendations for contract award; Draft contract for works and Consultancy services, if these have been amended from the draft included in the tender invitation and the Request for Proposal documents.

53 UGANDA ANNEX 8 Page 2 of 2 ROAD SECTOR SUPPORT PROJECT 2 SUMMARY OF PROCUREMENT ARRANGEMENTS (UA MILLION) Project Categories ICB NCB Non Bank Funded Shortlist Total 1. Civil Works: (53.79)* (53.79)* 2. Consulting Services 2.1 Supervision (2.76)* (2.76)* 2.2 Feasibility study & detailed engineering design Lot 1 Kagamba Ishaka & Ntungamo Kakitumba Road (0.45)* (0.45)* Lot 2 Kapchora Suam Road (0.41)* (0.41)* Lot 3 Hoima Kaiso -Tonya Road (0.49)* (0.49)* 2.2 Audit Miscellaneous (0.1)* (0.1)* 3.1 Resettlement Total ( ) - ADF financing (53.79)* 0 (4.21)* (58.00)*

54 ANNEX 9 UGANDA ROAD SECTOR SUPPORT PROJECT 2 SUMMARY OF DETAILED COST ESTIMATES FOR FORT PORTAL BUNDIBUGYO LAMIA ROAD (103 km) Total Project Series Amount Amount No. Description USD m UA m BILL A - ROAD WORKS 1000 GENERAL DRAINAGE EARTHWORKS AND LAYERS OF GRAVEL / CRUSHED STONE BITUMINOUS LAYERS & SEALS ANCILLARY WORKS & SLOPE PROTECTION BRIDGES - KIRUMIA BRIDGE NYAHUKA BRIDGE NDUGUTU BRIDGE LAMIA BRIDGE TOLERANCES, TESTING AND QUALITY CONTROL A SUB-TOTAL FOR BILL A BILL B: DAY WORKS - DAYWORKS B SUBTOTAL FOR BILL B A+B TOTAL Source: GOU/ADB Appraisal Mission of August 2007

55 UGANDA ANNEX 10 Page 1 of 9 ROAD SECTOR SUPPORT PROJECT 2 TERMS-OF-REFERENCE (ABRIDGED) FOR FOUR ROAD STUDIES 1.0 Background The Government s medium-term transport strategy hinges on the need to promote cheaper, efficient and reliable transport services so as to ensure effective support to increased agricultural and industrial production, trade, tourism, social and administrative services. An efficient transport system plays a critical role in development of an integrated and self-sustaining national economy, thus promoting growth. Improvement of road infrastructure is in line with the Government current strategy of poverty eradication. Pursuant to the above strategy, the Government of Uganda is desirous of developing some bankable projects for implementation under the RSDP 2 by conducting some pre-investment studies on four priority roads, namely: Kagamba Ishaka road; Ntungamo Kakitumba road; Kapchorwa - Suam road; and Hoima Kaiso-Tonya road. These gravel-surfaced roads, which are located in areas that are fertile for the production of food and cash crops and mineral resources, are in poor condition. Three consulting firms would be expected to carry out the required consultancy services on each of these Lots: Lot 1 Lot 2 Lot 3 Kagamba Ishaka road (36km) and Ntungamo Kakitumba road (38 km) Kapchorwa - Suam road (77 km) Hoima Kaiso-Tonya road (85 km) 2.0 Objectives of the Services The objectives of the services are to review all existing documentation on the roads; and to investigate and determine the technical, economic, environmental and social feasibility of upgrading the four existing gravel roads to all weather bitumen class II standard roads. The services are also to undertake detailed engineering designs depending on the results of the feasibility studies, and to prepare standard pre-qualification and bidding documents suitable for international competitive bidding for each of the packages. 3.0 Scope of Consultancy Services The consultancy will be carried out for each package in two phases, namely: Phase I - Economic and Environmental Feasibility Study and Social Impact Assessments. Phase II - Detailed Engineering Design, Resettlement Action Plan (RAP) and production of prequalification and bidding documents. Each of the three Consultants shall review and perform all planning, engineering, financial, economic, social and environmental analyses, field investigations and related works as described

56 ANNEX 10 Page 2 of 9 Here-in with due care and diligence to attain the objectives of the study. The Consultant shall maintain close liaison with the Clients and shall submit for approval, from time to time, according to the work program, Environmental and Social Impact Assessment (ESIA), Feasibility Study reports, the draft design proposals for alignment, earthworks, pavement, structures, and other technical aspects of the design. In carrying out the consulting services, the consultant shall take into account the requirements of the financing institutions and in particular relating to the tender documents that shall be prepared. The Consultant shall determine the type and volume of existing traffic for the project road by analysing all existing statistical data, conducting and analysing traffic counts, origin destination studies, road network analyses, examining all available information on vehicle operating and road maintenance costs for both without and with situations, economic benefits and undertaking evaluation of the economic viability of each option using HDM IV. The Consultant shall present in a single report the Environmental Assessment and Social Assessment aspects for the road, as per the ADB Environmental and Social Assessment Procedures (ESAP) which was adopted in The report will also incorporate the provision of the preliminary EIA mitigation plan, the preliminary RAP and the estimated costs of the mitigation plans, in accordance with the environmental policies, guidelines and procedures of the GOU, as well as in accordance with the International Environmental Conventions signed by the government. In addition, the final economic feasibility and preliminary engineering design report shall take into account the recommendations of the environmental and social impact assessment. The preliminary design shall be carried out as detailed, including all required field surveys, investigations and following as much as possible the existing road alignment. The Consultant shall conduct all topographic surveys, hydrological/hydraulic studies, sub-surface soil explorations, material surveys and other field and laboratory investigations that are required for the preliminary engineering for the different options. The Consultant shall make recommendations concerning the sustainability of different options, by assessing the existing practices of financing the maintenance of the main roads network in the country and recommend possible solutions towards their improvement. The Consultant shall also examine the local road construction industry, assess the capacity and identify the constraints of the road agency and the local contractors for carrying out routine and periodic road maintenance works. The Consultant shall propose measures to mitigate the constraints, if any, and which will encourage the local private sector to participate in road maintenance and construction in order to facilitate improvements to the main road network activities. The Consultant as part of this study shall provide on-the-job training for counterpart staff up to two civil engineers/transport economists as determined by the Government. The progression of the consultancy from Phase I to Phase II will depend on the results of the Feasibility Study. If the results show that the package is not viable for the proposed upgrading, then Phase II shall not be undertaken. Each phase of the consultancy for each package shall be costed separately. Phase II of the Study will only commence on the authorization of the GOU and after obtaining a no-objection from the Bank for the viable options, which will be contingent upon satisfactory review of technical, economic, environmental and social results provided by the consultant in Phase 1 of the Study. The Consultant will conduct and prepare tender documents on the basis of Bank standards and as agreed upon with the clients. These shall be in the form as required by the clients, to call for tenders on the basis of International Competitive Bidding (ICB).

57 ANNEX 10 Page 3 of Human Resource Inputs In each phase, the Consultant is to supply resources sufficient to carry out all the services required. The resources will include, as a minimum but not necessarily limited to, the key staff shown below. The consultant is free to organize his/her resources as he/she wishes around the key personnel whose professional staff input are expected for the assignment. The minimum requirements of these key staff are as indicated in Attachments. 5.0 Timing The Consultant shall commence the study within 30 calendar days of the effective date of Contract. The effective date shall be the date on which the consultancy agreement shall be signed The feasibility study and the detailed engineering design phases are each expected to require a period of 18 months to complete all the four roads, excluding a period of three months approximately for GOU and the Bank to review and approve the submissions. 6.0 Reporting and Other Outputs The consultant shall prepare and submit the following reports (all in English) to the client. Generally, the consultant will initially submit two copies of draft reports and documentation for comments by the client. The comments of the client shall be incorporated in the final version of the reports and documentation. All final reports and documentation shall have an original plus five copies to the Clients and two copies to ADF directly (1 copy to Bank in Tunis and 1 copy to Bank Field Office in Kampala), and in addition, require an electronic copy. The progress and draft study reports refer to the feasibility study; ESIA and detailed design reports. a) Inception Report (b) Progress Reports (c) Draft feasibility Study Report (d) Environment & Social Impact Assessment Reports (e) Feasibility Study Reports (f) Draft Detailed Design Reports (g) Final Detailed Design Reports After approval of the draft detailed design reports, the consultant shall submit the final detailed design reports with sets of bidding documents, acceptable to the client and the financiers and in accordance with the packaging detailed in (f) above. The drawings that will form part of the bidding documents shall be in A1 size as well as reduced to A3 size.

58 Annex 10 Page 4 of 9 Consultancy Services for the Feasibility Study and Detailed Engineering Design for Lot 1 Kagamba Ishaka road and Ntungamo Kakitumba road Budget Estimates (In US$) Economic and Environmental Feasibility Study (Stage I)

59 Annex 10 Page 5 of 9 Consultancy Services for the Feasibility Study and Detailed Engineering Design for Lot 1 Kagamba Ishaka road and Ntungamo Kakitumba road Budget Estimates (In US$) Detailed Engineering Design (Stage II)

60 Annex 10 Attachment Page 6 of 9 Consultancy Services for the Feasibility Study and Detailed Engineering Design for Lot 2 Kapchorwa - Suam road Budget Estimates (In US$) Economic and Environmental Feasibility Study (Stage I)

61 Annex 10 Attachment Page 7 of 9 Consultancy Services for the Feasibility Study and Detailed Engineering Design for the Lot 2 Kapchorwa - Suam Road Budget Estimates (In US$) Detailed Engineering Design (Stage II)

62 Annex 10 Attachment Page 8 of 9 Consultancy Services for the Feasibility Study and Detailed Engineering Design for Lot 3 Hoima Kaiso-Tonya Road Budget Estimates (In US$) Economic and Environmental Feasibility Study (Stage I)

63 Annex 10 Attachment Page 9 of 9 Consultancy Services for the Feasibility Study and Detailed Engineering Design for the Lot 3 Hoima Kaiso-Tonya road Budget Estimates (In US$) Detailed Engineering Design (Stage II)