FOR OFFICIAL USE ONLY -

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY - STAFF APPRAISAL REPORT KENYA SECOND HIGHWAY SECTOR PROJECT April 9, 1984 Report No KE Transportation Division 1 Eastern Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS Currency Unit = Kenya Shilling (KSh) 1 K = 20 K Sh 1/ US$ per Kenya Shilling End of Period Kenya Shilling per US$ End of Period / ABBREVIATIONS GBCP = Gravelling, Bridging and Culverting Program IIDM = Highway Design Model KR = Kenya Railway Corporation KPA = Kenya Ports Authority KPC = Kenya Pipeline Company MOTC = Ministry of Transport and Communications MRIP = Minor Roads Improvement Program RARP = Rural Access Roads Program VOC = Vehicle Operating Costs GOVERNMENT OF KENYA FISCAL YEAR July 1 to June 30 1/ While the official currency unit in Kenya is the Kenya Shilling (KSh) it is the practice of the Government and large organizations to express revenues and expenditures in Kenya Pounds (K ) at the rate of KE = 20 KSh. 1/ Exchange rate used for this Project.

3 KENYA FOR OFFICIAL USE ONLY SECOND HIGHWAY SECTOR PROJECT Loan/SpEcial Fund Credit and Project Summar Borrower: Amount: Ternms: Project Description: Risks: Republic of Kenya A Loan of US$50.0 million equivalent and a Special Fund Credit of SDR 37.8 million (US$40.0 million equivalent) The Loan would be for a term of 20 years, including 5 years of grace, at the standard variable interest rate. The Special Fund Credit would be on standard IDA terms. The proposed project would help finance the last four years of the Government's Fifth Highway Sector Plan (FYs ). The main objectives of the project are to assist the Government to reduce transport costs and to strengthen the Ministry of Transport and Communications in the areas of highway administration and plan implementation. These objectives would be achieved through: (a) improving the maintenance of the existing road network; (b) strengthening and upgrading priority roads; (c) improving highway sector planning, administration and coordination; (d) enforcing appropriate vehicle axle load regulations; (e) developing the domestic road construction industry; (f) instituting appropriate user charges for various vehicle categories; and (g) improving the modal distribution of traffic along Kenya's main transport corridor. The proposed project faces two principal risks, both related to the economic environment. First, should the economic situation deteriorate, the highway sector could suffer budgetary reductions. Reviews of the annual plans would ensure that priority programs and projects would not be affected by budget reductions. Second, shortage of foreign exchange could restrict critical imported materials. By providing financing for some imported materials, the project would alleviate shortages of these materials. A third risk is that maintenance operations may not improve measurably as a result of (i) slow progress in work programming and supervision of operations; and (ii) inadequate coordination among the various units of the Ministry. The project includes measures to reduce the likelihood of this occurrence. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - ii - Estimated Project Costs: Road Works by Contract Local Foreign Total US$ millions Resealing and Regravelling Strengthening/Upgrading Support to the Ministry Equipment, Tools, Spare Parts Workshops and Stores Materials Laboratory Equipment Road Safety and Traffic Enforcement Consultants' Services Base Cost Price Contingencies Total Project Cost a/ Front-End Fee Total Financing Required Financing Plan: Sources -- US$ Million Equivalent -- % of Total Local Foreign Total Financing IBRD Special Fund Government of Kenya Total a! Estimated Disbursement FY85 FY86 FY87 FY88 FY89 FY90 (US$ million) Annual Cumulative Economic Rate of Return: 64% 7 Including taxes and duties of US$13.5 million equivalent.

5 KENYA SECOND HIGHWAY SECTOR PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. 1. THE TRANSPORT SECTOR A. Role, Organization and Performance of the Sector... 1o I B. Government's Overall Objectives and Policies in Transport 2 C. Transport Planning and Investments... 2 D. Roads and Road Transport ** 3 E. Other Modes Railway Transport Pipeline Transport Ports Civil Aviation... 5 F. Intermodal Coordination *...* e*..***** 5 G. Highway Administration Organizational Structure, Staffing, Training... 6 Equipment Management..* Maintenance Design, Materials Research and Construction... 8o 8 H. Past Bank Group Involvement in the Highway Sector... 8 I. The First Highway Sector Project... 9 II. THE FIFTH RIGHWAY SECTOR PLAN (FYs ) A. General... B. Plan Components.....*.....* (i) Road Maintenance Program (ii) Road Construction Program (iii) Support Programs and Activities (iv) Institutional and Sector Policy Measures C. Cost and Financing of the Highway Sector Plan o *...* *...* 11 III. BANK GROUP PARTICIPATION A. Project Objectives and Description B. Project Cost and Financing. 21 C. Criteria and Procedures for Eligibility of Subprojects.. so 23 D. Implementation and Procurement of Bank Group Financed Subprojects E. Disbursement s... O- 27 F. Accounting and Reporting Requirements... e 28 This report is based on the findings of an appraisal mission which visited Kenya in August The members of the mission were Messrs. J. Van der Ven, Economist (Mission Leader), S. Demissie, Engineer, H. Kaden, Construction Industry Adviser, I. Coodine, Educator and S. Hayden, Consultant.

6 - iv - Table of Contents Cont'd Page No. ][V. ASSESSMENT A. Size and Composition of the Plan B. Implementation Feasibility C. Benefits and Beneficiaries D. Economic Evaluation E. Risks V. AGREEMENTS REACHED AND RECOWMENDATION ANNEXES 1.1 Past Bank Group Financed Transport Projects in Kenya 1.2 Organization Chart of the Ministry of Transport and Communications 1.3 Classified and Special Purpose Road Network 1.4 Vehicle Fleet 1.5 Traffic Growth by Class of Road and Vehicle Category 1.6 Road Usage by Class of Road and Vehicle Category 1.7 Central Government Revenue from Road Vehicles 1.8 Railway Traffic 1.9 Road User Charge/Cost Ratios 1.10 Prices of Petroleum Products 2.1 The Fifth Highway Sector Plan - Forward Budget and Physical Targets 2.2 The Highway Maintenance Program - Performance Standards and Program Targets 2.3 Program of New Construction FYs Staffing and Manpower Development 2.5 The Domestic Contracting Industry 2.6 Extension of the Highway Maintenance Programming and Costing Scheme 3.1 Bank Group Supported Subprojects 3.2 Implementation Schedule of Bank Group Supported Subprojects 3.3 Reporting Requirements 4.1 Economic Analysis of Maintenance Activities 4.2 Economic Analysis of New Construction Program MA IBRD 17748

7 THE TRANSPORT SECTOR A. Role, Organization and Performance of the Sector 1.01 Kenya's agriculturally productive areas are located in the Center and South West of the country; they also contain the important urban centers where most industrial and commercial activity takes place. As a result, the transport system is characterized by: (i) numerous radial patterns representing the urban/rural interchange; and (ii) a corridor running from West to East, where rail, road and pipeline (in the eastern half) run parallel, linking the urban centers to each other and to the port of Mombasa. This corridor also provides access to the sea for the landlocked countries of Central Africa. Inland and coastal water transport and domestic air transport are of little significance. For external transport, shipping is predominant for freight and civil aviation for passengers Overall responsibility for the development, utilization and maintenance of the transport infrastructure is vested with the Ministry of Transport and Communications (MOTC). The MOTC has six major subdivisions covering the various modes and its administrative and planning functions. Each is headed either by a Chief Engineer or a Deputy Secretary (Chart, Annex 1.2). Public sector corporations are predominant in Transport, the largest being Kenya Railways Corporation followed by Kenya Ports Authority, Kenya Pipelines, Kenya Airways, and KENATCO for road transport. The private sector is involved only in road transport and in air chartering Transport has performed relatively well in its two essential tasks of collection/distribution of goods throughout the rural areas and of large volume movement along the main transport arteries and through Mombasa port. Also, quality of service and flexibility in supply as well as costs compare favourably with those obtained in other African countries. Transport services, however, are not being provided at the lowest possible cost to the economy mainly because: (i) road transport system costs are still too high as a result of inadequate road maintenance (Para. 1.20) and vehicle overloading (Para 1.11); and (ii) a suboptimal inter-modal traffic distribution in the main transport corridor (Para. 1.16). While the generally adequate performance of transport from the point of view of the user is the result of the pragmatic objectives and policies Government has pursued (Paras ), the lack of cost effectiveness in these two important areas, arises primarily from weak implementation of key policies rather than from inappropriate policies. B. Government's Overall Objectives and Policies in Transport 1.04 With the creation in 1980 of a Ministry responsible for all transport modes, Government gave due recognition to the importance of intermodal planning, policy formulation and coordination in transport. The organizational structure of the Ministry and the respective responsibilities of the six subdivisions and of some of their units,

8 -2- however, could possibly be better streamlined. In particular, effective coordination between the units involved in the Highway Sector has been hampered by the fact that they come under two different subdivisions (the Roads and Aerodromes Department and the Technical Division). This problem, however, has been recognized and is being remedied by the creation of the position of Program Coordinator for the Highway Sector (Para. 2.22) Government's general policy to promote interaction and competition between the public and private sectors also applies to transport. The public sector organizations in transport are by statute autonomous and expected to be financially self-sufficient. While financial autonomy has not been fully achieved in the case of Kenya Railways and Kenya Airways, Government's general stance on the subject has encouraged financial discipline and deterred unprofitable investments. With regard to the sector's overall role and that of the individual modes, Government's objectives and policies are based on the principles that: (i) transport is a service sector which should be developed in line with the needs of the productive sectors; (ii) modal split should be based on the comparative advantage of carriers; and (iii) this modal split should be achieved through the market mechanism. C. Transport Planning and Investments 1.06 MOTC's Transport Planning and Coordination Division which was set up in late 1980 absorbed the Highway Planning Section and planning units existing under the previous ministerial set-up. It has three Branches: (i) Advance Planning and Programming; (ii) Policy review, Research and Statistics; and; (ii) Project Implementation and Monitoring. While some units are adequately staffed, most have not been fully operational, mainly because of lack of sufficient numbers of qualified staff. As a result the Division has been unable to carry out all its functions. Recently, however, six additional economists have taken up duties in the Division (Para. 2.22) Kenya's National Plans cover five years and are prepared and implemented on the basis of a forward budget mechanism encompassing both recurrent and development expenditures. The procedures for plan preparation provide for the submission of proposals by the operating ministries within given budgetary ceilings and following broad guidelines issued by the Ministry of Finance and Planning, and for subsequent review and finalization under the responsibility of this Ministry. The first three National Plans allocated about a quarter of total investments to transport. While the emphasis was on main road construction, considerable funds were devoted to the parallel development of feeder and rural roads. During the Fourth Plan, in line with the changing sectoral emphasis of Government's development strategy, the share of transport decreased somewhat to 21%. In real terms, however, the allocations did not decrease. Within transport, the highway sector accounted for two thirds of total planned investments. In the initial stages of preparation of the

9 -3- Fifth Transport Plan (FYs ), coordination with the Ministries of Finance and Economic Development and Planning was weak and the draft Plan was over-ambitious. Also, MOTC was ill-prepared to reduce its proposals to comply with the budgetary ceilings which had been set. In the course of 1983, however, a realistic and feasible Transport Plan was firmed up. At KE 385 million, total investments in transport during the Fifth Plan will remain at about the same level as during the Fourth Plan, but more emphasis is given correctly to replacement and rehabilitation of existing infrastructure and facilities. The highway sector will continue to account for about two-thirds of total transport investments. The Highway Sector Plan is discussed in Paras D. Roads and Road Transport 1.08 Roads have been assigned primary role for short distance transport and for improving access to rural areas. Kenya's road network totals some 53,800 km of which 6,400 km are bitumen, 18,400 km are gravel and 29,000 km are earth (Annex 1.3). However, much in line with population density, roads are unevenly distributed over the country. The Roads and Aerodromes Department is responsible for maintaining the entire classified network. Owing to lack of adequate maintenance, overloading and inadequacy of existing roads to withstand the present day traffic, the roads are in poor condition. As a result, road transport system costs are significantly increased, first on account of higher vehicle operating costs and secondly because of the need for costly strengthening/reconstruction. The proposed project puts emphasis on helping Government to bring maintenance up to adequate standards (Para. 3.04) The vehicle fleet, estimated at 258,000 units (45% passenger cars), has been growing at some 4% p.a. in the past (Annex 1.4). While overall traffic grew at a rapid pace in the early and mid 1970s (7.5% p.a.) traffic levels have stabilized since 1979 (Annex 1.5). Trunk roads account for only 12% of the network but carry 64% of all traffic. The most common vehicle on these roads is the light commercial vehicle (40% of total traffic). The road transport industry is characterized by a few large trucking companies operating 50 or more trucks and a much higher number of medium to small sized (owner) operators. Except for safety and vehicle dimension restrictions, road transport is practically completely deregulated (entry, rate setting and route operation); by African standards, the industry is efficient and has displayed great vitality and flexibility in adjusting to transport demand In recent years, total revenues from taxation of road users have significantly exceeded total expenditures on roads (Annex 1.7). Road user taxation, however, has been based more on considerations of revenue collection, balance of payment protection and income redistribution than on strict transport policy objectives. This has led to disparities in the treatment of different categories of road users in two areas. First, diesel powered vehicles enjoy a more favorable tax regime (in terms of fuel taxes and import duties and sales taxes on the vehicles) than gasoline powered vehicles which is not economically justified for all operating

10 - 4 - conditions. Second, vehicle taxation does not reflect the costs imposed on the road system by various categories of road users as was brought out by a study on road user charges carried out during the previous plan (Annex 1.9). Under the Fifth Plan Government intends to remedy the latter problem through a number of measures (Para. 2.23). With regard to the prices of fuel products used in transport, Government has followed a pricing policy (primarily through taxation) under which the pump price covers significantly more than the resource costs of each product (Annex 1.10, Page 1). This pricing policy, however, was also characterized by a marked price differentiation between gasoline and diesel. After some realignment of relative prices since the early 1980's, the price of diesel remains at a low 69% of that of premium gasoline (Annex 1.10, Page 2). Government is aware of the possible distortions on resource use of such pronounced price differentiation and will review its fuel pricing policy during the Fifth Plan within the broader context of its aim of achieving a better match between supply and demand for fuel products (Para. 2.24) Enforcement of the vehicle axle load regulations has not been effective. Extensive overloading has resulted in significant pavement damage causing higher vehicle operating costs and road repair and rehabilitation costs. Government has been slow in reviewing and reformulating its policy but recently significant progress was achieved when amendments to the Traffic Act increasing the axle load limit to 10 tons and introducing stricter enforcement: were adopted. The new regulations, which are adequate, will be implemented under the FYs Plan (Para. 2.21). E. Other Modes Rai_lay Transport 1.12 Government considers the railway as the main carrier of staple agricultural products and bulk goods and of all long distance transport but this objective has not been achieved. In 1982 Kenya Railways carried 4.1 million tons or about 35% of total tons transported (Annex 1.8). Government has assisted Kenya Railways financially with its modernization and replacement investments, but also expects improvements in efficiency for the railway to fulfill its role. While during the 1970's the railways' traffic was unfavourably affected by events beyond its control, such as the gradual desintegration of the East African Community and the building of the Mombasa-Nairobi pipeline, weaknesses in operational efficiency and lack of a commercial approach both in marketing and tariff setting largely explain the loss of traffic to roads. The Government, however, by unjustifiably exercising its power of approval of tariff increases is seriously hampering the development of a commercial management approach. These management and rail tariff questions are being addressed under the ongoing Bank financed Railway Project which provides, inter alia, for a study to recommend organizational and managerial reforms and agreements aimed at furthering the application of Government's policy of financial self-sufficiency for the railway. Finally, to increase the railways invo:lvement in transit transport Kenya Railways and Uganda railways have recently concluded an operating agreement (Para. 2.23).

11 -5- Pipeline Transport 1.13 A 452 km pipeline completed in 1977 transports white oil products from Mombasa to Nairobi. Its facilities are well maintained and Kenya Pipeline company has a good operating performance. While the pipeline has helped to lower the transport cost for petroleum products in the eastern half of the main transport corridor, transport of petroleum in the western half is largely by road which is the highest cost alternative. For some time Government has considered extending the pipeline to the west and a feasibility study for an extension was recently initiated. Building of the pipeline would have major implications for road and rail transport. At negotiations it was agreed that, when considering investing in major transport sector projects, the Government will afford the Bank the opportunity for consultations as regards the viability and timing of such investments. Ports 1.14 For the ports subsector, Government's main objective is to ensure that capacity is adequate to handle import and export traffic. Mombasa port which handles more than 90% of imports and exports is well equipped. To meet the changing traffic demand, a modern container terminal at the port and a large inland container depot at Nairobi have been built but some essential elements of the container transport chain, such as a container depot at Mombasa, will not be ready for some time. Implementation of these investments has suffered numerous delays which have hampered container operations. These delays are caused in part by weak coordination between the principal parties involved in the development of containerization, i.e. the port, the railways, the customs administration, the private sector and MOTC. This underlines the need for better coordination between the concerned parties. Civil Aviation 1.15 In air transport, Government's objective of providing reliable air connections with the tourist generating centers has largely been achieved. The objective of making Kenya Airways a financially viable enterprise, however, has not been met. Moreover, major decisions regarding fleet modernization will have to be taken during this Plan and in view of the size of the investments involved a cautious approach is indicated. At negotiations it was agreed that, when considering investing in major transport sector projects, the Government will afford the Bank the opportunity for consultations as regards the viability and timing of such investments. F. Intermodal Coordination 1.16 Government policy is to rely basically on the market mechanism to bring about a distribution of traffic whereby each mode carries the traffic for which it has a comparative advantage and the necessary conditions for the market to achieve this desired distribution of traffic are largely satisfied. Shippers have freedom of choice (except in a few cases where

12 - 6 - railway transport is imposed), entry into the road transport industry is open, road tariffs are not regulated and are closely related to carrier's operating costs, and finally, for most products rail tariffs show a broad correspondance to railway operating costs. The only major factor which is responsible for some distortion in the allocation of traffic is that road and rail are treated differently with respect to their respective infrastructure costs. The Railway is expected to pay for its long term infrastructure costs while for competing road transport (heavy commercial vehicles), coverage of even short term marginal infrastructure costs is not achieved through road user charges (Annex 1.9). As a result,some long distance road transport rates do not reflect economic costs and fail to give the correct price signals to shippers. Government's policies should l:herefore aim at eliminating the major remaining cause of some distortion iin the distribution of traffic by instituting a regime of appropriate road user charges. When this is combined with strict enforcement of the axle load limits, and a more commercial regime for the railways, the market mechanism can be expected to produce a significantly improved road/rail modal split in the main transport corridor. Relevant measures are included in the FYs Transport Plan (Para. 2.23). C. Highway Administration Organizational Structure, Staffing and Training 1.17 MOTC administers the highway infrastructure through several of its Branches and Department.l/ In line with the national policy of decentralization initiated in FY 1983, MOTC's routine activities in the field rely on the 41 maintenance districts headed by District Engineers. A total of some 5,600 permanent and 12,650 work-paid staff are employed by the five Departments (Branches) involved in the Highway Subsector including 325 engineers. Given the lack of expansion in MOTC's force account activities certain categories of road maintenance personnel will be in surplus and this can only be eliminated through attrition. The personnel requirements corresponding to MOTC's future force account activities will be specified in the program for extension to the entire country of the maintenance programming and costing scheme (Para. 2.22). At negotiations Government gave the undertaking that any future hiring of road maintenance personnel shall be in accordance with the staffing requirements as defined under this scheme. In regard to staff qualifications, strengthening at the professional level and staff upgrading at the sub-professional level remain important as many staff have been recruited in recent years. The most critical need for trained staff (requiring outside expert assistance) is at the level of senior posts in particular for equipment management (Para. 2.22). 1/ The Roads and Aerodromes Department (which includes, inter alia, the Maintenance Branch and the Construction Branch), The Mechanical and Transport Department, the Staff Training Department and the Materials and Research Branch (Annex 1.2).

13 MOTC has a sound training program for young engineers which includes rotational assignments, secondment to consulting firms and overseas fellowships. In 1983 some 30 engineers were in training under this program. A noteworthy achievement is that in the Roads and Aerodromes Department alone, the number of Kenyan engineers increased from 14 in 1970 to 281 in At the sub-professional level extensive training has been provided covering nearly 9,000 employee courses during In the coming years the main thrust of staff development will be toward in-service retraining and upgrading of skills. The Training Department's 73 Kenyan instructors are assisted by 10 expatriates provided under bilateral assistance programs. On the whole, the facilities of the Department are adequate but it is short of some equipment, plant, vehicles and tools. These needs will be satisfied under the Fifth Plan. Equipment Management 1.19 The Mechanical and Transport Department is responsible for procurement, repair and upkeep of most of the equipment owned by MOTC. The Department has a central workshop, 7 provincial and 25 district workshops but many of these are in temporary structures and lack adequate facilities. Ten districts have no workshop at all. As a result of more in-house repair work, the Department's parts supply function has faced a several fold increase in its workload which it has been unable to cope with. Poor performance in the workshops and in spare parts control were the main factors contributing to the low availability of equipment and vehicles (about 50% in recent years). These weaknesses were compounded by inadequate funds and the attempt to maintain a fleet too large for the Ministry's work program. The primary cause of low utilization of the available equipment has been lack of funds. Until FY 1983 the activities of the Mechanical and Transport Department were funded through an equipment rental scheme. Failure to establish and maintain rental rates adequate to cover amortization, repairs and maintenance, combined with low utilization led to temporary suspension of the scheme. Pending the establishment of appropriate funding arrangements, the activities of the Department are financed through direct budgetary allocations. To remedy the various problems it is facing, the Department has carried out a detailed equipment condition survey, to be followed by the preparation and subsequent implementation of cost effective programs covering: (i) equipment repair and replacement; (ii) arrangements for equipment management and funding; and (iii) workshop development and spares inventory control (Para. 2.16). Maintenance 1.20 The Maintenance Branch of the Roads and Aerodromes Department is responsible for maintenance of classified and special purpose roads (53,800 km). For routine maintenance, the overall programming of activities in the 41 districts is carried out at Headquarters but implementation is the responsibility of the Ministry's organization in the field. Work performance has remained well below the Ministry's standards and the causes of this unsatisfactory performance, mainly insufficient funds and poor workprogramming and supervision, are being addressed under the Fifth Plan. In particular, the road maintenance programming and costing scheme, which was introduced under the First Highway Sector Project on a pilot basis in

14 - 8 - one district, will gradually be extended to other districts during the Fifth Plan (FYs ) (Para. 2.22). Periodic maintenance (resealing and regravelling) programs are formulated at Headquarters and executed under its control. Output, particularly resealing, has been much below target in the past. Resealing has so far been carried out almost entirely by the Branch's own forces but in FY 1984 a start was made with contracting out some of these works to medium sized contractors and this approach will be expanded during the Fifth Plan. For regravelling works, there has been extensive involvement of small domestic contractors for a number of years. Tlis category of contractors, composed entirely of Kenyan nationals, has been hampered in its development by the irregular flow of work put to contract (peaking in FY 1980 with more than 1,000 km against some 400 km in FY 1983) as a result of budgetary constraints. Moreover contracts have been awarded under protected conditions, e.g. fixed rates with contractors assigned to specific districts which provided little incentive for risk taking. The Fifth Plan includes a component to strengthen domestic contractors (Para. 2.19) which would be supported by the proposed project. Design, Materials Research and Construction 1.21 MOTC's Design Branch carries out in house design work and supervises the work done by consultants. Due to an insufficient number of experienced, permanently assigned engineers it has been unable in the past to carry out its large workprogram on a timely basis. In the future, however, the situation will be more manageable owing to improved staffing and a stabilization of the workload. The Materials and Research Branch is adequately staffed. During the coming years, the Branch will focus its act,ivities on gravel substitutes and asphaltic pavement analysis. Highway construction (reconstruction, strengthening, upgrading, new roads) is the responsibility of the Construction Branch of the Roads Department. Construction is mostly carried out by contract with major works awarded to large local firms or subsidiaries of foreign contractors. These works are of the unit price type, awarded on the basis of international competitive biclding and are supervised by consultants. Force account construction is carried out under three programs: (i) the main road construction program which is building/upgrading roads primarily in remote areas. Performance of its three units has been rather poor with an average annual production of only about 70 km; (ii) the Gravelling, Bridging and Culverting program under which lower class roads are upgraded to all-weather gravel standard. Output has averaged some 580 km/year; and, (iii) the Rural Access Roads Program using labor intensive techniques to construct low-cost rural roads. During the previous plan period on average some 1,300 km were built per year and about 560 km were gravelled. During the FYs Plan the gravelling backlog under this program will be cleared, and thereafter the program will be redeployed towards improvement of the lower categories of classified roads. H. Past Bank Group Involvement in the Highway Sector 1.22 Since 1960 the Bank Group has undertaken a total of 11 projects benefitting the Highway Sector (Annex 1.1). Some projects supported Government's efforts to create a well-integrated network of national and

15 - 9 - regional roads (First and Second Highway Project). Parallel projects for agricultural roads have supported specific programs in the agricultural sector (Agricultural Development, Tea Roads, Sugar Roads and Rural Access Roads Projects). Other projects have combined main road construction with agricultural roads (Third, Fourth and Fifth Highway Projects). The Highway Maintenance Project was designed to strengthen the maintenance organization and help finance the implementation of a large maintenance program These projects have on the whole been completed satisfactorily and the principal objectives - reduction in vechicle operating costs and improvement of accessibility in rural areas - have been achieved. The projects, however, experienced delays and cost overruns and the ERR's were on average below appraisal estimates. PPAR's have been prepared for five of these projects and the following main points emerge from these audits. Issues relating to road design surfaced in many projects and the problems encountered contributed to premature pavement failures. Since then, both the Government and the Bank have learnt from these experiences and have taken steps to avoid recurrence of these problems. In particular, uniform road design standards have been developed. A second point is that project implementation schedules were often overly optimistic. Finally, only one project, the Highway Maintenance Project (1970) included a major institutional development component. However, since Government had been following a policy of gradual Kenyanization of key positions, the need for such components did not manifest itself except at the time of centralization of road maintenance when the responsibilities of the Roads and Aerodromes Department were increased several-fold. I. The First Highway Sector Project 1.24 The eleventh project, named the First Highway Sector Project (Ln 1684-KE of 4/30/79) provided US$ 90 million to support the Government's Fourth Highway Sector Plan (FYs ). During the 1970's the Departments and Branches in the Highway Sector, in particular the Staff Training Department, were considerably strengthened. Also, the Roads and Aerodromes Department had demonstrated its ability to establish and carry out effectively programs which required innovative approaches such as the Rural Access Roads Program and the Gravelling, Bridging and Culverting Program. Moreover, the Ministry was pursuing appropriate objectives and policies under its Fourth Transport Plan (FYs ). Finally policies and measures aimed at improving the performance of the sector were being initiated. The Bank therefore agreed to a first Highway Sector Project to support the Highway Sector Plan which consisted of strengthening and reconstruction of trunk roads, upgrading to bitumen and gravel standard and construction of rural access roads. The institutional and sector measures included traffic law enforcement and road safety programs, a pilot maintenance programming and costing scheme, improved intermodal coordination and studies on road user charges and axle load limits Owing to slower economic growth under the Plan than projected, the budgetary allocations for maintenance and construction could not be maintained at the target which had been agreed upon at negotiations. For

16 recurrent expenditures the shortfall was 13% while for development expenditures it was 18%. Physical implementation, however, was much lower than the financial shortfalls would suggest. For the construction activities the following factors contributed to the under achievement in physical terms: (i) underestimation of unit costs at the time of Plan preparation; (ii) implementation of certain works to higher specifications than envisaged under the Plan; and, (iii) implementation delays which resulted in cost increases. Actual achievements, however, are also somewhat underestimated on account of projects which were not completed at the end of the Plan but for which substantial expenditures had been incurred. Under the maintenance program, routine maintenance, resealing and grading were much below target. The discrepancy between physical and financial shortfall in this case was caused by: (i) poor availability of equipment; (ii) inadequate work programming and work supervision; and, (iii) the high fixed costs which even under conditions of adequate equipment availability and with efficient management mean that a given financial shortfall will cause more than proportionate reductions in output These financial and physical shortfalls under the Fourth Highway Sector Plan, however, do not provide ground for discontinuing the sector lending approach in Kenya. Government's sector policies and objectives are sound, but their implementation requires improvement. The fifth Plan (FYs ) includes measures to avoid or correct the above problems. In particular, more emphasis is placed on maintenance and on arrangements for ensuring that it continues to receive priority during implementation. The sector lending approach provides a suitable vehicle for helping Government to improve implementation (Paras ).

17 II. THE FIFTH HIGHWAY SECTOR PLAN (FYs ) A. General 2.01 During past plans, the major development aim for the highway subsector has been to institute a balanced highway system which caters for the transport requirements of the entire country. The road network and the responsibilities of the Roads Department expanded rapidly. In contrast, the Fifth Highway Sector Plan (FYs ) places greater emphasis on the conservation of existing assets and devotes more resources to maintenance, in particular periodic maintenance. Moreover, Government's generally sound sector policies will be continued and the Plan includes specific measures in the fields of vehicle axle load control, road safety and road/rail coordination which will contribute to reduce overall transport system costs The draft proposals for the Fifth Highway Sector Plan were completed by MOTC in November 1982, but were financially not feasible. In early 1983, the overall size of the Plan (both development and recurrent expenditures) was reduced to some K 435 million (US$635 million) to comply with the forward budget ceilings established for the Highway Sector. The resulting scaled-down plan, however, still had two major deficiencies, namely an imbalance in the size of the components, in particular insufficient emphasis on maintenance and, lack of internal consistency in the elements of the maintenance program. These deficiencies were subsequently corrected during 1983 in a series of adjustments and revisions. The Plan thus revised gives appropriate emphasis to road maintenance, inter alia, by providing support to periodic maintenance (regravelling and resealing) under the Development Budget (Table 2.1) Formulation of the composition of the Plan was based on economic criteria, first by ranking the various programs and activities according to their Economic Rate of Return (ERR)and second by appropriate sizing of the programs. The main programs were ranked in the following order: routine maintenance; completion of projects under execution; periodic maintenance; strengthening/reconstruction and upgrading. Moreover, the minimum ERR for any element of the Plan was set at 12%. It follows that in case Government's revenues evolve less favorably than assumed in the forward budget projections, the plan can be reduced by scaling down or postponing the start of construction projects which have the lowest priority. Also, to assist in evaluating alternative road maintenance, rehabilitation and construction strategies, the Bank's Highway Design Model will be introduced The major components of the Plan (Paras ) are defined in terms of annual volume of expenditures (in FY 1984 prices) and physical targets (Annex 2.1). Other elements are defined in terms of the actions and measures to be undertaken and their related costs. The Plan encompasses all activities financed both under the recurrent and the development budgets.

18 B. Plan Components (i) Road Maintenance Program 2.05 The road maintenance program comprises four main subprograms. Program of Routine Maintenance. This program covers the 53,800 km of classified and special purpose roads and includes the following main activities: grading: based on MOTC's grading cycles some 95,000 km in total are to be graded each year (including the grading of shoulders of bitumen roads); - culvert clearing and replacement: an average of 80,000 culverts are to be cleaned twice per year and 4,000 have to be repaired per annum; -- spot regravelling: an average of 0.7 million m 3 of gravel is to be used per annum; - patching of bitumen surfaced roads: an average of 1.7 million m 2 per annum; - bush clearing: 54,000 km per annum (5 m wide strip) (Annex 2.2). The maintenance programming and costing scheme (maintenance programming, budgeting, costing and monitoring) which was satisfactorily introduced on a pilot basis during the previous Plan will be gradually extended to all districts during the FYs Plan (Para. 2.22) Resealing Program. Based on MOTC's resealing cycles which are governed by traffic density, the program provides for the resealing of about 1,100 km of paved road per annum at an annual cost of KE 7.7 million (US$11.2 million). About a third of this total will be financed under the development budget. Since a backlog of resealing has built up over the past years and some roads require resealing more urgently than others, the formulation of the annual workprogram is to be based primarily on the condition of the road network and current and projected traffic levels. The proposed project would help finance the resealing carried out by contract Regravelling Program. The program provides for the regravelling of some 1,950 km in 1985 increasing to 2,600 km in Of this target, about 70% would be carried out by contract and 30% by force account. The average annual cost of this program is KE 10.5 million (US$15.3 million). About two thirds of the cost would be financed under the Development Budget. The domestic contracting industry component under the plan (Para. 2.19) would in particular aim at strengthening the contractors engaged on regravelling works. During the latter years of the plan, when the Gravelling, Bridging and Culverting Program is being redeployed to regravelling works, the backlog which has accumulated will be gradually eliminated. The proposed project would help finance the regravelling carried out by contract.

19 Other Operations. In addition to the above subprograms on the classified network the MOTC is responsible for maintenance operations on 450 km of service roads, some 7,000 km of rural access roads, 420 km of municipal roads and 3 ferries. Its activities also include the maintenance of road markings and signs and extraordinary maintenance operations. The average annual budget for these activities is K 2.7 million (US$3.9 million) per annum. (ii) Road Construction Program 2.09 Completion of Construction Projects under Execution. Under the construction program, first priority has been assigned to complete projects under execution for which KE82 million (US$119.7 million) have been budgeted. Annex 2.1 shows this program by type of activity (strengthening, reconstruction, upgrading to bitumenous standard) Gravelling, Bridging and Culverting Program. Upon completion of its targets, the program will not be continued in its present form (Para. 1.21). One of the three units of this program will be converted from upgrading of earth roads to regravelling in FY The two remaining units would likewise be deployed on regravelling activities in FYs 1986 and 1987 respectively. K 10 million (US$14.6 million) have been budgeted to complete the road upgrading works programmed till FY When the resources under this program are redeployed to regravelling, they will form part of the regravelling program Rural Access Roads Program and Minor Roads Improvement Program. The target under the Rural Access Roads Program (Para. 1.Z1) has been reduced from 15,000 km to 8,000 km and construction of new rural access roads is being phased out. From FY 1985 onwards construction of rural access roads will be discontinued except under well defined agricultural projects. The program will continue, however, with the gravelling of those roads already built where passability needs to be ensured. Furthermore, starting in FY 1985 the labor intensive approach and the resources developed for the Rural Access Roads Program will be redeployed for the improvement of the lower categories of the classified earth and gravel roads under a new program, the Minor Roads Improvement Program (MRIP). The techniques and procedures for this program are still being developed through three pilot construction units. A total of KE 24.8 million (US$36.2 million) has been budgeted for these programs New Projects. The program of new road construction (strengthening, reconstruction, upgrading) which has been selected for inclusion in the plan from among a large list, comprises projects which have a very high rate of return or which have an international character and for which substantial donor support is available. Projects totalling 1,050 km would be started under the Plan and KE97.0 million (US$141.6 million) have been budgeted for implementation of these projects during the period FYs A large part of this program is composed of road strengthening. Detailed engineering is either completed or nearing completion for the projects proposed to be started during FYs 1985 and For projects to be started in subsequent years detailed engineering is well advanced. The proposed project would finance new projects totalling about 465 km (Annex 2.3).

20 Other Road Works. This component of the construction program includes bridge replacement works, flood damage works and the construction of strategic road sections. A total of K 4.3 million (US$6.3 million) has been budgeted for this component. (iii) Support Programs and Activities 2.1]4 The maintenance and construction programs are complemented by support programs and activities which either are essential for the implementation of these programs or help to improve the overall performance of the Highway Sector Planning, Design and Studies. This component includes road planning and feasibility studies, traffic surveys, highway design, the ongoing rural access road impact study and consultancy assignments. Design work by consultants is underway on some 30 road projects. The budget for this component under the plan is K 8.7 million (US$12.7 million) Equipment and Vehicles. The update of the equipment inventory carried out by MOTC during August/September 1983 established that equipment holding in terms of number of pieces of equipment exceeds equipment requirements during the plan period. Based on the equipment needs of MOTC's force account workprogram and the findings of the equipment condition survey which was completed in early 1984, a detailed program of equipment scrapping, overhaul, repair and replacement is being prepared. Requirements for workshops, tools and stores as well as the initial stock and the recurrent needs for spare parts remain to be determined. Adequate arrangements for equipment management and funding and a program for parts control are also to be developed. Pending the completion of these tasks KE9.2 million (US$13.4 million) have been budgeted for equipment, tools, wor]kshops, stores and spare parts under the forward development budget. This budget will be updated/revised when the determination of needs has been firmed up. At negotiations Government undertook to prepare by June 30, 1986, with the help of consultants, cost effective programs covering: (i) equipment repair and replacement; (ii) workshop development and spares inventory control; and (iii) arrangements for equipment management and funding. It was also agreed that prior to their completion, equipment, tools, spare parts, workshops and stores will be eligible for financing under the project on a selective basis subject to appropriate justification (Para (iii)) Staff Training. Staff training during the plan will emphasize traiining witwh theview of the redeployment of the Ministry's Rural Access Roads and Gravelling, Bridging and Culverting Programs and the upgrading of staff skills in general. The Staff Training Program provides for about 3,600 staff courses of pre-service training, 7,400 staff courses of in-service training and 6,000 staff courses of new programs (driver training in particular). The needs of the STD to carry out this program are mainly in respect of road maintenance and workshop equipment valued at

21 K 3.4 million (US$5 million) (Annex 2.4). These needs are expected to be largely met from the existing fleet, following completion of the equipment holding review by the MTD. The proposed project would provide financing for items which can not be met from the existing fleet Research Program of the Materials Branch. During the FYs Plan the workprogram of the Materials Branch will concentrate on monitoring the performance of roads under various climatic and traffic conditions and on carrying out research to optimize the design, construction and maintenance of various types of roads. Extensive testing in the laboratory and in the field of road building materials to determine their characteristics and performance will be carried out. The results of this analysis will be of direct relevance to the formulation of the maintenance and construction programs in future years and will benefit the introduction of the Highway Design Model. To support this continuing research effort, various types of equipment in the different laboratories will be replaced while some new additional equipment would also be procured. The total budget for this procurement is KE2.8 million (US$4.1 million). The proposed project would help finance some of these needs Domestic Contracting Industry. This component of the Plan provides for upgrading the competence (managerial, financial, technical) of small domestic contractors with the aim of gradually preparing them to operate in an open competitive environment as opposed to the system prevailing so far under which rates are fixed by MOTC and contractors can only be awarded work in their assigned districts. The component is targetted at those contractors currently engaged on regravelling works who are lacking in certain competence to compete successfully for this type of civil engineering work, but have the ability to absorb training and advice and have potential for improvement as evidenced by past performance and general business attitude. Training, in the form of brief siminars, on-the-job follow-up and periodic monitoring, would be provided to the managers of these companies by an experienced company of international repute selected for this assignment. Other personnel would be offered access (at a fee covering costs) to MOTC's existing training facilities, preferably in joint courses for MOTC and contractor's personnel of the same level. Payment terms will be designed to meet the contractor's working capital requirements. Contractors will also be given the opportunity to rent equipment items from MOTC on a selective basis (to balance their equipment fleet). Competitive bidding will be introduced in stages in accordance with the training provided, ending with unrestricted local competitive bidding on unit price basis in FY 1988 the last year of the Plan (Annex 2.5). K 1.2 million (US$1.8 million) have been budgetted for the training to be provided under this component which would be supported by the proposed project. Road works valued at K 21.8 million (US$31.8 million) would be carried out by domestic contractors Road Markings and Road Safety. During the previous Plan a road safety program was launched to complement and reinforce the traditional activities in the field of road markings and signalization. The road safety program for FYs provides for the further strengthening of

22 the Road Safety Unit in MOTC and of the National Road Safety Council through the provision of technical assistance, the continuation of research in the area of long distance traffic through provincial towns and the start of a program of improvement of hazardous road sections on main roads. The Government of Finland has agreed to finance technical assistance for the road safety component. Furthermore, the program of construction of vehicle inspection centers initiated under the previous plan will be completed, including the equipping and staffing of these centers. The total budget for this component is KE3.8 million (US$5.5 million). The Proposed project would help finance some of these needs. (iv) Institutional and Sector Policy Measures 2.21 Enforcement of Traffic Regulations. This program to be carried out jointly with the Kenya Traffic Police, provides for the introduction of the new axle weight limit of 10 tons which was approved by Parliament in early December It includes a public relations campaign to raise the level of awareness of the road hauliers as to the new regulations, and actual enforcement of the new regulations using the existing two static weighbridges, three portable weighbridges to be acquired early during the plan and four additional permanent weighbridges to be installed later at the entry points to the Highway System. The portable weighbridges will be deployed on a number of locations on the main roads on which overloading is being observed. Vehicles which are found in breach with the regulations will not be authorized on the road until excess weight has been unloaded. The budget for this component over the FYs period is K 0.4 million (US$0.6 million). Government has requested the Federal Republic of Germany to finance the additional weighbridges but actual enforcement will be started with the existing two weighbridges. During negotiations agreement was reached that the start of enforcement of the new regulations shall be a condition of effectiveness of the Loan/Credit. Furthermore, Government undertook to strengthen its enforcement capacity through acquisition and deployment of two additional permanent weighbridges by December 31, Strengthening of MOTC. Measures to strengthen MOTC's operations include the provision of technical assistance; the introduction of improved maintenance planning and programming procedures with the help of consultants; the creation of the function of coordinator for the Highway Sector to improve overall coordination between the various units involved in highways; and, the recruitment of three additional economists (over and above the six recently appointed) to enable the Planning and Coordination Division to carry out its various planning tasks. Even though the Ministry's training and staff development programs have been successful in producing large numbers of trained staff, a number of key senior positions can not yet be filled by Kenyan nationals. Continuation of the services of expatriate personnel is needed in particular in road maintenance, equipment and stores management, staff training and the road safety program. Bilateral sources will continue to finance the technical assistance already in place. In the Mechanical and Transport Department, two positions of

23 Senior Superintending Engineer which have become vacant will need to be filled from outside. Moreover, MOTC will need assistance to extend the highway maintenance programming and costing scheme to all 41 districts (Annex 2.6 and Annex 3.2, Page 9) and to introduce the Highway Design Model (HDM) for purposes of evaluating alternative road maintenance, rehabilitation and construction strategies (Annex 3.2, Page 11). Consultants assistance (some 95 man-months) will be required to help carry out these tasks and has been included under the proposed project. In all cases where expatriate personnel are employed, MOTC will ensure that qualified counterpart personnel are assigned on a permanent basis so that outside assistance may be discontinued as soon as possible. At negotiations it was agreed that MOTC will: (i) by June 30, 1985, fill the two vacant positions in the Mechanical and Transport Department and the three vacant positions in the Planning and Coordination Division; and, prepare with the help of consultants, whose terms of reference shall be acceptable to the Bank, a program for the extension of the maintenance programming and costing scheme to all districts; (ii) by December 31, 1986, introduce the HDM for planning purposes; and (iii) take all measures required to ensure proper coordination between the various units involved in the highway sector Intermodal Coordination. To improve the distribution of traffic between rail and road (Para 1.16), the Plan includes measures in three areas: road user charges, the transport of petroleum products and transit transport. The Government is committed to increase taxation on heavy commercial vehicles so as to ensure that the total charges levied on these vehicles will cover not less than the short run marginal cost which they impose on the road network. The Government intends to achieve this objective by raising the licence fee and other charges on heavy commercial vehicles over a period of three years. Thereafter, the road user charge/cost ratios will be updated periodically and adjustments in the charges will be introduced as required. A review of the transport of petroleum products West of Nairobi indicated that there is justification and scope for a greater involvement of the railways in this transport and Kenya Railways is taking steps (e.g. allocation of motive power) to carry a higher volume of petroleum products to the West. Moreover, Government has decided to re-examine the question of extending the pipeline West of Nairobi and a feasibility study has been commissioned by the Ministry of Energy. In view of the intermodal aspects involved, MOTC will liaise closely on this matter with the Ministry of Energy. Finally, Kenya Railways and Uganda Railways have concluded an operating agreement which provides, inter alia, for wagon interchange and through tariffs. At negotiations it was agreed that the Government will: (i) increase the licence fee for heavy commercial vehicles by 10% by September 30, 1984; (ii) effect further increases in licence fees and other road user charges levied on heavy commercial vehicles so as to ensure that, by September 30, 1987, the total charges cover not less than the short run marginal costs imposed by such vehicles on the road network; and (iii) adjust thereafter periodically taxation on such vehicles so as to maintain the coverage of short run marginal costs. Moreover, Government undertook to take all measures necessary on its part to formalize appropriate arrangements with the Republic of Uganda concerning the interchange of railway rolling stock.

24 Fuel Prices and Fuel Conservation in Transport. The Government is increasingly conscious of the impact on the balance of payments of fuel consumption in transport. To reduce the growth of fuel consumption in transport the Government relies primarily on a pricing policy which calls for prices which cover no less than the resource cost of the various products (Annex 1.10, Page 1). To achieve more significant results, however, this needs to be complemented by other measures. In MOTC collaborated with the Road Transport Research Laboratory of the U.K. in carrying out a study on fuel conservation in transport. Based on the findings of the study, expected to be published in early 1984, and other relevant studies, Government will prepare appropriate fuel conservation measures on a sound basis. Moreover, to minimize the cost of supplying the market with fuel products, Government intends to install a secondary refinery capacity at the Mombasa refinery. A Bank engineering project to prepare this investment includes a study to recommend appropriate prices for fuel products. At negotiations, it was agreed that Government, through its MOTC, will exchange views with the Bank at regular intervals, on appropriate measures for fuel conservation and on appropriate pricing of fuel products used in transport. C., Cost and Financing of the Highway Sector Plan 2.25 The cost estimates of the Plan (Table 2.1 and Annex 2.1) are given in FY 1984 prices (January 1984). They have been prepared by MOTC as follows: (i) for the various components of the maintenance program and for road construction by force account, estimates are based on actual costs during FY 1983 adjusted for inflation to FY 1984; (ii) for road construction by contract estimates are based on recent bids for similar works adjusted to FY84; (iii) for equipment, vehicles and tools, estimates are based on recent actual CIF costs (Mombasa) for imported items plus a local component for handling and transport; (iv) for technical assistance and consultants average man-month costs are estimated at K 7,800 (US$11,400) which includes KE6,000 for salaries, firms overheads (home office expenses, expatriate allowances, social costs etc.) and profit, and K 1,800 for reimbursable expenses (international travel, communications, subsistance and other miscellaneous items) The total cost in FY 1984 prices of the Five-Year Highway Sector Plan amounts to K 434 million (US$634 million). KE143 million (US$209 million) would be financed under the recurrent budget and KE291 million (US$425 million) under the development budget. The foreign cost of the Plan is estimated at K 230 million (US$336 million) or 53% of total costs. The proposed Bank/Special Fund contribution of K 51.2 million (US$74.5 mi:llion, without price contingencies) would finance 12% of the total cost or 22% of the foreign cost. Donor commitments (AfDB, CIDA, DANIDA, EEC, KFlW, FINLAND, NETHERLANDS, NORAD, ODA, SWITZERLAND, USAID) for projects under execution are estimated at some KE36 million (US$53 million) and would finance 8% of the Plan. Fresh commitments from these and other donors (BADEA, SAUDI FUND) are expected in the amount of K 40 million (US$58.4 million) representing 9% of the Plan's cost. External financing at KE127.2 million (US$183 million) would cover 29% of total costs and 55%

25 of the foreign costs. Since under Kenya's forward budget mechanism, external financing is included in the budgetary ceiling, the direct budgetary contribution of the Government would be some KE 307 million (US$448 million) or 71% of the total cost of the Highway Sector Plan. This is feasible given that the Highway Sector Plan forms an integral part of Government's overall Plan, which is based on realistic domestic and external funding assumptions (Para. 4.01). Government, however, is continuing its efforts to seek additional external financing, particularly on concessionary terms. Table 2.1 THE FIFTh HIGIAY SECCXR PLAN (EYs ) FORWARD BtlDET (Kf million, EY 1984 Prices) Total A. Recurrent udget 1. Roatine Maintenance Periodic Maintenance (Resealing & Regravelling) Other Operations Support: Mechanical Staff Training Materials Subtotal B. Development Budget 1. Bitumnen and Chippings (Resealing) Corpletion of Construction Projects under Erecution ,7 4, Force Account Road IhQrovemsnt Programs Donestic Contractors (Regravelling) 1/ New Projects Other Road Works Planning, Design, Studies Support: Mchanical Staff Training Materials Other Programs Subtotal Total / Progran starts in EY 1985

26 A. Project Objectives and Description III. BANK GROUP PARTICIPATION 3.01 Accomplishments under the First Highway Sector Project which supported the Fourth Plan (FYs ) fell short of the objectives which had been set. The poor performance was mainly caused by weaknesses in implementation. Government, however, was pursuing sound sectoral objectives and policies. These policies are being continued under the Fifth Plan (FYs ). Moreover, this Plan forms an integral part of Government's overall Plan which is based on realistic domestic and external funding projections. In its composition, the Plan correctly places greater emphasis on maintenance. Finally, the Plan includes measures to remedy the poor implementation performance of the past and to improve annual workprogram formulation. These features, provide the basis for continuation of sector lending Bank Group participation in the Plan on the basis of the sector approach would help improve implementation in the following important areas: (i) successful completion of the actions and policy measures initiated under the previous Plan (Para. 1.24) which would contribute significantly to reducing transport costs and improving the overall performance of the sector; (ii) ensuring that during implementation, the focus will remain on the Plan as a whole, in particular on the level of funds allocated to maintenance and the balance between the various components; (iii) ensuring that the measures to remedy the three main causes for the unsatisfactory achievements under the previous Plan, namely: the lack of an adequate planning mechanism to deal with budget reductions; poor coordination between the various units of MOTC; and weaknesses in workprogramming, monitoring and supervision, will be implemented; and (iv) reduce the risk that high priority components will face implementation difficulties on account of scarce imported materials The main objectives of the proposed project are therefore to help the Government to lower transport costs (Para. 1.03) and to strengthen MOTC, in particular its Plan implementation capabilities. To achieve these objectives, the project aims at: (i) improving the maintenance of the existing road network; (ii) strengthening and upgrading priority roads; (iii) improving highway sector planning, administration and coordination,including the adoption of sound criteria for project selection; (iv) enforcing appropriate vehicle axle load regulations; (v) developing the domestic road construction industry; (vi) instituting appropriate user-charges for various vehicle categories; and (vii) improving the modal distribution of traffic along the central transport corridor.

27 The proposed project would help finance a slice (FYs ) of the Five-Year Highway Sector Plan (FYs ). For purposes of implementation of the Highway Sector Project any part or element of the Plan is referred to as a subproject. The Plan and the subprojects to be financed under the Loan/Credit during FY 1985 were agreed upon at negotiations. Any updating/revisions of the Plan would be based on the same criteria as used for initial Plan formulation (Para. 2.03). MOTC's proposals for such updating/revisions would be submitted to the Bank by April 1 of each fiscal year taking into account the draft budgetary ceiling for the Ministry and would be finalized in a manner satisfactory to the Bank upon determination of the final budgetary ceiling. Agreement to finance any subprojects under the updated/revised Plan would be contingent upon a satisfactory allocation of funds for maintenance within the total budget available to the Ministry. Eligibility for financing would be confirmed subject to submission of subproject documentation in satisfactory form (Para. 3.08). These principles and procedures were agreed at negotiations Bank Group participation in the Highway Sector Plan would consist of: (i) Road works by contract: (a) resealing of about 2,800 km of paved roads; (b) regravelling of about 1,500 km of gravel roads; (c) strengthening of about 220 km of paved roads; (d) upgrading of about 245 km of gravel roads to paved standard; (ii) Support to MOTC's highway operations through the provision of: (a) road maintenance equipment, tools and spare parts; (b) workshops and stores; (c) road building materials; (d) consultants' services for improving highway maintenance programming and costing, highway planning and highway administration; (e) laboratory equipment for the Materials Branch; and (f) equipment for the road safety and traffic enforcement programs. (iii) Development of the domestic road construction industry through the provision of consultants' services. B. Project Cost and Financing 3.06 The total project cost including contingencies is estimated at KE104.2 million (US$152.4 million). Excluding taxes and duties, the total cost is KE95.0 million (US$138.9 million) with a foreign component of KE67.9 million (US$98.7 million). The cost estimates in January 1984 prices are shown in Table 3.1.

28 Table 3.1 Estimated Project Costs: 1. Road Wbrks by Contract Local Foreign Total Local Foreign Total K milio n -US$ millions -- Resealing Regravelling Strengthening/Upgrading Support to MDTC Equipment, Tools, Spare Parts Workshops and Stores Materials laboratory Equipmnt Road Safety & Traffic Equiprxent Consultants' Services for supervision of road works, support to MYTC's operations and development of domstic contractors (605 man/mnths) Base Cost Price Contingencies 1/ Total Project Cost Front end Fee on Bank Loan Total Financing Required (Total Project Cost Net of Taxes) (27.1) (67.9) (95.0) (40.2) (98.7) (138.9) 1/ Expected price increases % Local Foreign As physical targets under the Sector Project are defined in broad terms and most cost estinates are not yet based on detailed design, physical contingency is not shown separately.

29 The total financing requirement of US$152.5 million will be covered as follows: Local Foreign Total US$ million IBRD Special Fund Government of Kenya C. Criteria for Eligibility of Subprojects 3.08 Every year, the financing of specific subprojects will be contingent upon adoption of a satisfactory annual workprogram given the total budget available to the Ministry; and, the submission of subproject proposals providing satisfactory justification and documentation as follows: (i) For resealing and regravelling by contract, MOTC will submit a list of proposed road sections, with supporting documentation which will describe the scope of the works, the selection procedure adopted, economic rate of return and relative priority within the overall program, the estimated cost and proposed technical specifications, supervision arrangements, lot packaging, requirements for contractors' prequalification and procurement and execution schedule; (ii) For construction (strengthening, upgrading) the submission will include a fully documented feasibility study (summarized on a data sheet) providing justification for the investment, the proposed engineering specifications, requirements for contractors' prequalification, and procurement and implementation schedules. Submission of detailed engineering and proposals for supervision of the works satisfactory to the Bank will also be required; (iii) For highway maintenance equipment, workshop tools and spare parts the submission will provide a description of the type of goods and their specifications, the estimated cost, proposed lot packaging and procurement schedule and procedures. Prior to the completion of the equipment management programs (Para. 2.16), subprojects will be eligible on a selective basis subject to appropriate justification for the proposed type of goods and quantities. Such justification should be in terms of critical requirements, availability and utilization ratios and all other pertinent factors. After completion of the equipment management programs, the justification will be based on the recommendations of these programs.

30 (iv) For civil works for workshops and stores the submission will provide details on the specifications of the structures, their estimated cost, the proposed requirements for contractors' prequalification, and proposed procurement and construction schedules. Prior to the completion of the equipment management programs (Para. 2.16), subprojects will be eligible on a selective basis subject to appropriate justification for the specifications and location of the structures. Such justification should be in terms of critical requirements to service existing operations. After completion of the equipment management programs, the justification will be based on the recommendations of these programs; (v) For purchases of road building materials MOTC will submit a detailed proposal specifying the materials and their intended use, providing justification for the proposed quantities on the basis of the agreed workprogram and details on lot sizes, phasing of deliveries, distribution and storage arrangements and proposed procurement schedule. Requests for repeat purchases would be subject to satisfactory utilization of the materials procured previously; (vi) For training, laboratory, road safety and traffic enforcement equipment, MOTC will submit a detailed proposal giving the specifications, estimated cost, justification in terms of requirements in the context of the overall component and proposed procurement schedule and procedures; (vii) For consultants, studies and technical assistance, MOTC will submit a proposal giving detailed terms of reference, man-months estimates and budget, total cost and procurement and implementation schedules The Bank would in each case review the above specified documentation, request additional information as required and assess eligibility. Rejected subprojects may be resubmitted at a later stage for reconsideration in the light of additional information, or if the scope or standards of the subproject have been revised. These principles and procedures were agreed at negotiations. The road construction subprojects which would be submitted during the first year of the project (FY 1985) are shown in Annex 3.2, Page 3. D. Implementation and Procurement of Bank Group Financed Subprojects 3.10 MOTC through its various Branches and Departments will be responsible for implementation of the subprojects financed by the Bank Group. Maintenance Branch will assist in the preparation, implementation and supervision of the subprojects under the resealing program. Mechanical and Transport Department will assist in the procurement of maintenance

31 equipment, vehicles, workshop tools and spare parts including the equipment for training, the laboratory, road safety and traffic enforcement. The Construction Department will assist in the procurement of the road construction subprojects and the related supervision contracts. It will also implement the component for developing domestic contractors and will assist in the preparation, implementation and supervision of the subprojects under the program of regravelling by contract. Technical assistance and studies would be handled by the beneficiary department or branch. Overall coordination of the implementation of the project would be assured by the coordinator for the Highway Sector appointed recently in the MOTC All civil works, equipment, tools and spare parts, materials and supplies, except as noted in subsequent paragraphs, (US$123.0 million equivalent) will be procured through international competitive bidding in accordance with the Bank Group's "Guidelines for Procurement under World Bank Loans and IDA Credits". For purposes of bid comparison, domestic manufacturers would be accorded a preference of 15% or the existing applicable rate of import duties, which ever is lower, over the c.i.f. price of competing foreign suppliers. Contracts valued at US$56.4 million will be procured under the special eligibility criteria of the Special Fund (Table 3.2) Regravelling works are widely dispersed and costs would range between US$300,000 and US$750,000 each (US$12.8 million total). Given the limited scope for lot grouping, foreign contractors are unlikely to show interest in these works. Lot packaging would take into consideration the contracting capacity available within each region. The works will be awarded following competitive bidding advertised locally according to procedures acceptable to the Bank. The category of domestic contractors which is being strengthened under the project (Para. 2.19) would be considered for participating in the bidding for these works during the third and fourth year of the project. Financing would be from the Special Fund The civil works for construction of workshops and stores are widely dispersed and costs would not exceed US$400,000 each (US$4.8 million total). Foreign contractors are unlikely to show interest in these works. They will be awarded following competitive bidding advertised locally according to procedures acceptable to the Bank Small quantities of construction materials such as cement and reinforcing steel, and items such as tools and spare parts, in lots with an estimated cost of less than US$50,000 equivalent and with an aggregate limit of US$300,000 equivalent may be procured through local procurement procedures to be agreed with the Bank. Spare parts for existing proprietary equipment, with an aggregate limit of US$700,000 may be procured directly from suppliers.

32 Minor equipment items and instruments of a specialized nature for training, the laboratory, road safety and traffic enforcement, which are not generally available in Kenya will be procured though international shopping as provided in the Bank's "Guidelines for Procurement under World Bank Loans and IDA Credits" Consultants for the supervision of civil works and for studies and technical assistance (US$8.2 million) will be employed in accordance with the Bank Group "Gulidelines for the Use of Consultants by World Bank Borrowers". Selection will be based primarily on the technical evaluation of the consultants' proposal and final selection will be agreed with the Bank before entering into any contractual agreement. Consultants' services for a total of US$3.7 million will be procured under the special eligibility criteria of the Special Fund (Table 3.2) These procurement procedures were agreed at negotiations. Procurement arrangements are summarized in Table 3.2. Table 3.2 Procurement td Procreent Method ICB CIB Other TOTAL COST Subprojects BANK Spec. BAN Spec. BANK Spec. Total BANK Spec. Fund Furd F\nI F.nd Resealing (9.1) (9.0) (18.1) (9.1) (9.0) Regrame1ling (3.6) (3.6) (3.6) Strengtheningj LUpgrading (21.5) (18.4) (39.9) (21.5) (18.4) EquipjTent, Tools, Parts (6.4) (6.0) (2.0) (14.4) (8.4) (6.0) Wkrks]-ops & Stores (2.7) (2.7) (2.7) Materials (3.6) (0.9) (0.2) (4.7) (4.7) Services (3.6) (3.0) (6.6) (3.6) (3.0) (40.6) (33.4) (3.6) (3.6) (5.8) (3.0) (90.0) (50.0) (40).0) (74.0) (7.2) (8.8) Note: Figures in parentheses are the amnts financed yr the loan/special Fund Credit. 1/ Includes consultants for oonstruction supervision (350 man-mrnths), strengthening of M'IT (165 mai-mronths) and domestic contractors couponents (90) mwn-nnths).

33 E. Disbursement 3.18 Based on a detailed cost breakdown the foreign exchange component (direct plus indirect) has been estimated at 51% for the resealing works by contract, at 30% for the regravelling works by contract, at 73% for road construction works by contract and at 69% for civil works (buildings). The foreign exchange component of imported goods procured locally is estimated at 65% The proposed Loan/Special Fund Credit will be disbursed on the following basis: (i) 50% of total expenditures for resealing works by contract; (ii) 30% of total expenditures for regravelling works by contract; (iii) 60% of total expenditures for road construction works and buildings; (iv) for equipment, tools, spare parts, materials and supplies, 100% of foreign expenditures, 100% of local expenditures (ex-factory cost), and 65% of local expenditures for other items procured locally; (v) 100% of foreign expenditures and 70% of local expenditures for consulting services. All disbursement requests will be fully documented The estimated schedule of disbursements is shown in Table 3.1. It is based on the schedule of implementation of the subprojects likely to be supported by the Loan/Credit, the disbursement percentages outlined above, the disbursement profile for the First Highway Sector Project, and takes into consideration that in the course of 1983 MOTC has adopted procedure III (where applicable), for the withdrawal of proceeds under the First Highway Sector Project (Loan 1684-KE).

34 Table Estimated Schedule of Disbursements Fiscal year Disbursements Cumulative Disbursements and Quarter US$ million US$ million % 1985 March June September December March June September December March June September December March June September December March June September December F., Accounting and Reporting Requirements 3.21 The accounts for the programs and components financed under the project will be maintained by the Accounts Section of the Administrative Division of MOTC. MOTC's accounting procedures and its capability to carry

35 out this task were reviewed and found satisfactory. The accounts will be available for inspection by the Bank during project implementation. They will be audited by the Auditor General or other independent auditor acceptable to the Bank and his audit report will be submitted to the Bank not later than six months after the end of each fiscal year. These requirements were agreed at negotiations MOTC would prepare monthly and quarterly reports to the Bank providing: (i) information in the form of indices on the progress of implementation of the Highway Sector Plan in general; (ii) details on the progress of Bank Group financed subprojects; and (iii) details on the status of preparation for subprojects proposed for Bank Group financing (Annex 3.3). The third quarter report will be more extensive and will in particular cover the budget proposals for the following year and any proposals for updating of the Sector Plan. Submission of a project completion report in a form satisfactory to the Bank, not later than six months after the Closing Date of the Loan/Credit will also be required. These reporting requirements were agreed at negotiations.

36 IV. ASSESSMENT A. Size and Composition of the Highway Sector Plan 4.01 The Fifth Highway Sector Plan forms an integral part of Government's overall National Plan which is based on domestic and external funding projections which have been reviewed by the Bank and found realistic. Under the Plan, the share of the Highway Sector in total Government expenditures would be 8.0%. Moreover, in real terms the outlays to the sector will hardly increase compared to actual expenditures under the previous Plan. The overall size of the Plan is therefore financially realistic and feasible In the early years, however, a considerable financial effort will be required since the proposed allocations are higher than the average of the Plan while for the last two years they are below the average. This is the result of the high level of committments on new construction projects entered into in FYs 1981 and 1982 which can not be sustained during FYs given the overall ceiling adopted for the sector. Under the development budget, outlays would decrease from KE80.8 million (US$118 million) in FY 1984 (including KE12 million carried over from FY 1983) to Kf52.2 million (US$76 million) in FY Outlays under the recurrent budget on the other hand will increase from K 21.5 million (US$31.4 million) in FY 1984 to KE34e3 million (US$50.1 million) in FY In line with the trends in absolute terms, the Highway Sector's share under the recurrent budget increases from 3.25% in FY 1984 to 4.10% in FY 1988, while under the development budget, the share decreases from 22% in FY 1984 to 15% in FY The Plan gives adequate emphasis to routine maintenance and to regravelling of gravel roads and resealing of paved roads. The funds which have been allocated to routine and periodic maintenance under the various budgetary headings represent 43% of the total Highway Sector budget (compared to about 25% under the previous Plan), and will permit MOTC to reach its maintenance standards for practically all activities by the end of the Plan Period. To increase the effectiveness of these allocations the maintenance strategy will be further improved upon during implementation of the Plan, through introduction of the Highway Design Model. Two ongoing programs aimed at expanding the road network are being phased out and redeployed towards periodic maintenance and/or upgrading of the existing network. New construction is aimed to a large extent at strengthening of existing paved roads. The various programs have been formulated primarily on the basis the Economic Rate of Return (ERR). The minimum ERR for inclusion of any element in the Plan was set at 12%. In terms of composition, the Plan addresses itself, therefore, to the priority needs. Moreover, the supporting measures and policies included in the Plan will help reduce the cost of transport and make the sector more responsive to the transport requirements of the economy.

37 B. Tmplementation Feasibility 4.04 The components of the Plan to be carried out by force account, in particular the routine maintenance and to a lesser extent the resealing and regravelling, deserve attention from the point of view of physical feasibility since the targets which have been set will require an increase in output compared to the past. Even though past output shortfalls in these activities have mainly been caused by inadequate budgets, weaknesses in workprogramming, budgetting and supervision have contributed significantly to the poor performance. The measures under the Plan to improve upon these aspects of implementation, inter alia, the extension of the maintenance programming and costing scheme and the improvements in the availability of equipment will need careful follow-up Except for the regravelling by contract, works to be carried out by contract during the Plan do not increase in volume compared to the past and the contracting industry, which has performed satisfactorily in the past, is fully capable of carrying out the proposed works. The regravelling by contract will largely be carried out by small domestic contractors under tendering procedures which will gradually become more competitive (Para. 2.19). The targets set for these works represent an increase compared to the past. Since this segment of the contracting industry would benefit from special assistance under the Plan (Para. 2.19) the expansion in output is feasible. C. Benefits and Beneficiaries 4.06 The maintenance program covers the entire network of classified and special purpose roads which link centers of activity to each other and to their agricultural hinterland. The distribution and density of this network closely matches population settlements and economic activity. The construction projects,- strengthening, reconstruction and upgrading, are mostly located on the highly trafficked sections of the network which are in the central East-West transport corridor. The direct benefits of these physical components of the Plan will arise primarily in the form of VOC savings. In addition, the greater emphasis on maintenance will reduce road repair and reconstruction costs and also freight damage, travel time and other social costs associated with the existing condition of parts of the network. Furthermore, as a result of improved maintenance and the Minor Roads Improvement Program, reliability of road transport should be restored on those sections of the network where the condition had deteriorated and was affecting all year passability. The savings in VOC will accrue in the first instance to the truckers and traders. In view of the competitive conditions in road transport the benefits will be passed on to consumers and producers, and should also translate in a marginal improvement in export prices From among the policy measures under the Plan, the most significant benefits will result from strict enforcement of the vehicle axle load regulations. While in the short term, the enforcement is expected to lead to increases in transport rates by between 5 to 15% for

38 certain types of transport, rates should come down over time as road damage by overloaded vehicles is reduced. Moreover, enforcement of the axle load limit will substantially reduce future road repair and reconstruction costs. Additional funds will thereby become available for road maintenance and gradual extension of the road network. The economy in general will benefit from these cost savings. The improved modal distribution of traffic in the main transport corridor resulting from more appropriate road user charges and a commercial orientation in railway operations will reduce transport system costs in general. These cost reductions will also be passed on to consumers and producers and will benefit the economy in general. D. Economic Evaluation 4.08 While the various activities and programs are closely interrelated with each other and have to be viewed as part of a multi-year strategy to maximize overall benefits from available funds, no formal comprehensive optimization approach was adopted to formulate and evaluate the Highway Sector Plan (this will become possible after the introduction of the HMD). The Highway Sector Plan, however, was formulated on the basis of sound general principles (Paras and 4.03). The economic justification for the major components and projects which was carried out separately is reviewed below. (i) Maintenance Program 4.09 Under the maintenance program three activities, grading, regravelling and resealing account for 62% of total expenditures. The balance is allocated to various routine maintenance activities, maintenance of special purpose roads and overheads. For each, the economic analysis is based on a comparison of VOC with and without the activity. Grading has a direct impact on road condition and hence on vehicle operating costs. The economic cost of a grading cycle is estimated at KE 60/km and would on average reduce vehicle operating costs by 8%. The ERR of this activity is estimated at more than 100% (Annex 4.1). Regravelling is expected to lower VOC not only in the year in which the activity is carried out but also during a number of subsequent years varying between three and six depending on climatic conditions and traffic flow. The economic cost of regravelling is estimated at KE 3,950/km and would yield an average reduction in VOC of K 0.06/km. The ERR is estimated at 61% (Annex 4.1). Resealing of paved roads will improve the riding surface and protect the base course and hence will have a favorable impact on future VOC and on road maintenance and repair costs. The economic cost of resealing is estimated at KE 6,500/km. The life of the investment is determined primarily by traffic flow and 3 cases have been examined: (a) 1,000 veh/day requiring a 5-year cycle; (b) 600 veh/day requiring a 6-year cycle; and (c) 300 veh/day requiring a 7-year cycle. Without the investment VOC would increase rapidly; the reduction in VOC would be KE 0.04 in the first year increasing to K 0.09 for the last year of the cycle. The estimated ERR exceeds 100% For the equipment, tools and spare parts used in the force account operations, the ERR has not been quantified as procurement under the Plan remains to be determined as part of the various preparatory tasks under equipment management (Para 2.16). Since the main objective of these

39 tasks is to formulate proposals for equipment/spares holding and for workshop tools which are fully consistent with the size and composition of the maintenance program, the items which will eventually be procured will have a significant impact not only on the maintenance output but also on the cost effectiveness of the services of the Mechanical and Transport Department by reducing equipment holding and operating costs and increasing the availability of equipment. (ii) Road Construction Program 4.11 Just over 50% of the total outlays for the road construction program consist of new projects; the balance is allocated for projects and programs under execution. While the ongoing Rural Access Roads Program will be phased out, its resources will be redeployed under a new program for improvement of the lower categories of the classified network using labor intensive techniques. Three pilot construction units were started in mid-1983 to develop the implementation techniques and procedures and establish costs and productivity levels. While the results of these pilot schemes are not available, indications are that the cost per km would be on the order of K and the life of the investment 8 years. The estimated saving in VOC would be KE 0.10 km and the ERR is estimated at 16.0% (Annex 4.2) The actual new projects come under three categories: strengthening/overlaying, reconstruction and upgrading to bitumen standard. Feasibility studies have been completed for all projects proposed to be included in the Plan (Annex 2.3) and cost estimates based on preliminary or detailed engineering are available for most of these projects. Estimates of traffic and of traffic compostion are based on MOTC's countrywide system of traffic counts and additional counts or origin-destination surveys carried out for specific cases. The average ERR for the road strengthening projects is 44%. For the reconstruction projects the average ERR is 32% while for the category of upgrading to bitumen standard the average ERR is 20%. The overall ERR is 29% (Annex 4.2). (iii) Other Components 4.13 The economic evaluation of other components of the Plan such as road safety, training, domestic contractors is more complex, since benefits are difficult to quantify. The road safety component, however, draws on previous experience in Kenya and other countries and is expected over time to achieve a significant reduction in traffic accidents and fatalities. The training program is expected to yield higher efficiency in MOTC's overall operations while the domestic contractors component would increase the efficiency of small domestic contractors. The other items to be carried out with consultants assistance, are aimed at improved operations within the Ministry and as such would be very worthwhile.

40 (iv) Bank Group Financed Subprojects 4.14 The larger part (77%) of the subprojects proposed to be financed by the Bank Group, i.e. regravelling, resealing, road strengthening and upgrading lend themselves to quantification of economic benefits. Based on the new construction projects which will probably be presented for Bank Group financing the overall ERR of Bank Group financed subprojects would be 64%. As discussed above Bank Group participation with the remaining funds (23%) in the other components of the Plan is very worthwhile. E., Risks 4.15 While the Highway Sector Plan is physically and economically feasible, there are a number of factors which could frustrate the achievement of the main aim of the project, the reduction of road transport system costs. Firstly, the economic situation of the country could evolve less favorably than projected. In that eventuality it is expected that the Highway Sector would suffer a budgetary reduction which is proportional to the overall budgetary shortfall. The annual Highway Sector Plan reviews would provide the vehicle for revising the Plan and ensuring that the budget reduction will not affect the projects and programs with the highest priority. Secondly, foreign exchange difficulties at the national level could create shortages of imported materials critical for the implementation of the maintenance program. The project, however, can alleviate these difficulties by financing some imported materials. Third, the efficiency of road maintenance might not improve much as a result of slow progress in workprogramming and supervision of maintenance activities (inter alia, following the decentralizaton measures introduced in 1983 for the entire Government) and in coordination between the Units of MOTC involved in the Highway Sector. The risk of the first factor occurring will be considerably reduced by the gradual introduction of the maintenance programming and costing scheme (Para 2.05) and the institution of increased accountability at the district level. As for the second factor, the appointment in December 1983 of a coordinator for the Highway Sector indicates that MOTC is determined to streamline coordination between the various units concerned. If required, further measures aimed at improving coordination could be introduced on the occasion of the annual reviews (Para. 2.22).

41 V. AGREEMENTS REACHED AND RECOMMENDATION 5.01 The following major items were discussed and agreed upon at negotiations and are included as special covenants in the Loan/Credit Agreements: (a) when investing in major transport sector projects, the Government will afford the Bank the opportunity for consultations as regards the viability and timing of such investments (Paras and 1.15); (b) any future hiring of road maintenance personnel shall be in accordance with the staffing requirements as defined under the program for extension of the maintenance programming and costing scheme to the entire country (Para. 1.17); (c) by June 30, 1986, MOTC will prepare, with the help of consultants, cost effective programs covering: (i) equipment repair and replacement; (ii) workshop development and spares inventory control; and (iii) arrangements for equipment management and funding (Para. 2.16); (d) by December 31, 1987, Government will strengthen its capacity to enforce the vehicle axle load regulations through acquisition and deployment of two additional permanent weighbridges (Para. 2.21); (e) MOTC will: (i) by June 30, 1985, fill the two vacant positions in the Mechanical and Transport Department and the three vacant positions in the Planning and Coordination; and, prepare with the help of consultants, whose terms of reference shall be acceptable to the Bank, a program for extension of the maintenance programming and costing scheme to all districts; (ii) by December 31, 1986, introduce the HDM for planning purposes; and (iii) take all measures required to ensure proper coordination between the various units involved in the Highway Sector (Para. 2.22); (f) the Government will: (i) by September 30, 1984, increase the licence fee for heavy commercial vehicles by 10%; (ii) effect further increases in licence fees and other road user charges levied on heavy commercial vehicles so as to ensure that by September 30, 1987, the total charges cover not less than the short run marginal costs imposed by such vehicles on the road network; and, (iii) thereafter adjust periodically taxation on such vehicles so as to maintain the coverage of short run marginal costs (Para. 2.23);

42 (g) the Government will take all measures necessary on its part to formalize appropriate arrangements with the Republic of Uganda concerning the interchange of railway rolling stock (Para. 2.23); (h) the Government, through its MOTC, will exchange views with the Bank at regular intervals on appropriate measures for fuel conservation and on appropriate pricing of fuel products used in transport (Para. 2.24); (i) (i) the composition of the FYs Highway Sector Plan; (ii) the subprojects to be financed under the Loan/Credit during FY 1985; (iii) the criteria and procedures for the Plan's updating, and for approval and eligibility of subprojects to be financed under the Loan/Credit (Paras. 3.04, 3.08, 3.09); (j) the procurement procedures and arrangements for goods and services financed under the Loan/Credit (Paras ); and, (k) progress reporting requirements, including indices for measuring implementation progress, and submission of a project completion report in a form satisfactory to the Bank, not later than six months after the Closing Date of the Loan/Credit (Para. 3.22) A condition of effectiveness of the Loan/Credit will be that all measures required for actual enforcement of the 10 ton axle load limit have been taken Agreement having been reached on the items listed in Para. 5.01, the proposed project is suitable for an IBRD Loan of US$50.0 million and a Special Fund Credit of SDR 37.8 million (US$40.0 million equivalent) on standard IDA terms.

43 ANNEX 1. 1 Page 1 of S KENYA SECOND HIGHWAY SECTOR PROJECT Past Bank Group-Financed Transport Projects in Kenya Loan/ Amount Present Year Credit (US$ million) Project Components Status 1955 Loan 1/ 24.0 Made to the East African High Commission Completed 110-EX to partially cover development in 1957 plan for the East African Railways and Harbours Administration Loan 5.6 Agricultural project which included Completed 256-KE construction of approximately 910 km in 1964 of feeder roads (Loan guaranteed by the United Kingdom) Credit 4.5 Engineering, improvement, and construc- Completed 70-KE tion of approximately 315 km of trunk in 1969 roads Credit 3.0 Improvement of approximately 1,400 km Completed 77-KE of tea roads. in Loan 1/ 38.0 Made to the East African Common Services Completed 428-EA Authority to finance a portion of the in 1971 foreign exchange costs of the development program of the East African Railways and Harbours Administration (of the US$38 million, 5.6 million were for minor port development and the remainder for railways) Credit 5.3 Engineering and construction of about Completed 104-KE 820 km of sugar roads. in Credit 10.7 Construction of approximately 460 km Completed 120-KE of trunk roads. in 1972 PPAR#846 issued 1/ Made to all three members of the East African Community, therefore, loan amount includes funds for Kenya and the other two countries.

44 -38- ANNEX 1I. Page 2 of 5 Loan/ Amount Present Year Credit (US$ million) Project Components Status 1969 Loan 23.5 (C) Reconstruction of about 460 km of Completed 639-XE feeder roads; in 1975 PPAR#2062 issued (ii) reconstruction and strengthening of about 136 km of trunk roads; (iii) (iv) construction of 36 km of main roads and 350 km of feeder field access roads for the Phase II sugar roads program; improvement to gravel standard about 650 km settlement roads; (v) consultant services for supervision of construction and detailed engineering; and (vi) a study of the organization of MOW Loan 1/ 35.0 Made to the East African Rarbours Corpo- Completed i 638-EA ration. The project elements Mombasa Port were two general for the cargo 1979 PPAR#4 issued berths, a bulk cement wharf and port operating equipment Credit 12.6 Highway Maintenance Project including: 224-RE ci) Implementation of the reorganiza- Completed tion of MOW through a staffing in 1979 and training program; (ii) purchase of road maintenance and workshop equipment including spare parts; (iii) construction and improvement of regional workshops, offices and road maintenance camps; (iv) training of maintenance personnel; and (v) construction of additional training center facilities and purchase of training equipment; and consultant services. PPAR#3659 issued Made to all three members of the East African Community, therefore, loan amount includes funds for Kenya and the other two countries.

45 -39- ANNEX 1. 1 Page 3 of 5 Loan/ Amount Present Year Credit (US$ million) Project Components Status 1970 Loan I/ 42.4 Railway Project with the East Conipleted 674-EA African Railways Corporation, in 1977 including: PPAR under preparation (i) improvement of crack, signalling and telecom=unications; (ii) construction of one marshalling yard; additional crossing stations, one diesel locomotive shed, one wagon ferry terminal and staff housing; (iii) replacement and rehabilitation of lake vessels; (iv) acquisition of freight wagons, spare parts, workshop equipment and road vehicles; and (v) studies of the economic feasibility of certain railway lines and services Credit 22.0 (i) Construction, restoration and Completed in 276-KE improvement of about 71 km of 1979 PPAR trunk roads, 158 km of feeder under roads, 995 km of tea collection preparation roads, and 429 km of settlement access roads; and (ii) engineering services and supervision of construction of above Loan 1/ 26.5 Made to the East African Harbours Comoleted 865-EX Corporation. The main project in 1979 PPAR elements for the Mombasa Port were: #4029 issued (i) back-of-port works on the two berths financed under Loan 638-EA, a tug berth, cold storage facilities; and (ii) rehabilitation of older facilities. Made to all three members of the East African Community, therefore, loan amount includes funds for Kenya and the other two countries.

46 ANNEX 1. 1 Page 4 of 5 Loan/ Amount Present Year Credit (USS million) Project Components Status 1972 Loan 29.0 (i) Development of first phase of a Completed in 826-KE master plan for new passenger and 1978 PPAR freight terminal area, related 3712 issued aircraft operational areas and auxiliary buildings for Nairobi International Airport; and (ii) technical assistance and training to develop modern management and accounting methods for Kenya Government's Aerodrome Department Loan 29.0 (i) Improvement of Nairobi Airport Completed in 932-KR road to dual carriage-way 1981 PPAR standards; under preparation (ii) construction of approximately 315 km of roads serving agricultural areas; (-ii) construction or improvement of about 288 km of sugar collection or access tracks; and (iv) technical assistance Loan 20.0 Provision of a 14-inch 452 km long Completed in 1133-KE oil pipeline with a 2 km lateral line 1978 PPAR to the Embakasi Airport, four pumping issued stations with staff quarters, two mintenance depots, product receiving, storage and transfer depots, staff training, tele-control and telemetry systems and other miscellaneous ancillaries Loan 8.0 Assistance in the implementation of 1305-K! Rural Access Road Program consisting of: Credit 651-KE (i) equipping and operating 8 construction units for 3 years each; In progress (ii) implementing an expansion of the highways training programs; (iii) (iv) evaluating and monitoring the RARP and maintenance of roads constructed under.the RARP.

47 ANNEX 1.1 Page 5 of 5 Loan/ Amount Project Components Present Year Credit (USS million) Highway Sector Project Status 1979 Loan 90.0 (i) strengthening and construction In progress of paved roads; (ii) upgrading of existing earth gravel roads to paved standard and all-weather standard; (iii) extension of the RARP; (iv) maintenance program; (v) traffic law enforcement and road safety program; and (vi) miscellaneous studies.

48 ORGANISATION CHART OF THE MINISTRY OF TRANSPORT & COMMUNICATIONS.~~~~~~~~~~~~~~~~~~~T INISTE N MIUNISTER M INISTER PERMANENT SECRETARY FAQU E3 INISTRATIVE ROADS - OOLRANRSPOAT 1 AD AVATONM PNNING NPIGCMUIAIN lvis DIISIONT AIRODROMES AND.A CODNATIO (Co EMON RGCES) IGEPU1Y SECRETARY) (CAIEF ENGINEER) ( OEFUTY SECRETARY DEPUTY SECRETARY ICHIEF ENGINEER) (ROARS AN EA A ING AEMORRNRES DESIGN CONSTROCTAN M HAINTENRCE POSTS A I ERTERNAL ANO PROGRRING RESEARCR AY _ 1 _ I,, I _~~~~~~~~~~~~~~~~ AOSANCED PLANNNC P01. CR REVIEW I PROJECT RETIRE- NYRTIUN AND RON- [ INFERINGJ SNANCO SNARER E RANCN EI ECCR L!f ICAD)RS TELEGONIUNJCATIANS OVUNCE RAUNCY STATIN'CS _ TNE C F C.SNE.) D.) CTW E ( C ) C 5 r z H ) s s E PRINC IF-AL IS 'RE AERODROMES 5.0GME ENGINF ElI _I FINANCE AND TRANSPORT I IROAD TRANSPOR1?] ISTASLIS 1 1 RTSION I RNCVI NCNT ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~SUPETV u o oregistrar ) P OF MI) _ I _.I..T PROJECTS ENGINEERING ROADS ERALUATI. PLA"Nk RU STUORY C ' I E.PIM TIET RE RP AGL " E VGLRV TRR=AOR ARNIOARSII RNP1111 cn.e rn. 1),IRIWT IPROVINCIAL I ATERIALS& STAFF M ECHANICAL I IASTODADMES IAIR TRANSPORT DIRECTORATE CF METEOROLOGICAL M ARINE AND EGIERS ESEANRCR T. RANING TR ATSPOR DEPART.ENT S I CIAT DEPARTMENT PSERICES SAIPPING PDLICT ORGANSATIORS NRANCN DEARATNEST DEPARTMENT IDPRM. P E. N. E P.S T O CR,T E IT R (TRY.) r I.~~~~~~~~~~~~~~~ ~.. SA IE RISTNATIDN SEAIV IE OPERATIONS ACCOUJNTSSRIE CMOIAS ROEATOS IWOTINS O DACONING ESECA ERCE FG 1-1*

49 ANNEX 1.3 KENYA SECOND HIGHWAY SECTOR PROJECT Classified and Special Purpose Road Network As of 31st January 1983 (kmn) ROAD CLASSIFICATION BITUMEN GRAVEL EARTH TOTAL PERCENTAGE International Trunk l National Trunk Primary Secondary Minor Sub-Total Classified Special purpose Other Sub-Total GRAND TOTAL I PERCENTAGE Source: MOTC

50 KENYA SECOND HIGHWAY SECTOR PROJECT Vehicle Fleet (units) L Motor Cars 75,834 81,117 90,935 98,285 99, , , , , ,940 lltilities, panel van, pick-ups, etc. 33,735 35,828 40,004 43,740 44,543 48,264 50,203 52,249 55,524 62, Trucks and heavy vans 17,405 17,943 19,635 20,875 20,732 21,007 22,185 23,115 23,594 25,685 ltises and mini-buses 3,424 3,523 4,196 4,605 4,706 4,772 4,825 4,985 5,075 5,756 Motor and auto cycles 10,681 8,966 10,332 11,312 11,870 12,763 13,746 14,573 15,343 17,288 Other motor vehicles 11,716 9,486 10,984 12,297 12,842 14,121 15,491 16,316 16,703 18,323 Trailers 5,078 7,359 8,000 8,607 8,806 9,152 9,876 10,360 10,567 11,435 Total 159, , , , , , , , , ,550 Source: Central Bureau of Statistics. >q

51 KENYA SECOND HIGIWAY SECTOR PROJECT Traffic Growth by Class of Road and Vehicle Category (% annual rate) Class of Road Car Light Goods Medium Goods lleavy Goods Buses Vehicles Vehicles Vehicles Trunk Roads Primary Roads Secondary Roads Minor Roads Source: MOTC.

52 KENYA SECOND HIGHWAY SECTOR PROJECT Road Usage by Class of Road and Vehicle Category 1982 CLASS OF % OF VEHlICLE KILOMETRES (VEHl/KM/DAY) ROADS TOTAL NETWORK Light Medium Heavy Cars Goods Goods Goods Buses TOTAL x Vehicles Vehicles Vehicles TRUNK 12 1,192,885 1,862, , , ,832 4,430, PRIMARY , , ,516 12,402 60,102 1,586, SECONDARY 21 69, , ,422 3,306 39, ,774 9 MINOR 47 18, ,322 86, ,983 4 SPECIAL* PURPOSE 5 ALL ROADS 100 1,630,214 3,231,023 1,383, , ,606 6,926,164 (100) % OF VEH/KM I (100) *Special purpose roads form 5% of the road network; traffic flows on them are yet to be determined. Sotirce: MOTC.

53 ANNX Page 1 of 2 IYA SECIOD EIGHWAY SE?altJRCT Central Goverineot Revenue fro load Vehicles, * xi ' ** Licence Fees (a) Licences under traffic ordinance 2, , , , , , , , , ,663.6 (b) motor-car Drivers' Licences Total 2, , , , , , , , , ,572.1 Gasoline & Diesel Oil Taxes (a) Consumption Tax*** 2, , , , , , , , , ,710.0 (b) liport Duty (i) Gasoline 3, , , , , , , (ii) Diesel Oil 2, , , , , , , Total 8, , , , , , , , , ,572.7 Other Import Duties (a) Motor Vehicles (i) Passenger Cars 2, , , , , , , , , ,887.4 (ii) Buses, Lorries and Trucks , , , , , , , ,208.8 Total 3, , , , , , , , , ,096.2 (b) Chassis vith Engines (i) Passenger Motor Cars (ii) Buses, Lorries, etc , , , Total , , , (c) Bodies and parts for Motor Vehicles , , , , , , , ,484.8 (d) Motor Vehicles, Tyres and Tubes , Total Other Import 4, , , , , , , , , ,214.0 Duties TOTAL 15, , , , , , , , Source: MOTC * Excluding Sales tax on Vehicles, Chassis, Engines, Bodies, Parts, Tyres and Tubes 5* Provisional *** From 1974 figures relate to Sales Tax

54 Ctml ovenuet Revm f n UEser axi w oliture an Rnds FYs (KE Lmf11) ' Revenues Total from Annex 1.7 Page n.al/ n.a Estirrated Revenues f m Sales tax on Vehicles, Chassis, Engines, Bodies, Parts, Tyres and Tubes n.a n.a Total [Fti;ate of total revemies by] I [Corsultants Kanpsax 1 (80.2) (103.9) Expenditures Recurrent Budget Developmnt Budget Total [Total Expenditures In FY 1964 prices] / Not available Source: MOTC and Mission Estimates 0r

55 KENYA SECOND HIGHWAY SECTOR PROJECT Kenya Railways Corporation Railway Freight Traffic ('000 tonnes) Kenya Internal / / Transit Up Down Total Total Traffic (in million net-tonne km) Railway Passenger Traffic (million passenger RM) 1st Class nd Class rd Class m x Total I 0 : 1/ Includes Tanzania Traffic Source: KR

56 _ sn _ ANNEX 1.8 rage 2 of 2 KENYA SECOND HIGHWAY SECTOR PROJECT Kenya Railways Corporation Freight Traffic by Commodity COMMODITY '000 tonnes million tonne-kml j i Bitumen Canned Fruit j Cement Coffee ;2.1 Cotton Flourspar Grains Iron & Steel Lime & Limestone Machinery, Agriculture ';531 Manures & Fertilizer Molasses Oils Excluding Vegetable j j Paper Salt & Compounds Sisal & Waste Sugar & Cane Soda Products ]L.01 Tea Timber l l Total 3,118 3,698 3,666 3,508 1, , , ,801.3 Others Grand Total 3,783 4,28714,24914,065 12, , , , Source: KR

57 ANNEX 1. 9 KENYA SECOND HIGHWAY SECTOR PROJECT Road User Charges and Costs User Charge/Cost Ratios Vehicle Category Unpaved Roads Paved Roads Passenger Car Light Commercial Light Passenger Vehicle Buses Heavy Commercial 2-axle axle axle axle axle Source: Consultants Kampsax, Study of Road User Charges and Axle Load Limits, November N.B. Road user charges are defined to comprise only that part of total taxes levied on road users which exceeds the average level of taxes (import duties and sales taxes) paid on similar goods in the market.

58 ANNEX 1.10 Page 1 of 2 KENYA SECOND HIGHWAY SECTOR PROJECT Prices of Petroleum Products A., CIF MOMBASA (End-November) US$/Metric Ton Crude Gasoline Diesel US$/Gallon Gasoline Diesel US$/Liter Gasoline Diesel KSh/Liter (at end-year exchange rates) Gasoline Diesel B. RETAIL PRICE NAIROBI KSh/Liter Gasoline (Regular) Diesel

59 ANNEX ) - Page 2 of 2 KENYA SECOND HIGHWAY SECTOR PROJECT Gasoline and Diesel Retail Prices (K Sh/l) DATE GASOLINE - -- DIESEL (As % of Premium Regular Gasoline Prem.) Jan Mar Jan Aug Nov Feb Aug June Feb June Dec Mar Apr June Sept June Apr June Sept Mar June Feb June July Nov Dec

60 SECOND HIGBbAY SuTti PROJU:T The fifth Highway Sector Plan (flu ) Forward Budget and Physical Targets TOTAL KAINTENANCE ACTIVITIES _.-_ Budget Physical Budget Physical Buidget Physical Budget Physical Budget Physical Budget Physical K t'000 Target KO000 Target Ki'000 Target Kt'000 Target KFf00Q Target KtO000 Target km km km km km km 1. Routite Maintenance 6,500 54,584 6,700 55,000 7,300 55,300 7,500 55,300 7,700 56,000 35,700 56, Regravelling From Recurrent Vote 2, , , , ,288 1,127 15,204 3,957 Under Domestic Contractors - - (5,460) 1,223 (5,460) 1,223 (5,460) 1,223 (5,460) 1,223 (21,840) 4,892 Under GBC Program (150) 27 (450) 82 (900) 164 (1.200) 218 (1,2?0) 218 (3,900) 709 3, Resealing From Recurrent Vote 2, , , , , ,624 2,991 Under Bitumen & Chippings (1,000) 114 (2,500) 364 (2,800) 400 (3,000) 480 (3,000) 486 (12,300) 1,844 Extraordinary Allocatton (3,400) 388 3, Grading 3,440 91,000 3,500 92,000 3,700 93,000 3,800 94,000 3,912 95,000 18,252 95, Other Operations Servtce Roads 640 1,260 1,480 1,600 1,700 6,700 Rural Access Roads ,h50 Municipal Grants ,634 1 Ferries ,635 Ul Road Markings & Signs 4- From Recurrent Vote From Development Vote (369) (299) (314) (337) (155) (1,674) Extraordinary Maintenance From Recurrent Vote ,850 From Development Vote (330) (330) (330) (330) (330) (1,65") Maintenance of Road Camps H.Q. Roads Department ,054 1,105 1,162 5,248 Toll Collection Axle Load Control _ () 6. Support Activities Mechanical and Transport 2,500 3,100 4,400 5,100 5,R00 20,91)0 Staff Training ,097 MateriAls & Research , Total Btudget Maintenance Activities 26,771 35,284 39,194 41,721 44, ,527 Of which from: Recurrent Vote 21,522 26,245 29,390 31,393 14, ,763 Dev. Vote 5,249 9,039 9,804 10,327 10,345 44, Forward Recurrent Budget Ceiling Highway Sector 21,015 27,237 29,360 31,224 31, ,P17 9. Forward Recurrent Budget P MOTC 38, ,537 48,682 50,412 54, ,003 aw Z as I of _.. O _ 0.

61 -55- KmA A65N8 2.1 P.ge 2 of 2 SECOND highat SECMR PRIIECT Tbe fifth ighbv S-ector Pl1 (1T' ) Forwsrd budget *nd Phy.ial T-rget TOTAL DEVELOPMENT ACTIVITIES _ Budget Phy.ic-l Budget Fhy it.i Budget Phy.i-l 3udget Phy.ic-l BSdget Phyolcol Budget PhysItcl X '000 Taret X1 000 T-gt WOOD Target KE 000 Target Kf '000 Target g '000 Target k. ha ka km k _. 1. Copletion of Project. under Execution Strengthenitg 16,904 5,166 1, ,935 Reconatruction 5,400 3, ,727 upgr ding 28,212 5, ,159 to Bitu.en Upgrading to G-rsel ,110 1, ,25a Subtotal 57, ,820 2,100, Gravlling, Bridging & i Culverting 3, , , , ,950 2,28? 3. oral A-ce.a Road. 4,800 4, ,920 4, Minor Roads I provtninot 360 5,540 6,170 4,455 18, D-otsti Contro-tors (Te.hnioal Aaaistan.-) , Sew Con-troction Stre-gtheniog 2, , , , , , Saconotroction , j - 3, ,500 j 4 Upgr ding to Bitonen _ - 6, , , , Sobtotul 3, , OI 25, , ,000 j 4i7 96,755 1 I, Other Roadworks Stratogi Roads i 7.5 Bridges Replacement No.. No No. No No No, Planning, Desig. & Studios i Pl-nning and Feusibility Traffic Soney Consultants and Deaign 1, ,600 Consultants 6 Tech. Aast ,700 I.psct Study Support ActinSties M. haica I & Tran.port j 2,960 1,890 1,560 1,590 1,620 9,72C Stsff Training j Materials & Rsea-rch ,841 (highway 5ector only) Other Progr-aj 10. Road Safety ,285 T'sffic Enforce,-ent s0 400 Vehicle Inspection Center Total Funding D-selop-ent 75,496 44,211 43,339 42,071 41, ,706 Support tn Maintenance 5,249 9,039 9,804 10,345 13,345 44, Total De.e.oPotene 8udget 80,745 53,550 53,143 52,398 51, , Foward Develop-ent Budget Ceiling high-ay Sector 57,833 59,704 58,770 57,46? , Forward Developtent Budget Ceiling MOTC 76,383 78,869 77,635 75,909 76, ,01 13 s I of j 76

62 Annex 2.2 Page 1 KENYA SECOND HIGHWAY SECTOR PROJECT The Highway Maintenance Program Performance Standards and Program Targets 1. Overall country-wide performance standards for periodic and routine maintenance are determined by MOTC by dividing the road network into ranges of traffic volume. For program formulation, terrain, climate and weather conditions are also taken into consideration, mostly based on experience and judgment. The targets set for periodic maintenance assume cycles which are slightly extended for roads which have recently been strengthened, reconstructed, upgraded and for newly constructed roads. The periodic and routine maintenance targets are significantly higher than past performance. However, since the expansion in maintenance operations is to be achieved through greater involvement of contractors, these targets appear feasible. Morever, below average targets in the early years of the plan are compensated by higher targets in the second half using an achievable annual rate of increase for the annual targets. 2. There is a need for refinement of the method used to develop performance standards and consultants services will be provided under the Second Highway Sector project to that effect. The consultants study will be coordinated with the road condition survey and the introduction of the Highway Design Model.

63 KENyA ANNEX 2.2 Page 2 Second ilighwav Sector The Highvay Maintenance Project Proeram Performance Standards and Proqran Targets Resealing Length Cycle Target ADT - Category km Years Ikm More than 2, ,001-2,000 1, ,000 1, Under 500 2, Subtotal 6,410 1,055 RegravellIng Length Cycle Target ADT - Category kcm Years km More than , , , Subtotal 16,085 1,691 Shoulder equivalent 16, Total 1,943 Grading Length Frequency Target ADT- Category km per year ks More than 300 1, , , , , , , ,770 Earth Roads 28, ,000 Shoulders 4, ,546 Subtotal 51,130 94,878 Routine %aintenance T Length Percent Target km Length kcm Light patching 5, km Heavy patching 5, k1m Subtotal 5, km Spot repair 18,846 6%CIO m) 693,000 m3 Culvert cleaninj 81,000 No. 2/yr. 162,000 io Culvert repair 81,000 No. 52 4,050 No Bush clearing 54,000 km 1/yr. 54,000 km Source: MOTC and Mission

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65 ANNEX Page I of 3 KENYA SECOND HIGHWAY SECTOR PROJECT Staffing and Manpower Development General 1. The MOTC's staffing situation is reasonably satisfactory as a result of sound staff development programs operated in recent years but there is still need for strengthening at the professional level and for upgrading at the sub-professional level. There are now about 5,600 people employed by the Ministry in the highways sector. The Roads Department currently has 281 professional engineers; 6 economists; 239 administrators; 535 technicians; 522 clerical and 568 other workers. The Mechanical and Transport Branch has 34 engineers; 250 administrators; 1,508 technicians; 117 clerical; and 845 other workers (Table 1). 2. At the professional level 3 remaining vacancies for economists are expected to be filled by locally recruited staff by December 31, There are also a number of key positions for which the Government is discussing continuation of technical assistance from bilateral agencies. Technical experts are particularly needed in the areas of road maintenance, equipment and stores management, safety, staff training and the Materials Branch. Additional experts are needed to assist the Mechanical and Transport Branch to manage the sizable equipment fleet and related Stores and the Traffic Department needs short-term assistance in training vehicle inspection personnel together with some Overseas training for senior staff, while the Planning and Coordination Department needs a computer specialist; all of which will be requested from donor agencies. In recent years progress toward Kenyanization has been slowed by the periodic closures of the University of Nairobi due to student unrest particularly in the last 3 years. However the MOTC will ensure that qualified counterpart personnel are assigned on a permanent basis so that the outside assistance may be discontinued as soon as possible. 3. At the sub-professional level the Ministry's own staff training Department (STD) has provided effective staff development programs of training and up-grading, including repeater courses, covering nearly 9,000 employee - courses during the period from 1971 to 1982 in the following categories: Supervisory Staff (1,900 employees); Plant Operators (2,750 employees); Technicians/Technical Assistants (1,020 employees); Tradesmen/Artisans (3,200 employees) (Table 2). As a result the Ministry has a reasonably well trained staff, adequate in numbers in relation to the work load in road maintenance to be carried out by force account. Since there will in fact be surplus staff in some categories many will be retrained and redeployed in the following directions: (i) extension of labour - intensive methods for rehabilitation and maintenance of minor classified roads; (ii) retraining of tradesmen such as mechanics and technical storemen in specialized fields to improve their capabilities to repair equipment components to prolong its working life; (iii) expansion of the driver training program in support of road safety in view of Kenya's very high road accident rate.

66 ANNEX Page 2 of 3 4. A limited number of new entrants would continue to enter the pre-technician and apprenticeship programs but the main thrust of staff development would be toward in-service retraining and up-grading. It is planned to provide staff development programs covering tradesmen (4,025 staff - courses); technicians (1,870 staff courses); Supervisors/Overseers (2,400 staff courses); Specialists (1,750 staff courses); and drivers (5,700 staff courses) (Table 3). Training of Engineers 5. The Government has a sound training program for engineers who are recruited as graduates from the University of Nairobi. In the context of the Kenyanization Plan the Ministry provides for staff development through a system of rotation of all Kenyan engineers through the various departments of the Ministry; secondment to consulting firms for practical experience; and overseas fellowships mainly to Canada and Great Britain. The Ministry is currently negotiating with the Department of Personnel Management (DPM), Office of the President, to secure a share of available fellowships. It is expected that overall about 500 fellowships will be available from the Canadian International Development Agency (CIDA) and about 500 from the British Council to cover the Government's Kenyanization program in the next 3 years. Overseas fellowships would therefore not be financed under the proposed project. Training of Sub-Professional Staff 6. The training for all sub-professional staff of the MOTC will continue to be handled by the Staff Training Department whose facilities are barely adequate to carry out those tasks. The STD also carries out training for the Ministry of Works and Housing and to a lesser extent for other Ministries. Because of the existing structure as well as economics of scale for training programs it is not feasible to single out any particular section of the STD for assistance. STD as a whole should be assisted, particularly by refurbishing of equipment and by replacement of obsolete and worn-out items. 7. The STD is adequately staffed by 10 expatriates and 73 full-time Kenyan instructors who are also augmented by seconded staff when needed. This staff is capable of maintaining an efficient training program. All Kenya Instructors participate in the Instructor Training and/or Training Officers' courses offered by the Kenya Technical Teachers College (KTTC). A total of 118 have attended KTTC courses between 1977 and Another 100 are scheduled for KTTC course between 1983 and This is a very efficient program and would continue to be financed by the Government without financial assistance under the proposed project. Of the expatriate staff 4 are provided by the Government of Great Britain; 5 are provided by the Government of Switzerland; and 1 is provided by the Government of Japan. Each is playing a key role in STD and will be involved in revising syllabi for the new directions in training. The present level of technical assistance for training is adequate and is expected to be continued by the respective donors making it unnecessary to provide technical assistance fort the STD under the project. There is a need for overseas fellowships for Kenyan Training staff and the Government has secured 6 fellowships (2 per year from 1983 through 1985) from the Canadian International Development Agency and 2 from the British Council for 1983 with prospects