ROADS AUTHORITY 2012 Annual Report ANNUAL REPORT 2012

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2 ANNUAL REPORT 2012

3 1 ANNUAL REPORT 2012

4 2 3 VISION To be the best agency and authority in the management of the public road network MISSION To develop and maintain the designated public road network infrastructure investment in a cost effective manner with a view to provide an accessible, reliable, efficient, safe, sustainable and most economic transport system in Malawi. CORE VALUES In conducting its business the Roads Authority shall: Be driven by the need to perform effectively, efficiently and economically in the construction and maintenance of roads in Malawi; Ensure that all work is carried out according to acceptable design standards and specifications; Conduct its business in an open, transparent, accountable and competitive manner; Ensure optimum utilisation of local resources; Ensure compliance with environmental and road safety regulations; and Assure its managers are given a mandate to manage as partners to achieve its goals and hold them totally accountable for their actions.

5 4 5 ACRONYMS CONTENTS AfDB ANRP BADEA CEO DoPD DoC DoM DLG EIA EIRR EU FYSBP HDM ICT IDA INSTAP JICA KFAED LA LAN M&E MCCCI MDGs MGDS MEPD MoF MoTPW MPRS MRA NCIC NRSC NTP OFID RA RFA RMI RTOA SADC TAMA TR UDR WB African Development Bank Annual National Roads Programme Arab Bank for Economic Development in Africa Chief Executive Officer Department of Planning and Design Department of Construction Department of Maintenance Department of Local Government Environmental Impact Assessment Economic Internal Rate of Return European Union Five Year Strategic and Business Plan Highway Design and Maintenance model Information and Communication Technology International Development Association Institutional Support for Transport Public Sector Bodies Japan International Cooperation Agency Kuwait Fund for Arab Economic Development Local Authority(s) Local Area Network Monitoring and Evaluation Malawi Confederation of Chambers of Commerce and Industry Millennium Development Goals Malawi Growth and Development Strategy Ministry of Economic Planning and Development Ministry of Finance Ministry of Transport and Public Works Malawi Poverty Reduction Strategy Malawi Revenue Authority National Construction Industry Council National Road Safety Council National Transport Policy OPEC Fund for International Development Roads Authority Roads Fund Administration Road Maintenance Initiative Road Transport Operators Association Southern African Development Community Tobacco Association of Malawi Trunk Roads Urban and District Roads World Bank Vision Statement 3 Mission Statement 3 Acronyms 4 Chairman s Report 8 Board of Directors 15 Chief Executive Officer s Report 16 Organisational Set up 22 Corporate Governance 23 Corporate Profile 24 Administration and Human Resources Establishment 24 The Malawi Road Network 25 Planning and Design Programmes 28 Construction Programmes 32 Maintenance Programmes 36 Director s Report 44 Financial Statements 46 Independent Auditors Report 47 Statement of Financial Position 48 Statement of Comprehensive Income 49 Statement of Changes in Funds 50 Statement of Cash Flows 51 Notes to the Financial Statements 52 Appendix to Financial Statements 68 Roads Designations: M = Main road; S = Secondary road; T = Tertiary road; and D = District road

6 6 7 little improvement on roads condition was registered. There was acute shortage of financial resources needed for all the planned programmes. Major recurrent road programmes such as rehabilitation of city roads, routine and periodic maintenance for tracks and trails were not implemented. During the year, only 60% of budgeted financial resources for Recurrent Programmes was made available. This was far below the requirements and the situation was worsened by the devaluation of the Malawi Kwacha and flotation of the foreign exchange rate which caused frequent changes in prices in the last two months of the financial year. This caused price escalations for commodities such as fuel and bituminous products. For Development Programmes, the budget ceiling provided by government was much less than the actual requirements on the ground. There were delays in payment of contractors and consultants resulting into high interest charges and contractual claims due to passage of time. Payments for previous year s works on development projects consumed most of the funds made available for ongoing projects. All this contributed to the reduction in the number of activities out of the programmes contained in the ANRP which were actually implemented. INTRODUCTION CHAIRMAN S REPORT 2012 It is with great pleasure and honour that I present the Roads Authority (RA) Annual Report for the period covering 1st July 2011 to 30th June The report outlines the programmes that were planned and implemented, challenges encountered and progress made in fulfilling the mandate of the Roads Authority. The Roads Authority was established by an Act of Parliament No. 3 of 2006 to ensure that public roads are constructed, maintained or rehabilitated at all times, and advise the Minister of Transport and Public Works and where appropriate, the Minister responsible for Local Government on the preparation and the efficient and effective implementation of the Annual National Roads Programme. The RA is responsible for a public road network of 15,451 km together with 9,478 km of undesignated road network that serves rural communities. Out of the 15,451 km public road network, 28% is paved and the rest is unpaved. RA carries out its mandate by outsourcing all works and services in line with Section 25 (3) of Roads Authority Act. Procurement of works, goods and services is in line with the Public Procurement Act No. 8 of 2003 as well as regulations and guidelines and rules published by the Office of the Director of Public Procurement. IMPLEMENTATION OF THE ANRP The 2011/2012 ANRP consisted of Recurrent and Development Programmes and their respective expenditure budgets as follows:- Recurrent Programmes The Roads Authority s responsibility of maintaining all designated public roads in Malawi is achieved through implementation of several recurrent road programmes that include planning and design programmes, routine and periodic road maintenance, minor road rehabilitation, emergency works and their associated supervision services. During the year, MKMK93.12 million worth of planning and design activities on the ongoing contracts were carried out representing 42% utilisation level against the approved budget of MK million. The activities included installation of road reserve markers, kilometre marker posts, road condition and inventory surveys as part of the road infrastructure performance monitoring. Planning and design activities carried out also included feasibility and detailed engineering design for rehabilitation and upgrading of several roads. POLICY ENVIRONMENT RA implements its programmes through short, medium and long term plans. The short term plan is the Annual National Roads Programme (ANRP) while the medium term plan is the Five Year Strategic and Business Plan (FYSBP). The ANRP is an extract of the FYSBP which has been developed in line with guidelines and prioritisation set out by Government in the Transport Sector Investment Programme (TSIP). This programme builds on achieving the objectives of the National Transport Policy (NTP) as well as the Malawi Growth and Development Strategy (MGDS) whose main objective is to create wealth through sustainable economic growth and infrastructure development as a means of achieving poverty reduction. This objective is expected to transform the country from being a predominantly importing and consuming economy to a predominantly manufacturing and exporting economy. OVERVIEW OF THE ANRP The period under review is the first year of implementation of the Five Year Strategic and Business Plan (FYSBP). The RA Board would like to report that most of the 2011/12 activities toward achievements of the FYSBP were not carried out due to poor macro-economic and financial conditions in the country; hence very

7 8 9 Various road maintenance programmes were also executed and paid for; 59% of planned road maintenance works was achieved. The programmes included routine maintenance, grading and reshaping, pothole patching, road centre and edge line marking, accident spot improvements, road signs replacement, spot repairs improvements, sectional periodic rehabilitation, concrete bridges and associated supervision services. Due to financial problems only eight (8) out of thirteen (13) planned programmes were partly carried out. These programmes were grading and reshaping, spot improvements, pothole patching, concrete bridges, emergencies, sectional periodic/ rehabilitation, accident spot improvements and corresponding supervision services. Development Programmes The objective of Development Programmes was to implement road programmes contained in the development budget. The programmes comprised of periodic maintenance and rehabilitation, whose objective was to ensure an improved condition of the road network. The programme also included upgrading of unpaved roads and construction of new roads to paved standard. The aim was to improve accessibility and enhance transport efficiency resulting in reduction of transport costs. The 2011/12 development budget was MKMK27.38 billion. Out of this amount MK million was for feasibility studies and design projects while MK27.11 billion was for construction, upgrading, periodic maintenance and rehabilitation works projects. The budget funding was from government s local resources and from development partners including the European Union (EU), Japan International Cooperation Agency (JICA), African Development Bank, World Bank, Peoples Republic of China, Kuwait Fund for Arab Economic Development (KFAED), OPEC Fund for International Development (OFID), Arab Bank for Economic Development in Africa (BADEA) and Saudi Fund for International Development. Due to various economic problems encountered during the year, only 59% of the planned activities were executed.

8 10 11 ACHIEVEMENTS Allow me to present few of the notable achievements realised in the 2011/12 Financial Year. Upgrading and construction works worth MK4.15 billion funded by Malawi Government were executed during the year on the following roads: a) Ekwendeni Ezondweni - Mtwalo (S107/T309); b) Mzimba - Mzarangwe (M022); c) Lumbadzi Dowa - Chezi (M007/M016) including St Gabriel Hospital access road (Namitete); and d) Chiringa - Miseufolo - Chiradzulu road (S145) Upgrading works worth MK million on Mchinji - Kawere road (S118) funded by European Union were successfully carried out. Peoples Republic of China funded upgrading works valued at MK5, billion on the Karonga - Chitipa road (M026). Government of Japan through JICA funded MK1, billion for the construction of a 74m long new bridge across South Rukuru River on the M001 Road in Rumphi district. Various projects were also carried out under periodic maintenance and rehabilitation of paved roads where resealing and reconstruction of failed sections of the paved road were done. The Government of Malawi funded the periodic maintenance and rehabilitation works worth MK million on the Game Reserve section of Msulira-Nkhotakota road (M018). The European Union funded MK1, billion for the rehabilitation and resealing of the Lilongwe-Nsipe (M001) and Chikhwawa-Nchalo-Ngabu (M001) roads. During the year, RA also finalised various feasibility studies and designs which involved assessing the economic viability and technical feasibility of selected roads followed by the appropriate engineering solutions and cost estimates. These included; finalisation of detailed engineering design review for the construction of Lilongwe West Bypass in the City of Lilongwe and feasibility and detailed engineering design for the Upgrading of Ntcheu - Tsangano - Neno - Mwanza (S135/T396/T397) Road. Both of them were funded by African Development Bank (AfDB). Under this programme we also had projects funded by Arab Bank for Economic Development in Africa (BADEA) which included Feasibility and Preliminary Engineering Design of Rumphi - Nyika - Chitipa (M024/M009) road. CHALLENGES The road sub-sector faced a number of challenges that negatively impacted on the delivery of the 2011/12 fiscal year s agreed performance indicators. These included inadequate funding, capacity of the construction industry, supply of imported construction materials, inadequate support services and price escalation among others as highlighted below. Inadequate funding Over the years, budget allocation for road infrastructure programmes has never been adequate to cover even the basic and immediate requirements on the ground. During the budgeting process, the RA submitted to government, budget proposals based on achievable maintenance and development needs of the road network for the year for consideration. It is a common trend that such budget proposals are always scaled down. The 2011/12 fiscal year s budget was also scaled down. Inadequate funding and cash flow for programmes resulted in delayed payments to contractors hence increased costs due to interest charged by the contractors. The Government of Malawi paid MK6, million for contract claims and MK million for interest on delayed payments. MK39.61 million was also paid as contract claims by the European Union on road projects they funded. Inadequate capacity of the construction industry The local construction industry continued to face problems in terms of equipment, qualified and experienced engineers and technicians for design, supervision and implementation of road infrastructure projects. Furthermore, small to medium contractors who are crucial in the implementation of most of the maintenance programmes seemed to lack capacity for raising working capital. Inadequate supply of imported construction resources Performance on major road projects suffered from inadequate supply of construction resources such as fuel, cement, bitumen and other imported products. This had a huge negative impact on most of the projects during the year under review. Inadequate support services The response of some service providers and support institutions such as Escom, the water boards, councils etc to relocate their services was slow in most cases. This led to considerable delays in the implementation of a number of projects. Price escalations Performance targets for planned works were in most cases not fully attained due to price escalations brought about by unstable macro-economic conditions such as inflation, currency depreciation among others which were prevalent during the year. This resulted in lower coverage of planned targets. VOTE OF THANKS In conclusion, let me take this opportunity to express my gratitude to Malawi Government for its continuous support to the road sector. I would also like to thank our co-operating partners which include: the European Union, Government of Japan, the Government of the Peoples Republic of China, the African Development Bank, Arab Bank for Economic Development in Africa, Kuwait Fund for Arab Economic Development, OPEC Fund for International Development, Abu Dhabi Fund for Development, Saudi Fund for International Development, the World Bank and other financial institutions that have in different ways assisted the Government in providing the technical and financial resources that have enabled the Authority to successfully carry out its road maintenance and development programmes. Let me also take this opportunity to sincerely thank the Ministry of Transport and Public Works, relevant Government officials and all our key stakeholders for all the support given to us during the year under review. Special thanks should go to the various road users that are generously contributing to the Road Fund through fuel levies on petroleum products which have enabled the Authority to effectively develop and maintain the public road network to its current level. To my fellow board members and management and staff of the Authority, I wish to congratulate you all for your unflagging efforts to deliver even under such effects of the global economic downturn, to ensure that the Authority achieves its mandate. Hon. Kizito Ngwembe CHAIRMAN

9 12 13 Roads continue to be the country s most dominant mode of transport handling over 99% of domestic passenger traffic, more than 70% of internal freight traffic and 90% of international freight and passenger traffic. It therefore gives me pleasure to report on progress made in the management of the country s public road network in the 2011/12 fiscal year. In general, the Authority continued to build on successes of previous years in implementing various road programmes under the Annual National Roads Programme (ANRP). The prime objective of the 2011/12 ANRP was to ensure accessibility and improve mobility on the public road network. Main components of the ANRP included: CHIEF EXECUTIVE OFFICER S REPORT Recurrent Programmes with financing from the Roads Fund; and Development Programmes with funding from Malawi Government and various development partners. On recurrent programmes, the Authority implemented MK3.8 billion worth of projects while on development programmes, MK22.5 billion of road works were carried out. FUNDING AND FINANCIAL PERFORMANCE Road Programmes As has always been the case, during the year, the Authority s Recurrent Programmes were funded by the Roads Fund Administration (RFA) while Development Programmes were funded by Malawi Government and various Development Partners. Financial performance of the RA substantially deteriorated during the year. Total income recorded was less by 14 % when compared with that of 2010/2011 and less by 18% in comparison to the approved budget. Funding from RFA dropped by 49% from MK7.5 billion in 2010/2011 to MK3.8 billion in 2011/2012 and was less by 41% in comparison to the approved budget of MK6.4 billion. Financial performance for Development Programmes was also low as it was affected by the economic problems resulting into delays in payments to contractors and consultants, which led to high interest charges and claims. Total income/payments of MK22.8 billion was spent during the year. This was 3% less in comparison to previous year s expenditure of MK23.5 billion and 19% less when compared to the approved budget.

10 14 15 Operating Expenses The financial performance of operating and administrative expenses was relatively low. The actual expenditure was less by 37% when compared to the approved budget and higher by 18% when compared to 2010/2011 results. Although there was not much activity, some of the non variable operating expenses such as rentals, insurances, taxes and utilities were still being incurred hence the poor performance. RECURRENT PROGRAMMES The Roads Authority implements several recurrent road programmes under road maintenance and planning and design services in fulfilling its responsibility of maintaining all designated public roads in the country. In the 2011/12 financial year, overall 59% of planned recurrent activities were achieved as detailed below. Routine Maintenance Programme This programme targeted almost the entire road network. The emphasis was to open blocked drainage structures, minor repairs of road sections, grass and shrub cutting in order to sustain the integrity and functionality of the road network. Total approved budget allocation was MK million. However, procurement of various contracts under this programme could not proceed due to non availability of funds hence only grass and shrub cutting was carried out at a total cost of MK73.12 million resulting in 9% utilisation of funds. Grading and reshaping programme Grading was carried out on main, secondary and tertiary roads while reshaping, which is a labour-based operation, was done on district roads. Total expenditure was MK million against a total budget of MK million representing 98% of the total budget. Sectional Periodic and Rehabilitation of paved roads Works under this programme included slurry sealing works and sectional rehabilitation. Total expenditure was MK million against an approved budget of MK million representing 61% utilisation of funds. Pothole Patching This programme targeted all paved roads which were in good and fair condition to ensure safety to road users and also to protect pavement layers from the effects of water ingress. Total approved budget allocation was MK million. As at 30th June 2012, the total expenditure was MK million representing 99% of the approved budget. Accident spot improvements These are road maintenance interventions done on specific road sections to improve safety to road users. The total approved budget for this programme was MK41.4 million. As at 30th June 2012, total expenditure was MK8.58 million representing 21% percent utilisation of funds. Spot Repair Interventions This programme included, road surface repairs, embankment formation/repairs, bridge guard/handrail repairs and re-installation, edge marker posts repairs and re-installation, bridge repairs, drainage repairs including scour protection and river training, localised gravelling and construction of missing structures on designated roads. The total approved budget for this programme was MK million. As at 30th June 2012, total expenditure was MK million representing an 89% percent utilisation of funds. Routine maintenance of Tracks and Trails This programme targeted tracks and trails. The approved budget allocation for this programme was MK million. This programme, however, was not implemented due to financial constraints. Backlog city roads rehabilitation The programme was aimed at addressing backlog maintenance in the cities of Lilongwe, Blantyre, Zomba and Mzuzu. No works were carried out during the 2011/2012 financial year due to financial constraints. Total approved budget was MK1.667 billion inclusive of supervision services but only MK million was paid for 2010/11 carried over works on the programme. Concrete Bridges This programme was for the replacement of timber-deck and bailey bridges with concrete decks aimed at reducing maintenance costs and environmental degradation associated with such bridges. The total approved budget for this programme was MK million. As at 30th June 2012 total expenditure was MK million representing 106 % percent utilisation of funds. Emergency and Urgent Works Emergency and Urgent works programme addresses unforeseen and unavoidable conditions on the roads during rainy season. These works are not budgeted for in the Annual National Roads Programme (ANRP) by RA but RFA puts aside some money for emergencies for use by RA. Total expenditure during the year was MK million. Supervision There were five (5) supervision contracts, one contract for the north and two each for centre and south for the normal road maintenance. As at 30th June, 2012 a total of MK million was spent out of an approved budget of MK million representing 65% utilisation of funds.

11 16 17 DEVELOPMENT PROGRAMMES Development programmes which were carried out during the year include periodic maintenance, rehabilitation, construction and upgrading of designated roads through the development budget funded by Malawi Government and/or Development Partners as detailed below. Construction and Upgrading The activities under this programme included upgrading of earth roads to bitumen standard and construction of new bridges. Under this programme, various projects were executed as listed below: Mzimba-Mzarangwe road (M022) funded by the Malawi Government; Lumbadzi-Dowa-Chezi road (M007/M016) including St Gabriel Hospital access road (Namitete) funded by the Malawi government; Karonga-Chitipa road (M026) funded by the Peoples Republic of China; 74m long new bridge across South Rukuru river on the M001 Road in Rumphi district funded by the Government of Japan through JICA ; and Mchinji-Kawere road (S118) funded by the European Union. Periodic Maintenance and Rehabilitation Activities under this programme included resealing and reconstruction of failed sections of the paved road network. Works were executed on the Game Reserve section of the Msulira-Nkhotakota road (M018) under Malawi Government funding. Rehabilitation and Periodic maintenance projects on Lilongwe-Nsipe (M001) and Nchalo-Ngabu roads (M001)funded by the European Union; and Feasibility Studies and Design Economic feasibility studies and designs were carried out on a number of roads including: Lilongwe Old Airport-Kasiya-Santhe road (S117/T342); Thabwa-Chitseko-Seven road (East Bank) (S152); and Chikhwawa-Chapananga-Mwanza road (S136). The African Development Bank also funded economic feasibility studies and designs on Lilongwe City West Bypass, Ntcheu-Tsangano-Neno-Mwanza and Blantyre-Zomba roads. Inadequate suitable local construction materials such as natural gravel within localities of some project roads, hence costly long haulage distances to transport such material to site. Since most of the construction materials are imported, fluctuating prices of such materials affect the cost of road works resulting into initial values of contracts being exceeded in most cases; Inadequate funding and cash flow problems for contracted projects resulting in delayed payments to contractors, hence increased costs due to interest claims charged by the contractors; Frequent shortage of diesel supply leading to delays in progress of works which are equipment intensive; Inadequate foreign exchange for purchase of the imported construction materials, spare parts and diesel thus affecting progress of works; Delayed compensation payments which affect the commencement of projects; Some donor funded projects were suspended during the year due to lack of additional funding, while other projects on new construction did not start due to delays in the attainment of the donor conditions precedent to first disbursement of funds; Inadequate resources to effectively and efficiently run the RA Secretariat which include lack of office equipment, vehicles and office space for the Head Office as well as Regional Offices where renting of private office premises is resulting in huge operating expenses. CONCLUSION AND VOTE OF THANKS The unfolding global economic crisis and the pressure it has put on sources of finance threaten to hamper RA s ability to meet set targets. However, RA will remain positive in fulfilling its mandate of ensuring accessibility to all parts of the country. It s anticipated that development programmes will also continue so as to finalise most of the major projects currently in progress. I therefore wish to take this opportunity to thank members of the Board of Directors, for the guidance given to me during this year. The support rendered to my by the Ministry of Transport and Public Works is also very much appreciated. It assisted the organisation to achieve most of its objectives during the year. Let me also thank my colleagues for the team spirit displayed throughout the year. We could not have achieved what we have without this spirit. Finally, my vote of thanks go to our co-operating partners for their financial and technical support, our stakeholders in the construction industry for assisting us in one way or another to achieve our objectives and the general public that we serve for all the feedback, comments and suggestions which have helped us to keep improving in our service delivery. CHALLENGES RA s main challenge still remains the very high expectations from the public notwithstanding the highly challenging economic environment. Other challenges include: Eng Paul J Kulemeka Chief Executive Officer General lack of capacity in the local construction industry in terms of number of qualified firms and personnel (especially at technician level) and inadequate financial management skills. In particular there are very few contractors in the unlimited category (i.e. capable of undertaking contracts above MK500 million.) Furthermore, there is inadequate construction equipment in the country;

12 18 19 Board of Directors Sitting from left to right Mrs H Magombo representing the interests of the general public Engineer C Kumangirana PS for Ministry of Transport and Public Works The late Inkosi ya Makhosi M mbelwa IV Chairman of the Board, representing the interests of the general public Mrs C Mtonda representing the interests of the general public Senior Chief Tsabango representing the interests of the general public Standing from left to right Mrs E Lwara representing Statutory Corporations Mr C Nakanga representing Local Government Authorities Mr C Thupi representing the National Road Safety Council Engineer P Kulemeka CEO for the Roads Authority Mrs A Msiska Director of Finance and Administration for Roads Authority Engineer W Chirwa representing the Engineering profession

13 THE ORGANISATION and corporate profile 1.1 Establishment and Set-up The Roads Authority was established in 2006 through an Act of Parliament. Under this setup, the Minister of Transport and Public Works represents Government as the ultimate owner of the national road network. The RA falls under the Minister, and comprises a Board with a Secretariat. 1.2 Mandate of the Roads Authority The main objectives of the RA are to: a) Ensure that public roads are constructed, maintained or rehabilitated at all times; and b) Advise the Minister and, where appropriate, the Minister responsible for Local Government on the preparation and the efficient and effective implementation of annual national roads programmes referred to in Section 22 of the Roads Authority Act. 1.3 Board of Directors Membership of the Board of Directors comprises ten members representing the private and public sectors who govern the Roads Authority. The Board defines the overall policy of the Authority and sets the general conditions for its operations. The members are from the Road Transport Operators Association, the Bus and Taxi Operators Association, the National Road Safety Council, a representative of the Local Government Association, two representatives from the National Construction Industry Council and two members of the public, representing the general interests of the public. Advise the road traffic and road safety authorities and road agencies, as the case may be, on appropriate and effective methods of enforcing road traffic legislation for the purposes of preventing damage to public roads and promoting road safety Ensure that roads agencies carry out effective monitoring of the condition of the public roads for the purposes of timely implementation of road construction, maintenance and rehabilitation programmes Publish periodic reports of the activities and achievements of the Authority and make the reports available to the general public Do all such things as are necessary for achieving the purposes for which the Authority is established The Board delegates its authority on day to day running of the institution to the Chief Executive Officer. The RA has four key departments namely; Planning and Design which is responsible for the development of short-term and long-term road programmes; Construction which is responsible for the management of periodic maintenance, rehabilitation, upgrading and new road construction. Maintenance which is responsible for the day to day management of maintenance activities on the entire public road network and Finance and Administration which is responsible for the general administration, human resources and financial management. Other cross cutting functions such as environmental and social management, procurement, information and communications technology, internal audit and public relations complement day to day operations of the Authority. Further to this, the Authority has three Regional Offices which are primarily project implementing arms of maintenance activities under the Maintenance department. The Secretary for Transport and Public Works and the Secretary for Local Government and Rural Development are ex-officio members. Each board member, other than the ex-officio members, has a three-year term. The Board of Directors elect a Chairman and Vice Chairman from amongst their number. 1.4 Functions and Responsibilities of the Board of Directors The Board has the following functions and responsibilities: Advise the Minister on the construction, maintenance and rehabilitation of public roads, and the prohibition of any act that may lead to damage to public works. Monitor the operations or activities undertaken by any road agency in the construction, maintenance and rehabilitation of public roads Advise the Minister on research and studies necessary for promoting the construction, maintenance and rehabilitation of public roads Ensure that all tenders for the construction, maintenance and rehabilitation of public roads are conducted through open and competitive bidding in a transparent and fair manner Advise the Minister on the specifications, design standards and classification of public roads Advise the Minister on the development and training of human resources required for the construction, maintenance and rehabilitation of public roads Advise the roads agencies on the construction, maintenance and rehabilitation of the different classes of public roads under their responsibility Liaise with the road traffic and road safety authorities on matters relating to safety of persons and animals on public roads Advise the Minister on appropriate road signs Recommend to the Minister and the Minister responsible for land matters the reservation of land for public roads and for diversions and detours of public roads under construction, maintenance or rehabilitation Prescribe measures for preventing damage however caused by any person to any public road or any part thereof and for recovering, in full or any part thereof the cost of repairing the damage from such person or his insurer

14 CORPORATE GOVERNANCE RA is committed to the principles of Corporate Governance which emphasise on understanding and respecting of specific roles of the Board of Directors and Management, Risk Management and Internal Controls, Prevention of Fraud and Corruption, Value for Money, Transparency, Accountability and Integrity. RA adheres to a culture of good governance in the achievement of its mandate through the following: a) Existence of Board of Directors and Committees The RA Board operates through two committees with clear Terms of References (ToR). The Committees are Technical Advisory Committee (TAC) and Finance, Administration and Audit Committee (FAAC). b) Existence of Internal Audit Unit The Authority also has an Internal Audit unit which reports directly to the Finance, Administration and Audit Committee (FAAC). c) Internal Control Systems RA operates through strong internal control systems and procedures which are reviewed and audited frequently to ensure their functionality. d) Risk Management Roads Authority has a Risk Management Plan which is updated annually. e) Code of Ethics The Authority has a code of ethics which outlines guidelines on the expected standards of behaviour for its members of staff. f) Financial Statements The Authority prepares Financial Statements in compliance with International Financial Reporting Standards (IFRS) which are audited by external auditors under supervision of the Auditor General. Several other audits take place during the year in accordance with donor requirements. 3. secretariat 3.1 Secretariat Staff establishment for Roads Authority Grade Grade Description Establishment Vacant Male Female M1 Chief Executive Officer M2 Heads of Departments (Directors) M3 Heads of Sections (Managers G1 Chief Engineers (heads of Units) G2 Senior Engineers (Specialist) G3 Professional Officers G4 Technicians & Personal Assistant G5 Secretaries G6 Clerks & Chauffer G7 Drivers G8 Office Assistants& Guards Total Establishment Staff Training and Development The Authority believes in the development of its people to meet performance and growth objectives. During the year it continued to develop its human capital in the critical areas of engineering, environmental management, policy formulation, information technology, financial management and people management. Due to financial challenges faced during the year the training function was largely affected and only 40% of the planned training activities were carried out. 3.3 Organisational Review In the year under review, the Roads Authority commenced implementation in phases, the reviewed organisation s structure and grading system which is intended to well position the organisation so that it faces the challenges of a rapidly changing economic environment. The implementation of the new structure will continue in the following financial year. 3.4 Cross cutting issues in the road sector The authority continues incorporating issues of gender, HIV & AIDS, environment and road safety into the road programmes. In particular, social and environmental mitigation measures are incorporated into the design process, along with complimentary and associated conditions of contract.

15 THE MALAWI PUBLIC ROAD NETWORK The Authority is responsible for construction, rehabilitation and maintenance of the public road network, which is classified into five categories, namely main roads, secondary roads, tertiary roads, urban roads and district roads. The Public Roads Act enacted in 1962, the Local Government Act enacted in 1998 and the Urban (Public and Private Streets) Act enacted in 1956 define the five categories of roads as follows: a) Main roads: Inter-territorial roads outside cities or towns unilaterally designated by Government providing high degree of mobility connecting provincial capitals and/or serving as international corridors; b) Secondary roads: Roads outside cities or towns unilaterally designated by Government providing a high degree of mobility linking main centres of population and production and connecting to the main road network; c) Tertiary roads: Roads outside cities or towns unilaterally designated by Government linking collector roads to arterial roads accommodating the shorter trips and feeding the arterial road network; d) District roads: Roads outside cities or towns designated by Government after consultation with the District Authorities providing intermediate level of service connecting local centres of population and linking districts, local centres of population and developed areas with the principal arterial system; and e) Urban roads: Any other road in an urban area other than a designated road including arterial and collector roads crossing city boundaries. Main function is provision of accessibility over relatively short trip lengths at low speeds and providing services to smaller communities. In functional terms, the main, secondary, and tertiary roads effectively make up the country s primary road network, with district and other undesignated roads acting as a feeder system to the primary network. Of the primary network, the North-South portion on both the plateau and the lakeshore is paved providing a high quality all weather road surfaces. The East to West trunk roads have also been improved to provide better services to communities and linking them to urban centres, where most of the roads are paved. The district roads, which are normally of earth standard, have also been improved and provide access at local level. 4.1 Road Network Coverage Roads, which handle more than 70% of internal freight traffic and 99% of passenger traffic, are the country s most dominant mode of transport. Road transport is also important for international trade as it handles more than 90% of freight and passenger traffic. The national road network is composed of 15,451 km of which about 26% are paved. The rest of the road network (74%) is of earth/gravel surface. Studies carried out in 2005 identified about 10,000 km of undesignated road network that serve the rural communities. Hence the total public road network will be approximately 25,000 km once the new classification has been gazetted. For detailed road network classification see Table 3.1 below. Table 4.1: Malawi Road Network (June 2010) Pavement Type Road Class Paved Unpaved Total Km % Share Km % Share Km % Share Main 2, % 3,357 13% Secondary ,683 13% 3,125 13% Tertiary ,077 20% 4,121 17% District 8 0 3, ,500 14% Urban % 1,348 5% TOTAL 4, ,378 55% 15,451 62% Un Designated Community Roads - 9,478 45% 9,478 38% Total Road Network 4, , , Source: RA Road Data Management System 4.2 Road Condition The condition of the road network as at 30th June, 2010 was such that for paved roads 60 percent, 33 percent and 7 percent were in good, fair and poor conditions, respectively. On the other hand, 48 percent, 26 percent and 26 percent of unpaved roads were in good, fair and poor condition respectively. Thus the total network condition was 33% good, 38% fair and 29% poor. Table 4.2: Road Condition 2010 Paved Unpaved Total Condition Km % Km % Km % Good 2, , , Fair 1, , , Poor , , Total 4, , , Source: Roads Authority 5. MANAGEMENT OF THE ROAD NETWORK As stated in the RA Act number 3 of 2006, the RA is responsible for construction, rehabilitation and maintenance of public roads; and has also the responsibility to advise the Minister responsible for public roads and, where appropriate, the Minister responsible for Local Government on the preparation and efficient and effective implementation of annual national roads programmes referred to in Section 22 of the Act. However, the Local Government Act of 1998 gives responsibility for provision and maintenance of transport infrastructure to the local authorities within the areas of their jurisdiction. On the other hand funding for recurrent road programmes is through the Roads Fund which has been set up and administered by the Roads Fund Administration as per RFA Act no. 4 of These responsibilities are summarised in the Table 4.1 below.

16 26 27 Table 5.1: Management Responsibility for Road Network Road Class Current reclassified Organisation Source of gazetted responsible funding for road management Main 3,357 4,004 RA Roads Fund Secondary 3,125 4,249 RA Roads Fund Tertiary 4,121 0 RA Roads Fund District 3,500 8,085 RA/ LA Roads Fund /LA Urban 1,348 1,580 RA/LA Roads Fund /LA Community 0 7,019 LA/ RF/LA/Donors Communities TOTAL 15,451 24,929 It may be pointed out that due to incomplete decentralisation process and subsequent devolution of respective road management to local authorities, the responsibility for almost the entire Public Road network management currently rests with the Roads Authority with funding from the Roads Funds, Central Government and the Development Partners. However, efforts are underway to build the capacity of the local authorities through various donor and government funded programmes. These are aimed at recruiting qualified technical personnel to take up management positions in the local authorities, procurement of maintenance equipment for minor works that are too small to be outsourced to the private sector and broadening the financial base to generate financial resources for the Local authorities on a sustainable basis. 6. BUSINESS AREAS The main business areas for the Roads Authority consist of: Planning and Design Services, Construction, Periodic maintenance/rehabilitation and Upgrading of roads from earth to paved standard, Procurement and Routine Maintenance. These business areas are supported by Finance, Administration and Human resource services and ICT. 7. PLANNING AND DESIGN SERVICE 7.1 Specific Objectives Monitoring road infrastructure network through collection and analysis of road network inventory, condition and traffic data; Planning and implementation of road infrastructure studies and engineering designs; Co-coordinating and developing of road infrastructure network development and maintenance plans (short, medium and long term); Designing and implementing engineering road infrastructure traffic management measures for improved traffic safety and flow; and Facilitating road infrastructure projects compliance with prevailing social and environmental regulations. 7.2 Planned Programmes Programmes under this business area were initially allocated MK400 million under the recurrent budget. This allocation was however revised to MK219.7 million during the mid-year review process. The revision was in line with absorption levels of ongoing projects at that time. At the end of the financial year, MK93.12 million worth of outputs on the ongoing contracts was processed representing 23% utilisation level against the original budget and 42% on the revised amount. The programmes also accessed resources under development budget for various road infrastructure design projects under which a total certification of MK92.47 million was made during the year. 7.3 Summary of activities executed With funds from Roads Fund Administration, Government of Malawi and Development Partners, the following are main activities that were executed during the year under Planning and Design services. These activities are divided into recurrent and development programmes. 7.4 Activities carried out under Recurrent Programme Main activities carried out with financing from the recurrent budget included the following:- Continuation of Installation of Road Reserve Markers aimed at enhancing public understanding on the limits of road reserves in order to lessen cases of ignorant developments (encroachment) along the reserves of public roads listed below. As it may be noted, the programme has initially targeted main paved roads. The works were carried out on the following road sections: Zalewa - Mwanza (M006) Mtiti - Kasungu (M001) Lilongwe - Mtiti (M001) Masasa - Biriwiri (M001) Biriwiri - Chingeni (M001) Namitete - Mchinji (M012) Mzuzu - Bwengu (M001) Bwengu - Chiweta (M001) Continuation of Installation of Kilometre Marker Posts on most of the paved trunk road network aimed at equipping road users with distance information to various destinations along the public roads listed below. These were carried out on the following road sections:

17 28 29 Chikhwawa - Blantyre - Chingeni (M001) Zalewa - Mwanza (M006) Limbe - Chisitu (M004) Limbe - Muloza (M002) Chingeni - Liwonde (M008) Zomba - Liwonde - Mangochi - Chiponde (M003) Liwonde - Chiponde (S131) Lilongwe - Kasungu Jenda (M001) Lilongwe - Mchinji (M012) Kamwendo - Chinkhoma (M018) Kasungu - Nkhotakota (M018) Lilongwe - Salima - Senga Bay (M14/S122) Salima - Nkhotakota - Dwangwa (M005) Salima - M1/M5Junction (M005) Bunda - Mitundu (S125) Jenda - Mzuzu - Karonga - Songwe (M001) Mzuzu - Mukwiya - Dwangwa (M005) Mzimba Spur (M009) Trunk paved roads condition surveys and urban roads inventory and condition surveys as part of the road infrastructure performance monitoring process. Continuation of Feasibility and Detailed Engineering Design (F and DED) for Rehabilitation and upgrading of the Kaphatenga Nkhotakota Dwangwa (M005) road. Finalisation of F and DED of Liwonde - Mangochi - Chiponde (M003) road section. Finalisation of F and DED of Nsipe - Chingeni Mangochi Turn Off (M001/M008) road. Continuation of F and DED of Lirangwe - Namatunu Machinga (S139/T401) road. This activity is expected to be finalised in the 2012/2013 financial year. Continuation of F and DED of Mkanda - Kapiri (S118) road section. This activity is expected to be finalised in the 2012/2013 financial year. Continuation of Detailed Engineering Design (DED) of Mtangatanga Turn Off - Mzarangwe (S107) road. This activity is expected to be finalised in the 2012/2013 financial year. Finalisation of F and DED of Mzuzu Nkhata Bay (M005) road. This activity is expected to be finalised in the 2012/2013 financial year. Finalisation of installation of Designated Road Network Reference Markers aimed at enhanced management and monitoring of the road network. Finalisation of Road and Bridge Condition Surveys on unpaved roads. 7.5 Activities executed under Development Programme The following are activities that were implemented with funding from the development budget: Finalisation of DED Review for the Construction of Lilongwe Western Bypass road contract in the City of Lilongwe under African Development Bank (AfDB) funding; Feasibility and Detailed Engineering Design for the Upgrading of Ntcheu - Tsangano - Neno - Mwanza (S135/T396/T397) road contract under African Development Bank (AfDB) funding. This activity is expected to be completed during the 2012/2013 financial year; Detailed Engineering Design Review for the Construction of Thyolo Thekerani Muona - Makhanga (S151) road contract under BADEA funding; Continuation of Feasibility and Detailed Engineering Design of Lilongwe Old Airport - Kasiya - Santhe (S117/T342) road under Government funding. (this activity is expected to be completed during the 2012/2013 financial year); Continuation of F and DED of Chiringa - Muloza (T415) road including selected Lilongwe and Blantyre city roads under Government funding. (this activity is expected to be completed during the 2012/2013 financial year); Completion of Detailed Engineering Design of Chikhwawa - Chapananga - Mwanza (S136) road under Government funding; and Continuation of Feasibility and Preliminary Engineering Design of Rumphi - Nyika - Chitipa (M024/M009) road under that Arab Bank for Economic Development in Africa (BADEA) funding. (This activity is expected to be completed during the 2012/2013 financial year). 8. PROCUREMENT 8.1 Specific Objectives The Roads Authority carries out its core functions of road maintenance, rehabilitation, upgrading and construction using the private sector firms, through competitive bidding. All services are outsourced. Procurement of civil works, goods and services is therefore an important function within the organisation. The Roads Authority being a public body follows the Public Procurement Act in all procurement matters. All procurement operations are regulated by procurement guidelines, rules and regulations that were published by Department of Public Procurement. The specific objectives of the procurement activities are: To ensure efficiency and economy in procurement of works, goods and services; To ensure equal opportunity to all eligible bidders in the procurement of works, goods and services; To encourage local contracting and manufacturing industries; and To ensure there is transparency and accountability in all procurement. 8.2 Planned Procurement Activities Activities executed under Recurrent Road Maintenance Programmes The procurement process continues to be strategically planned in such a way that timing of execution of routine maintenance works corresponds with the optimum period for carrying out maintenance programmes while responding to the cash flow management of the organisation.

18 30 31 The bulk of the expenditure of Roads Fund is used in the maintenance of the public road network. During the financial year, the Roads Authority continued with the award of road maintenance contracts that dealt with routine maintenance activities. There were also timber deck bridge replacement programme and some sectional rehabilitation programmes. Emergency works were also procured during the rainy period between November and March due to damage to roads and bridges caused by flooding. The Table Proc 1 below shows the values and numbers of contracts procured under the recurrent budget in terms of the procurement method used. The Public Procurement Act requires that all procurement should, as much as possible, be done through open public tenders. Table Proc 8.2.1: Number of Works Contracts vs. Procurement Method Procurement method No. of Value % Contracts (Kwacha- MK) Open tendering 228 9,754,247, Short-listing NIL NIL 0 Single sourcing NIL NIL 0 TOTAL 228 9,754,247, Engineering services and studies which are carried out by consultants were also procured during the year. These were all procured as open tenders using both quality and cost based selection (QCBS) and least cost selection (LCS). Table Proc 2 below shows the values and numbers of contracts procured in terms of the procurement method used. Table Proc 8.2.2: Number of Consultancy Contracts vs. Procurement Method Procurement method No. of Value % Contracts (Kwacha- MK) Open tendering 7 519,626, Short listing Single sourcing TOTAL 7 519,626, Activities under Development Programmes Development contracts procured during the year include: Reconstruction of Blantyre Zomba road to bitumen standard Construction of Lilongwe City West Bypass to bitumen standard The table Proc 3 below shows the values and numbers of contracts procured under the Development Programmes in terms of the procurement method used. Table Proc 8.3.1: Number of Works Contracts vs. Procurement Method Procurement method No. of Value % Contracts (Kwacha- MK) Open tendering 1 4,141,023, Short listing Single sourcing CONSTRUCTION PROGRAMMES 9.1 Specific Objective The objective of the development programmes is to implement road programmes contained in the development budget. The programmes comprise of construction, periodic maintenance, rehabilitation and upgrading of designated roads. These contribute to the RA business plan objective of ensuring improved accessibility and mobility on the Malawi public road network. 9.2 Development Programmes The periodic maintenance and rehabilitation programmes objective is to ensure provision of an improved condition of the road network while upgrading of unpaved roads and construction of new roads to paved standard aims at contributing to the development of the road network in order to improve accessibility and enhance transport efficiency resulting in reduction of transport costs. The 2011/12 development budget was MK27.38 billion. Out of this amount MK million was for feasibility studies and design projects and MK27.11 billion for the construction, upgrading, periodic maintenance and rehabilitation road projects. The budget funding was from government s local resources and from development partners namely: European Union (EU), Japan International Cooperation Agency (JICA), African Development Bank, World Bank, People s Republic of China, Kuwait Fund for Arab Economic Development (KFAED), OPEC Fund for International Development (OFID), Arab Bank for Economic Development in Africa (BADEA), and Saudi Fund for Development. The budget distribution and planned works for the year were as per the two Tables below; Table 9.2.1: Distribution of Budget to Programmes Programme Annual Budget Percentage of Allocation in Total Budget (%) MK million Periodic Maintenance and Rehabilitation of paved roads 8, Upgrading of unpaved roads and construction of new roads to paved standard 18, Total 27, Table 9.2.2: Planned Scope of Work Programme Target % of Total Coverage in Coverage km Periodic Maintenance and Rehabilitation of paved roads Upgrading of unpaved roads and construction of new roads to paved standard Total TOTAL 1 4,141,023,

19 Financial Performance The financial performance of the programmes capture the value of all works done and supervision cost up to the end of the financial year as summarised in Table 4, and detailed in Table 5 below. Table 9.3.1: Financial Performance Summary Programme Planned Actual Achievement Expenditure Expenditure % in MK in MK Periodic Maintenance and Rehabilitation of paved roads 7,654,662,500 2,599,882, Upgrading of unpaved roads and construction of new roads to paved standard 19,712,380,000 13,403,013, Total 27,110,000,000 16,002,896, Physical Performance The physical achievement is based on the financial achievement percentage in Table 4 multiplied by planned length of the programme to capture the scope of all works done up to end of the financial year as presented in Table 5 below. Table 9.4.1: Physical Performance Summary Programme Planned (km) Actual (km) Achievement % Periodic Maintenance and Rehabilitation of paved roads Construction/ Upgrading Total Details of projects according to sources of funding Upgrading of unpaved roads and construction of new roads to paved standard The activities under this programme included upgrading of earth roads to bitumen standard and construction of new bridge under the funding sources outlined below: a) Government of Malawi Under upgrading and construction, works worth MK4.15 billion were executed on the following roads: (i) Ekwendeni Ezondweni - Mtwalo (S107/T309); (ii) Mzimba - Mzarangwe (M022); Lumbadzi Dowa - Chezi (M007/M016) including St Gabriel Hospital access road (Namitete); and (iii) Chiringa Miseu Folo - Chiradzulu road (S145) b) European Union Works worth MK million were executed on upgrading of Mchinji - Kawere road (S118). c) People s Republic of China Works valued at MK5, million were executed on upgrading the Karonga - Chitipa road (M026). d) Japan International Cooperation Agency (JICA) The Government of Japan through JICA funded MK1, million for the construction of 74m long new bridge across South Rukuru River on the M001 Road in Rumphi district.

20 Periodic Maintenance and Rehabilitation of paved roads Activities under this programme included resealing and reconstruction of failed sections of the paved road network with funding from sources listed below. a) Government of Malawi Under periodic maintenance and rehabilitation, works worth MK million were executed on Game Reserve section of the Msulira-Nkhotakota road (M018). b) European Union During the year the European Union funded MK1, million for rehabilitation and resealing projects on the following roads: (i) Lilongwe-Dedza (M001); and (ii) Chikhwawa-Nchalo-Ngabu (M001). c) African Development Bank funded the reconstruction of the Blantyre Zomba road Supervision, Feasibility Studies and Design Feasibility studies and design involve assessing the economic viability and technical feasibility of the road followed by the appropriate engineering solution and cost estimate. During the year the following activities were carried out;- a) African Development Bank (AfDB) (i) Finalisation of Detailed Engineering Design review for the Construction of Lilongwe West Bypass contract in the City of Lilongwe, and (ii) Feasibility and Detailed Engineering Design for the Upgrading of Ntcheu - Tsangano - Neno - Mwanza (S135/T396/T397). b) Arab Bank for Economic Development in Africa (BADEA). (i) Detailed Engineering Design review for the Construction of Thyolo Thekerani Muona - Makhanga (S151) road contract under, and (ii) Continuation of Feasibility and Preliminary Engineering Design of Rumphi - Nyika - Chitipa (M024/ M009) road. c) Government of Malawi (i) Continuation of Feasibility and Detailed Engineering Design of Lilongwe Old Airport - Kasiya - Santhe (S117/T342) road; (ii) Continuation of Feasibility and Detailed Engineering Design of Chiringa - Muloza (T415) road including selected Lilongwe and Blantyre city roads; and (iii) Completion of Detailed Engineering Design of Chikhwawa - Chapananga - Mwanza (S136) road. Supervision, economic feasibility studies and designs worth MK million were carried out under Government of Malawi funding. The supervision component was for all development projects listed above. d) European Union The supervision of development programmes under EU amounted to MK million Contract Claims and Compensations The Government of Malawi is responsible for payment of all relocation of utility services and compensation for property, crops and trees affected by projects implementation. During the year, compensation and relocation costs worth MK4.79 million were paid. Government of Malawi also paid MK6, million for contract claims and MK million was paid for interest on delayed payments. On the other hand, the European Union paid MK39.61 million as contract claims for projects which they funded. 10. MAINTENANCE PROGRAMMES 10.1 Specific Objectives These programmes aim at carrying out maintenance of all designated public roads in Malawi. This is achieved through implementation of several programmes which include routine and minor periodic maintenance, concrete decking of bridges, grading and reshaping, grass cutting, emergency works and provision of associated supervision services Planned Programmes Road Maintenance During the year 59% of planned road maintenance activities were executed and paid for. Road maintenance works were categorised into thirteen (13) major programmes. These were routine activities, grading and reshaping, pothole patching, road centre & edge line marking, accident spot improvements, road signs replacement, spot repairs improvements, routine and periodic maintenance of tracks & trails, sectional periodic rehabilitation, concrete bridges, supervision services, special backlog maintenance in the cities of Blantyre, Zomba and Lilongwe. However, due to financial problems only eight (8) programmes out of thirteen (13) were partly carried out. These programmes were grading and reshaping, spot improvements, pothole patching, concrete bridges, emergencies, sectional periodic/rehabilitation, accident spot improvements and corresponding supervision services. Details of the road maintenance programmes and expenditure during the year are outlined in Table 1 below: Table : Road Maintenance Programmes and Expenditure Programme of works Approved Expenditure Percentage Budget MK MK of Utilisation Routine Maintenance % Sectional Periodic/Rehabilitation % Pothole Patching % Road Marking % Accident spot improvement % Road signs replacement % Spot Repairs Interventions % Routine (Tracks & Trails) % Backlog city road rehab 1, % Concrete bridges % Supervision % Emergency Supervision backlog Rehabilitation % Total 6, , % Routine Maintenance Programme This programme targeted almost the entire road network. It involved execution of mainly labour based maintenance activities that needed to be carried out once or several times within the year so that the roads remained passable throughout the year. The emphasis was to open blocked drainage structures, minor repairs of road sections, grass and shrub cutting in order to sustain the integrity and functionality of the road network.

21 36 37

22 38 39 Total approved budget allocation of MK million. However, procurement of various contracts under this programme could not proceed due to non availability of funds hence only grass and shrub cutting was carried out at a total cost of MK73.12 million resulting into 9% utilisation of funds Grading and reshaping programme Grading was carried out on main, secondary and tertiary roads while reshaping, which is a labour-based operation, was done on district roads. Total expenditure was MK million against a total budget of MK million representing 98% of the total budget Sectional Periodic and Rehabilitation of paved roads This programme was aimed at restoring the original condition of relatively short stretches of paved roads that are characterised by excessive materials loss, deformation and potholing due to such factors as aging, traffic action and environmental damage thereby rendering other intervention measures ineffective. Works under this programme included slurry sealing works and sectional rehabilitation. Total expenditure was MK million against an approved budget of MK million Pothole Patching This programme targeted all paved roads which were in good and fair condition to ensure safety to road users and also to protect pavement layers from the effects of water ingress. Total approved budget allocation was MK million. As at 30th June 2012, the total expenditure was MK million representing 99.55% of the approved budget Accident spot improvements These are road maintenance interventions done on specific road sections to improve safety to road users. The total approved budget for this programme was MK41.4 million. As at 30th June 2012, total expenditure was MK8.58 million representing 21% percent utilisation of funds Spot Repair Interventions Routine maintenance works are carried out continuously as per needs on the ground and target the entire road network with resources spread for one full year. Therefore, any single-event intervention that would deplete the routine maintenance resources over a short period of time, thereby rendering the rest of the road network not benefiting, would be considered under this programme. This programme included, road surface repairs, embankment formation/repairs, bridge guard/handrail repairs and re-installation, edge marker posts repairs and re-installation, guard-rail repairs and re-installation, bridge repairs, drainage repairs including scour protection and river training, localised gravelling and construction of missing structures on designated roads. The total approved budget for this programme was MK million. As at 30th June 2012, total expenditure was MK million representing an 89% percent utilisation of funds Routine maintenance of Tracks and Trails This programme targeted tracks and trails. Its primary goal was to improve accessibility at community level in the districts. The tracks and trails were identified using the bottom up approach where individual District Councils identified the roads. The approved budget allocation for this programme was MK million. This programme, however, was not implemented due to financial constraints Backlog city roads rehabilitation The programme was aimed at addressing backlog maintenance in the cities of Lilongwe, Blantyre, Zomba and Mzuzu. No works were carried out during the 2011/2012 financial year due to financial constraints. Total approved budget was MK1,490 billion but only MK million was paid for 2010/11 carried over works on the programme Rehabilitation of selected earth roads A number of contracts for rehabilitation of selected earth roads financed by Malawi Government were also to be implemented. The targeted roads were; Chiweta - Mlowe Road (M011) in Rumphi which included Chitimba to Livingstonia road, Mzuzu Bula - Usisya road (S108), Kasitu to Kakwale through Lupashe Road (S113) in Nkhotakota and Ntaja - Nayuchi in Machinga district. These contracts were, however, not implemented due to financial constraints Concrete Bridges This programme was for the replacement of timber-deck and bailey bridges with concrete decks aimed at reducing maintenance costs and environmental degradation associated with such bridges. The total approved budget for this programme was MK million. As at 30th June 2012 total expenditure was MK million representing 114 % percent utilisation of funds Emergency and Urgent Works Emergency and Urgent works programme addresses unforeseen and unavoidable conditions on the roads during rainy season. Total expenditure during the year was MK million Supervision There were five (5) supervision contracts, one contract for the north and two contracts for centre and two for the south for the normal road maintenance. As at 30th June, 2012 a total of MK million was spent out of an approved budget of MK million representing 65% utilization of funds. Table 2.15: Planned physical activities against actual achievement PHYSICAL PERFORMANCE Unit Planned Actual (km) % Achieved Routine Maintenance Km 15, , Periodic & Rehabilitation (paved) Km Sectional Periodic maintenance of unpaved roads Km Grading & Reshaping Km 3, , Concrete bridges m Backlog city road rehab Km Community Roads Km 4, Note: Only Grass cutting on trunk roads was done as Routine Maintenance CHALLENGES FACED IN THE IMPLEMENTATION OF VARIOUS PROGRAMMES The major challenges encountered during the implementation of the recurrent maintenance contracts are summarised below: The construction industry is still facing capacity problems in terms of personnel in technical and managerial skills, equipment and financial. In terms of personnel there are few qualified and well experienced people on the ground such that it is a big challenge to cope with maintenance demands. In terms of equipment most of the contractors still rely on hiring from PVHO. PVHO does not have as many graders to match with the number of awarded grading contracts. Contractors who have no own earth-moving equipment have struggled to complete the contracts within the specified periods. The way forward is to award such contracts to those firms that have in house equipment as a priority.

23 40 41 Scarcity of fuel had a negative effect on the contracts performance periods. Shortage of foreign currency also negatively affected the management of contracts. Contracts that depended on imported materials such as periodic maintenance and rehabilitation had delayed in completion. Contractors were not able to get foreign currency in time for the purchase of petroleum products. Most of the construction materials are imported, hence the fluctuating prices of such materials are affecting the cost of road works such that initial contract amounts are in most cases exceeded; Inadequate foreign exchange for purchase of the imported construction materials, spare parts, and diesel affected progress of works; Inadequate suitable local construction materials such as natural gravel and rock near the projects area resulting in costly long haulage distances to transport to site. Inadequate funding and cash flow for programmes resulting in delayed payments to contractors hence increased costs due to interest charged by the contractors. Delayed compensation payments which negatively affected the smooth project implementation. Some development partner funded projects were suspended due to lack of additional funding hence no progress and claims were raised by the contractor.

24 42 43 FINANCIAL STATEMENTS For the Year Ended 30 June 2012

25 44 45 Financial statements FOR THE YEAR ENDED 30 JUNE 2012 DIRECTOR S REPORT The Roads Authority Board of Directors has pleasure in submitting their report together with audited financial statements for the year ended 30th June Nature of Business The Roads Authority (RA) was established by an Act of Parliament No. 3 of 2006 to ensure that public roads are constructed, maintained or rehabilitated at all times, and advise the Minister responsible for public roads and where appropriate, the Minister responsible for Local Government on the preparation and the efficient and effective implementation of the Annual National Roads Programme. Annual National Roads Programme (ANRP) As defined under section 22 of RA Act, ANRP is a comprehensive plan of action for construction, maintenance and rehabilitation of public roads, tracks and trails under the charge of the RA. It also includes the estimated costs of every activity required to implement the plan of action. It includes development as well as recurrent road programmes prepared by RA secretariat in consultation with other stakeholders which include the Government and Roads Fund Administration (RFA). It contains details as specified and approved by the Board and thereafter it is submitted to the Minister of Transport and Public Works for final approval. 2011/2012 Implementation of the ANRP The period under review is the first year of RA Five Year Strategic and Business Plan (FYSBP). The Board would like to report that most of the 2011/12 activities towards achievements of the FYSBP were not carried out due to poor economic conditions in the country; hence very little improvement on roads condition was registered. There was acute shortage of funds needed for all the programmes, foreign currency, fuel and other imported raw materials. Major programmes such as rehabilitation of city roads, routine and periodic maintenance for tracks and trails were postponed to next financial year. For recurrent programmes less than 60% of required financial resources were recorded. This was far below actual requirements on the ground. The situation was worsened by the devaluation of Malawi Kwacha which caused price escalation for commodities such as fuel and bitumen products. For development programmes the budget ceiling provided by government was much less than the needed resources for the projects. There were delays in payment of contractors and consultants resulting into high interest charges and claims on price escalations due to passage of time. Arrears in development projects used most of the funds made available for ongoing projects; hence not all projects contained in the 2011/2012 ANRP were implemented. The Board is optimistic that the next financial year will register some economic improvements so that RA can fully implement its programmes in line with the FYSBP and therefore there will be a progressive reduction in percentage of roads that are in poor condition at the same time preserving the roads which are presently in good condition not to deteriorate into fair and poor condition. Achievements in the Implementation of the ANRP Despite the challenges faced there were achievements in the following projects as follows: South Rukuru Bridge funded by Government of Japan made good progress and will be opened in the 2012/13 financial year. Karonga-Chitipa road project funded by Peoples Republic of China made very good progress and will be opened in the 2012/13 financial year Mchinji-Kawere project funded by European Union made good progress and was on schedule as planned Award and commencement of the construction of Blantyre-Zomba road project funded by African Development Bank. Completion and opening of Nsanje-Bangula road project during the financial year was another notable achievement. Challenges in the Implementation of the ANRP Major challenges experienced during the year include;- Inadequate funding which resulted into delayed payment to contractors, consultants, compensation of property and relocation of services. Inadequate skilled labour at all levels of the profession. Most of design and planning activities were delayed because there were no enough qualified engineers in the market. There is a huge gap between available key human resource and requirements within the RA to respond to the growing needs of improved service delivery. Scarcity of naturally occurring gravel in the country. Growing backlog maintenance which will require huge financial resources in future. Lack of foreign currency and fuel. Vandalism of road furniture and encroachment of road reserves. 2011/2012 Financial Performance Financial performance of the RA substantially deteriorated during the year. Total income received during the year was less by 14 % when compared with that of 2010/2011 while when compared to the approved budget it was less by 18%. Recurrent programmes income dropped by 49% from MK7.5billion in 2010/2011 to MK3.8 billion in 2011/2012 and was less by 41% from the approved budget of MK6.4 billion. Financial performance for development projects was also low as it was affected by the economic problems resulting into delays in payments of contractors and consultants hence high interest charges and claims. MK22.8 billion was recorded during the year 3% less in comparison to previous year s income of MK23.5billion and 19% less when compared to the approved budget. On the other hand, financial performance of operating and administrative expenses was relatively poor because actual expenditure was less by 37% when compared to the approved budget and higher by 18% when compared to 2010/2011 results. Although less was happening on the ground some of fixed operating expenses such as rentals, utilities and salaries were still being incurred hence the poor performance. Detailed financial results and state of affairs of the RA are set out in the accompanying Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Funds and Statement of Cash flows and accompanying policies and other explanatory notes. Board of directors The following directors, served office during the year:- Inkosi ya Makhosi M mbelwa IV- - Chairperson Full Year Eng. Hutchson Mthinda - Vice Chairman Full Year Eng. Wilson Chirwa - TAC Chairperson Full Year Mrs. Catherine Mtonda - FAAC Chairperson Full Year Senior Chief Tsabango - Member Full Year Mr. Charles N. Makanga - Member Full Year Mr. Randson Mwadiwa - Ex Officio Member Full Year Mr. Registered Kester Kaphaizi office Independent Auditors - Ex Officio Bankers Member Full Year Mrs. Roads Esther Authority Lwara Graham Carr - Ex Officio First Member Merchant Full Bank Year Functional Building Paul Kagame Road Private Bag B346 LILONGWE 3 ADL House Second Floor P.O Box 898 LILONGWE National Bank of Malawi Nedbank Malawi Standard Bank Attorneys Likongwe and Company Plot No 12/30, off Dunduzu Street P O Box LILONGWE 3 BOARD CHAIRMAN FINANCE, AUDIT AND ADMINISTRATION COMMITTEE CHAIRPERSON

26 46 47 Financial statements FOR THE YEAR ENDED 30 JUNE 2012 STATEMENT OF DIRECTORS RESPONSIBILITIES The Directors are required under the Roads Authority Act No. 3 of 2006 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Authority as at the end of the financial year and of the operating results for that year. The Directors are also required to ensure that the Authority keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Authority and enable them to ensure that the financial statements comply with financial agreements and statutes. In preparing the financial statements the Directors accept responsibility for the following: maintenance of proper accounting records; selection of suitable accounting policies and applying them consistently; making judgment and estimates that are reasonable and prudent; compliance with applicable accounting standards, subject to any material departures being disclosed and explained in the financial statements; preparation of financial statements on a going concern basis unless it is inappropriate to presume that the Authority will continue in business. The Directors also accept responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Authority and to maintain adequate systems of internal controls to prevent and detect fraud and other irregularities. The Directors are of the opinion that the financial statements give a true and fair view of the financial affairs of the Authority and of its operating results. The financial statements were authorised for issue by the Board of Directors on 24th December 2012 and are signed on their behalf: INDEPENDENT AUDITORS REPORT TO THE MINISTER OF TRANSPORT AND PUBLIC WORKS We have audited the accompanying financial statements of Roads Authority, which comprise the statement We have audited the annual financial statements of Roads Authority, which comprise the statement of financial position as at 30 June 2012, and the statement of comprehensive income, statements of changes in funds and cash flows for the year then ended, and a summary of significant accounting policies and their explanatory notes. Directors responsibility for the financial statements Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in a manner required by the Roads Authority Act No.3 of 2006, and for such internal controls as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. BOARD CHAIRMAN FINANCE, AUDIT AND ADMINISTRATION COMMITTEE CHAIRPERSON An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Roads Authority as of 30 June 2012 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and Roads Authority Act No. 3 of Graham Carr