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1 Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY Report No TA Public Disclosure Authorized STAFF APPRAISAL REPORT Public Disclosure Authorized THE UNITED REPUBLIC 3F TANZANIA SIXTH HIGHWAY (REHABILITATION) PROJECT April 2, 1986 Public Disclosure Authorized Eastern and Southern Africa Regional Office Projects Department Transportation Division This document kas 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 = Tanzanian Shilling (T Sh) T Sh 1.00 = US$ US$ T Sh US$ 1.00 = SDR SYSTEM OF WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 square meter (Cm) = square feet (sq ft) 1 cubic meter (m 3 ) = 35.3 cubic feet (cu ft) 1 kilometer (km) = 0.62 mile (mi) I square kilometer (km 2 ) 0.39 square mile (sq mi) 1 metric ton (mt) = 2,205 pounds (lb) ABBREVIATIONS AND ACRONJYMS ATC = Air Tanzania Corporation AfDF = African Development Fund CIDA = Canadian International Development Agency DANIDA = Danish International Development Agency EAC = East African Conuunity EAHC = East Africa Harbors Corporation EARHA = East African Railways and Harbors Administration EEC = European Economic Community MCW = Ministry of Communications and Works MOE = Ministry of Education NCC National Construction Council NTC = National Transport Corporation ODA = Overseas Development Administration of the United Kingdom SIDA = Swedish International Development Agency TANZAM = Tanzania Zambia Highway TAZARA = Tanzania Zambia Railways Authority THA = Tanzania Harbors Authority TRC = Tanzania Railway Corporation TRM = Trunk Road Maintenance USAID = United States Agency for International Development voc = vehicle operating costs vpd = vehicles per day UNITED REPUBLIC OF TANZANIA FISCAL YEAR July 1 - June 30

3 FOR omcil USE ONLY TANMANIIA STAFF APPRAISAL REPORT SIXTH HIGHWAY :REHABILITATION) PROJECT Table of Contents Page DOCUMENTS IN THE PROJECT FILE *... i CREDIT AND PROJECT SUMMARY... o...* il-v I. THE TRANSPORT SECTOR A. Background... 1 B. The Transport System... e... 1 C. Role, Organization, and Performance D. Government Objectives and Policy in the Sector... 3 E. Transport Planning and Coordination... 3 F. Transport Investments... o G. Experience with Past Lending in the Transport Sector... 6 h. Rationale for Bank Group Involvement... 6 II. THE HIGHWAY SUBSECTOR A. The Road Network B. The Road Transport Industry C. Organization of the Highway Subsector D. Ministry of Communications and Works E. The Highway Investment Program (FY ) F. Local Contracting Industry III. THE PROJECT A. Objectives B. Description C. Project Costs and Financing D. Implementation... o E. Procurement F. Disbursements G. Accounting, Auditing, and Reporting Requirements H. Environmental Impact IV. ECONOMIC JUSTIFICATION A. Project Benefits and Beneficiaries.32 B. Economic Returns...32 C. Sensitivity Analysis and Risks.35 V. AGREEMENrS TO BE REACHED AND RECOMHENDATIONS This report was prepared on the basis of an appraisal mission in June 1985 by Messrs. K.V.S. Nathan (Mission Leader and Engineer), M. Dick (Senior Economist) and R. Balasuperamaniam (Consultant), and Ms. A. Fantaye (Project Assistant). Mesdames Brigida Arriaza-de-Figueroand Yvonne Hensley assisted in processing the report. Tbis documnt ha restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not othfwise be disclosed without World Bank authoriratoo.

4 Annexes Page I-I Transport Investment Program (FY ) *..s...s...ee Experience with Past Lending in the Transport Sector see II-1 Proposals for a Road TraDsport Policy and Freight Rates and Bus Fares II-2 Comparison of 1983 Road User Charges and Road Expenditures in Selected Eastern Africsn Countries 52 III-1 Gravel Roads Rehabilitation Program III-2 Equipment Rehabilitation Program III-3 Outline Terms of Reference - Equipment Rehabilitation Program 56 III-4 Outline Terms of Reference - Technical Assistance to MCW III-5 Assistance to Dar-es-Salasm Technical College.ooooee.o.-.oo 61 III-6 Training Program - Morogoro Training School III-7 Assistance to the Local Contracting Industry. 64 III-8 Assistance to the Truckin& Industry. 69 I1-9 Outline Terms of Reference - Feasibility Studies and Detailed Engineering III-10 Outline Terms of Reference - Agricultural Feeder Roads Study 72 III-11 Project Cost Tables. 75 III-12 Project Implementation Schedule III-13 Steps to Initiate Project Execution *. 77 III-14 Estimated Schedule of Disbursements III-15 Budgeting and Accounting Procedures. 83 IV-1 Economic Analysis Charts 1. Organization of the Ministry of Communications and Works. 2. Organization of the National Transport Corporation. 3. Organization of the Ministry of Education. 4. Organization of the National Construction Council. TANZANIA - Sixth Highway (Rehabilitation) Project (IBRD 19091R1).

5 TANZANIA SIXTH HIGHWAY (UREBILITATION) PROJECT STAFF APPRAISAL REPORT. Documents in the Project File I. Reports Related to Transportation in Tanania A. A Proposal for a National Road Transport Policy - Trucks and Buses, National Transport Corporation, July B. Transport and Marketing of Agricultural Products in Tanzania, H.L. Beenhakker and N. Bruzelius, February C. Study of Road Transport Policy and Practice, M. Mason and J. Gilling, December D. System for the Collection and Analysis of Road Transport Data, National Transport Corporation, E. Proposal for a Policy and Procedures for Fixing Freight Rates and Bus Fares, National Transport Corporation, TI. Reports and Studies Related to the Project A. Final Report, Feasibility Study and Road Maintenance Program, TANZAK Highway, Renardet - Sauti, May 1983 in three volumes. B. Final Report, Detailed Engineering Study, Rehabilitation of the TANZAM Highway, Renardet - Sauti, August 1983 in three volumes. C. Pre-investment Study for the Development of Small Scale Construction Enterprises in Tanzania, International Labor Office, December D. Report on the Local Contracting Industry, R. Balasuperamaniam, Consultant, June E. Final Report, Three-Year Road Regravelling and Rehabilitation Program, Renardet - Sauti, January 1986 in four volumes. F. Uchunguzi Wa Mahitaji Ya Wafanyakazi Wa Daraja La Jure Na La Kati, Wizar Ya Maendeleo Ya Utumishi Na Uendeshaji Kazi (Ministry of Labor and Manpower Development), January III. Other Documents A. Manual for Project Management of Foreign Financed Construction Projects in Tanzania, Ministry of Comunications and Uorks, May 1985.

6 -~ ~ ~ ~ ~ ~ ~ -i TANZANIA SIXTH HIGHWAY (RERABILITATION) PROJECT CREDIT AND PROJECT SUMMARY Borrower: The United Republic of Tanzania. Beneficiaries: The Ministry of Communications and Works, Ministry of Education, National Construction Council, and the National Transport Corporation. Credit Amount: SDR 43.3 million (US$50.0 million equivalent). Terms: Standard. Cofinancing: The United Republic of Tanzania is arranging cofinancing as follows: grants from the Government of Denmark-DANIDA (US$2 million equivalent) and Norway (US$6.9 million equivalent); and a loan from the African Development Fund (US$19.4 million equivalent). Project Objectives and Benefits: The project would initiate a program to help reduce transport as a constraint facing the Tanzanian economy through rehabilitation of the most important sections of the highway network. The deteriorated state of the Tanzanian highway system is a serious bottleneck to agricultural production in particualr. Given the importance of the agricultural sector and the key role that agriculture plays in the country's economy, an efficient transport system is vital. The project would reduce the cost of operation of road transport, both freight and passengers, increase its reliability, speed up its flow, and provide all weather use of the priority sections of the gravel road network. An important project objective is to improve the system of road maintenance by encouraging the Ministry of Communications and Works (MCW) to carry out major maintenance and rehabilitation works by contract rather than by force account. It would also increase the capabilities of the local contracting industry, provide assistance to expand the capacity and efficiency of the trucking industry and increase the availability of trained engineers in Tanzania.

7 - iii - Project Description: The project comprises the following components: (i) a road rehabilitation program consisting of the rehabilitation of about 295 km of the TANZAN highway and kms of gravel roads, (ii) an equipment rehabilitation program, (iii) a maintenance spares supply program to the trucking industry, (iv) assistance to the local contracting industry, (v) technical assistance and consulting services for construction supervision, agricultural feeder roads study and feasibility studies and detailed engineering, and (vi) training. Risks: The msin risks are institutional. MCW's own maintenance capability, as well as that of domestic contractors who are expected to participate under the project, may develop more slowly than anticipated; however, the project would ensure a continuing supply of trained manpower and encourage a policy of executing periodic maintenance and rehabilitation works by contract (with technical assistance and training to the local contracting industry), thus allowing MCW to concentrate its efforts on routine maintenance. Implementation of the gravel roads rehabilitation program may be slower than expected. This risk is minimized by annually reviewing the program to identify both technical and financial problems and means to resolve them in a timely fashion.

8 - iv- Summary of Project Cost: Local Foreign Total......US$ Million Road Rehabilitation Equipment Rehabilitation Assistance to the Trucking Industary Technical Assistance to MCW, Office Equipment, & Supplies Training Assistance to Local Contracting Industry Other Consulting Services Base Cost Contingencies: (i) Physical (ii) Price Total Project Costa/ Financing Plan: IDA AfDF Kingdom of Norway DANIDA Government Total a/ Identifiable taxes and duties amount to US$7.6 million equivalent and total project cost, net of taxes and duties, is about US$100.1 million equivalent.

9 v Estimated Disbursements (USS million): FY1987 FY1988 FY1989 FY1990 FY1991 FY1992 Annual Cumulative Economic Rate of Return: About 38Z Map: IBRD No R1

10 I. THE TRANSPORT SECTOR A. Background 1.01 Tanzania has a large territory (945,000 km 2 ) with a widely dispersed population of 19.8 million and a low population density (20 persons per square kilometer). Populatior' growth is estimated at 3.4Z per annum with both fertility and mortality at relatively high levels. About 42% of the total land area is devoted to agriculture. More than 802 of the population lives in rural areas and is dependent directly or indirectly on agriculture. The agricultural sector accounts for over 45% of GNP, 90% of employment, and roughly 85% of total foreign exchange earnings. The industrial sector is still small, contributing under 13% of GDP. The large government and service sectors are responsible for about 30X of GDP. Exports continue to be dominated by the traditional primary products which include coffee, cotton, cashew nuts, sisal, tea, and tobacco. The economy has stagnated since The GD? in 1983 was virtually at the 1979 level. The main reasons have been an overall decline in agricultural and Industrial production barely offset by increases in the service sector. At the same time inflation has continued at a fairly high level, fluctuating between 25 and 30 percent per year The economy and with it the transport sector have been adversely affected by external and internal force3. Externally, the two oil price hikes in 1973 and 1979 had major effects on the terms of trade and thus availability of free foreign exchange. The break up of the East African Community (EAC) and the Ugandan war imposed additional strains on the economy. Internally, the build-up of parastatals beyond their managerial capability and attempts to direct economic activity through control of tariffs and ad hoc instri'ments for allocation of foreign exchange have exacerbated the situation. The reasons for the unsatisfactory performance of the economy are described in detail in the Country Economic Memorandum (Report No TA) and are summarizerd in Part I of the Report and recommendations to the President being issued concurrently. In the last two years, there has been movement away from rigid regulation of the economy. This has led to a substantial increase in imports of a wide range of goods and benefitted the transport sector through imports of motor vehicles and spare parts. B. The Transport System 1.03 Transport movements over long distances are characteristic of Tanzania's transport infrastructure. It plays a vital role in the economy, particularly in agriculture, for internal distribution and marketing of food crops as well as export of cash crops such as cotton, coffee, tea, sisal, and sugar. The transport infrastructure also serves as an important corridor for the external trade of four neighbouring land-locked countries - Zambia, Burundi, Rwanda, and Zaire. Roads are the predominant transport mode overall with railways taking a major share of the important import/export traffic The transport system comprises (i) a road network of about 82,000 kms, (ii) two railway systems - the Tanzania Railway Corporation (TRC)

11 - 2 - operating about 2,640 kms of track and the Tanzania/Zambia Railway Authority (TAZARA, jointly owned by Tanzania and Zambia) with 970 kms of track within Tanzanian territory, and (iii) a port system operated by Tanzania Harbours Authority (THA), centered on Dar-es-Salaam with minor ports at Tanga and Mtwara on the Indian Ocean, Kigoma on Lake Tanganyika and Mwanza (plus other satellite ports) on Lake Victoria. Additionally, there are two international airports (Dar-es-Salaam and Kilimanjaro), eleven other paved airports, and over 50 unpaved ones. A pipe line carries crude oil and products from Dar-es-Salaam to Ndola in Zambia The basic transport network links all the main production centers but with varying degrees of efficiency. Only about 3,000 kms or 30% of the trunk roads are paved and generally, except for the recently constructed roads, most of the trunk roads have deteriorated through lack of maintenance. The two rail systems are also in varying degrees of disrepair due also to poor maintenance of tracks, locomotives, and wagons. The feeder road systems, for the most part, consist of mere tracks. At the root of the sectoral problems has been an inadequate number of trained and experienced personnel, weak management, and an acute scarcity of foreign exchange to meet the costs of spare parts and imported materials. C. Role, Organization and Performance 1.06 The role of the sector is basically to maintain intra-regional, inter-regional, and international transit traffic flows. In 1984, total tonnage transported in the country was estimated to be 2.4 billion ton-km of which trucks handled about 35%, TRC about 30X, and TAZARA the remainder. Of this, over one-third is international transit traffic carried almost entirely by the railways. The traffic is generated along a number of axes, primarily to the west and north, all of which focus on the port of Dar-es-Salaam from Nbeya, Kigoma, Mwanza, and Arusha which cover the principal productive areas and international routes Overall responsibility for the planning, development, utilization, and maintenance of the transport infrastructure is vested in the Ministry of Communications and Works (MCW). The MCW has 7 major subdivisions (Chart 1) covering the various transport modes and their administrative and planning functions. Each is headed either by a Commissioner or Director. Public sector corporations are predominant in transport of which TRC, Tanzania Harbors Authority (TEA), Air Tanzania Corporation (ATC), and the National Transport Corporation (NTC) are the major ones. The TAZARA is administered separately by Tanzania and Zambia. The private sector is only involved in road transport and air catering Performance of the sector has declined over the last ten years, particularly in its tasks of collection of agricultural products in the producing areas. In the case of the railways, distributors of fertilizers and crop authorities have been severely affected by the declining capacity of the TRC. Transport costs are high but official and unofficial tariff regulations have eroded quality of service and flexibility of supply. A number of obstacles impede transport flows and impose serious constraints on economic development: (i) poor transport coordination and planning (para 1.12), (ii) inefficient regulation and organization of the road transport industry (paras ), (iii) poor state of the road network due to

12 -3- inadequate road maintenance (paras ), and (iv) inefficient operations of TRC. Some of the problems such as shortage of suitably qualified and experienced manpower in technical positions and acute shortage of foreign exchange are common to other sectors of the economy. D. Government Objectives and Policy in the Sector 1.09 The Structural Adjustment Program (SAP) prepared by the Government in June 1982 sets out the broad objectives and policies in the sector. These are generally still valid and are summarized as follows: (i) maximize use of rail and coastal and lake shipping to reduce excessive pressures on the trucking sector; (ii) increase efficiency of use and emphasize maintenance of existing assets; (iii) strengthen planning capability and prepare a long term sectoral strategy; (iv) remove unnecessary administrative restrictions especially on inter-regional freight movements; and (v) increase tariff flexibility to ensure reasonable profitability of transport movements Since 1982, some steps have been taken on a number of the key areas. In brief, (i) Government is presently reviewing a Road Transport Policy paper prepared by NTC with a view to formulating an official Government policy in the sub-sector (para 2.08). This policy is expected to have the effect of improving the efficiency with which scarce foreign exchange is allocated among truck operators and, thereby, increasing the effective capacity of the subsector. Government intends to follow this in the first half of 1986 by preparation of a policy for the whole transport sector - the first time such an exercise has been attempted in Tanzania; (ii) planning capability in MCW has been strengthened with assistance from the Danish International Development Agency (DANIDA);(iii) policy on tariffs in road and rail transport appears to be moving towards greater determination by market forces; and (iv) the Three-Year (FY86-88) Transport Sector Investment Program (para 1.15) concentrates very substantially on rehabilitation of existing assets. Government has agreed that, not later than January 1, 1987, it will submit to the Association for its review a draft paper on its overall Transport Sector Policy The extent to which action on administrative reform is occurring is much more difficult to judge. However, recent Government statements and policies have indicated that the public sector, particularly parastatals, will be expected to improve efficiency and that the importance of the role of the private sector in the provisior. of road transport is recognized. This has been reflected in the inclusion of motor vehicle spare parts and trucks for the private truckers within the Government's import liberalization scheme which is currently in operation. E. Transport Planning and Coordination 1.12 The Government has recognized for several years the need for better transport planning and coordination and two important steps were taken as a result. In July 1984, the old Ministry of Transport and Communications and the Ministry of Works were merged into a single Ministry of Communications and Works (MCW) to bring all transport modes under the control of one ministry. A year later, in the reorganization of the MCW

13 - 4 - that followed, a separate division of planning and research was established headed by a director charged with responsibility for overall transport planning and coordination in the couatry. However, lack of sufficient qualified and experienced staff has continued to limit the capacity of the MCW to perform its transport planning function. Under a recent agreement with the Government, DANIDA has undertaken to finance technical assistance comprising three planning experts, to strengthen the Directorate of Planning and Research The DANIDA financed technical assistance team will help the MCW to establish systematic data collection and analysis, and supervise the preparation of an integrated strategy for transport sector development for each transport mode for a period of five to ten years. In order to ensure that this objective is achieved and that data collection and processing systems are operated on a continuing basis, the Government has agreed that, not later than January 1, 1987 and annually thereafter, it would compile and publish Annual Transport Statistics witi a format and contents satisfactory to the Association At present, however, much of the planning effort has been devoted to the preparation of a Three-Year Transport Sector Investment Program (FY ) (para 1.15) as input to a public sector investment review for a possible proposed consultative group meeting. This has superseded all previous investment plans which included many ambitious projects which had not been subject to detailed justification. The current programs in each transport subsector are realistic and represent high priorities in the country. F. Transport Investments 1.15 The proposed indicative Transport Sector Investment Program (FY ) was discussed during appraisal and revised within the framework of the Government's overall development program in September It is summarized below with full details in Annex I-1. The program calls for an expenditure in current prices of about TSh. 7.2 billion (US$409 million) of which local costs amount to TSh. 1.9 billion and foreign exchange costs, TSh. 5.3 billion equivalent. More than half of the proposed investments are in roads and road transport, mainly completion of ongoing construction projects, rehabilitation works, and strengthening of road maintenance.

14 -5- Transport Sector Investment Program - (FY ) 1 / TShs Million Local Foreign Total Z Share Roads and Road Transport Highway Inv. Prog. (FY ) 2 / Road Transport Subtotal Railways TRC TAZARA 3 / Subtotal Ports THA Aviation Airports Total j7/ Although this program has been discussed on the assumption of execution in FY , the actual implementation may extend to FY / Details of the Highway Investment Program (FY ) are given in para / Not included in the overall development program Comparison of the program with previous periods is difficult as execution has depended very much upon the availability of foreign resources and these flows have been erratic, depending largely upon the readiness of individual projects. The major component is highway investment. In this subsector, three comparisons can be made with the value of investments (i) executed during the last Five-Year Plan FY ; (ii) executed during the most recent five years; and (iii) planned for the aborted fourth Five-Year Plan FY On all comparisons, after taking account of inflation, the proposed FY program is reasonable and represents a significant reduction on the fourth plan proposals The situations of other major subsectors are as follows: (i) the THA r-ogram essentially reflects investments contained in the Port Rehabilitation Project (Credit 1536-TA). Although significantly in excess of investment in recent years the program is fully justified, the foreign exchange financing secured, and the local expenditure within TRA's resources; and (ii) the TRC program represents a combination of rehabilitation and ongoing investments, for which foreign exchange financing is substantially committed, and a substantial new locomotive purchase program. The latter, designed to provide more shunting capacity and replacement of steam locomotives, has yet to be justified.

15 1.18 Details of the overall program, and technical analysis are given in Annex I-1. Government has agreed that it will consult with the Association prior to either making changes in the overall transport investment program agreed with the Association, or increasing or decreasing allocation to any individual item in the program by more than 25% or in aggregate by more than 15% in real terms. It was further agreed that the Government would proceed with the purchase of locomotives for TRC only after economic feasibility had been demonstrated to the mutual satisfaction of the Association and the Government. G. Experience with Past Len'ing in the Transport Sector 1.19 In all, the Bank Group has extended credits and loans to help finance five highway projects, one trucking project, two railway projects, and five port projects. During the earlier years of lending, the projects concentrated on financing of construction and equipment. The focus later shifted to strengthening of local institutions with provisions for technical assistance and training. Bank group experience has divided on the same lines. While experience with the executinn of physical components has generally been satisfactory, technical assistance and training objectives have been difficult to achieve mainly because of fi) delays in appointment of technical assistance staff, (ii) cultural and language adjustment problems of technical assistance staff, (iii) lack of effective admininstrative commitment by Government, (iv) lack of suitable local counterparts, and (v) unrealistic targets. Experience also shows that technical assistance staff should be more carefully chosen to ensure their suitability These lessons have been confirmed by the four Project Performance Audit Reports issued so far (PPAR Nos. 791 of June 26, 1975, 4029 of July 15, 1982 and 4030 and 4031 of June 30, 1982) and the draft Project Completion Report for Credit 507-TA that is being prepared. An important lesson learned in the highway projects is that the cost of undertaking civil works by force account is high and that efforts should be made to develop the local contracting industry so that much of the road maintenance and rehabilitation works could be let out to contractors. Details of experience with past lending are given in Annex I-2. H. Rationale for Bank Group Involvement 1.21 With respect to the transport sector as a whole, the rationale for continual Bank Group involvement is essentially to assist the Government in building up and improving its capacity for coordinated planning in the sector. The planning efforts are directed at improving the statistical data base, policy formulation, and investment planning. The objective is to ensure optimum utilization of human and financial resources available to the sector. The transport sector itself is a major consumer of foreign exchange resources and the Bank Group could play an important role in assembling the external assistance needed.

16 At the level of the prop'sed project, the general thrust is as described above but the immediatc. focus is on rehabilitation and maintenance of existing facilities. The Bank Group is alone in providing comprehensive assistance to the Government in highway maintenance. Experience in previous projects has shown that while the Government has potential to develop an adequate capability to execute routine maintenance works by force account, the continuation of the practice of execution of periodic maintenance and rehabilitation works by force account would be inefficient and expensive. The Group's involvement in the subsector, and the proposed project in particular is designed to promote the execution of road maintenance works by contract.

17 -8- II. THE HIGHWAY SUBSECTOR A. The Road Network 2.01 Of the total road network of about 82,000 km, 10,000 km are designated trunk roads which function as the primary road system, 8,000 km are local main roads which function as a secondary road system, and the rest comprises about 42,000 km designaced as regional and district roads and several thousand kms of agriculttural feeder roads and tracks. Most of the district roads are also agricultural feeder roads. Much of the district roads are earth tracks and only about 3,000 km of the whole road network are bituminous paved. The paved portion of the main trunk system consists primarily of the road from Dar-es-Salaam north to Arusha, the TANZAM highway from Dar-es-Salaam west to the Zambian border and the recently completed road from Morogoro to Dodoma. The TANZAM highway provides the main road outlet to the sea for Zambian traffic and also provides an alternate transit facility for Malawian traffic. The rest of the road system consists of lower standard primary, secondary, and feeder roads, many of which become impassable during the rainy season. Average daily traffic on the roads is relatively light, under 200 vehicles per day on most roads. The most heavily trafficked roads are the TANZAM highway (over 800 vpd on some sections) and the Dar-es-Salaam-Arusha road (over 300 vpd) The highway system performs two roles within the country: (i) as the primary basis for transport where other forms of transport-rail and lake-are not available; and (ii) a complement to the rail and lake systems. The primary role is mainly performed between main centers other than Dar-es-Salaam, and between the various centers on the TANZAM highway and Dar-es-Salaam. The TANZAM highway and TAZARA parallel each other but are in competition to only a minor degree due to: (i) the concentration by TAZARA on the transit of international traffic with local traffic of secondary importance and (ii) topographical conditions preventing ready communication between the highway located on high ground, and the railway located in low swampy terrain for most of its length. The complementary function of road and rail is most apparent in the north where the main roads generally terminate at lake ports or railheads. Thus, the degree of competition between road and other surface transport is rather limited Enforcement of vehicle axle load regulations has not been effective. Extensive overloading of trucks, particularly those operating regionally, has resulted in premature deterioration of the paved roads causing higher vehicle operating costs and heavy maintenance works. These are specially evident on the TANZAM Highway and the Chalinze-Segera-Arusha and Segera-Tanga roads. Government has been reviewing current axle road legislation and enforcement measures with a view to increasing the axle load limit from the present 8 mt. The University of Dar-es-Salaam as well as consultants financed by the Overseas Development Administration of the United Kingdom (ODA) have assisted the Government in this work. Their recommendations are presently being reviewed by the Government. The Government has agreed that, not later than December 31, 1986, it will introduce regulations as necessary to reform existing axle load control and adopt a plan, all satisfactory to the Association, for the enforcement of the new regulations and will initiate the enforcement of such plan not later than three months thereafter.

18 -9- B. The Road Transport Industry 2.04 The total number of trucks licensed is over 11,000, with a total capacity of 81,000 tons. Of the vehicles, 78% are privately owned, with most of the remainder belonging to parastatals, including six Regional Transport Companies (RETCOs). The distribution of capacity is similar, but the private sector accounts for a higher proportion of total freight movements, about 85%. The apparently lower efficiency of public trucking is partly accounted for by low utilization of vehicles owned by the transport wings of industrial and agricultural parastatals. In general, large operators (including RETCOs) operating inter-regionally perform best, with trucks achieving 40,000 km to 70,000 km per year, while crop authorities and small owners, both of whom use vehicles as ancillary to other activities, achieve as '-ittle as 10,000 km per truck annually. Vehicle age, spare parts, and tire availability are also significant determinants in truck performance The main feature until 1984, was a chronic shortage of replacement vehicles and a consequently aging fleet. Fleet replacement was about 4% p.a., obviously inadequate in African conditions when over 15% would be optimal because of poor road conditions. Freight movement by road appears to have declined by 2% p.a. since the mid 1970s, but as the overall level of economic activity has stagnated, this has apparently not resulted in persistent or widespread capacity shortage. Trucking costs are high. At the current rate of exchange, they typically range from US 33t per ton-km for intra-regional to US 15t per ton-km for inter-regional. Road tariffs broadly reflect costs, when the cost components (vehicles, tires, fuel) can be obtained at official rates of exchange but are unprofitable to the truck operator if he is obliged to obtain most imports from the parallel- market. This leads to ad hoc supply of imports at official prices, with the result that Government control of the cost of providing freight transport is achieved both through setting tariffs (by parastatal crop authorities and regional transport coordination committees) and influencing costs. Passenger tariffs are set in a similar fashion, but in the regions, if not in major cities, enforcement is.elieved to be lax and the effective rates often higher Responsibility for public sector transport rests with NTC, a parastatal organization under the MCW. NTC supervises and provides advisory, management, and technical services to its subsidiary companies including the National Bus Services, Ltd. (KAMATA), the Tanzanian Coastal Shipping Line (TACOSHILI), and the Shirika la Usafiri Dar-es-Salaam (UDA). The organization of NTC (Chart No. 2) is satisfactory. The 6 RETCOs located at Dodoma, Mtwara, Songea, Mwanza, Bukoba, and Tabora are associate companies of NTC. NTC also advises the Government on matters relating to the overall development of the road transport industry Government policy in the past has been to regulate the industry through the supply of inputs, particularly new vehicles, and tariffs rather than regulation of entry. The most reliable statistics on distribution of inputs are of the number of vehicles allocated. They show that for 1984 and 1985, Government agencies and parastatals received 37% of total truck allocation and of the 56% allocated to the regions, about half went to parastatals, local Government and other public bodies; thus leaving only about one third of the total to private operators. The control of inputs reflects two concerns: (i) a desire to build up public trucking

19 capacity to prevent extraction of economic -rent- by private carriers in a situation of excess demand; and (li) the preference of aid agencies, responsible for a significant proportion of inputs, to deal with public agencies. The first objective was also reflected in tariff control which has generally been based upon inadequate information and in some cases an unwillingness of crop authorities to set rates which afforded adequate revenue to truckers. Th-e system has not worked well, however. The distribution of inputs has not necessarily been to the most efficient users, and inappropriate tariffs have led to diversion of capacity to more lucrative activities (including passenger movement by truck) Proposals for reform of government policy have been prepared by the NTC and are being reviewed by the Government. These are summarized in Annex II-1. The three main features are: (i) inputs-vehicles primarily-for which foreign exchange is supplied by the Government, should be allocated on the basis of the average annual mileage achieved per vehicle in a user's fleet to the most efficient users; (ii) this allocation mechanism should be impartial between public and private trucking; and (iii) tariff controls should be removed on inter-regional movements where they would be based upon bids for transport contracts. Tariff controls would be retained on intra-regional movements, as capacity shortages and consequent potentially high tariffs exist in the more remote regions. The Government appears to believe that such regional disequilibria are best addressed by reliance on RETCOs to provide basic transport at reasonable (i.e. cost related) prices, supplemented when necessary by private transport induced into such regions by incentives such as fuel and tires supplied at official prices Government has not yet finalized its official position and in any case import liberalization has introduced a new element, the potential effect of which is difficult to judge at this early stage. Should it result in a flood of new and rehabilitated vehicles, inputs through official channels could become relatively unimportant and as competition drove rates down in major regions there would be more incentive for private truckers to provide more adequate services in remote regions. This, of course, would reduce the already weak rationale for intra-regional tariff setting The Association has advised the Government that it considers that prices of official inputs should more closely reflect parallel market prices by making such inputs subject to duties and taxes. The mechanism for the allocation of foreign exchange for these inputs could remain as exists now. Secondly, the Association expressed the view that interregional tariff policy should be determined by market forces; and, in the case of intra-regional traffic, at least be more adequately cost based. Public bidding slhould be employed for major contracts as the normal basis, with explicitly defined provision for modification when exceptional conditions prevail as for minor consignments and very bad road conditions, rather than by resolution in committee. The Government agreed that (i) inputs financed by the project would be allocated in accordance with specific criteria related to immediate trucking needs (para 3.26); (ii) that inputs supplied through official channels sha'll be allocated to the most efficient users based upon criteria satisfactory to the Association and would be subject to both import duty (currently 20% on trucks) and sales tax (currently 25%); (iii) that tariffs for inter-regional movements

20 would be based upon competitive bids whenever feasible; and (iv) tariffs for intra-regional movements would be based upon the cost of providing the transport service. In regard to item (ii) above, the Government will prepare workable criteria satisfactory to the Association by September 30, In the event such criteria cannot be prepared by the above date, the Government has agreed it will distribute official inputs to the trucking sector in line with the distribution of the ownership, namely, private cooperatives, RETCOs, and other parastatals on the basis of most recently available data from the Central Transport Licensing Authority. Road User Charges 2.11 Road user charges are detailed in Annex In summary, road user charges yield about T Sh 1,200 million per annum, mainly from fuel taxes. This is more than three times the total estimated expenditure on highway maintenance and comfortably in excess of total annual expenditures including rehabilitation and construction incurred in recent years. The incidence of taxes is greatest upon gasoline driven passenger vehicles, but revenue from trucks is sufficient tc cover attributable costs (para 2.29). Fuel Prices and Energy Conservation 2.12 Petroleum prices were extensively reviewed in the UNDP/World Bank Report 4969-TA Tanzania Issues and Options in the Energy Sector-, November The basic conclusion was that the prices of all the main petroleum products including diesel were at least equal to economic opportunity cost and in the case of gasoline, substantially higher as measured by border prices employing a shadow exchange rate about 50% above the official rate then prevailing. The relative incentive given to employing diesel powered vehicles, which are generally more fuel efficient than gasoline, is acceptable to the Association in view of the critical role fuel costs play in the Tanzanian balance of payments The project will contribute most materially to energy conservation by enabling vehicles to operate closer to their most energy efficient speed. This benefit is a component of the reduction in vehicle operating costs which will result from the project. C. Organization of the Highway Subsector 2.14 Highway administration in Tanzania is divided between the MCW and the 20 Regional Governments. However, while the MCW is directly responsible for the construction and maintenance of the country's trunk road network, it also provides technical assistance to the Regional Governments. The regional engineer is usually an employee of the MCW. The Regional Governments are responsible for the local main, regional and district roads, and are generally required to maintain the feeder road systems within the regions although resources are rarely earmarked for this purpose. The construction of the feeder roads is mostly initiated by the agricultural parastatals such as the cotton, tea, and coffee authorities and the pyrethrum board, and executed by MCW or the Regional Governments. Although funds are allocated to maintain the newly constructed feeder roads, they are largely wasted because of inadequately trained manpower and poor management. The demand for expansion of agricultural feeder road systems means that the ranking of investment priorities has to be carefully made and institutional arrangements have to be established particularly to

21 protect these investments. The project would include provisions for an Agricultural Feeder Roads Study to study institutional and funding arrangements for the construction and maintenance of feeder roads and prepare a program of investments based on the highest priorities (para 3.29) The regions are divided into 4-5 districts each and, in common, are short of qualified engineers and adequately trained technicians and road field personnel. Almost all the district engineers posts are occupied by staff recruited from among road inspectors and foremen who do not have a sound general education and have been poorly trained and who have developed unsatisfactory methods of executing road rehabilitation and maintenance works. As a result, the regional and district institutions do not have the capacity to maintain the large kilometrage of regional, district, and feeder roads even if funds were allocated for this purpose. The cost of technical assistance to strengthen their capacity could be prohibitive The first step in the process of achieving the goal of satisfactory regional and district road administrations would be to train adequate manpower at the level of engineers, technicians, and road field personnel such as inspectors, foremen, and skilled labor. The project attempts to fill this need by providing assistance to (i) train engineers at universities abroad, (ii) institute a course for highway technicians at Dar-es-Salaam Technical College, and (iii) continue the program of training at the Morogoro Training School established under the Fifth Highway Project for road field per-onnel. The Government has agreed that priority in the allocation of trained manpower under the project will be given to the Regional Governments (including the Districts). D. Ministry of Communications and Works (MCW) Organization and Staffing 2.17 In July 1984, the former Ministry of Communications and Transport and the Ministry of Works was combined to form a single MCW. The present organizational structure (Chart No. 1) reflects the integration of the two ministries. The Planning and Research directorate of the MCW is concerned with overall transport planning and coordination including roads. Two separate divisions under a Commissioner of Construction and Maintenance are responsible for the execution of road construction and maintenance works. The Mechanical and Electrical directorate is responsible for the service and repair of the Government's equipment and vechile fleets including those used in force account works by the road construction and maintenance divisions. The MCW organization is satisfactory but because of the size and extensive responsibilities of the ministry much will depend on the extent to which authority is delegated to senior staff and the degree to which the parastatals under the ministry operate as autonomous agencies The planaing and research directorate and the roads construction and maintenance divisions have 72 staff positions for engineers, 3 for economists, 3 for planning officers, 221 for technicians, and 608 for assistants and auxiliaries. The mechanical and electrical directorate, which services the two roads divisions in addition to other government

22 agencies, has 65 staff positions for engineers, 514 for technicians, and 1074 for assistants and auxiliaries. Most of the senior engineering positions and many of the technicians positions are vacant because of lack of experienced staff. The recently graduated engineers from Indian universities have been appointed for these senior positions which have been budgeted for. Although their training in India is satisfactory, they are relatively inexperienced and much will depend on the efficiency with which MCW uses technical assistance staff provided under the project to assist and train new staff (paras ) The mechanical and electrical engineering directorate of the MCW carries out its functions through a Central Workshop at Morogoro and five Zonal Workshops. Servicing facilities are also located in each TRN Resident Engineer's office. The major manufacturers of equipment and vehicles operating in the country have local garages but over the years the use of their facilities by the Government has declined. The results have been poor in that many items of equipment (including vehicles) have been badly repaired and have become scrap or need rehabilitation. The project aims to (i) expedite the disposal of scrap equipment, (ii) undertake equipment rehabilitation largely by contract, and (iii) assist in improving the preventive maintenance capability in the Zonal Workshops (para 3.14 and 3.t5). Technical Education and Training 2.20 Several institutions exist in Tanzania for the education and training of artisans, technicians, and engineers. Technical-bias secondary schools and vocational training centers, under the Ministry of Education (HOE), are the main centers of training for artisans. The technical colleges, also under the MOE (Chart 3), provide instruction for technicians. The Dar-es-Salaam Technical College also runs advanced diploma courses for technicians who demonstrate the academic skills and interest to qualify as engineers. Together with the University of Dar-es-Salaam, these institutions form a logical structure of national engineering and technical education in the country Most of the institutions were established in the late sixties and early seventies and, except in the case of the University, the quality of teaching and education has declined because of the lack of suitable qualified school leavers and because of lack of proficient instructors. This is most evident among the graduates of the Dar-es-Salaam Technical College, and the project addresses two main problems: (i) improving the quality of teaching; and (ii) expanding the courses to include a highway engineering specialization. The ongoing Association financed Seventh Education Project is addressing the issue of improving the quality of secondary school education. A follow-up project (the Proposed Eigth Education Project) was appraised in mid-1982 with a view to expanding secondary school enrollment but processing was stopped because of slow progress and implementation problems with the ongoing project. These have been largely resolved and the Association is considering financing the next project The University of Dar-es-Salaam has the facilities and teaching staff to produce approximately 60 civil engineers each year. This is not

23 adequate to meet the country's demand for professional engineers in the short term and there is a need to supplement the output at the local university. The project, therefore, provides for fellowships abroad for training of engineers (para 3.18). A similar program for the training of about 110 engineers was completed successfully under the Fifth Highway Project In addition to these national educational institutions, the MCW runs its own school for training of inspectors and foremen in specialized road maintenance and equipment repair and maintenance activities. The MCW training school is being assisted under the Fifth Highway Project to improve the quality of instruction at the school and new training programs have been designed in consultation with the Association. The project will provide for continued assistance to the training school which is located in Morogoro (para 3.21). Engineering and Construction 2.24 MCW has a small design section which undertakes detailed engineering of minor roads and bridges. Feasibility studies and detailed engineering of major projects, which are almost all financed by grants, credits, and low interest loans from bilateral and multilateral aid and lending agencies, are carried out by foreign consultants. There are at least three large local consulting firms engaged principally in building design and supervision and urban housing and water supply. The three firms have potential to expand into highway engineering and the MCW has indicated its willingness to consider these firms for inclusion in the shortlists for consultants under the project. The firms are likely to take advantage of this opportunity by entering into joint ventures with qualified foreign firms. Highway design standards have been established for the various road categories and are based on American practice. Bridges are designed for either British or American loading. These standards are satisfactory Less than 4% of road construction is carried out by local contractors and force account. The majority of new works, particularly the large projects, are executed by foreign contractors. Because of scarcity of foreign exchange, the trend has been to execute locally financed projects by force account. Force account works have generally been of poor quality and have been carried out at a high cost. Over the years, the local contracting industry has concentrated mostly on building works, and the MCI has tended to expand its own forces in part, with the assistance of the Association under the Fourth and Fifth Highway Projects which aimed at strengthening the execution of trunk road maintenance by force account (paras 2.27 and 2.28). Very limited success has been achieved in improving force account operations. The proposed project will aim at giving direct assistance to the local contractors with a view to encouraging the MCW to let out more work to local contractors which will reduce the present dependence on foreign contractors and eliminate construction works by force account (paras 3.23 and 3.24). Maintenance 2.26 The MCW has divided the country into 20 regions for trunk road maintenance. Each region is under the charge of a Resident Engineer who is responsible for all trunk roads in the region. Under the Fourth and Fifth

24 Highway Projects, a country-wide trunk road maintenance organization has been established, and funding for road maintenance has been quadrupled within the last few years. Because of lack of qualified and experienced staff and shortage of foreign exchange, road maintenance continues to suffer and the road network has deteriorated in many places where maintenance is possible only at high cost. The project will therefore, commence a road rehabilitation program which over the next decade will restore the country's trunk road network into a maintainable condition while the MCW continues to improve its routine maintenance capability with its own funds and technical assistance and training financed under the project Under the Fourth and Fifth Highway Projects, the Association assisted the MCW to establish a Trunk Road Maintenance (TRM} organization in each region. The TRMs are headed by Resident Engineers who execute virtually all road maintenance works including rehabilitation works by force account. The quality of the works has been unsatisfactory due mainly to weak management, poor equipment maintenance, lack of properly trained staff, and uncertainties in the availability of essential supplies such as fuel and bitumen Experience in the two projects shows that force account operations can be improved, if at all, only at very high cost and that a policy of letting out the periodic maintenance (resealing, regravelling) and rehabilitation works on contract should be encouraged. This will allow the TRM organizations to concentrate on execution by force account of routine maintenance activities (grass cutting, repairing of potholes, cleaning drains and culverts, etc.) for which a reasonable capability can be achieved. The project therefore, has made provisions for (i) assistance to develop the local contracting industry; (ii) rehabilitation by contract of adequate number of equipment and vehicles to service the TRM routine maintenance operations; and (iii) technical assistance and training to improve the quality of routine maintenance. Financing of Highway Maintenance 2.29 Highway maintenance (and construction) expenditure is provided through central government budgetary allocation. There is no direct linkage between revenue and expenditure. However, revenue from road user charges in Tanzania comfortably covers the current level of highway maintenance expenditure. Tanzanian highway maintenance expenditure has fluctuated with a rising trend in current prices in recent years, but between FY1980 and FY1985 (estimated) has declined as a percentage of total government recurrent expenditure from 1.20% to 1.00%. However, the main constraints on effective highway maintenance in Tanzania have been: (i) a lack of clear determination in MCW of what are the highest priority areas to which it should devote its limited managerial and engineering capacity; and (ii) the acute shortage of foreign exchange to provide adequate flow of materials and fuel to support maintenance activities. Thus an increase in local resources would not of itself have significantly improved maintenance. Taking these constraints into consideration, the coverage of maintenance expenditure by road user charges (3.8 times) is fully adequate, and as the main road user charges are fuel taxes, it is likely to remain so even when the optimum level of highway expenditure increases.

25 E. Highway Investment Program (FY ) 2.30 The FY Highway Investment Program consists of: (i) completion of ongoing investment, which covers a mixture o' new construction and upgrading of existing highways; (ii) rehabilitation of the TANZAM highway and main gravel roads to be financed under the proposed project; and (iii) additional rehabilitation activity expected to result from studies to be undertaken under the proposed project. Details by activity are given below, with full details including actual and prospective financing sources in Annex I-1. Highway Investment Program (FY Activity Local Foreign Total -- - TSh million 1 / -- Construction (New Roads) Construction (Upgrading) Rehabilitation: Paved Roads 3 / Paved RoadsW/ Gravel Roads5/ Maintenance (TRM) Others (studies etc) TOTAL I/ Current prices 2/ Includes approximately TSh 50 million maintenance of the Songea-Makambako road 3/51 Under the proposed project. 4/ Dependent upon studies under proposed project The main features of the program are: (i) Construction (New Roads). The Songea-Makambako road (295 km) is being constructed with ODA (UK) financing of foreign costs. The construction is virtually complete but ODA/GOT have provided within the overall financing for a three-year road specific maintenance program. The project justification is based upon opening up new agricultural area in south western Tanzania; (ii) Construction (Upgrading); This consists of a number of roads in different parts of the country which are being upgraded to paved standard. In all cases, financing has been wholly or substantially obtained; (iii) Rehabilitation. TANZAM and gravel roads rehabilitation, and provision for the Chalinze-Segera-Tangand contiguous Segera-Mukumbara rehabilitation comprise this component; (iv) Maintenance. This component covers provision under TRM during the period; and (v) Others. This includes studies under the proposed project and strengthening and improvement to a number of bridges, all of which appears justified The ongoing new road and reconstruction components comprise work for which financing of foreign exchange costs, the most important determinant of speed of execution, has been substantially secured. Although the economic justification for some elements is not entirely clear, there is no apparent need for major reorientation of already committed resources. The prospective rehabilitation program, which comprises all the new work to be commenced during the period, is separately analyzed (Annex I-1).

26 F. Local Contracting Industry 2.33 An assessment of the industry was undertaken recently by an Association financed consultant and it shows that there are at least 21 local contractors who are either capable or have potential to undertake low standard road construction. Most of them would need managerial and technical assistance besides access to foreign exchange to purchase equipment and vehicles. At least 10 of these firms have basic plant and equipment, but except for three firms including the Mwauanchi Engineering and Construction Company (a parastatal), plant and equipment are over 10 years old In 1976, the Swedish International Development Agency, at the request of the Government, financed a study of the construction industry in order to identify the problems and constraints facing the development of the industry. A major recommendation of the study was the establishment of a National Construction Council (NCC) to develop both the private and public sectors of the industry. In 1982, the MCI published a policy paper on -The Role of the Contractor in National Development-, which reiterated Government's commitment to develop the local construction industry and help it to perform efficiently The NCC has been organized (Chart 4) to execute its principal functions, namely, to (i) maintain a register of contractors, (ii) train local contractors, (iii) provide arbitration facilities, and (iv) promote the documentation and dissemination of information on local construction industry. The organization is satisfactory but it does not have the staff to undertake training and provide technical assistance to local contractors. Provisions have, therefore, been made in the project to assist the NCC in these respects (paras 3.23 and 3.24).

27 III. THE PROJECT A. Objectives 3.01 The project supports the Government's overall transport objectives which can be summarized as rehabilitating the existing highway network to reduce road transport costs, and providing support to the trucking industry to ensure an adequate supply of capacity to meet existing and future demands for the movement of agricultural production and associated input supplies. To this end, the project would address key policy issues and finance the road and road transport components of the Government's Transport Sector Investment Program (FY ) in coordination with other aid organizations T1'- main project objective is to rehabilitate deteriorated sections totalling about 295 kms of the TANZAM Highway and high priority sections of the country's gravel road network serving the very productive agricultural areas. The project will restore a portion of the principal arteries of the country to a maintenable condition. It will cut the costs which would otherwise have to be incurred annually in heavy maintenance works to keep the roads in a passable condition The project also aims at encouraging the Government to let periodic maintenance and rehabilitation works be executed by contract by providing direct assistance to the local contracting industry. Thus, a significant institutional reform is expected to be achieved through an agreement with the Government for all the rehabilitation works under the project to be carried out by contractors. As a result, the MCW will be able to concentrate its own forces on routine maintenance activities which have been neglected in the past because of the demands of periodic maintenance and rehabilitation works. Other institutional objectives are to take suitable measures to expand training, strengthen road maintenance, equipment and vehicle maintenance and improve planning The project will emphasize the user- aspect by continuing support to the trucking industry with the focus firmly oriented towards providing maintenance support of the most productive vehicles regardless of whether they are owned by private owners or public agencies. The project will assist in the clarification of road transport policies to ensure better mobilization and utilization of resources. B. Description 3.05 In order to fulfill the above objectives, financial assistance will be provided in the project to execute the following: i) the implementation of a road rehabilitation program consisting of the rehabilitation of about 295 km of the TANZAM Highway and kms of gravel rods; ii) the implementation of an equipment rehabilitation program; iii) technical assistance to the MCW;

28 iv) training of engineers, planning officers and other professionals, highway technicians, and road field personnel; v) assistance to the local contracting industry; vi) assistance to the trucking industry; and vii) consulting services to carry out an agricultural feeder roads study and feasibility studies and detailed engineering of the Chalinze-Segera-Mukumbara (270 km), Tanga-Segera (73 km), and Arusha-Moshi (80 km) roads. ti) Road Rehabilitation Program 3.06 Except for recently constructed roads, much of the country's road network has deteriorated through neglect of maintenance. The previous two Association-financed projects have assisted the Government in establishing a countrywide road maintenance organization and committed the Government to giving priority to road maintenance as a high -priority. However, road deterioration had already taken place on an extensive scale and continued during the difficult period when the Government was attempting to Improve the organization, management, and execution of road maintenace works. The resources and management of road maintenance have been strained by the need for restoring the road network to a maintenable condition before normal maintenance can be instituted The project, therefore, provides for the rehabilitation of high priority road sections of the country's road network under a program which will extend over several years. The project will rehabilitate seven sections totalling about 278 km of the TANZAM highway and about kms of gravel road sections to commence the rehabilitation process. The program is set out in detail in Annex III-1. (a) Rehabilitation of TANZAM Highway 3.08 The TANZAM Highway extends from Dar-es-Salaam to Tunduma on the border with Zambia, a total length of about 920 kms. The highway, which is paved throughout, was constructed in the early seventies with financing from USAID and the World Bank Group. Some stretches of the highway have already failed and other stretches show strong signs of failure and need strengthening. The road is the most heavily trafficked trunk road in the country with current traffic ranging from about 300 vpd to 800 vpd Consultants financed by the Association under the Fifth Highway Project completed economic and engineering studies in 1983 including detailed engineering and design of a program of strengthening and rehabilitation works according to economic priority, which forms the basis for this project component. Road sections totalling 295 kms have been identified as needing immediate rehabilitation. The project also provides for consulting services to supervise the rehabilitation works. (b) Rehabilitation of Gravel Roads 3.10 The gravel roads in the country have been the worst affectec! by inadequate road maintenance. Many of these roads have lost their gravel

29 surfacing and some failures have occurred around culverts and in low lying areas. These require major rehabilitation works. The roads provide access to the markets and ports from the agricultural areas Consultants commenced economic and engineering studies in June 1985 to prepare a road rehabilitation and gravelling program for implementation under the project. The studies were completed satisfactorily in December These studies were also financed by the Association under the Fifth Highway Project. The list of roads to be rehabilitated in the project is based on the final report issued by the consultants in January The consultants recommended the rehabilitation of about 800 kms of gravel roads over a three-year period. This is a slice of a longer term program extending over a 10-year period covering about 3500 km. Details of the program with descriptions of road sections are given in Annex TII The civil works involved will be mainly the rehabilitation of drains and culverts, restoration of the road formation, and fresh gravelling. Only minor realignments will be made where this is economical. Supervision of the rehabilitation works would be carried out by consultants for which provision has been made under the project. The list of roads to be rehabilitated would be reviewed annually by the Association and Government. The Government has agreed that by December 31 each year beginning in 1986, it will furnish to the Association for its approval (i) the annual program of road rehabilitation giving details of road sections, lengths, traffic data, standards, and cost estimates for the following fiscal year; and (ii) review of the institutional arrangements and funding of maintenance of the rehabilitated roads to ensure that they are adequate. (ii) Equipment Rehabilitation Program 3.13 Under the Fourth and Fifth Highway Projects, the Association financed the procurement of 294 items of equipment, and 371 vehicles. Many of these (60 items of equipment and 106 vehicles) have already broken down and been grounded due to lack of spare parts and components. Because of poor servicing and repairs and lack of fuel, many of these items, although old, have not been operated for more than a few hundred hours. They have several years of economic life left and would be rehabilitated under the project in lieu of procurement of new equipment and vehicles. A list of equipment and vehicles to be rehabilitated is shown in Annex III Technical assistance would be financed under the project to supervise the implementation of the equipment rehabilitation program which would be executed primarily by contract.. Unserviceable equipment and vehicles scattered around the country will be brought into the six MCW zonal workshops. The technical assistance will comprise one mechanic for each zonal workshop and a team leader for two years to assist in examining each item of equipment and vehicle, drafting bid documents suitable for local competitive bidding, and assisting the Government in bid evaluation and supervision of the contracts thereafter. The consultants will also help the Government to reorganize its zonal workshops to carry out

30 preventive maintenance and to have a limited capacity to undertake major repair works where contracting is not feasible. A total of 168 man months of consulting services is involved. Their outline terms of reference are given in Annex III The implementation of the reorganization of the five zonal workshops will depend, inter alia, on the speed with which the Government clears the shop floors and yards of scrap equipment and vehicles. The Government has agreed that, not later than December 31, 1986, it will dispose of all scrap parts andcomponents, unusable equipment and vehicles, and thereafter, take measures regularly to dispose of equipment and vehicles which have reached the end of their economic life. (iii) Technical Assistance to the MCW 3.16 The project will provide technical assistance to help the MCW to manage four areas of concern - project coordination, training, road maintenance, and equipment service. The technical assistance will consist of four advisors: a) Project Coordination - An advisor for 24 man months to assist the local Project Coordinator to provide the project with overall coordination and monitoring services and assist the various executing agencies to prepare bid documents, detailed work programs, and monitoring and reporting systems, and supervise and manage the project accounts and credit disbursements. b) Training - An advisor for 24 man months to assist the Chief Training Officer of the MCW, particularly to (i) make continual assessments of short-term and long-term training needs, (ii) institute annual training programs for all levels of staff, and (iii) monitor the execution of training programs and evaluate feedback and improvement of staff performance. c) Road Maintenance - An advisor for 36 man months to continue the work uader the Fifth Highway Project to assist the Chief Road Maintenance Engineer in improving the efficiency of MCW road maintenance organization, management, and quality of road maintenance works. d) Equipment Management - An advisor for 36 man months to assist the Equipment Management Engineer in (i) the deployment and management of the use of equipment and vehicles, (ii) monitoring of their availability and utilization, and (iii) ensuring the adequate servicing and reparing of equipment and vehicles, and the keeping of proper records. Their outline terms of reference are given in Annex III-4. The Government has appointed a suitably qualified local Project Coordinator under terms and conditions satisfactory to the Association. He participated in project negotiations. The Government would also undertake to provide suitably qualified counterparts to the training, road maintenance and equipment advisors financed under the project.

31 (iv) Training 3.17 The project will provide for the following types of training: a) fellowships for undergraduate training and graduate training abroad; b) training of highway technicians at the Dar-es-Salaam Technical College; and c) training of existing field supervisory personnel at the Morogoro Training School. In addition, annual in-service training programs will be prepared by MCW with the assistance of the Training Advisor for professional staff at all levels. The programs will include short formal instruction, seminars, field visits, training exercises, etc. (a) Fellowships 3.18 The project will finance fellowships at foreign universities for 70 school leavers to study engineering, 5 economics graduates to specialize in transport planning and economics, and other professionals such as accountants for specialized training overseas. Altogether, about 90 Tanzanians are expected to be covered by these fellowships. Because of the low cost and good experience with universities in India, it is expected that the engineering students will be distributed among the several universities which had provided similar training under the Fifth Highway Project. The undergraduate courses normally extend over 4 years. and graduate courses one year. Government will return the students to Tanzania annually during the long vacation period for assignment to the MCW for practical training. (b) Highway Technicians Course at the Dar-es-Salaam Technical College 3.19 The project will provide assistance to the Dar-es-Salaam Technical College to institute a three-year Highway Technicians Diploma Course for 25 school leavers. Assistance will comprise provisions for 9 instructors for three years (324 man-months), staff and student housing, 9 one-year fellowships for counterparts for training abroad, and training aids, equipment, and student transport. Details of the assistance to the technical college is given in Annex III The course will be established by adding a fourth class of 25 students to the current three-year civil engineering diploma course. The first two years will be common to both courses. In the third year, 25 students will specialize in highway engineering. The course content and syllabi of subjects taught in the existing civil engineering course need improvement and the Government has agreed that (i) it will review the existing course in detail and submit new proposals for review by the Association not later than December 31, 1986, and (ii) it will appoint a qualified counterpart to each of the 9 instructors financed under the project not later than July 1, 1987.

32 (c) Morogoro Training School 3.21 Under the Fifth Highway Project, the Association is financing consultants to assist in the conduct of short courses for training and retraining of field supervisory personnel at the MCW Morogoro Training School. The consultant team consists of a team leader, a roads instructor, a mechanical instructor, and an electrical instructor. The Government has provided counterparts but two of them are expected to be replaced by new staff in the near future. The conduct of the courses has been extremely successful and 270 inspectors and 360 foremen (road, mechanical, and electrical) are expected to graduate by the end of the current program in September The courses include training in management The school will continue these courses for the next several years to meet the demand not only from MCW but also from the regional and district governments responsible for the regional, district, and feeder road systems. The project, therefore, provides for the continuation of the consultants contract for a further period of two years (96 man-months) from October Under the contract, four counterparts will continue to be trained and an additional 270 inspectors and 360 foremen are-expected to be trained and retrained. Details of the training program are given in Annex III-6. Cv) Assistance to the Local Contracting Industry 3.23 The project will help the Government to take its first step to carry out eventually all periodic maintenance and rehabilitation works by local contractors. In the past, local contractors have received little encouragement to participate in roadworks mainly because of their difficulties in obtaining access to foreign exchange to pay for equipment. As a result, few contracts were executed by local contractors who have, therefore, limited experience in roadworks. The project will tackle two basic needs of the local contractors. First, the project will provide for training in a number of areas: cost estimating, preparation of bids, site management, methods of execution of roadworks, contractual obligations, etc. Second, the project will provide a training ground for local contractors by giving them an opportunity to bid for contracts for rehabilitation of the gravel roads. Foreign exchange costs will be met out of the Credit proceeds. Successful bidders under this program will also be provided with experts financed under the project to assist them in successful execution of their contracts. The training courses and technical assistance will also be available to any contractor in the country Altogether, 176 man months of expatriate technical assistance and training experts would be financed under the project consisting of long term and short term experts. A summary of the composition of the local contracting industry and details of the training program and technical assistance are given in Annex III-7. The Government has agreed that the NCC will charge the contractors fees for admission to the training courses and technical assistance services at levels to be agreed with the Association.

33 (vi) Assistance to the Trucking Industry 3.25 Five public regional trucking companies were established under the Trucking Industry Improvement and Rehabilitation Project (Credit 743-TA) which was closed In June That project financed technical assistance to the public trucking companies in management, accounts, and vehicle maintenance and repairs. Technical assistance under that Project became effective only during the last two years of the Project with the availability of suitably qualified counterparts. The counterparts need further exposure to technical assistance which will be continued under the Project on a selective basis for a total of 264 man months The project also provides for the procurement of spare parts, tires, and batteries. NTC would advertise in the local papers for applications from truck operators for allocation of the spare parts etc. Allocations will be made only in respect of (i) operational vehicles engaged principally in agriculture-related movements, (ii) the actual vehicle size to be determined by NTC in agreement with the Association following a review of the trucking fleet, and (iii) vehicles not more than four years old. At least, 65Z of the assistance would be earmarked for the private sector operators including primary cooperatives but excluding the cooperative unions. NTC would review the applications by reference to vehicle registration data and physical inspection to ensure that the repair and maintenance of each vehicle is justified. The procedures would be impartial as between publicly owned and privately owned vehicles. The distribution between different types of spare parts wiould be determined by sample surveys combined with an analysis based on manufacturers' recommendations for parts requirements. The Government has agreed that allocation of goods will be impartial as between public and private sectors and based upon criteria satisfactory to the Association NTC will act as executing agency for this component and will sell spare parts, etc. procured under the project to successful applicants at prices which are consistent with prices of official imports. The funds thus generated in local currency would be credited to Government revenue. Details of assistance to the trucking industry are given in Annex III-8. (vii) Other Consulting Services (a) Feasibility Studies and Detailed Engineering (86 man-months) 3.28 The project includes the financing of feasibility studies and detailed engineering of the Chalinze-Segera-Mukumbara (270 km), Tanga-Segera (73 km), and Arusha-Moshi (80 km) roads. These paved road sections were constructed in the mid sixties and are now in a deteriorated condition and will require rehabilitation. The roads link the Kilimanjaro and Moshi regions to the ports of Tanga and Dar-es-Salaam, and next to the TANZAM Highway are the most heavily trafficked in the country. Outline terms of reference are given in Annex III-9. (b) Agricultural Feeder Roads Study (28 man-months) 3.29 Transport in the rural areas has been difficult because of poorly constructed and maintained feeder roads. The project includes provisions

34 for a study to (i) determine the extent to which transport delays have occurred and additional production costs of key agricultural crops incurred due to the absence of satisfactory road access, (ii) prepare an investment program to develop the highest priority feeder roads, and (iii) recommend institutional arrangements for the planning, funding, construction, and maintenance of feeder road systems. Outline Terms of Reference are given in Annex III-10. C. Project Costs and Financing Project Costs 3.30 The estimated total cost of the project including contingencies and taxes and duties is US$107.7 million equivalent. Taxes and duties amount to about US$7.6 million equivalent or about 7%. The foreign exchange component is about US$78.3 million or 73% of total cost. The project cost estimates are shown in the table below:

35 MM -n mm mm M c INIE 1 E & ldvl A. m 1. ad a -F o d 1W_ OB) O162 m. 4 'aj m.um i&.ai M1 67 CO k = n Z332 2,31 40 L 63= L _n-% _AdlmimP sw _S;Jn:' _d I.3 3.D 13 2n.40 km Co) a1df sm a go gm 1 ID0 5*31 -. r113 mm I..M a2 4a1i6 G.V 6i I. 31 m ad - - J , DO 3. ~m.~ 1 lb. smini_1x_ca 312 W3.MD OD to'. "bdadds C n 11.u9 g o 73 -am so 2dea_d M 3w lb. P _in2 ad Mumo (Y2 35 X as g lva. TadX M aio C2A) 312 2, in 19 0 I Fb. Hdb Mu IW C2_ lb. l Sm 4dm (3Y a 3 5 O0 2. hfc e - Z42 2,462 - in 3 D 3. Om=f m i- & sa0s - XD 13 I 11 ldml D * of /d d SD0 win. 11nr4 Offin 6 avdw xm00 2.xm 1O 2. Adam V 1m lwd_ 1q_ (ml 9 lb Tmm (31 ml 2.M SAN W 40 (b) _1l - t 56M M g k 9 lb1d2hddw f U 35 IS ID Cd) ad 2 t JdmgAld. M W.719 7U go 9f 3. bvatm oftvaafa *MM= ladan SdmI (96 ad on1 B. 9-= SD 30 TD 90 %AYl 9.3J 9.7 my ,91 w0 1- '1u S 70 2.? sm1 _b (176 _) 2.9 IS.M 8 la mz A a 6.I6 23, D7 1.43L F. AU1DO 0 1. Tadlual PAdou (1X6 N) 2, z so 2. lbm ran. To. _ ad 1- Z -.-M Q %= D1 ta~l 2.U ID07 IJ C. O U35 10 L 5*IMtIIy s i _d d13 _ c_c tim O g im). (73 ad IM i) W 956 9D L alm.m 1 a Sn 3 t 2 7.D3 S.D9.D D MOD O0 qaml gm ctc Qi 195) 375, , IL _ L Fq.imL Cvl cm A(l)(A) 3(1) ad 7(2) ad 1M od_j m %.16 D,D * J29 7Z subm1od 105IOMM M mo zm 73 MM = as Al.l Wm3. 5 on (F8 l 3S7.W 1.M I V 1d - c f TAY do _ad4c. A. ad_m_. PWpSA o ftime by de Smdadin aft. tang UfW O Om t tv -. n

36 The base costs have been estlated at March 1986 prices and uses the current official exchange rate of US$ TSbs Costs include a physical contingency of 10S on most itess. Rates of inflation of foreign costs have been applied to both foreign and local. costs in the calculation of price contingencies. Inflation per annum in the foreign market is estimated to be 7.2Z in 1986, 6.8X in 1987 and in 1989, 7.12 in 1990, and 4.02 thereafter. Local inflation is currently 30X per annum. It is assumed that any persistent divergence between local and foreign costs will be corrected by exchange rate adjustments. Details of cost estimates, financing plan, and needed Government budgetary allocations for the project are shown in Annex Cost estimates are based on data provided by the MCW, HOE, NCC, NTC and consultants. They have been derived as follows and indicate the status of project preparation: i) TANZAM Highway Rehabilitation. Estimates are based on detailed 'engineering by consultants. ii) Gravel Roads Rehabilitation. Estimates are based on field surveys and costs of similar vorks carried out by contract. Detailed engineering would not be required for these works. iii) Staff Housing. Estimates are based on standard designs for Government housing. The costs are presently about US$450 per square meter. iv) Spare Parts, etc., Training Aids and Equipment Office Equipment and Supplies, and Traffic Counting Equipment. Estimates are mostly based on approximate quantities and any balances available during project implementation would be allocated to procuring additional stocks of spare parts for road maintenance equipment. v) Technical Assistance and Training Experts and Consulting Services for Studies. Estimates are based on recenr costs of similar services employed by the executing agencies. vi) Consulting Services for Construction Supervision. Estimates are based on recent costs of similar services equal to about 62 of the estimated construction cost. vii) Fellowships. Estimates are based on average costs in India, Europe, and the United States. Financing Plan 3.33 The project cost is US$107.7 million equivalent. The financing of the project cost is to be shared between the Association, cofinanciers, and Government as shown below: Local Foreign Total (US$million) (US$million)(USSmillion) IDA AfDF Kingdom of Norway DANIDA Government

37 D. Implementation 3.34 The projects would be Implemented by the MCW and MOE. Insofar as the assistance to the local contracting industry is concerned, it will be implemented by the NCC under the direction of the MCW. Similarly, assistance to the trucking industry will be implemented by NTC, also under the direction of MCW. The Project Coordinator, located in MCW, will provide overall coordination of the various project elements and be responsible under the authority of the MCW for compliance with accounting, auditing, and reporting requirements of the project. The project is expected to be physically completed by December 31, The timing of the execution of the project components is shown in the bar chart in Annex III-12. The steps to be taken to initiate project execution are detailed in Annex III-13. These should be agreed with Government at negotitions. E. Procurement 3.35 Procurement arrangements are as follows: Amounts and Methods of Procurement (US$ million)a/ Procurement Method Total Project Category ICB LCB Other N.A. Cost b/ Civil Works (TANZAM Highway) c/ Civil Works (Gravel Roads) (13.2) (13.2) Civil Works (Buildings) (10.3) (1.8) (12.1) Mechanical Service Contracts (0.4) (0.4) 1.0 Spare Parts and Components (MCW) (0.7) (0.7) d/ (1.5) (1.5) (3.0) Spare Parts, Tires, Batteries (Trucking) d/ (2.9) (2.9) (5.8) Traffic Counting and Office Equipment e/ Training Equipment and Transport dl (0.7) (0.5) (1.2) Tech. Asst. & Consulting Services (10.6) (10.6) Fellowships (3.0) (3.0) TOTAL (28.6) (2.9) (4.9) (13.6) ( 50.0) a/ Amount financed by IDA in parenthesis. b/ Including Taxes. c/ Procurement will be in accordance with AfDF procedures. d/ International Shopping. e/ Procurement will be in accordance with DANIDA procedures.

38 All civil works would be executed by contract. The rehabilitation of the TANZAM Highway would be divided into four contracts. Two contracts covering about 130 km will be financed by AfDF and procurement will be in accordance with AfDF procedures. Procurement for the other two contracts covering about 165 km (US$31.1 million equivalent) to be financed by the Association and the Kingdom of Norway and procurement of civil works for about 85% of the rehabilitation of gravel roads (US$17.2 million equivalent) would be carried out under ICB in line with World Bank Group guidelines. About 15X of the rehabilitation of gravel roads (US$3.1 million equivalent), which will comprise contracts less than US$500,000 and are expected to be unattractive to foreign contractors, will be carried out under LCB. Civil works for staff housing, student hostel extension (US$0.8 million equivalent) will also be under LCB. Mechanical service contracts (US$1.0 million) for the rehabilitation of equipment (including vehicles) would be awarded after LCB Procurement of spare parts, tires and batteries, and transport equipment (US$5.1 million equivalent) would be through ICB in line with World Bank Group guidelines. International shopping would be permitted for proprietary spare parts and components (US$4.4 million equivalent) and for training aids and equipment (US$0.5 million equivalent). Contracts for goods estimated to cost less than US$50,000 up to an aggregate of US$1.0 million would be procured under LCB. The LCB procedures have been reviewed by the Association and found satisfactory except for a preference presently given to bids from parastatals which will not be applied to Association financed projects. Typical bidding documents would be reviewed by the Association prior to their issue Consultants for technical assistance and other consulting services (US$10.6 million equivalent) to be financed by the Association will be appointed in accordance with World Bank Group guidelines. Price will not be a consideration in the evaluation of consultants proposals. Consulting services (US$4.0 million) expected be financed by others will be subject to their procurement rules Bidders will be pre-qualified for all civil works. All contracts in excess of US$100,000 equivalent will be subject to prior review of the Association; this is expected to cover 30% of the project costs. Local contractors will have 7.5% preference for civil works. F. Disbursements 3.40 The project is expected to be fully disbursed by December 31, 1991 and the proposed credit closing date is June 30, The estimated disbursement profile is close to the historical profile for transport projects in the region. The credit would be disbursed against the following categories and on the basis of the estimated disbursement schedule given in Annex III-14. i) 65% of total expenditures for rehabilitation of the TANZAM Highway; ii) 60% of total expenditures for rehabilitation of the gravel roads; iii) 65% of total expenditures for mechanical service contracts;

39 iv) 50% of total expenditures for construction of staff housing and student hostel extension; v) OOZ of foreign expenditures for road maintenance equipment, spare parts and components, tires and batteries, training aids and equipment, and transport vehicles; and vi) 90Z of total expenditures net of taxes and duties for services of consultants domiciled within Tanzania and 1OOZ of foreign expenditures for services of other consultants. All disbursement requests would be fully documented except for (a) disbursements under Civil Works contracts of less than US$100,000 equivalent (LCB); (b) all other items under contracts or purchase orders of less than US$20,000 equivalent. Disbursements for the above items would be made against Statements of Expenditures, documentation for which would be retained by the implementing agencies and make available for Association review during supervision A revolving fund will be established for the Association credit in a special account which will be established and operated by the Government in the Central Bank of Tanzania. Initial deposit of US$3.3 million will be made from the credit account to cover the initial three months of Association disbursements. Further deposits by the Association from the credit account for the purpose of replenishing the special account would be made against withdrawal applications supported by appropriate documents. The Government has agreed on the conditions under which the special account will be established and operated. G. Accounting, Auditing, and Reporting Requirements 3.42 Project accounts will be maintained by the Accounts Section of MCW, giving details of expenditure incurred-both local and foreign, for each project component. Since the audited accounts of the Government and the audit report thereon are normally available only more than a year after the end of the fiscal year, the Government has agreed that the project accounts maintained by MCW be audited and certified, and a copy of the certified accounts sent to the Bank not later than nine months after the close of each fiscal year. The annual accounts will be audited and certified by an independent auditor. In addition, the MCW will maintain proforma accounts of the project expenditure an a quarterly basis and submit to the Association along with the quarterly progress reports (para 3.44) The Controller and Auditor-General (CAG) is the statutory authority responsible for audit and certification of the annual accounts of the Government, including those of MCW. The Government budgeting, accounting, and auditing procedures are described in Annex III-15. The CAG is an independent Government agency which has staff permanently attached to the ministries and to the regional offices. About seven CAG staff are attached to the MCW. Though CAG is authorized to have 450 staff, the actual staff is only 309, of which 166 are stationed in Dar-es-Salaam and 143 in the regions. The shortage of staff is the reason for delays of the

40 audited accounts. However, there are several accounting firms which have competent staff to prepare the project audits, if this becomes necessary. The Government has fulfilled satisfactorily the auditing covenant in the Trucking Industry Improvement and Rehabilitation Project (Credit 743-TA) closed on June 30, 1985 by submitting to the Association reports by independent auditors Responsibility for project reporting would be shared between the MCW, MOE, NTC, the NCC, and consultants as follows: i) inception, progress, and final reports on technical assistance and studies by consultants providing these services in accordance with their respective terms of reference; and ii) consolidated quarterly progress reports and the project completion report by the Project Coordinator. The quarterly progress reports will include quarterly statement of project accounts. The project completion report, in a form satisfactory to the Association, will be submitted not later than six months after the project closing date. R. Environmental Impact 3.45 The project will not cause any adverse effect on the environment. Marginal improvements to the environment would occur through better drainage of the gravel roads. The rehabilitation of the TANZAM highway will benefit the environment through less consumption of fuel resulting in improved air quality.

41 IV. ECONOMIC JUSTIFICATION A. Project Benefits and Beneficiaries 4.01 The project can be separated into six components for purposes of economic analysis: (i) rehabilitation of the TANZAM highway (552 of total cost); (ii) rehabilitation of the gravel road network and associated with this, assistance to the local construction industry (23%); (iii) rehabilitation of highway maintenance equipment (5%); (Iv) technical assistaace and training to MCW (8%); (v) studies (2X); and (vi) assistance to the trucking sector (7%). Technical assistance and training are expected to have a generally beneficial effect on all MCW activity including the various rehabilitation activities. These and the various studies have not been analyzed. On the other hand, the four remaining components, TANZAM Highway, gravel road, equipment rehabilitation, and the trucking component which account for 90% of total forecast investment are separately analyzed below. Details are given in Annex IV The direct project benefits, from both the highway and trucking components, will be a reduction in vehicle operating costs (voc). The forecasts of voc reductions for both the TANZAM highway and gravel roads rehabilitation program were obtained by application of the World Bank/UK Transport and Road Research Laboratory highway model. These will be substantially translated into lower transport costs for the movement of agriculture products and inputs, both for trucks and the large number of pickups and four-wheel vehicles that operate in rural areas. This can be expected to assist in stimulating increased production. The beneficiaries from the gravel roads rehabilitation program and the trucking component will be Tanzanians. However, a proportion varying from about 5 to 20% by section, of the benefits from TANZ,N highway rehabiliation will go to Zambia. B. Economic Returns TANZAM Highway Rehabilitation 4.03 The total distance to be rehabilitated is 295 km, analytically separable into six sections. The average daily traffic ranged from 225 to 800 when the feasibility study was undertaken in Spot checks since then have revealed a mixed pattern with some sections showing lower growth rates and others higher. To maintain consistency, the 1982 figures have been employed as a base, reduced by the well-documented reduction in Zambian traffic movements by road which occurred since then as a result of increased Tazara capacity. The rate %,f growth of t-raffic has been assumed at 41/2% p.a. which is consistent with projections of economic recovery in Tanzania together with increased inter-regional movements as a result of relaxation of renitrictions on movement of agricultural produce. The Economic Rates of Return (ERR) and relevant data are shown below:

42 TANZAM Highway Section I II III IV V VI Total Length (km) Average Base Year Daily Traffic (vpd) Truck Traffic (vpd) -Tanzania Zambia ERR ERR excluding Zambian The ERRs range between 49% and 23% with an average of 39%. The rates on individual sections, and on average, are satisfactory. Gravel Roads Rehabilitation 4.04 The main gravel road network covers 6,560 km. In January 1986, consultants completed a detailed analysis of its physical condition and identified about 3500 km as feasible for rehabilitation. Of these, the high priority roads total approximately 800 km. The remaining roads of lower priority would be considered for subsequent rehabilitation within the framework of the annual Government review of the gravel road rehabilitation program (para 3.12) The economic evaluation is based upon the costs of various rehabilitative activities, which have been obtained from recent works undertaken for and by MCW. The assessment of benefits takes into account, inter alia, the actual and prospective regional distribution of agricultural activity and the corresponding flows of outputs and inputs between regions and to the country's border points. The unit benefits are applied to traftic forecas-- thus generated The traffic growth forecast varies from region to region but on the average, the same assumptions have been made regarding traffic growth as for the TANZAM highway namely 41/2% p.a. from completion of rehabilitation. The ERR on the three-year rehabilitation program is 27% on average, and on individual roads ranges from 38% to 15%. Both the overell ERR and those on individual roads are satisfactory. Equipment Rehabilitation 4.07 Equipment (including vehicles) to be rehabilitated was purchased under the Fourth and Fifth Highway Projects, and the economic justification for its procurement was then demonstrated. The rehabilitation.-equirements vary from item to item, but in all cases the result will be to bring the equipment ap to close to the original standard The average cost of items procured under the Fifth Highway Project was approximately US$26,000 equivalent each. The rehabilitation

43 costs are escimated to vary on average from US$6,000 to US$12,000. On that basis, and assuming that the rehabilitated equipment life will be equivalent to about 8O% of new equipment, the ERR is over 100X. Trucking 4.09 The proposed assistance to the trucking sector has three distinct components: (i) spare parts; (ii) tires and batteries; and (iii) technical assistance. The spare parts component can be subdivided into items which have a reasonably predictable life, as they are replaced at predetermined intervals, and more major items which are replaced when failure occurs. The former comprise filters, gaskets, spark plugs/injector units etc. while the latter are mainly items such as bearings, suspension units, generators etc The spare parts packages have yet to be identified with precision and indeed cannot be without a detailed inspe-tion of vehicles which have passed provisional screening for inclusion in the program. However, it is reasonable to assume that in Tanzanian conditions, where the optimal life of trucks is estimated as six years, the average life of the above-mentioned spare parts is two years The estimated spare parts cost per vehicle is US$5,400 equivalent (1985 prices) or US$2,700 per vehicle per annum. The vehicles to be selected for the program are expected to be two or three years old. The physical depreciation profile for trucks in Tanzania is not known and it is assumed that half way through normal life, the average depreciation of 16% p.a. would obtain. Of that depreciation, at least half can be attributed to items covered by the spare parts program. The vehicles will probably be a mix which includes the standard trucks of Tanzania-Leyland, Mercedes, Fiat-and others more recently introduced, such as Scania and Isuzu. The average duty free import cost is about US$30,000 and the attributable saving in depreciation accordingly about US$2,400 per annum An additional benefit which, however, is difficult to quantify is that a number of items, such as generators, once removed and replaced, can be rehabilitated (commonly rewired) at lower than new costs. Finally, NTC estimates that lack of replacement items of an annually recurrent nature leads to significant loss of fuel economy, as much as 15-20%. Taking into consideration the normal annual kilometrage of the vehicles under the Project and their fuel consumption, a saving of about US$900 per vehicle per annum would result from a 15% improvement in fuel efficiency. The overall ERR is sensitive to the speed with which benefits are realized. The most reasonable assumption is that implementation will be over two years with benefits accruing in the second year and the year following implementation. On that basis, the ERR is 22Z The tires and batteries component is justified on two bases: (i) vehicles are frequently immobilized in Tanzania for lack of tires and engines are kept running unnecessarily due to weak batteries. The general shortage of tires is reflected in the parallel market price, about 3.0 times official prices; (ii) the local production costs of tires

44 and batteries are high, and currently the imported cost of raw materials for the tire factory is about 80% of the imported cost of tires. Raw materials account for approximately 50% of tire production costs in Tanzania; local inputs would, therefore, have to be shadow priced at a low rate to make local production truly competitive with imports at present price levels. The disparity is even greater for battery production. The justification for tire and battery import under the project is, therefore, that alternative sources of supply are inadequate and at least as costly, and tires and batteries are necessary complements to the spare parts in maintaining effective trucking capacity. Due to the acute shortage of tires and tubes in Tanzania, direct imports under the proposed Project are expected to be independently supplemented by provision of raw materials to the tire factory financed from other sources, a procedure satisfactory to Government The technical assistance would have two components: (i) technical assistance required for implementation of the spare part program (46 man months); and (ii) continued technical assistance to NTC and through it to the RETCO's of about 216 man months over two years. The implementation of technical assistance can be regarded as a component of the costs of the spare parts/tire/battery program but the NTC technical assistance benefits cannot be arcurately quantified. Total Project Cost, Benefits and ERR 4.15 The distribution of project economic costs is shown below together with relevant ERR. The ERR on the total project excluding technical assistance to MCW and studies is 38%. On the highway component excluding equipment rehabilitation, the ERR is 36%. Both rates and those of project components are satisfactory. Economic Rate of Return TANZAM Gravel Total Equipment Trucking Total Highway Roads Highway Rehab. Component Project Z Total Project Cost / ERR > I/ Excluding Technical Assistance to MCW and studies. C. Sensitivity Analysis and Risks 4.16 The two main variables which would affect the economic benefits on the highway rehabilitation components of the project are: (i) a failure of the economy to recover, and hence for traffic to increase; and (ii) rehabilitation costs to exceed estimates, including physical contingencies. To test the effect of these variations both severally and in combination, the following assumptions were employed: (i) zero traffic growth; and (ii) rehabilitation costs increased by 25%.

45 Diversion of traffic to rail is only a limited possibility. Although TAZARA operates in the same -corridor" as the TANZAM highway, the two systems are effectively separated by a mountain system from Morogoro to Makambako, nearly 700 km from Dar es Salaam. Thus most of the direct competition between road and rail is for Zambia international traffic and as noted in para 4.02, Zambia road traffic has been reduced to low levels as a result of increased TAZARA capacity. The effect of any further diversion is unpredictable but likely to be small and readily subsumed in the zero traffic growth assumption; it is, therefore, not further analyzed The results are shown below. The ERR on the total highway component declines to 28% with zero traffic growth, to 29% with 25Z increased costs and to 25Z with these effects combined. These rates and those for the individual roads or sections are acceptable. The ERR on the trucking assistance is sensitive to the speed at which rehabilitation is executed. An increase of 50% in implementation time would reduce benefits to 15%. Alternatively, a cost increase of 10% which is the maximum likely for spare parts would reduce the ERR to 20%. Both rates are acceptable. Sensitivity Analysis (ERR) TANZAM Gravel Equipment Trucking Total Highway Roads Rehab. Component Project Base Case 39% 27Z >100% 22Z 38% Costs % 23Z >O0OZ%i 20%2/ 29% Zero traffic growth 31% 21% 153/ 28% Costs + 25% and 27% 18% 25% Zero traffic growth Equipment rehabilitation ERR unlikely to fall significantly below 100% under any reasonable assumptions %. 3/ Delayed return to full service The main risks are institutional. MCW's maintenance capability may improve only slowly, either because the organization fails to utilize limited resources in the most efficient manner, or because these resources, particularly trained manpower, are insufficiently committed to their jobs. The project attempts to address these problems which were prominent in execution of previous projects by providing a clear focus for MCW maintenance activity by encouraging a policy of limiting force account works to routine maintenance activities only, and ensuring that there is a continuing supply of trained manpower which will allow for loss to the private sector or other activities. A further risk is that the gravel road rehabilitation program may not be executed in as timely a fashion as desirable and completion of individual road components are delayed. This risk will be reduced to acceptable levels by annual review of the program. Finally, the local contracting industry may respond slowly to the opportunity to participate in the gravel roads

46 rehabilitation program, and thus development of the industry may be slow. This risk will be minimized by provision of contractor training and support to the NCC under the project. Risk from higher than expected costs will be minimized by (i) financing a time slice of gravel road rehabilitation, (ii) rehabilitating the highest priority equipment items, and (iii) reducing the number of trucks repaired if spares requirement are above estimates.

47 V. AGRffEENTS REACHED AND RECOMMENDATION 5.01 Agreement has been reached with the Government as follows: a) not later than January 1, 1987, the Government will submit to the Association for its review an overall Transport Sector Policy paper (para 1.10); b) not later than January 1, 1987 and annually thereafter, the Government will compile and publish Annual Transport Statistics with a format and contents satisfactory to the Association (para 1.13); c) the Government will consult with the Association before either making any changes in the overall transport investment program or increasing or decreasing the allocation to any individual item by more than 25%, or in aggregate by more than 15% in real terms (para 1.18); d) not later than December 31, 1986, the Government will enact legislation as necessary to reform axle load control and adopt a plan, all satisfactory to the Association, for the enforcement of the new regulations and will in,tiate the enforcement of such plan not later than three months thereafter (para 2.03); e) (i) inputs financed by the project would be allocated in accordance with specific criteria based on immediate trucking needs; (ii) inputs supplied through official channels shall be alqlocated to the most efficient users based upon criteria satisfactory to the Association and would be subject to both import duty and sales tax; (iii) tariffs for inter-regional movements will be based upon competitive bids whenever feasible; and (iv) tariffs for intra-regional movements will be based upon the cost of providing the transport service. In regard to (ii) above, not later than September 30, 1986, the Government will prepare workable criteria satisfactory to the Association failing which official inputs will be distributed in line with the distribution of ownership (para 2.10); f) the Government will give priority in the allocation of trained manpower under the project to staffing the Regional Government highway units (including the Districts) (para 2.16); g) not later than December 31 each year, beginning in 1986, the Government will furnish to the Association for its approval (i) the annual program of gravel road rehabilitation giving details of each road section, length, traffic data, standards, and cost estimates for the following fiscal year; and (ii) review of institutional arrangements and funding of maintenance of the rehabilitated roads to ensure that they are adequate (para. 3.12);

48 h) not later than December 31, 1986, the Government will dispose of all scrap parts, components, equipment and vehicles, and take measures, thereafter, regularly to dispose of equipment and vehicles which have reached the end of their economic life (para 3.15); i) (i) not later than December 31, 1987, the Government will review the existing civil engineering courses and submit to the Association for its review new proposals for course content and syllabi including the proposed highway specialization in the final year, and (ii) not later than July 1, 1987, will appoint a qualified counterpart to each of the 9 instructors financed under the project (para 3.20); j) NCC will charge fees for admission to its training courses and technical assistance services at levels to be agreed with the Association (para 3.24); k) spare parts, tires and batteries to be financed under the pcoject will be allocated to vehicles in accordance with criteria to be agreed with the Association. The private sector operators excluding the cooperative unions will receive at least 65% of the allocations under the project (para 3.26); 1) an-implementation schedule (para 3.34); m) contracts for the rehabilitation of the TANZAM highway and, except as otherwise specified below, contracts for rehabilitation of gravel roads will be awarded through ICB in accordance with Bank Group guidelines (para 3.36); n) with the approval of the Association, contracts for the civil works for the rehabilitation of gravel roads less than US$500,000 each up to a total value not exceeding US$3.1 million may be awarded through LCB in accordance with local procedures except that no preference shall be given to parastatal companies and Government agencies (paras 3.36 and 3.37); o) mechanical service contracts for the rehabilitation of equipment (including vehicles) will be awarded through LCB-in accordance with local procedures except that no preference shall be given to parastatal companies and Government agencies (para 3.36); p) procurement of spare parts, tires, and batteries, transport equipment for the Dar-es-Salaam Technical College and office equipment and supplies will be awarded through ICB in accordance with Bank Group guidelines (para 3.37); q) procurement of proprietary spare parts may be awarded through international shopping (para 3.37); r) procurement of goods estimated to cost less than US$50,000 up to an aggregate of US$1.0 million may be awarded through LCB (para 3.37);

49 a) consultants for studies and technical assistance will be engaged under terms of reference and conditions satisfactory to the Association in accordance with Bank Group guidelines and price will not be a factor in their selection (para 3.38); t) conditions under which the special account will be established and operated (para 3.41); and u) not later than 6 months after closing of each fiscal year, the Government will submit to the Association a financial statement of the project accounts certified by an independent auditor and a report of such scope and detail as the Association shall have reasonably requested (para 3.42) Agreement having been reached with Government on the above, the project is suitable for a credit to the United Republic of Tanzania in the amount of SDR 43.3 million on standard IDA terms.

50 TANZANIA SIXTH HIGHWAY (REHABILITATION) PROJECT STAFF APPRAISAL REPORT Transport Sector Investment Program (FYI986-88) Annex I-1 Page 1 of 3 A. Investments TShs. (Million) Financing Local Foreign Total (Foreign) Roads TANZAM Highway IDA/Various Gravel Roads Nyanguge-Musoma EEC Songea-Makambako ODA Cbalinze-Mukumbara FRG Kibiti-Lindi Trunk Road Maintenance IDA Mufundi Sugar Mill Access Road EEC Arusha-Magugu Italy Mombo-Lushoto FRG Lusahunga-Bukombe EEC TANZAM Highway (Morogoro) Japan Kilombero Ferry Switzerland Others (Studies, etc.) IDA/Various Subtotal Road Transport (Trucking) Tanzania Railways Corporation Quarry Equipment Canada Telecommunications FRG/Canada Machinery/Equipment Morogoro Railway Workshop Canada Technical Assistance (Marine) Denmark Wagons Various Kigoma Port EEC Track (Bridge Overhaul) Canada Locomotive Spares Canada Rolling Stock Spares New Locomotives 1 / (12 Mainline, 24 Shunting) Others ubtotal

51 Annex I-1 Page 2 of 3 Tanzania/Zambia Railway Authority Wagons, Track Maintenance Equipment, and Workshop Equipment Various Tanzania Harbors Authority Ship Repair Facilities Norway Dar Port Rehabilitation 2 / IDA/Norway/ Netherlands/ Finland/Denmark Tacoshili Subtotal Aviation Airports Total Transport Source: Ministry of Communications and Works. I/ Feasibility Study Underway. / Credit No TA, 1984.

52 Annex I-I Page 3 of 3 B. Program Benefits and Justification 1. The Highway investment program comprises a mixture of new construction, all of which is currently underway and rehabilitation. The major new construction which opens up previously virtually inaccessible territory is the Songea-Makambako route financed by British ODA. Other new roads in the Lake Victoria area are largely substitutes for or essentially major upgrading of existing lake or road systems. Typically one would expect an ERR of about 15Z on new road construction, rising through 20% to 50% on major paved road rehabilitation to 60%-80Z on gravel and less expensive paved highway rehabilitation. On that basis the average ERR over the total program is probably about %. The benefits would be realized in the form of reduced vehicle operating costs. 2. For port development the ERR calculated at appraisal of the Port Rehabilitation Project was 332. Evidence to date indicates this will be at least achieved, probably exceeded as containerization is increasing at least in line with predictions. The benefits are in a number of forms, mainly reduced shipping costs but also reduced damage to goods and loss of grain. 3. Railway investment benefits are more difficult to assess as our present knowledge of the efficiency of railway operations, and hence the optimum measures to improve them is rather weak. In the case of TRC, too, a significant part (over 40%) is purchase of locomotives which may be of doubtful economic justification. Assuming 10% ERR on locomotivs purchase, and about 23% (as in the recently approved Zambia Fourth Railway Project) on other items yield an average 18Z. The same might be expected of the Tazara investments, which are prospectively much smaller and less relevant. The benefits would flow directly from increased system capacity compared with the -no-investment- situations, which in turn translates into lower transport costs through avoidance of the more expensive trucking movements for rail freight. 4. Provision of truck spare parts under the proposed project are expected to yield an ERR of 22%. The EEC financed rehabilitation project was estimated to yield an ERR of approximately 50%. On average (unweighted) the ERR can be expected to be about 36Z. 5. Sufficient information is not available to assess the ERR on airport rehabilitation. 6. On the basis of the above tentative evluations, the overall ERR on the program would be about 25%.

53 TANZANIA SIXTH HIGHWAY (REHABILITATION) PROJECT STAFF APPRAISAL REPORT Annex I-2 Page 1 of 3 Experience with Past Lending in the Transport Sector 1. Bank group involvement in the highway sector began with a project in 1964 (Credit 48-TA, US$ 14 million) to assist construction of six road sections totalling 860 kms. The project also provided for technical assistance and training to the Ministry of Communicatfnns and Works. A supplementary credit (Credit 115-TA, US$ 3 million) was extended in 1968 to meet cost overruns. After initial delays, the project was satisfactorily completed in A Project Performance Audit Report (PPAR) (No. 791, June 26, 1975) found that implementation of the project's technical assistance and training component was slow and difficult because of (i) the delays and reluctance in recruiting expatriate staff, (ii) cultural and language problems experienced by the expatriates, and (iii) shortage of adequately qualified local staff. 2. Similar problems were experienced during the Third, Fourth, and initial stages of the Fifth Highway project. The Second Highway Project (Credit 142-TA, US$ 15.5 million, Loan 586-TA, US$ 7.0 million, and a Swedish Credit, US$ 7.5 million) in 1969, which did not have a technical assistance or training component, was for construction of two difficult sections, aggregating 499 kms, of the TANZAM highway. The PPAR (Report No of June 30, 1982) concluded that the project was expeditiously and well executed below appraisal costs and was economically justified. 3. The Third Highway Project (Credit 265-TA, US$ 6.5 million) was for the upgrading to paved standard of a 200 km trunk road section and construction of feeder roads in cotton producing areas in the north of the country and technical assistance and training. The PPAR (Report No of June 30, 1982) concluded that the project was not a success. It was only partially completed when the project was closed in September 1979 after an extension of about 4 years at costs above appraisal estimates. Savings of US$ 1.9 million from Loan 586-TA, Second Highway Project, were used to meet the additional expenditures. The training of Tanzanian engineers met only limited success and the staffing program was abandoned. Many lessons were learned from the project and the principal ones are: (i) detailed engineering of civil works should be complete before appraisal; (ii) the Bank Group should be explicit in its analysis of increased risks expected in yielding to Government demands; (iii) the re-appraisal of a project due to changed circumstances should receive the same attention and effort as a regular appraisal; and (iv) Government commitment is essential for technical assistance to succeed. 4. In 1975, the Association financed a Fourth Highway Project (Highway Maintenance) (Credit 507-TA, US$ 10.2 million) which for the first time addressed the road maintenance problem and provided for direct assistance to strengthen the trunk road maintenance operations. The project was closed on December 31, 1982 without achieving all its

54 Annex I-2 Page 2 of 3 objectives. A Project Completion Report is under preparation and the findings are that (i) a project, particularly one dealing with road maintenance, should be designed in detail before appraisal and should be based on a realistic implementation schedule, (ii) the Government should be encouraged to carrying out most of the maintenance works by contract, (iii) Government commitment is essential for success with technical assistance. The Fifth Highway Project (Credit 876-TA, US$ 20.5 million) with similar maintenance objectives of the previous project has performed slightly better with greater Government appreciation of need for technical assistance. The project is scheduled to close on December 31, 1985 with a road maintenance organization in place, but there are two important lessons: (i) technical assistance experts should be carefully chosen, as ineffective or poor technical assistance experts could cause more damage to institutional development than inexperienced locals, and (ii) force account works should be kept to a minimum by letting out all the periodic maintenance and rehabilitation works by contract. 5. In 1977, the Association gave a credit for a Trucking Industry Rehabilitation and Improvement Project (Credit 743-TA, US$20.0 million) designed to establish five Regional Trucking Companies (RETCO). At the beginning, project implementation was slow and difficult, technical assistance inputs were found ineffective and there were long delays in the procurement of trucks and spare parts. A new General Manager at the NTC in 1978 and changes in the original technical assistance team brought about a dramatic improvement in performance and by the end of 1983, the five RETCOs had been established and were in operation showing satisfactory profits and procurement problems and delays were largely resolved. Although the project has been completed successfully, there is need for continuation of technical assistance to the RETC0 and provisions for this have been made in the proposed project. Again, the lessons here are that: (i) technical assistance experts have to be carefully selected and (ii) the Government must be committed to using the technical assistance. 6. The Bank has also participated in the development of railways in Tanzania through the East African Community (EAC). In 1955 Loan 110-EA (US$24.0 million) was made to the East African High Commission to cover in part, the preparation of development plans for the railways of the East African Railways and Harbours Administration (EARHA). In 1970, Loan 674-EA (US$42.0 million) was approved for the East African Railways to assist in financing right of way improvements, rolling stocks, materials and equipment. Both these projects were completed satisfactorily. The Bank has participated in financing three port projects, also through the former EAC which included improvements to ports in Tanzania. In September 1965, Loan 428-EA (US$38.0 million) was approved to provide assistance in financing railway and harbor improvements through the EARHA for use, in part, for cargo handling equipment, harbor craft and construction of berths 4, 5 and 6 at Dar es Salaam as well as financing for railway rolling stock. The project was