PROJECT INFORMATION DOCUMENT (PID)



PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB2781

|Project Name |Road Maintenance and Rehabilitation Project (Additional Financing) |

|Region |East Asia Pacific |

|Sector |Transportation (Roads and Highways) (80%); Public Administration, Law and Justice (Central |

| |government administration) (11%); Public Administration, Law and Justice (sub-national government |

| |administration) (9%) |

|Project ID |P004397 |

|Borrower(s) |GOVERNMENT OF THE INDEPENDENT STATE OF PAPUA NEW GUINEA |

|Implementing Agency |Department of Works, P.O. Box 1108, Boroko, New Capital District, Papua New Guinea |

| |Telephone: + 675 324 1190 |

| |Fax: + 675 324 1264 |

| |Contact Person: Roy Mumu, Deputy Secretary- Technical |

|Environment Category |[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |December 27, 2006 |

|Date of Appraisal Authorization |December 27, 2006 |

|Date of Board Approval |January 30, 2007 |

Country Background. Papua New Guinea’s small, open economy is characterized by dependence on a small number of primary commodities[1], vulnerability to exogenous shocks and consequent volatility in economic outcomes. Poor fiscal management and expenditure choices have often exacerbated this volatility. Following an unprecedented financial crisis in 1994, the Government of Papua New Guinea set in place, with assistance from the World Bank, International Monetary Fund and other donors, an Economic Recovery Program designed to restore and maintain a stable economic environment. The ERP’s aim was to sharply lower fiscal deficits and improve fiscal management, enhance efficiency and accountability in the use of public resources (including a fundamental restructuring of public expenditures and increasing private sector participation in delivery of services), and implement a broad array of policy and institutional reforms to enhance the country’s competitiveness and restore business confidence. After being in recession from 1996 through 2002, the economy rebounded in 2003-2004 with GDP growing 2.8 percent due to a combination of favorable commodity prices (primarily oil and gold), strengthened expenditure controls, improved macro-economic management, removal of some supply-side constraints, and a modest recovery in agriculture.

However, structural constraints continue to challenge sustained macro-economic improvements. Of primary concern is that many mineral projects, the key source of growth, face resource depletion and are phasing out. In addition, the agriculture sector is underperforming due to deteriorated transport infrastructure coupled with marketing and distribution arrangements that have insulated farmers from market pricing. Furthermore, the economy is deeply dualistic: the formal sector consists of the enclave extractive industries and a very small, largely import-substituting, manufacturing sector. However, 85 percent of the population is engaged in the subsistence, informal economy. Since 2002, the percent of the population living on less than $2.00 per day has remained unchanged at around 70.4% and more than 42% of the population lives on less than $1.00 per day. Opportunities do exist in food production for the domestic market; cash crops such as oil palm, vanilla and other spices and downstream agro-industries all look promising but a lack of transport and marketing infrastructure pose formidable challenges to realizing this potential.

Under the most likely macro-economic scenario, GDP growth is expected to average about 2.4 percent annually during 2004-07, driven initially by an improvement in mineral-sector prospects and modest growth of the non-mineral economy. Economic performance in 2006-07 is expected to be good with GDP growth expected to be nearly four percent, marking the third consecutive year of expansion.  Fiscal deficits are assumed to remain contained with budget execution and fiscal discipline reinforced. However, per capita incomes are expected to remain stagnant and the share of the population below the poverty line is not expected to decline.

Sector Background. Road transport plays a strategic role in national development. It is the dominant mode for freight and passengers and the country has an estimated 27,000 kilometers (km) of roads. The national Department of Works (DOW) is responsible for about 9,600 km of this network (national roads), with the 19 provincial and other local administrations responsible for the remaining system. However, rugged terrain, exposure to earthquakes and volcanoes, high torrential rainfall, and a dispersed pattern of settlement, all make road construction and maintenance costly.

GoPNG has sought to leverage its resources and maintain several key sections of the national and provincial transport infrastructure through donor assistance (primarily ADB, AusAID, Japan and the IBRD), in different provinces. The Bank’s RMRP loan for US$40m (which became effective in August 2002) supports technical assistance, maintenance works and rehabilitation of key national and provincial roads, bridges and related structures in six provinces in PNG. The original total project cost was estimated at US$65m, with about US$20m financed from counterpart funds and about US$5m from the six participating provinces. The project recently has been extended and is scheduled to close on December 31, 2007.

Rationale for Bank Involvement. GoPNG is in the process of establishing a comprehensive national sector maintenance program in line with its Medium Term Development Strategy, Transport Infrastructure Priority Study and National Transport Development Plan (2006-2010). It has requested donor/lenders currently supporting the sector, to provide interim financing to maintain their respective works until the national program becomes fully operational in two years time. Responding to this need, AusAID has prepared the AU$40m Transport Sector Support Interim Program (TSSIP) together with the AUD50m Key Roads for Growth Project for maintaining vital sections of the Highlands Highway. A planned AU$60m Bridge Restoration Project (BRP) for rehabilitating and replacing bridges along the Highlands Highway and in other strategic areas is expected to be merged with AusAID’s upcoming TSSP project (anticipated to be effective from mid-2008 onwards). ADB also has increased funding for one of its ongoing projects, the Highlands Road Maintenance and Upgrading Project (US$53m with a supplementary Loan of US$18m) and JICA has been funding bridge works in the Highlands Highway.

The Bank’s RMRP Additional Credit will be used to bridge-finance on-going maintenance works in provinces not covered by these other programs, for about two and one half years. It will also finance the rehabilitation of two sections of road which were dropped from the ongoing RMRP project because of cost increases and PNG Kina revaluation. Finally, it will finance the scaling up of key components of the ongoing RMRP project to include similar project works in two additional provinces for which the Government has requested assistance.

Objective. The development objective of the Road Maintenance and Management Project is to assist the GoPNG in promoting an efficient, safe and reliable roads transport system in the six participating provinces through: (a) the improvement of selected road segments; (b) strengthening strategic planning and management of the road sector; and (c) strengthening the institutional arrangements for road maintenance, including private sector participation.

Description. The above objective is to be achieved through: annual routine maintenance and restoration of key segments of national and provincial roads; maintenance, restoration and replacement of national and provincial bridges; TA and related assistance for traffic counting and environmental monitoring equipment; improved project management, design and supervision of works; accounting and auditing services, financial management and increased operational capacity of DOW; training small and medium size contractors in works management, bid preparation, quality control, site planning, etc. for road maintenance works; TA for updating the bridge inventory and bridge management system and for a socio-economic impact assessment of the project.

Financing.

Source US$m

BORROWER 21.63

INTERNATIONAL DEVELOPMENT ASSOCIATIO 37.22

TOTAL PROJECT COST[2] 58.83

Implementation.

Institutional Arrangements. Almost 93 percent of maintenance and rehabilitation works under the project relate to national roads and bridges for which DoW is presently responsible. Hence, DoW will be the lead agency for the overall project and for national roads and bridges. Provincial administrations will be directly responsible for deciding on maintenance and restoration works on provincial roads and bridges under the project. However, unlike under the original loan, for the proposed additional financing project, while the national road work is clearly delineated, the expected provincial road maintenance works will be programmed annually, prepared under demand-based financial commitments made by the provinces, rather than a priori commitments.

DoW also will be responsible for the purchase emergency bridges, bridge parts and decking, as well as for training activities, update Condition Survey of the Bridge Management System and the Road Asset Management System, and revising the Standard Road and Bridge Sprcifications and preparing the DOW Operational Manual, and carrying out of a study of the social impacts of road and bridge sub-projects. The Department of Trade and Industry (DoTI) will continue to be responsible for the components of the project dealing with the strengthening of the small and medium-sized contractors and training and in carrying out the work, it will coordinate closely with DoW and the Employer's Project Manager.

Employer's Project Manager. Based on lessons learned in previous projects (for example, the Gazelle Restoration Program) and the satisfactory implementation progress of the on-going Loan, and in order to minimize implementation problems, the DoW will continue to contract out the management support services required by the project to a professional project management team with qualifications and experience satisfactory to the Bank - an Employer's Project Manager (EPM). The approach is consistent with the Government's policy to increase the private sector role in the delivery of infrastructure services. To ensure satisfactory implementation on the ground for both national and provincial roads, a field presence – through provincial EPMs (PEPMs) - will be provided in each of the eight provinces except Manus (which has a relatively small works program and which will be covered by the PEPM in East New Britain) and Gulf and Western which will share one PEPM. The EPM/PEPM would be responsible for: (a) assistance in preparation of the annual work programs and preparation of cash-flow requirements; (b) timely execution of procurement and implementation of the project, including preparation of bidding documents, bidding, bid evaluation and recommendations for award of contracts to contractors, suppliers, and consultants; (c) implementing financial control system for project-related expenditures; (d) ensuring that reports and project audits are submitted on a timely basis; (e) project monitoring; and (f) structured on-the job-training and active mentoring for DoW and provincial works staff. Investigations, design, preparation of tender documents and assistance in supervision of road and bridge works will be provided by national consultants (or specially formed teams comprising selected qualified supervision staff from the Project Works Managers and the Provincial Administrations) responsible to the DoW through the EPM/PEPMs.

DoW and provincial governments will, in consultation with the EPM/PEPMs, identify priority works for inclusion in the annual maintenance program for national and provincial roads respectively, based on RAMS and HDM-4 modelling using updated condition, traffic count and cost data. Subsequently, DoW will review and approve the annual maintenance program on national roads and will submit an annual budget. The Department of National Planning and will assist in ensuring adequate annual funding through the development budget for the project and for the Government's overall road maintenance program, in line with MTDS targets.

Implementation Arrangements. The additional finance project will be implemented through three annual work programs (AWP): 2007-2009. Preparation of the AWPs will be tied to the planning and budgeting cycle of PNG. The AWPs would be reviewed annually and approved by the Bank.

Implementation Period. The project is expected to be implemented over a two and one half year period, from April 2007 to December 2009. The credit is expected to close on December 31, 2009.

Sustainability.

Sustainability of road restoration achieved under the RMRP is dependent on the level and stability of Government funding of road maintenance in the years following completion of the project. While the Government's MTDS recognizes the need to restore existing infrastructure and maintain it, the financial resources required for road maintenance have not been provided in the past. More visible new construction projects could continue to "crowd out" needed expenditures on maintenance and undercut the sustainability of the effort. For this reason, an annual review by the Bank of each annual work program will be timed to synchronize with the annual budget preparation cycle to ensure sufficient road maintenance funding for the following year and by the end of the project, are expected to tie in to the ten year national Transport Sector Support Program (TSSP).

Equally, sustainability of the institutional strengthening in DoW is dependent on broader public sector reforms aimed at retaining key qualified staff both within the public sector and within the country so that institutional memory is retained. An explicit output of the EPM contract will be measurable training and mentoring of DOW staff at both central government and provincial levels. To avoid any possible start-up delay, the Special Account will continue to be maintained in PNG Kina as was the practice for the ongoing Loan. Also, because of recent mining sector activities and close affiliation with the Australian currency, the Kina has appreciated about 11% against the US$ over the life of the ongoing project since appraisal. A Kina denominated Special Account will help to mitigate some of the risk associated with possible future volatility of the USD.

Whilst risks remain and are rated as "high", taken together, the policy decisions and measures noted above demonstrate government commitment to the sector and the project.

Lessons learned from past operations in the country/sector. Experience with past Bank-financed highway/transport projects in PNG including the outcomes of the ongoing Loan to date, shows that implementation of physical components is generally satisfactory but sustainability is uncertain to unsatisfactory. Historically, many projects suffered from poor contractor performance and deficient supervision by consultants, persistent land acquisition and security problems and disputes over rights-of-way (common for all projects involving new construction or major widening of existing roads), high cost overruns, and longer than planned implementation periods. OED reports on evaluation of road and highway projects in PNG have indicated low rates of return (mainly due to less than forecasted traffic volumes and cost overruns), poor prospects for sustainability (particularly for road construction and improvements, partly because of lack of adequate maintenance), and institutional weaknesses, particularly with implementation agencies at the national and provincial levels.

The ongoing Road Maintenance and Rehabilitation Project has sought to address the above issues by: a) seeking agreement on annual funding targets for the Government's overall road maintenance program as well as for the project; b) contracting a professional project management team (EPM/ PEPM); c) providing institutional strengthening to road maintenance operations; d) strengthening small and medium-sized contractors and generally increasing the role of the private sector in the design, supervision, and maintenance of roads; e) preparation of the designs and bid documents in the case of works and the requests for proposals, including the terms of reference, in the case of consulting services for the first year annual work program prior to loan negotiations. This process was repeated for succeeding annual work programs and will be used for the additional financed activities. This would help to minimize delays and associated cost overruns. In addition, the project will continue to employ a qualified accountant to manage the project accounts, implement a financial management system for the project which has been developed and is acceptable to the Bank, and employ a qualified private auditor to carry out bi-annual and annual audits of the project accounts. Finally, the additional finance project does not include sub-projects which will require land acquisition.

Program of Targeted Intervention (PTI) : No.

Environment Aspects (including any public consultation)

No new environment issues will be triggered by the works as they involve on-going maintenance on the same stretches of road as before (under the original Loan) or, in the case of the two new provinces, will involve restoration works (re-gravelling) of existing road alignments. The existing safeguards will apply to the additional financing. The Environmental Management and Monitoring Plan (EMMP) was prepared in consultation with the Government in 1997, updated in 2001, and approved by the Government and the World Bank. The EMMP spells out measures to be followed by the project implementing authority with respect to good construction practices. In addition there are screening measures which are defined in order to identify any unexpected adverse effects. It was disclosed in-country on December 20, 2001 and at the Bank’s Infoshop on January 7, 2002.

As designed, the project does not involve any resettlement since no land acquisition is anticipated. Since the project focuses on road maintenance and rehabilitation, generally most of the resulting works are implemented within the existing right-of-way. The need for additional land and the disturbance to property are expected to be minimal. A Framework for Land Acquisition and Resettlement was prepared to guide the small amounts of land acquisition expected under the project. Also, a framework for community consultation was developed to improve communications with the affected communities and reduce problems caused by land acquisition. Government’s land acquisition procedures, compensation rates, and processes for resolving grievances have been assessed as satisfactory and in compliance with the Bank’s policy. The entire population of the areas in which the investments are to be made consists of various indigenous groups. Therefore, the project itself will constitute the IPP, and incorporates provisions for extensive consultation, monitoring and evaluation and grievance procedures.

Contact Point:

Task Manager: Thakoor Persaud

The World Bank

Level 19, 14 Martin Place

Sydney, NSW 2000, Australia.

Telephone: (61) 2 9223 7773

Fax: (61) 2 9223 9903

For information on other project related documents contact:

The InfoShop

The World Bank

1818 H Street, NW

Washington, D.C. 20433

Telephone: (202) 458-5454

Fax: (202) 522-1500

Web:

Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.

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[1] Oil, gold, copper, logs, vanilla and coffee account for 70 percent of export earnings.

[2] Includes physical and price contingencies and VAT/GST.

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