Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 26258

IMPLEMENTATION COMPLETION REPORT(IDA-24380)

ON A

CREDIT

IN THE AMOUNT OF SDR 66.4 MILLION (US$ 96.0 MILLION EQUIVALENT)

TO THE

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

FOR A

ROAD REHABILITATION PROJECT

June 30, 2003

Transport Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective End April 2003)

Currency Unit = Ethiopian Birr (ETB) ETB 1.00 = US$ 0.1149

US$ 1.00 = ETB 8.70

FISCAL YEARJuly 8 - July 7

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyDCA Development Credit AgreementEDRP Ethiopia - Demobilization and Reintegration ProjectERA Ethiopian Roads AuthorityERR Economic Rate of ReturnFMS Financial Management System GOE Government of Ethiopia HDM Highway Design ModelICB International Competitive Biding ICR Implementation Completion ReportIRC International Roughness IndexMTR Mid Term ReviewNPV Net Present ValuePIP Project Implementation PlanPMS Pavement Management SystemPRSP Poverty Reduction Strategy PaperRFCS Road Functional Classification SystemRSDP I Road Sector Development Program-Phase 1RSDPSP Road Sector Development Program Support ProjectRRAs Regional Roads Agencies SAR Staff Appraisal ReportSDPRP Sustainable Development and Poverty Reduction

Strategy ProgramSDR Special Drawing RightVOC Vehicle operating Cost

Vice President: Callisto E. MadavoCountry Manager/Director: Ishac Diwan

Sector Manager/Director: Maryvonne Plessis-Fraisssard Task Team Leader/Task Manager: John D. Riverson

ETHIOPIA

ROAD REHABILITATION PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 116. Sustainability 137. Bank and Borrower Performance 138. Lessons Learned 159. Partner Comments 1510. Additional Information 16Annex 1. Key Performance Indicators/Log Frame Matrix 17Annex 2. Project Costs and Financing 18Annex 3. Economic Costs and Benefits 20Annex 4. Bank Inputs 31Annex 5. Ratings for Achievement of Objectives/Outputs of Components 34Annex 6. Ratings of Bank and Borrower Performance 35Annex 7. List of Supporting Documents 36Annex 8. Borrower's Completion Report 37

Project ID: P000734 Project Name: ROAD REHABILITATIONTeam Leader: John D. Riverson TL Unit: AFTTRICR Type: Core ICR Report Date: June 30, 2003

1. Project Data

Name: ROAD REHABILITATION L/C/TF Number: IDA-24380Country/Department: ETHIOPIA Region: Africa Regional Office

Sector/subsector: Roads and highways (100%)Theme: Other urban development (P); Rural services and infrastructure (P)

KEY DATESOriginal Revised/Actual

PCD: 01/07/1987 Effective: 04/27/1993 06/04/1993Appraisal: 09/10/1990 MTR: 06/01/1995 06/01/1997Approval: 11/19/1992 Closing: 09/30/1998 12/31/2002

Borrower/Implementing Agency: ETHIOPIA/ Ethiopian Roads Authority (ERA)Other Partners:

STAFF Current At AppraisalVice President: Callisto E. Madavo Aguirre-SacasaCountry Director: Ishac Diwan Francis X. ColacaSector Manager: Maryvonne Plessis-Fraissard S. WeissmanTeam Leader at ICR: John D. Riverson E. IrgensICR Primary Author: Negede Lewi & Teferra

Mengesha

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: SU

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry:

Project at Risk at Any Time:

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The Development objectives of the Project were defined as (i) improve the bearing capacity, geometry, safety and riding quality on sections of Ethiopia's main transport artery; (ii) improve ERA's capacity for road maintenance, and (iii) implement institutional measures to enable the ERA to better assess and address potential sector problems.

The original objectives were both technical and output related. However, the primary objective of the project, though not explicitly stated, was to improve the quality of the transport services in terms of speed and reliability and facilitate access, by bringing down unit transport costs, along Ethiopia's major transport corridor. Transport rates, measured in terms of price per-ton km were amongst the highest in the world, the rehabilitation of the road sections had the objective of reducing these high unit costs. It was also aimed at providing an opportunity for ensuring that competition delivers more efficient transport services, and hence support the expansion of export growth. The rehabilitation of the road sections was essentially integral to the strategy to promote export-led growth and poverty reduction.

By project design, the ERA capacity was also largely enhanced through the supply and distribution of essential road maintenance equipment which enabled ERA to cover the maintenance of a larger part of the network including the other sections of the import-export corridor. The institutional measures included training of staff leading to improved performance of functions such as contract administration and processing, implementation of pavement management system, establishment standard design manual and technical specifications and improved axle load equipment for effective measurement of loads which would provide a firmer basis for enforcement. The implementation results are further elaborated under each component below.

3.2 Revised Objective: Project objectives remained the same throughout project implementation.

3.3 Original Components:The Project included the following components; (i) Rehabilitation of sections of road between Mille and the Port of Assab (about 196 km), including construction supervision. The initial cost was 93.46 M USD, out of which IDA financing was 80.25 M USD (ii) Design and implementation of a Pavement Management System (PMS) and a Road Functional Classification System (RFCS) including the provision of technical assistance, equipment and other consultancy services. The initial cost was 1.64 M USD, with 100 % IDA financing. (iii) Consulting services for sector related studies, Design Manual preparation, and design review. The initial cost was 2.98 M USD with 100 % IDA financing. (iv) Training and technical assistance, the base cost was 0.72 M USD with 100 % IDA financing. (v) Improving the capacity of ERA to carry out road maintenance, and axle load control through the purchase of road maintenance and weigh bridge equipment, and the construction of maintenance depots with a cost of 10.45 M USD out of which IDA financing was 10.42 M USD.

The Semera-Elidar road section was also co financed in parallel by the ADB for a total amount at the projects completion of about 26.7 M USD equivalent. The works were executed by an ERA force account construction unit. The rehabilitation of this section ensured the improvement of entire road section from Mille to Assab.

The components were clearly aimed at achieving the objectives by primarily improving the condition of roads and safeguarding the investment so as to facilitate more reliable shipping of goods and reduce

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transport costs in the primary import-export corridor. In addition, the project design corresponded to the management and technical capacity of the implementing agency.

The ERA had already developed sound capacity in planning, budgeting, financial management and monitoring of progress of works. To reinforce the capacity of the institution, however, the project provided for the overseas training of professional and management staff as well as the appointment of consultants to develop and implement; (i) the RFCS and PMS for providing the tools for classifying roads according to the services they render and for collecting and analyzing planning data for determining optimum maintenance and rehabilitation program for the road network. (ii) Roads and Bridge Design Manual and Technical Specifications and introduce a Computer Aided Design and Drafting (CADD) system. (iii) Financial Management Support to update ERA's entity accounts, develop a new chart of accounts, and train ERA Financial Management staff. The consultancy support provided for the development of follow up projects was also an important element of the project which facilitated the establishment of the economic and technical feasibility and preparation of the levels of road improvements to be incorporated in future road projects 3.4 Revised Components:As a result of the 1998 border conflict between Ethiopia and Eritrea, the project was restructured in August 1998 to include, (i) rehabilitation of about 70 out of 140 kilometers of the Mille-Gewane Road which is a continuation of the improvement of the Mille-Assab road, and (ii) additional preparatory studies for possible follow-on projects. Restructuring was made after the mid-term review, and following a request by the Borrower including a revision of the PIP with expenditure proposals to fully utilize the proceeds of the Credit.

3.5 Quality at Entry:Quality at entry is rated satisfactory overall. The assessment was based on the consistency of project objectives with the Borrower's overall investment priorities and the Bank's CAS. The Borrower's overall investment priorities centered around improving the principal import-export road corridor the deterioration of which had accelerated due to excessive axle loads. The rehabilitation therefore helped to restore the main lifeline of the country's road system in supporting economic growth, in general, and export development in particular.

The Bank's CAS focused on providing increased support directed initially at post-war reconstruction. Although the project's preparation was initiated prior to the post civil war transition period, i.e., May 1991, its objectives were consistent with, and provided the basis for the Borrower's Sectoral objectives and priorities, and the CAS of the Bank for infrastructure.

As with most Bank financed projects of the period, the performance indicators were not explicitly developed (no baseline and budgeting figures were established). However, the opportunity was ceased during the project restructuring to address this.

The major road works were ready for implementation by the time of appraisal. The design review and the ICB tender documents preparation were completed by an international consultancy Firm in April 1992. The original design of the rehabilitation of the Mille – Assab road section was completed in 1989 by the Transport Construction Design Enterprise. There was a delay in the processing of the procurement of contractors, and the contracts were awarded 23 (against a scheduled period of 9 ) months after project effectiveness, probably largely due to the inexperience of ERA at the time in contract administration. The situation, however, has improved following TA support under the ERRP (Cr. 2351-ET) and training provided to ERA staff under this Credit (2438-ET). See also Section 4.5.

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The environmental aspects were integrated in the road designs and works execution so as to minimize any adverse impact on the natural environment. The rehabilitation did not require major relocations, hence the effects on human health and well being, ecosystems, use of natural resources as well as social effects were not critical. As land acquisition plans were prepared, issues related to right-of–way (ROW), in general, and compensation entitlement payments, in particular, were resolved. During implementation of the project which formed part of the 10-year RSDP, an Environmental Procedures Manual and a Resettlement Framework Paper was also prepared and adopted after Bank approval. Bank supervision inputs during the works execution also contributed to ensuring that environmental mitigation measures were adequately addressed and any issues arising were addressed in accordance with Bank’s Safeguard policies. The rehabilitation of the road provided employment opportunities and enhanced the maintenance on critical sections. Medical facilities and support were also availed from clinics at construction camp sites which included HIV/AIDS awareness campaigns and the promotion and use of condoms in the settlements along the road.

One area of exposure in project implementation is that it was not possible to anticipate the difficulty of implementing a road project traversing two neighboring countries, who at later stage got involved in a border conflict which intensified into a war, resulting in the suspension of two of the three works contracts on the Mille-Assab road. Of the three main civil works contracts Contract 1 (Logia- Semera, 41 km), which is also serves traffic to the port of Djibouti, was completed satisfactorily, Contract 2 (Elidar-Burie,100 km) was 48% completed, and Contract 3 (Burie-Assab, 58 km which was located in Eritrea) was 95% completed. The quality of work was generally good. The Works were expected to be completed by April 1999 when the border conflict between Ethiopia and Eritrea extended into the area, and led to termination of Contracts 2 and 3. It should be noted that when the project was initially appraised in September/October 1990, Eritrea was part of Ethiopia. The processing of the Project was delayed as a result of a change in government in May 1991 when Eritrea has, de-facto, separated from the rest of Ethiopia. The legal separation came into effect during early 1993. The SAR was updated in March 1992 and a memorandum of understanding was signed between the two countries by which Ethiopia committed to assume the full Credit, and for Eritrea to assume full responsibility for the maintenance of the road within its territory after the completion of the works. However, the external factor to result from the hostilities between Ethiopia and Eritrea could not be anticipated or assumed at the time.

The assumptions for achieving the objectives of the project were not explicitly stated in the SAR. The critical assumption is, however, related to the continued use of the port of Assab as the most important outlet to the sea. The SAR identified a number of risks including security problem, that some sections not included in the project (Mille-Awash) might fail, vehicle load control might not be successful due to weakness in enforcement, likely lack of success in the implementation of the PMS because of possible organizational weakness. Nonetheless, except the security problem, it had been possible to cope with these risks, as follows, (i) The Mille - Awash road has been included in the RSDPSP project financed by IDA, (ii) ERA assumed the responsibility for the enforcement of legal limits on axle loads and there are signs of improvements in reducing over loading, although there are still some shortcomings. Many vehicles are still over-loaded, particularly on the rear axle, and the requirement for more rigorous controls or effective sanctions to avoid the acceleration of the deterioration of the road network.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:Objective 1. Improve the bearing capacity, geometry, safety and riding quality on Sections of Ethiopia’s main transport Artery: Overall, about 223 km of the proposed 266 km were substantially completed under the project. The rehabilitation of the road improved riding quality, road safety, (due to a

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wider pavement, improved geometry, traffic signs and better riding quality) and reduced risks of bridge failure, along with contributing to a road transportation corridor that functions smoothly and efficiently. The construction of parking/service lanes through built-up areas provided safe and easier access without restricting traffic movement, while meeting the requirements for parking bays for trucks and other vehicles. Despite the unfinished sections of the Mille-Assab road, the overall project objectives were met, and the achievement is satisfactory. The project's objectives are consistent with current country and sectoral assistance strategies, as well as the Bank's social and environmental goals. The rehabilitation of the road also fits in the current country strategy based on Ethiopia's SDPRP which focuses on improving human development outcomes, enhancing pro-poor growth, and reducing vulnerability. Central to this is integrating the country's trade to the world market.

The country depended on the corridor as the primary access to the sea, a critical element for export - led growth, integral to the SDPRP. One of the components of the CAS is to support the rapid expansion of Ethiopia's exports, which is considered to probably constitute the country's most central challenge after providing food security. The rehabilitation of the roads resulted in the reduction of high transport costs for exports and imports, and increase in the frequency of transport services. This continued to be possible because the improved road section still provided the main connection via Dobi to the port of Djibouti to which all exports were diverted after the war, although the main section of road within Djibouti had not been improved to the same standard by closing date. The Bank has now provided financing to Djibouti for improving the section of road from the border to Djibouti port.

In general, the project provided the framework for developing long-term sector strategy as it provided useful lessons during implementation and provided a basis for supporting the current CAS and sectoral assistance. The 2003 - 2005 CAS has four thrust areas, which have been identified as a basis for supporting the Borrower's poverty reduction strategy. These are capacity building, decentralization and service delivery, private sector development and pro-growth and infrastructure development. The project was consistent with three of the four thrust areas of the CAS, capacity building (ERA's institutional capacity improved with the introduction of new systems and procedures as well as training of personnel), Private sector development (sub-contracting of road works and consultancy services to local firms), pro-growth (support the expansion and competitiveness of exports, and reduced transport costs for imports), and infrastructure development (improved condition and structural integrity of pavement and bridges along the corridor). The road works generated employment and income for local labor.

Objectives 2 & 3. Improve ERA’s Capacity for Maintenance; and implement institutional measures to enable ERA to better assess and address potential sector problem: The above objectives were realized in a number of ways as the project contributed to the development of institutional capabilities. At the time immediately following restoration of peace following an 18-year civil war, when ERA District Maintenance Units were fully responsible for nearly all road maintenance activities, the supply of maintenance equipment and spare parts enabled immediate attention to road maintenance. In addition, the development and implementation of the RFCS and PMS facilitated the institutionalization of long term and comprehensive road network planning and development. It also helped ERA to implement planning techniques needed for determining optimum design and maintenance standards, and budget allocation for road expenditures. The Design Manual, and Technical Specifications, were also an important outcome of the project. The geometric standards provide design controls and criteria which are important parameters for harmonization of the federal and regional network functions and use. The Technical Specifications are also expected to allow for clearer mutual understanding between the Executing Agencies and Contractors with regard to the quality of workmanship in construction operations and the selection and use of materials. The pavement design guides have been based on well-known empirical methods and adapted to suit the pertinent features of the Ethiopian environment. The bridges Manual sets well defined standards for

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different sections of Bridges, as well as the requirements for design loads. In general, the manuals serve in documenting established design standards and criteria, as well as formats to be followed in preparing contract plans. The FMS support has also strengthened the financial management system of ERA. The organizational structure of the Finance Division was clearly defined and approved by the Board of Management of ERA, chart of accounts was designed and implemented, long outstanding balances in bank, debtors and creditors accounts were cleared and ERA entity accounts and audits have been brought fully up to date through FY 2002.

Support in developing the capacity of the private sector: Although not explicitly stated, the project supported the development of the private sector. The road works on the ICB contracts created an opportunity for economy and efficiency after several years of dependence on ERA’s force account. It also provided opportunity for local contractors to participate in the supply of materials as well as in the construction of drainage structures and the district maintenance depots. The consultancy services for the feasibility and EIA studies, and the Design Review, Pre-qualification of Contractors and Tender Evaluation for follow-up projects, as well as, the PMS, RFCS, and FMS, were all carried out by foreign firms in association with local consultants and/or with the participation of local professionals. This has contributed to the development of the local consultancy industry.

Facilitate movement of traffic and improvement in safety: The project SAR highlighted the need to establish a regulatory environment for competition (regulation of entry and freight rates) for the delivery of transport services for Ethiopia's international trade. This arose from the Bank dialogue with Government and action taken under the ERRP Credit (2351 ET) and the Transport credit (Cr. 2002 –ET), all of which emphasized the liberalization of the Road Transport Industry. In conjunction with the ERRP the GOE raised tariffs by 70 percent on main roads (rates that were then highly regulated with very low, forcing truckers to overload, which in turn contributed to deterioration of the import-export corridor, in particular); GOE also agreed to complete deregulation by the end of 1992. Substantial deregulation occurred in May 1992 when Proclamation 14/1992 was enacted. The introduction of controls on axle loads was also consistent with the preservation of road infrastructure. The axle load limit of 10 tons per axle passed in 1990 was enacted. Road safety and environmental mitigation were addressed during the road works through the installation of traffic signs, enlargement of sharp bends and the construction of guardrails, all of which contribute to reducing accidents. The additional environmental mitigation measures included the restoration of borrow pits, and the reduction of erosion through the adoption of gentle slopes and protection of soil.

The project's outcome is considered to be satisfactory, reflecting the original objectives. The direct access to the port of Assab expected from the rehabilitation of the Mille-Assab road was affected by the border conflict between Ethiopia and Eritrea. However, the access to the port of Djibouti was equally facilitated. The project is rated satisfactory considering (i) the project objectives have been achieved, though the unforeseen border conflict which started in 1998 reduced its full contribution with the suspension of works on a section of the Mille-Assab road; (ii) The comparison of the economic analyses for the sections of the Mille-Assab, and Gewane-Mille roads at appraisal and at completion showed EIRR of 21.7 and 14.6 percent, respectively, largely due to the increased construction costs from the arbitration award. This is still higher than the assumed opportunity cost of capital of 12% for Ethiopia. (iii) Sustainability of the project is ensured as the borrower has introduced a stable flow of funds in the form of dedicated fuel levy for road maintenance and has improved network planning through the establishment and implementation of RFCS and PMS.

4.2 Outputs by components:A - Civil Works

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A.1 Mille – Assab Road Rehabilitation: As stated in 3.5 above the rehabilitation work was carried out under three contracts. All the three contracts were awarded to SOGEA of France and signed on February 24, 1995, with a commencement date of March 1, 1995. The original completion dates for contract 1 was February 28, 1997, and for contract 2 and 3, February 28, 1998. The total amount of the contracts was 49.88 M USD equivalent of which 13.03, 21.88, and 14.97 M USD equivalent were for contract 1,2, and 3 respectively. The contractor was granted an interim time extension of 5 months for all three contracts. However, due to the border conflict between Ethiopia and Eritrea, the contracts 2 and 3 were terminated by the Employer on June 25, 1998. At the time of termination, the overall accomplishment was about 73%; with accomplishment of 100% on contract 1, 48% on contract 2, and 95% on Contract 3.

The special status report prepared by the Consultant, in October 1998, excluded the effects of the acceleration and/or changes in the scope of the works, which the consultant said were left in ambiance, indicated the total amount of claims applied by the contractor, on all three contracts, was about 59.8 M USD equivalent, out of which about 21.34 M USD equivalent had been recommended for payment. However, in spite of the attempts at reaching an amicable agreement between the Contractor and the client with the encouragement of the Bank, the two parties could not reach an agreement. As a result, the contractor filed a request for arbitration on April 21, 1998. The Contractor’s basic claims could be categorized in the following six groups; (i) Delay and Disruption, (ii) Administrative, (iii) Special Risks, (iv) Equipment Re-Export, and (v) Sub-contractor’s related claims, on all of the three Contracts, and (vi) Contracts 2&3 termination. The attempts at amicable settlement between ERA, as Client, and the Contractor continued thereafter, however, the efforts were complicated by Government’s insistence on pressing corruption charges against the Contractor which awaited judgment by the Ethiopian Supreme court. These were eventually discounted by the Arbitral Tribunal which then rendered its final award in December 2001, declaring that the Contractor was entitled for payment of about 45.6 M USD equivalent.

The (i) Special Risks, (ii) Contracts 2&3 termination, (iii) the sub-contractor and (iv) part of the delay and disruption claims were beyond the control of the ERA and GOE. Whereas there was a possibility of reducing the claims related with the equipment re-export, some of the delay and disruption claims if timely actions were taken by different organs of the GOE. The claims related with design issues were primarily related to the additional pavement deterioration which occurred between the time when the design review was carried out and actual construction on the ground. The 12-month delay in the Contractor’s mobilization also contributed to this situation. The lack of experience in claims management in ERA, as this was one of the first major ICB contracts after two decades of force account culture, with no private sector participation, as well as, GOE's reluctance in giving ERA the full mandate to resolve the claims amicably, at the initial stages, all contributed to this scenario.

The Bank continuously encouraged and suggested to ERA and GOE, with advice from the supervision consultant, to resolve the disputes amicably. The GOE in, June 2002, finally decided and informed the Bank that it was moving forward to reach amicable settlement with the contractor, while indicating that it would need Bank's assistance in reaching a speedy conclusion to the issue. As a result, the Bank facilitated, and the GOE negotiated a settlement amount of 25 M USD with the Contractor and a request was submitted for Bank financing. GOE also requested the Bank, and the Bank gave its no objection, that the available amounts in the Credit proceeds be used for eligible payments under the settlement agreement, and the remaining balance be financed under the EDRP (Cr. 3437- ET). Two payments for a total amount of 15.32 M USD were paid to the contractor from the remaining balance of the Credit proceeds, fully disbursing the Credit amount. The outstanding balance i.e., 9.68 M USD is proposed for financing under the EDRP. The total amounts paid from the credit stands at 55.44 M USD.

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A.2 Mille-Gewane Road Rehabilitation: This sub-component was included after the project was restructured and the tendering process was included in RSDPSP as part of the Modjo- Awash Arba- Gewane-Mille road. The construction contract was signed on March 19, 1999 with a joint venture of South Africa, Greece and UK contractor, LTA/CCC/BB for a total contract sum of about USD 34 million equivalent. This component was substantially completed, along with the full settlement of claims, and fully handed over to the Employer in July 2002. The total claims of the contractor on this contract amounts to about 5 M USD, including claims that are related with legislation changes, which were amicably settled for an amount of about 1 M USD by ERA. This in contrast with the longer period of the claims management and resolution on the Mille-Assab road contract was a further indication of the improvement in the capacity of ERA to handle contractor claims, as well as the provision of Dispute Resolution Experts in the new contracts on the Credit 3032-ET. A total of 20.22 M USD has been disbursed for the rehabilitation of about 83 km section of the road from the proceeds of credit, the remaining balance is financed under the Cr. 3032-ET.

A.3 Road Maintenance Depots: This component included the construction work of Awash and Gewane maintenance depots, commenced in April 1997 by ERA Own Force. Due to delays in procurement of the required building materials, the works experienced substantial delays, and ERA contracted the remaining construction and finishing works to a local contractor. The work has recently been completed with the Government covering all associated cost of the sub-component.

B. Technical Assistance and Training

B.1 Construction Supervision of Mille-Assab Road Civil Work: The consulting firm, DIWI consult of Germany, signed a contract with ERA in February 1995 and provided technical assistance for supervision of the contract. The consultant provided the assessment of the contractor claims which were the basis for the discussions with the contractor during the period of dispute and arbitration. A final contract completion report was also prepared by the consultant. About 2.68 M USD was disbursed from the Credit.

B.2 Pavement Management System & Road Functional Classification: The Consultancy contract was signed between ERA and BCEOM of France on May 2, 1996. The study was implemented in two parts: Part I: Road Functional Classification system; and Part II: Development and Implementation of Pavement Management System. Both studies were completed in March 1999 with 0.96 M USD disbursed from the Credit.

B.3 Consultancy services for the Design Review and Pre-qualification of contractors for the roads under RSDPSP: These consultancy services for the RSDPSP I roads (Modjo-Mille, Debremarkos-Gondar, Woldiya-Zalambessa, Awash -Harar) have successfully been completed with the award of civil work contracts being financed under credit 3032-ET. The services were carried out by four Consultancy Firms. About 1.94 M USD was disbursed for these services.

B.4 Feasibility Study for roads to be considered for RSDSP APL I and II: The consultancy services contract agreement was signed between ERA and KOCKS consult of Germany on 1st April 1999 for the feasibility Study of 7 roads. Nazareth-Goba, Adigrat-Adwa, Gondar-Mereb River, Dera-Mechara, Dembi- Gambella, Woreta-Woldiya and Nekempte-Assosa roads. The final report of the study was presented to both IDA and ERA on June 2000, with about 0.08 M USD disbursed from the Credit.

B.5 EIAs for Road to be considered for RSDSP APL I and II: The consultancy services contract for the EIA of the 7 roads (B.4 above) was signed between ERA and Africon of South Africa on August

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16, 1999. The study had been completed and final report submitted in February 2001 with about 0.1 M USD disbursed from the Credit.

B.6 Design Review and Pre-qualification of Contractors for Roads to be considered for RSDSP APL I and II: The proceeds of the credit was also used for the design review of 5 selected roads selected from the 7 roads whose feasibility & EIA were conducted. The roads are Nekempte-Mekenajo, Nazareth-Goba, Adigrat-Shire, Woreta-Woldiya, and Dera-Mechara. All the consultants have submitted the draft final report and are expected to finalize the documents incorporating both IDA and ERA’s comments. GOE requested and IDA agreed to finance the remaining services under Cr 3032-ET. An amount of 0.96 M USD was disbursed for these services.

B.7 CADD and Road and Bridge Manual and Technical Specification: The consultancy services contract was signed between ERA and Louis Berger of USA on September 30, 1997 with the original completion date of June 30, 2000. The services commenced as scheduled, but experienced delays in finalizing the manuals. By the Credit closing date, the Drainage Design, Site Investigation, Pavement Design Volume I and II, Bridge Design, and Pavement Rehabilitation and Asphalt Overlay Design Manuals, as well as Standard Detail Drawings, Conditions of Contract Documents, and Geometric Design, and Standard Environmental and Procedures Manual have been reviewed and accepted by ERA. The standard Technical Specifications prepared by the consultant was not found acceptable by ERA. ERA’s review committee in consultation with the consultant have therefore prepared a revised Technical Specifications. The consultant has started the procurement process for the CADD system equipment. About 0.93 M USD was disbursed from the Credit. GOE requested and IDA agreed to finance the remaining activities under Cr.3032-ET.

B.8 Review of ERA Financial Management and Accounting System: The contract was signed between ERA and SGV Consultants of the Philippines on October 29, 1998 with contract implementation period of 18 months. The Consultant assisted ERA to complete the reconciliation of backlogged annual ERA entity accounts which resulted in all of the accounts being brought up to date by Credit closing. The Consultant reviewed the financial system and produced a revised draft Accounting and Financial System Manual. The organizational structure of the Finance Division was clearly defined, the chart of accounts was designed and implemented, long outstanding balances in bank, debtors and creditors accounts were cleared and ERA entity accounts and audits have been brought fully up to date through FY 2002. But the consultant could not finalize the Manual, after testing them, and computerization of the financial system due to reservations regarding the capability of the software selected by ERA. However, ERA finalized the manual, and implementation has commenced using the chart of accounts developed by the study. An amount of 0.28 M USD was disbursed for the services.

B.9 Training and Twining: All in all, 43 out of the planned 50 staff from ERA and RRAs received training and seminars in courses offered in various institutions, colleges and universities. All areas of specialization identified during appraisal such as equipment management, transportation planning, highway engineering, road maintenance, transport economics, labor based technology, computer science, contract law, training of trainers, workshop management, etc. were covered with a disbursement of 0.75 M USD. The staff who were trained under the Credit now serve in leadership and professional positions in ERA. The staff have contributed in enhancing needed ERA capacity in its various divisions and branches including contract administration, environmental monitoring, planning and equipment divisions.

C. Procurement of Equipment

C.1 Maintenance Equipment: Two sets of road maintenance equipment amounting to 6.4 M USD,

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were procured and are in use by ERA Maintenance units.

C.2 PMS Equipment: All required items of equipment were procured as part of the PMS consultancy service and are in use by the Pavement Management Branch of ERA.

C.3 Weigh bridge Equipment: Ten pick-ups and spare parts for weigh bridges have been procured for a total amount of 0.12 M USD, and have increased the efficiency of the existing weighbridge stations following the transfer of full responsibility of operating the weigh stations from the Road Transport Authority to the ERA.

4.3 Net Present Value/Economic rate of return:The NPV and ERR for the three sections of the Mille - Assab road, and the Gewane - Mille road at appraisal and at completion are shown as follows

At appraisal At completion Road Link NPV at 12%

(M ETB)ERR

%NPV at 12% (M ETB)

ERR%

Mille - Assab(i) Logia-Semera 25.52 17.3 35.6 19.1(ii) Elidar-Burie 88.01 22.2 -3.4 11.2(iii) Burie-Assab 89.92 24.3 5.5 13.0

Combined 203.45 21.7 37.5 14.6Gewane-Mille 280.9 21.7 53.471 14.6

The scope and details of the economic re-evaluation have been presented in Annex 3. The initial cost estimate for the project as a whole and for the Mille-Assab and Gewane-Mille roads are also shown in Annex 3. It should be noted that the most important assumption concerning the project's cost estimates at appraisal were that about 80 percent of road works costs comprised foreign currency component. The economic re-evaluation considered two scenarios (case I is the 'without' Port Assab scenario and case II "with" Port Assab scenario). Although the sections of the road beyond the Junction at Dobi to the port of Assab are not fully used by commercial traffic presently, for both scenarios, the analysis is based on the assumption that the entire road would be usable during the analysis period, with a reduced amount of traffic. The settlement of the Claim amounts to USD 25 million, and this resulted in substantial increased in costs (by about 50 percent) in spite of the gains in exchange rate adjustment in comparison with the appraisal estimate. Consequently, the economic analysis was based on higher construction unit cost expressed in Ethiopian Birr equivalent.

A specific distinction was made in traffic forecasting for cases I and II. For case I, the assumption that the Port Assab would remain closed and as a result only 30 % of the traffic would be served by Elidar-Bure and Bure Assab sections), has led to lower than expected traffic levels. For scenario II, it was assumed that Port Assab would be open to Ethiopian traffic in the latter years of the analysis period. Considering the time series of historical data and synthesis of influences on anticipated increases in external trade, different growth rates have been applied for the two scenarios. The effect of the uncompleted section on maintenance cost has also been considered for the Contract 2. Even frequent re-gravelling is insufficient to reduce road roughness to acceptable levels due to its poor condition and the magnitude of forecasted traffic under both scenarios. It is assumed that major re-gravelling and more frequent grading would be required to attain a smoother surface. Therefore, unit costs for maintaining the uncompleted section is far higher than the standard generally applied. However, the decrease in vehicle operating cost due to smoother surface is more

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than balanced by the increase in maintenance costs. Hence, the high unit cost of maintaining the uncompleted section (contract 2) and the relatively higher level of vehicle operating cost have implications on the indices of the economic re-evaluation. The reduced flow of benefits also apply to the overall investment for the rehabilitation.

4.4 Financial rate of return:Not applicable since non-revenue earning entities are involved.

4.5 Institutional development impact:The project produced substantial improvement in the capacity of ERA to effectively plan and manage the road network. One example of the improved capacity in contract administration and procurement processing is the progress made in reducing the period taken to award works contracts from the start of the project. The road works contracts under this Credit were not awarded until 27 months after the Credit approval and 23 months from effectiveness. This is contrasted by 15 months and 11 months taken until the award of contracts under Credit 3032-ET, and the projected 12 and 9 months, respectively, projected for the award of road contracts for the proposed Road Sector Development Phase I Project in support of RSDPII.

The training of personnel was a critical prerequisite for institution building. The local technical personnel employed by the contractors in the rehabilitation of the two roads benefited by enriching their experience. The systems developed and manuals prepared equipped ERA with the tools for planning, designing and contract administration. The staff of ERA engaged in contract administration and management, as well as, claims management, and settling of disputes amicably have gained a lot of experience. The development and implementation of PMS along with the training of counterpart staff has reinforced institutional capacity for determining the optimum rehabilitation and maintenance of road sections based on road condition surveys and funding requirements. Hence, a sound strategy involving a sequence of interventions to be applied during a designated analysis period to maintain the pavement above a minimum condition level provides for the sustainability of the project. On the contrary, the continuing over loading of axles from heavy and articulated trucks, in certain cases as high as three times the legal limit is a problem that has an effect on sustainability. However, improving institutional capacity of ERA in enforcing axle load limits is a step in the right direction in the retention of the road as a vital link in the network. The overall progress in reducing the reliance on force account methods of works and towards increasing the use of contractors would enable long-term sustainability to properly maintain the roads.

The review of ERA's Financial Management and Accounting System under this project has much contributed towards improving the ERA's financial arrangement and accounting system. It provided a sound guide ERA in meeting essential accountability requirements for the receipt and expenditure of funds. In addition to meeting fiduciary responsibilities, the System facilitated decisions with respect to utilization of financial resources. The training of 43 personnel in the road sector, in one Project, is one of the best achievements in the ERA's history. The construction of maintenance depots at Awash and Gewane has contributed to enhancing physical capacity and support for road maintenance in Alemgena and DireDawa Maintenance Districts.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:The most critical factor that affected the implementation and outcome of the road rehabilitation component of the project was the border conflict between Ethiopia and Eritrea. The conflict had led to the suspension of the work on two of the Mille - Assab road contracts. The outcome of this situation was the closure of the road to Ethiopian exports and import traffic, and its diversion to the port of Djibouti. Eventually, this

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together with other factors resulted in a claim amounting to about 45.6 M USD. Relatedly, implementation had been delayed due to prolongation of mobilization and commencement of pre-construction activities. Further, the processing of the project was delayed as a result of the change of government in March 1991. Other contributing factors included the unsatisfactory performance of the consultant appointed for the preparation of Road and Bridges Design Manual, and Technical Specifications. The suspension of the Consultancy services for the review of ERA's Financial Management and Accounting System is another factor that affected implementation and outcome of the project. The depreciation of the local and some other contract currencies in relation to the SDR also increased the level of financial resources available for implementation and therefore the scope of the project could be expanded following the restructuring of the project in July/August 1998.

5.2 Factors generally subject to government control:A factor that affected implementation and outcome of the road rehabilitation works and created difficulties in keeping up with the time schedule was customs regulation for imports of equipment and supplies. The contractor for the rehabilitation of the Mille - Assab road maintained that equipment tied up at ports due to time-consuming formalities resulted in delays and claimed compensation. Aside from this, the inability, at the initial stage, to settle the claim through conciliation rather than through arbitration was major factor that influenced the implementation and outcome of the road rehabilitation component of the project.

5.3 Factors generally subject to implementing agency control:A number of factors that influenced project implementation and outcome include reorganization, rationalization of staffing plan, improved planning, training, reward system, technical assistance services and more effective financial management capabilities relating to budgeting, accountabilities and control of funds. ERA has over the years introduced such measures as more effective payment procedures, monitoring and auditing capability. The development of a manual of Accounting and Financial Systems to ERA by a consultant, though not fully completed, contributed to improved funds flow and control. The revised organization chart and job description of the Finance Division have also enhanced effectiveness and efficiency in processing payments to contractors and consultants.

Lack of effectiveness in the ERA's organization particularly in the procurement of supplies resulted in prolonging the completion date of the road maintenance depots at Awash and Gewane. Also, the deficiencies of the technical specifications of ERA contributed to substantial delay in procuring road maintenance equipment.

5.4 Costs and financing:An assessment of cost changes is difficult considering that due to the border conflict two contracts were terminated before completion. It should be noted that the comparison is exacerbated as the actual cost for civil works includes the cost of rehabilitation of a section of the Gewane-Mille road, which was not part of the original project. Nevertheless the actual cost of civil works for the rehabilitation of the 223 km of roads was less than the estimated amount shown in the SAR and USD, for the rehabilitation of 196 km of roads by about 19 percent, primarily due to the depreciation of contract currencies in relation to the SDR. This comparison does not, however, cover the settlement of claims after arbitration to the contractor who was employed for the rehabilitation of the Mille - Assab road. Considering the payments made against the claims under this credit, an amount of 75.66 M USD was expended verses the planned amount of 74.95 M USD estimated during appraisal. The cost per km, including the full amounts of the claim considering the amount to be paid from the EDRP, will therefore be about 0.380 M USD against an appraisal estimate of 0.382 M USD, showing no significant change is estimated unit cost of the works

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The overall credit currency deprecation loss is about 5.4 M USD, but this did not affect project implementation since there was an unutilized balance from the amounts allocated for the procurement of road maintenance equipment.

6. Sustainability

6.1 Rationale for sustainability rating:The project's sustainability would be rated as 'likely'. There is a clear commitment from GOE in ensuring the maintenance of the rehabilitated roads, as demonstrated by the introduction of dedicated flow of funding. Initial steps have also been taken in introducing more commercially oriented maintenance practices, and contracting out maintenance to the private sector. There is also provision for the more effective enforcement of axle load legal limit. Further, the training of personnel, and the development and implementation of systems and manuals together with the institutional changes in ERA support the long-term sustainability of the infrastructure.

The policy environment is also conducive to sustainability, as it permits significant GDP growth rates through continuation of economic reform and implementation of the SDPRP. The central theme of the strategy is the achievement of sustainable growth with equity, which underlines the importance of road development.

6.2 Transition arrangement to regular operations:The operation and maintenance of both Gewane-Mille and the section of the Mille-Assab (Ethiopian part) have been generally satisfactory. ERA has already included both Roads in its annual regular maintenance program and sufficient budget has been allocated.

7. Bank and Borrower Performance

Bank7.1 Lending:At the identification stage, the task team ensured that the project objectives and scope were consistent with both the government’s priorities and the CAS. Appraisal was satisfactory. The SAR assessment of the government’s commitment to the project and of the ERA’s capacity during negotiation was excellent. The economic analysis reviewed by Appraisal Team clearly indicated that it would be economically feasible to upgrade this important corridor. The main risks were identified correctly: (i) security problem which might affect the implementation of the project; (ii) the risk of not including in the Project the other sections of the Corridor; (iii) the risk related to the implementation of the new Axle Load Control system; and (iv) risk associated with the PMS which may not be successfully implemented because of possible organizational weakness.

7.2 Supervision:During the period of implementation, the task team leader remained almost the same and the continuity of staff was maintained. As a result, Bank supervision performance during implementation was consistent and satisfactory. The Bank assigned a highly qualified team to the Project with an appropriate skill mix, including experts in areas of engineering, environment, highway maintenance, financial management and transportation economics. Bank involvement was critical to the progress of implementation of both civil works and studies for which the staff provided useful advice in improving their quality. The task team also showed responsiveness and flexibility in approving needed project design changes and modification.

7.3 Overall Bank performance:Overall, the Bank’s performance was satisfactory. The supervision team paid adequate attention to project

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compliance on all components of the Project, promptly warned and advised the Government to resolve disputes arising out the contracts’ implementation.

Borrower7.4 Preparation:The Borrower’s preparation was also satisfactory. Both the national government and implementing agency were highly committed to the project from the start. Their commitment was evidenced in their well-documented preparation work for this important project. The Planning and Programming Division of the executing agency was capable of undertaking the full-fledged feasibility study of the Project. In addition, the report submitted to the Bank by the executing agency in January 1990 which dealt with the overall transport sector and project concept, composition and economic evaluation of the civil works component enabled the Bank Mission to finalize its preparation.

7.5 Government implementation performance:The GOE's implementation performance on the Mille-Assab road project was not satisfactory, in the areas of custom clearance, and, by GOE taking a hard line against the contractor, due to the other court cases, minimizing the chances for ERA to reach an early amicable settlement on the Mille-Assab Contracts. However, the performance was much improved on the Gewane-Mille road project, as ERA had agreed and followed IDA recommendations, with Government assistance, to set clear procedures under the new Road Sector Development Program and particularly from the start of the new Credit 3032-ET. These measures assisted contractors to minimize the customs/ processing delays, and the Government has been fully committed to all aspects of the new project and the overall program’s implementation.

7.6 Implementing Agency:The implementation of the project has been a challenge to both the Borrower and the ERA, considering the lack of experience in international procurement and contract administration over the period 1974 to 1991 for road works. This had implications on important questions of delegating extensive powers to "Engineers" for the purpose of supervising the execution of road works, various aspects of contract performance and settlement of dispute. On the contrary, the scope of range of policy and institutional improvement requirements for the implementation of the project as well as the number of institutions involved, the number of project components and their geographic dispersion had been limited. There were no conditionalities that required changes in basic law and legislation, the responsibilities and status of the Executing Agency, as the Project fit into the new government's transition period.

Overall project management was satisfactory. ERA swiftly adapted the project to changing circumstances and suggested changes accordingly. The coordination of different government agencies in meeting mutual obligations was not straight forward, partly due to procedural impediments and their effects on the ability to perform in a reasonable time. This was particularly the case with unreasonable inconvenience and delay in the delivery of contractor’s equipment and supplies as a result of customs practices. The most noticeable achievement of this project was the timely completion of the Gewane-Mille road rehabilitation and the introduction of PMS and RFCS into road network planning of the country. The other important consideration is in the areas of training of both federal and regional road sector personnel. In this regard, more than 43 road sector personnel have been trained in areas of transport planning and economics, construction law, financial management, highway engineering and design, equipment management, personnel administration, etc,.

7.7 Overall Borrower performance:Overall, the borrower’s performance is rated as satisfactory. In general, most concerned and key stakeholders showed their commitment to the Project and followed through to ensure its successful

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implementation and operation.

8. Lessons Learned

One vital lesson in project preparation is the importance of indicators. There were no specific outcome indicators established for the project during preparation and appraisal to monitor the progress of implementation. However, for the Gewane-Mille road, which was included after the Project was revised in 1998, selected indicators were identified and a base line and/or benchmark was established.

The other lessons drawn from the Project, especially by ERA, was that they should seek the support of all organs of government to facilitate contract implementation, by minimizing bureaucratic procedures, such as delays in customs clearance, granting of licenses for explosives and radio communication equipment, etc. These and others, provided grounds for contractor claims on the contracts in the project. Consequently, in preparing the Cr, 3032-ET, many of such factors were considered and ERA with assistance from Government, established clear procedures in customs clearance, radio and explosives licenses, and thereafter informed contractors promptly. Also important was the need to develop the capacity of domestic contractors. Perhaps, one of the most important lessons learnt is the recognition of the complexity of internationally agreed principles of tendering, questions of law in the formulation of contracts, the options for the settlement of disputes in direct negotiation to avoid litigation and the tendency towards the use of arbitration. This lesson contributed to the making special provisions for the appointment of dispute resolution experts on all new contracts thereafter, to provide opportunity for early resolution of disputes, before resorting to send cases to international arbitration.

Subsequent projects, including IDA financed ones, have incorporated arrangements to support the capacity of ERA especially in administering international contracts, and the domestic construction industry. The strengthening of ERA’s capacity in this area has contributed to the reduction on contract processing time. Government's attention has been drawn to the need for improving its regulations, procedures and practices with a view to achieving efficiency in expediting the delivery of project inputs in the context of RSDP.

Since one of the factors that contributed to the delay in implementation was the border conflict, greater attention may need to be paid to analysis of political risks in multinational projects.

Experience gained in implementing projects, such as the factors leading to delays in processing of contracts, when recognized and accepted by the Borrower, leads to gains in the preparation and implementation of other future operations. This should therefore be suitably considered in the new operations.

Important considerationOnly 73 percent of the Mille-Assab road project has been completed due to the border conflict between Ethiopia and Eritrea. It is, therefore, the duty of the GOE to allocate increased funding for maintenance to achieve the objectives of reducing vehicle operating cost and travel time; and could obtain resources to complete the project as conceived, as part of post-conflict resolution.

9. Partner Comments

(a) Borrower/implementing agency:Borrower's comments are included in their completion report attached in Annex 8.

(b) Cofinanciers:Not applicable

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(c) Other partners (NGOs/private sector):Not applicable

10. Additional Information

None

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Annex 1. Key Performance Indicators/Log Frame Matrix

Indicator Base line Actual/Latest EstimateTraffic (ADT) 650 453Journey Time (Heavy vehicle) 2.09 min/km 1.63 min./kmRoughness (IRI m/km) 3.73 2.0

Truck Rates(Birr/Ton/km) 0.51 0.37 Procurument processing time (months) 27 15km of roads built 266 223

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ millionCivil Works 55.39 75.66 136.59Technical Assistance/Training 7.60 8.56 112.63Equipment 7.80 6.38 81.79

Total Baseline Cost 70.79 90.60 Physical Contingencies 10.62 Price Contingencies 14.59

Total Project Costs 96.00 90.60Total Financing Required 96.00 90.60

As of February 26, 2003

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 88.17 0.00 0.20 0.00 88.37(74.95) (0.00) (0.17) (0.00) (75.12)

2. Goods 10.58 0.00 0.00 0.00 10.58(10.58) (0.00) (0.00) (0.00) (10.58)

3. Services 0.00 0.00 10.30 0.00 10.30(0.00) (0.00) (10.30) (0.00) (10.30)

Total 98.75 0.00 10.50 0.00 109.25(85.53) (0.00) (10.47) (0.00) (96.00)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 94.58 0.00 0.20 0.00 94.78(75.66) (0.00) (0.00) (0.00) (75.66)

2. Goods 7.05 0.00 0.00 0.00 7.05(6.38) (0.00) (0.00) (0.00) (6.38)

3. Services 0.00 0.00 9.01 0.00 9.01(0.00) (0.00) (8.56) (0.00) (8.56)

Total 101.63 0.00 9.21 0.00 110.84(82.04) (0.00) (8.56) (0.00) (90.60)

1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

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Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

IDA Govt. CoF. IDA Govt. CoF. IDA Govt. CoF.Civil Works 75.12 13.26 0.00 75.66 18.92 100.7 142.7 0.0Technical Assistance/Training

10.33 0.00 0.00 8.56 0.45 82.9 0.0 0.0

Equipment 10.58 0.00 0.00 6.38 0.67 60.3 0.0 0.0

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Annex 3. Economic Costs and Benefits

A. Original Economic Evaluation of the Gewane-Mille Road Project

A1. Background of the Project: The Feasibility Study for the Rehabilitation of Gewane –Mille road was undertaken by TecnEcon, in July 1997. During the same year, a Design Study was conducted by Gauff Engineers and Nor Consult performed the Design Review later in mid-1998. The pavement design for rehabilitation consists of 60 mm Asphalt Concrete (AC) wearing course and 130 mm of Dense Bitumen Macadam (DBM) over a variable thickness of granular sub-base (150 mm-250 mm).

A2. Description of the Project: The current analysis is concerned only about the Gewane-Mille section of the Awash-Mille link (as opposed to the approach of the Feasibility Study Consultant who considered Awash-Mille as one link of the Mojo-Mille road). to carry out the study). Gewane-Mille (146 km) is the last section of the Mojo-Mille Road Rehabilitation Project, located in Afar Region. This road is part of the primary route connecting Djibouti Port to Addis Ababa, the capital city of Ethiopia. The project consists of rehabilitation of the existing road to a higher standard with a better riding quality, strength and safety.

A3. Normal Traffic & Traffic Growth Rates: The Annual Average Daily Traffic on the project road (Gewane-Mille) for the year 1996 is taken as the base year. The traffic was estimated to grow at 11% per annum to 1998 for light & commercial vehicles. For light vehicles traffic is assumed to grow at 6% to 2000, 4% to 2010 & 2.8% to 2020. For commercial vehicles, the rates would be 10%, 5% and 2.1% respectively.

A4. Proposed Rehabilitation Options and Respective Construction Costs:Two types of pavement designs have been assumed:

ALT 1- Overlay on existing roads using thick asphalt concrete layers; and

ALT 2- Reconstruction of existing roads comprising a thin asphalt concrete surfacing over granular base and/or sub-base layers.

Construction cost/km for Alt 1 of Gewane-Mille road is estimated at 1.7 million Birr and that of Alt 2 is 2.2 million Birr. Thus, the total financial cost for the road is shown below:

Cost in million Birr

LinkLength

(km) ALT1 ALT2

Gewane-Mille 146 248.2 321.2

A5. Analysis Period: It was assumed that construction would commence in 1998 and last for two years. The road would be open to traffic at the beginning of 2000. The analysis period ends in 2020 (i.e. a 20 year analysis period was assumed) with no residual value.

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A6. Maintenance Strategies: The maintenance strategies assumed were as follows: -

For the "without" project case (ALT0):- Routine Maintenance- Grading at six months interval- Spot re-gravelling up to 30 m3 per annum

For the "with" project case ALT1 and ALT2:- Routine maintenance- Patching up to 50% of the potholes area per annum

During the construction period it is assumed that routine maintenance would be carried out for each project alternative.

A7. Evaluation of Results: The economic model used for the analysis was HDM-III. The model computes benefits in the form of savings in VOCs, road maintenance costs and travel time costs. Discounted benefits are then compared to discounted costs to produce measure of net worth.

The results of the HDM-III analysis are summarized in the next table. From the table it can be seen that the Gewane-Mille link has an EIRR higher than 12 percent (the opportunity cost of capital). Alternative 1, overlay on existing road (which is an asphalt concrete surface) is clearly the most effective construction option.

Summary of Economic Evaluation for the Rehabilitation of Gewane-Mille road NPV in million Birr

Link Length(km)

Alternative 1 Alternative 2

NPV at12%

Discount rate

EIRR (%)

NPV at12%

Discount rate

EIRR(%)

Gewane-Mille

146 280.9 21.7197.518.0

B. Economic Re-evaluation of the Gewane-Mille Road Project

B1. Background and Description of the Analyzed Project: The Feasibility Study for the Rehabilitation of Gewane-Mille road was undertaken by TecnEcon, in July 1997. During the same year, a Design Study was conducted by Gauff Engineers and Nor Consult performed the Design Review later in mid-1998. The pavement design for rehabilitation consists of 60 mm Asphalt Concrete (AC) wearing

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course and 130 mm of Dense Bitumen Macadam (DBM) over a variable thickness of granular sub-base (150 mm-250 mm).

The current analysis is concerned only about the first 70 km of Gewane-Mille road project which has been financed under Cr. 2438 ET. This road is part of the primary route connecting Djibouti Port to Addis Ababa, the capital city of Ethiopia. The project consists of rehabilitation of the existing road to a higher standard with a better riding quality, strength and safety elements.

B2. Methodology and Assumptions: The economic viability of the project was reassessed applying the same methodology used in conducting the Feasibility Study. The rehabilitation of the Gewane-Mille road was expected to lead to reduced vehicle operating costs (VOCs), decreased maintenance costs (both periodic & routine) and travel time costs over the life of the project. Economic Internal Rate of Return (EIRR) and Net Present Value of the project road were recalculated using the World Bank’s HDM III model. Recent information was taken into account to validate the results.

The EIRR calculation is based on five major assumptions:

(a) The economic life of the project is assumed to be 20 years. No residual value is assumed.(b) Project construction costs comprise actual financial costs for civil works.(c) All taxes and other transfer payments are removed from the financial cost and benefit streams. The financial costs and benefits are converted to economic costs and benefits using a standard conversion factor of 0.85.(d) VOC inputs and maintenance costs are updated to take into account recent estimates.(e) Prevailing opportunity cost of capital was used as 12% to be consistent with the original Feasibility Study conducted in July 1997.

B3. Estimation of Economic Costs and Benefits

B 31. Normal Traffic & Traffic Growth Rates: ERA carries out periodic traffic surveys to assess growth and vehicle composition on selected locations throughout the country. Consequently, normal traffic has been updated to take account of ERA’s 1999 classified traffic count. The Annual Average Daily Traffic on the project road (Gewane-Mille) from the year 1999 till the year that the road has been opened to traffic (i.e. 2002) is shown in the table below.

Average Annual Daily Traffic (Year 1999)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Gewane-Mille 70 3 34 8 5 12 19 77 393 551

Average Annual Daily Traffic (Year 2000)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Gewane-Mille 70 0 35 1 4 30 10 57 375 512

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Average Annual Daily Traffic (Year 2001)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Gewane-Mille 70 1 26 2 1 18 11 102 287 448

Average Annual Daily Traffic (Year 2002)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Gewane-Mille 70 1 25 2 3 20 15 79 308 453

As can be seen from the table above, there is some fluctuation from year to year partly due to the rehabilitation work. The average growth from the year 1999-2002 is slightly low and it varies between 0 & 30%. For the remaining years of the analysis period, 2 sets of growth rates have been assumed; traffic is assumed to grow at 5% to 2010 & 7% to 2022.

B 32. Construction Costs: Construction costs were estimated at 154 million Birr for 70 km of Gewane-Mille road (i.e. taking cost/km at 1.7 million Birr). The actual construction cost/km for Gewane-Mille road is 3.3 million Birr- implying that cost has become twice than anticipated. The total financial and economic cost for the road is shown below:

Cost in million Birr

LinkLength

(km)Financial Cost Economic

Cost

Gewane-Mille 70 227.6 193.5

B 33. Analysis Period: Construction was assumed to take two years commencing at the beginning of 1998. However, the project actually took three years starting in April 1999 and was completed in August 2002, with a delay of only one year. The economic life of the project ends in 2022 (i.e. a 20 year analysis period is assumed) with no residual value.

B 34. Maintenance Strategies: The maintenance strategies assumed are as follows: -

For the "without" project case (ALT0):- Routine Maintenance- Grading at six months interval- Spot re-gravelling up to 30 m3 per annum

For the "with" project case (ALT1):- Routine maintenance- Patching up to 50% of the potholes area per annum

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During the construction period it is assumed that routine maintenance would be carried out. Maintenance costs savings are then derived as the difference between the costs of the with and without the project cases.

B 4. Evaluation of Results; The economic model used for the analysis is HDM-III. The model calculates benefits in the form of savings in VOCs, road maintenance costs and travel time costs. Discounted benefits are then compared to discounted costs to produce measures of net worth.

The results of the HDM-III analysis are summarized below. From the table it can be seen that Gewane-Mille road is still viable with an EIRR higher than 12 percent, even though the actual cost of rehabilitation has doubled.

Summary of Economic Evaluation for the Rehabilitation of Gewane-Mille Road NPV in million Birr

Link Name Length (km) Economic Indices

Gewane-Mille 70NPV at 12% Discount rate

53.471

EIRR (%) 14.6

C. Economic Re-evaluation of the Mille-Assab Road Project

I. Background of the Project; An in-house Feasibility Study for the Upgrading of Mille-Assab road was undertaken by ERA in March 1989. The Mille-Assab road is 355 km long. The road is divided into four lots: Lot I-Logiya-Semera (41km), Lot II- Semera-Elidar (134km), Lot III- Elidar-Bure (80km) & Lot IV- Bure-Assab (75km). The upgrading work for Semera-Elidar section had been financed by ADB. This analysis is concerned about the remaining three sections of the road which have been financed by IDA through Cr 2438 ET.

Due to the Ethio-Eritrean conflict in the vicinity of the project, ERA has been forced to terminate the contracts on June 25th 1998. At the time of termination of the contracts, accomplishment on contracts 1,2 & 3 was 100%, 48% (~50%) and 96% (~100%) respectively.

II. Description of the Project; The Mille-Assab route commences at Mille, 512 km North East of Addis Ababa and terminates at the Port of Assab, the important national port then. The route is a part of the Addis-Assab import-export corridor. Eventhough the Port of Assab is closed for the Ethiopian traffic, the road is still important in connecting Djibouti Port (which is the only port Ethiopia is using) to Addis Ababa, the capital city. The project consists of upgrading the existing road (DBST) to a higher standard (AC) with a better riding quality, strength and safety.

III. Methodology and Assumptions; The economic viability of the project was reassessed applying the same methodology used in conducting the Feasibility Study. The upgrading of the Mille-Assab road was expected to lead to reduced vehicle operating costs (VOCs) and decreased maintenance costs (both periodic & routine) over the life of the project. Economic Internal Rate of Return (EIRR) and Net Present Value of the project road were recalculated using the World Bank’s HDM III model. Recent information was taken into account to validate the results.

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The EIRR calculation is based on five major assumptions:

(a) The economic life of the project remained at 15 years. No residual value is assumed.(b) Project construction costs comprise actual financial costs for civil works and supervision costs.(c) All taxes and other transfer payments are removed from the financial cost and benefit streams. The financial costs and benefits are converted to economic costs and benefits using a standard conversion factor of 0.85.(d) VOC inputs and maintenance costs are updated to take into account recent estimates.(e) Prevailing opportunity cost of capital remained at 12%.

IV. Estimation of Economic Costs and Benefits

1. Normal Traffic & Traffic Growth Rates: ERA carries out periodic traffic surveys to assess growth and vehicle composition on selected locations throughout the country. However, traffic count on this particular section has become slightly different compared to earlier years from 1998 onwards –this is because traffic that used to use the Assab route has diverted to Port Djibouti route. This means that the first section (Logia-Semera) would serve the actual traffic; however traffic on this route would not fully use the remaining two sections (i.e. Elidar-Bure & Bure-Assab). Therefore, at this stage of the analysis two sets of assumptions would be useful:

Case I: Assume Port Assab would remain closed to Ethiopian traffic, therefore only 30% of the actual traffic is served by the last two sections of the road.

Case II: Assume that Port Assab would be opened to Ethiopian traffic in the later years of the analysis period, therefore a fairly high traffic growth rate than Case I is assumed.

Normal traffic has been updated to take account of ERA’s 1996 classified traffic count. The Annual Average Daily Traffic for the project road (Mille-Assab) from the year 1996 till the year 2002 is shown in the table below.

Average Annual Daily Traffic (Year 1996)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Mille-Assab 196 2 16 8 5 31 21 156 356 595

Average Annual Daily Traffic (Year 1997)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Mille-Assab 196 2 18 5 8 9 19 159 272 492

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Average Annual Daily Traffic (Year 1998)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Mille-Assab 196 3 22 2 17 7 15 126 338 530

Average Annual Daily Traffic (Year 1999)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Mille-Assab 196 2 47 4 18 19 19 156 505 770

Average Annual Daily Traffic (Year 2000)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Mille-Assab 196 2 37 1 12 21 33 162 426 694

Average Annual Daily Traffic (Year 2001)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Mille-Assab 196 2 47 3 7 12 23 199 442 735

Average Annual Daily Traffic (Year 2002)

Road LinkLength(km) Car

LandRover

Small Bus

LargeBus

SmallTruck

MediumTruck

Heavy Truck

Truck &Trailer Total

Mille-Assab 196 0 40 4 7 8 35 129 427 650

As can be seen from the table above, there is some fluctuation from year to year partly due to the upgrading, war and the civil unrest in the vicinity of the road. The average growth rate from the year 1996-2002 is slightly low and it varies between 0 & 30%. For the remaining years of the analysis period two sets of growth rates have been taken; for light vehicles traffic is assumed to grow at 4% to 2006 & 2.8% to 2013. For commercial vehicles, the rates would be 5% and 2.1% respectively.

For Case II the growth rates for all types of vehicles are assumed to be 5% from 2007-2013.

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2. Construction Costs: Construction costs were estimated at 165.94 million Birr (i.e. cost/km=0.85 million Birr) at 1989 prices. However, the work of only Contract I & III have been completed; 50% of Contract II’s work has been accomplished (i.e. 50% of the cost has been expended). Therefore, the approximate actual construction cost/km for Mille-Assab road is 1.4 million Birr- implying that cost has become twice than anticipated. The total financial and economic cost for each section of the road is shown below:

Cost in million Birr

LinkLength

(km)Financial Cost Economic

Cost

Logiya-Semera 41 85.4 72.6Elidar-Bure 80 89.4 76.0Bure-Assab 75 98.8 84.0

3. Analysis Period; Construction was assumed to take five years (including one year maintenance) commencing at the beginning of 1989. However, the project actually took three years starting in 1996 as it was terminated on June 25, 1998. The economic life of the project ends in 2013 (i.e. a 15 year analysis period is assumed) with no residual value.

4. Maintenance Strategies: The maintenance strategies assumed are as follows: -

For the "without" project case (ALT0):- Routine Maintenance- Patching up to 20% of the potholes area per annum- Reseal at 5 years interval

For the "with" project case ALT1 (Section I & III):- Routine maintenance- Patching up to 100% of the potholes area per annum- Reseal at 7 years interval

For the "with" project case ALT 1(Section II):- Routine maintenance- Patching up to 100% of the potholes area per annum- Overlay at 8 years interval

During the construction period, it is assumed that routine maintenance and patching would be carried out for the road.

Maintenance costs savings are then derived as the difference between the costs of the with and without the project cases.

IV. Evaluation of Results; The economic model used for the analysis is HDM-III. The model calculates benefits in the form of savings in VOCs, road maintenance costs and travel time costs. Discounted benefits are then compared to discounted costs to produce measures of net worth.

The results of the HDM-III analysis for Case I & II are summarized as follows.

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Case I: From the table it can be seen that the project road as a whole (i.e. Mille-Assab) is still viable with an EIRR higher than 12 percent (the then opportunity cost of capital). However, when looked at by section, Contract II (Elidar-Bure) has an EIRR lower than the threshold mainly because only 50% of the section has been completed and a higher maintenance cost is assumed as a result.

Summary of Economic Evaluation for the Upgrading of Mille-Assab roadNPV in million Birr

Link Name Length (km) Economic Indices

Logiya-Semera 70NPV at 12% Discount rate 35.6

EIRR (%) 19.1

Elidar-Bure 80NPV at 12% Discount rate -6.0

EIRR (%) 10.6

Bure-Assab75

NPV at 12% Discount rate 3.5

EIRR (%) 12.7

Mille-Assab 196 NPV at 12% Discount rate 33.0EIRR (%) 14.3

Case II: From the table it can be seen that the project road as a whole (i.e. Mille-Assab) is still viable with an EIRR higher than 12 percent (the opportunity cost of capital).

Summary of Economic Evaluation for the Upgrading of Mille-Assab road NPV in million Birr

Link Name Length (km) Economic Indices

Logiya-Semera 70NPV at 12% Discount rate

35.6

EIRR (%) 19.1

Elidar-Bure 80NPV at 12% Discount rate

-3.4

EIRR (%) 11.2

Bure-Assab 75NPV at 12% Discount rate

5.5

EIRR (%) 13.0

Mille-Assab 196NPV at 12% Discount rate

37.5

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EIRR (%) 14.6

As can be seen from the analysis, though Contract II has exhibited a lower EIRR, the Mille-Assab road project as a whole is still viable.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/PreparationApril - May 1989 3 HIGHWAY ENG. (1)

TRANSPORT SPE. (2)

February 1990 4 HIGHWAY ENG. (1)SR. ECONOMIST. (1)TRANSPORT SPE. (1)

Appraisal/NegotiationSeptember - October 1990

5 HIGHWAY ENG. (2)SR. ECONOMIST. (1)FINANCIAL ANAL. (1)TRANSPORT SPE. (1)

August 10-13, 1992

4 HIGHWAY ENG. (1)COUNSEL (1)DISBURSEMENT Off. (1)TRANSPORT ECO. (1)

Supervision

01/14/1993 1 HIGHWAY ENGINEER (1) 1 110/01/1993 1 SR. HIGHWAY ENGINEER (1) 2 107/10/1994 2 HIGHWAY ENGINEER (1);

PROCUREMENT SPECIALIST (1)

S S

11/01/1994 2 OPERATIONS ANALYST (1); HIGHWAY ENGINEER (1)

S S

04/14/1995 2 SR. FINANCIAL MGT.SPEC. (1); HIGHWAY ENGINEER (1)

S S

06/30/1995 1 HIGHWAY ENGINEER (1) S S03/05/1996 2 HIGHWAY ENGINEER (2) S S06/22/1996 3 SR. ACCOUNTANT (1);

HIGHWAY ENGINEER (2)S S

11/06/1996 3 SR. ACCOUNTANT (1); HIGHWAY ENGINEER (2)

S S

04/10/1997 2 MISSION LEADER (1); HIGHWAY ENGINEER (1)

S S

09/24/1997 3 MISSION LEADER (1); HIGHWAY ENGINEER (1); INFRASTRUCTURE SPEC. (1)

S S

02/21/1998 3 MISSION LEADER (1); HIGHWAY ENGINEER (1); INFRASTRUCTURE SPEC. (1)

S S

10/30/1998 2 TEAM LEADER (1); INFRASTRUCTURE SPECIAL (1)

S S

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06/26/1999 6 TEAM LEADER (1); HIGHWAY ENGINEER (1); OPERATIONS ANALYST (1); SOCIAL SCIENTIST (1); INFRASTRUCTURE SPEC (1); SENIOR ACCOUNTANT (1)

S S

10/21/1999 5 TASK TEAM LEADER (1); HIGHWAY ENGINEER (1); SOCIAL SCIENTIST (1); INFRASTRUCTURE SPEC (1); SR. ACCOUNTANT (1)

S S

06/19/2000 5 TEAM LEADER (1); HIGHWAY ENG. (1); SOCIAL SCIENTIST (1); PROG.ASST/SOCIOLOGIST (1); SR. ACCOUNTANT (1)

S S

06/19/2000 3 SR.HWY.ENGR.(TTL) (1); OPERATIONS OFFICER (1); FINANCIAL SPECIALIST (1)

S S

02/17/2001 7 TASK TEAM LEADER (1); SR. HIGHWAY ENGINEER (1); ECONOMIST/FIN.ANAL. (1); SOC.SCIENTIST/ENVN.SP. (1); SR. OPERATIONS OFF. (1); FIN. MGMT. SPEC. (1); SECTOR MANAGER (1)

S S

06/28/2001 5 TASK TEAM LEADER (1); ENVIRONMENTAL SPEC. (1); SOC.SCIENTIST/ENVN.SP. (1); SR. OPERATIONS OFFICER (1); FIN. MGMT. SPECIALIST (1)

S S

ICRMarch/April 2003

6 HIGHWAY ENG (2)OPERATIONS OFF (1)OPERATIONS ANAL (1)TRANSPORT ECON (1)SOC.SCIENT./ENVN SP. (1)

S S

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 52.8 129.4Appraisal/Negotiation 42.6 121.1Supervision 196.3 579.2ICR 13.5 32.8Total 305.2 862.5

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. ERA- TECNECON, Consulting Services for the Five Roads Feasibility Study, Final Report, Addis Ababa, Ethiopia, July 1997.

2. ERA, An Economic Feasibility Study for the improvement of the Mille–Assab Road, Planning and Programming Division, Addis Ababa, Ethiopia, March, 1989.

3. ERA, Implementation Completion Report, Addis Ababa, Ethiopia, March 2003.

4 ERA, Report on Annual Rural Traffic Movement in Ethiopia Addis Ababa, Ethiopia 1993-2003.

5. Sheladia Associates, Inc. in association with Metaferia Consulting Engineers, Gewane-Mille Road Rehabilitation Project-Project Completion Report (Draft), Report No. 45, November 15, 2002, Addis Ababa, Ethiopia

6. ERA, Road Rehabilitation Project, Planning and Programming Division, January 1990.

7. IDA, Development Credit Agreement –Road Rehabilitation Project (Cr 2348-ET), January 27, 1993

8. MEDAC, National Economic Parameters and Conversion Factors for Ethiopia, Addis Ababa, Ethiopia, June 1998.

9. World Bank, Aide Memoires of the Project, various, Addis Ababa, Ethiopia.

10. World Bank, Operational Manual (OP 13.55) Implementation completion Reporting, July 1998.

11. World Bank, Staff Appraisal Report-Road Rehabilitation Project, October 29, 1992, Report No. 11249-ET.

12. FDRE, Ethiopia: Sustainable Development and Poverty Reduction Program, MOFED, July 2002, Addis Ababa, Ethiopia.

13. FDRE, Development and Poverty Profile of Ethiopia, Welfare Monitoring Unit, MOFED, March 2002, Addis Ababa, Ethiopia.

14. Development Credit Agreement No. 24380-ET dated January 27, 1993

15. World Bank, Staff Back-to-Office Reports and Supervision Aide Memoires

16. International Chamber of Commerce, International Court of Arbitration, Award Sentence Case 9954/AC/DB December 2001

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Annex 8. Borrower's Completion Report

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

ETHIOPIAN ROADS AUTHORITY

ROAD REHABILITATION PROJECT (CREDIT 2438-ET)

IMPLEMENTATION COMPLETION REPORT (ICR)

ADDIS ABABA

APRIL 2003

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1. INTRODUCTION

The Government of Ethiopia and the World Bank (IDA) signed a Development Credit Agreement (Credit No. 2438-ET) for the Road Rehabilitation Project (RRP) in January 27, 1993 and the Credit was declared effective on June 4, 1993 after the fulfillment of all the condition of effectiveness. The project was revised in September 1997, as part of the Modjo - Mille road improvement project under the IDA financed Road Sector Development Program Support Project (RSDPSP).

Before the shift of the Ethiopian Traffic from the port of Assab to Djibouti, the Mille - Assab road was serving a very high traffic volume and most of the heavy trucks moved on this road had a high axle loads. The combination of high axle loads and weak pavements together with inadequate maintenance intervention led to the rapid deterioration of the road.

The project was therefore mainly designed to restore the main import-export corridor of the country, mille-Assab road.

2. PROJECT OBJECTIVES

The objective of the project was to finance the urgently needed repairs and rehabilitate the road, so that it remains functional and open to traffic, and extend the service life of the road for a period of 15 to 20 years. The main benefits of the road rehabilitation component are savings in vehicle operating costs; decrease maintenance cost and an increase in road transport efficiency. The pavement management system would also enable ERA to better monitor and plan road maintenance of its road network.

In general the overall objectives of the project are to: ® Carry out urgently needed repairs and rehabilitation of the main road system, Mille - Assab road;® Assist ERA in putting into place institutional measures to prevent deterioration of the road system; and® Finance the establishment of pavement management system for the whole bitumenized road network in Ethiopia.

3. PROJECT COMPONENT

The project consisted of the following component for which an IDA credit 2438-ET of US$ 96.0 million (SDR 66.4 million) was allocated: -• Road Rehabilitation between Mille and Port of Assab, about 196km, including construction supervision;• Improving the capacity of ERA to carry out road maintenance through procurement of different Road maintenance equipment;• Establishment of a Road functional classification and pavement management system to monitor the performance of the road network;

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• Design and Implementation of pavement management system including provision of technical assistance, equipment and other consultancy services.• Design reviews and review of design manuals and of standard specifications; • Sector related training of staff and technical assistance; and• Consulting services for sector related studies.

4. PROJECT DESCRIPTION AND BACKGROUND

Mille-Assab Road Rehabilitation (196 km)The Mille - Assab road rehabilitation is the main component of CR 2438. The Mille- Assab road project commences at Mille, 512 km North East of Addis Ababa and terminates at the Port of Assab. The route is a section of the Addis - Assab highway that was the most Important - Export corridor of the country. The project was designed to rehabilitate all damaged sections and widen substandard section so that the life of the entire road becomes 15 to 20 years as measured in equivalent standard axles.

Designs and Implementation of a Pavement Management SystemThe legal axle load limit in Ethiopia is 8 tones for front axle and 10 tones for rear axle, which is frequently exceeded. Overloaded cargo trucks, therefore, contributed substantially to pavement deterioration especially on the Addis Ababa-Assab road. To enable ERA to monitor its paved road system the project was financed the establishment of a pavement management system (PMS). The PMS was designed and implemented with technical assistance to the extent required. The project component is included the cost of training staff to operate the pavement management system, including computer training, vehicles, etc.

Technical Assistance and TrainingTo enable the local construction industry capacity, a study was initiated in order to assess the problems of the industry so that it actively plays its roll in the RSDP. The project covered part of the cost of this study and other sector related issues. The project also included provision for technical assistance for specialized support during the implementation of the Axle Load Control System. Such assistance could take the form of consultancy services, through twining with sister institutions familiar with the techniques required or through an overseas training program.

Procurement of EquipmentThe project was financed the procurement of road maintenance equipment suitable for patching and resealing work along the whole stretch of road from Addis Ababa to Mille. In addition, the project was also financed equipment needed for the implementation of the PMS and Axle Load Control System.

Other Consulting ServicesThe proceeds of the loan were used to undertake design review of the RSDPSP I roads; and the feasibility, environment, design review and tender document preparation of the roads included under APL I and II. Consultants were also engaged to prepare a new Design Manual and new standard specifications for road.

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5. PROJECT FINANCING PLAN

The total cost of the project by source of funding and project component is presented as follows:

Costs are in million US$Project Component Total Cost Funding

Incl. Cont. IDAGOEI. Civil Works

1.1 Mille – Assab® Logia – Semera (41 Km) 20.96 17.823.14® Elidar – Bure (100 km) 35.12 29.855.27® Bure – Assab (58 Km) 32.11 27.294.82

1.2 Awash and Gewane Section Depots 0.20 0.170.03Sub Total 88.39 75.1313.26

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II. Technical Assistance/ Training2.1 Supervision of Civil Works 5.29 5.290.002.2 PMS Consultancy 1.31 1.310.002.3 Design Review, Addis Mille 0.72 0.720.002.4 Training and Twinning 0.72 0.720.002.5 Design Manual and Standard Specification Preparation 0.95 0.95

0.002.6 Domestic Construction Industry 0.33 0.330.00

Sub Total 9.32 9.320.00

3 Equipment:3.1 Maintenance Equipment 9.92 9.920.003.2 PMS - Equipment 0.33 0.330.003.3 Weighbridge Equipment 0.33 0.330.00

Sub Total 10.58 10.580.00Grand Total Including Contingencies 108.29 95.0313.26

6. PROJECT IMPLEMENTATION AND ACHEIEVEMENT

6.1 Civil Works

The Civil Work of the project consists rehabilitation of Mille – Assab road and the construction work of Awash and Gewane maintenance Depots.

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6.1.1 Mille - Assab Road Rehabilitation

The Civil work component of the RRP (rehabilitation of the Mille - Assab road) that had been executed through three contracts, i.e. Contract 1: Logia - Semera (41 km), Contract 2: Elidar - Bure (100 km) and Contract 3: Bure Assab (58 km). The three contracts were signed with a total contract value of Birr 285.8 million of which Birr 74.6 million, Birr 125.6 million and Birr 85.6 million for each contract respectively.

However, due to the Ethio-Eritrean conflict in the vicinity of the project, ERA has been forced to terminate the contracts on June 25th 1998. Therefore following the termination, the case was under arbitration and on December 21, 2001 the Arbitral Tribunal gave the final award. At the time of termination of the contracts, accomplishment on contracts 1, 2 and 3 was 100%, 48% and about 96% respectively. The detailed status of each of the three contracts of the Mille - Assab rehabilitation project as of June 1998 is as stated here under.

6.1.2 Road Maintenance Depots

The construction work of Awash and Gewane maintenance Depots commenced in April 1997 by Own Force and was nearing finishing works. However, due to delays in procuring materials for the finishing work, the progress of the Depots was completely paralyzed. Currently only few finishing work is remain that includes fixing generator.

6.2 Technical Assistance & Training

6.2.1 Construction Supervision

The consulting firm, DIWI Consult GMBH of Germany, had signed a contract agreement in February 1995 and providing a technical assistance for supervision of the Mille-Assab road rehabilitation project. Since the arbitration case is now finalized, the consultant is instructed to prepare the Final Completion Report of the project. ERA expected that the consultant would finalize the contract completion report soon.

6.2.2 Pavement Management & Road Functional Classification Systems

The study was implemented in two parts: part I - road Functional Classification System (RFCS); and Part II - Development and Implementation of the Pavement Management System (PMS). The final report of the RFCS study was completed in November 1997 and the development of PMS has completed the study in March 1999. The advantage of the new functional classification, as the name implies, classifies roads based on socio-economic parameters. This type of classification allows identifying economically important routes.

Classification of the national road network has been completed and distributed to the regions and to the concerned Federal Government Organizations. ERA is also now implementing the RFCS on the Federal road network, and the numbering has been completed for all 16000 km of the main

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road network. Completion of PMS base data for the road network has also been undertaken for 14637 km of the Federal Road Network. An update of the Road Data Bank figures has been completed on 12531 km.

The system helps ERA to manage the main road network in the country systematically. It is also used for the preparation of the prioritized multi-year road sector development program.

6.2.3 Design Manual and Standard Specifications

Most of the manuals are completed and some of them are already in use. The following Manuals

are completed by the Consultant and approved by ERA for final report: -

• The Drainage Design Manual• The Site Investigation Manual• The Pavement Design Manual Volume I• The Pavement Design Manual Volume II Rigid pavement• The Bridge Design Manual• The Pavement Rehabilitation and Asphalt overlay Design Manual• The Geometric Design Manual

6.2.4 Design Reviews, Pre-qualification of contractors and Evaluation of Bids

This involves design reviews and the preparation of tender & contract documents for the roads to be financed under the RSDPSP Phase I. These projects are divided into 10 contract projects and awarded to contractors.

6.2.5 Feasibility, Environment Impact Assessment, and Design Reviews for RSDPSP II

The credit proceeds had been used for the feasibility study and EIA of the projects proposed for financing under follow on credit. The road projects are: Nazareth - Asela – Dodola/Shashemene - Goba, Adigrat - Adwa, Gondar - Mereb River, Dera - Mechara, Dembi - Gambella, Woreta - Woldiya and Nekempte - Assosa.

The Design Reviews for the roads projects mentioned above, except Gonder - Mereb and Dembi - Gambella, are progressing. According to the current progress, all the Design Review Studies would be completed between mid of 2003 and beginning of 2004.

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6.2.6 Training/Twinning

To date about 43 staffs from ERA and Regional Administrations have received training in courses offered in various fields and training & seminar on relevant topics under the Credit. The Trainings were held at Kisi Training Center (Kenya), Crown Agents’ and other center and institution in UK and in the USA. The total amount spent on training is approximately Us$ 0.75 million. These training help the organizations to be more effective in its short and long-term goals through improving the quality and quantity of out put since human resource development is the most important element in any organizations.

6.2.7 Review of ERA’s Financial Management & Accounting

Recruiting a long-term consultant to assist in financial management & accounting consultancy services helps ERA’s financial records to become up to date, and trained staff. The Consultant reviewed the structure of Finance Division and the different systems like accounting system, accounting records, cost accounting and financing management and produced Manuals in Draft Form. However, the Consultant dissatisfied with the chosen software and discontinued the service on October 2002 before implementing the study.

This being the case, ERA has finalized the Manual. Implementation has started by using the chart of account as recommended in the study. Computerization of accounts based on the study recommendation will continue.

6.3 Procurement of Equipment

Maintenance Equipment: The objective of the procurement of equipment was to enable to replace at least some of the outdated equipment used in the routine maintenance activities. To this end, there was an allocation for procurement of road maintenance equipment and spare parts in category III of RRP.

Weighbridge Equipment: Ten pickups vehicles are procured and handed over to ERA by Road Transport Authority on and are in use by the Weigh Bridge stations and Districts for axle load measurement and enforcement duties. All the required spare parts from the remaining balance have been procured and maintenance of weighbridges is progressing as required. These equipment are expected to maintain old parts and to renew the weigh bridge equipment.

PMS Equipment: All the necessary items of equipment, including vehicles, computers with printer and plotter, copier, dessy equipment, top meters, bump integrators and Benkelman beam, had been procured and handed over to ERA under the PMS Study Consultancy Agreement.

6.4 Mille Assab Arbitration

Following the termination of the contract for the rehabilitation of the Mille - Assab road project, the Contractor (Claimant) filed a request for Arbitration on 24th April 1998 against the State of

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Ethiopia (Respondent 1) and the Ethiopian Roads Authority (Respondent 2). Subsequently, the International Chamber of Commence (ICC) informed the parties that the court had decided to set the arbitration in motion at its session of 16th June 1998.

Recently ERA and the Contractor negotiated on the Award and reached an agreement on the amount to be paid to the contractor (USD 25.0 million) and the modality of payment is pending until the claimant ensures the financing of the whole amount of the settlement. According to the modality of payment USD 14.0 million was paid to the contractor and the remaining amount (USD 11.0 million) will be financed from other credit.

7. FACTORS AFFECTING THE PROJECT

Mill – Assab Rehabilitation Project: Because of the Ethio - Eritrea conflict in the project area ERA has been forced to terminate the contract. Before the termination of the contract the performance of the contractor was low. The major factor for the low accomplishment of the contractor was mainly because of poor management, lack of proper planning, lack of experienced staff and frequent breakdown of equipment.

Review of ERA’s Financial Management & Accounting: The consultant who was doing this study was not willing to continue or complete the service since he was dissatisfied with the chosen software. Because of the above reason the study is not completed as scheduled. In general poor performance of consultants in other studies also contributed for the delay in the completion of the studies.

PMS Equipment: The PMS has a problem related to computers, which is being used for visual condition surveys. However, currently the procurement process for the purchase of computer has started.

8. ASSESSMENT OF BORROWER AND BANK PERFORMANCE

8.1 Borrower Performance

The Government of EthiopiaFor the execution of the project, the Government of Ethiopia was declared its commitment to the objective of the project as set forth in schedule 2 to the Agreement; and has also made every possible follow up, through the Ministry of Finance and Economic Development, during the formulation and implementation of the project. The Government of Ethiopia, through MoFAED, was also reviewed quarterly construction progress report to ensure conformity to work schedule and alert contractor; through implementing Agency, from possible delays and consequences.

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Implementing Agency (ERA)For the purposes of the project, ERA has opened and maintained in dollars a special deposit Bank account in the National Bank of Ethiopia on terms and conditions satisfactory to the IDA, including appropriate protection against set-off, seizer or attachment. During project implementation period, ERA assigned one Senior Engineer as a counter part for each component of the project of Mille-Assab and Pavement Management System (PMS) who had been followed whether the works of the project were carried out according to the design and the agreement made between ERA and the Contractors or not. The quality and the quantity of the works of the project that were performed by contractors and consultants were approved and certified by ERA’s Civil Contract Administration Division. Accordingly, payment was effected on time to the Contractors and Consultants for their specific service given to the project. During the execution of the project, the quarterly progress reports of the project were prepared by ERA. In order to prevent or reduce the problem that was encountered during the execution of the project, ERA made several meeting with contracts, Consultants and delegation of the Bank (IDA). In addition to this, ERA evaluated and approved work schedule and performance, material delivery schedule, on site availability program for major construction equipment, project cash flow, proposed project organization chart and staffing plan prepared by contractor to ensure practicability and effective utilization resources.

8.2 The World Bank

LendingThe Bank has been supporting rehabilitation and improvement of critically needed investments in highway and port infrastructure, promoting more efficient operations within Ethiopia’s operating companies both through institutional development measures and provision of equipment. Accordingly, to restore and improve the main import-export corridor of the country, IDA was agreed to lend to the Government of Ethiopia, an amount to various currencies equivalent to sixty six million four hundred thousand Special Drawing Rights (SDR 66,400,000).

SupervisionThe Bank’s team has continuously and closely monitored the execution of the project. The Team focused on the implementation of the project; adequacy of the Bank and Government input to implementation; quality of the consultants’ progress reports; project restructuring; and the financial status and claims.

During the implementation period of the project, the Task Team of the World Bank had made about 10 times field visit to inspect the ongoing works on the Mille - Assab road and carried out effective supervision on the works of the other project components.

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9. UTILIZATION OF CREDIT PROCEEDS

9.1 Original Allocation and Revised Cost Estimates

The table presented below compares the original allocation of the credit proceeds and the revised actual project costs. The revised project costs among other thing reflects the final cost estimates of the consultant and the outstanding payments, costs incurred with the termination of the civil work contract and compensation of items lost because of the dispute.

Table 2RRP - Use of the Credit (IDA Portion)

(In Million USD)

No. DescriptionAmount Allocate

d

First Revised Project Cost

Second Revised

Project Cost

Actual Expendi

tureI CIVIL WORKS

Mille-Assab. Logia- Semera 17.82 12.41 10.137 10.137. Elidar-Bure 29.85 21.80 9.789 9.789. Bure - Assab 27.29 20.12 11.282 11.282. Mille Assab Arbitration Settlement - - 25.0* 25.00. Gewane - Mille - - 33.418 33.418 Awash Section Depot 0.17 0.17 -

Sub Total 75.13 54.50 89.626 89.626II TECHNICAL ASSISTANCE &

TRAINING- Supervision of Civil works 5.29 2.25 2.533 2.533

- PMS Consultancy 1.31 1.03 0.819 0.819- Training and Twining 0.72 0.88 1.160 1.160- Financial Management Analysis 0.33 0.35 0.375 0.375- Design Manual Preparation 0.95 1.35 0.737 0.737- Design Review of RSDPSPI 1.70 2.26 1.756 1.756

- Design Review of RSDPSPII 1 2.13 0.894 0.894Sub Total 10.30 10.25 8.274 8.274

III EQUIPMENT Mtc. Equipment 9.92 6.23 6.932 6.932

PMS equipment 0.33 0.00 - - Weigh Bridge Equipment 0.33 0.33 0.114 0.114

Sub Total 10.58 6.56 7.046 7.046Grand Total * 96.01 71.31 104.946 104.94

6

* Because of the varying exchange rates between SDR and USD the remaining balance is expected to be about USD 14.0 million instead of USD 16.064 Million (96.01 - 79.946) and

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therefore additional USD 11.0 million should be allocated to finance the whole payment USD 25.0 million.

9.2 Proposal on the Outstanding Projects

Since the project is closed and as a matter of fully realizing the primary objectives of the credit and timely preparation of the follow-on road projects, the remaining works are proposed to be financed from the on going credit 3032-ET. These sub-projects include the service of supervising engineer of Mille - Assab with a cost of USD 30,000; and the finalization of the design manual with a cost of USD 51,000; and the finalization of design review tender document preparation of APL I and II road with a cost of USD 1.3 million.

10. LESSONS LEARNED

• The progress of the contract projects can only be sustained, if the contractors are able to maintain its management effectiveness as well as an improved organization of its operation.

• In order to complete the contract projects on the schedule time, ERA management should require the consultant (and through him the contractor) to take the necessary action on time.

• It is very important and fruitful to negotiate and settle any arbitration with contractors amicably once it happens.

• Continuously and closely monitoring the execution of the contract projects is essential to ensure the maintenance of the steady progress.

• Sufficient resources, such as new construction equipment, material, skilled manpower etc., is essential in order to achieve faster construction rate.

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