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Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No. 16692

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF CYPRUS

TRANSPORT SECTOR DEVELOPMENT PROJECT(Loan No. 2906-CY)

June 16, 1997

Infrastructure Operations DivisionCountry Department IEurope and Central Asia Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit Cyprus Pounds (£. Cyp)

1988 1989 1990 1991 1992 1993 1994 1995 1996

US$1.00 = 0.467 0.494 0.458 0.458 0.450 0.490 0.497 0.446 0.440

WEIGHTS AND MEASURES

Metric System US System

1 meter (m) 3.281 feet1 kilometer (Iam) 0.621 miles1 square kilometer (km2) 0.386 square miles1 metric tonne (m. ton) 0.984 long ton

FISCAL YEAR OF BORROWER

January 1st to December 31st

ABBREVIATIONS AND ACRONYMS

AADT = Average Annual Daily Traffic(PA = Cyprus Ports AuthorityERR = Economic Rate of ReturnFY = World Bank Fiscal YearFYR = First Year Rate of ReturnICR = Implementation Completion ReportKFAED = Kuwait Fund for Arab Economic DevelopmentLIA = Larnaca International AirportMCW = Ministry of Communications and WorksNHTI = Nicosia Higher Technical InstitutePWD = Public Works DepartmentRMMS = Road Maintenance Management SystemTSDP Transport Sector Development ProjectTSMP = Transport Sector Master PlanTSPPMU = Transport Sector Planning an'i froject Monitoring UnitWIM = Weigh-in-motion (road vehicle weighing)£ Cyp = Cyprus Pound

Vice President: Johannes Linn, ECAVPDirector: Kenneth G. Lay, ECIDRDivision Chief: Ricardo A. Halperin, EClINStaff: Charles Jeremy Lane (Senior Highway Engineer, Task Manager);

Robert Bonney (Consultant)

FOR OFFICIAL USE ONLY


REPUBLIC OF CYPRUS


CONTENTS

Preface.i

Evaluation Sunmmary. ii

PART I: PROJECT IMPLEMENTATION ASSESSMENT .11. Project Objectives. 12. Achievement of Project Objectives. 33. Implementation Record 64. Project Sustainability. 75. Bank Performance 76. Borrower Performance 87. Assessment of Outcome 88. Key Lessons Learned 9

PART II. STATISTICAL TABLESTable 1: Summary of Assessments .12Table 2: Related Bank Loans/Credits .13Table 3: Project Timetable .13Table 4: Loan Disbursements: Cumulative Estimated and Actual .14Table 5: Key Indicators for Project Implementation .14Table 6: Key Indicators for Project Operation .15Table 7: Studies Included in Project .15Table 8A: Project Costs .16Table 8B: Project Financing .16Table 9: Economic Costs and Benefits .17Table 10 Status of Legal Covenants .18Table 11: Compliance with Operational Manual Statements .19Table 12: Bank Resources: Staff Inputs .19Table 13: Bank Resources: Missions .20

Appendix:A. Borrower's Operational PlanB. Statement of Loan Account by Controller's DepartmentC. Mission's Aide-Memoire

Map: IBRD 19932

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

REPUBLIC OF CYPRIJS



Preface

This is the Implementation Completion Report (ICR) for the Republic of Cyprus' Transport SectorDevelopment Project, for which Loan No. 2906-CY in the amount of US$35.0 million was approved onFebruary 9th, 1988 and made effective on January 5th, 1989.

The loan was closed on December 31st, 1995 and the last disbursement took place on March14th, 1996. A total of US$29,046,220.38 was disbursed; US$5 million were cancelled at the Borrower'srequest on May 1st, 1995, and a final balance of US$953,779.62 was cancelled at closing.

This report was prepared by the Infrastructure Operations Division of Country Department I,Europe and Central Asia.

Preparation of this ICR is based on the Bank's final supervision/completion mission, April,1996 and material in the project file. The Borrower reviewed the draft report and offered a numberof comments which have been incorporated into the text.

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REPUBLIC OF CYPRUS



Evaluation Summary

Introduction

1. This Transport Sector Development Project (TSDP) was the seventh and last loan to the transportsector in Cyprus since 1973, and followed four highway projects and two port projects. It was also thelast lending operation before Cyprus graduated from Bank lending. Earlier projects were jointly financedwith the Kuwait Fund for Arab Economic Development (KFAED) but in this project the financing wasprovided entirely by the Bank and the Cyprus Government, together with some commercial borrowings.

2. The project represented a continuation of the previous Bank support strategy to the sector,focussing on strengthening and maintenance of the country's transport infrastructure. Considerableemphasis was also placed on improving transport planning methodology and transport institutions.However, unlike earlier projects the TSDP involved all modes and areas of transport in Cyprus, includingcivil aviation for the first time. The project was largely successful in meeting its objectives, anddemonstrated the considerable advances achieved by the Cyprus authorities during its cooperation withthe Bank in transport planning and management. With regard to this, it is clear that graduation occurredat an opportune time in relation to the level of the transport agencies' capabilities.

Project Objectives

3. The project design built upon earlier Bank participation in the sector and was based upon the1988-91 transport sector investment program. Its primary objectives were:

(a) increasing the efficiency of the transport sector operating system;

(b) improving cost recovery in revenue earning transport sector operations and in thehighway system;

(c) enhancing the quality of transport planning and project implementation, includingattention being paid to environmental issues;

(d) upgrading priority areas of the transport infrastructure to support economic growth andsocial change in a cost effective way; and

(e) increasing the extent and quality of training provided for personnel in the roads, roadtransport and civil aviation sub-sectors.

4. To support the achievement of these objectives the main project components were:

(a) construction and improvement of priority road sections;

(b) a road strengthening program of approximately 60 kim;

(c) improvements to the Public Works Department materials laboratory and the NicosiaHigher Technical Institute training laboratory;

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(d) computerization of the vehicle licensing system;

(e) improvement of Larnaca International Airport (LIA);

(f) procurement of port equipment; and

(g) provision of consultancy services to (i) carry out a feasibility study and design for LIA;(ii) assist rationalization of rural bus services; (iii) undertake a study of road usercharges; (iv) prepare design and specification for computerized vehicle licensing system;and (v) undertake the Larnaca transport study. Subsequently the LIA study was expandedto include Paphos airport and a study to prepare a program for the preservation of KatoPaphos archaeological site was added.

lmplementation Experience and Results

5. The project experienced some component changes during implementation. The biggest of thesewas the removal of the Dhekelia - Aridhipou - LIA road from the loan (see Map). This occurred becausethe Cyprus authorities wished to award a contract not in compliance with the Bank ProcurementGuidelines which was not acceptable to the Bank (the GOC eventually financed this project from its ownresources) and the funds were re-allocated, especially to the Kato Paphos archaeological site protectionand other priority roads. The Bank also decided against financing the final design of the LIA and Paphosairports because of land acquisition difficulties. Despite these changes the project largely achieved itsobjectives. The main road between Nicosia and Limassol was rehabilitated, the road strengtheningprogram was completed and resources allocated to road maintenance continue to be adequate. Therationalization of the rural bus services was successful and the computerized vehicle licensing system isabout to become operational. The study of the feasibility of improvements to the two airports wascompleted and the government is proceeding with final design and the identification of financing sources.The port of Limassol was upgraded and studies are in hand to make recommendations on managementrestructuring, and tariff revisions to take account of new technologies.

6. The Government has shown its commitment to the project objectives in its operational plan forthe future, with some delays over the original timetable. In particular, the road user charges study hasbeen awarded, procurement of consultancy services to study port reorganization and port tariff reviewis under way, and efforts are being made to re-instate the Transport Sector Planning and ProjectMonitoring Unit. The twelve-month delay in project completion was largely due to delays in projecteffectiveness, which took nearly a year, procurement delays and the addition to the project of the KatoPaphos archaeological site protection work. The procurement process in all of Cyprus' public sectoragencies is very slow and the Bank has been unsuccessful in promoting changes to increase its efficiency,as recommended in a study (May 1987) which identified ways in which it might be improved.

7. The total project cost at appraisal was estimated at US$121 million with a loan amount of US$35million. Estimated final project cost is of the order of US$140.0 million but the figures relating to non-Bank financed components are not reliable: the Government has financed the cost overrun. At the requestof the Government US$5 million was cancelled from the loan and, at loan closure US$965,235 remainedundisbursed and was also cancelled.

8. Owing to the modifications to the components of the project as appraised, comparisons of ratesof return are difficult to make. The Dhekelia - Aridhipou - LIA road comprising about 27% of finalestimated total project cost was the single largest component and this was deleted from the loan andreplaced by other roads and by the Kato Paphos archaeological site protection. Although the Dhekelia -Aridhipou - LIA road remains to be completed and, consequently, an economic re-evaluation has not beencarried out, it is expected, taking into account the costs of the completed sections and the levels of traffic,

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that the ERR will be in line with the 41 % estimated at appraisal. However, no final decision has yet beentaken over the location and design of the Aridhipou Junction with the Nicosia - Larnaca road and thegovernment should undertake a special feasibility study of this before proceeding with the works. Theremainder of the road construction and improvement component, comprising about 22% of total projectcost has been re-evaluated yielding an ERR of about 48%, compared with 58.8% estimated at appraisal.The road strengthening program comprising about 11 % of total project cost was required to yield at leastan ERR of 12%; the re-evaluated ERRs exceed 20%, and the overall rate of return for the roadcomponent has been re-evaluated at about 41 %.

Summary of Findings and Key Lessons Learned

9. In summary, the project was well designed in relation to the stage of development of thetransport sector in Cyprus, was successfully implemented, achieved the high ERR expected atappraisal and, given the Government's continued commitment, is likely to be sustainable.

10. This was the seventh and final transport project of the Bank's twenty-five year involvement inCyprus. Whilst all objectives have not been achieved, the advances in planning and managing thetransport sector have been significant and, from this point of view, graduation has come at the righttime. However, there are still lessons to be learned and issues to be addressed.

For the Government:

(a) Procurement procedures are slow and costly and should be improved. Whilst it isunlikely that procurement procedures will be significantly amended, and they have themerit of transparency, there should be scope to update financial thresholds at whichcertain actions have to be taken. Also, the influence on implementation of existingprocurement procedures should have been built into project scheduling.

(b) Greater autonomy should be given by supervising ministries to the executing andrevenue earning entities. In particular (and as was identified in the ICR on the FourthHighway Project), non-technical agencies should not be allowed to influence day today management of technical matters. Currently this is a source of considerabledelays and increased costs.

(c) There should be greater public participation at an earlier stage in the planning process,especially where land acquisition is involved.

For the Bank:

a) The Bank can make an effective contribution to institutional reform only through aseries of projects and with a willing partner. However as a country approachesgraduation, the Bank's leverage declines. For this reason, initiatives which wereembraced by the Borrower at appraisal in 1987, such as procurement reform, werenot carried through.

b) Project supervision should pay greater attention to the policy components which areimportant even though the amount of fiinding allocated is low.

c) By showing flexibility the Bank was able to help the Borrower reallocate funds from acomponent unlikely to make progress to a new component of international importance(Paphos Mosaics).


TRANSPORT SECTOR DEVELOPMENT PROJECT(LOAN 2906-CY)

PART I. PROJECT IMPLEMENTATION ASSESSMENT

Project Review from Bank's Perspective

1. Project Obiectives

1.01 This project, which was financed by the Government of Cyprus (GOC) and the World Bank,was the Bank's seventh in the transport sector; the previous projects consisting of two ports projects andfour highway projects. It was also the last transport project as Cyprus has since graduated from Bankborrowing.

1.02 The objectives as defined at appraisal were:

(a) increasing the efficiency of the transport sector operating system;

(b) improving cost recovery in highways and revenue earning transport sector operations,especially ports and civil aviation;

(c) enhancing the quality of transport planning and project implementation, includingimproving the attention being paid to environmental issues;

(d) upgrading priority areas of the transport infrastructure to support economic growth andsocial objectives in a cost effective way; and

(e) extending and improving the quality of training provided for staff in the roads, roadtransport and civil aviation subsectors.

1.03 The basic philosophy of the project was to continue to provide the support of earlier projectsin the roads and ports sub-sectors by funding investment in priority and economically justifiedinfrastructure projects, the maintenance of roads, and to promote institutional improvements. Added tothis, the project set out to address important issues in the civil aviation sub-sector in response to thegrowth in air traffic. It was also considered important, in view of the sector nature of the project, andin view of Cyprus' imminent graduation from Bank lending, to emphasize the need for multi-modeplanning, development and operation coordination, and a continuation of sound project evaluation thattook adequate account of environmental factors.

1.04 In support of these objectives the project, as appraised, was to finance:

Higehwavs Sector

(a) construction of the 23 km Dhekelia-Aridhipou-Larnaca International Airport (LIA) road;

(b) other economically justified road improvement schemes;

(c) road pavement strengthening;

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(d) construction and equipping the MCW and National Higher Technical Institute materialslaboratories; and

(e) highway management equipment to support the Road Maintenance Management System(RMMS) set up under the Third and Fourth Highway Projects (Loans 2128-CY and2684-CY).

Road Transport

(a) renewal of rural bus fleet;

(b) rationalization of rural bus services which was a follow-up on earlier Government actionsto ensure development of public transport to match changing economic and socialconditions; and

(c) computerization of the vehicle licensing and regulation system.

Civil Aviation

(a) preparation of a master plan for LIA;

(b) completion of final design and tender documents and construction for LIA improvements;and

(c) procurement of equipment for civil aviation.

Ports Sector

(a) container handling equipment; and

(b) other port equipment.

1.05 The project also allowed for technical assistance, studies and training in all sectors. Thestudies, in addition to those mentioned above, included:

(a) Paphos Archaeological Site Improvement Plan;

(b) Transport Study of Larnaca;

(c) Landscape Plan for Kato Paphos Archaeological Site;

(d) Technical Assistance for Regional Bus Companies; and

(e) Road User Charges Study.

1.06 Although the project was relatively complex this did not in itself lead to problems. However,procurement procedures in Cyprus remain slow and cumbersome, and there is frequent day to dayinfluence on technical executing agencies by non-technical government organizations which makesprogramming and planning difficult, leading to often serious delays. Despite efforts on the part of theBank to make procedures more efficient it is unlikely that this position will improve and delays willcontinue to lead to higher costs and lost benefits. At the same time it must be said that procurement

3

procedures are transparent, deeply set in the culture of the country and never involve only a singleministry. Although the authorities accepted Bank Guidelines on procurement, there were occasions whenGovernment wished to adopt different procedures and accepted the consequence of foregoing Bankfinance: this was the case with the section of road from Dhekelia to Aridhipou which the authoritieswished to award on a basis of negotiation with a single contractor and which Government eventuallyfinanced in its entirety.

2. Achievement of Proiect Obiectives

2.01 The project, despite some delays and modifications, was largely successful, and the MCW hassignificantly improved its capability and standards of investment planning, project management andinfrastructure maintenance, compared with twenty-five years ago when the Bank started to lend to thesector. Not only do all investment projects have to meet strict economic criteria and be clearly relatedto economic and social needs, but environmental criteria are given very high priority. This is reflectedin the support given to the Kato Paphos archaeological site and the abandonment of road constructionschemes in the Tillyria area and costly realignment of the Limassol-Paphos motorway because of potentialenviromnental damage. Institutional reform has been the weakest aspect of the project, especiallyregarding the restructuring of port operations and the lack of autonomy in the civil aviation sub-sector,but even here progress is being made.

2.02 The progress of the project components is described below. In summary (with reference topara. 1.02) the increase in efficiency of the transport system (para. 1.02 (a)) was less than that anticipatedat Appraisal because of Government's failure to properly set up the TSPPMU. Improvements in portoperations and in the amalgamation into larger units of local bus companies has improved efficiency.Objective 1.02 (b)) will be achieved in the highway field through the Road User Charges study whichwas not complete at the time of loan closure, and possibly by a port tariff increase now before Parliament(see Table 10) which would be in addition to a 30 percent increase in 1992. Objective 1.02 (c) was metby measures described above and by creating an office of the project coordinator in MCW, whichmaintained good contacts with other agencies throughout the project, including DPW, which as part ofMCW, implemented the physical elements of the project. The Government adopted stringentenvironmental review procedures which was applied in the later years of the project (see para 2.01).Objective 1.02 (d) was achieved through the choice of road schemes, while 1.02 (e) was achieved mainlythrough courses at NHTI and CPA's own internal training program. Details are given below.

Highwav Sector

(a) The construction of the 23 km Dhekelia-Aridhipou-LIA road was delayed and has yetto be completed, although the Dhekelia - Aridhipou section is open to traffic. The delay has been mainlydue to a long-running land acquisition dispute affecting the design of the Aridhipou junction which hasyet to be finalized: in view of the probable high cost of this junction the Bank advised the Governmentto undertake a special feasibility study before proceeding with the works. This road, a major projectcomponent, was eventually constructed as far as Aridhipou with Government funding due to adisagreement with the Bank over procurement procedures. Loan funds released as a result of the GOCundertaking the finance were reallocated to other uses including the support of works at the Kato Paphosarchaeological site. If the LIA improvement proceeds, it is essential that this road is completed. Sincethe loan closed Government is now going ahead with the airport expansion and the Aridipou-LIA sectionwill be built shortly. The land dispute was settled by negotiation. However, the Dhekelia -Aridhipousection can stand in its own right, whether the airport link were built or not and its re-estimated ERR isabout 41 %. The remaining 31.8 km of the road construction and improvement program were completedsatisfactorily.

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(b) Road pavement strengthening was carried out on 64.5 km including the Nicosia-Limassol motorway. The three sections on the Nicosia - Limassol motorway with work completed in1993 and 1994 indicate annual traffic growth rates of 8.1%, 7.33% and 10.2% compared with anestimated 8 % at the time of appraisal and ERR of 27 %. This indicates that the ERR of the programmeas a whole will be well above the 12% criterion set at appraisal.

(c) Constructing and equipping the new MCW Materials Laboratory and the bituminousmaterials training laboratory at the Nicosia Higher Technical Institute (NHTI) was carried out successfullyand the facilities are of a very high standard. Approximately 20 students graduate each year from theNHTI with training in bituminous materials and this should contribute significantly to the quality of roadworks in Cyprus. The same could be said of the PWD Materials Laboratory but, currently, ironicallyit is hampered by lack of staff due to a lack of budget to hire the trainees the NHTI programme istraining. To make full use of the facilities, the Bank has recommended that a market survey be carriedout to assess the opportunities for materials testing and, based on this, an appropriate staffing scheduleshould be introduced. There is no reason why efforts should not be made to make the Laboratory selfsupporting through undertaking commercial work.

(d) The maintenance of the road system continues to be planned and monitored accordingto the RMMS. Most roads, including minor, are maintained to an adequate level and provided withstrengthening where necessary. This is reflected in the Road Maintenance budget as shown in thefollowing figures:

Road Maintenance Expenditure(£Cyprus millions)

1988 1989 1990 1991 1992 1993 1994- 1995 19962.21 2.13 2.88 3.79 4.35 4.49 4.65 5.44 6.89

There has been substantial growth in the maintenance budget since 1990, above the rate estimated atappraisal. Weigh-in-motion scales have been installed in two locations on the motorway which isfacilitating axle load control, but results to date cover too short a period to assess their effectiveness. Aspart of the Government's Operational Plan, the efficacy of 24 hour use of this equipment should beexamined. Vehicles are being weighed, but there is a reluctance to prosecute over-loaded vehicles.

Road Transport

(a) The program to rationalize and improve the rural bus services has been successful. Technicalassistance to the companies was completed in 1992 and now the Department of Transport is conductingthe program in cooperation with local bus companies. There are I 1 regional bus companies coveringabout 37% of the rural bus fleet. The program is currently being revised to establish new incentives,including compensation for the operation of non-profitable routes that are provided for social reasons,provided management and operation complies with certain efficiency criteria. At appraisal it wasproposed to finance new buses under the project but, in the event, the government arranged to providelow interest loans to owners instead.

(b) Satisfactory progress has been made with the computerization of the vehicle licensing andinformation system. The loan financed feasibility stldies and an outline of a possible system and theGovernment has financed detailed design and equipment procurement: the system is being installed at thepresent time in Nicosia and data entry will take place in the next few months.

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(c) The project also proposed to finance the study of Road User charges but due to procurementdelays this was not possible. However, the authorities are proceeding with this study using TORs thatwere reviewed by the Bank. The cost of the study will be about $120,000.

Civil Aviation

2.03 The project as originally conceived, included the study of the feasibility of improving LIA,preparation of the design and financing of the first phase of construction. However, due to the growthof traffic the project was extended to cover Paphos airport which had very limited facilities. Traffic atLIA rose from 1.97 million passengers in 1986 to 3.78 million in 1995: at Paphos traffic increased from156,000 to 1.11 nmillion in the same period. Following completion of the feasibility studies, undertakenby consultants, the Government wished to review and possibly amend the results before going to design,and also required special procedures for the submission of proposals for final design. The Bank foundthis procedure unacceptable, and the provision of about US$300,000 for final design was reallocated.The Governmnent is proceeding with the design using its own resources and is actively seeking financefor construction. Contracts for design of Larnaca and Paphos airports were signed in late 1995. Aproject management team has been set up to manage the works, which are expected to be complete inPaphos by the year 2000 and in Larnaca by 2002. In parallel with this work the question of financialrestructuring of the Civil Aviation Department and airport management, including the treatment ofconcessions, is being examined. No progress has been made regarding possible privatization or increasingairport management autonomy. The airports are financially viable as is shown by the following figures:

Civil Aviation/Airports Income and Expenditure(£Cyprus millions)

Exp./Revenue 1991 1992 1993 1994 1995 1996

Capital Expenditure 1.96 3.22 3.68 1.81 11.72 3.76

Op. Costs 8.62 10.22 11.80 14.02 15.05 16.59

Total Costs 10.58 13.44 15.48 15.83 26.77 20.35

Revenue 15.13 20.46 23.66 30.52 33.61 31.01

Surplus 4.55 7.02 8.18 14.69 6.84 10.66

Ports

(a) Although some improvements have been made in the organization of port operation, itis still hindered by the traditional structure and attitudes that lead to increased costs and limitation of portmanagement autonomy. Consequently, there is always a danger that the ports' competitive position inthe east Mediterranean transit trade which is currently very strong, will be eroded by nearby ports willingto face up to the unions and keep costs down. The infrastructure and equipment of the ports, especiallyLimassol, is of a high standard. A major extension has been made to Limassol port's wharf capacity,and, under the project (largely through suppliers' credits) post panamax gantry cranes and tugboats havebeen procured. Port management is now trying to take the opportunity provided by the opening of asignificant increase in berths to introduce more modem working practices in the area, drawing a clearline between the new area and the area where traditional practices are entrenched. The study on the

6

future role of CPA and strategy to be followed for port operations, undertaken by CPA, under theguidance of the Cyprus Development Bank, has been completed. The following studies are being carriedout:

(i) the future role of Larnaca Port, by the Cyprus Development Bank; and

(ii) pricing structure and strategy to better reflect modem technologies and needs forflexibility. Tariffs were increased approximately by 30% in 1992 and a 15% increaseis under consideration, recommended by CPA.

(b) The CPA has an ongoing training program financed from its own resources.

Kato Paphos Archaeological Project

2.04 After appraisal and in association with proposed road works in Paphos, the Bank agreed tofinance a new component to preserve and develop an important archaeological site adjoining a projectroad on a coastal peninsular. This was made possible by funds reallocated from the Dekhelia-Andipouroad. The Kato-Paphos peninsular has been occupied for centuries but in the last two hundred years hadbecome farming land. Recent ploughing had brought up mosiac fragments which on investigation provedto be from the floors of houses of the Greek administrators of the area in the period 0-200 AD. Themosaics proved to be of such value that UNESCO declared the peninsula a World Heritage site, but lackof funds has left much of it unexcavated, and what has been excavated, poorly presented. The Bankdecided this project would make an ideal vehicle to demonstrate its sensitivity to cultural heritage andrecruited internationally known archaeologists and landscape architects. Their work and recommendationsfor the development of the site are described in a Bank publication "Of Mosques and Mosaics".Consequently, US$3.5 million were reallocated (from the Dhekelia-Aridhipou-LIA road) to carry out thiswork. Unfortunately, although work has been carried out, progress has been slow owing to the complexadministrative structure, the proliferation of agencies involved and the difficulty of working in such a richarchaeological site.

3. ImDlementation Record

3.01 The loan closing date was scheduled for December 31st, 1994 but this was postponed until 31stDecember 1995. The original cost (including the Dhekelia - Aridhipou road costing US$18.1 millionwhich was eventually entirely financed by the Government) was estimated at US$121 million and the finalcost estimate is approximately US$140.0 million. However, it must be pointed out that total project costestimates are not precise in those components where the Bank's financial participation was very limitedor absent (primarily ports and civil aviation - see Table 8A) and this is a failure of the informationarrangements the design of which should have been addressed more directly during supervision. As ofnow it is not practical to try to resolve it. The cost overrun has been met by the Government. At therequest of the Government, due to macro-economic considerations and project delays, US$5 million ofthe loan was cancelled with effect from November 1994 and, at loan closing, US$953,779 remainedundisbursed and was cancelled.

3.02 The delay in project completion was, in common with earlier Bank financed projects, partly theresult of procurement delays, differences over procurement with the Bank and problems in obtainingagreement over land acquisition. Greater public participation in these sorts of planning decisions wouldbe needed to provide input into future project planning and scheduling. However, in addition to this it

7

took nearly a year from Board approval on February 9th, 1988 to effectiveness on January 5th, 1989.Delay in effectiveness cannot be attributed to any one reason: in common with other projects in Cyprusdecision taking is simply slow and this, together with problems in establishing the Transport SectorProject Planning and Monitoring Unit and differences regarding procurement procedures for the Dhekelia- Aridhipou - LIA road, caused the delay. The delay on this last account could have been avoided hadthe matter been settled during the appraisal and negotiations of the project.

3.03 Cost overruns were partly a function of delays in procurement but also due to some changes inproject design. The Bank, during the last 25 years of participation in the sector, has been able to makesome improvements in procurement in Cyprus but the basic law and procedures, which involve manypeople and agencies, have not changed and it is unlikely that they will. Nonetheless, with the exceptionof the Government adopting non-Bank procedures for the award of the Dhekelia - Aridhipou road andthe change in procedure regarding the airport design, there were no serious problems, only delays.

4. Project Sustainabilitv

4.01 The project executing agencies have shown a commitment to the project objectives. This has beendemonstrated by the willingness to continue to address transport sector issues even in the absence of Bankfinancing and professional support. The road maintenance budget is more than keeping pace with trafficneeds and, together with road strengthening and improvement, is subjected to rigorous economic andtechnical evaluation. Envirorunental issues are now being treated very seriously. Although institutionalprogress in the ports and civil aviation sectors has been less than satisfactory, the relevant authorities arestill pursuing objectives leading to greater efficiency and financial viability. Other objectives such asreform of road user charges, continued development of the rural bus industry and control of vehicle axleloads are also receiving strong support. Government has continued to state that they would wish contactwith the Bank to continue on an informal basis, even though loan financing has come to an end.

4.02 The Government's commitment to continuing development of a strong and competitive transportsector and industry is clearly reflected in their Operational Plan (see Appendix A).

5. Bank Performance

5.01 The Bank's performance vis-a-vis this project should be seen as a culmination of a long periodof participation in the transport sector spanning twenty-five years. During this time the Bank providedsignificant financial support, but perhaps the most important contribution has been a considerable elementof technical assistance which reflected a strong commitment to the client and to the Bank's developmentagenda. This has not only led to improvements in technical and economic matters but has instilled astrong sense of discipline into the improvement and operation of the system.

5.02 The Bank was flexible in accepting economically and environmentally justified revisions to theproject, in particular the reallocation of loan proceeds to provide assistance to the archaeological site atKato Paphos which, without Bank support and enthusiasm, might well have deteriorated.

5.03 The Bank's follow-up of policy commitments during project supervision was weak. On the otherhand, the Bank insisted on the application of appropriate procurement procedures, as provided in the loandocuments. On balance, its performance should be regarded as satisfactory.

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6. Borrower Performance

6.01 The Borrower's performance involves three aspects:

(a) Under the aegis of the MCW the executing agencies (Public Works Department, RoadsBranch, Departments of Civil Aviation and Transport and the Cyprus Ports Authority)performed well showing commendable enthusiasm and dedication to the achievement ofproject objectives, despite occasional difficulties with other Government agencies.However, the planning authorities could have done better towards achieving the timelyresolution of land acquisition problems as, for example with the Dhekelia - Aridhipou -LIA road, which lead to major delays and possibly higher costs.

(b) The Cyprus procurement process is still exceedingly slow - typically a year to awardquite small civil works or study contracts. No action was taken on a study of how tospeed up the process, financed by the loan. It seems unlikely that the system, which isquite transparent, will change but it would be useful if the Government could raise thefinancial thresholds for in-house procurement by individual ministries and agencies whichdo not have to go through the Tender Board.

(c) Project execution and planning is sometimes negatively influenced by other governmentagencies: prominent in this is the Planning Bureau. While it is appropriate for thePlanning Bureau to be concerned with macro-economic targets, it is inefficient for it toattempt to influence properly prepared and analyzed technical matters on a day to daybasis. Ideally, once an annual program and budget have been agreed its implementationshould be strictly the province of the executing agency and ministry. In this context itis strongly to be recommended that the Transport Sector Planning and Monitoring Unitis reinstated in the MCW. Government has now agreed to the outposting of PlanningBureau staff to the executing agencies.

6.02 Despite these considerations, borrower performance should be considered satisfactory, given theachievement of project objectives, the satisfactory rate of return of key physical components and thedemonstrated ability to conduct its business without further need for Bank assistance.

7. Assessment of Outcome

7.01 Although the project was delayed by one year and some changes were made to projectcomponents, the project was satisfactory:

(a) most highway improvement objectives were achieved, including institutional targets;

(b) the ground-work was prepared for development of Larnaca and Paphos airports;

(c) the rural bus services have improved and vehicle registration has been modernized andmade more efficient as a revenue gathering and traffic monitoring tool; and

(d) Cyprus Ports Authority has upgraded Limassol port and is continuing to push forrationalization of port structure and tariffs.

9

Furthermore, achievements in earlier projects, such as the use of economic analysis of investmentproposals, improvement of road maintenance management, environmental awareness and axle load controlare being continued and strengthened.

7.02 Less successful were the attempts to streamline procurement procedures, provide the revenueearning entities, greater autonomy in management decisions and preparation of a new road user chargesscheme. However, the latter is now under way with finance from the Government.

7.03 Table 9 summarizes the economic re-evaluation of the project. Due to changes in projectcomponents, especially the exclusion of the Dhekelia - Aridhipou road from the loan and failure tocomplete the associated Aridhipou - LIA link, and the re-allocation of some of the loan proceeds and localfinance to the Kato Paphos site protection, an exact comparison with the appraisal rates of return cannotbe made. Also, several of the components have only recently been completed so that clear trends inbenefit streams cannot be identified. Consequently the re-evaluation is limited to (i) the road constructionand improvement component which, including the Dhekelia road, amounted to about 50% of the totalproject cost; on the basis of available data, this component shows a re-estimated ERR of the order of42%, assuming eventual completion of the Aridhipou - LIA link, compared with the appraisal estimateof 40%; and (ii) re-evaluation of the road strengthening program comprising about 8% of total projectcost, which at appraisal had to meet a minimum 12% ERR criterion, has shown re-evaluated ERRs inexcess of 20%. The overall ERR of the roads component has been re-evaluated at about 41 %. The postpanamax port gantry cranes have been recently insLalled and their performance is satisfactory. No ratesof return have been calculated for technical assistance and studies, construction and equipping thematerials laboratory, rural bus reorganization or the Kato Paphos protection works.

7.04 MCW has prepared an operational plan, attached as Appendix A, which lists the most importantissues to focus upon. As there are to be no further lending operations this plan does not includemonitoring and reporting details.

8. Key Lessons Learned

8.01 This was the seventh and final transport project of the Bank's twenty-five year involvement inCyprus. Whilst all objectives have not been achieved, the advances in planning and managing thetransport sector have been significant and, from this point of view, graduation has come at the right time.However, there are still lessons to be learned and issues to be addressed.

For the Government:

(a) Procurement procedures are slow and costly and should be improved. Whilst it isunlikely that procurement procedures will be significantly amended, and they have themerit of transparency, there should be scope to update financial thresholds at whichcertain actions have to be taken Also, the influence on implementation of existingprocurement procedures should have been built into project scheduling.

(b) Greater autonomy should be given by supervising ministries to the executing and revenueearning entities. In particular (and as was identified in the ICR on the Fourth HighwayProject), non-technical agencies should not be allowed to influence day to daymanagement of technical matters. Currently this is a source of considerable delays andincreased costs.

10

(c) There should be greater public participation at an earlier stage in the planning process,especially where land acquisition is involved.

For the Bank:

a) The Bank can make an effective contribution to institutional reform only through a seriesof projects and with a willing partner. However as a country approaches graduation, theBank's leverage declines. For this reason, initiatives which were embraced by theBorrower at appraisal in 1987, such as procurement reform, were not carried through.

b) project supervision should pay greater attention to the policy components which areimportant even though the amount of funding allocated is low.

c) By showing flexibility the Bank was able to help the Borrower reallocate funds from acomponent unlikely to make progress to a new component of international importance(Paphos Mosaics).

11

PART II. STATISTICAL TABLES

Table 1: Summary of AssessmentsTable 2: Related Bank LoansTable 3: Project TimetableTable 4: Loan Disbursements: Cumulative Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project OperationTable 7: Studies Included in the ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and BenefitsTable 10: Status of Legal CovenantsTable 11: Compliance with Operational Manual StatementTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions

12

Table 1: Summary of Assessments

A. Achievement of objectives Substantial Partial Negligible Not Applicable

Macro policies Fl a 0 aSector policies (Xl [I O

Financial objectives E Ol EInstitutional development i I1 a EPhysical objectives E ll EPoverty reduction El 0 0l

Gender issues a o o E

Other social objectives E O al

Environmental objectives E E 0l

Public sector management El El 0

Private sector development Ol El 0l

Other (specify) l El El

B. Project sustainability Likely Unlikely Uncertain

O1 E El

C. Bankc Performance Highly Satisfactory Satisfactory Deficient

Identification El ElPreparation assistance Ol l Appraisal al ElSupervision Ol El

D. Borrower performance Highly Satisfactory Satisfactory Deficient

Preparation In ElImplementation O IEl ECovenant compliance O il

Operation (if applicable) IE

E. Assessment of outcome Highly Satisfactory Satisfactory Unsatisfactory Highly Unsatisfactory

[1 E a O

13

Table 2: Related Bank Loans/Credits

Loan Title Purpose Year of StatusApproval

Preceding Operations

1. Cyprus Ports (628-CY) Port Improvement 1969 Completed

2. Highway I (Loan 904-CY) Road Construction 1973 Suspended

3. Highway I/II (Ln. 1344-CY)* Road Improvement 1977 Completed

4. Ports II (Ln. 1540-CY) Limassol Port Improvement and 1978 CompletedInstitution Building

5. Highway III (Ln. 2128-CY) Road Construction and Improvement, 1982 Completeddesign of Road Maintenance,Management System, institutionalbuilding

6. Highway IV (Ln. 2684-CY) Road Construction and Improvement, 1986 Completedimprove periodic and routinemaintenance, project planning andmanagement and road safety

Future Operations NIL Borrowergraduated

* Following the events of 1974 this was combined with the Highways I project

Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Achieved

Identification (Executive Project Summary) 02/87 February 1987

Preparation 04/87 April 1987

Appraisal 06/87 June 1987

Negotiations 11/87 November 1987

Letter of Development Policy NA NA

Board Presentation 02/09/88 02/09/88

Signing 05/06/88 05/06/88

Effectiveness 09/06/88 01/05/89

Project Completion 06/30/94 06/30/95

Loan Closing 12/31/94 12/31/95

14

Table 4: Loan Disbursements: Cumulative Estimated and Actual(US$ millions)

Actual asIBRD Fiscal Appraisal Percentage of

Year Estimate Actual Estimate

1989 5.60 - -

1990 15.00 1.00 7

1991 22.40 5.69 25

1992 29.00 8.59 30

1993 32.80 14.58 44

1994 34.70 24.26 70

1995 35.00 27.99 80

1996 - 29.05* -

Date of Final Disbursement: March 14, 1996 * $5 million was cancelled in May 1995Loan Closure: December 31, 1995 $0.954 million was cancelled at closure.

Table 5: Key Indicators for Project Implementation*

Description Estimated Actual

I. Key implementation indicators in SAR

1. Establishment of TSPPMU 1989 1990

2. Implement revised procurement 1989procedures Not done

3. Rationalization of Rural Bus Services 1992 1992 but continuing

4. Formation of Limassol Container 1988 Partially achieved but studiesCompany continuing after loan closure

5. Port Equipment Delivery 1989 1990-1995

6. New port tariff structure 1989 New studies in hand but tariffsincreased by 36% in 1989 and 30%increase under consideration 1996

7. LIA Study Final Report 1989 1991

8. Nicosia Higher Technical Inst. 1989 1993 and training programr continuingLaboratory Facilities

Achieved9. Annual review of Investment and Annually

Maintenance BudgetTlqhe appraisal report contained no formal "Key Indicators" and the detail in Table 5 isextracted from the Action Plan.

15

Table 6: Key Indicators for Project Operation

See Table 5(no operating indicators established at appraisal)

Table 7: Studies Included in Project

Study Purpose defined at Status Impact of Studyappraisal/redefined

Paphos archaeological site Added after Completed 1990 Preparation of detailedplan appraisal to protect designs

site andenvironment

Larnaca transport study Facilitate traffic Completed 1993 Improvement of roadflow and safety network, public

transport and safety

Masterplan of Paphos Environmental Completed 1994 Construction ofarchaeological site impro-vement improvement works

ongoing

Feasibility study for Larnaca Study of airport Completed 1992 Preparation and costingInternational Airport improvement of preliminary designs

options

Feasibility study for Paphos Study of airport Completed 1992 Preparation and costingInternational Airport improvement of preliminary designs

options

Assistance to regional bus Preparation and Phase I Program continuingcompanies operation of completed 1992

rationalizationprogram

Computerization of Road Design completed Completed 1992 Equipment beingTransport Department installed and staff

trained.

16

Table 8A: Project Costs(US$ million)

Appraisal Estimate Completion Estimate

Local Foreign Total Local Foreign TotalItem Costs Costs Costs Costs Costs Cost

1. Highway Sector 28.7 29.4 58.1 48.8 28.3 77.1

2. Road Transport Sector 1.4 2.7 4.1 n.a. n.a. n.a.

3. Civil Aviation Sector 11.0 13.2 24.2 8.2 18.9 27.1

4. Ports Sector 2.2 11.7 13.9 1.7 31.9 33.6

5. Technical Assistance 0.9 3.5 4.4 0.0 2.5 2.5

6. Contingencies 7.8 8.6 16.4 0.0 0.0 0.0

TOTAL 52.0 69.1 121.1 58.7 81.6 140.3

* Completion estimates include distributed contingencies.;T Not available refers to computer hardware and software financed by the Cyprus Government

and figures still awaitedN.B. a) Local and foreign split for civil aviation and ports estimated as these records not kept

b) Technical assistance for all sectors including Kato Paphos preservation works (finalaccounts not available)

Table 8B: Project Financing(US$ million)

Appraisal ICR

Local Foreign Local ForeignSource Costs Costs Total Costs Costs Total

1. IBRD 0.0 35.0 35.0 0.0 29.0 29.0

2. Other External Sources 0.0 28.6 28.6 0.0 33.6 33.6

3. Domestic Contribution 52.0 5.4 57.4 59.3 18.4 77.7

TOTAL 52.0 69.0 121.0 59.3 81.0 140.3

NB: Other External Sources are largely suppliers credits

17

Table 9: Economic Costs and Benefits(US$ thousand)

Appr. Est. Cost of Traffic Appraisal Re-evaluatedComponent Cost Completion AADT 1995 Est. ERR ERR

Dhekelia - Aridhipou - LIA Road 18,100 22,058 9,141 41% 41%

Nicosia - Kokkinotrimi-thia Road na 9,117 20,420 56.56% 32.58%

Nicosia By-pass (South) na 336 34,617 185.16% 256.19%

Grivas Dhigeni Avenue na 1,001 53,500 71.66% 121.16%

Trimiklini - Agros Road na 560 1,011 12.15% 22.05%

Liopetri - Xylophagou Road na 431 4,352 39.88% 69.13%

Vizakia Road na 215 1,254 15.48% 23.39%

Athienou Road na 130 3,306 35.61% 43.41%

Nicosia - Limassol Motorway na 4,093 22-35,000 > 12% 27.0%

Deftera - Episkopi Road na 64 na > 12%

Xylophagou - Dhemia Rd na 531 5,086 24.40% 26.89%

Linou - Ayios Nikolaos Rd na 946 na > 12%

Overall ERR* 41.5%

* Excluding Deftera/Episkopi and Linou/Ayios roads and non-road components

18

Table 10: Status of Legal Covenants

Text Covenant Original Description ofReference Type Status Fulfillment Covenant Comment

Date

3.01 5 c 12/31/88 5-year transport plan Done annuallyfor Bank review

3.01 1 c 06/30/88 Budget for new rural Low interest loanstransport companies made available

3.01 5 c 09/01/88 Establish container Loading & transportcompany operators combined

3.01 5 c 01/01/89 New port tariff Increased by 30%structure 1992, a 15% increase

is now beforeParliament

3.01 5 c 03/31/89 Complete airport Phase I completed inmasterplan and 1994 & final designfeasibility study in 1997.

3.03 11 c 03/31194 Submit recurrent and Donedevelopment budgetfor Bank review

3.03 5 c 07/31/94 List of roads for Donerehabilitation andstrengthening forBank review

4.02 5 cp 05/31/88 Maintain TPM Unit Full reinstatementwith agreed staffing included in operationand responsibilities plan

19

Table 11: Compliance with Operational Manual Statements

Although there were some problems concerning procurement issues there was no failure to complywith Bank Operational Manual Statements (OD or OP/BP).

Table 12: Bank Resources: Staff Inputs

ActualStage of Project Cycle

Weeks US$*Through appraisal 37.__ IAppraisal - Board approval 25.3Board approval - Effectiveness -

Supervision 70 _4

completion 6.0Total 1389

n.a. not applicable

20

Table 13: Bank Resources Missions

Stage of Project Month/ No. of Days Speciality* Implemen- Development** Types ofCycle Year Persons in tation Objectives Problems***

Field Status**Preparationthrough Appraisal

10/86 1 9 E n.a. n.a. n.a.317 3 16 E, N(2) n.a. n.a. n.a.67N* 3 1T E, N, n.a. n.a. n.a.

Lawyer

Appraisal throughBorad Supervision

4/88 1 2 N 2 1 M128 1 1 N 2 2M6/89_____ 1 . N 2MMT08 T 21 N, E 1

Environment3/90 1 9 N1 111/90 1 7 N1 157T i W- r 9N 1 12192 1 10 N 2 1 F11/92 1 Yo N 1 6r 1r 11 N 1 M11193 1 21 N 2 2 M7/94 1 7 N S S M

MM/95 1 - 6 N S S M

Completion4/96 2 E, N

* Specialty: E = economist, N = engineer** Performance Rating: 1 = minor problem, 2 = moderate problem, 3 = major problem*"* Types of Problem: F = financial, T = technical, M = managerial.

APPENDIX APage 1 of 2

REPU'BLIC OF CYPRUSMINISTRYOF CO0MIMUNTCATIONS AND WORKSTRANSPORT SECTOR DEVELOPMIDENT PROJECT

OPERATIONAL PLAN

1. The Transport Sector Development Project (TSDP) represented a wide rangingeffort to address issues throughout the transport sector and to establish a policy forthe future. This policy's primary objectives were to:

a) provide an efficient transport infrastructure to support and promoteeconomic and social development, and specific opportunities for foreign exchangeearning, in a cost effective way;

b) improve the management and planning of transport sector activities throughinstitutional reforms and training;

c) encourage. where appropriate, a policy of cost recovery and operation ona commercial basis; and,

d) ensure a full and sustainable commitment to envirornmental protectionL

2. Although important progress was made in these areas there were cases whereobjectives were not fully reached: this was particularly the case regarding institutionaland policy reforms. The Govermment, through the Ministry of Commnunications andWorks, proposes to continue its efforts to maintain the achievements of the TDSP andto pursue the attainment of the above objectives on a long-term basis.

3. The Operational Plan will take the following actions to address the variousissues.

Hiehwavs Sector:

a) Continue to maintain the highway system according to the RoadMaintenance Management System and to ensure the adequacy of funds.

b) Only undertake those investment and improvement projects which areshown to be economically and socially justifiable. In this context the Roads Sectorwill continue to use and develop its in house" planning and monitoring capability.

c) Examine ways in which road users may contribute more equitably to thefinance of road maintenance and investment. including implementing therecommendations of the ongoing Road User Charges study, and undertake a study toassess the value and possibility of introducing road toll systems.

d) Develop the operations of the materials laboratory with the evenualtarget of making it a useful regional revenue earning entity.

Transport Department:

a) Proceed with the rationalisation of the passenger transport industry,especially rural buses. in order to provide services in keeping with changing economicand social conditions. This approach may be extended to reforms in other areas of the

APPENDIX APage 2 of Z

road transport industry.b) Complete the computerisation of the road transport licensing system and to

extend this. where appropriate, to interface with road traffic regulation and roadsafety.

Ports Sector:

a) Co;nplete the studies being undertaken by the Cyprus Developmet Bankon Tariff and Port Operations restructuring and apply the results as appropriate.

b) Study the rationalisation of ports operations, especially the respectivefunctions of Limassol and Lamaca ports.

c) Improve the ports' internal movements, especially with a view toimproving the standards of safety.

d) Pay increased attention to environmental protection as regards bothpolution and building developments.

Civil Aviation Sector:

a) Proceed with completion of design. tendering and project managmeprocedures and financing for the first phases of improvement of Larnaca and Paphosairports.

b) Undertake improvement of Larnaca and Paphos airports esurinenvironmental protection during the process.

c) Review the management and financial structure of airport operation with aview to malcing this more demand responsive and commercially based and with lesscentral control.

Kato Paphos Archaeological Site:

a) Continue to implement the programme of protection and develenagreed with the World Bank and assure funds for this purpose.

b) Identify other sites where such work may be required and develop plansaccordingly. In association with this. consideration should be given to creatdng aspecial and permanent PWD archaeological unit.

c) Preserve traditional skills which have been used in these works so that theymay be available to use elsewhere.

4. The Ministry of Communications and Works will also:

a) Investigate the possibility of reinstating the multi-mode planning and projectmonitoring unit set up under the project but subsequently disbanded.

b) Discuss and agree with the relevant authorities greater day-to-day operatingfreedom of the executing agencies within agreed annual or multi-annual programmesof work.

APPENDIX B

The World BankDisbursements Division ECAIMNA1LAC

Facsimile Transmission

FROM: Rohit R. Mehta FAX NO. (202) 522-1649TEL. NO. (202) 458-0652

DATE: June 12, 1996

TO: Ms. Victoria NatarMinistry of FinanceNicosia, Cyprus

FAX No. 357-2-445-019

SUBJECT: Loan 2906-CY. Transport Sector Development Project

The closing date for the referenced loan was 31-Dec-199S. Thefour-month grace period to submit withdrawal applications has lapsed. The lstdisbursement was value dated March 14, 1996. The unused balance of theSpecial Account was recorded as a refund on March 21, 1996. We are thereforecanceling the remaining undisbursed balance of USD953,779.62 effective March21, 1996. The loan is now fully disbursed and the final disbursements bycategories Is as listed below:

Cteorl DescriRtion Amount (USD)1 Road Const.& Improvement 18,460,759.402 Pavement Strengthening 5,778,434.283 Classroom & Laboratory bldgs 1,188,490.454 Equip Highway Management,

Research and Training 1,131,797.755 Technical Assistance and

Fellowships 1,549,521.336 Imp. Site Kato Paphos 937,457.65SA* Special Account -240.48Sub-total 29,046,220.38Amount previously canceled 5,000,000.00Amount canceled effective 21Mar96 953.779.62

Total Loan Amount 35,000,000.00

Regards.

* Exchange rate differences 12Roh t . t

ECAIMNA/LAC Disbursement DivisionLoan Department

APPENDIX CPage 1 of 6

REPUBLIC OF CYPRUSMINISTRY OF COMMUNICATIONS AND WORKS

PUBLIC WORKS DEPARTMENT

World Bank Project Completion Mission by Jeremy Lane, HighwayEngineer and Robert Bonney (Consultant) April, 1996

Transport Sector Development Project (TSDP)

AIDE NIEM1OIRE

1. This Aide Memoire summarises the findings of a World Bank (WB) missionconsisting of Messrs. Jeremy Lane and Robert Bonney (Consultant TransportEconomist) which visited the Republic of Cyprus from April 14th to 24th, 1996. Theprimary purpose of the mission was to (i) update the progess of the TSDP (Loan2906-CY) which was closed on the 31st December. 1995; (ii) discuss the CyprusGovernment's proposals for future project operation; and (iii) collect information forthe preparation of the project Implementation Completion Report (ICR) due by June30th, 1996. This Aide Memoire will be confirmed from Washington. The missionwould like to thank the Permanent Secretary of the Ministry of Communications andworks (MCW) Dr. Vassos Pyrgos and his colleagues in the Public WorksDepartment, Civil Aviation Department, Department of Road Transport and CyprusPorts Authority, and Mr. Frixos Sorokos. Ministry of Finance for their assistance andwelcome during the mission's stay in Cyprus. And, furthermore, to express, onbehalf of all earlier Bank transport personnel, their thanks for valuable help during25 years of cooperation.

General

2 The TSDP (Loan 2906-CY in the sum of US$35 million), which becameeffective in May, 1989, addressed physical and institutional needs across the entirespectrum of transport activity in Cyprus including highways, public transport, portsand civil aviation. In addition, in view of Cyprus' wealth of archaeological remainsand the potential impact of transport development on these, the project includedassistance to the protection and development, for educational and tourist purposes, ofthe important archaeological site at Kato Paphos.

3. Although US$ 5 million of the loan was cancelled at the request of theBorrower due to macro-economic considerations and US$965,235 remained unspentat the closing date, and will be cancelled, the project was largely successful inachieving its physical objectives. On the institutional side progress was not as good,due primarily to factors over which the executing agencies had little control and tocontinuing slow official procurement procedures. However, some progress was madeand the Government is ccontinuing to address some important issues, and this isreflected in the Project Operating Plan which is annexed to this Aide Memoire.

4. At the time of appraisal and negotiations the need was identified to establisha multi-mode transport planning and coordinatina unit in order to facilitate a balancedapproach to the whole sector. Consequently. the Transport Sector Planning and


Project Monitoring Unit (TSPPM) was set up as required by the Loan Agreement.However, it was eventually largely disbanded as part of central planning authorities'restructuring. The mission believes that such a unit, located in the MCW, will beof considerable value in optimising the r esource planning of the sector.Consequently, the mission strongly recommends that the TSPPM is reformed andreinstated as soon as possible.

Highwav Sector

5. Although the TSPPM was disbanded, the Public Works Departnent (PWD)continued with its own Project Monitoring and Planning Unit and this has proved veryeffective in supervising the implementation of Highway Sector objectives, and it isthe PWD intention to continue with this Unit. However, the mission was concernedthat financial and planning agencies, whilst justifiably concerned over the allocationof financial resources and macro-economic policy, still influence day-to-day decisionswhich are often of a technical nature. This has led to project delays which, almostcertainly, have cost Cyprus considerable sums of money in higher prices and lostbenefits. The Government should address this issue and strive to adopt a policywhere, once an annual pr6gramme has been agreed. the executing agencies, such asPWD, are permitted to adopt the most cost/effective implementation.

6. Certain changes took place to the originally envisaged highway sectorprogramme and this was one of the main reasons for the cancellation of US$5 millionat the request of the Government. In particular. only part of the Aridhipou -Lanarca International Airport (LIA) was built under the Loan due to differences withthe WB over procurement (eventually the Dhekelia - Aridhipou section was entirelyfnanced by the Govermment) and difficulties in obtaining agreement with the localpopulation on alignment issues. However, other economically justified sections ofroad were substituted. The loan as negotiated envisaged approximately US$19.5million being spent on road construction and improvement and the final loan amountdisbursed against this category amounted to about US$18.4 million.The pavementstrengthening programme was appraised at USS5 million and the eventual expenditurefrom the loan was about US$5.7 million. The works have been executed to a goodstandard and, with the Maintenance Management System and vehicle axle controlbeing rigorously applied, should lead to a sustainable improvement to the roadsystem.

7. The other appraised components consisted of:(i) A new materials laboratory and equipment. and equipment for the Higher

Technical Institute: the Loan Agreement foresaw USS1.5 million being spent on thisand, in the event, disbursements amounted to about US$2.3 million. The works andprocurement of equipment were completed satisfactorily and to a high standard.However, the potential of a first class materials laboratory. which could be asignificant revenue earner, is beina constrained due to insufficient skilled personneland this issue should be addressed with urgencv.

(ii) Technical assistance, primarily studies including those in civil aviation androad transport, was estimated at USS3 million. In the event only about half thisamount has been disbursed. This shortfall has been due. primarily to procurementdelays and the WB not agreeing to the finanice of Phase 2 (design) of the Larnaca


International Airport (LIA) study. However. the Cyprus authorities have or willfinance the outstanding work from their own resources. In this context the missionwas pleased to learn that the Road User Charges Study contract was signed during themission. The mission, however, proposed that a separate study, should address thequestion of introducing a system of toll charces.

Road Transport Sector

8. The project contained two components in the road transport sector which arethe responsibility of the Department of Road Transport.

Rural Bus Services: It was decided in the 1970s that the traditional village busservice was becoming unsuitable for the changing economic and social enviromnentand a more efficient and cost effective service could be provided by groupingindividual village buses in regional companies. This policy would be supported byfinancial and technical assistance. Currently there are 11 regional bus companiesrepresenting about 40% of the total village bus fleet and the new system appears tobe working well. However, there has been a hiatus in this programme becausemodifications are being made to the scheme. These include Government support forroutes operated for social reasons, provided all actions are taken to improve theefficiency of operations. The loan financed technical assistance to support this andthe technical assistance programme was completed in 1992.

ComDuterisation of Road Transport Department: The design of this systemwas financed under the TSDP and this was completed satisfactorily in 1992. Thedesign has now been translated into the procurement of soft-ware and hard-ware andinstallation is now in progress and trained staff have been recruited. There is a linkwith the police system which will assist in transport regulations enforcement and roadsafety programmes. As regards road safety, although this was not a component of theproject, the mission was disturbed by the apparent serious worsening of the roadaccident (especially fatalities) position.

Civil Aviation

9. Following the events of 1974, Nicosia airport became unavailable and civilaviation activities were transferred to Larnaca. The facilities of Larnaca wereessentially temporary and, as traffic grew, became less and less satisfactory. It wasdecided by the Government that new facilities at LIA were needed and that a studyshould be undertaken to define a development policy throuah the production of aMaster Plan to be followed by design and eventually construction. The WB agreedto finance the preparation of the Master Plan and design under the project. Phase I,the Master Plan, was completed in 1992 and. as part of the same contract, a MasterPlan for Paphos airport was also completed. Between the start of the project in 1989and the end of 1995, passenger traffic at LIA has risen from just over 2 million tonearly 3.8 million, and at Paphos passenger traffic has risen from about 480,000 in1989 to 1.1 million in 1995. To cope with these increases whilst plans were beingprepared and construction took place, it has been necessary to make improvementsto existing facilities and this has been financed by the Government. Due to theGovernment wishing to undertake a review and possible modification of the MasterPlan before proceeding to design the WB felt unable to finance the design phase fromthe Loan and the proceeds were reallocated. The Government is proceeding with the


design and arrangements are being made for project management, tendering andfinancing. The airports are, as a whole, financiallv viable. but arrangements arebeing made for restructuring operation and finances. The mission recommended ttatthis restructuring should give consideration to greater autonomy to the airportsadministration which, currently, is subject to considerable official control, even onrelatively minor day-to-day matters. and this can onlv lead to a loss of efficiency.

Cvprus Ports Authoritv

10. The primary ports in Cyprus are at Larnaca and Limassol: in addition thereare separate oil discharging facilities at the Larnaca refinery and the Moni powerstation. The two ports provide general and bulk cargo, container and passengerfacilities, although Limassol is the far larger operation. The future of Lamaca portis, at present, under consideration. Limassol has recently expanded its capability,especially for containers where it competes with other ports in the region for transittraffic. There is no doubt that Limassol is a well run and competitive port but it hasbeen bedevilled with operational problems resulting from the complex and oftenconflicting responsibilities for different operations. The WB has. through two portsprojects, tried to address these issues but with little success. The TSDP continuedthese efforts although no finance was provided under the Loan. Similarly to othersectors, although physical investment targets (amounting to about USS130 millionequivalent) were met (financed by the Government. EC and Banks), the institutionalachievements have been less than desired. Although tariffs were raised in 1993 by32% and a further 30% increase is under discussion. the fragmented character ofoperational responsibility in the ports is still a major problem.

11. Terms of Reference for a complete reform of tariff procedures have beenprepared for CPA board submission and these will look into the possibility of moreflexible tariff arrangements and enabling tariffs to be modified to take into accountchanges in technology. A further study is also under-way (Cyprus DevelopmentBank) to examine and recommend port restructuring to increase its autonomy andfreedom of action, although this is unlikely to lead to privatisation. The missionwishes to emphasise most strongly the need to proceed with these studies and toimplement their results if the CPA is to maintain a competitive position. The missionwas also concerned over the movement of traffic in the port area of Limassol whichis dangerous and poorly controlled. Efforts should be made to address this includingsegregation of traffic using physical barriers and white lines.

Kato Paphos Archaeological Protection

12. The Bank's participation in the preparation and development of the KatoPaphos site was an amendment to the appraised project and originated when roadimprovement works in the area were being considered. This is one of the mostimportant sites in the eastern Mediterranean and desrves protection: it is also ofconsiderable tourist value and potential. Consequentlv, loan proceeds in the sum ofUSS6 million were reallocated for protection and development purposes. Althoughwork has proceeded on this component . and is now gathering speed, it has beensubject to many delays and only US$937.000 had been disbursed by loan closing. Theprimary reasons for delays were (i) the large numllber of departments and organisations


involved which slowed down decision taking: (ii) delay in appointing supervisionpersonnel; and (iii) the large quantity of archaeological remains which came to lightwhen engineering works were started and. hence. caused a stoppage of work whilstinvestigations were carried out and protection works completed. It is a pity,especially regarding the Bank's and MCW's pioneering efforts in this field, that theproject could not have made fuller use of the resources made a",ailable for thiscomponent. However, the authorities concerned and the PWD personnel involved areto be commended for their dedication and perseverance, and it is hoped that adequatefunds will be forthcoming from other sources. The mission also recommends thatefforts are made,

(i) to preserve many of the traditional skills that have been employed, throughtraining young people; there will be a need for these elsewhere; and

(ii) to examine the possibility of the PWD forming a special service or unitto undertake this sort of work in the future.

Actions by the Government

13. The mission has advised the Borrower on the needs of and procedures for theICR and these are clearly understood and a plan for future project operation has beenprepared and is attached to this Aide Memoire.

14. The Roads Section of the PWD is reworking the economic evaluation of thefinal road programme in the light of changes to the components and updated trafficflows, construction/improvement costs and vehicle operating costs. Although theseresults are not yet available, preliminary examinations indicate that the final estimateof ERR (at loan closing date) will be satisfactory.

Jeremy Lane Robert BonneyWorld Bank Consultant22nd April, 1996 22nd April, 1996

APPENDIXPage 6 of 6

LIST OF PEOPLE .IET DURTNG DISCUSSIONS

Ministry of Communications and Works:

Dr. Vassos Pyrgos Permanent Secretary

Public Works Department:

Mr. Charalambos Kkolos Director Public Works DepartmentMr. Savvas Yiannikouris Senior Executive EngineerMr. Lefteris Stylianides Executive Engineer IMr. Andreas Hadjiloukas Materials LaboratoryMr Michael Lambrinos Executive Engineer IMs. Reana Daniel Engineer in Charge of Kato Paphos ArchaeologicalSiteMs. Rena Karavia TechnicianMs. Stavroula Savva TechnicianMs. Paraskevi Kyrou Technician

Department of Civil Aviation:

Mr. Michael Herodotou Director of Civil AviationMr. Stelios Vassiliou Airport Manager

Department of Road Transport:

Mr. Renos A. loannides Director of Department of Road TransportMr Patrokdos Kythreotis Ass. Chief Transport ControllerMrs. Maro Constantinidou Computer Systems

Cyprus Ports Authority:

Mr. Yiannakis Kokkinos Finance ManagerMr. A Artemis Acting Port Manager, Limassol PortMr. C. Asimenos Senior Pilot. Limassol Port

Nicosia Higher Technical Institute:

Dr. D. Lazarides DirectorDr. Herodotos Stavrides Head, Department of Civil EngineeringDr. loannis Economides Senior Lecturer, Dept. of Civil Engineering

Others:Mr. George Hughes Consultant (Rural Buses and Road User Charges)Ms. Diana Wood Conroy University of Wollongong, Paphos Research Project

MAP SECTION

. -: - - --- -- -- - - ::: : : .

, . -: . . .~C Y- P R U S- : .-- ----- -jTRANSPORT SECTOR DEVELOPMENT PROJECT:

*vy Atrp~r - * * *t**

. t , Pr-,,ous Pro*e tt.

KotoY~~~~~~~~~~~~~~aIro MAGIJ~~~~~~~~~~~~~~~~~~~~~~~TA ~~~~~~LarnaaQONIcOste PLoad (2684-f.Y)

'~~~~~~~t ''Y.'' Arso ..... ,''","..... 'uo ''.d I ,'"poe-et .'".'''..t........ ,"'.'<'d. ''','

Yol,o vbms~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Um~~~~~~~itassoll Bypass 21 28-CY)

Kambos r, e N"SUmco/ Nlra s Road (I 344.CY)I's ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~hk9Limsassot Port )628-CY, 1540-CY)Tro I 1, ~~~~~~~~~~~~~LdtltOCa Port J1 540.CY)

-tHard $onfac Roads, 2 or More Lanes

r ' > t _ S ; ,IMA5$0t 5 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Mjr wiie

PooProan ono y ai Airp e-ortsds Lharmokos ~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ports

le m S a lt - r ) /yf > > > -ffie < C;-;> 4; S o .* .z J. .'S ? . , . s / , : o , .5 f; zo , , <> Rn n S m 4 S ~ r = X e l d l lakt e sMe:m L ------ U.K. Sovereign-Base A.ea Boundaries

Present Cease-F.re ,,nes

0 S to Is 20 2 5

- ItOMSTAOSS

'102230 22'$0 M'0O' C~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O.l)

IMAGING

Report No.: 16692Type: ICR

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